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. conference call to discuss the results of the second quarter of 2021. Today with us, we have Gustavo Dall'Onder, CFO and Investor Relations 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, and you may access it at www.unicasamoveis.com.br/ir where you will find the presentation for download. The slide selection will be managed by you. [Operator Instructions] Before proceeding, I would like to mention that forward-looking statements that might be made during this call in relation to Unicasa's business perspectives, 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 no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and, therefore, 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 I would like to turn the floor over to Mr. Gustavo Dall'Onder to start the presentation. Mr. Dall'Onder, you may proceed.

Good afternoon. On Slide 5, we can see the highlights of the period that will be mentioned during the presentation. This quarter, the company revenue went up 65%, bouncing back to historical highs. Part of this growth was expected already as in the second quarter of '20, the company's results were impacted by the more intense negative effect of the pandemic. Nevertheless, we can see that it is highest for a second quarter since 2016 when the company had twice the number of stores in the distribution network. In our brands, most of the results comes from stores in the same-store sales concept. Revenues from the U.S. stores went up to 111% in dollars due to the reduction of the pandemic restrictions, together with the stores' maturation. On Slide 7, we highlight the low impact of the store closings due to the stabilization of distribution channels. The exclusive Dell Anno and Favorita resellers on Slide 8 posted a 63% revenue growth and 42% in modules sold. On Slide 9, we see that New and Casa Brasileira brands posted a 91% revenue increase and 53% in modules sold. On Slide 10, we see the performance of the multi-brand resellers with an 88% increase in revenues and 52% in modules. The corporate segment on Slide 11 posted 23% reduction in revenues and 24% in modules sold. This channel is subject to major variations due to the delivery times of each project. On Slide 12, we see the performance of the Export segment up by 40% in revenues and 8.5% in modules sold. On Slide 13, we see that the average productivity for Dell Anno and Favorita store in the quarter rose 87%, reaching BRL 104.9 per month. For New and Casa Brasileira, the hike was 75%, reaching BRL 52,000 per month (sic) [ BRL 52.9 per month ]. On Slide 14, we have a chart with the evolution of our exclusive and multi-brand POS. We closed the quarter with 200 exclusive and 109 multi-brand stores. On Slide 15, we show the evolution of our exclusive POS broken down by brand. We closed the quarter with 78 Dell Anno and Favorita operations, 105 New and Casa Brasileira and 17 exclusive stores abroad. Turning to operating expenses on Slide 17. We see the evolution of SG&A, going up by 17% in the quarter, the group expenses playing the biggest part. And the variation are expenses with the U.S. operation going up BRL 0.5 million (sic) [ BRL 0.3 million ] due to the increase in the number of employees needed for the development of this operation. Operating expenses refer to payroll, occupancy, travel, insurance, advertising, et cetera, related to the office opened in the U.S. to support the company's expansion. Advertising expenses were reduced in 2Q '20 as one of the measures to counter the effect of the pandemic and went up 0.6% -- BRL 0.6 million this quarter, mainly due to the higher company online communication. Variable expenses, mainly related to freight and customs, matched the higher export sales. The payroll increase is explained by further effect of the reduction of this line in 2Q '20 due to the furloughs and shorter working hours; second, collective bargaining agreement; and also the increase in headcount due to investments made in several sectors of the company to support the U.S. operation growth. Expenses with consumers were higher this quarter as in 2Q '20. BRL 0.6 million in provisions were reverted due to the end of the 5-year deadline for consumers to submit their claims. Besides, in 2Q '21, expenses with lawsuits were higher due to the trial of relevant claims in the portfolio. And there have been no additional lawsuit filings. Specific pandemic effects in 2Q '20 led to a hike in provisions for expected losses. Besides, in the quarter, we recorded an impairment provision as well. These factors were not repeated this year, and we saw a BRL 2 million reduction in this class of expense. On Slide 18, we have a summary of the 2Q '20 (sic) [ 2Q '21 ] results. The operating income of the company reached BRL 6.4 million with 13.3% operating margin and 18.1% EBITDA margin. Net income of BRL 5.3 million, 11% net margin. As of May 2021, the ICMS was excluded from the calculation of the PIS and COFINS taxes according to the ruling by the Federal Supreme Court published on May 14, '21. In the parent company, the retroactive amounts are still under discussion, and no court ruling has been published yet. Therefore, so far, they have not been accounted for. For more information, you may refer to explanatory Note 16 of our income statement. In relation to subsidiary Unicasa Comércio de Móveis, a favorable ruling has been made final, and BRL 1.8 million credit has been accounted for. Now I give the floor to the operator to start the Q&A session.

