Grendene S.A. (GRND3.SA) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for waiting. Welcome to the video conference for the release of the Second Quarter '25 results of Grendene S.A. [Operator Instructions] Please note that this video conference is being recorded, and it will be made available on the company's Investor Relations website, ri.grendene.com.br, where the full earnings release material can be accessed. The presentation is also available for download via the chat icon including in English. [Operator Instructions] We emphasize that the information in this presentation along with any statements made during the video conference regarding the business prospects, projections, and operating and financial targets of Grendene are based on the beliefs and assumptions of the company's management as well as information currently available. Future considerations are not guarantees of performance, they involve risks, uncertainties and assumptions because they refer to future events and therefore, they depend on circumstances that may or may not occur. Investors should be aware that general economic conditions, market conditions and other operating factors may affect the future performance of the company and result in substantially different outcomes those stated in such forward-looking statements. Today, we have the following company executives with us. Rudimar Dall'Onder, Chief Executive Officer; Gelson Luis Rostirolla, Chief Operating Officer; Alceu de Albuquerque, CFO and Investor Relations Officer as well as the company's key managers. I will now give the floor to Mr. Alceu de Albuquerque. Please, Mr. Alceu. You can proceed. You can go ahead.

Good morning, everybody. Thank you for your presence. On our video conference for the results presentation of the second quarter of '25 and first half of the year. Starting with the main highlights of the year -- of the second half -- second quarter. We have another quarter of challenges in the macro environment that quite complex. And a lot of uncertainties in the domestic and the external markets -- foreign markets. We observed environments with high interest rates -- high inflation either in Brazil and abroad, especially related to food that impacts the purchase power of consumers. This dynamic more challenging one. It ended up bringing uncertainties and insecurities and for consumers. Within this scenario, we could present growth, either in revenue and volume. The volume grew 1.2% in the quarter, reaching 27 million pairs shipped and this growth is concentrated in the domestic market, where we reached 22.9 million shipped pairs of shoes. In the foreign market, there was a decrease of 3.2%. When we look at the gross profit, it grows 25.1%, reaching BRL 756.2 million, with a growth of 13% in the domestic market and in the foreign market, there was a growth of 88%. When we look at the revenue that grows 25.1%, while the volume growth 1.2%, it shows that we grew in revenue, gross revenue per paring 27% that reflects readjustments of price but -- and especially because of all the efforts made related to production and product development with more value-added with more perception from the customers. The gross profit grows almost 14%, reaching 13.9% totaling BRL 233.1 million with a bit of a decrease of the gross margin with that reaches 42%. The main impact of this gross margin is related to labor within the everything that compose the COGS. We are going to talk about it later. It's been impacted by volume that's smaller than the one we planned. With that, we diluted our costs. The recurring EBIT will decrease 27%, reaching BRL 30.4 million, and the margin is 6.1% and a decrease of 2.6 pp. Our net recurring profit grows over 200.6%, reaching BRL 185.5 million that is being a lot influenced by our financial results that grew 340%. And with that, we had a growth in our net margins recurring months of 24.3 pp in a total of 37.2%. Here, I will open highlighting the impact of GGB in our lines in the GRI since acquiring 100% of the shares of GGB. The numbers of GGB, they are not only related to equity method from the second quarter of last year, but they start becoming affecting all our lines in the GRI. So to be clear, the impact of the GGB, I will show that in this column, the 2 quarter '25, I have accounts of Grendene, excluding the nonrecurring ones and GGB effects. I have on the second call, we have a column, we have adjustments in the results of Grendene without these items, the recurring items. The items related to GGB, they are highlighted in red, so the gross revenue from BRL 756 million, excluding the gross revenue coming from the sales of GGB, it would be BRL 647.5 million, a growth of 25.1%, excluding the numbers of GGB that start to be consolidated with our numbers would be 27.1%. Net revenue grew 15.6% excluding GGB sales, it would have grown 6%. COGS grew 16.9%, it would have grown 26.9% if wasn't for GGB cost. The same dynamics apply for our gross profit and our expenses. For example, the sales expenses, selling expenses showing 39.2% growth, they would have grown 4.7%. If it wasn't for the consolidation of GGB. Administrative expenses, they grew 52.7%, excluding the numbers of GGB then they would have grown 19.1%. And this 19.1% represents BRL 5.1 million. They are explained basically 4 items: remuneration, stock options, excess in the city of Sobral. They started in the fee -- they started having that in the final -- last quarter last year. And then finally, because of the purchase of inputs, we had a new understanding from the ministry in [indiscernible] that says that the purchase of input they are not part of -- they are not embedded in the benefits in terms of reduction of ICMS taxes. Finally, we have another reclassification. This BRL 58 million, they are our projects of development stage real estate developed projects that we do through holdings. So the impact, the result of