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

[Foreign Language] [Audio Gap] Directing all of our efforts to the long tail with a focus on increasing [indiscernible] and customer volumes. So [indiscernible] marketplace and you start taking on our position as people and performance. So I just wanted to say that Helisson brilliantly fulfilled his mission here at Via starting the digital transformation, supporting us with the evolution of our marketplace and really helping us in the innovation. Helisson, we want to say thank you so much for your partnership that is definitely not stopping here. What's pending now is that we're maturing a cycle. This decision is [indiscernible] Via as an adviser and all of the innovation [indiscernible]. So having said that, we'll also be working on some changes here in reorganizing the C level. So Sergio, he was C level and he was connecting Investor Relations and Communication [indiscernible] now accumulate [indiscernible] performance, and he'll stop focusing on logistics [indiscernible]. So that's part of the job description. So with this major change that we believe is key to have a bigger advance and the intent to use of technology and data analytics, we believe that we're taking on a [indiscernible] performance at Via, which interacts a lot with all of the evolution of our logistics [indiscernible] and accuracy of [indiscernible] relationship with strong legion [indiscernible] with our volume of [indiscernible] saying what's going on [indiscernible] we are absolutely planning this. This was a scheduled and planned move and [indiscernible] the entire innovation process. Gabriel, the floor is yours, and now we can start the Q&A.

Our first question is from Joao from Citibank.

[indiscernible] we were thinking about [indiscernible] I wanted to hear your version [indiscernible] change in expectation [indiscernible] and also if you could talk about the market [indiscernible] you've been talking about this [indiscernible], but now [indiscernible] and I want to hear about the average [indiscernible] it seems that this average ticket brings in a bit of pressure. So we wanted to know about [indiscernible] and how we're looking to repeat going back to expanding and having robust growth? And if possible, there was a bit of [indiscernible] of expenses, we had significant growth in expenses in the fourth quarter. And how do you [indiscernible]?

Perfect, Joao. [indiscernible] so we opened 60 stores last year, and we closed down 21 stores [indiscernible] basically that poor performance. So something we've been working on this [indiscernible] and here, we'll be able to fit in about 60 and 80 stores. We've already mapped this out and would be about 60 to 80, but with the context going on and the interest rate happening [indiscernible] and question, we really changed [indiscernible] and we should have about [indiscernible] stores this year. That's the road map we were already stating for a while. POS as we've already negotiated, but basically the scenario once it's improving a bit, we can accelerate this very quickly. So stores seem to be very [indiscernible] he entire period, we can see 18% in the fourth quarter physical store [indiscernible] so we've and keep up with the same pattern, and we believe we need to become this a little better as things [indiscernible] evolution this involves [indiscernible] increases our attrition and this is full structure behind for us. So for this year, about 5 to 10 new stores. When you look at [indiscernible] yes, we follow along the strategy to continue to evolve with average tickets that are a little smaller. We've moved on [indiscernible] not below BRL100. So that's not our target [indiscernible] we will continue to value [indiscernible] because we've been very concerned [indiscernible] the level of recurrence with consumers, it's been growing and [indiscernible] per purchase. And this has been growing. We own 79% in the volume of orders in the fourth quarter in [indiscernible] and we were able to balance out the GMV. So when we set up the strategy, [indiscernible] and then we had a drop in GMV. We've already bounced [indiscernible] about 20%. This growth has -- we've continue to -- levels that are higher or the same in [indiscernible] and we continue to be extremely focused on the strategy to gain [indiscernible]. So now the fifth point [indiscernible] provided some details on the fourth quarter. But I think [indiscernible] to look at the best year-over-year because [indiscernible] that will have a level of expenses [indiscernible] a very strong plan that we've been moving onwards [indiscernible] a very aggressive plan for performance gains and greater productivity, which is really the fruit of all of the investments we've been doing in the last few years and a reduction in expenses. So I think here, we do have room to think of something that's about 2 points of EBITDA coming from all of the gains we've had been demonstrating this year. So Padilha can get into the details of the fourth quarter.

