Track & Field Co S.A. (TFCO4.SA) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Track & Field's video conference to discuss the results for the third quarter of 2025. This video conference is being recorded, and the replay will be available on the company's website, tfco.com.br/ri. The presentation is also available for download. [Operator Instructions] Before moving along, I would like to emphasize that forward-looking statements are based on the beliefs and assumptions of tracking field management and information currently available to the company. Such statements may involve risks and uncertainties as they relate to future events and, therefore, depend on circumstances that may or may not come to pass. Investors, analysts and journalists should take into account that events related to the macroeconomic environment, the industry segment as well as other factors may cause results to differ materially from those expressed in the respective forward-looking statements. With us in this video conference, we have Mr. Fernando Tracanella, Track & Field CEO; Mrs. Patricia Abibe, CFO and Investor Relations Director; and Mr. Fred Wagner, CEO of TFSports and Vice President of Strategy and New Businesses at Track & Field. I would now like to give the floor over to Mr. Fernando Tracanella, who will begin his presentation. The floor is yours.

Good morning, everyone. I would like to thank you all for attending us in this video conference on the results of the third quarter. We are very happy to report another quarter with strong numbers and figures. I'd like to congratulate all the franchise stores, all collaborators, all partners in this company. Let me share with you some of our highlights, then Patricia will talk about the figures and Fred will later talk about TFC and Sports. So let's talk about this quarter. Once again, the company managed to keep up with the level of growth in a very robust top line. 28.3% growth versus the Q3 year '24. And also, the growth in stores of almost 23%, that's a trend we have seen since the beginning of the year, strong growth. And on top of this growth, we have some comments to make. First, Obviously, there is this outlook, this environment that is really favorable for the company like ours that works in the segment of wellness of a healthy life, which is our mission to connect people to a healthy lifestyle. This has started years ago, and we believe this has recently accelerated. I mean there are more people engaged with physical activities, more interested in health, practicing more sports. And in this environment, we have a good positioning for our brand. So with this important tailwinds that help us. But the company also has its own merits, on its performance in 2025. I would like to talk about some of our products. The year we really got it right in our products in both collections, the winter collection that impacted the first half of the year mostly and also the summer collection that was recently launched that has more impact on the third quarter and giving us a very favorable perspective. And also, we have many collections. We call them capsule collections, and we also had a very big hit with them in terms of products. And we also have other leverages like stores, renovations. We have consistently renovated stores, and that has been giving us a robust and consistent growth even in same-store concepts and store innovations. We have allocated capital to these renovations in -- with very good returns for us. And this year, we will close this with 60% of the network under this new format with good perspectives in the number of stores. In the next few years, this will bring us more growth. Another highlight to account for our growth is the digital segment. It has been growing consistently for a while now. Once again, in this third quarter, it has achieved a growth above the average. It has had a participation of 3% pre-pandemic. And today, it's above 10%. For a company of our size, this is a pretty relevant growth and we have this strategy to increase this segment has been very important to account for this good performance. Today, we have the ship from store concept that is consolidated. Over 70% of sales made are delivered through stores that are closer to our customers. So we achieved two main goals: first, to have our customer -- to be a customer-centric company and delivering the best experience to our customers with faster deliveries and inserting the franchise stores into this digital segment and strategy. And accounting for over 10% of digital figures is -- our sales teams can see the whole inventory. And we also have a very good inventory management. These strategies has helped and the digital segment has been an important leverage. Let me also talk about our marketing, which evolved very much. We have a marketing talking about the whole ecosystem, a very good strategy involving influencers. This year, we'll have a very good evolution in this front as well. I mean that there are some factors. I mean there is -- we have a very good favorable environment and also our own performance. Revenue has grown at a faster pace in terms of the sellout in which was the main point regarding the net revenue. And I would like to talk more about this. And then later, we'll discuss it more. We had a participation of the selling for the franchisee stores, there was very good participation of 55%. So the sell-in has pushed the net revenue upwards and this helps explain the impact of growth margin that Patricia will discuss. In the selling -- in our business model, we've a very small margin, the goods for the franchised stores. So we have a participation that is larger in the sales mix connected to the selling. And there is a [ pressure ] of a margin that is lower. But let me underscore for you that today's selling is the royalty of tomorrow. Today, you have a margin of [ 63% ] so [ Selina ] and stores are well supplied, and we have worked on this very good supply. It means that we will have -- this will come back to our profitability in the form of royalties, where I have the highest margin of the company mix. So the selling of today is the royalty of tomorrow. So this is -- we have a very good and positive balance. And the more net revenue I have mainly due to the selling of these goods for the franchised companies. I also manage my expenses. So part of this comes in the form of a decrease in expenses in this quarter. So this is a quarter in which we had very good sales and also very good profitability with an EBITDA that grew 28% adjusted net revenue of 30% growth, a very good top line in this quarter with profitability from the expansion standpoint. We had new franchise stores, 417 new stores and 17 renovations. When you look at the accumulated in the year, we see that the company has maintained a growth near 30%, 23% same stores. And this was a growth in this 9-month period that was above what we expected. In the beginning of the year, we have had the need to made a series of adjustments in our operations from the product, production logistics standpoint. We had some bottlenecks in the beginning of the year in terms of supply to the stores, which is normal because when a company grows at this limit at this level, we will have this type of bottlenecks. If you compare '23 to '24 and '25, we have grown 18%. So we've had this 18% growth, and now we have this 30% growth. So some bottlenecks will naturally appear. But the good news is that we've had in the third quarter, an excellent collection launch, very good supply to the stores. And we -- in this -- we have very good signs for this fourth quarter. Another merit of ours this year is that we reacted pretty quickly and we adjusted our operations very quickly. So profitability indicators are very good. Consolidated EBITDA growth of 37% in all business. Net revenue grew 35%. And the company maintains with zero debt in the cash flow, we've had a period of higher investments in store renovations, technology platforms -- tech platforms. So we have some expenses to make in this cash flow, but we have maintained a very good position in this term, zero debt. And to finalize in terms of expansion, if we could go to the next slide, please. Just a history of our expansion, now if you go back to 2011, which was the beginning of the franchise in Track & Field, then we've had a steady and long growth. We almost multiplied by 10 the number of stores with a growth prioritarily through franchised stores, which is the blue part of the bar chart. In this year, we have the perspective of opening around 40 new stores, a very similar number to last year, which is a level of stores that we believe that we can preserve, we can keep the quality of the point of sales, the quality of the franchisees, which is something that is truly important to us. We want to offset to balance this growth and maintain the quality of operation. In terms of renovations, which is super important, we will perform over 40 renovations. So this -- our goal was 40 and maybe, maybe we'll go on top of that. So this program of store renovations is very important for us and for our franchise stores. These are my remarks, and now I would like to call Patricia. Thank you very much.

