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

Good morning, everyone. Thank you for waiting. Welcome to the earnings call for the second quarter of 2026 at Grupo Casas Bahia. [Operator Instructions] I would like to note that this earnings call is being recorded and will be provided on the company's IR website, ir.grupocasasbahia.com.br, where you can find the full material for earnings call. It's worth -- it's possible to also download the presentation and the chat icon in English as well. [Operator Instructions] The information in this presentation and possible statements that could be made during business perspectives and financial and operational targets for the company represents the assumption and beliefs of the company's administration and management as well as based on the information currently available. Future statements cannot guarantee of performance. They involve risk, uncertainties and assumptions and involve future risks that could or not occur. Investors must comprehend that general economic conditions and other operational factors could affect the company's future performance and results that differ materially from those listed in such future statements. Today, we have the presence of the company's executives, Renato Franklin, the CEO; Elcio Ito, the CFO and IRO; and Gabriel Succar, the Investor Relations Director. Now we're going to pass the floor back to Mr. Renato Franklin.

Good afternoon, everyone, and welcome to this call to talk about the second quarter of 2026 and no doubt all of you are anxious as we talk about the decision made by the company with a lot of transparency last night. We're going to talk about this change in our trajectory. We are going to split this presentation into 3 blocks. I will talk about the numbers in the second quarter and explain the nonrecurring effects. Then we're going to talk about the Phase 2 transformation plan, and how the judicial recovery is a real instrument for this plan. That's not the destination. It remains the same, a profitable and good discussion, but it's an instrument to be able to solve structural liabilities in the company, keeping the same destination strategy. And the third block is a Q&A session to be able to clarify any questions on this process. So let's start off here. Elcio will talk about the second quarter, and then we'll get back.

Thank you, Renato. Good afternoon, everyone. Well, let's head to the next slide. I'm going to quickly summarize the results in the quarter. The objective is not to get into too many details, but we would like to talk about this from now onwards. And then we have the operational results, right, for the second quarter, which demonstrate a resilient operation despite a more challenging environment where all of retail, of course, have suffered quite a bit and all of the credit restrictions. Our net revenue grew 1.6% in the annual comparison, the GMV reached BRL 10.5 billion with an important highlight with the online 1P advancing 15.3% as the consequence of the partnerships that we have that are still performing in a very positive manner. The adjusted EBITDA of BRL 518 million, with a margin of 7.4%, demonstrating a reduction when it comes to the prior year of 8.3%. And so this reduction already reflects this macro environment that is more challenging. It required some discipline in credit granting in a stricter manner and consequently impacted sales of the physical stores, which are channel with the biggest profitability. So that's a bit of the scenario that we've been facing gradually and has been accumulated over time with this challenge, especially considering the base of our pyramid in Brazil. When it comes to our cash flow, we had a positive cash generation of BRL 798 million, mostly due to the reduction of our stocks, reflecting the redimensioning of the company and the closing of 298 stores and along with the credit restriction factors that we've observed in this period and about the capital structure we ended with a leverage level that's stable compared to the first quarter. Let's move on to the next point, and then here is a point I want to discuss a little more the numbers that really stamp this are elevated, but we should consider a clear distinction of the impact here in the second quarter. So we had a lot of nonrecurring impacts, BRL 9.1 billion in the results, mainly due to this Phase 2 of our plan for transformation. The main effect -- individual effect is considering the drop in the deferred income tax. First of all, we've already performed the same movement in the fourth quarter at a BRL 1.5 billion level, and the company still has the full right to these credits. At this moment, what we're doing is an accounting adjustment for the recognition of the balance sheet. So we keep the right to use these credits in the future. And then due to this plan, we also in this Phase 2, we had impacts related to reviewing contingencies and contractual obligations, considering the store reductions, so we had some targets to consider. And due to a lower store network, there's some implications, right? So a drop in goodwill, expenses with restructuring and adjustments related to the of fixed assets. So this whole set of factors and where we're headed, where we're taking the company. And just to talk about the results and numbers in the second quarter, excluding these facts, effect. The net adjusted loss would be BRL 908 million. Of course, that's still lower than what we would like. But just considering this trend, it was lower than the first quarter of this year. So just to highlight this, but of course, the results are still way below what we would like in the future. But I want to get back here to talk about the next steps with Renato and talk about the judicial recovery process, the RJ and our Phase 2 of the transformation plan. The RJ for those of you who don't know, would be equivalent to Chapter 11 process.

