Grendene S.A. (GRND3) Q4 FY2025 Earnings Call Transcript & Summary

Good morning, everybody. Thanks for waiting, and welcome to the video conference for the release of the Fourth Quarter '25 of Grendene S.A. [Operator Instructions] Please note that this video conference is being recorded and 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 would like to emphasize that the information in this presentation along with any statements made during the video conference regarding the business prospects, projections, 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, assumptions because they refer to future events, and therefore, depend on circumstances that may or may not occur. Investors should be aware that the general economic conditions, market conditions and other operating factors may affect the future performance of the company and resulting substantially different outcomes from those stated such forward-looking statements. Today, we have the following company executives with us, Rudimar Dall'Onder, Chief Executive Officer; Gelson Rostirolla, Chief Operating Officer; and Alceu Albuquerque, CFO and Investor Relations Officer; as well as all the company's key managers. I will now give the floor to Mr. Alceu Albuquerque. Please, Mr. Alceu, you can go ahead.

Good morning. Thank you so much for being here in our video conference for the results of 4th quarter '25 and the year 2025. So here, I'm going to start with this slide that summarizes the fourth quarter of the year giving a bit of context of the market. We observed a domestic demand that was pressured by macroeconomic factors such as high interest rates and suppressed income and indebtedness of the population. We observe major competition with imported products in 2025. We also observed a growth, a very strong one of imported goods in our market. It grew 21% for 20 million pairs of imported goods. And when we look at the ICM 642 of plastic shoes and rubber, we can see a robust growth of 26% with 16.4 million pairs. And for you to have an idea, only now in January 2026, the growth of total volume of footwear, imported footwear is 34%. And when we look at the ICM tax 6204 that represents plastic shoes. It's a growth of 22%. So competition is becoming very strong with domestic manufacturers, but also with imported goods. With that, we observed an adjustment of inventory in many channels through the reduction of selling. We also observed punctual impacts in the international markets. For example, in the United States, the big tariffs impacted our exports for the U.S.A. with delays in orders and postponement, instability in the Middle East also as we have seen impacting greatly logistic chains and hinder negotiations. And also anticipating orders that were done in the third quarter impacted our volume of sales in the fourth quarter. Another thing that impacted sales and the -- we had like a longer winter in the third and fourth quarter in the South and Southeast, it impacted sales also. When we look at our operating management, facing this context I just mentioned, the focus of the company was to maintain the price strategy and a mix preserving margins. Volume is a major driver of margins for Grendene with reduced volume and a significant decrease as we are going to see later, we could manage to keep healthy margins above other factors that we had in the market. We had -- we have big volumes of orders. And we did an adjustment of production and in the structure. So we could adopt Grendene's structure to the level of demand. And we can see that that's positive. The inventory levels of our clients Division 1 brands and Melissa, they have healthy levels and the results of this management focus in price and mix and preservation of margins, it generates cash, BRL 57 million, a very robust financial result and a distribution of dividends that is approved of over BRL 1 billion -- BRL 1.4 billion. Talking a little bit in detail about the performance of Division 1 brands in this first quarter, we saw a decrease of sell-out in the second quarter as a whole, which ended up bringing adjustments with lower volumes of selling to adjust in our clients to adjust their inventory levels with more conservative clients operated with more smaller inventories and we observed sell-out in most of the channels, especially in the distribution channels and magazines. The only one that's growing is the self-service, the decrease of selling from 21.7% reflects a decrease in the sellout in the third quarter and either in the fourth quarter. And we can see a reduction of selling in revenue and in volume in all the segments, except the Pega Forte segment, the Pega Forte brand. And as I mentioned before, the adjustments of client levels, inventories was done to improve the selling volume. So today, our clients that work with Division 1 brands, they are operating with healthy levels of inventory. When we look at the performance of Melissa in the internal market, we can see the growth of sellout in revenue, even though with the reduction in volume, and that because of the growth of the average ticket and more share of products with more -- with added value. It's a reflection of decisions made about products with more perceived value by clients and the performance of sell-out is aligned with the performance of the selling, which shows that our stores, our retailers, they have healthy levels of inventory. We can see an increase -- and in the integration of digital and mortar and brick channels, we can see growth in 24% sales online in the omnichannel channel. We also had an expansion of our stores Melissa clubs throughout the year, and we closed the year with 438 stores when compared to 422 in the previous year. Talking a little bit about the e-commerce. As I mentioned, we have observed a robust growth in online sales. The GMV grew 27.1%. The volume of GMV grew 27.1%, even with the smaller volume of sessions, the gross margin is stable almost 70% as margin. EBIT, recurring EBIT grows almost 29% for BRL 6.4 million. And the share of online sales of Grendene when compared to the total sales of the domestic market goes from 5.24% to 7.6%. And when we isolate Melissa, online sales of Melissa represents 18.7% of the whole of the selling in the domestic markets. Now talking a little bit about exports. It suffered in the quarter. We observed a decrease in the volume of 14.7%, and the gross revenue in reais went down 9%. When we exclude the GGB data of this, the volume decreases 14.7% and revenue, 1.5%. We had a few impacts, as you can see in the United States brought a postponement and reduction in orders and instability in the Middle East ended up impacting logistic chains and negotiations and deals with partners, with countries in the region and the anticipation of shipping for the third quarter, especially for Latin America compromised the performance of exports in the fourth quarter. Having said that, these are our results. The volume reached 35.3 million pairs, a decrease of 19.8% in the quarter. The volume in exports decreased 14% and the domestic market decreases 21%. Gross revenue, almost BRL 915 million is a decrease of 12.2%. In the external, the international market has a decrease of 2% and domestic 13.1%. Gross profit goes down 27.1%, almost BRL 319 million with a gross margin of 5.7 pp for 45.2%. I'm going to talk about it in detail later on. But the most factor that impacted was the smaller volume and reduction of costs. The recurring EBIT went down 43.7%, reaching BRL 122.5 million, and EBIT recurring margin goes down to 17.7%, decreasing -- increasing 41.7% pp compared to last year, reaching a result of BRL 286 million, minus 17.7%, gross recurring margin, 41%. Here, you can see a strong influence from GGB in our revenue and expenses. So I will try to isolate the impact of GGB because in the past, GGB as it had only 49.9% of the operation, the results of GGB impacted only the equity method. And since we acquired 100% of the operation, the GGB results started to impact every single one of our lines at the GRE. Our gross profit, total one was 12.2% decreased 12.2%, it would have decreased 16% if we excluded GGB. The net revenue decreased 18% and