Well, I'm very pleased to report our results to you today, which is the result, the hard work of people here, our partners, with our franchisees, our suppliers. So let me, first and foremost, thank you all, all our partners directly and indirectly connected to these results. Well, Tracanella talked about our expansion event. And today, I was -- we had over five other stores. So we had 417 by the end of the quarter. And today, we have five others of 422. In terms of sellout, which was our sales, these sales is the reflection of many initiatives that have been taken through time and then have gained traction. They have gained ground with time. And this -- and we have 28% growth in sell-out. This growth we have seen in the first quarter, in the second quarter, in the third quarter, it brings the company to this level of almost 30% growth in the 9-month period. This has been truly relevant to see this growth. And this will elaborate with the success and the performance of our summer collection and paying tribute to our collection, very beautiful pieces. I'd like to make this correlation with what happens in our stores. So the summer collection is wonderful. The sale clearance, winter sales clearance also had a very good -- in fact, our Father's Day sales was very good too, very relevant for this quarter and sales even above what we have seen in previous years. There's no doubt that this better supply network has made a difference, the right product at the right time at the right place. So a lot of energy has been given to that has been devoted to that. So this leverage is very important for our growth, a higher flow of customers in our stores with the renovations, new stores, renovations here, growing in terms of 46%, that's a lot. And we cannot forget about the events. The events have been truly successful. In this quarter, we had over 1,000 events in Track Sports, Fred will talk about them, and almost 150,000 participants. So this is another reflection of our sell-out. In terms of e-commerce with this participation of our sell-out in almost 11% in the total of the captured figures. And when we look at e-commerce, this is the channel where we capture this digital sales in our website, and this is realized in our city in all of our physical stores. our owned stores or franchise stores. And remember that when I look at the e-commerce in this 9-month period, it will grow almost 42% if you consider the whole period. A lot of opportunities, and we have worked really hard in this digital front. In terms of the omnichannel, it also discusses our concern of having the right product at the right time, bringing the opportunities for our customers who are looking for a product and maybe they don't find this product. They're looking for at the physical store. This is very good for us. Today, we have 378 stores connected through this tool. When I can offer to our customer what they were looking for, if they are -- haven't found this in the physical store. So through this connection through this network, we could increase almost 13% in our digital sellout. In social selling, this initiative is also very important, very successful accounting for almost 39% of the sales in the quarter. We start through WhatsApp channel in our store sales team and people involved with this selling initiative, and this follows the sale follows after this contact through WhatsApp. So social selling has been very good in this quarter. Now talking about net revenue, our net revenue is 31.4%. Tracanella has explained this to us but let me tell you how the sellout will grow 28.3%, and net revenue grows 31.4%. It's because of the sale to franchise stores, which is the selling. The sales that we made to the franchisees today is very important because these franchise stores are well supplied. They anticipate movements in their stores now in the fourth quarter. We have Black Friday. We have Christmas and people anticipate buying products at the stores. So the franchise stores, they are better supplied. They have a different behavior so we have this discrepancy in the net revenue. So this business, the selling growing 55% precisely because of the signalization. The network is confident in the collection, it's confident in the product we are delivering, and they will be supplied and they will become better to better positioned to take these opportunities. We have demand for that, and we have been delivering. So this part of selling has taken a part of our net revenue that was relevant when you compare this to last year with 5 percentage points above our net revenue in this quarter regarding the Q3 '24. Now I will connect this information to the growth revenue later. So Retail grew 24% also reflecting renovations, the clearance and sales, Father's Day sales with excellent