Let's talk about this Phase 2 transformation plan, right? So even if you deduct the nonrecurring effects, it's still a big loss, and you can see the operational evolution is still not sufficient. So next slide. Now I'm not going to take too much time here, but I just want to provide some clear evidence here and consistent margins. So it's very resilient despite the macro scenario that we're experiencing. But this evolution operationally is not sufficient to handle all of the liabilities we have in our financial costs. So let's go on to the next slide. Here, we can show you the debt when we talk about financial debt. This was addressed and we consider reformulating the balance sheet. So for covenant purposes, at 0.5x. Do you have all of the liabilities and adjustments required in more structural manner. So the cash flow, as Elcio mentioned, has strong evolution over time, demonstrating this operational evolution. But through the first quarter of 2026, we had a strong effort here. Capital through extending our payment terms with suppliers that do not represent an increase in credit limits. And then that was benefited by the reduction of our stock. So yes, the operation has been working. But from a liquidity perspective, it's pretty tight, right? So we can move on as we talk about the scenario change and our adjustments. When we finished back in the end of last year with the conversion of our debt into equity in the 31st of December, we published this to the market. In March, we had an Investor Day and then we demonstrated our optimism. We had this macroeconomic scenario that was very positive, and it was an all-time high for foreign capital, and we had a lot of companies also working and some equity transactions, IPOs and follow-ons. And we had these four expectations. First, negotiating with a new balance sheet, new payment terms with our suppliers. Then we were able to -- we had a relevant extension, and that helped with our working capital. Second, we wanted to have this new balance and increase our credit limits and by the same amount or even a little more, but we were able to. And so then in April, we started having this for the different macro scenario with war in the U.S. and Iran. We had pressure also from petroleum going up prices. And due to this war that was an inflation impact. We had electoral confusion, some scandals generated a lot more volatility, and that brought a lot of impact to the interest curves, which led to a reduction in our credit availability, right, compromising our purchase capacity. So we had two relevant initiatives. One was for debt in the international and national markets and then looking at the equity markets, we did consider it would be possible to have a follow-on after the balance sheet adjustments due to the transformation we're working on the operational evolution. And when we -- at the end of March, when we had this non-deal roadshow, to understand market perspective since we had a window now. But in April, the equities window was closed completely, and this hypothesis was discarded by the company that debt transactions, we worked on some different things in the local market and then we continue to advance. And we had some relevant structural changes, right? But in this shift in the macro and geopolitical scenario that's extended, and we had an increase in costs going up, pushing over a month after month, and we weren't able to close this. The transaction was not completely canceled. But we don't have an effective day or commitment that would give us necessary security for this, right? And so we consider that we weren't able to bring this in the second quarter. We had a significant reduction. And so we -- it would be really difficult for us to continue, right? So that's when we started this Phase 2 transformation plan? And how would we have this profitable operation, but with this new trajectory that could go through this redirectioning of the company, right, that I'm going to discuss in greater details now. So when we talk about the transformation plan Phase 2. What changes is, well, we have the same commitment, but what's changing is the size, right? And so in this environment, with greater cost of capital and credit restrictions, we really need to redimension the company to size, it could be self-funded, right? And how we can balance this out to have a healthier cash flow, right? So the plan while we wanted to improve the macro environment, this would make it easier for us to bring in operational leverage through growth and so really lever the structure we have. But we went back to the structure. We had re-dimensioning and prioritizing cash generation and profitability. And third, anticipating this, we're not reacting. So the balance sheet has been strengthened. And with this, we had to adjust the company normally in a strong manner to be able to defend the operational gains we had already conquered and improve, of course. When I re-dimensioned this, I'm going to cut off channels and stores with less profitability, making a company have higher profitability in B&M after this redimensioning, strengthening the cash position. And so let's move on with more details there, and then we'll explain what this transformation plan Phase 2 would be. So when we talk about re-dimensioning the company and optimizing the employed capital and having a sustainable operation, we go through these 8 pillars there. So the first one is the closing of the less profitable stores. So it costs cash, right? It costs a lot to re-dimension, and we decided to hit the button and just eliminate the nonprofitable stores in the company that consume capital with less penetration buy now pay later like crediario. And we have 7 percentage points less in these stores that compromises the profitability and then the profitability also on online channels and the cash flow pressure, we kept some channels where you had negative margins and that sometimes is part of the funding , right? You have deadline with suppliers and you're kind of relying on this, right? But we made the decision to cut down on these and make the company more profitable in the midterm, right? So with some non-core assets that could be monetized and we need to accelerate this, and we need to have an instrument that can allow for this. And so we had major reductions. And so we reviewed all of the projects. And so there's a major optimization when we consider expenses, right? And so we had a reduction of CapEx, almost 40% with essential projects only. There's a lot of advantage and that allows for the developments that are relevant, such as migration to the cloud and adding all of the systems for modern technology, we continue to advance, but with a lot more productivity, reduction of financial costs, we need to renegotiate and rebalance the credit facilities and re-dimension also the quality of our stocks, size and quality of our stock. So we adjusted a cluster with the aging rules also for the company and, of course, restructure all of the liabilities of the company to preserve these pillars of operation, keeping this healthy operationally. And when we talk about reformulating this, that's when you get into the Judicial recovery as a necessary instrument to do this. Can we move on? And now we can give more color here. What we're considering here is we need to perform this Phase 2 of our transformation plan, but also protect the company's cash position and guarantee the continuity of our operations and the liquidity restriction was kind of putting this into check, right? And so you guys saw the comments from the auditor auditing firm as well, and that's an important instrument to strengthen this, allowing us to have short-term credit facility availability and monetize those assets, preserve the pillars of our operation and having a more stable continuity of our business here. Negotiating in an organized manner with all of our creditors with this plan that will provide the sustaining that we need. So now we're going to talk about how this will be up ahead, right? With this instrument, the company's strengths will be preserved. And it's worth mentioning here that one -- tool like this, this recovery used to have very different impacts in the past in the last few years, right? Unfortunately, because of the macro scenario that's very challenging. We had a big amount of restructurings of different companies judicially and extrajudicially and the stakeholders market really matured a lot with these tools. In our case, we have another advantage, the fact that our commercial scale gives us a lot of relevance and interdependence with the supplier network, which allows us to have great agreements because everyone wants to make the business work. And the biggest asset here is the company's operation, right? When it comes to creditors, we have major interdependence. We have material numbers with big concentrations with two big banks that allows us to negotiate this in an organized manner. Credit also gives us a lot of relevance with customers. So yes, there is an expectation of having more stability in sales than in the past, right, where we had major ruptures. So we have operational continuity in the existing channels and stores. We have more sales channels working, in fact, continue to sell. We have logistical infrastructure that is so capable of monetizing, bringing these resources, and we're going to continue working on this. And when we look at the bottom part, we have opportunities to unleash value that are the same, right? So when we look at this scale, and working on the opportunities that are going to contribute a lot to this, right? We can see the evolution and a lot of upside, right? So we need to kind of eliminate the weight of this structural liability that we haven't been able to address yet, and we've tried to address this without judicial recovery with other gradual movements. And considering the size of the liability and the diversity of this macro scenario, after the third quarter, we consider this to be the best choice with a guarantee of the continuity and using this judicial recovery instrument, right, to be able to organize these liabilities. So now we're going to pass the floor on to Gabriel to start off with the Q&A and answer some questions and provide a little more color on any points you may desire. Thank you so much again for your presence.

