Grupo SBF S.A. (SBFG3.SA) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for participating in our earnings call for 2Q '25. With me, I have Salazar, our CFO; and Victoria, our IRO. So the agenda for today, I'm going to start off with the highlights for 2Q. And then I'll explain some information about our new strategic plan for the company. Next, I'll hand over to Salazar, who will talk about the financial results for 2Q and then we'll open up for Q&A. Okay. So the earnings of 2Q were very much in line with what we've expected. Once again, Centauro presented consistent growth in both channels, which enabled us to end 2Q with record revenue for the period and a highlight to gross margin, which shows that it was greater year-over-year. Fisia is once again growing in all channels. And here, I'd like to highlight the wholesale channel, which grew approximately 4%. We were already informing that we expected the recovery of the channel in the second half of the year. But with the results of 2Q that really gives us the trust that all the initiatives that we're using are working and shows that we are on the right. After having presented an increase of 40% in net income in 1Q. Once again, we have an increase of 19% even though there's pressure to the EBITDA as a result of the U.S. dollar beginning of the strategic planning. We continue with healthy leverage very much driven by the decrease by 33.1% of net debt and to decrease the cost of debt and financial results as a result of that and this month, we issued new debentures at a very appealing cost of the CDI plus 0.85%. This quarter also marked the beginning of the implementation of the new strategic planning for the group. All of you have followed the deleveraging plan that the company executed across 2023 and 2024. It was a very successful plan and enabled us to end last year at a very comfortable level of leverage of 0.38x. And now that everything is organized and we have a very comfortable cash position, we believe that it's time for the company to once again go into a cycle of growth. And across the first quarter, we developed a strategic plan to unlock the growth of our 2 main business units, Centauro and Fisia. For Centauro, the strategic plan and the investments will be fundamentally directed to improve our consumers' purchasing experience in brick-and-mortar stores and in the digital channel. In brick-and-mortar stores, we want to improve our service to become more technical and customized. We want to offer a more comprehensive and assertive assortment. We will evolve how we showcase our products and brands in the stores, and we will invest a lot in improvements in refits overall in the older stores. And in digital, after migrating the technological stack last year, we will continue to evolve the technology platform. We have a robust road map of new functionalities. So we'll go deeper into our multichannel strategy. Last year, we launched a very significant aspect with it to change everything. Any product, 1P or 3P, but on the website can be returned at the store. So that's the idea, any and all products that we offer on the website can be picked up or returned at our stores. And finally, we want to improve how we showcase our products on the digital channel as well. And the truth is that we've already have had significant advances in these fronts. To offer a more comprehensive and assertive assortment with more efficient distribution, we've highly reinforced the commercial structure at Centauro. It was focused on one single management division. And now we have directors that are focused on the main categories, such as shoe wear, apparel and soccer, and martial arts, basketball. And now we have a director focused on our own brands and licensed brands. And also reinforced the stores. So in terms of employees. So we've hired on average, 4 new employees per store. And to support that expansion, recruitment selection and the technical qualifications of these people, we created a regional area that's under a new Director of Human Resources. And for these refits and improvements, we've reinforced engineering and architecture. So we brought in a Senior Director from the market and have increased the number of employees in that department as well. So to present the new strategic plan and engage leadership last month we held the biggest sales convention in Centauro history. We brought together approximately 600 employees, including the 227 managers of the stores across the entire country. At Fisia, which is also under new leadership, we've developed a strategic plan that's very much in line with the global Nike strategy that they've been communicating since the beginning of the year. The main pillars are recovery in the wholesale channel, increase our presence in soccer, implement the new running strategy, maintain the leadership in lifestyle. Now with -- in adjusted demand of the classic [ silhouettes ] that we call Big 3 and we continue to focus on improving the efficiency of inventory in expanding the presence of our NDIS stores. Those are full price stores where we have the new brand collection. For the recovery in wholesale actually, we started last year. We started many initiatives to improve the service level of the channels, meaning how we service our customers. So last year, we reinforced the commercial team. We strongly evolve the portal, which is the platform where the customers place their orders. We resumed the events where we present brand strategy and collections. We've made important changes to product segmentation, so that it's more in line with our customer needs. And I believe that the most important initiative is that we lowered the markdowns a lot that we were using in own channels. And for 2025, we want to make that program even stronger. So we strengthened the merchandising team. So the collections will be more in line with customer needs. We've increased the commercial team. So we brought in a manager that's focused in serving our soccer customers, very much in line with the soccer strategy. I'll talk about that later. We dedicated a technology team to expedite the evolution of that portal. And we are working to present an exclusive showroom at the end of the year to present the collections to our customers. In the beginning of the year, Nike reset the running strategy. So from now on, Nike is organizing their portfolio, all their products under 3 franchises that has very well-defined attributes depending on the use occasion. So there's Pegasus. So it's responsive cushioning. We have structure, cushioning with support and stability and Vomero for maximum cushioning, for comfort and long distances. So we're very much in line with the success of this new strategy given the launch of the new Vomero style that presented 48% -- or excuse me, 46% growth year-over-year. To increase our presence in soccer, we've also reinforced the sports marketing department. They're responsible for prospecting new clubs, new athletes and also to maintain the relationship with these clubs. So we've recently renewed our sponsorship contract with Corinthians club for 10 years, and we're very confident that next year we'll have new partnership contracts with relevant clubs in Series A. We presented the new uniforms for the women's national team. And for 2026, Nike will still be the official sponsor of the Brazilian National team for the World Cup. Now I'd like to hand over to Jose Salazar, who will give us the details about the financial results for 2Q.