results. Our royalties, and now I'm talking about what franchisees these have sold through the quarter and what is generated to us in terms of royalties. So this is directly connected to the increase of the sellout, 31.2% year-over-year. So this will happen in the next few months our selling today means better royalties in the near future. We need to have this -- keep this in mind. So [ interest ] in TF Mall, we have a reduction of 11.1% in this period, basically due to the end of first tax benefit. This first tax benefit helped companies that were connected to events back at the time of the pandemic. So this segment was paralyzed due to the pandemic. So we had this first tax benefits. So [indiscernible] tax were exempted. But from April on, [indiscernible] started being paid again. So this explains this reduction. So now gross profit connecting to selling. Let me talk about that. Well, the [ selling ] today is my sellout tomorrow. So is my royalty on my net revenue that will impact, that will pressure myself in my growth margin because I have 5 points above representativeness in the net revenue with a lower margin. So in the business mix that we have, this is my channel with the lowest margin. That's why you have this pressure. It's nice to see -- then if you look at the 9-month period, I have a very similar margin. So the seasonality that occurs among quarters in the 9-month period, you can see that it is similar. So in the 9-month period, we can better compare this. But if you compare this to the fourth quarter, after the fourth quarter, we'll be able to better explain this mix. All channels had a very good growth margin. Well, that's an above growth profit. Now moving on to operating expenses. We've had a strong growth of revenue. There's no doubt that will help us dilute our operating expenses, especially those related to sales because these are expenses that are correlated to a sale that I made in this sale is made in one channel in which it doesn't require the same magnitude of sales in a physical store. So this will be preserved and I can dilute this. And this is due to a management work that has been done through the years that delivers this decrease in 1.2%, 33.6% of our operating expenses in net sales in Q3 '25. Well, in terms of EBITDA margin, we are in line with last year because let me talk about that. We had net revenue growing 31 the growth profit at '24. So I lose this 2.7 of gross margin delivered by 2.2 in sales. So EBITDA, it is aligned. So this is also what about Tracanella discussed in the beginning? You can have some pressure in the gross margin, but I can dilute our expenses and so the EBITDA comes in a more similar level. In the 9-month period is 1.3 and in terms of Track Sports, in terms of what we have made in investments to Track Sports. It represented 4.1% of consolidated net revenue in Q3 '24 and 3% in the 9 months period, diluting this even more what we have seen compared to last year. And now talking about our net profit, if this EBITDA is minus 0.5%, almost in line with last year. I'll have a depreciation and a better IR this -- if compared to last year because I have more relevant [ JCP ] that was better. So we have a better margin here and 0.6 in a percentage point in margin expansion resulting in 15.9% due to share buyback at the order of BRL 44 million. So we have 0.2 net profit if compared to last year net profit. And over a 34.6% growth in the period, 0.6 above. So generation of cash was almost 34%, very strong growth for us above what we have seen in terms of growth in net profit better management of our working capital, particularly in terms of stocks and inventory. If you look at this inventory position, we had more turnover because of the sell-in initiative, which also helped decrease our average term for inventory and suppliers also a little down. But we had some -- due date receive date because of my net revenue behavior, which is more channeled to sell-in, which is a channel in which I have a longer period -- of receiving period if compared to the retail period. We had a reduction of 30% in terms of investing activities. We dislocated this to the fourth quarter in terms of renovations because we have this postponement of store renovations to the fourth quarter of '25. In terms of financing activities, we have in this period -- last year, we had 12 million in terms of shares buyback. And we have a significant reduction of 43% in terms of this financing activities. Net cash used decreased 43.2% due to the nonrecurrence of share repurchase. In cash position, we had almost BRL 20.7 million, we remain debt free in our sustainable growth, constant cash generation is very important for us. I believe that's it. That's what I had to say. Now I call, Fred. Fred, the floor is yours, please.

