Grupo Casas Bahia S.A. (BHIA3) Earnings Call Transcript & Summary

[Interpreted] Good afternoon. Now we're back live to answer your questions. Thank you so much for your interest in our company. Before we begin, I would like to give you a little end here. On the 12th of August, we are entering the state of Amazon with distribution centers and 5 stores that we started now in Manaus. We reached such an important day, reinforcing our commitment to our omnichannel approach. We're going to quickly look at a clip of what went on now in Manaus, just 30 seconds. [Presentation]

[Interpreted] I think you got a bit of a vibe and I can talk about the omnichannel approach all day long. But what you just saw is the actual omnichannel approach live. The strength of our brand takes consumers online to the store. The stores are like last mile hubs for delivery and relationship platform, a point for credit, granting, banking. It's an important step in our expansion in the north of the country following what we've done with a lot of success in 2021. So we continue to be very assertive and very consistent performing our expansion finding. And now that our energy is way up there. And these images are here from the morning around 9 when we opened up, where we had a queue going all around the stores. So now I want to go in and pass it on to Gabriel so we can begin our Q&A.

[Interpreted] Our first question is from Joseph Giordano from JPMorgan.

[Interpreted] My question is in line with the productivity of the new stores. You just announced your entrance in the state of Amazonas, and we saw important store productivity that was very surprising in this quarter. It was a very difficult quarter, especially when we take a look at the segment for lower income, which is probably a bit more of the core customers. And I wanted to explore 2 points to you. One, what you attribute this market share gain in the physical world? And I think that's the main first point. The second point is how you've been seeing this trend throughout the second semester of the year, especially when it comes to noticing the government income support and how that would help with the economy a little more. So finally, I want to help with a discussion on a bit more of the opportunities for store expansion and how you're looking at the second semester when it comes to expansion.

[Interpreted] Thank you, Joseph. Thank you for that question. Well, actually, I think now for quite a while in the past 3 years of transformation, we've been talking about the differentials the company has and the power plates that we have in our hands. Now we're starting to reinforce this, especially in a moment like this one where we're at. We always believe that the relationship with consumers is really omnichannel approach. And there's not a line or physical -- Consumers can access us however they want, wherever they want, and whenever. So we're prepared for this. And now what we've seen in the second quarter is the physical are gaining a lot more priority. And the priority with our online sellers also making priorities because we have important assets in stores like the [ alpelater ] book at a moment where the income of the consumer becomes a little more restricted. Then we have an important tool to adjust their desirable product exactly in an installment that fits in their pocket in a very precise manner with losses that are really controlled as you've seen during the video in [ Colaba ] can get into this a little more to explore any of these questions that I might be outstanding. But we're really thinking importantly but the physical stores. We gain market share. And what we're seeing now is Compre, Confie, which is the measurement we always used ever since the beginning, and we've also noticed a gain in market share in 1P in the core categories of Via. And I want to mention that our comparable basis has no acquisitions back then. So it's just us against itself. And despite experiencing a drop in the online environment, from the Compre, Confie numbers, we also see market share gains even with this drop. So I think it's important because the market is more challenging, and this is the truth. But we're handling this very well with the tools we have at our disposal here at Via. So now about the sequence of stores, we just opened 5 stores now. And it's important to mention that these images of a lot of people trying to come into the store and queues going all around the store that exists up until now at the store. This is not because of the massification or massified disclosure and publicity and advertising before. Since it's a completely different market, we didn't want to have like massive communication, we wanted to go in slowly. So going slowly is the image you saw on the video. We have another 4 or 5 stores expected for Manaus. And I think a big part will be this year so, and then we're going to be able to communicate more aggressively if necessary. So we just made the decision to start working on the preregistration in Manaus. So now we have a lot of consumers that are coming in for the first time with preapproved credit. So part of this differential that we have. Our expansion plan is active. We should finish this year at about 70 stores -- between 70 and 75 stores until the end of the year, and we're still active with this, especially in the North and Northeast of the country, where we've really designed our expansion. So yes, the government income support should start now and lead to positive effect in retail as a whole on our business. We have the assets to be able to capture most of these consumers that are going to be more willing to consume. And I think this is going to be impacting us in a more accelerated way in the next cycle of receipt. So I think this may impact a lot of the fourth quarter. What we saw in the first wave of the corona voucher, was that in the beginning, it was remotely used to pay debt in supermarket. So this is how we saw the corona voucher at the moment. And then we move on to the segment where we operate, which is super horizontal with the marketplace. So of course, this should generate impact. We think that this third quarter still has some challenges in the fourth quarter due to all of the seasonality embedded and this distribution going on, we think it's going to be really strong. Perfect.

