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

Good afternoon, ladies and gentlemen. Thank you for waiting. Welcome to Unicasa Industria de Moveis SA conference call to discuss the results of the fourth quarter of '22. Today with us, we have Mr. Guilherme Possebon de Oliveira, CFO and Investor Relations Officer. We'd 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 www.unicasamoveis.com.br/investor relations, where the presentation is also available for deluded selection will be managed by you. [Operator Instructions] Before proceeding, we would like to clarify that forward-looking statements that might be made during this call in relation to Unicasa's business outlook, projections, operating and financial targets and beliefs and assumptions of Unicasa'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 the company and may lead to result that differ materially from those expressed in such forward-looking statements. Now we would like to turn the floor over to Mr. Guilherme Possebon de Oliveira to start the presentation. Mr. Possebon de Oliveira, you have the floor.

Good afternoon. Now let's go to Slide 5 for the performance of sales of Unicasa. Year-on-year, we grew 11.8% in revenue. And in the quarter, we had a reduction of 9%. In multi-brand, up to the third quarter, we grew 9.4%. Nevertheless, a drop of 35.5% in the fourth quarter impacted this growth and we ended up dropping 3.5% in this segment. In the fourth quarter, we can stress the impact of presidential elections on the economy and the delays in the completion of [ civil ] construction project that will probably impact the segment of Exclusive between the end of 1Q '23 and beginning of 2Q '23 as well due to the longer sales journey. In the Corporate segment, the delivery of a project was instrumental for the growth of 102% year-on-year for the reduction of 45% reduction in the quarter, and the project was started in 4Q '21 and concluded in 3Q '22. In Exports, dollar revenue went up 27.8% and the U.S. market grew 47.2% and reached approximately 10% of the total Unicasa revenue. Quarter-on-quarter, the revenue in dollar was practically stable. On Slide 6, the performance of exclusive resellers was driven by stores in the same-store sales -- same-store criteria growing 17%, adding BRL 24.6 million. Together new stores, maturation and closed stores had a negative result of BRL 3.4 million. And the discontinuation of the Favorita brand contributed to a reduction of BRL 6.3 million. When we look at the quarter-on-quarter comparison, stores and same-store criteria grew 4.2%, adding BRL 1.9 million. Together, new stores, stores and maturation and closed stores had a negative result of BRL 0.9 million. And the close of the Favorita brand contributed to the reduction of BRL 2.4 million. Over the last few years, we decided to discontinue the Favorita brand and the closing of the brand and concentrating our endeavors on a more consolidated rent of Unicasa allowing us to have a better use of our resources for the expansion of the network, marketing, training, the launch of products among others. And during this process, the point of sale with the locations that were part of the strategic plan were converted to other brands and the others were definitely closed. The impact mentioned before, represent a reduction of revenue only from closed stores. And because of that, we decided to disclose the revenue -- exclude the resellers in a combined fashion between Dell Anno, New and Casa Brasileira. The same had been protecting the business strategy as we are the only company -- or the only listed company in the sector. And we present the performance of the stores as same-store sales and the combined between new stores and maturation close. We segregate our resellers into four; new stores, representing the stores open during the current year; stores and maturation, representing those opened in the previous year; same-store represent the other stores opened and the closed stores. Now let's go to Slide #7, where we can see that the average productivity in the court of the exclusive stores reaching BRL 111 per month, a 10% increase. On Slide #8, we have a chart with the evolution of our exclusive and multi-brand POS. We closed the quarter with 163 exclusive stores, dramatically 18 abroad, 74 multi-brand in Brazil and 23 multi-brand abroad. Now talking about our operating expenses on Slide #10, we see the chart with the evolution of our SG&A, which went up by 26% in the year. In relation to the mainly increases, I would like to mention the increase in our payroll expenses coming from the increase in the number of people to support the growth of the U.S. operation, replacement of the support team to national [ resellers ] which were delayed due to the pandemic and the collective marketing agreement of 10.6%. The average number of employees in the sales and administrative areas was 30% higher than in '21. Advertising expenses increased BRL 4.4 million due to resumptions of advertising campaigns and the concentration of campaigns in 2022. The campaigns are biannual, nevertheless according to the schedule the new brand campaign that should be renewed in 2021 was postponed to 2022 because of the impact of the pandemic. Besides because of the end of the Favorita brand, we started to have campaigns for the Casa Brasileira brand. Therefore, in 2022, we had the beginning of the campaign of the 3 brands; Dell