Good morning, everyone. It's a pleasure to welcome you all here. Now moving on to our next slide. Let me talk about Track sports. We had over 1.1 million users as of September 30, we grew almost 47% year-over-year in the number of users in our app. This year, we transitioned from the app to our new platform. And now we have expanded the services provided by our platform. Our focus is very important in the frequency of the usage of our platforms. We have 8,800 registered trainers. I believe that with the new version, we'll have more trainers growth of almost 15%. In terms of events, we had 1,100 events and 148,300 participants in this event. So there is an increased number of participants per event and we have also increased the number of modalities. So we have a wider range, so wider groups of people evolved because we have a wider range of sports in net revenue of BRL 14.3 million, a decrease of 7.2% versus Q3 '24. This is due to seasonality. Also, so TF Sports, we are very excited about this. We have this correlation with Track and Field sports, we're very excited with the traction we are gaining and the number of users we've been attracting to the platform. Now talking about TFC, we can see a an increase of addressable market in our supplementation and food market, a growth of 58% in our sales in food and market, 36% increase in clients that we have reached. We have increased the number of foods that we offer, grab and go and supplements also grew substantially. We had differentiation, a breakdown per category, and we have worked in terms of creating the stores to get them ready for that. So we're very satisfied with TFC and how we've been able to increase this addressable market. In terms of TF Mall, we have increased from one year to the next, over 50% the number of partner brands and we also increased our initiatives in marketplace, the number of stores in our marketplace. So we can meet the demands of a higher number of customers with products that are there within the Track and Field scope and also outside our scope. So like tennis, for running and other products. We are very excited with the momentum in the ground we have been gaining in this market. In terms of our platform, we've been very encouraged by this in our company, in our addressable market, we can protect our brand in the sense of being able to have a complete journey for those people who want to connect their lives to well-being and a healthy lifestyle. Well, that's it from my side. Maybe we'll start our Q&A session now. I'm not sure.