[Interpreted] Now our next question comes from [ Gustavo Franchini ] from Goldman Sachs.

[Interpreted] On my side here, we have 2 questions. The first one would be about this topic with the physical stores. And I think the recovery in the sales performance was very significant. And I want to do some follow-ups Joseph’s question. Do you think there was a bit of a shift back from the online world back to the physical world? And is this a trend you're continuing to notice in these months in July and now in the first half of August? And the second question is also falling a bit of our attention, which is the increase in the penetration of Via in the marketplace and also the fulfillment. So what has caused this acceleration so significant? What's the potential for penetration in these services even when it comes to monetization and with everything you guys are offering, these are the main questions.

[Interpreted] Perfect, Gustavo. Thanks for that question. I'm going to start off here, and then Sérgio will continue within Via. I think that this migration is Brazil is still very physical. Consumers like physical stores. And the proof of this is what you guys just saw. This is what we see every day at our stores. So consumers are hybrid. We don't believe that Brazilian consumers are going to ramp up in a drastic or radical manner to online. We can we consider they're going to continue to be pretty hybrid. And then we're trying to figure out how we can work with them in the best way so that customers can be serviced as they prefer to be related to. So we have the necessary assets to meet these customers in an omnichannel approach with all of our channels with a major differential having the online sellers. So it's a hybrid online approach where consumers are assisted. And you can see that it's still very strong with all the stores open. So the online still quite strong. And this also brings in a lot of strength to the marketplace because more and more, the sellers getting used to selling an assortment that's completely different than what he was used to selling before, and he starts offering solutions that are really complete to consumers. So yes, there was a shift. We see online sales having some a slowdown and physical sales have grown. But by the numbers we saw, we understand we gained market share in both. We followed strongly with our plan in the marketplace and in a very strong way, we've been looking to the long tail, which really levers in Via, which is the topic that you will get into in a bit. And so now we're seeing a bit of what could become the normality in Brazil. So it was really accelerated online because of the pandemic presses great. The company really became online during the pandemic, they performed all of the transformation. But now we're working with customers in an omnichannel approach really. So Sérgio, do you want to come in?

[Interpreted] When it comes to Via, it’s great. Thank you for your interest in Via. So first of all, I'm going to go back to the topic about the physical start to reinforce is the date because it connects with Joseph's question also. And I want to remind you that from the 32 stores we opened this year, most of them were new markets also. So we have a brand awareness of very significant due to the history of our brand, a big expectation, which is also connected to our positive performance of new stores. But I want to remind you that this leverage is significantly our online activities. So we've measured this and we've seen some peaks that are even bigger than 100%. When we set up a physical store in that environment in that region, beside all of the logistical benefits to the service from the online customer -- so about Via is we're very happy about this and we're going to be launching the pet services in the last months of 2020, January 2021 where we start limit, we're going to start building the element of technology business for additional in service, we started off with adding the collection process drop off, the use of the physical stores that has a drop-off point for the seller. And now this year, we acquired CNC and we embedded in protect technology which was let we acquired in January, and then we were able to accelerate all of our fulfillment plans. So we're really in line with our growth plans and expectations, and we see this potential for very few years that the fulfillment will have more than 30% of all the deliveries in the marketplace. There's business as income fund with this offer of services division of services that I consider to be very profitable in the fulfillment on [ one ]. And considering the profitability that it brings in, it also causes a bit of a reduction in the cost in the last mile that I also continue to be very significant and benefits of P&L. So we're very happy because it's a solution that creates value for the salary increase value for the consumer because they improve the level of service and service delivery, it also gives us a benefit of profitability. So we're really happy. We've been moving along well. Colleagues that came from the acquired companies, also bringing an important technology background have been reinforcing this and they help us provide more security to the scalability for the next period and nearby future.