Anno, New and Casa Brasileira. And we also started to carry out the program for architects for the new brand, which was limited to Dell Anno before. The increase in marketing costs followed the increase in revenue from the corporate segment and export, and they are related mainly to freight, customs clearance, and assembly. The resumption of travel limited in 2021 because of the pandemic contributed to an increase of BRL 1.6 million. Expenses with third parties reflect the lawyers' fees because of our successful outcome in our tax laws suit, such as inflation in our financial investment, the inclusion of the ICMS from the PIS and COFINS space. Expenses with consumers were BRL 1.3 million lower due to -- and they represent approximately 1% of revenues now. The reduction in depreciation and amortization happened because in July 2022, we had the amortization of 1 point of sales or commercial POS. On Slide 11, we see a chart with the evolution of SG&A for the fourth quarter increasing 15%. And the main impact was the increase with advertising campaigns for the same reason that we mentioned regarding the annual variation. Slide #12, we have a summary of our results. When we analyze the performance of Unicasa in 2022, we should keep in mind the scenario of 2021, a year in which our revenue grew significantly, and we had contingency expenses because of the impact of the pandemic and combined, they drove the result of 2021, and therefore, we have a very strong comparison base in practically all lines of our balance sheet. The gross margin for the year was 34.2%, a drop of 2.1 percentage points vis-a-vis 2021. And during the year, the oscillation of prices in the supply chain was smaller than last year. And we only had 1 price increase because of that vis-a-vis the 3 ones that we had in 2021. Therefore, the variation of margin comes mainly from the increase in revenue coming from corporate clients, both in the domestic and the export market, which have a lower margin. In the quarter, the gross margin reached 34.5%, a reduction of 1.9 percentage points vis-a-vis the fourth quarter of '21. It is important to highlight that the operating result is impacted by the recovery of BRL 7.2 million coming from the exclusion of the ICMS from the calculation base of the PIS AND COFINS taxes. In the financial result, there is an impact of BRL 2 million, referring to the monetary restatement of this and of other tax credit. Income tax and social contribution are also impacted with a benefit of BRL 3.3 million. On Page 6 of the release, you can see the result of the year, excluding these nonrecurring effects. On Slide 13, we see the summary of the cash flow and the net cash of the period. The cash operating generation was BRL 46.3 million with BRL 33 million allocated to the investment [indiscernible] announced in the fourth quarter of '21 BRL 33 million consumed with client prepayment realized by the resellers during '21, looking for protection from price increases and BRL 11 million for payment of dividend of the investment plan announced in 4Q '21 approximately BRL 15 million. We paid BRL 11 million. And the balance, 45% will be paid in the fourth quarter of '23 -- 45% in the fourth quarter of '24 and 10% in the second quarter of '25. On Slide 14, we show you the ownership structure of the company as it is now. As part of the expansion plan of Unicasa in the U.S. market in September '22, we signed a lease agreement for one point of sale in New York City. For the acceleration of the point of sale, we created the Dell Anno New York City, LLC with approximately 300 square meters of selling area. That store is located in one of the main furniture hubs of New York City around 200 meters distance from Madison Square Park and the Fifth Avenue and the opening of this store will be in the first half of 2023. And in January 2023, the Dell Anno store in Miami and Florida, which was exclusive, was converted to our own store and it is called Dell Anno Miami, LLC located in the Design District. The store has about 500 square meters of area and is already open to the public. On Slide 15, we show the proposal by the management for the allocation of the results of this fiscal year, which will be decided during the shareholders' meeting scheduled for April 28. Management proposes the allocation of the net income to the distribution of BRL 12 million as interest on equity as approved by the Board of Directors on December 1, 2022, with a distribution of 38.3% of the adjusted net income corresponding to BRL 0.181 per share gross of income tax, BRL 4.2 million in excess to the minimum mandatory dividend and the retention of BRL 19 million to promote production CapEx, as we said before. And those who would be entitled to the interest on equity are the ones that own common shares on December 6, 2022, the date of the negotiation ex interest on equity as of 7 December '22. And the date for payment of interest on equity is May 25, 2023, with no remuneration and no monetary restatement. Now we would like to open for questions.

[Operator Instructions] From the [indiscernible] Could you explain the delays in the civil construction project? Are they being delayed because of the companies or the production companies? This is a trend for 2023. Could you talk about the first quarter of 2023? Do you see any improvement in this regard vis-a-vis the fourth quarter of '22? And how do you see this current year?