Thank you, Gustavo. Thank you, Victoria. Now I'll go over the main points for the financial results for this quarter. I may be a bit repetitive with what Gustavo has already mentioned because deep down everything that's happening is already a result of the planning that has been put into place since the second quarter this year. So in Centauro, I would like to highlight brick-and-mortar stores. You can see solid growth of 9.4%. And most importantly, which shows us that we are on the right path is the 8% growth in units sold. That's part of the diagnosis that we did last year. So we can see that the actions that were taken, as Gustavo mentioned, of a more senior leadership, more care in sales and customer service, we can see these results as a result of that. Another important point is that e-commerce also mentioned by Gustavo, and the focus that was given in customer experience with the IT teams looking at that platform and the people that came in to improve allocation that also improved and gave us expressive results of 22.3% in the growth of 1P. And also, a result of the technological evolution of the platforms is that we have almost 60% of sales via app. So that goes to show that we have a good evolution in the quality of services provided in the improvement of conversion, which leads to the positive results in Digital. And it's also important to mention that we are increasing margin in both channels. So with everything that's being done, we've been able to bring on this growth and a margin increase. Now moving on to Fisia. I believe that the main point here is growth. We're coming from a base of comparison especially when we consider the brick-and-mortar channels, direct channels, a moment where we've been recovering price, reducing discounts. And yet, we're still able to grow in these 2 channels, 5.1% in digital and -- present in digital -- in brick-and-mortar, excuse me, considering the aspect of the discounts. And the positive side, of not giving discounts is that we make it better for our wholesale customers to buy. They can feel more secure. And what came even before we expected is a recovery of the wholesale channel because we're balancing out the prices amongst the different channels. So that's a very important aspect. In addition to all the other actions that Gustavo mentioned, to improve the relationship with our customers, so I'm not going to repeat all of that. But all of that plus better adjusted prices leads to better expectation from the wholesale channel for the future. Obviously, at Fisia, we have an FX impact. At this time, especially in the wholesale channel. However, in a way, we were able to offset the effect on EBITDA improving the net margin of the company. So we have more tax incentives in brick-and-mortar stores, and that tax incentive doesn't pay income tax. So that makes up the net income and even though we have that impact on expenses and gross margin. So in terms of the execution of the plan to mitigate the impacts of FX in the short period, with the tax incentives are moving well. And I'd like to remind you that for 3Q and 4Q, we've already migrated wholesale to distribute and tax incentive will start in August or we'll actually see that in the results in August as well. It goes through Extrema. So we're moving through that scenario that we've been talking about which is to mitigate almost all the impacts of FX in gross margin and expenses with more tax incentives and which one of them has a smaller rate. So that was a very positive aspect at Fisia as well in addition to the results of wholesale that we're seeing before we expected. We expected that recovery in 3Q and 4Q. Now moving on to SG&A -- or actually, sorry, revenues. You can see the company growing 6% in the quarter. You can see the 2 business units growing. We can see Centauro as mentioned before, increasing the number of items sold at this point, especially in shoe wear and apparel. And even though winter impacts less than other retail for us, we also had a positive impact, and we consolidate the recovery of wholesale. We're consolidating our expectation that we would recover wholesale with growth results in 2Q. Gross profit in addition to offsetting the FX impact with the tax incentives that I mentioned before, we also have a positive effect of the Centauro gross margin helping to offset the drop in the Fisia's gross margin resulting from FX. So at Centauro, it's up year-over-year, and that also helps to decrease the effect on the consolidated figures of the company when we have a worse gross margin at Fisia. So the path that we're on seems to be very much in line with what we had planned. So it seems like we're on the right path as well. And SG&A, we in fact, have an impact at this time of the investments that we're making to improve customer experience at Centauro and improve the experience, we have more salespeople at Centauro and more people and products to have a better allocation so on and so forth. But in a way, we can offset the -- these investments that were made having more action on corporate SG&A. So that increase is 0.9 percentage points. And we're working on that to subsidize these investments with more efficiency and corporate expenses, so we can reduce that temporary impact as much as we can. Because in the future, especially as of 4Q, especially as of next year, when we see that all the initiatives that we have had been more consolidated, we will reap the benefit in the revenues of these initiatives. And therefore, we will have operational leverage. But while we're implementing strategy, we've been trying to offset that increase in investments in these initiatives with higher efficiency in corporate expenses. Now on the next slide, deep down everything that we're talking about and what Gustavo has also explained, we have a positive result to net income. We have, in fact, we do have an impact, especially resulting from the exchange rate to the EBITDA. And this impact is partially offset by the higher tax incentives that we've been generating and also by the lower effective rate. So even though EBITDA is lower, when we look at the net margin of the company, it increased 0.5 percentage points, and net income is up 19%. So temporarily, as well because if we think of the long term, obviously, we'll have a possibility of being able to adjust the prices of collections. And the result of the tax incentives would be for the company, so to speak. But in the short term, we've been able to manage that trade-off well between gross margin EBITDA and net margin. I lose a little from the net margin and EBITDA. But especially in this quarter, we were able to have some growth year-over-year with all of the initiatives that we've been implementing. So once again, up to the time being, we've been satisfactorily executing the operational and strategic plan as well as the financial plan to mitigate some of the impacts, especially of the exchange rate. Now on the next slide, the cash flow, which I believe we have very positive news, in my opinion, and the fact that we had operating cash flow for Q2 during a moment where we're planning more aggressive purchases given everything that's being done at Centauro to grow the number of units sold to grow. We've had a cash flow during that seasonality, getting ready for the second half of the year. And the second half of the year where we want to see some initiatives in 4Q that are more consolidated. The fact that we had negative cash flow of BRL 54 million is a result of the strong work that we have in working capital. In terms of debt, Gustavo mentioned, we paid BRL 504 million in debt all of this were completely refinanced in July as we had already disclosed. And for dividends, with everything that we've been doing, we were able to pay more dividends year-over-year. Doing all of that in maintaining net debt absolutely in control. So we go from 1.06x in 2Q '24 to 0.68x in 2Q '25. The change quarter-over-quarter is practically nothing, 0.61 to 0.68x. So we've been able to do that -- all of these plans and investments and maintaining indebtedness absolutely under control capital structure that's absolutely under control. And all of this is a result of the work that we've been doing in working capital in the financial cycle. Obviously, at this time, we've been investing more in products, especially at Centauro. And now that we're investing more in product inventory will increase. However, accounts payable also increases to offset that. And when accounts payable has to be paid, we will imagine that everything will be matched, which is usually 4Q first half of 2026. So we imagine that we would have been financed by higher sales than what we already had. So our cash situation will remain absolutely stable. I believe that, that's what I had to say in terms of earnings. Now we'll move over to Q&A. Gustavo and myself are available to answer your questions. Thank you for attending.