these investments if they will impact in our EBIT but because of the characteristics of the business, which is the investment of our cash. We understand it's a nonrecurring item for EBIT, but it is for the financial results. This is why it's in the financial result line now. Net results for Grendene from 244.7% growth, excluding the nonrecurring items and the ones related to GGB, it would have been 200%. Here, talking a little bit about the domestic market. The performance is specifically Division 1 brand which contains all the brands except for Melissa. It grew 8.5% in volume, 8.1%, and then the gross revenue per pair was advanced by 3 lines of business: Grendene Kids, Ipanema and the female segment. When we look at the male segment, it represents a decrease in pairs, but it has a growth in revenue because of the average price in 9.2%. When we look at the gross revenue per pair consolidated Grendene Division 1, it grew 6.7%, the online sales of the brands of Division 1, they grew 5.2% in the volume in the period. And they represent 1.6% on the total sales of the division on brands in the domestic market and the sellout of the brand, it was negative. It decreased 1.9% when compared to the growth of 1.8%. What caused this decrease? What were the factors to impact the sell-out? It's because the distributors are a little bit more -- distributors are a little bit more cautious and lower temperatures in the south and southeast of Brazil that represent a lot of our sales. Now if we had a -- the winter was a little bit more stronger and we also had more action of competitors. We have been observing that for some quarters, and it has been repeating itself. The competitors are striking a little bit more hard. So the sell-out had a retraction in the distribution channels and shoes stores also traditional ones, and self-service is growing. And the magazine channel, which contains big stores like CNA, Renner, they remain the same. Inventory levels are healthy in this client, given that we had an adjustment in the first quarter related to inventory levels because of smaller volumes of selling as you can see in this graph, when we observe the Melissa data. Melissa presented a strong growth, almost 29% of its gross revenue volume grew 5.3%, and that represents an increase of 22.5% in gross revenue per pair. And that's explained by price readjustments and mostly because of the development of a portfolio, a more premium one with more sophisticated products with more added value and better perception of value from our clients, our customers. This volume growth and revenue, we observed in all our channels in Melissa Clubs, multi-brands channel and online channels. We have observed a solid growth between the integration between the brick-and-mortar stores and the digital stores, 30% of digital stores are happening through the omnichannel. The brands of Division 1 and the sellout of Melissa, they have decreased 12.8% when compared to the growth of 5.3% growth in the selling. Again, colder temperatures in the south and southeast impacted sell-out of our products. Melissa registered a growth of 21.8% in sales in the e-commerce sales and online sales of Melissa, they represent about 16.6% of total sales of Melissa in the domestic market. This is just to show the e-commerce groups. We have 15.3% of GMV. So we have here both direct sales in our website, and they are delivered from our delivery system but also sales that are conducted on our websites, but they are finished or they use our inventory in our Melissa Clubs. With that, the variation between gross revenue in the e-commerce and GMV. GMV volume grew around 18.5%. Our sessions are growing 33.1% with 20 million sessions, 15 million sessions but we have a slight drop of 0.3 percentage points. We reached 69% of gross margin much because of a higher number of promotional items being sold online. Recurring EBIT grew BRL 1.2 million, it grew 1%. And the general penetration in the total markets reached 5.3% in the second quarter. [indiscernible] Central is 16.6%. This is what we have for gross revenue in the second quarter We left from BRL 604 million to BRL 656 million so it represents a 25.1% growth. Their volume for domestic market reached BRL 10 million. Pricing and mix reached, the increment our revenue of BRL 55.7 million. The volume for the external market reduces our revenue in BRL 3.1 million whereas prices in the mix, they add BRL 75.5 million. Exchange ratio was 8.6% -- weaker than it has was 8.6% weaker in the second quarter. If we come to the second quarter '24, it adds BRL 14.6 million. Moving on now about COGs, COGs, the gross margin that we have. It was 0.6 pp's, around 42.6% to 42%. But this is much due to manpower, but it's now representing 1.3 pp's more than the net revenue when compared to the second quarter last year. And what was -- why was that? First, because we have -- the payroll was a little bit more expensive. And second, we were set to receive a higher volume of orders but this volume didn't reach. We weren't able to adjust the manpower in time for this lower volume. And therefore, we had a lower volume, and it was -- it took some time to dilute that into the revenue. Raw material had a slight increase of 0.2 pp's, and this is because of the increase of international shipping costs and cost of raw material has remained stable and on lower historical platforms. But since March, April this year, given -- due to many factors, we can see an increase in price of international shipping that is added in the cost of raw material and that is also in international. Even though we use local raw materials, local shipping is considered on the cost of the pair. When we look at our net sales and COGS per pair, we can see the net revenue grew 14.2% in the second quarter when compared to the same period in 2024 whereas COG per pair grows 15.25% and the main component, again, is manpower per pair that