would have decreased 20.2%. Gross profit 27.1%. Without GGB, it would have decreased 28%. Operating expenses grew 17.2%. They would have decreased 13.7%. And our EBIT that was 47.7%, and also making adjustments in the financial results because part of that comes from equity method because part of our real estate investments are holdings. So the results of these holdings come via equity method. So -- but our cash results, we do an adjustment, and we detract from the EBIT and using the financial results, making these adjustments, excluding results of our real estate projects. Our EBIT was 47.7% and would have decreased 43.7%. We will live from 47.7% to a decrease of 43.7% and the net profit 24.5% would have presented 17.7%. So our impact over the revenue, it dropped 12.2%, internal volume with a drop of BRL 174 million, price and mix with BRL 66 million of revenue, volume reduced by BRL 34 million price and mix of our international market adding BRL 28.2 million and over 7% is stronger than the dollar reducing our exports by BRL 16.3 million. We lost about 5.7% of gross margin going to 45.2% to a drop of minus 5.7%. That's very healthy when compared to other players in the sector. Our CPV that was 49.1%, represents now 54.8%. And the main impact is the labor represented of 48 points compared to last year, which is the higher of this whole series. The raw material is stable. The lower percentage in this historical series and OGF is stable with a growth of 0.7%. Impact over labor and the gain of 4.8%. Let's see, the lower volume of orders, marked orders, a lower volume, and then we dilute less our fixed cost. Another impact, the payroll increased. We had a gradual increase since last year, structure adjustment, the gain of -- the increase of 4.8%. We had here it involved the reduction of our structure, labor structure in the factory so we had one-off costs in the period, and we had a difference between the incoming order and adjustment of labor. Grendene works with the placed products when we receive the order, I mean. In March, I get all the orders in to deliver in April. Historically speaking, we have a high concentration of incoming orders at the last week of the month last year, we had higher concentration, especially in the last 2 days of the month. We get the orders, the orders had a lower volume than what we expected. So this volume comes in at the end of the month and lower than expected so the time to be able to adjust the whole structure of the factory to produce the following month was very short. We adjust the structure. However, this concentration of orders at the end of the month really harmed the labor component in our CPV, which is the COGS. When we look at our operational expenses, 17.2% of increase when we consider the recurring expenses, they dropped 13.7%. Total commercial expenses dropped 4.8%, administration expenses totally advanced 23.3%. The GGB impact is present here, I tried to eliminate this impact so I have a correct comparison. Total commercial expenses dropped 4.8% in the quarter. I eliminated the GGB numbers, I have a higher drop of 18%. Administrative expenses grew 23.3% total -- in total, when I exclude GGB numbers, I have a decrease, I mean an increase of 7.2%. This growth is really impacted within personnel expenses because of increase of payroll and expenses with adjustment in the administrative structure. And here, I have -- I show the variations of each line, there are an impact over the accounting EBIT with a decrease of 47.7%. The recurring EBIT 43.7% of drop and we have variation of net revenue because of volume. Expenses, commercial expenses varied and helped our EBIT, administrative expenses. And the equity variation really harmed our EBIT. In the quarter, we have BRL 33.5 million of nonrecurring items and out of the BRL 33.5 million that we have 2 main accounts, BRL 71.4 million, the result of real estate investment via holdings and that impact our EBIT. So we take that result out and include it in the financial one because it's really the remuneration in our cash flow. And then we have nonrecurring GGB results as well. Financial results here really robust. We have a high total financial result was 8.6% above the fourth quarter last year almost BRL 161 million, and the main impact here of the financial result higher CDI 3.8%. It's just a superior exchange result -- the result of exchange and CDI took us to almost BRL 161 million. We have investment in projects. Real estate projects almost BRL 990 million. This portfolio has started up in the second half of 2019 with a nominal result of 310% almost 311% of the CDI. Numbers of 2025 here. In the whole year, we had a drop of 11.1% of the volume almost 124 million pairs, a drop in the international market of 4%, in domestic almost 14%. We have a strong effect of GGB in growth, but I eliminate that effect, the domestic market drop of 2.6%. Net revenue drops 5.8% to almost BRL 1.169 billion, net gross margin also drops EBIT at BRL 367 million, recurring EBIT of 15.2%, variation of 2.4%. Liquid results, net results almost BRL 16 million growth of 2.4%. Net margin gain of 3.4%. I here eliminate the GGB numbers, the gross revenue growing 5.1% would have dropped 4.4%. The net revenue dropping 1.7% would have dropped 7.8%. The gross result also with improvement total expenses would have dropped over 11%. EBIT with 27.7% and -- here again, I have the CPV, the explanations are the same many per quarter net gross revenue from 47.2% to 45.2%, and the production factor that impacts the loss of margin is concentrating here in labor. And raw materials as the lowest level in terms of net revenue share and lower labor with the lower dilution of fixed costs and increase of payroll adjustment of a structure and the difference that I mentioned before. Total operational expenses grew 23.5%, total commercial expenses 22.4%. Total administrative expenses 31.6%, a strong impact of the GGB numbers when I eliminate them operational expenses from 23.5% drop 1.6%. Commercial expenses grew 22.4%. Excluding GGB, we have a drop of 4.4% general, total administrative grew 31.6% would have reduced to 11.3%. The increase of payroll adjustment of structure and the tax expenses impacted here. Financial result rose 33% in the year, reflecting a higher CDI result 7.5% higher and then we have our development projects, real estate projects in other assets, financial assets and equity equivalency also present here showing a result of BRL 488.9 million. So our result -- net result was up BRL 64.8 million, BRL 118.5 million of reserves for our tax ICMS, reserve for income tax as well. And then legal reserve, we have BRL 21.5 million for legal reserve BRL 409.1 million to be distributed we have distributed BRL 326 million. The October results and part of November's results mentioned, we still have BRL 83 million to go to BRL 1.1 million of dividend and BRL 67 million net of COGS. So the shareholders that have shares as of the 24th of April, our shares will be ex dividend and out of BRL 409 million distributed in December last year, we have exceptional distribution of almost BRL 980 million to be paid in 4 parts. The first one -- the first part was paid BRL 400 million in January on the 18th of March. BRL 200 million there on the 10th of June, BRL 200 million and on the 9th of September, BRL 179 million. This pay flow was devised in a way not to impact our net results. So total of dividends we had since opening -- going public held company, the total paid dividends nominally BRL 7.6 billion. Dividends itself alone, they are worth more than some of our companies of the cycle. If we correct with the IPCA rate BRL 7.7 billion, they will turn into BRL 11.2 billion and if we correct that with the CDI, we have BRL 16.1 billion so this graph, I can see it as a very positive graph to show the resilience of Grendene and the capacity we have to generate results throughout the period with positive or negative scenarios year after year, we have been distributing dividends. And every year since going public, we have this distribution of dividends. And now I'm going to -- that's it. I'm going to wrap up, and I'm going to be open for a Q&A session.