[Operator Instructions] First question is from Rodrigo Gastim from Itau BBA.

Gustavo, Salazar. I have 2 questions. First of all, top line. Top line stood out in yesterday's figures, a bit better than what we had. But more importantly, is thinking about moving forward, in 3Q, you have same-store comparison that's negative, Centauro as well so even in the macro scenario that's harder. We've seen this as other companies reporting that. Should we expect top line speeding up, not just because of the basics, but also the macro aspect. And that's top line moving forward. And the second, you had a negative impact on gross margin because of FX and G&A because of investments. So plus stores and you were talking about that that's happening. So at the end of the day, we see an adjusted EBITDA dropping year-over-year because of the investments. So how should -- when should BT recover? So when you look at the investment plan that you have? So to hire or expectation of your results in stores, when do you see an inflection of the dynamic of growing EBITDA/profit? Those are my two questions.

Thank you for your question, Gastim. I'm going to answer both at once and then I'll hand over to Salazar, if he wants to add anything to that. Well, as in any strategic plan that's focusing on investment. First of all, you have the investment per se. And then after a while, we start to capture an increment in sales. So since the start, we imagined that Q2 and Q3 would be quarters of transition. And then that's when we really start to capture the results based on the last quarter of this year and especially next year, as it has a very relevant sports calendar. We want to get there with an adjusted operation, well dimensioned with all the activities that are well dimensioned to capture this next year. That said, we're very satisfied with the results and measures that we've been taken so far. So wholesale presented growth even before that we signaled. So we remain confident that we will expedite the recovery in the second half. So we maintain the expectation of 2 quarters of transition, but we are also confident that the initiatives are working as we imagine. Salazar, would you like to add to that?

