Lojas Quero-Quero S.A. ($LJQQ3)

Welcome to Lojas Quero-Quero's First Quarter 2026 Earnings Conference Call. I'm Igor Sehn, Financial Planning and Investor Relations Manager, and joining me today are Peter Furukawa, CEO; Jean Pablo de Mello, CFO and Investor Relations Officer. To begin the presentation, we will see our agenda on Slide 3. On today's agenda, we will first present our strategic pillars, followed by expansion and projects. We will then discuss the results for the first quarter of 2026. And finally, we will move on to the Q&A session. To submit questions. We will be using the Zoom Q&A button. We will now move to Slide 4, and I would like to turn it over to Peter.

Good morning, everyone. It's a pleasure to be here with you to share the main results for Q1 of 2026. We began 2026 still facing historically high real interest rate. This scenario continues to impact the company's cost of capital and indirectly the demand of our products, even amid still challenging macroeconomic environment, we remain focused on the variables we can control. Operationalization portfolio quality, cash management and maturity of stores opened in the recent years. At the same time, we see with optimism, some factors that encourage us for the coming months such as an expectation of a gradual reduction in the interest rates, the expansion of personal income tax exemption and the prospect of a more favorable year for the agricultural sector in the regions where we operate. As a result, we believe we are well positioned to capture the market recovery supported by the maturity of the stores opened in the recent years. This quarter, we remain focused on executing our 5 strategic pillars. Under the first pillar, gaining market share, we Total gross revenue increased 3% in the first quarter, reaching BRL 790 million thanks on sales declined 2.5% in the quarter, reflecting the strong comparison base from Q1 of 2025, which have been benefited from stronger demand for seasonal heat-related products led us to post growth of 12.5% in addition to a consumer environment still pressured by the high interest rate when we compare most of the market indexes, the EDA IDV, we can see that we have grown in our category, vis-a-vis on [ Marga ]. We opened two new stores during the quarter, ending March with 574 stores in operation under credit and collection excellence. We continue to maintain strong portfolio quality. Delinquency remained in line with our historical levels with overdue balances in VerdeCard portfolio at 11.8%. And at the same time, the credit portfolio grew 14% compared to 1Q 2025 we were able to grow with disciplined risk control even in an environment of high delinquency nationwide. We reached historic levels in Brazil, under the doing-more-with-less selling expenses decreased 0.2% nominally compared to Q1 of 2025 despite inflationary pressures, which is a direct result of our internal efficiency and cost control initiatives. Administrative expenses also posted a nominal reduction of 1.4% during the period, reinforcing the company's discipline and resource allocation and made high cost of capital environment. Under the digital sales to digital initiatives accounted for 23% of total sales in the quarter, continuing the consolidation trend in our integrated sales model and under high performance culture pillar we trained 37 new stores, managers in Q1 of 2026. And today, we have 265 employees enrolled in the [indiscernible] program being prepared to spearhead stores. Next slide. We ended Q1 of 2026 with 574 stores in operation across stores, 493 cities in the state of Rio Grande do Sul, Santa Catarina, Parana, Mato Grosso do Sul and Sao Paulo. During the quarter, we opened two new stores in the state of Parana selectively closed 14 stores as part of our active store portfolio management strategy. We continue to have 56% of our stores located in cities with less than 25,000 inhabitants and 73% in site with fewer than 50,000 inhabitants, reinforcing our location and strategic focus on small and midsized cities even in still challenging environment, we remain highly focused on operational discipline, point for quality and capital efficiency. With this, I conclude my remarks and turn it over to Jean, who will provide more detail on our financial results.