[Interpreted] Our next question is from João Soares from Citibank.

[Interpreted] I want to talk about the 3 key dynamics. So there's a lot of improving part increase in the number of orders, the number of sellers. And at the end of the day, we're really seeing this reduction in the average has been migrating to the loan sale. So I think it's important to understand this journey as you've become a little more established another level of the average ticket, where should we see this turnaround in this trend? So looking at your economics, they've improved a lot, but take rates are going up quarter-over-quarter. I want to understand what's the competitive landscape and how competitive you guys have been with the commissions you guys are charging from the sellers. So about non-payment and default, you guys have been able to improve the quality of your portfolio, which is something we didn't see in general in the retail company. So I think there will be interesting to get explore this a little more.

[Interpreted] Thank you for that question. I’m just going to cover a little bit and then I'll pass on to Helisson Brigido Lemos. I think that what we're seeing now, that's happening with the marketplace at Via is absolutely with what was expected. So really increasing the volumes of orders here, really getting a lot frequency and returns with the consumer. This is, of course, an important process to accelerate our platform, 1P, and sales of credit services, logistics and it significantly reduces our customer acquisition costs. So yes, we've been very competitive. We led the increase in the price chart. The other platforms came in significantly. We've been very competitive. We haven't noticed much of an issue with our competitiveness. When it comes through GMV, I'd say that it's not our priority immediately. It's a consequence of everything we're doing here. We should see that from next year onwards, there should be like an acceleration in the GMV because of all the volumes we're producing. So I'll pass the floor to Helisson, and he can add on to this a lot.

[Interpreted] So it's difficult to answer because you already said everything. In other words, what we're experiencing here is really what we call like a day curve. So we migrated our focus. And now we're moving on to like long sale categories, the rearrangement. Let me make it clear. We are in no way having a takeaway or price policy that would impact GMV performance, and that's not the cost. We're highly competitive in the day rate. If you compare our platform versus the other platforms and what is actually the all-in collections were super competitive. Now what happened with possible sellers operating differently is because of the adjustments that they have normally in their management system. But when it comes to the apartments for sell firm, the number of sellers is growing. And so in no moment did we have this drop in gene because of the seller's performance because of the optimization of our platform and our focus in all of the long-tail tools. So the day curve remains that we are migrating all of this to the long tail. We're learning with is operating better and the GMV, as Roberto mentioned, should be recovered soon after.

[Interpreted] So this is really in line. Just if you remember our previous calls, when we declared the strategy for the marketplace, is online, everything been staying the market. Our marketplace is already stable. When we started the [ protein ] operation, we said it would be quick growth. The assets are ready already. So what we do is the editing technology. We have a lot of algorithms behind all of this planning process and the assets already exists, the CCR collection levels pretty strong through that loss we acquired back then in 2020. So this is a level of growth that's very different than what we see normally in the platform at start from scratch. So [ Via ] is not starting from scratch. And as I mentioned, this brings in a lot of benefits to the consumers for greater profitability it brings in benefits to the seller, and it also provides major benefits for cost reduction because more and more boxes are being handled and transported in our logistical network in our distributing stores. I'm going to pass the floor on to Calabro, but also you can address the second question.

