Unicasa Indústria de Móveis S.A. (UCAS3) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Unicasa's conference call, Indústria de Móveis S.A., to discuss the results of the fourth quarter of 2019. Today with us, we have Mr. Gustavo Dall'Onder, CEO, CFO and Investor Relations Officer; Alexandre Narvaes Figueira, Commercial Officer; and Luciano André Merigo, Industrial Officer. We would like to inform you that this event is being recorded. [Operator Instructions] This event is being broadcast simultaneously on the Internet via webcast. You may access it at www.unicasa.com/ir, where you can find the presentation -- unicasamoveis.com.br/ir and the selection will be managed by you. I would like to remind you that the participants of webcast may send their questions via website, and they will be answered during the Q&A session. Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in relation to the business perspectives of Unicasa projections, operating and financial targets are beliefs and assumptions of the company's management as well as information currently available to the company. Forward-looking statements are not guarantees of performance, and they involve risks, uncertainties and assumptions as they refer to future events. And therefore, they depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions and other operating factors may affect the future results of Unicasa and may lead to results that differ materially from those expressed in such forward-looking statements. Now we would like to turn the conference over to Mr. Gustavo Dall'Onder to start the presentation. Mr. Dall'Onder, you may proceed.

Good afternoon, everybody. In the last quarter of 2019, the company's net revenue grew by 6.6%, the highest growth rate since we went public. The result was driven by the performance of our multi-brand, corporate and export dealers. Regarding the exclusive dealers, in spite of a same-store sales being positive in almost all brands, store closures still had a significant impact. When we analyze the distribution network at the end of '19, we see the result of that. It is 16% smaller in relation to '18. Net of the effect of the closed stores and the closure of our own stores, our revenue would have grown 13.8%. Nevertheless, if we consider that the new stores match the closed stores and consider only SSS and other sales channels, our revenue would have grown 8.9%. Also worth mentioning is the reduction of approximately 30% in operating expenses year-on-year. Much of this reduction is related to expenses with serving customers of closed stores, which has been declined, mainly due to decisions that we made to change our dealer sign-up process. Today, new dealers are better aligned with the company's philosophy which helps to make store closures less damaging. And another factor that helps reduce the expenses is that we had fewer operations concentrated in one single store owner. We believe that expenses related to service customers of closed stores are reaching an acceptable level for the business. Over the last years, we have been streamlining our distribution network. We refrain from replacing store closures in locations with low consumption potential, which would make sustaining these operations very challenging, and/or are changing the location of our stores. We believe that the process has ended already. And of course, some operations will still be closed but in the normal course of business. And we started focusing on opening stores in locations where consumption potential is not being adequately met by the company's brands. Thus, in the second half of 2019, we created an expansion area to attract new store owners to said locations. This new structure led to an increase in our selling expenses. We made changes in the Board of Executive Officers of the company. We have a new CEO, Commercial Officer, Industrial Officer, all of them already holding executive positions in the organization. The key performance indicators confirm the results of our above-mentioned facts. Highlights include EBITDA margin, 19.2%, close to the margin registered before the 2012 crisis period, which was 20.1%. Net margin, 12%, ROIC, 12.2%, compared to 0% in 2018. Apart from the reduction in operating expenses, the other highlight is the 1 percentage point increase in gross margin year-on-year and 2.3 in the quarter. Our investments in the export market also brought significant results. The channel grew 62%. And due to the growth expectations for the channel, in July, we opened an office in the U.S. And the main objective will be to give support to stores besides strengthening our proximity to local market. We have many operating challenges to be overcome to enable the company to employ a more appropriate model for this market. Early in 2020, we participated in the Kitchen & Bath Industry Show in Las Vegas, showcasing the Dell Anno brand, our second participation in this fair. And now with a better representation, with a bigger stand and managed by a bigger team, we had excellent feedback from dealers regarding our product. In the last quarter of 2019, the management decided to reduce the capital stock of the