Now I'm going to call on Alexandre from Morgan Stanley for his first question.

We have two here on our side. The first one is in your presentation after you talked about how the size is a consequence and not an objective, right? And of course, I think in the end of last week, we saw the news, and you talked about the closing of those stores as well. But I wanted to understand if this is like the final adjustment or if we should wait and expect any other plans for even more closings of stores up ahead? And the second question is, you also talked about the focus on profitable sales from the online channel. In this sense, I wanted to understand how you guys are considering this strategy, right, for the sales within the marketplaces you announced throughout the last year basically. And those are the two questions.

Thank you, Alex. Well, first, we chose to have like a single wave, and that was an operational challenge with the execution there. But we understood that would be the best way to do so, right? You solve this at once, and you don't have this anxiety for future adjustments. So we looked at all of this and did the numbers to understand what would be feasible for the company? What would be this in the future after these short-term impacts, and this is an adjustment we had to work on, eliminating all of the stores that were kind of in the ICU that could maybe impact a possible close here in the future, right? So in this macro scenario, this is really the size that would fit when we consider the profitable sales for the online channel and how this would impact partnerships, we were very vocal in the last quarters, mentioning that the marketplace is, we're kind of on average of our digital channels. So we have organic sales with more profitability. But then you have paid sales and commission sales that have worse profitability rate. So the marketplaces are also means to make the operational adjustments feasible. As we're working on this in our digital channels, right? So some operations in the digital market are really expensive. And then it's better to use our reach with the marketplace it's more profitable for the company more efficient and also part of this process, right, to cut down on the less profitable lines. So increased prices and then you have elasticity that can naturally adjust this to the size we chose, which would fit in when we look up ahead.

Now we're going to call our question from Wellington at Bank of America.