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

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Unicasa Indústria de Móveis S.A.'s conference call to discuss the results of the second quarter of 2020. Today with us, we have Mr. Gustavo Dall'Onder, CEO, CFO and Investor Relations Officer. We inform you that this event is being recorded [Operator Instructions] This event is being broadcast simultaneously on the Internet via webcast, and you may access it at www.unicasamoveis.com.br at the Investor Relations section, where you will find the presentation for download as well. The selection will be managed by you. [Operator Instructions] Before proceeding, let me mention that forward-looking statements that might be made during this call in relation to Unicasa's business perspectives as well as the 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 a guarantee of performance. 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 floor over to Mr. Gustavo Dall'Onder to start the presentation. Please, Mr. Dall'Onder, you may proceed. Thank you.

Good afternoon. Considering the pandemic that we are going through, we believe that it will be necessary to highlight a few points about Unicasa's performance. First, the company adopted strategies to control expenses using the measures that allowed by the Brazilian legislation to reduce the working hours and to suspend contract besides suspending business travel and the reduction of advisory, among others. And with that, in spite of the help to resellers in the sense of credit granting and the drop in revenue, investment and expansion to the United States, cash burn in the quarter was BRL 5.6 million. And the biggest impact was the working capital and accounts receivable and inventory that represented a consumption of BRL 9.8 million, offset by the operating cash generation of BRL 5.2 million. Secondly, we increased credit and discount for the resellers so that they could cope with this period. And in spite of an 18.6% drop in revenue in the quarter, we see that the resellers were maintained. Third, according to material fact that we published on July 9, the company is operating with about 85% capacity, was already doing this in the pre-pandemic period. Four, another adaptation due to the pandemic was the convention of resellers of Dell Anno totally digital that we had on May 27. The evaluation of resellers was positive. And the digital platform allowed communication of the brand in relation to product launches, marketing strategies and news in general to a higher number of employees of the resellers' network. Beside the convention, we had the launch of a new collection of products, and we presented a new showroom of the Dell Anno brand by means of the Dell Anno Instagram and partners, and it was open to the public in general. And due to the success, the resellers' convention of the new brand will be in August in the same way. We see at the beginning of the third quarter that delinquency is being reduced and the flow of client in prospection in the stores is improving. We still do not have visibility of the changes that the pandemic will cause in consumer behavior, but the appreciation of residential areas is evident. And therefore, we believe that in the medium run, the company could benefit from this trend. We continue to be diligent in the sense of promoting the objectives of Unicasa and promoting safety to our employees that carry out activities with their presence in the workplace to minimize the virus propagation risks, respecting the recommendations of the Brazilian health authorities. Now Slide #5 to present the highlights of the period. We closed the quarter with operation cash generation -- operating capital generation of BRL 5.2 million. Our revenue went down 18.6% mainly due to the effects of the pandemic. The EBITDA margin of the company reached 9.4%, whereas the net income was BRL 270,000. On Slide 7, we highlight the most relevant movements of our revenue in this quarter. First, the effect of the pandemic that resulted in the temporary closing of the stores, reducing client traffic by 12.5%; second, reduction in the size of the distribution network, 4.3%; and third, the closing of our own store operation, minus 1.8% impact. On the next slide, we will see the consolidated effects in each one of the sales channels. Starting by the exclusive Dell Anno and Favorita resellers on Slide 8, we see a drop of 27% in revenue and in 35% in modules sold. On Slide 9, we see that new and Casa Brasileira brands had a reduction in revenue and also modules sold 15%. On Slide 10, we see the performance of the multi-brand resellers, a reduction of 27% in revenue and 34% in modules. The corporate segment that we see on Slide 11 had a reduction of 34% in revenue and increase in the number of modules sold, 31%. This oscillation with different vectors is due to the sale of a project, a specific project in the second quarter of '19 with specs that were significantly different from the ones that we had in the 2Q '20. On Slide 12, we see the performance of the export segment