Well, it's a pleasure to be here with you to discuss the results of Q1 of 2026, our first slide. Here, you can see our revenues that show some trends compared to the past that demonstrate how the company's revenues in the company are in terms of sales as mentioned, although there was a drop of 1% in the retail revenue vis-a-vis Q1 of '25. Because in 2025, there was a strong growth there was 16% of total sales. And sequentially, when we see the performance of same-store sales according to the chart at the bottom chart here, we can see that performance of 2% of drop of same-store sales was positive -- would have been positive if it weren't be for example, to the product, the seasonality and high temperature, the level of current sales is stronger than what we saw in Q3 last year in Q4 as well. So this already stablished a sales base per day higher than this leads us towards the positive trend in the upcoming quarters. We can see financial services growth Here, there is an increase of revenue of 13%. And credit card has grown 13%. When we see the three activities there with a total revenue growth of 3%. In the retail side, this is a trend that has been improving throughout the last quarters. And this demonstrates a positive pathway for the coming quarters until the end of the year. When we go to our next slide, here, you can see the pressure mainly in the margin of financial or there was an increase of capital cost directly connected to the interest rate. In Brazil here, we can maintain these margin of financial services that is maintained controlled at a sound level, but mainly now during the first quarter, we -- there is a greater cost of capital, greater provisioning and the option of the company of being restrictive in granting credit to manage risk. So we want to focus on products that present greater credit quality in detriment of products that could bring higher revenue at the short run, but with higher risk as our focus has always been the control of the quality of the portfolio and delinquency we decided to follow with a portfolio that is more controlled, more sounder in order to guarantee that we continue with this level of delinquency aligned with the historic levels of the company even when we consider the current level of the indebtedness of families in Brazil. Now on our next slide. Here, we can see a one positive point. Here, you can see our efforts in expense control. we are, yes, focused on delinquency and the quality of the portfolio and cash management and in cash management, we want to control expenses. So here, nominally, we see a drop in expenses and sales and SG&A during the first quarter. We've seen this from the past quarters, and this also set a foundation of expenses throughout 2026 that enables an operational leverage when the growth resumes in terms of sales. Now when we go to our next slide here, you can see that we've seen an increase of the sale in even with the pressure of margin and controlled expenses we have BRL 26 million accounting EBITDA that is a drop like the adjusted EBITDA when we compare it to Q1 of 2025, and this is a level of profitability before the past quarters. But if we are resuming our growth, especially when we see sales and expense control. Now our next slide, Here, we have the pressure mainly as well as the margin of financial service, the pressure of capital cost that is a result of greater financial expenses there is an increase in the cost of funding, the adjusted net debt that pressures our net revenue. We have the adjusted net revenue of BRL 35 million vis-a-vis BRL 15.7 million of Q1 of 2025 and the after seeing these slides here, you can what we're doing in order to control this portfolio and delinquency. We see the portfolio growing 14% and 11%, with interest rates with the level of the -- so it is highly above the first quarter of 2025, but we're at aligned with the historic level of Q1 of 2024, this is a positive result, which is relevant from the macro scenario and on the target. And we will continue this throughout the upcoming quarters regardless of the macro scenario, we want to maintain, control delinquency and to have a sound credit portfolio. Now on our next slide, you can see that there is a credit demand. We continue the growth of the use of our cards and because of our selective positioning its growth below Q1 of 2025. This is a result not because of a drop of demand, but yet our position. We want to always control delinquency rates. Now when we go to our next slide, we see the we see the growth of the use of the card and the credit portfolio and previously announced, we have guidance of new stores below the past years, and this is reflected in the investments of the first quarter. There has been -- this has dropped -- our CapEx has dropped half in terms of investments during Q1, and this is the trend for this year. This is an option to maintain cash flow with smaller investments where the capital cost is at high historic levels despite this. We opened two new stores. We invested over BRL 6 million focused on logistics and IT. And now next slide, you can see something that is very positive in the sense that we can control our cash flow and the financial leverage of the company last year, we also focused on this point. And it is possible to verify here that historically speaking, we have a cash consumption on the first semester mainly on Q1. But during Q1, the cash consumption was below what we consumed on Q4 of 2025 and 2024, and this is a result of all of our initiatives have been adopted throughout the past quarters that point out towards this trend of stabilization of our financial leverage. It's important also to highlight that the level of the current cash level and the debt with very little amortization in the short run. Another point that also strength in this is funding of a new series of G that maintains or B rating by Standard & Poor. Here, we standard term and reduction of spreads. This shows the quality of our credit portfolio and the cash management. So now we go to our next slide, we bring -- we will bring our results to the end. And now we can go to our Q&A session. So we will initiate the Q&A session to we are using the Zoom Q&A feature.

