| 3. | Segment Information |
The Company uses the “management approach” to determine its reportable segments. The management approach identifies operating segments based on how the entity is organized and based on how financial information is presented to the chief operating decision maker (“CODM”). The Company concluded that the CODM is the Chief Executive Officer.
The Company is organized around geographical divisions and discloses the following reportable segments: Brazil and International.
| • | Brazil: consists of retail sales of consumer products from all of our verticals (which includes sales of sporting goods and related garments as well as fashion and more recently, beauty goods) carried out through our sites Netshoes.com.br, Zattini.com.br and Shoestock.com.br and third-party sites that we manage as well as our business to business offline operation. |
| • | International: consists of retail sales of consumer products (mainly sporting goods and related garments) from our sites Netshoes.com.ar and Netshoes.com.mx in Argentina and Mexico respectively. |
The items not allocated directly to the reportable segments are disclosed as corporate and others. Corporate and others comprises operating expenses, financial income and financial expenses recorded in Netshoes (Cayman) Limited and Netshoes Holding, LLC.
The CODM receives individual financial information based on the nature of revenues and expenses incurred. There is no regular reporting of individual financial information for products, services, or major customers, and therefore the Company concluded that Brazil and International were each independent reportable segments.
The Company has aggregated Mexico and Argentina geographic divisions into one reportable segment, International. Mexico and Argentina share similar characteristics as an operating segment, including, but not limited to the same degree of risk, same opportunities for growth and similar products and service offerings to local customers.
No information on segment assets or liabilities is relevant for decision-making. There are no inter segment transactions in the internal reporting structure.
The Company evaluates the performance of its reportable segments using “segment net income (loss)”. A reconciliation of reportable segments is as follows:
| Brazil | International | Corporate and others | Total | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Year ended December 31, | Year ended December 31, | Year ended December 31, | Year ended December 31, | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 2015 | 2016 | 2017 | 2017 | 2015 | 2016 | 2017 | 2017 | 2015 | 2016 | 2017 | 2017 | 2015 | 2016 | 2017 | 2017 | |||||||||||||||||||||||||||||||||||||||||||||||||
| BRL | BRL | BRL | USD | BRL | BRL | BRL | USD | BRL | BRL | BRL | USD | BRL | BRL | BRL | USD | |||||||||||||||||||||||||||||||||||||||||||||||||
|
Net Sales |
R$ | 1,304,853 | R$ | 1,554,405 | R$ | 1,693,467 | US$ | 511,931 | R$ | 200,833 | R$ | 185,135 | R$ | 195,539 | US$ | 59,111 | R$ | — | R$ | — | R$ | — | US$ | — | R$ | 1,505,686 | R$ | 1,739,540 | R$ | 1,889,006 | US$ | 571,042 | ||||||||||||||||||||||||||||||||
|
Cost of sales |
(858,062 | ) | (1,043,700 | ) | (1,132,900 | ) | (342,473 | ) | (152,439 | ) | (145,044 | ) | (158,527 | ) | (47,922 | ) | — | — | — | — | (1,010,501 | ) | (1,188,744 | ) | (1,291,427 | ) | (390,395 | ) | ||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Segment gross profit |
446,791 | 510,705 | 560,567 | 169,458 | 48,394 | 40,091 | 37,012 | 11,189 | — | — | — | — | 495,185 | 550,796 | 597,579 | 180,647 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Salaries and employees’ benefits |