[Operator Instructions] Our first question come from [ Guilherme Nunes ] from Condor Insider.

About the third quarter, you have an increase in the price of inputs. And do you see a lot of pressure on your margins? How do you see the third quarter?

Thank you for the question. We don't really talk about the future. This is the policy of our company. What I can say is about the past, such as the whole market, we had a pressure on our prices because of costs of our inputs. And this is why we have been transferring this increase to our resellers as we believe this is reasonable and can be absorbed by the market.

[ Cristiano Moira ] from the webcast. What is the level of utilization of your plant capacities? Do you still have significant idle capacity in your plants?

[ Cristiano ], thank you for the question. Well, I cannot be very straightforward because there are different levels of occupancy of plant and machines for some processes. Some are more utilized and some are less. If you consider the average, it would be 60% today on average. But of course, we do have some of these units and some of these machines that are working at full capacity.

From the webcast, [ Mathias Dittrich ]. Could you talk about the behavior of raw material prices in the last few months? Do you believe there will be a new price transfer in order for you to recover your gross margin? Do you believe you will be able to reach about 40% gross margin in the second half of 2021?

Well, a little bit of the answer is what I said to [ Guilherme ] in the previous question. We do not talk about figures for the future. And what we can see is that we had a price adjustment yesterday to our resellers. So as we understand this is feasible and necessary and sensible, we adjust prices. However, on the other hand, we are very careful and we try to make this as predictable as possible, and we try to mitigate this for our resellers.

[Operator Instructions] From the webcast, [ Mathias Dittrich ]. What about the outlook for your U.S. operation? Do you believe you will be opening new stores in this market in the next few quarters? And when you make exports, do you hedge at the moment of the sale?

[ Mathias ], in fact, many questions about the outlook. We see a good performance and the maturation of our business in the United States is as expected, and we are happy with that. In spite of the pandemic -- and this happened after we started our expansion in this market. And yes, we do intend to open new operations in this market in the next few quarters. This is part of the natural growth of the market. And regarding the hedge, the exchange rate hedge, this is something that we have been doing until 1 quarter back. And we stopped because of the natural hedging, because we have imports of machineries that should be finished within the next 18 to 24 months. So while we still have debt in euros for the acquisition of machineries, we are not going to resort to these exchange rate hedges.

Our question comes from [ Guilherme Nunes ] from Condor Insider.

About the price increase of raw materials, which ones are under more pressure?

Well, it varies. I cannot tell you that one is more pressured than others because sometimes you may have one raw material that receives a higher relative pressure, 30%, 40% but, however, sometimes this is not very relevant sometimes in our overall cost. So sometimes this may be an item that does not have a very big weight in our overall cost. So the isolated of this -- the impact of this one raw material does not have this kind of impact. So it's very difficult to quantify.

[Operator Instructions] [ Guilherme Nunes ], Condor Insider.

Could you talk about the panel segment, about the performance of the panel segment, please?

Well, I think you should ask this question to Duratex and other panels providers. We only know about what we buy, but we cannot tell you anything about the panel segment.

[Operator Instructions] As there are no more questions, the Q&A session has come to an end, and we would like to turn the floor back to Mr. Gustavo Dall'Onder for his closing remarks. Mr. Gustavo Dall'Onder, you may proceed.

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

Unicasa's conference call has come to an end. Thank you very much for participating. Have a very good afternoon. You may disconnect your lines now. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]