This is to receive the first question. Comes from Vinicius Pretto from Itau and Peter will answer this question. How do you see the recovery in sales throughout the year? Have you seen an impact of the [indiscernible] Brazil of the exemption of taxes up to BRL 5,000. And what about the close of players that has this given you supposing of competitors? Has this given you some kind of competition?

Thank you for the questions. The index of EDA when we see construction to real, we have gained more share in comparison to the market within the evolution of the market, we're at a better position in electrical appliances and furniture were side by side, but this gain -- but the share gain is more would be our competition. Our competition closing, as you stated some local networks closed many stores. So here, we have space for growth and this positioning to grow more where the economy improves. Regarding and the reduced income tax. In my opinion, this is very timid. We cannot see how this reflects on durable goods. So the gain of share will be a result of assuming space where other people are leaving but it is very positive that our performance has been positive when we see a negative market actually.

Thank you, Peter. Vinicius Pretto will be answered by Jean. The financial service margin has suffered pressure because delinquency is evolving. How do you see the risk level in the market and the request for credit? What is the expectation for the evolution of this margin in the upcoming quarter? How do you see cash generation in 2026 and the evolution of the working capital dynamics?

Well, regarding the credit card portfolio and delinquency, we've seen this trend with macro debt and the increase of the indebtedness of the family, the their income has been compromised throughout the year, and this is why we performed some adjustments. Regarding delinquency, well, we are more restricted throughout the month to maintain the quality of the portfolio. And as I mentioned, even focused on products that at the long run present lower delinquency. And this can pressure the result and even the margin in the short run because I waiver a product that could be more profitable in the short term, but if there is a greater risk but we don't want to run this risk because of the macro scenario. Although we still are not seeing we are not seeing an improvement in the macro scenario in the short run, we believe that we should control our delinquency. And you can see this what we're doing in collection in credit that engages all the companies, even the stores. And this is something that we expect and something that we have been able to do historically, I'm talking about controlling delinquency. There is credit demand that currently we prefer to be more conservative to avoid an additional risk in our credit portfolio. So this being said, the delinquency and provisioning has increased throughout the past quarters. And we have a sounder base to improve the margin of financial services. And when we see the other point that is extremely important that is the increase of capital costs during Q1, there was a nominal increase in capital cost, very relevant above 2025 because the portfolio still grows and the Selic rate is higher than 2025. but with a trend to drop, we've seen a reduction in interest rate that result to a lower capital cost. If this trend should continue here, we have possibility mean a positive impact and going back to the margin an historic levels in terms of financial services. So we want to maintain delinquent fee control. Now regarding cash flow. Well, these two are the main focuses of the company delinquency and cash flow. Well, cash flow we mentioned throughout last year that we can assume cash especially during Q2 and Q3 of last year. They were a result of a drop of sales as we started stabilizing our sales strengthening with exemption to the line focused on climatization. The other lines have presented have posted growth during Q1. So here, we see a positive impact for working capital. We are doing this in all our working capital line. We've consumed less cash than what we've seen historically. Now this relative improvement should also continue throughout the upcoming quarters. Therefore, we should maintain this leverage this financial leverage control and go back to the historic levels throughout the upcoming quarters. These are the 2 main points of focus for the company for the year and we have seen this already in Q1 and the beginning of Q2 to everything aligned with our established plan.

Our next question will be answered by Peter. My question is regarding the maturity of sales, 1/3 of the company's base has been less than 5 years in operation. Could you tell me how the performance of this store has evolved throughout the maturing or maturation process.

