Americanas S.A. (AMER3) Earnings Call Transcript & Summary

Good afternoon, and welcome, everyone, to Americanas S.A.'s audio Conference. Today with us, we have Mr. Miguel Gutierrez, CEO of Americanas SA; Anna Saicali, CEO of the Innovation Platform and Fintech; Timotheo Barros, CEO of the Physical Platform; and Márcio Cruz, CEO of the Digital Platform; as well as Mr. Fabien Picavet; and Raoni Lapagesse, IROs for the company. This event is being recorded. [Operator Instructions] Also important to remind you that today's event has a support presentation that might be accessed at ri.americanas.com. Forward-looking statements made during this audio conference concerning the company's business outlook, financial and operating targets are based on beliefs and assumptions on the part of the company's management as well as on information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not materialize. Investors should have in mind that general economic conditions, industry conditions and other operating factors might affect the future performance of the company and thus lead to results that will differ considerably from those expressed in these forward-looking statements. I now would like to turn the conference over to Americanas S.A. CEO, who will start the presentation. Please, Mr. Miguel, you may carry on.

Thank you. Good morning, everyone. We are very happy to welcome all of you in this first audio conference for Americanas S.A., our new company established yesterday. This is the beginning of a new journey of value generation. By combining 100% of operations, we will be able to accelerate our businesses' progress, providing the best technological innovation platform, driving the engagement and maximizing the experience of our customers, sellers, merchants, suppliers, partners and our team. Americanas S.A. is born a giant with unique assets. Our team with a strong ownership culture, a history of constant innovation, disciplined execution as well as efficient. Our base of 48 million active customers, our business platforms that maximize our customers' experience. We are very excited with the new opportunities -- with the current opportunities, and we are ready for this next evolution. So before we start, we'd like to share a video with you to introduce our new company, Americanas S.A. [Presentation]

Now I'd like to invite Fabien [ on here ] to start our presentation.

Thank you, Miguel. This is Fabien Picavet. I'll start this presentation on Slide #4. The combination of operations is a unique opportunity to expedite the progress of our businesses, maximizing customers' experience. The world, the customer and the role of companies have changed. Transformation that will take decades to happen happened in a single year. And our customers have always been at the center of our strategy, and that's why we are in constant evolution. That's why it's time to add up, add up in order to deliver the best experience faster with less friction and increased engagement. That allows us to be more agile, allowing a better experience for all of us. Americanas S.A. is born on a very powerful platform that combines consumption, proprietary technology and innovation, logistics and fintech in a single structure. A new company, 100% integrated and ready to move forward even faster. Americanas S.A. is even more powerful and values more than the combination of its parts. That's the consequence of a continuous adding up. It's ecosystem based in 4 pillars: network effect, by building a frictionless platform for customer, sellers, merchants, suppliers and our team, thus, enhance engagement, speed and facility. Proprietary technology, driving and developing integrated technology platform based on cloud, permeating our business with a modern and more efficient architecture in a single unique analytics data. Scale economy, in all of our business fronts, operating a new logistics platform as well as fulfillment in a very efficient way, managing business in an integrated way with more agility and also with unified management of inventory. A powerful brand, increasing the reach of our communication with unique campaigns and strategies that strengthen Americanas brand, one of the most valuable in Brazil and recognized by Brazilians. We want to improve the lives of people that access our platform in different ways: increasing broader access to retail services, e-commerce, logistics, digital payments, providing technology-based solutions. We want to contribute to society, creating jobs, generating income and developing careers. We want to support consumers, providing them products and services, providing fair prices, being more efficient, more convenient and faster. We want to support the seller, suppliers and merchants, being a very important distribution channel, driving development, increasing the flow of customers and digitalizing small retail. This is a history of a company built based on an ownership culture that's embraced by its team. People here develop. We grow together. Today, there are more than 300 partners with 90% of their personal equity invested in this company. Slide #9, our purpose. Since the very beginning from the very first Lojas Americanas store, our primary goal is to improve people's lives. And this is our current commitment to exceed expectations and to provide everything that's good in this world. This can be represented in a single sentence, adding so that everything in the world has good things to improve people's lives. And for this new company, we decided to keep Americanas as a name. It's a strong brand recognized by Brazilians, but with new elements: modern, digital and low cash. This is supported by our ESG strategy aligned to the 2030 agenda of the United Nations. Out of the 17 sustainable development goals, we have chosen 5 as our priorities because of the impact they have on our businesses: quality education, gender equality, decent work and economic growth, decrease of inequalities and climate change. Based on these 5 priorities and our efforts added up, we can expedite important achievements in the 3 ESG pillars. Now moving to Slide 14. Let me address strategy. Americanas S.A. has a growth plan with a very well-established priorities. We remain firm to our strategic decision to become more relevant on the day-to-day lives of our customers. We also stay committed to maximizing the experience of our customer based on platforms and determining 4 metrics to measure that: accelerated growth, customers -- active customer base, transactions, cash flow. These metrics will allow us to confirm that we are on the right path. Thus, let's expedite our growth dream. Our history is based on organic growth and strategic acquisitions. Organic growth includes the expansion and consolidation of 4 platforms: physical, digital, logistics and fintech and our IF innovation drive with targets and goals very well determined. For example, physical platform. We wanted to create one of the largest franchising networks in Brazil. Digital platform, to have the best NPS in e-commerce. Fulfillment, implement ultrafast delivery. Fintech, we will launch our digital bank. Innovation driver to have the entrance of new verticals. As for inorganic growth, that includes using our unique assets: people and culture, customer base and business platforms in order to maximize the expansion of new brands and new businesses. Our value proposition is unique. It combines a broad assortment, reach, retail, digital and a very powerful capital structure. By integrating new businesses, driven by our strong ownership culture with our 48 active client database and new business platforms, we will be further relevant on the day-to-day of people's lives. Americanas S.A. is born a giant with an impressive scale. 4.6 billion annual visitors to our stores and platform; 100% of zip codes that -- in which we are serving. More than 1,700 stores in 765 cities. More than 87,000 sellers connected. More than 34,000 associates working with us -- 38,000, and a BRL 40 billion GMV in 2020. So we will expand exponentially in this business going beyond retail and towards the future of infinite possibilities. Now I'd like to turn it over to Raoni to continue this presentation.