In relation to the projects that have been delayed or postponed, yes, the construction companies were the ones who postponed them. This is what our resellers are telling us in the presentation and in the release, you can see that I say that these postponements have impacted the multi-brand sector in the fourth quarter, and we believe that it will continue to affect because of the longer sale. About the impact in 2023, I will limit myself to discuss the results up to the fourth quarter of 2022, and we will be giving you additional information when we disclose the data for the fourth quarter of the current year.

[Operator Instructions] A question by telephone and it is an individual.

Good afternoon, Guilherme, I am a shareholder as an individual, and I would like to know about your investment strategy in the U.S. market. And basically about the purchase of the Miami stores and the opening of your own store in New York City. I would like to know about your strategy behind that and the amount of the investment and how you're going to finance that? And as we are talking about investments, I would like to know about the investment announced in the fourth quarter of '21. I know that you have already paid almost all of it using our own cash and only a small part remains to be paid. And last year -- at the end of last year, you announced the approval of financing, usually [ regranting ] this to incentive agency. I think it was about BRL 60 million, if I'm not mistaken, and will they be used for this project or for some other project?

In relation to the U.S. market, since 2019, we have been -- we have had 1 person working in the U.S., an expatriate, and we have been having stores that are similar to the model that we have in Brazil and because of the maturing of this market, we thought it would make sense to convert the Miami stores into our own store and the New York City, also we thought it would make sense to have a store in the main sitting in the world to place the Dell Anno brand. We are losing the sound all the time. The interpreter says that. About the investment -- we will be talking about that when they materialize. And so far, we cannot say anything about that. In relation to the investment that you mentioned in the fourth quarter of 2021, we still have EUR 4 million, as you said yourself, to be paid. And we used our own cash. And we announced last year the [indiscernible] of the company to the [indiscernible] but we have not yet started to reap the benefit from this fund. We still have to prove the execution of the investment in order to be able to use this. And we received one of the machines approved by the [indiscernible]. We have just received this machine. So we will be starting to send the evidence of our investment. And it is important to say that in the material information about the thing we see that this fund does not give the company any money, we do not invest any money in the company. What happens is that the ICMS tax that will happen during the course of the project, this will be postponed or the payment of this tax will be postponed. Just to give a base -- and this increase in this tax, we have a longer term to pay for that, and we have a discount at the end. If you need any more information about how it works, you can call us. And we have too material information published about that, and you can call it about any additional information that you might need. Thank you.

[Operator Instructions] A Question from the webcast from [ Mattheis ].

Advancements for your operation in the U.S., the teams and the stores have they come to an end or are you going to have more expenses? You'd be diluting these expenses. Does the revenues of your sales in the United States come on stream?

[ Mattheis ]. Let us separate investments between New York City and Miami. The store in Miami has already been in operation. We already have people there and it became ours in January 2023. In 2022, we felt some impact of this store because we were discussing the purchase and discussed this with the lawyers and not the operation of the store itself. So we only have this in 2022. Regarding staff, yes, it will still grow in 2023, but we are talking about people with the store itself. As the store was exclusive and it worked through the operation in the U.S., we already had a back office that offered some services such as assembly, the execution of projects and design. So most of that was already in place, but now we started to operate the store as 100% ours. In New York City in 2022, we had expenses regarding lawyers' fees because of contracts that had to be drafted. And Miami store -- during the end of the first half of 2023, we will still have to pay this lease so the fixed expenses and the hiring of people have not happened yet for the New York City store. We will see an increase in expenses in New York City because of that. But talking about Miami, it's important to mention that the Miami store, as we converted it into our own store, it is already open. It is already selling. So the maturation phase of the investment is much shorter than the New York City store. So we expect to have recognition of revenues coming from Miami, and that will serve to healthy expenses.

[Operator Instructions] [ Gustavo Cardoso from One Investment.]

With the closure of Favorita, what about your strategy for the opening of new stores?

We have a specific team that works with the expansion of our network of our chain. So the efforts concentrated for the closure of the Favorita stores did not have any bearing whatsoever in the expansion of the other brands. It is not because we closed Favorita, that there will be any impact on the opening of new stores of the 3 other brands because it has never stopped and we cannot give you a specific figure because we do not disclose this kind of information. So we cannot tell you about the number of new stores.

[Operator Instructions] Yes, there are no more questions. We would like to -- we would like to inform that the Q&A session has come to an end, and we would like to give the floor back to Mr. Guilherme Possebon de Oliveira for his closing remarks. You may proceed, Mr. Oliveira.

Thank you very much for your presence, and we wish you a wonderful weekend. And for additional information, please contact our Investor Relations area. Thank you very much.

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