Premium Footwear And Digital Channels Will Expand Global Reach

Key Takeaways

• Strong brand positioning, digital expansion, and operational improvements are driving revenue growth, higher margins, and earnings stability.
  
• Global collaborations and sustainability focus enhance brand equity, supporting premiumization and long-term market expansion.
  
• Weaker global volumes, rising competition, and narrow product focus threaten growth, margin sustainability, and expose Alpargatas to greater market volatility and overreliance on Brazil.

Catalysts

Manufactures and sells footwear and accessories in Brazil and internationally.

• The shift toward premiumization and increased global demand for branded, iconic footwear aligns with Alpargatas' successful price adjustments, brand collaborations, and marketing activations-especially with Havaianas in Europe and the US-indicating potential for higher average selling prices and revenue growth.
  
• Accelerated adoption of digital channels and e-commerce is enabling Alpargatas to reach new consumer segments and younger demographics (Gen Z), particularly through enhanced digital engagement and a focus on direct-to-consumer channels, which support both revenue expansion and higher net margins.
  
• Operational improvements in inventory management, cost control, and channel mix efficiency-such as reduction in low-margin volumes and prioritization of profitable markets-are contributing to sustained margin expansion and improved earnings stability.
  
• Market share gains in key domestic channels (Brazil's grocery and specialized retailers) and the unlocking of underpenetrated international markets via partnerships (e.g., Eastman in the US) position Alpargatas for topline growth and margin improvement, leveraging long-term growth in the global middle class.
  
• Ongoing focus on sustainability and collaborations with global fashion/luxury brands enhances Havaianas' global brand equity and aligns with shifting consumer preferences, which should support brand premiumization, expand the addressable market, and underpin resilient revenue and margin growth.

Alpargatas Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Alpargatas's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 6.0% today to 12.3% in 3 years time.
• Analysts expect earnings to reach R$652.0 million (and earnings per share of R$0.98) by about August 2028, up from R$259.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.2x on those 2028 earnings, down from 23.5x today. This future PE is greater than the current PE for the BR Luxury industry at 6.6x.
• Analysts expect the number of shares outstanding to grow by 0.21% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 21.01%, as per the Simply Wall St company report.

Alpargatas Future Earnings Per Share Growth

Risks

• Alpargatas' overall volumes fell 6% year-over-year and the company is still regaining scale in key international markets, particularly after losing volume in Europe, stagnant sales in the US over a decade, and ongoing inventory reductions in Asia-all of which introduce risk that lost sales may not fully recover, potentially limiting revenue and EBITDA growth.
  
• The company's turnaround success and gross margin improvements have been driven by strict expense controls, efficiency gains, and capital discipline; however, these levers are reaching a "normalized" base, making future gains harder to achieve and exposing financials to risks if top-line growth underperforms, impacting future net margin expansion.
  
• Growing competition from new entrants and luxury/licensing brands in the global flip-flop and casual footwear market-especially amid the fashion trend for flip-flops-could intensify price pressure and erode Alpargatas' market share and brand premium, directly threatening revenue and margin sustainability in the long term.
  
• A pronounced focus on prioritizing profitability over volume in "sanitizing" less profitable international distribution markets (such as in Latin America, Africa, and Middle East) may lead to lasting lower volumes and diminished international diversification, potentially making earnings more volatile or overly dependent on the Brazilian core market.
  
• The company states that product portfolio diversification beyond the core is not on the near-term horizon, limiting Alpargatas' ability to fully capture secular trends toward premiumization or to mitigate seasonality, fashion cycle dependency, and potential shifts in consumer preferences, which could dampen revenue and earnings stability long term.

Valuation

• The analysts have a consensus price target of R$10.375 for Alpargatas based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$14.0, and the most bearish reporting a price target of just R$8.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$5.3 billion, earnings will come to R$652.0 million, and it would be trading on a PE ratio of 19.2x, assuming you use a discount rate of 21.0%.
  
• Given the current share price of R$9.02, the analyst price target of R$10.38 is 13.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.