Thank you, Fabien. Good morning, everyone. Moving on with our call. On the next slides, we see some of the synergies that will allow us to accelerate our growth in a more efficient manner. The operating combination of the business will allow us to manage our platforms in a more expedited way as we eliminate related parties. Thus, Americanas S.A. will be marked by its speed as we expand faster and faster and become better and more innovative. Improve, with organic and inorganic growth, optimization of O2O services and the expansion of our advertising businesses. Accelerate with agility and innovation, speed and efficiency and a powerful M&A platform. Innovate, with the use of data analytics, expansion of our loyalty platform and the offering of banking solutions. With combined operations, we'll capture several opportunities across the different fronts, including data analytics, inventory management, M&A, customer experience and logistics. Under data analytics, we have a unified data lake, which will allow us to deepen the knowledge of our customers as they interact with our different platforms. We'll have a single management of inventory, including availabilities of products from 1P and 3P at the stores and identifying the best sellers per region and accelerating the ultrafast delivery model. Under M&A, we'll have more firepower with an acquisition engine, which will be more powerful and greater ease to attract and integrate omnichannel businesses, which once connected to our platforms will be further accelerated by our unique assets. As for customer experience, we reconfigured the layout of our stores according to new customer habits and behaviors to offer even more convenience in an even better omnichannel experience. In logistics, we have already identified over 300,000 square meters of backroom in our stores, which will be converted into dark stores and mini urban hubs, accelerating the ultrafast delivery and meeting demand from marketplace under a proximity fulfillment model. Americanas S.A. creates a more valuable future for everyone, a company which is 100% integrated, uniting physical, digital logistics and fintech. With the commitment to maximize customers' experience, accelerate growth in a more efficient manner, increase cash flow to fund our dreams, to better the allocation of personnel and also the allocation of capital and to increase net income. As on Slide 25, we'll explain and present the governance structure of the new company. As the operating combination was approved, the new Board was appointed by shareholders, and then we created committees to elect the statutory executive membership. Americanas S.A. is already listed in the Novo Mercado, with 43% of Board members being independent and 5 advise committees -- advising committees. The Board is formed by 4 members appointed by the reference shareholder and 3 independent members. Eduardo Saggioro was elected as Chairman of the Board. Along with him, Carlos Alberto Sicupira, Claudio Garcia and Paulo Lemann, who already sit at our Board were also elected at Americanas S.A. So they remain in both companies. Sidney Breyer, Vanessa Claro Lopes and Mauro Not were elected as independent Board members. Sidney has vast experience as CEO and Board member for several companies. Vanessa is an accounting specialist with experience in external audits across different companies. And Mauro is a financial specialist with broad experience in technological companies. The governance structure also contemplates 5 advising committees. In addition to the current tax committee, the committees are: finance; audit, which is made up exclusively by independent members; digital and client; Ame; and people and sustainability. The committees will be made up of Board members and by external members who have great expertise in their respective areas of operation. They will aid the Board in implementing long-term strategies. Moving on with our new corporate structure. The Board has defined and elected executive officers, made up of 4 partners with experience across different strategic positions, both in Americanas and in B2W Digital to lead Americanas S.A.'s business platforms. Miguel Gutierrez will be the CEO and IRO, Anna Saicali will be the CEO of the Innovation Platform and Fintech, Márcio Cruz will be the CEO of the Digital Platform, and Timotheo Barros will be the CEO of the Physical Platform and CFO of Americanas S.A. To speed up the operating combination of Americanas S.A., the 4 executives have put together a committee where each will be responsible for the combined vision across different strategic fronts, such as Miguel Gutierrez will take care of strategy, governance and stakeholders; Anna Saicali will lead innovation, technology And people; Márcio Cruz will lead commercial, marketing And clients; and Timotheo Barros will lead finance, operations And logistics. With that, we wrap up our presentation. Before moving to the Q&A session, I'd like to take the opportunity to invite you all to get to know our new RI website, which is already online at ri.americanas.com. Thank you.