So as you mentioned, there is a bit of a distortion in regards to some credits that we had seen in that quarter that would be distributed during the year, but they were concentrated in that specific quarter. So it gets a little distorted, but the best indicator really is the level of expenses in the year. We're talking about 24%, 24.2. That's pretty much the level that's recurrent without the labor effects about 23, 30. That's the recurring level. And it's really difficult to compare the total expenses with the market because we have operations with the DC in the entire operation, which brings in some possible difficulties as well. For comparison with the -- if we exclude the NPL effect, so we're talking about a level of expense that is probably the more comparable number when looking at the rest of the retailers in Brazil. And so we have been in this level for the past 5 quarters. So we've been working on this. We're -- and this has been very important for gains in productivity. And Roberto talked about 2 points, which is really our target here. We've been focusing strongly on this continuity of our expense reduction plan for 2023. So we have a very strong target as well to search for these 2 percentage points and increase the profitability of the company.

Our next question is from Pedro from Bradesco.

I'll work on 2 here to make things a little simpler. First, we would like to hear from you guys about a bit of the take off in the year with a sales performance, but also the gross margin and not only from a quality perspective in the stock, which seems to be very good, but also considering default impact as well? And also taking advantage of the second question, I would like to know if we could get a bit of your mindset on the capital structure? We can see a big opportunity for market share gains, which would basically require some levels of investment and how we can equate this in the best way if we discount receivables is going to be something like a primary. So we just have these 2 main topics to discuss.

Pedro, about 2023, yes, we did have a challenge right in the beginning for default. And so I think we're handling this pretty well. We've seen a bit more rationality in the overall market, and this has been quite positive for competitive advantage, and this is a scenario we like playing in where profitability can be preserved. And so when it comes to the quality of the stock, we have pretty good quality. So we had a significant reduction in the volume of stock. We started off in the previous year, where we really focused on the pandemic due to a lack of products. And then as this was structured, we reduced this without margin pressure. So considering the quality of the stock, we were able to remove all of the stock without pressuring our margins. So that's where we really have the quality of the stock and a very low rapture, right. So we see there's a balance in the margins in the first quarter, and we've been able to reach levels of market share gains that I'd say now in March, we've had some signs where our market share is really at its maximum historic level that we've ever had when it comes to online. And so that does not mean the growth of 1P is still a little complex. In our 3P, we've had strong growth as well and in the stores, we continue to be quite strong as well. So we're very focused on purchasing at this store and the physical store. So this is a bit of the radar about the capital structure here. We were able to have a reduction in the stock. We may have some fine-tuning, but we had the payment terms that have been completely equal to the level of stock, but this is very important for this growth movement and trend. We've been moving along very well for the renewal and postponing of these payments. And so this is very positive. And we are in a scenario where we can really grow and capture the market share. So part of our sales come through the buy now, pay later system. So we've been able to grow, to be able to have this level of growth of estimating. And if we don't have the total, it's very close to the total. So we believe that the market should have an improvement when it comes to credit throughout the year and also a discount on credit cards are as an option. But at this moment, we're not working on a bigger debt level, and we want to roll out on the summit of the debt the company sales for this year.

Yes, that's perfect. We've had very advanced conversations after all of this advanced with event with a big retailer, the banks positively for us and signs that with the payments we have to -- that are going to be reaching maturity in the second and third quarters, these have been moving along very well. But I want to reinforce one point here. The company had very strong cash generation this year. So next year, we are foreseeing a lower cash exit with the possibility to also keep a level that's very high in monetization for taxes, close to about 2 billion to 2.5 billion. And this also helps with all of the other elements that Roberto just mentioned that really lever us in this achievement of the market share.

Our next question is from Danniela, XP.

I have 2 here on my side. First is a follow-up on the EBITDA margin that you mentioned. We have about 2 percentage points that we should see captured very quickly throughout the year. If you could bring a bit of the drivers and even the path for capturing this throughout the year, that would be great, and it would help us a lot. The second point is getting back to Helisson point and even if you could maybe give us an update on how the structure is doing in your incentive program and retention for the main executives? You had mentioned that you had some stock options that were pretty -- they were a little older and the level of prices. So if you can give us a bit of an update, if this was renewed and if you've been working on this to be able to have the retention on some of the key executives in the company?

