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 third quarter of 2021. Today, with us, we have Gustavo Dall'Onder, CEO, CFO and Investor Relations Officer. We would like to inform you that this event is being recorded, and all participants are in listen-only mode during the company's presentation. Afterwards, we will hold a question-and-answer session when further instructions will be given. [Operator Instructions] This event is being broadcast simultaneously on the Internet via webcast, and you may access it at unicasamoveis.com.br/investorrelations, where you will find the presentation for download as well. The slide selection will be managed by you. We would like to remind you that webcast participants may send their questions via website, and they will be answered during the Q&A session. Before proceeding, let me mention that forward-looking statement that might be made during this conference in relation to Unicasa's business perspectives, operating and financial targets and our 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, 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. Mr. Dall'Onder, you may proceed.

Good afternoon. Now let's go to Slide #5, where we can see the highlight of the period that will be mentioned during this presentation. In this quarter, the company revenue went up by 48%. With the number of stores remaining practically stable since last year, the positive performance was driven by the stores opened in both comparison periods. One highlight was the export performance, growing by 132%, reaching 70% of the net revenue in the quarter. This growth was driven beside the better performance of U.S. stores by the delivery of 2 corporate projects, one in Punta del Este in Uruguay and the other one in New York and the U.S. On Slide 7, 8, 9, 10 and 11, we can see the individual performance of each one of the segments. The exclusive Dell Anno and Favorita resellers posted a 36.8% revenue increase while New and Casa Brasileira went up by 34%. On Slide 12, we can see the 47.2% effort productivity gain in the quarter Dell Anno and Favorita stores, reaching BRL 130,700 per month, whereas New and Casa Brasileira rose 25.2%, reaching BRL 59,200 per month. On Slide 13, we have a chart with the evolution of our exclusive and multi-brand POS as we closed the quarter with 204 exclusive stores and 106 multibrand. On Slide 14, we break down our exclusive POS per brand. And at the end of the quarter, we had 78 Dell Anno and Favorita operations of 108 New and Casa Brasileira and 18 exclusive stores abroad. Now turning to the operating expenses on Slide 17. We see a track with the evolution of our SG&A rising 39% in the quarter. The increase in payroll expenses was driven mainly by the larger headcount to support our U.S. operation and the collective bargaining process in the period. Advertising expenses followed the trend of the previous quarter with a BRL 0.6 million increase, mainly due to the lower expenses in this area in the third quarter of '20 due to the epidemic. This increase refers mainly the online media actions. The higher export revenues carry freight, customs and other expenses, which had a BRL 0.5 million hike, U.S. operation expenses rose BRL 0.5 million as well. And here, we have the local expenses in the U.S. and in this quarter, the increase refers to variable freight and assembly expenses beside the higher headcount of this operation. In 3Q '21, the provision for expected credit losses was reverted due to the lower delinquency. Nevertheless, in 3Q '20, the reversal of this provision for the same reason was higher than the third quarter of '21. Thus, this line item shows a rise of expenses year-on-year. Consumer expenses were higher by BRL 0.4 million due to agreements signed with consumers and has been no increase in the lawsuit portfolio. Travel expenses were higher by BRL 0.3 million. Although the company encourages virtual meetings, travel related to the follow-up of store owners' operations, which were suspended for about 15 months, are coming back in some cases. On Slide 17, we have the summary of our 3Q '21 results. The company's operating result reached BRL 10.2 million with a 16.9% operating margin, net income with 12% net margin annualized ROIC. Net income was BRL 7.2 million with 12% net margin. Annualized ROIC read 2.2%, a 2.2 percentage point increase quarter-on-quarter. Now I would like to turn the floor to the operator to start the Q&A session, please.

[Operator Instructions]

[Mathias Dietrich.] The recent trend of opening stores abroad should be maintained. Do you believe that in 2022, revenues from abroad will be increasing their percentage to 20% of the overall revenues of the company?

And yes, we believe it will be possible to continue in this model because it is rather successful, the opening of stores abroad. So we believe that we have a lot of room to grow, and even in a more accelerated fashion than domestically. And this means that they could become more representative in the overall revenues of the company.

[Operator Instructions] [Roberto Kleton]

Good maintaining -- good -- congratulations for the result. Considering the average productivity per store in the last few years, what could we expect in terms of number of stores for the next few years?

During the company over the last couple of years, we have established an area that is fully devoted to expansion in the number of stores. So we can expect an increase. Nothing compared to the growth pace that we had 15 years ago, because we have much more strict criteria in order to open new stores. However, our plan is to increase the number of stores, not only because of the productivity, of course, never waiving productivity.

[Mathias Dietrich.] The cost of the main raw materials was stable in the last few months. And could we expect for 2022, a recovery of your gross margin, going back to more normal levels, around 40%?

Mathias, it's very difficult to answer that, first of all, because they have not gone back to normal. We continue to see increases in the sector. And even yesterday, we had a price increase that we transferred to our network, our chain. And I believe that next year, we will be seeing a recovery in our gross margin. We will be working in this direction, mainly because in exports, we can have a higher ticket because of the model -- the business model that we use, but also because of the recomposition of margins in Brazil, but it will be very difficult still in 2022 to see a full recovery. And going back to the previous gross margin that we had in 2019 or even 2020 because the company strategy was to transfer the adjustment in a more smooth fashion than it impacted us in order to keep the whole chain healthy.

[Operator Instructions] [Roberto Kleton]

Taking into account the resiliency in the quality of your current resellers base, do we intend to go-to-market in order to better increase the capital structure of the company or further increase the capital structure of the company?

Yes, Roberto, we have already talked about this. This is not -- does not really match the strategies and the values of the controlling shareholder. So it is not our first option. It is more probable for us to have a more timid distribution of dividends some time in order to use the surplus of income, net income, then going to the market in order to raise debt.

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

For additional information, please contact our Investor Relations area. Thank you very much for your presence. We wish you a very good Friday and a very good holiday.

Unicasa's conference call has come to an end. Thank you very much for your participation, and we wish you a good afternoon. Thank you.