Alpargatas 1q13 Results Essay

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Flash Sunday, May 12, 2013 Retail & Consumer Goods ALPA4 Rating Price (10-May-2013) YE13 Target Price Upside Potential P/E EV/EBITDA 13E 16.5x 11.5x Outperform R$13.73 R$16.20 18.0% 14E 13.5x 9.1x 15E 11.5x 7.5x Alpargatas: Sporting Goods (Brazil), Flip-Flops (International) and Better Expenses Drive Strong Results BOTTOM LINE: 1Q13 results were strong in our view, with the bottom line +18% YoY, +39% QoQ and in line with consensus. The figures were supported by a very strong sales performance in sporting goods in Brazil and in flip flops in US, European and Export markets as well as the positive impact from a Zero-based budgeting process on operating expenses. The negative highlight of the 1Q13 was the 5% YoY decrease in volumes of flip-flops sold in Brazil, due to the capacity constraint the company is currently facing. Going forward, we believe Alpargatas should continue posting strong results, benefitted by the increase in revenues in Brazil, in the US, European and Export markets as well as positive effects from the Zero-based budgeting process, leading us to reiterate our Outperform rating. Sales in Brazil should be boosted by the new Montes Claros flip-flop plant (with operations expected to begin by the end of 2Q13), an increase in the number of flip-flop launches, and the introduction of new models and new categories in sporting goods. Moreover, sales in the US, European and Export markets should continue to be driven by the company´s strategy to increase awareness of the Havaianas brand. Double digit sales growth in Brazil, despite the capacity constraint in flip flops. Top-line for Brazil reached R$523mn (+13% YoY) in 1Q13, positively affected by a very strong performance in sporting goods (with sales ~ +70% YoY), driven by the higher-priced Mizuno sneaker brand. However, sales for flip-flops were ~-4% YoY, negatively affected by a 5% reduction in

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