Danniela, about where you're going to have the EBITDA gains, I think we have this huge productivity program. And so a lot of this is based on what we've been investing in and how we've been investing on the company. So we'll give an example. If you see what we've presented on the evolution of 10P or revenue per seller, the productivity gains you've had on -- based on all of them is not comparable and so a lot greater actually than of the pre-pandemic period in 2019. So this is a small example, but it's really in all of the company's departments and areas we have a lot of productivity coming from logistics. So we were able to add a lot of technology and a lot of algorithms that have been really conducting the distribution and allocation of products. This modification now, action is taking on this position of logistics as well. And this gives us the expectation that we should accelerate the intensive cues even more of technology for in logistics. So we have different initiatives in the company, and we also have productivity here at the headquarters. We've also been messing with this, and we've been able to gain more productivity for a while. We had to duplicate some structures. So we had people building new things and also people handling the past things. And now we can make this become a single structure after the entire cycle. So there's a bunch of different initiatives going on at this moment at Via. So we've been obviously -- we have a big challenge here, but we are very committed to this and working on this plan. So it's nothing new. This has been something we've been working on since the second semester last year. We've been activating this plan. And now it's really -- we have a sequence to -- for 2023. So about retention for the executives, we've been also working on a recurrent stock option plan in the company, and we have another original plan as well in the company, which you are referring to, but then as the stock price is positioned at about 90 and a few cents, I'm not sure, but this is kind of under the water. But everyone at Via is aware what we have as value creation at Via does not interact with the extra value the company has and the executives are here. They're committed to the company in the long term. And we've been working on some decisions here that are quite difficult in a company that don't value executives in the short term. And -- but all of this is to the detriment of something we really believe in its 497, the value of the stock plan, but we had a change last year. We were able to -- we added up a -- we had the postponing of the squad with the executives. And in exchange, we had 30% restricted, which is going to be maturing in the next years. And we also have a study group in our committee for people and performance. And our Board, we've been studying a possible postponing of the execution of this plan from the moment when it's vested by the executive. So the barrier in the second semester of next year, and we're debating if this makes sense to postpone and executives that maybe have more time to exercise this, if the conversation is doing pretty well, but we still don't have the end of the conversation addressed, and we've been working on this topic.

So I wanted to invite Alexandre Namioka from Morgan Stanley.

I wanted to focus a bit more on logistics, especially in the fulfillment model that you consider in the fourth quarter. And we saw penetration in fulfillment reaching about 21%. If you compare that with the 20% in the third quarter and 16%, if I'm not mistaken in the second quarter. So we are seeing a bit of this penetration also starting to reach some speculation. Could you help us understand what would be the level of penetration in this mix of services and logistics that you're seeing within the logistics for the sellers? And if there's any additional investments you have to work on when it comes to capacity, new fulfillment centers to be able to continue to increase its penetration?

Alexandre, I will start off here and then Sergio can help me with the answers. First, we have not seen a need for investments. So Via has been reducing stocks for over a year. So we have room now to work on this operation. We already have our logistical network all set up. And we have all of the stores operating as logistical hubs. So we think that when it comes to space allocation, we really have an opportunity to bring in more players into our logistics -- so I think we can split this between fulfillment and also with logistics as a service, which has been growing a lot. We mentioned a few of the players that are already doing this. And we see a demand for this kind of service. So we can be very competitive on seeing that the network already exists. And in fulfillment, yes, we had growth, where we were able to start off really in the second quarter of last year. And we had exponential growth. We have room to grow still a lot, and there's appetite from the seller. And so it's really about one more point of control at this moment than actually being at this limit for growth, right. Sergio, if you could add on to that.