[Operator Instructions] Our first question comes from Mr. Kelvin Dechen from Itau BBA.

Thank you for allowing me to have -- to ask a question. Regarding gross margin, the main factor was the selling activity, but trying to isolates this effect, how was the evolution of gross margin year-over-year in the channel? And the -- what about the structuration of e-commerce in Portugal? What about the expectations with the platforms and talk about the schedule and how you are structuring your operations in the country? That's it. Thank you.

Kelvin, thank you for your question. Let me talk about growth margin. So yes, all channels, if you compare them per business, they follow aligned, maybe a little over year-over-year. Just a complement -- just something to add here, there's -- if we look at the promotional effort made this year in the periods of clearance sales. We have a lower medium discount in relation to 2024. So just like Patricia said, our growth margin isolated per channel has grown if compared to last year. So Fred, can you talk a little bit more about the website -- our international operation, please?

Yes, sure. Well, by the end of this year, we'll be launching an international website. We have been developing with Shopify, which will be launched internationally. It's a multicurrency, multi-language website. So quickly, we can offer in our product line to several countries in different currencies, in different languages and also considering local forms of payment. So the idea is to use our Portugal store initially as an inventory basis. So we just do this in Brazil as well for the franchise stores. And little by little, we will start our expansion strategy. So we opened our store in specific places. We use this inventory for the channels. And then we use the DTC brand with integration with the stores, and we performed local market in different markets. We are pretty excited with this marketing initiative and little by little, we'll begin this internationalization and learn about the international market. We have a very good competitive price, very good product and -- product set and then we can test new markets more objectively without making very large investments at once. So this is our step-by-step internationalization initiative and strategy.

Our next question comes from Laryssa Sumer from XP.

Good morning, everyone. Thank you. Congratulations once again for the strong results. Just two questions. Well, just I would like to double check this anticipation of the collection, which was the rationale behind this? Or I mean, was this for this collection? Or can we expect the same dynamics for future collections? And I would like to ask you about this beginning of this fourth quarter. Let me -- I would like to ask you about this first days of November and also the end of October and your expectations for Black Friday and for Christmas.

Well, I can start and then Patricia can continue. Well, in fact, we've had a progression in September that was more robust if compared to the same period in previous years. So our effort in the operations area to have a higher volume of items, more launches, more items. This is interesting because we've had new things for the customers. We've had more items, more new items if compared to other years, to other periods. So yes, maybe we can expect this for future seasons. And also, we have a good perspective for the fourth quarter. I mean for this two months that we still have to close the year. We've made an effort to be well supplied for this period. And we have a very good expectation for the fourth quarter overall. We cannot talk about figures yet, but our perspective is positive because we have scenario in which the network is better supplied, is more robust, is healthier, there's no surplus in inventory. The inventory is healthy and very good acceptance by our customers. So in terms of expectation, we have a very good expectation for the fourth quarter in terms of sales. So we cannot say this will be, for sure, an excellent quarter, but we have positive expectations because the company has followed a strategy of being an extremely promotional brand and promotional and we do not train our customers to buy our products only when they are on sales. So we want to have more loyal customers. So we know that Black Friday is always strong, but we have a very good basis of customers, loyal customers, and this is why we try to achieve with our brand. We try to preserve what we have built in this terms of customer loyalty and loyalty to the product in our brand. But anyway, yes, we have a good expectation for the Black Friday, but not a crazy expectation. We will -- this -- our expectation is to keep up with what's usually achieved and have very good perspective.

Our next question comes from Bob Ford from Bank of America.