(169,572 | ) | (191,140 | ) | (167,655 | ) | (50,683 | ) | (27,154 | ) | (26,775 | ) | (27,309 | ) | (8,255 | ) | (1,265 | ) | (1,320 | ) | (1,449 | ) | (438 | ) | (197,991 | ) | (219,235 | ) | (196,413 | ) | (59,376 | ) | ||||||||||||||||||||||||||||||||
|
Marketing expenses |
(136,616 | ) | (152,759 | ) | (184,836 | ) | (55,876 | ) | (40,080 | ) | (28,038 | ) | (27,688 | ) | (8,370 | ) | (47 | ) | (233 | ) | (781 | ) | (236 | ) | (176,743 | ) | (181,030 | ) | (213,305 | ) | (64,482 | ) | ||||||||||||||||||||||||||||||||
|
Operating lease |
(15,395 | ) | (24,683 | ) | (25,369 | ) | (7,669 | ) | (6,147 | ) | (4,295 | ) | (4,209 | ) | (1,272 | ) | — | — | — | — | (21,542 | ) | (28,978 | ) | (29,578 | ) | (8,941 | ) | ||||||||||||||||||||||||||||||||||||
|
Credit card fees |
(26,391 | ) | (25,572 | ) | (30,213 | ) | (9,133 | ) | (6,460 | ) | (6,380 | ) | (6,166 | ) | (1,864 | ) | — | — | — | — | (32,851 | ) | (31,952 | ) | (36,379 | ) | (10,997 | ) | ||||||||||||||||||||||||||||||||||||
|
Information technology services |
(26,581 | ) | (29,473 | ) | (30,064 | ) | (9,088 | ) | (1,770 | ) | (1,560 | ) | (1,152 | ) | (348 | ) | (7,190 | ) | (6,244 | ) | (6,054 | ) | (1,830 | ) | (35,541 | ) | (37,277 | ) | (37,270 | ) | (11,266 | ) | ||||||||||||||||||||||||||||||||
|
Amortization and depreciation |
(18,470 | ) | (27,777 | ) | (27,503 | ) | (8,314 | ) | (1,520 | ) | (1,262 | ) | (967 | ) | (292 | ) | (425 | ) | (2,163 | ) | (3,350 | ) | (1,013 | ) | (20,415 | ) | (31,202 | ) | (31,820 | ) | (9,619 | ) | ||||||||||||||||||||||||||||||||
|
Consulting |
(6,783 | ) | (7,785 | ) | (10,081 | ) | (3,047 | ) | (1,824 | ) | (1,477 | ) | (1,404 | ) | (424 | ) | (1,136 | ) | (1,215 | ) | (2,215 | ) | (670 | ) | (9,743 | ) | (10,477 | ) | (13,700 | ) | (4,141 | ) | ||||||||||||||||||||||||||||||||
|
Allowance for doubtful accounts |
(5,833 | ) | (6,227 | ) | (25,443 | ) | (7,691 | ) | — | — | — | — | — | — | — | — | (5,833 | ) | (6,227 | ) | (25,443 | ) | (7,691 | ) | ||||||||||||||||||||||||||||||||||||||||
|
Sales commissions and royalties |
(13,164 | ) | (12,021 | ) | (16,069 | ) | (4,858 | ) | (75 | ) | (961 | ) | (910 | ) | (275 | ) | — | — | — | — | (13,239 | ) | (12,982 | ) | (16,979 | ) | (5,133 | ) | ||||||||||||||||||||||||||||||||||||
|
Facilities expenses |
(13,383 | ) | (14,020 | ) | (14,185 | ) | (4,288 | ) | — | (1,410 | ) | (1,404 | ) | (424 | ) | — | — | — | — | (13,383 | ) | (15,430 | ) | (15,589 | ) | (4,712 | ) | |||||||||||||||||||||||||||||||||||||
|
Other selling, general and administrative expenses |
(21,207 | ) | (35,803 | ) | (38,445 | ) | (11,623 | ) | (5,425 | ) | (7,599 | ) | (6,503 | ) | (1,966 | ) | (1,829 | ) | (64 | ) | (920 | ) | (278 | ) | (28,461 | ) | (43,466 | ) | (45,868 | ) | (13,867 | ) | ||||||||||||||||||||||||||||||||
|
Other operating (expense) income, net |
(3,014 | ) | (5,146 | ) | (3,849 | ) | (1,164 | ) | (142 | ) | (104 | ) | (28 | ) | (8 | ) | (347 | ) | (2 | ) | (56 | ) | (17 | ) | (3,503 | ) | (5,252 | ) | (3,933 | ) | (1,189 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Total operating expenses |
(456,409 | ) | (532,406 | ) | (573,712 | ) | (173,434 | ) | (90,597 | ) | (79,861 | ) | (77,740 | ) | (23,498 | ) | (12,239 | ) | (11,241 | ) | (14,825 | ) | (4,482 | ) | (559,245 | ) | (623,508 | ) | (666,277 | ) | (201,414 | ) | ||||||||||||||||||||||||||||||||
|
Financial income |
60,409 | 26,642 | 27,672 | 8,366 | 885 | 812 | 1,635 | 494 | — | 912 | 824 | 249 | 61,294 | 28,366 | 30,131 | 9,109 | ||||||||||||||||||||||||||||||||||||||||||||||||
|
Financial expenses |