This is an interesting question, and I believe that it is a crucial point from our enterprise 4, 5 years ago, when we started with an aggressive process for openings of opening stores. we saw that we could face a more difficult moment, but we believe that this would last 2 years. And we opened many stores other. And we had the payback story of these stores. But there was a longer macroeconomic challenge for durable goods construction products. These stores are taking a longer period of time to reach the level of success of the past store. So this is reflected. The payback has increased, but they are at a level of low profitability. We still don't see the expected return, but any change in the economy. This goes directly to our EBITDA. This is the thesis that we are following. We currently closed the stores from stores, but this was to optimize the working capital and into cities where there was another store because we can reallocate the inventory. And we try to optimize our cash flow. This was a rationale when we think about the current level of our stores.

the next question will be answered by Jean. How can the drop of the dollar impact the sales and margins of the company in the upcoming quarters?

Now dollar, there were a number of macroeconomic variables that can impact us. So the dollar is positive in a drop. It's positive because we can control the expense inflation and the price of our products. And turning some product lines more competitive. This is something that can stabilize itself. Now on the other hand, they were the macro factors like the increase of oil that is the other way around it exerts pressure on expenses cost. We still don't have a clear view regarding what will happen in the upcoming months. And how this will impact the company, but according to the current scenario, we reassured them that we will deliver the plan of operation cost, better margin and financial leverage.

The next question from Thomas Peredo from F8 Capital that will be answered by Jean. The retail gross margin improved after the last quarter, could you give us more color which factors allowed it to improve? And how do you see the evolution fourth Q2 and for the year?

Thomas, regarding margin, we've seen a bit of this effect and the cost of our product is a big control. So it's better to manage the margin when there was a drop in sales last year, we saw a very competitive market, and it is competitive in price. This doesn't mean that now sales are growing, but we are at a sales level much better than during Q3. And here, we can better manage the margin when I compare it to Q1 of 2025, well, we mentioned this when we announced the results that one part of the additional sales of Q1 of 2025 was in line that present lower margin, although there was an increase in the sales volume. There was a margin pressure. Now during Q1 of 2026, we can say that there is a strong comparison as sales growth. We believe that this is more stable when we see the retail margin. And this is the trend. Now we do see pressures like the price the price of the oil, the increase of the price of these, of course, this can impact our margin. We -- what we have to do is to manage things suitably to maintain this margin stable in comparison to what we're delivering right now. And if there is a drop in the interest rate, if we see a stabilization in these prices, here, is there is room for improvement for margins, but this is something that will happen gradually. You will not see the result next month during next quarter. So in the short term is to maintain this margin stable and doing things like we're doing them right now.

With this question, we bring our Q&A session to an end. I hand it over to Jean and then to Peter for their final comments.

I would just like to thank all of you for your participation. We're reaching the end of our call. And now I want to hand it over to Peter to wish Happy Mother's Day to the mothers, and I hand it over to Peter.

Yes. Just to come to an end, I would like to highlight two important points. One is when we do same-store sales performance. If we exclude the seasonal effect, we are growing. And I believe that it is -- it is highly gratifying to the efforts being recognized the efforts of the sales and commercial area focused on sales. Retail sales has been very important here in the work have been reflected to achieve this result. We are growing more than the market. The market is slowdown -- is slowing down, and we are growing. And this is an important point. And I congratulate our entire team for this. The other point is that we are controlling our cash flow. Currently, we have to focus on our cash and the target is to reduce our net debt closer to a level from the past. And during Q1, we delivered what we had to deliver. We trust that we will be able to achieve this result, and we will be able to control our cash flow throughout the year. And the second important point is that a good way of growing is providing credit. It's not what we're doing. We are being very conservative. We see that the market is suffering. We will not -- we will continue being extremely responsible when it comes to managing our credit portfolio and always focus on dropping our delinquency rates and to work strongly with our customer base, giving them guidance and helping all of them to recover themselves. So I believe that with -- I would like to wish everyone Happy Mother's Day and thanking the effort of our employees, employees, of our suppliers everyone engaged with Quero-Quero. I would just like to say that I'm very proud of being part of this team. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]