[Interpreted] Thanks for the question. In the last quarter, we had already warned the market about our short-term indicators that were performing at a really satisfactory level and that this would then have positive impacts in our over 90 digiters and also in our provision. So our PDD and our index of provisions has also been reduced. And why did this happen, 2 reasons here? First, in the fourth quarter of 2021, we had a series of improvements and adjustments in our strategy for credit. And all of it were focused on really evaluating the growth of production and drop in the default rates. So we anticipated ourselves and the effect improvement in the algorithms and in our strategy, really bringing these indicators that not only reflect this now, but up ahead, we're quite comfortable so that these indicators will be very controlled. So we also included an important page with macroeconomic indicators in the presentation to bring in a little bit of our vision, of course, without getting into our strategy too much, but to show you a bit of how we've been seeing what's going on and in line with our strategy, other indicators will also help us. So we brought in, as you all know, a drop in the unemployment rate and we also use information from IBG, the [ zinc ] agency. And we can notice that as we correlate unemployment per age range, and we correlate this with our portfolio, we do see that we cited the fact that there's some pre-pandemic indicators actually that you've embedded in the pre-pandemic period when we correlated to the portfolio, then we start seeing that our portfolio is also really concentrated on the lowering unemployment indexes. So another important effect that's really connected to our strategy of is when we look at default rates and on payment and the debt on average for Brazilian, we can see that the highest default rates are in the cards and not in the installed and payments. So we disclosed retail and cards, and we also demonstrated our policy even more than retail, but what was important is that our average debt is growing and are actually dropping. So this is a fruit of the investments and improvements that we performed in our strategy to finally reach this moment. And once again, we're really comfortable with these indicators in the next quarters. We'll continue with this trend. And as we mentioned, it's a little different than what we noticed in the market because we use a lot of technology, 99% of our decisions are based on algorithms. We have a lot of historical information from the consumers, These consumers also have this relationship with the brand and very strong and is, of course, very values our credit line and credit facilities. And so then it's the only credit facility they have available. So that's why they really value it. And thank you very much. I hope that answers that.

[Interpreted] So our next question now is from Ruben Couto, Santander.

[Interpreted] I have a follow-up here about depot CVC digital. How has that contributing? If it's a different profile, I think it would be great to hear a bit more premier been in the second share and another playoff about the EBITDA margin for the second semester. There's an important part that's related to the improvement of the SG&A average turnaround in beginning of this year where we had a reduction of take for adjustments in the operation. And now as I notice even greater acceleration with some more customers follow in the stores. So is there any recover on that? Or can we imagine an ongoing reduction when it comes to SG&A?

[Interpreted] I'll start here, Roberto and then you can get the second one. Thanks for that question. The digital TL demonstrated almost 7% in sales already. So as we can see, we've always mentioned that the [ alanine ] need better and we are using our credit strategy to rate favor of those customers that don't have another way to perform for purchases and on 3P we're going to also have a growing consistently. And it's a little close to the rates we already have in the physical stores. The main difference as well when we compare the digital TDC and physical and then or we even demonstrated the products that are acquired to the digital year closer to the tail that we saw on the store and the average term of dollar and the value of the ticket. So this, of course, helped the cost to be a little more stable and keep up with labs to what we have currently with the digital TTC. We also reached another level of the population. So the profile of the consumer that buys online is a little different than the consumer buys in stores. So this is also an important benefit for us because we develop such energy more and more. And if you were to compare with social levels, it helps us delegate our services a lot people that have high purchase or for the digital tools a differential for us.

[Interpreted] I hope I can add on to the second part. Thank you for the question. When it comes to SG&A, set, we started off in the second quarter last year, and this is a reflection of some factors. So maybe the most important is the productivity gain that Via takes a look at based on the 3 years of strong investment that we've had. So all of this investment in technology is adding a lot of productivity in various different areas in the company. So as a sales scale up in the fourth quarter, for example, plan sale up next year. So we have a reduction of the late rates and even to scale up, even more, the type of expense that shouldn't come back. So we don't need to have major restructuring to gain sales. We've had a product related a lot greater than what we had maybe 3 to 1 year ago, and this has been reflected in our [ sales ]. So yes, we can ramp up our sales in a more elated way as the market accelerates more. And we can keep the level of expenses that we can have that what most impacts do you sell a lot more in the physical store, do you have variable costs that are impressive in the physical store? And these, of course, go up, this is direct function or effect of the sales.

[Interpreted] Next question is from Victor Saragiotto for Crédit Suisse.

[Interpreted] I wanted to hear a bit about your expectations and how you're looking at the cash dynamics for the second to now the second quarter, we noticed a pretty good performance in the working capital and also between the balance between labor issues and taxes, credit are pretty positive. What's your expectation for the rest of the year?

[Interpreted] Well, thank you for that question. I think the company had excellent work when it comes to cash generation, and we've been looking at this a lot. It's really part of our core business. I'm going to pass to Oliver so that he can provide some more details on how we're doing in the second quarter with the labor, plans, and other obligations and how this should perform in this second quarter.