(81,284 | ) | (93,178 | ) | (116,947 | ) | (35,353 | ) | (15,383 | ) | (14,371 | ) | (12,738 | ) | (3,851 | ) | — | (1 | ) | (2,091 | ) | (632 | ) | (96,667 | ) | (107,550 | ) | (131,776 | ) | (39,836 | ) | |||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Loss before income tax |
(30,493 | ) | (88,237 | ) | (102,420 | ) | (30,963 | ) | (56,701 | ) | (53,329 | ) | (51,831 | ) | (15,666 | ) | (12,239 | ) | (10,330 | ) | (16,092 | ) | (4,865 | ) | (99,433 | ) | (151,896 | ) | (170,343 | ) | (51,494 | ) | ||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Income tax expense |
— | — | — | — | (80 | ) | — | (2 | ) | (1 | ) | — | — | — | — | (80 | ) | — | (2 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
|
Segment net income (loss) |
R$ | (30,493 | ) | R$ | (88,237 | ) | R$ | (102,420 | ) | US$ | (30,963 | ) | R$ | (56,781 | ) | R$ | (53,329 | ) | R$ | (51,833 | ) | US$ | (15,667 | ) | R$ | (12,239 | ) | R$ | (10,330 | ) | R$ | (16,092 | ) | US$ | (4,865 | ) | R$ | (99,513 | ) | R$ | (151,896 | ) | R$ | (170,345 | ) | US$ | (51,495 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||||||||||||||||||
The Company has aggregated its products and services into groups of similar products and provided the supplemental disclosure of net sales below. The Company evaluates whether additional disclosure is appropriate when a product or service category begins to approach a significant level of net sales.
| Year ended December 31, | ||||||||||||||||
| 2015 | 2016 | 2017 | 2017 | |||||||||||||
| BRL | BRL | BRL | USD | |||||||||||||
|
Sports (1) |
R$ | 1,440,024 | R$ | 1,556,717 | R$ | 1,582,089 | US$ | 478,262 | ||||||||
|
Fashion (1) |
65,662 | 174,549 | 272,423 | 82,353 | ||||||||||||
|
Market Place |
— | 8,274 | 34,494 | 10,427 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total net sales |
R$ | 1,505,686 | R$ | 1,739,540 | R$ | 1,889,006 | US$ | 571,042 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
| (1) | Freight services were allocated to the product revenues that they are related to. |
Net sales generated from our international segment are denominated in local functional currencies. Revenues are translated at average rates prevailing throughout the period.
Net sales attributable to geographical areas are as follows:
| Year ended December 31, | ||||||||||||||||
| 2015 | 2016 | 2017 | 2017 | |||||||||||||
| BRL | BRL | BRL | USD | |||||||||||||
|
Brazil |
R$ | 1,304,853 | R$ | 1,554,405 | R$ | 1,693,467 | US$ | 511,931 | ||||||||
|
Argentina |
148,832 | 130,746 | 141,745 | 42,849 | ||||||||||||
|
Mexico |
52,001 | 54,389 | 53,794 | 16,262 | ||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||
|
Total net sales |
R$ | 1,505,686 | R$ | 1,739,540 | R$ | 1,889,006 | US$ | 571,042 | ||||||||
|
|
|
|
|
|
|
|
|
|||||||||
Property and equipment and intangible assets by geography are as follows:
| Year ended December 31, | ||||||||||||
| 2016 | 2017 | 2017 | ||||||||||
| BRL | BRL | USD | ||||||||||
|
Property and equipment, net |
||||||||||||
|
Brazil |
R$ | 69,901 | R$ | 69,350 | US$ | 20,965 | ||||||
|
Argentina |
3,071 | 2,574 | 778 | |||||||||
|
Mexico |
1,230 | 1,115 | 337 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total property and equipment, net |
R$ | 74,202 | R$ | 73,039 | US$ | 22,080 | ||||||
|
Intangible assets, net |
||||||||||||
|
Brazil |
R$ | 74,515 | R$ | 95,684 | US$ | 28,926 | ||||||
|
Argentina |
32 | 11 | 3 | |||||||||
|
Mexico |
35 | 41 | 12 | |||||||||
|
Cayman |
13,011 | 20,103 | 6,077 | |||||||||
|
|
|
|
|
|
|
|||||||
|
Total intangible assets, net |
R$ | 87,593 | R$ | 115,839 | US$ | 35,018 | ||||||
|
|
|
|
|
|
|
|||||||
|
Total |
161,795 | 188,878 | 57,098 | |||||||||
|
|
|
|
|
|
|
|||||||