Gross Profit
Gross profit in
2Q-2018
was R$137.8 million, a 9.8% decrease year-over-year. Gross margin was 30.6% in
2Q-2018,
a 2.5 p.p. decrease when compared to same period last year. During the quarter, the ongoing revenue mix shift to marketplace and the other margin enhancing initiatives positively impacted gross margin in
1.8 p.p., more than offsetting the negative 1.7 p.p. impact from changes in the
e-commerce
taxation regime in Brazil (EC 87, in place since 2016). Other impacts, however, have negatively affected gross margin
such as:
|
|
Accounts payable Adjustment to Present Value (APV) accounting on cost negatively impacted gross margin by 1.4
p.p. This was a direct result of the Companys adjustments in procurement activities to reduce inventory levels, improving quality and decreasing future short-term working capital investments.
|
|
|
The B2B operation negatively impacted gross margin by 0.9 p.p. The Company increased its efforts to lower the
inventory level of supplement products by commencing additional sales through Netshoes B2C online channel.
|
|
|
The warmer than expected winter season impact on Zattinis fashion collection in Brazil negatively impacted
gross margin by 0.3 p.p. according to Company estimates.
|
Operating Expenses
Operating expenses, net of depreciation and amortization, were R$137.6 million in
2Q-2018,
12.6% lower than
2Q-2017.
As a percentage of net sales, operating expenses were 30.6%, compared to 34.1% in
2Q-2017.
Selling and marketing expenses, net of depreciation and amortization, decreased 9.5% year-over-year in
2Q-2018
to
R$108.5 million, representing 24.1% of net sales compared to 26.0% of net sales in
2Q-2017.
This decrease was mainly attributed to lower expenses in branding campaigns, driving marketing investments down
0.7 p.p., and lower chargeback expenses.
General and administrative expenses, net of depreciation and amortization, were R$28.1 million in
2Q-2018,
23.1% lower in comparison to
2Q-2017,
representing 6.3% of net sales, versus 7.9% of net sales in
2Q-2017.
This reduction is
mainly related to the rationalization of administrative expenses and lower IT expenses.
Adjusted EBITDA & Net Loss
Consolidated Adjusted EBITDA was R$0.2 million in
2Q-2018
(0.0% Adj. EBITDA margin) compared to negative
R$4.6 million in
2Q-2017
(-1.0%
Adj. EBITDA margin). In
2Q-2018,
the negative impact from B2B operations amounted to
R$4.2 million, compared to a positive contribution of R$1.4 million in
2Q-2017.
|
|
Adjusted EBITDA for the Brazilian operation in
2Q-2018
was
R$8.0 million (2.0% Adj. EBITDA margin), which includes a R$4.2 million negative impact from the B2B operation. This compares to positive R$9.8 million Adj. EBITDA (2.4% Adj. EBITDA margin) in
2Q-2017,
which was positively impacted by R$1.4 million from the B2B operation.
|
|
|
Adjusted EBITDA loss for the International operations in
2Q-2018
was
R$6.4 million
(-12.9%
Adj. EBITDA margin), compared to a R$11.3 million loss in
2Q-2017
(-21.0%
Adj. EBITDA margin).
|
Consolidated net loss was R$38.1 million in
2Q-2018
(-8.5%
net margin), compared to net loss of R$35.2 million
(-7.6%
net margin) in
2Q-2017.
Despite the better EBITDA and
higher efficiency in financial results, in
2Q-2018
depreciation and amortization expenses increased by R$10.5 million year-over-year mainly due to the accelerated depreciation of the Companys former
e-commerce
front-end
system following the implementation of the new proprietary system in February 2018.
Balance Sheet and Cash Flow
In
2Q-2018,
the Company generated R$69.6 million in net cash flow from operating activities versus a use of cash of R$28.3 million in
2Q-2017.
The R$97.9 million
year-over-year improvement was mainly a result of a R$46.4 million inventory reduction, R$39.0 million of recoverable taxes and judicial deposits, and a R$22.6 million higher contribution from factoring arrangements. Factoring
arrangements contributed to a cash generation of R$61.0 million in
2Q-2018
compared to R$38.5 million in
2Q-2017.
Cash used in investing activities amounted to R$20.4 million in
2Q-2018
and was mainly related to the development
of the Companys information technology infrastructure and regular maintenance capex of the Companys distribution centers. In
2Q-2017,
cash used in investing activities amounted to
R$24.2 million.
5