Well, that was very clear, but anyways, just about the difference in the semesters. We started off this fulfilling practice in March 2022. And we have this sort of graph here over the last 3 months of 2022. So we have less than 9 months evolution, leaving from 0 and heading to 20%. So we consider this healthy growth, and it is impacted by a mix of categories and that can use that can kind of interact with the system in so many different seasonalities that we went through in the end of last year with the World Cup as well. But this doesn't remove from our route, a horizon of potential that we see as at least double this. So 40% or 50% penetration in fulfillment in the amount of orders and requests. You can remember that this is under that umbrella of Envvias, so all of the service platforms where we really see the potential of going from 70% and growing to a potential horizon of 70% or 80% because there's always some people that will work on their logistics themselves. So maybe there's a balance point there. And I want to remind you all that we started off with this service, considering the cost competitiveness that we have been able to be profitable, we were able to charge below the average market cost. So we're really happy with the evolution we've had. And now we're going to move on to new horizons and technology intensiveness and logistics with Edson and Edita coming in. We've seen this past that we've looked at with major potential. We've seen the existence of NPS levels for those orders that are processed through greater development and fulfillment. So this also contributes to call. And in line with this, we've been growing a lot as well with our operation that we call the do as a service, which is really OpenOcean. And that also, once again, strengthens the density, even more on the operational efficiency and density for new growth. So this path continues, and we will be expanding to another 2 DCs. And then when I'm talking about this, we are ready taking up the fulfillment and OpenOcean. And this continues practically without any investments due to the release of the different areas and the reduction of the stock that I would like to highlight without affecting our stock out during last year.

Now I'm going to call Gustavo Fratini from Goldman Sachs.

We basically have 2 questions here. So the first one is about farms and how we noticed a bit of a drop in penetration from the CDC and maybe a possible increase in co-branded? I wanted to understand what are the main reasons behind this? And how much you're looking at this penetration? And the second question is more about the credit panorama. How is this deterioration of the NPLs and/or if we reach the bottom and what's the appetite for risk to provide these loans?

I'm going to pass the far to Calabro. He can give us a lot of details on this.

First, I want to talk about participation. So the fourth quarter historically has a drop in sales, which is really an effect of Black Friday. So in this fourth quarter, there was a set back a little more about the demand of credit. We also noticed consumers in the fourth quarter focus most on paying their debts. Even with the help from the government support policies, [indiscernible] at the time. So that's a little bit different than what we noticed historically in the fourth quarter. So this was the same as the fourth quarter of 2021. So as we noticed, what you mentioned, we've seen this positive effect. We have the growing participation of the buy now, pay later in our sales and also to be able to recover the indexes of approval and granting that we had in the past. So for the effects of the buy now, pay later, that's pretty much it. When you talk about the co-branded card, then we really have had a performance that is very significant in our presentation. We've had highlighted the growth of these participation from co-branded ever since 2020. So we grew this sales regardless, well, without cannibalizing the portfolio in the buy now, pay later, we have this very safe strategy where both modalities of payments grow. And of course, each of them have their own characteristics of the co-branded card. We know that up until a certain level has no interest, but these are different target audiences. But about the co-branded card, we've been able to perform in line with our targets. And we believe in the growth constantly just as the buy now, pay later in our sales. So when it comes to default, I'm going to talk about the fourth quarter and also what we've seen in the first quarter. So we have 2 effects. So one is because of a small part because of this setback. We had this reduction in the portfolio. So I also talked about the revision of the policy we had mentioned, we were also noticing a worsening in the scenario, and we have the second effect where we have this positive effect as well because it's a consequence of payments from customers that were already in a portfolio above 90 days, and they had payments that we call partial payments, right. So what happens is maybe like 5 installments that are late, and they don't negotiate this, but they have a possibility of paying in 1 or 2 installments. So this provides 2 effects. First, the over 90 portfolio has more deterioration because the customers kind of stopped in this range of delays, above 90 days, but this is an extremely positive effect because besides improving our index this recovery, it also contributes to our losses indicator. So our loss indicators, as you noticed, they've dropped because of this effect with the recovery in our portfolio and also because of the effect where you kind of hold out the rollout without if you didn't have these payments dispute these payments would pay the rollout to the portfolio above 180 days. So when it comes to the beginning of the year, January and February, I also mentioned that we had performed some careful openings for our credit policy. Because we've had some excellent indicators, so this allows us to have provisioning indicators and the overall it's smaller in the next quarters. And also -- so we can sell more in the buy now, pay later modality.