[Operator Instructions] Questions posted on our webcast platform will be answered by the IR team after the closing of the conference. Our first question comes from Mr. Luiz from BTG Pactual.

I have 2 questions. First is related to the last comment. So can you please elaborate on the time line in order to integrate these new teams based on the business committees? And my second question related to commercial. What are the major strategies considering assortment in this combined strategy by combining your assets?

Luiz, this is Miguel speaking. I think that with the business combination, we have the following. Well, we have created an executive structure as a way to accelerate the process. We have a high level of integration. But when we talk about combination, we understand it's a different ball game. That's why I have put together a committee so that we can work together. We intend to hire an external consulting company to bring inputs, to bring in additional methodologies to the ones we already have. The 4 of us have vast experience in both companies. So it is only natural that we have preconceived ideas about the company. So the external consultants will allow us to have access to best practices across the world, and this will bring a breath of fresh air to the process. And as we're going to be working together, as I've shown you, and in a way, we have been working together to some extent for some time, there is -- the process will happen on a gradual uptrend manner. We are now -- once we receive the green light, we'll be able to select and hire this consultancy partner, which will help us analyze and bring in, as I said, new methodologies so that we can really go after the best solutions in the long run and naturally, solutions will be adopted. We believe that, that dynamic is ongoing, and we'll be seeing the first results in the coming 90 days. We are anxious by nature at the company, but we estimate that in around 9 to 12 months, we believe that this first approach will have been completed. Once again, a structure of an organization is a dynamic, living process. We will always be looking for the best solutions for this major challenge that we have and those major opportunities that we have ahead of us right off the bat, okay? As for your second question, about the assortment, I think, Márcio will be able to address that question and answer that for you. Márcio, over to you, please.

Thank you, Miguel. Thank you for the question. From the point of view of assortment, we see many opportunities. We are quite excited with the business combination on that front as well. I'll mention a couple of pointers that I think are very important for us to take a look at. Number one, the unification of our inventories, that's a major opportunity that we have to further increase the efficiency of our inventory allocation. We look at all the distribution centers and other stores as one unified component of the company looking at a more consolidated demand, right? And also, we also have the opportunity of having advanced inventory, over 1,700 stores. And as we've shown during the presentation, we do have an opportunity in terms of area of about 300,000 square meters, which are available for us to use to better allocate our inventory. And this will, of course, impact our service levels. So as we use this area as a dark store within the stores, that allows us to adopt very fast deliveries. In the first quarter, 14% of our deliveries online happening up to 3 hours. But with this opportunity, we can deliver in a matter of minutes. And we also have to consider something which is very important, Lojas Americanas is the physical stores. The physical stores, they know how to sell a broad spectrum of assortments. They've done this for some time. And that, of course, makes our lives easier as we try to allocate inventory to better service clients. And lastly, when we talk about data analytics, we have another -- yet again, a big opportunity to improve our assortment, both online and off-line. When you look at demand today, the online demand specifically, that demand or 80% of it comes from clients who are in a radius of 7 kilometers of one of those 1,700 stores. So again, a big opportunity for us as we look to demand as a whole chance for us to improve our assortment. Also on data analytics, it's also important to highlight, as I wrap up my answer, we need to be seen as a major platform for all entrepreneurs, sellers, suppliers of all sizes and shapes. I think we need to be seen as a big opportunity to sell online as well, and we can use all of that in a combined manner and offering what we have best. In summary, major opportunities. I'll just give you a few examples, but there are more things to come.

