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

Welcome and thank you for waiting. Welcome to Unicasa Indústria de Móveis S.A. conference call to discuss fourth quarter 2023 earnings results. [Operator Instructions] We inform you that this conference call is being recorded and can be accessed in the company's IR website, ri.unicasamoveis.com.br where you'll find the full package of our financial disclosure. You can also download the presentation from the chat icon also in English. [Operator Instructions] We emphasize that the information contained in this presentation and forward-looking statements that might be made during the conference call relating to Unicasa's business prospects, projections and operating and financial targets are based on the beliefs and assumptions of the company's management as well as on information currently available. Forward-looking statements are not a 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 should understand that general economic conditions, market conditions and other operating factors may affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Today, we have with us Mr. Guilherme Possebon de Oliveira, investor Relations Officer. Now I will turn the floor to Mr. Oliveira.

Good day, everyone. It is a pleasure to be here with you for another Unicasa earnings conference call. Let us start on Slide 4 for our sales performance. Our revenue for the quarter, impacted by the same effects we commented on throughout 2023, fell by 8.2%. We, therefore, ended the year with a 12.3% reduction in revenue. The performance of the multi-brand segment was directly affected by reduced consumer credit caused mainly by the high indebtedness of households and increased delinquency. The corporate segment, the reduction is concentrated on one client that the company served in 2022. Exports revenue grew by 14.8% in the quarter, mainly on the back of the performance of our operation in the United States, which grew by 5% in the quarter and 18% in the full year. Exports amounted to 20% of the company's net revenue. When we started expanding into the North American market in 2019, exports accounted for around 6% of our revenues. In the exclusive dealers segment, the tone of the year was good performance for in-store sales. If on one hand, consumers were present at the stores, signing contracts and boosting sell out. On the other hand, sell-in was slow. This is largely due to a change in consumer behavior who have postponed status in the construction and renovation of their homes in search of cash flow relief. In addition, we saw several delays in real estate delivered by construction companies across the country. Same-store sales fell by 6.5% while closed, new and maturing stores reduced revenue by BRL 3 million in the quarter. On Slide 5, we see the graph showing the performance of our exclusive and multi-brand points of sale. We ended the year with 145 national exclusive stores, 20 exclusive stores abroad, 67 national multi-brand stores and 24 multi-brand stores abroad. Moving on to operating expenses. On Slide 6, please. We see a graph of the evolution of our selling, general and administrative expenses, which grew by 6.6% in Q4. Excluding the United States operation, operating expenses would have dropped by 10.8%. Variable expenses fell due to the mix of customers and efficiency gains in foreign market operations. Advertising expenses were lower due to the concentration of expenses in Q4 '22. In the full year comparison, this line item remained at the same level. When we also add expenses from our own stores in the United States, the company's consolidated operating expenses grew by 6.6%. In 2022, we have no stores of our own and we ended 2023 with 3 operations in the United States. Expenses include mainly rent, staff and insurance. On Slide 7, we present a summary of Unicasa's results. In relation to the quarter, it is important to note that gross margin reached 37%. As a result, gross income remained at practically the same level even though revenue fell by 8.2%. The improvement in customer profile and the sales of our own stores in the United States, the recomposition of our sales prices, the stabilization of prices in the supply chain as well as the cooling of discounts of the price protection policy offered to resellers. All of these are the main factors that explain the increase in gross margin, which remained above 37% in the second half of the year, a level only seen before the COVID-19 pandemic. In the quarter, the operating income of the Brazilian operation grew by 22%, mainly due to the reduction in operating expenses. When we look at the consolidated operating result, we posted a 46% reduction driven by the addition of our own stores in the United States. In the full year, the Brazilian operations operating income fell by 34%, while the consolidated result fell by 58%. Thus, we ended the year with a net income of BRL 15 million. On Slide 8, we present the management's proposal for the allocation of our results, which will be decided at the shareholders meeting scheduled for April 29. The management will propose the payout of BRL 13.3 million as interest on capital, IOC, or interest on equity. BRL 9.7 million in access to the minimum mandatory dividend for the period. The IOC was approved by the Board of Directors on December 1, 2023 corresponding to BRL 0.20 per share. This proposal results in a payout of 92% of adjusted net income. Shareholders holding common shares on December 6, 2023, will be entitled to receive the interest on equity. The proposed payment date is May 30, 2024. Moving on to Slide 9. We present the facade of the Dell Anno store in New York, which opened in October last year. This is the first street store of a Brazilian brand of customized furniture in New York City, a milestone in the international expansion plan of Dell Anno in Unicasa. I now hand over to the operator to start the Q&A session.