grew 1.25%. If we take a longer time period and to check the average growth, we have the net revenue for 2022 and 2025, we can see an average annual growth of 8% whereas cost per pair grew 3% on average every year in the second quarter of 2022 to the second quarter in 2025. In other words, revenue grew in for pairs. So, It grew around 8% per year whereas the COGS grew 3.6% and that shows our ability to increase revenue in rates that are higher than our cost operational costs and show that our focus to develop new products of better added value and with a better perception of value on behalf from our clients. This image shows our operational expenses. We have 15.6%, commercial growth 39%, but we have a GGB impact. When we exclude the LGP numbers, we can see growth operational expenses were 39%, which is now 4.7%. The same thing goes for administrative expenses. It grew 2.8%. And when we checked GGB we had a growth of 52.7%, and it's now 19.1%, which is equivalent to BRL 5.1 million. This 5.1 variation is basically explained by the payroll, the stock options plans for the building tax in Sobral and the second quarter instead of the first quarter the previous year. And also the default of acquiring raw material that I mentioned is not -- it's not within our benefits to reduce sales tax according to the instructions of the state revenue office -- states of Ceara. If we look at the slides the impact on our EBIT, last year was BRL 22.3 billion. And in this year, it was BRL 46 -- BRL 43.6 billion so it's 103% growth. But if we just consider the nonrecurring items, that is a withdrawal of 27.7% from BRL 42 million to BRL 30.4 million. And what are these nonrecurring items? We have BRL 58 million that is a result of investments in projects for development in which the means that we use to invest in these products are on hold, given that they are holdings so the result of these projects, they are long to asset equivalents and the impact on EBIT. Given that this result comes from an investment of our cash flow we understand that this is not part of the operation, but it's part of the financial results and because of that, we've excluded that from our EBIT. Then we have BRL 13.9 million regarding the default payment from previous years given the change in understanding of the state revenue office in the state of Ceara, understanding that purchase for consumption that, I would say, they are not part -- our consuming items are not part of our benefit and because of that, we've had this value, this amount to pay from previous year. And then we have the nonrecurring amount that was BRL 25.7 million. In the next slide, we have our net financial revenue. It reached BRL 84.7 million. It's a steady growth of 166%. And this growth can be explained by the average CDI that is higher and also for the average lead that we had in that period. When we consider that BRL 58 million that we've excluded from EBIT, and we bring here to the financial results we can see that our financial results -- current financial results comes from BRL 84.7 million to BRL 142.8 million. So it's a growth of 343.7%, the value that we have in our wallet for investments that we're talking about investments, alternative investments in banking systems. So we have BRL 671.6 million that has been invested and this portfolio is 100% allocated in projects for real estate. And this portfolio when we started it, we have as dividends 157.2% in the CDI. Since we started having this portfolio that was approved by the Administrative Council, we've had investment in private credit, in variable income we don't have that anymore. But the private credit has given 207% of CDI and the variable income has given 582.8% of CDI. Coming now to the numbers of the first quarter. Our volume has withdrawn 4.8% to BRL 52.3 million. And on external market in export market, we have a growth of 11.4%. But in the domestic market, there is a withdrawal of 8.7%, much because of the first quarter, as we mentioned, that we had a very weak and a typical first quarter. The gross revenue grows 15.4%, it reached almost BRL 1.5 million, and we have growth both in the domestic and the export market. Internally, 5.5%, whereas the external market it's 59.3%. We can see the growth revenue grows 15.4% when compared to the first half of '24 that it was a withdrawal 8.4% because we have steady growth of 21.2%. Gross profit reached BRL 496.7 million, it's a growth of 11.6% with the growth margin reaching 44.4%. So it's a growth of 0.7 pps when compared to the same margin in the first quarter last year. Recurring EBIT has a drop of 4.1% reached BRL 126.9 with a margin of 12.3%. That is a drop of 0.7 percentage points. And our recurring net profit grows almost 65% to BRL 345.3 million with a net margin of 33.4%. So there is an increase of 12.9% percentage points. This is the same table that we saw for the second quarter. The first quarter had an impact of nonrecurring items but not especially the consolidation of numbers of COG that we have in the first quarter, we only had the equivalents in the assets. So our net revenue that was BRL 1.4 billion, if it weren't from the GGB would have been BRL 1.3 million. So there was a growth in the gross revenue so we would have had 3.7%. Net revenue that grew 9.8%, excluding consolidation, would have grown 1.4%. COGS that was 8.3%, again, if we exclude the GGB number, we had 1.3%. The gross profit that it was 11.6% would have grown 11.6%, and operational expenses grew 21.8% would have grown 4%. And all the other lines of expenses I'm going to show later on. And this is recurring EBIT. We said it was 18.2% negative, would have withdrawn 4.1% considering just the recurring items. The net income that it was a 41.7% would have grown 64.9% if it weren't for this consolidation of GGB or the nonrecurring items. The same traffic for the division so we have 0.7 percentage points even with the manpower component