that had a growth of 103% in revenue and 27% in modules sold. The consolidated revenue of Unicasa, Slide 13, went down by 18%. Modules sold, 22% drop. On Slide 14, we can see the average productivity of stores in the quarter. The average productivity in the quarter per store of Dell Anno and Favorita was BRL 56,000 per month, 21% less on a year-on-year comparison. The average productivity in the quarter per store, new and Casa Brasileira brands, BRL 30,000 per month, 11% less than in the second quarter of '19. On Slide 15, we see a chart with the evolution of our exclusive and multi-brand POS. We closed the quarter with 198 exclusive stores net opening of 2 operations in relation to the first quarter of '20. On Slide 16, we see a chart with the evolution of our exclusive POS segregated by brand. And we closed the quarter with 96 (sic) [ 87 ] Dell Anno and Favorita operations, 87% (sic) [ 96 ] New and Casa Brasileira then 15 exclusive stores in abroad. On Slide 18, we can see the summary of Unicasa's results. We can see a reduction in the many indicators of performance in the quarter, and we will be talking about this on the next few slides. On Slide 19, we see the evolution of the gross margin going down by 4.5 percentage points, going from 40.3% to 35.8%. As we said in the message from the management, the company granted more discounts to resellers in order to help them because of the pandemic effects on their operations, contributing to a reduction of 3.6% in the gross margin. In spite of a reduction in manufacture of BRL 1 million due to the reduction in the working hours and suspension of labor contracts, the reduction in revenue pressured the dilution of fixed costs, contributing to the reduction of 0.9% in gross margin. On Slide 20, we have a chart with the evolution of our SG&A expenses, going up 5.6% in the quarter mainly because of, first, in this quarter, beside the individual analysis per client in relation to credit losses and -- the company revised estimated losses based on the increase of delinquency in the quarter, an effect that was observed because of the pandemic effect. Thus, we built BRL 1.3 million in provision for expected losses with our doubtful account. And the total effect on a comparison with last year was BRL 1.8 million because in the second quarter in '18 (sic) [ '19 ], there was a reversal of BRL 0.5 million. Secondly, the company posted BRL 1 million in provision for impairment of asset. And the asset is a goodwill of a store that was acquired in 2012 for the acceleration by means of own stores. Because of the closing of this operation communicated in the fourth quarter of '15 (sic) [ '16 ], this point was being explored by a reseller -- an authorized reseller. And because of the pandemic, he communicated to the company that he wants to close the operation. As we do not expect in the current situation to find another reseller, so we built a provision zeroing the impairment of this goodwill. Thirdly, expenses with the operation in the U.S. refer to personnel costs, occupancy, travel, insurance, advertising related to the office opened in the United States to give support to the company's expansion in that market with an increase of BRL 0.8 million. Expenses with consumers were BRL 1.1 million less. And these expenses are expenses with merchandise, freight, assembly of final consumers that were not served by closed stores, and they are being served directly by the plant and by legal lawsuits. In this quarter, we reverted BRL 0.7 million in provision due to the expiration of the 5-year term for the consumer to request the purchase. And that is established in the consumer defense codes. Variable expenses were reduced by BRL 300 million (sic) [ BRL 0.3 million ] mainly due to the nonrecurrent of expenses with assembly in the second quarter '19. Expenses with own stores went down by BRL 0.3 million due to the closing of the operation. And the other expenses went down by BRL 1.1 million and refer mainly to the result of actions that the company took because of the pandemic. We could mention a reduction with travel expenses, business expenses -- business travel expenses and the suspension of travel and also expenses with advertising and personnel and a reduction in the number of hours worked. And on Slide 21, we see the result of the effect that we talked about before. Net income, BRL 270,000. And on Slide 22, EBITDA BRL 2.7 million, generating an EBITDA margin of 9.4%. I would like to mention that during the shareholders' meeting carried out on July 29, we approved dividend and interest on the equity payout that will be paid on December 16, 2020. Now I would like to turn the floor back to the operator to start the Q&A session.

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

For additional information, please contact our Investor Relations Department. Thank you very much, and we wish you all a very good day.

Unicasa's conference call has come to an end. Thank you very much for participating, and we wish you a good afternoon. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]