Our next question, Olivia Petronilho from JPMorgan.

I actually have 2 questions. Can you please elaborate on the strategy of the company from now on, especially considering store expansion and also M&A? So what are your strategies now considering these 2 issues?

Thank you for your question. This is Miguel speaking. In terms of store expansion, we believe we'll remain as usual. We want to be present in more cities. We want to increase our footprint. We decided to have more stores. We believe that stores are hubs for the company's development, especially locally. And all those ambitions that we have include stores. They will change their function. We did mention that we expect to change the layout of our stores to do a complete makeover of the stores so that we can adjust to this new reality. We are quite excited with that as well. Today, our stores are more of an experimental place, if I may. We try to meet demand, period; to provide services period. It's a place where people go to take a walk, to spend time. Our stores was never a final destination where people go to find one single product. Our customers like to be surprised by novelties. And with this new broader approach, we'll be able to follow up on that advancement. So in terms of new stores, our plan remains as it's been. In terms of M&As, we believe that, especially when you talk about speed, I think things will improve significantly in the M&A front. As I've mentioned before, when we had 2 companies, the related parties issue. And this was mandatory when we had 2 companies because of specific legislation. At the end of the day, a lot of bureaucracy impacted our analysis. We should first of all evaluate the companies separately and look at the future at the same time. So now the process is much simplified. We'll be able to make better, faster decisions now on that respect, okay? Thank you.

Our next question comes from Danniela Eiger from XP Investimentos.

I believe Márcio mentioned a new layout after this merger. So what do you have in mind? Do you want to expand on formats, new types of stores, integrating marketplace, for example? Or is it related to assortment? So can you please elaborate on this new physical store, the new physical store of this new company. Thank you.

Danniela -- it was Olivia. Thank you for your question. I'll turn it over to Timotheo to answer your question. Over to you, Timotheo. Once again, I apologize for getting your name wrong, Danniela.

Danniela, thank you for participating in our conference call. When we talk about our new store models, we have been trending on a learning curve. We come from more traditional markets. Back in 2003, we launched the Express model. So we have been improving our store models throughout time. Today, when we look at our stores, as Miguel just mentioned, our stores are places where people go to experiment and to buy. And our strategy is to continue to open stores. For this year, we expect to open another 150 stores to be increasingly closer to our clients, and those stores are connected. And we -- when we integrate the inventory, which will happen as we move forward with our combination schedule, we'll eliminate several points of friction that we have today. Before, we had 2 companies and the process was not as engaging as now. And the same thing happens with our database. As per the general data protection law, we need to be careful with our database. They are separate. They are segregated. Now they belong to Americanas, but there are 2 databases. But with that, we are able to refine or to fine-tune what we want to allocate in terms of assortment across different stores, different regions. So the stores have also been evolving. As a consequence, the layout of the stores, we need to keep up with those changes. We have been -- we have hired third-party consultants to help us out in this process of changing the layout. And also in terms of assortment, it will change in terms of the role played by stores, not only a place you go to shop, but as I said, a more diverse environment. So that's the way we're going to follow from that one.

Our next question João Soares, Citibank.

Now that you have determined your management structure, can you please add some color or anything you can share on that issue?