Our next question is from [ Nicolas ] from JPMorgan.

I had 2 actually. First, I wanted to know about your guys' plan to try to understand if these 2 EBITDA points, we should see spread out throughout the year or if it's just more of a case where we're looking at this from the second quarter up ahead? And so the second question is about those suppliers. I wanted to know if you've seen some better procurement terms in the last month and what your relationship is on this side?

From the efficiency perspective, I think that it's going to happen throughout the year. So we'll have this capturing process throughout the year and maybe a little lower now in the first quarter, but a little more accelerated in the second quarter. There's a lot of things we're doing that won't be full in the quarter. So throughout the year, we should see this evolution in the productivity at Via. So when it comes to suppliers, I'd say that it's a pretty good ratio. Via super -- as super as significant in the segments where it operates in 1P. So the ratio is really good. And considering the events that took place, we've seen suppliers looking at us as a strategic channel to offset new volumes. And so we've been moving along to help this happen without major bets on an over volume of purchases and stocking. We'll be accelerating this level of purchases with the industries, but things are really under control regardless.

The next question is from [ Iago from Genial. ]

Some of them are already addressed, but I wanted to address this point for [ Nicolas ]. You guys excellent work so far, reduced the stock a lot without harming the revenue and the margins. So what can we expect for 2023, something similar to '22? Is there better improvement? Could you give us some more granularity, that would be great.

Iago, so we reduced BRL1.6 and 25 days in the stock, so we have about 95 days at the moment. So I'd say that the levels of 2023 should be close to 95 days, maybe as I mentioned, we have the opportunity to work on something a little bit beyond this, but that seems to be very really surgical. And there's some technological aspects that are taking place in logistics throughout this year, and it could open up other opportunities for us. But I'd say that it's close to something near the cycle that we're looking at like a 90 to 95 days coverage and then the stock vary according to the seasonality. That should -- when it comes to [indiscernible], it should be around that.

Our next question is from Eric from Santander.

I think on our side, we have a point here about the take rate. So we've noticed some news on the overall market when you look at profitability. And so just to understand, quarter-over-quarter, you had a bit of a drop in the take rate. If it was -- I wanted to know if it's more like seasonality or occasional? And also when you search your profitability, which seems to be a very frequent topic for all the players, I want to understand, besides the fulfillment, which other -- well, besides fulfillment and credit, which are the levers you guys are looking at for a possible increase in take rates? And also, considering this moment where everyone is kind of increasing their rates a bit more, do you see a possible opportunity to capture a bigger amount of sellers or something in this sense with maybe maintenance of some rates versus the increase you've noticed in a more generalized way?

Eric, but what we've seen in the fourth quarter is pretty much the seasonality of the fourth quarter, and we've been able to -- we actually were the first ones to increase the take rates in the market. Thankfully, most of the other players also followed along. Due to this, new that everyone has at this moment to search for greater profitability. So the fulfillment is something, it's really important for us to keep on levering the profitability with the sellers and the buy now, pay later in the marketplace is also a big option. And so we also have various different things going on throughout last year. Now we're forcing the sale of the -- sales with interest on credit cards, and this is it's been very successful at the stores and so online as well, which should be matured by the online players in the search for profitability. So maybe this is a path we should follow as well. And we also have the adds program that should gain more relevance throughout this year. So we added this, and we have some improvements to work on. We've had some -- we'll have some news coming along as well, but this will take place throughout the year. So we have different initiatives coming from different areas. I think the biggest initiatives are really at the fulfillment level, where you have profitability gains and productivity gains. So the more we have the turnovers, more productivity we have in the distribution centers in group and also through the buy now, pay later funding items of the marketplace.

Roberto, now I pass the floor to you because we have no other questions.

So I just want to thank you all for your interest in our earnings call here. Nice to be with you and have a good afternoon.