growing 0.7 percentage points. So representing now 22.9% in the revenue when compared to 22.2%. Again, what we can see here, what has impacted this growth and what it represents is like the manpower, as I mentioned before, payroll collective bargains and we were able to not to dilute so much in manpower costs. Our net revenue per pair that grows 15.4% in the second quarter when we compare 3.9% of COGS per pair. Our operational expenses grow 21.8% in the period, but we have the consolidation of all expenses -- that commercial expenses grew 34.2%. But when we exclude the GGB expenses, this number starts to be 2.2%. The same thing goes for administrative expenses that they were around -- they grew 34.1%but when we exclude the administrative expense from GGB, they represent and we have a growth of 13.1%. And operating recurring expenses, they grew 4% in the first quarter when compared to the first quarter last year. This is our financial results for the semester with the financial -- it was 78.3% of growth and reaching BRL 7.8 billion. And for the same reason that we mentioned before, we have higher Selic and an average for resources applied that is also higher. When we make proper adjustments of assets equivalent, so removing the results from projects to develop in the real estate and we think about the financial results. Our financial result was BRL 172 million, it raises to BRL 229.42 so it's 117.6% in growth. Having said that, our accumulated results in the semester, it was BRL 256.9 million, and within this BRL 256.9 million we have 87 -- BRL 87 million, and it's like fiscal incentives that in the end, we have a legal reserve of BRL 169 million. BRL 8.5 million is for legal reserves and then as dividends, we have BRL 160.8 million. And given that we have already given BRL 57.5 million. So what we have now is BRL 103.3 million. And they will distribute it as follows: 100% as dividends that are equivalent to 0.45 per stocks. And for the stockholders, if they have Grendene on August 22, the stock market will be ex dividend. And the date for payment is September 10, 2025. And this is just an update on the value that are distributed in dividends since we opened capital that we consider just a nominal value of OCP, BRL 6.454 billion. But when we update this amount according to the IPCA, it raises to BRL 9.8 million and when we update this value according to the CDI, it raises to BRL 13.8 billion. So this is my message. This is what I had to comment on the results on the second quarter 2025 and the first quarter -- actually, the first half of the year. The speaker corrects himself. And I'm now open for questions.

[Operator Instructions] This is the first question from. [Foreign Language].

In relation to part of the tariffs for our business, 60% of our exports, they are destined to Latin America. In the United States it's not so representative. Exports for the United States are fewer, they're less expressive. Just for you to have an idea, the exports for United States, it represents 2% of our total net revenue. And when we consider the volume, it represents less than 1% of the total volume of shipped pairs. And if we cut the exports the revenue coming from exports for the United States represents 9% of the total revenue of exports. And the -- represent an exported volume to the United States. It's 4% of the total volume all our exports. So shippings for United States, they represent and they have lower representativeness. And related to manpower we have an expectation to resumption, to resume historical levels. We had -- we increased a little slightly this quarter as we were expecting. We were expecting higher volumes, but we couldn't readjust and we have been working on that, and our expectation is to go back to our historical levels.

Can you give more details about the growth of revenue? Prepare internationally, how much of that comes from the mix compared to the increase of price in the portfolio as a whole? How is the company thinking about distributing the dividends versus the potential for taxation for dividends next year according to the project of law that has been discussed, that's going to be in place next year?

Related to the gross revenue in exports, we have 3 major impacts. We have price readjustments, we have implements of mix, but the main impact the consolidation of the GGB line? And why is that? Because when we consolidate the numbers of GGB, the main business of GGB is the online channel. So we sell directly to final consumers with an average ticket of $70, $75 so when you consider this revenue per pair that starts to consolidate from GGB, it elevates our gross revenue per pair as a whole of the exports. But besides the effect of consolidation of GGB numbers, we also have the shipping of products with higher added value and price readjustments from the first quarter. Related to the distribution of dividends Grendene in December of 2022. We have a that guarantee our distribution of reserves of incentives, state reserves without the payment of the taxes. Since this situation, we had it's still valid because of the federal revenue, we had actions [indiscernible]. And even though the company we still have this [indiscernible] and afterwards. We had other understandings from the superior court that the federal incentives they must be taxed. So there are doubts in relation to if we can distribute that without the tributes or not, we have actions lawsuits that are discussing that. We will distribute these amounts. If we have a guarantee that we can distribute them and we won't have to pay for distributes. So when this tributes on our dividend came in a concrete way. We are going to discuss this taxation with the council if we can do that or not. And that's the position of the company so far at this point.

We have another 2 questions about the same topic from Investor and Marc. The company thinks about a repurchasing a program?