[Operator Instructions] Our first question is from [ Eduardo Menezes ] from Delta Investments.

There was an internal discussion and legal one about the possibility of distributing dividends coming from tax reserves. And is there a future risk of this decision being questioned by the public entities.

Eduardo, thank you for this question. In our evaluation, our -- the risks of questionings are minimum. We have major legal advisers saying that we had a lawsuit that it was ruled valid and the price that the IRS had to start with an action. 2 years after the ruling, we didn't have any questions afterwards in this period. So according to our lawyers, we are really safe about this decision of distributing the incentive reserves, the state ones. Remember, we only distributed incentive reserves for ICMS.

Our next question is from [indiscernible] an investor.

Could you give more details of what has done related to the production adjustment and structure to adequate to current volumes? And how can we expect -- what can we expect from the operating operations in 2026 and international competition.

Thank you, [ Tadeo ], for your question. Basically, what we did was to reduce our people and we also reduced the administrative structure. These adjustments are easier with direct labor. The people that have direct contact with production. And we also made adjustments in support labor. And your second question is perspectives for 2026. We understand it's still a challenging year and the elements that made 2025 a challenging year, they remain. Added to that, we have elections and in 2026, and we have World Cup and many holidays, but we expect to grow in revenue volume and margins. As I mentioned before, we had adjustments in structure of labor, raw materials are helping us. We are very -- we are relying in -- that we are going to have positive results. We believe that greatly.

So now we close the Q&A session, and I would like to give the floor to Mr. Alceu Albuquerque for final considerations.

Once again, I would like to thank you for your presence in our video conference. Our IR team is available if you have any questions. Please send it to us. Good morning, and have a great weekend.

Thank you. Now the video conference for fourth quarter '25, it's closed. The IR department is available to answer any other questions you may have. Thank you for participating, and have a great day. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]