João, thank you for your question. That's a continuous challenge for us. We would like to have a number, a figure. That number is usually quite associated with a view of cost reduction. When we all go back to our slide on synergies that I've just shown you, I think it's important for us to look at this together, this topic. As we can see, how can -- how are we looking at our synergies now? When we look at our data analytics, we believe that the opportunity is major, is huge. We have a way to look at our customers in a more integrated way now. And as we go after a number, a figure, how could we quantify that synergy? Let's move on to the second item, the unification of the inventories. We can see that as we unify, as we bring together the inventories, we'll have also a huge opportunity there. And then as we work to try and find a number to pin down a figure, the question we made is how can we estimate that? When we look from an M&A point of view, we see that the M&A will be more efficient now because it is associated with a view of better capital allocation. And again, as we try to find a number to quantify the opportunity, we find it somewhat difficult. Moving on to the next slide. Customer experience is also something that we believe offers major opportunities. But going back to your question, how to quantify all that? When we look at logistics, LET'S is experiencing extraordinary growth. It's worth mentioning as a practical example, 1 week or 2 weeks ago, we started a direct line with China. We are now delivering products in 11 days. We are by far, right now, the fastest player on that front. Products coming from China, you buy something on our site now and you receive it 11 days later. Products coming from China, before, it was 30 days. That's really phenomenal. That didn't happen before when we were under a related party's scheme. We had to decide beforehand, who was going to pay what, right, and that took forever. Today, we already know beforehand because we're working from a single company, and we are now generating a huge opportunities to better serve our customers. But once again, going back to your question, how can we quantify all of that? Well, there is no doubt that there are other impacts. Others have been included in our balance sheet. That was not the main driver for our unification or business combination decision. So the main initiatives that led us to make the decision to combine both companies, they are difficult to translate into a number. So we fear providing a number because we might be oversimplifying those other initiatives, which are the real drivers for the current operation. And that's why we do not have a final number to share with you. That would be really legitimate, that would really reflect what's going to happen with the company. Our proposal to speed up our growth is still there. And what we want, we want with all of that. We want faster growth, efficient growth when we compare today with our previous situation, okay, João?

Okay. Yes. Now I have a better understanding. Can you please talk about the customer experience, consumer experience, and the most obvious gains by combining operations? What are we talking about? Time to delivery, reduce the friction or frictionless. Can you please address major gains with this combination, please?

João, I'd like to answer using examples. So when Márcio was speaking just now, he said that today, we already have a significant amount of deliveries happening below 3 hours. Márcio, who leads our commercial division, as we've just seen in our new structure, he just mentioned that we'll be delivering products in minutes. So that's an interesting measure. We believe that every client wants to buy and receive fast in 3 hours. We believe that most clients want to have the option of receiving fast, and they feel valued, acknowledged when they have that option because we know that part of purchases are based on need, but the most predominant portion is under impulse buy, I believe. So that's a classic example in which lead time or lead times will be quite relevant for this dynamic. That's why everybody is going after the fastest delivery time. That's a sales pitch for everyone. He just mentioned that we're the fastest in Brazil when bringing products from China. Tomorrow, somebody else will be bringing products in 5 days using a rocket. Well, that's the dynamics of a very competitive retail industry. Another example, which I like, we mentioned but did not really highlight, we have something about 300,000 square meters, which are areas that could be revisited in terms of use, and we could have new business models to explore that area. For example, creating dark stores. We believe we'll be able to provide better services to clients better than today. For example, when we talk about recurring purchases or when we have continued delivery of certain products. So we have already mapped out and identified opportunities, on that front, delivery times. We talked about the store experience with Ame today. You go into stores, Ame Go, there is no cashier whatsoever. You simply pick up the merchandise and leave. For some products, we could adopt that same procedure across other stores. So there are several small initiatives that will add to a greater result. We could detail that in another occasion, but it's already good to illustrate the amount of initiatives and opportunities that we have. Once again, just as a reminder, retail depends a lot on details, okay, João?

With that, we close our Q&A session. Now I'd like to turn it over to Mr. Miguel for his final remarks. Please, Mr. Miguel, you can go ahead.

Thank you very much for joining us in this first conference call. Our company that was established just yesterday, we are very excited with this new phase of this new history. We are excited with the opportunities that lie ahead of us. I'd like to emphasize that we remain firm in our long-term strategy. We are very proud of the social role we play. We are very excited with the opportunities, and we are aware of the challenges. But above all, we have decided to meet the demand of our customers. Thank you all, and have a great afternoon.

With that, we close the conference call by Americanas S.A. Thank you very much, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]