70 New Stores And International Expansion Will Strengthen Future Prospects

Key Takeaways

• New product launches and improved inventory management in the Life segment are set to boost revenue growth and enhance gross margins.
  
• Expanding physical and international presence, along with efficiency improvements, aims to drive revenue and increase profitability through market diversification and cost reduction.
  
• Structural issues and expanded inventory in Vivara's Life segment risk revenue and margin growth, especially if marketing expenses and international expansions don't yield expected sales.

Catalysts

Engages in the manufacture and sale of jewelry and other articles in Latin America.

• The launch of 12 new product collections in the fourth quarter and additional launches planned for early 2025 are expected to drive increased sales for the Life segment, thus positively impacting revenue growth.
  
• Improvements in inventory allocation and new product launches in the Life segment are anticipated to enhance gross margins by addressing past structural issues and optimizing product availability.
  
• The planned increase in production efficiency and adjusted staffing levels at the Manaus factory are expected to lower operational costs and pressure on gross margins, thus contributing to improved net margins and profitability.
  
• The expansion of physical stores, with 70 new store openings planned for 2025, is envisioned to drive revenue growth through increased market reach and sales, particularly in underrepresented areas.
  
• The international expansion initiative, starting with a pilot store in Panama, is a strategic move that could unlock new revenue streams and broader international market exposure, potentially aiding in revenue growth and market diversification.

Vivara Participações Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Vivara Participações's revenue will grow by 16.4% annually over the next 3 years.
• Analysts are assuming Vivara Participações's profit margins will remain the same at 20.4% over the next 3 years.
• Analysts expect earnings to reach R$785.1 million (and earnings per share of R$3.26) by about March 2028, up from R$498.1 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.7x on those 2028 earnings, up from 8.4x today. This future PE is greater than the current PE for the BR Luxury industry at 8.4x.
• Analysts expect the number of shares outstanding to decline by 0.1% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 19.82%, as per the Simply Wall St company report.

Vivara Participações Future Earnings Per Share Growth

Risks

• The structural issues in Vivara's Life segment, particularly due to smaller launch levels, especially for male clients, indicate a potential challenge in product appeal leading to a risk in revenue growth if new collections do not perform as expected.
  
• The increase in inventory to support Vivara Life could result in a significant cost if sales do not accelerate as anticipated, potentially impacting net margins due to higher holding costs.
  
• Margin pressure caused by increased staffing and idle capacities in the factory, particularly with the ramp-up in personnel, could negatively affect earnings if these costs aren't offset by proportional sales growth.
  
• Marketing expenses have been elevated, and while there are plans to manage this more efficiently, any failure to attract sufficient new sales could leave the company with higher costs impacting net margins.
  
• The expansion into international markets such as Panama is gradual and experimental, and could present execution risks, thus potentially impacting the financials negatively if it does not lead to the anticipated growth in revenues.

Valuation

• The analysts have a consensus price target of R$28.577 for Vivara Participações 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$35.0, and the most bearish reporting a price target of just R$19.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$3.9 billion, earnings will come to R$785.1 million, and it would be trading on a PE ratio of 14.7x, assuming you use a discount rate of 19.8%.
• Given the current share price of R$17.83, the analyst price target of R$28.58 is 37.6% 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.