[Operator Instructions] Our first question comes from Fernando [indiscernible].

Could you comment on the dynamic of results in the first months of the year, January and February of 2024.

I can make some comments. But our first quarter 2024 earnings results will be on May 13th. So to speak about 2024, let's wait until we have the results for the first quarter.

Next question also from Fernando [indiscernible].

Regarding the percentage of exports, do you have any expectation regarding how much exports will account for the revenues of the company in the future?

Fernando, I cannot give you a precise percentage of share of exports that we aim to get. But you can infer based on the information that we disclosed. In other words, we have 3 -- we opened 3 owned stores in 2023. So the trend is that exports will account for a larger share of Unicasa's results. And when we talk about own stores, we are talking about revenues, direct contracts with end consumers. When we look at the operation in the domestic market, this operation happens in sales to resellers. So naturally, when we speak about experts, we have a markup that is higher compared to what we realized in the domestic market. So the percentage of exports tends to increase as a share of our business.

Next question also from Fernando from [indiscernible].

Lastly, could you comment on the dynamic of the gross margin. Is the 2024 expectation to keep it at the same level.

Well, regarding the margin, Fernando, what I can say is [indiscernible]. You're asking specifically for 2024, I believe, right? But if we look at Q3 and Q4 in both gross margin was higher than 37%. And as we mentioned in our presentation from the management, we have seen a cooling in the supply chain that was putting a little pressure on our margins in our procurement prices. But we are not expecting any significant change in these assumptions. What can happen in the future, I cannot really precise this, but if we need to offer more aggressive discounts because of a different economic scenario than something might happen. But if we look at the last 2 quarters, we have a trend of a flat margin and in the message from the management, we made a comment. We said that as experts in sales in our own stores start accounting for more. The trend is that the margin will increase.

Next question from [ Henrique Hayes ].

Regarding the investment project, could you give us more color on the phase of the project and expected conclusion?

Regarding investments, we announced, if I'm not mistaken, in the end of 2021 about EUR 15 million. Currently, we have payable about EUR 2.7 million. And in 2024 in principle in the beginning of the second half, we'll be paying about 80% of this amount payable. In regards to the execution of the investments will pay a more significant payment now in the first half because of the shipment of the last machine. This last machine will be shipped at the start of the second half. Until they get here, until it is installed, there is some civil work to be done to install the machine. We are considering a start of operation for this machine in the end of Q1, start of Q2 2025. And this will be the last machine of the project. So we expect that for '25, at the end of the second half that all machines linked to this investment will be ready to operate, will be up and running in the investment that we announced in 2021.

Question from Ricardo [indiscernible].

Guilherme, congratulations on the results. When can we expect that the machines that were the object of the loan from FINEP will be impacting the results of the company.

Thank you for the congratulations and for the question. Regarding when the machines will start impacting the results of the company. We don't provide a specific date for that. With these machines, when they're 100% installed, they will increase a lot our production capacity, our capacity to produce flexible furniture, so we are already preparing for that. We are already making changes in the way in which we price the company so that we can have higher competitiveness in this kind of product. And this kind of product is actually how we are positioning our brands, the Dell Anno brand in particular and the new brands. So we're already changing our pricing policy, considering already thinking about the new equipment.

Next question from Antonio Fernando [indiscernible], an investor.

When can we expect improvement in your profitability indicators, such as ROE and ROIC.

I think that your question is kind of linked to Ricardo's previous question. Again, now what we can see in our results is an increase in capital invested. That was not an effect on the results of the company because we're still executing the investments. So the invested capital increase, but the results are not yet seen. So for now, we'll see a worsening of all of these indicators, ROE and ROIC. But as -- our actions linked to these investments bear fruit, then these indicators will start improving. Like I mentioned in my answer to Henrique. We expect to have all of the equipment installed by Q2 2025, and that's when we are going to have all our ability to deliver. Now this does not cancel the fact that we are already implementing some actions because part of the equipment has arrived already. When we announced the BRL 14 million, we referred to one investment, but it's not just 1 machine. It is a set of machines. So a part of these machines have been installed so that we can already take some actions, change the prices to have a better profitability.

[Operator Instructions] Q&A session is now closed. We would now like to hand over the floor for the company's closing statements.

Thank you very much for joining us. I wish you a great rest of Friday and a good weekend. For further information, please contact our Investor Relations department. Thank you.

Unicasa's earnings conference call for the fourth quarter 2023 is now closed. Thank you very much to all participants, and have a good rest of the day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]