company. Based on cash projections, estimated investments for the coming years and cash generation from the businesses, we concluded that the company had excess cash. And we decided to reimburse approximately BRL 24.3 million to shareholders. Considering the accounting entries to absorb losses and reserves, the capital reduction was approximately BRL 41 million. And the operating results, combined with a strong cash generation of BRL 27.9 million in the year, enabled the company to distribute 100% of the adjusted net income, BRL 17.1 million. Adding to the capital refund is a distribution of BRL 41.4 million to shareholders. The date for the payment of interest on equity and proposed additional dividends will be decided in the Shareholders' Meeting that will be held on April 16, 2020. Now let's go to Slide #5 and talk about the highlights for the period. BRL 6.6 million net income; 10.4 percentage points increase in net margin; 11.6 in the operating margin; 11.4 in the EBITDA margin; and profitability indicators reflected ROIC going up 12.2 percentage points. And the... As of Slide #7, we talk about the performance of our sales performance, starting with our exclusive resellers, Dell Anno and Favorita, dropped in gross revenue 30.2% (sic) [ 3.2% ] vis-à-vis the fourth quarter of 2018, a reduction in the modules sold, 6.1%. On Slide #8, we see that the New and Casa Brasileira had a reduction in gross sales, 2.4%, and reduction in the number of modules, 12.3%. On Slide #9, we see performance of the multi-brand resellers. We had an increase of 8.5%, a reduction in modules sold, 1.5%. The Corporate segment, on Slide #10, had an increase in gross revenue, 56.6% (sic) [ 55.5% ] and increase in the number of modules, 33.3%. I would like to remind you that the segment are affected by the specifics of each product -- projects in the comparison period. On Slide 11, we see an increase in revenue of 93.8% in the Export Market and 20.5% in the modules sold as well as the corporate exports also have an important impact of the specifics of each project that is sold, besides the exchange rate variation. The performance of the consolidated revenue of Unicasa that you can see on Slide #12 was the increase in revenue of 4.9%, a reduction in modules sold, 3.5%. On Slide 13, we show the most relevant moves of the revenue in this quarter. The first one is the growth of 13.8% in the sales channel, driven mainly by the sales performance for exports and the corporate sector, partially offset by the reduction of 8.1% due to the reduction in the distribution network and 0.8% referring to the end of our own stores operation. On Slide 14, we can see that the average productivity of stores in the quarter grew mainly due to the closing of low productivity operations. Average productivity in the quarter per store of Dell Anno and Favorita was BRL 93,700 per month, 7.2% higher than in the fourth quarter of '18. The average productivity in the quarter per store of New and Casa Brasileira was BRL 44,400 per month, 25.6% higher than the fourth quarter of '18 because of the closing of low productivity operations and improvement in the performance of the same-store sales concept. On Slide 15, we have a chart with the evolution of our exclusive and multi-brand period. And we closed the quarter with 185 exclusive, 16% less than on a year-on-year basis. And reduction in multi-brand refers to the better portfolio and the end of the operation with Via Varejo. On Slide 16, we see the chart of the evolution of exclusive period separated by brand. And we closed the quarter with 91 operations of Dell Anno and Favorita, 98 of New and Casa Brasileira -- 94. And on Slide 18, we can see the summary of Unicasa's result. 263% net income increase. We see the evolution of gross margin going from -- increased by 2.3%, going from 39.4% to 41.7%. This occurred because of the improvement in sales mix and a higher base for the dilution of general manufacturing expenses and the sale of raw materials that were discontinued due to the improvements in products, reducing by 2 percentage points to the margin. On Slide 20, we have the chart of the evolution of selling expenses, the SG&A, that went down by 21.3% on a year-on-year basis. And this reduction is explained mainly by expenses with consumers, BRL 3.2 million lower. And these expenses include expenses with merchandise, freight and assembly for final consumers that were not met by closed stores and are being met by the plant and judicial claims. Expenses with own stores went down by BRL 1.2 million due to the end of the operation as we disclosed in the fourth quarter of '16. And expenses with provision for doubtful accounts increased (sic) [ decreased ] by BRL 0.7 million. Personnel expenses going up by BRL 0.4 million and mainly due to the people that we have in the new sites in the United States. We had lower advertising in the quarter, a reduction of BRL 0.2 million. And in Slide 21, we showed the net result of the quarter, generating net margins. And Slide 22, EBITDA of BRL 8.8 million, generating EBITDA margin of 19.9%. Now I would like to give the floor over to the operator to start the Q&A session.

