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

Good afternoon, ladies and gentlemen. Thank you for waiting. Welcome to Unicasa Indústria de Móveis S.A. Conference Call to discuss the results of the second quarter of 2023. Today with us, we have Mr. Guilherme Possebon de Oliveira, 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 unicasamoveis.com.br/ir, where the presentation is also available for download. [Operator Instructions] Before proceeding, we wish 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, our 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, they depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operating factors may affect the future results of the company 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. Guilherme Possebon de Oliveira to start the presentation. Mr. Oliveira, the floor is yours.

Good afternoon, everybody. Now let's turn to Slide #5. With Unicasa's sales performance in this quarter, same-store sales went up 8% and the sellout of our distribution network went up 9%. Data from ABRAINC, the Brazilian Developers Association, that up to April 23 deliveries of projects in the mid and high segments were 58% higher than the same period in 2022. I would like to mention that the economic scenario with high interest rates and high household debt brought about credit difficulties mainly to our New and Casa Brasileira consumers. Nevertheless, revenue in the quarter dropped about BRL 8 million. And on Slide #6, we have the main drivers. Nonrecurrent sales recognized over 2020 to win the corporate segment, accounting for BRL 4 million reduction. Discontinuation of the Favorita brand accounted for BRL 1.3 million reduction, drop of BRL 2.3 billion in multibrand resellers. The segment was very much affected by the credit squeeze conditions. And reduction of BRL 3.2 million in the combined result of closed, new and maturing stores. The closing of some stores with relevant sales was a major factor in the combined revenue drop. In 2022, we made a difficult decision regarding discontinued resellers that we are consistently failing to meet our client service quality criteria. And in the export market, the dollar revenue from the U.S. market went up 6.9%. Our own store in Miami opened in January 23 is maturing and delivering a good performance on the contract signed with consumers. The New York store preparation is underway, and the opening is estimated for September this year. Now let's go to Slide #7, where we can see that the average productivity in the quarter of the exclusive resellers reached BRL 90,500 per month, going up 10.3%. On Slide 8, we have the evolution of our inclusive and multibrand point of sale. We closed the quarter with 154 exclusive stores in Brazil, 19 abroad, 66 multibrand stores in the domestic market and 23 abroad. Now going to our operating expenses on Slide 10, we see the evolution of our SG&A, which in relation to the main increases in the expenses, we have the addition of the Miami store, which was the main driver of the expense increase of our U.S. operation due to rent and payroll expenses. And for the store, deferred revenue recognition should happen by the end of the third quarter of '23. Therefore, expense in the next quarter will continue to be pressured by this fixed expense increase without the corresponding revenue. And the store has a walk-in customer traffic and contract signed according to our expectation for a maturing store. The increase in advertising expenses was due to the campaigns for the Dell Anno, New and Casa Brasileira brands, as during the pandemic, we decided to postpone the creation of new campaigns. Thus, as of the second half of '22, we resumed investments in this area, with this concentration of expenses and the campaign expenses are deferred based on the contract terms for the use of the material rights of images. And besides the architect's program has been expanded. Marketing costs reflect the variable expenses for the corporate and export segments, which had a revenue reduction in this quarter. Depreciation was lower this quarter because of the end of the goodwill amortization in July 2022. On Slide 11, we have a summary of our results. The company's gross margin was kept practically at the same level. However, it is important to highlight the recomposition of margins via price increases and improvement in price stability in the supply chain, which allowed us to maintain our gross margin in spite of a 12% reduction in the net revenue. Now I'd like to turn the floor over to the operator to open the Q&A session.

[Operator Instructions] Our first question will be via webcast, Mr. [ Gustavo ]. Which strategies are you taking to recover revenue? And could we expect the continuation of this recovery in the gross margins?

Good afternoon, Gustavo. Thank you very much for the question. In relation to your question about the revenue, it's very hard to say exactly how much we will be able to recover from this revenue. You read the release about the sellout of the company that is improving and transactions that happen with the consumer directly are increasing consistently. And what we see is a difference in the consumer journey in order to convert the orders placed at the stores to the plant. We expect this to recover. And we will see the sellout being reflected on the company's revenue in relation to the gross margin. Yes, our expectation and our visibility show that we will be able to recover part of this margin and it will continue to happen because we can see that our clients -- as we said before, quite a few times here, prepayment of clients, they have a discount regarding production for price increases. So the more we extend this, the less is the discount, and this allows us to recover part of the margins. And another point, you can see in the release that the revenue from the multi-brand segment is dropping, and it is our lowest margin. So this gives a very good contribution for the recovery of the company's overall gross margin. Thank you.

[Operator Instructions] The Q&A session has come to an end. And I would like to turn the floor over back to Mr. Guilherme Possebon de Oliveira for his closing remarks. Mr. Oliveira, you may proceed.

I would like to thank you very much for your presence and wish you all a very good week. 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.]