Next question is from Rodrigo Richard from -- sorry, from Felipe Rached from Goldman Sachs.

I'd like to explore the gross margin dynamic in Fisia. We know well about FX. I'd like to hear about higher competition in the wholesale category. Is there any specific category where you see stronger competition? And any details that you can give us about the categories that are outperforming in Fisia, that would be great.

Felipe, thank you for your question. Let me see if I understood correctly. The adjust in specific competition in a given category. What's the second?

Just to understand, Gustavo, if there are any categories in Fisia that performed better or worse in terms of sales, but also gross margin, especially in the wholesale channel?

Okay. Great. We're highly focusing right now on the running categories and soccer. And what we've seen is that the new lines are showing an encouraging appeal moving forward. In lifestyle, we're still the leaders. So I don't think that there are any categories that we could specifically say that we have tighter competition. As we mentioned before, we guaranteed that at this time, the tax incentives would subsidize the prices, so we can be more competitive and maintain the sales in the direct channels at full price, and we've been very successful in that. So we should see the recovery of the wholesale channel in this quarter. And we are very confident that, that will continue in upcoming quarters, especially in the second half of this year. But going back to your question, we do not see a specific category that I could highlight where the competition is tougher.

Just to add to that, Felipe. When we talked about tougher competition, what we were imagining is that we have an FX effect not everyone is able to respond as we did. In terms of being relatively sophisticated maybe, I wouldn't say that, but like to quickly implement these types of incentives. And we believe that it would help us that the FX would impact the competition, and we could have a higher price resulting from that. That still hasn't happened. So that's why we talked about more competitiveness because we might see the competition moving around and having to adjust prices, but that didn't really happen in the second quarter. And another thing that I would like to add to as a result of Gustavo's response. As of May, if I'm not mistaken, we have a product that's solely for wholesale. That could boost the orders, which is a running device at a more competitive cost and we call that P1. So up to the first quarter, half of the second quarter, we still didn't have that product available. And now we do -- and I think that's going to help -- and that will help wholesale in 3 and 4Q. And as the competition, the FX rates affect everyone. We were able to mitigate the FX effect with more efficient tax planning. However, we expect or believe or are rooting for increases because of the FX from the competition, and then we can do that as well. And then the tax incentive would be for the company. Just to add to Gustavo's answer.

Next question is from Danni Eiger from XP.

I have a question about the investments that you've made, especially at Centauro. We saw a lot of hires. I know that it has to do with getting ready for next year. But first of all, about reinforcing headcount in stores. Just to understand the context is it because you want to separate the salespeople into categories as a result of their specialties, is that is because some stores that had a few employees and you wanted more. Can you give us some flavor of the context of that investment, that would be great. And the second one is if you believe that there's still any investments to be made in Centauro and Fisia that we haven't seen in this quarter yet. Thank you.

Thank you for your question. Let me take a step back first. Our store is almost as if it were 2 stores in one. So on the right side, you see a full wall of footwear and you have commission salespeople to sell those products. On the right is self-service. So this is how we've divided our investments. We significantly reinforced salespeople in this quarter, but the investment is basically in the variable cost. So we follow the average sales per salesperson to guarantee that the marginal ROI is positive. We particularly invested more in the stores that we call low power and we found good results. So we believe that the low power stores. So you're adjusting your headcount by looking at the sales per area. And we believe that the low power stores were undersized. It was very important to be conservative during the deleverage period. But we decided to conduct a diagnosis and pretty much look at the individual performance of each store to see if there was an important -- an opportunity to increase the number of employees at the high power stores or if there are any opportunities even in the low power stores. So increasing the number of employees in sales is very important, and we analyzed cost over revenue to make sure that we get things right. So on the left side of the store, or the right side in self-service. The way we size that is looking at the time and movement of the employees to see the percentage of time that these employees were dedicated to customers because we want to make the service more technical and customized. It's not going to be exactly a one-on-one thing, but we want the employees from self-service to dedicate more time to servicing customers. So the target is on a certain percentage of time dedicated to customers, and we reinforce the number of employees there as well. And here, we're following the increase in conversion. So many variables influence the results at the same time. So that's how we decided to distribute the investments in store. And it's also worth noting that these investments are highly reversible. We can invest and follow the metrics to see if we exaggerate it or not. But what I can say right now is that we're very satisfied with the assertiveness of the investments that we've made so far. And about the second part of your question is if you should expect higher investments in the second half even in Fisia or Centauro. Well, to answer your question. One of the pillars that we started and we haven't seen an impact in the result are the improvements and refits. We spent the second part of the quarter equipping that and we'll see some improvements in that in the second half. But as of next year, that's when we'll see a number of significant number of refits that we've seen this year.