[Operator Instructions] [ Matheus Da Cruz ], investor.

Congratulations for the figures. And I have a few questions. With relation to the multi-brand stores, we saw a very big reduction in Q4. Were they carried out at the end of the quarter? Could this generate an impact on your revenues in this quarter? Or are you referring to very small stores that do not have a very big weight in your revenues in the first quarter and the idea of putting an end to the multi-brand stores?

Thank you very much for your question. What happened was that we carried out cleaning up of our portfolio of multi-brands. And there are some criteria that are followed. And for a long time, we didn't carry out the acquisition of materials. And in this case, we just terminate this. And we also have the end of our operation with Via Varejo. So our product was showcased in about 100 stores of Via Varejo, maybe a little bit more. And after the client family took over the control, once again, we -- they decided to no longer sell this type of furniture. And this explains the sudden drop in the number of operations. We have some new clients in the multi-brand channel. And we are selling part of what would be sold through Via Varejo, not all. But we could expect a drop in the revenue coming from the multi-brand channel. But this is not the point of concern for the bottom line of the company.

In the third quarter, we saw that after a long time, you had one net opening in the Dell Anno and Favorita. So there was an expectation of having an upward trend, but this didn't materialize. So I understand based on what you said, what is your expectation about own stores for the Dell Anno and Favorita? Based on what you said during your presentation, could we expect a net growth? Or do we intend to shut down some and open new ones?

[ Matheus ], just to clarify a point, you used one word and maybe this will bring some misinterpretation. When you talk about own stores, in fact, you're referring to exclusive dealers because we have not had our own stores in the last 4 years. So I don't want to have any misunderstanding during the call. So answering your question, we believe I cannot really reiterate that because -- but we believe that where we will see a balance first and then a growth in the distribution network, we believe this will happen. We will not have a sudden expansion in our distribution. Nothing that could be compared to what we had 10 years ago. And the company learned that this wouldn't be healthy. So we are going to open stores in locations that we believe are important. And there is another factor when we talk about a figure for the number of stores. In fact, you end up losing one important information, which is the quality of each one of the stores. I can close one store in a town with 20,000 inhabitants and open a new store in a city that has 500,000 inhabitants. And this will not be translated. If you just analyze, well, this store was opened and this was closed. So what we had, the situations that we had at the end of the year, this does not generate any negative impact on our revenues. And we expect to have stores in locations where it might be more interesting as far as we are concerned.

And regarding your export revenue that had a good growth, although it is not so relevant yet, how do you believe the growth will be? And what about the margins with this very high exchange rate? What could we expect from this division for this current year?

Well, we are placing our bets on the export market as a channel for growth. This is the reason why we have an office in the United States now. However, we cannot really quantify the speed of each one of the movements, so to say. The cost movement is very fast because you put people, you hire people, you pay rent. So the cost is in dollars. So we have a short-term impact in terms of selling expenses that is already translated in 2019. And this will happen again during the first quarter and the second and the third and the fourth in 2020. And the sales result has a sort of delay. It doesn't happen immediately. But we are very bullish, and we believe that this will be a profitable operation. And it will have a breakeven. And the operation was set up so that with an exchange rate scenario and with the real more appreciated than it is now, the profitability would be similar. So with the current scenario, it is even higher. Of course, the buyer brings pressure on us asking for discounts in order to try to balance this exchange rate situation and the supply of imported raw material, we'll have to give you a discount because the dollar is too expensive for us in Brazil. We do not -- we have not established a target yet and because we do not give guidance, as you know. But you may be sure that if one channel is not profitable, we will just close it.

[Operator Instructions] The Q&A session has come to an end. We would like to turn the floor over to Mr. Gustavo Dall'Onder for his closing remarks. Mr. Dall'Onder, you may proceed.

For additional information, please contact our Investor Relations area. Thank you very much for your presence, and we wish you an excellent weekend. Thank you very much.

Unicasa's conference call is closed. We thank you for your participation, and wish you all a very good afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]