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

Thank you for waiting. Welcome to our Unicasa Indústria de Móveis S.A. Conference Call to discuss second quarter 2024 Earnings Results. [Operator Instructions] We inform you that this conference call is being recorded and can be accessed at the company's IR website at 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 including the one in English. [Operator Instructions] We emphasize that the information contain 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 so, depend on circumstances that may or may not occur. Investors should understand the 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, and I'll turn the floor to Mr. Oliveira.

Good afternoon. At the beginning of July, we completed the donation of furniture kits to help furnish the homes of 500 families affected by the floods that hit Rio Grande de Sul state in partnership with the solidarity project, the Operação De Volta Para Casa Back Home operation led by [indiscernible] Floresta Institute. Tickets were developed especially for this action and contain furniture for the kitchen, bathroom, living room rack and set up wardrobes. From May to July, we took part in the largest and most complete architecture, interior design and landscaping show in the Americas, Cazacor, Sao Paulo, with a 130 square meter space designed by the architect and partner of almost a decade [indiscernible] shipment inspired by the classic pent houses of New York, the global living Dell Anno space is an immersion in the modern cosmopolitan lifestyle, connecting the Dell Anno Brazil with Dell Anno New York. In this space, we presented Dell Anno's global launch, the closet system. In addition to serving the general public, more than 150 architects from all over the country were welcomed at the space with exclusive brand events and more than 30 professionals from our network of resellers carried out a technical visit as part of the training of the new product. The technical visit was also carried out in other cities of the country. In partnership with architect and designer, [indiscernible], we delivered another interior design project in the iconic Copan building. One of the most important symbols of Brazilian architecture designed by Oscar Niemeyer, and an emblematic landmark in the city of Sao Paulo. For the Casa Brasileira brand, we launched new finishings to update the products to meet the ever-changing needs and desires of its consumers. We also increased our digital presence for the brand's target audience. Now moving to Slide 7 for our sales performance. Revenue from exclusive stores according to the same-store sales criteria grew by 11.6% with Dell Anno showing the highest growth among the brands. In the exports market, growth came from the United States, mainly from corporate clients and from our operation with exclusive Dell Anno dealers. Our own stores in the United States are continuing their maturation process. And this quarter posted revenues similar to those over last year, however, with a different consumer profile, which allowed for growth of 14 percentage points in gross margin. Sales to end customers doubled. However, the operation has not yet reached its accounting breakeven, mainly due to the addition of the New York store in October of 2023. On Slide 8, there is a graph showing the performance of our exclusive and multi-brand points of sale. We ended this quarter with 140 national exclusive stores, 21 exclusive stores abroad, 72 national multi-brand stores and 24 multi-brand stores abroad. Moving on to operating expenses on Slide 9, please. The addition of the New York store is the main reason for the BRL 2.3 million increase in expenses of our owned stores in the United States. In the Brazilian operation, the increase of around BRL 1.2 million stems from expenses related to services to consumers from closed stores as well as variable expenses. On Slide 10, we present the summary of the results, the growth in revenue and the 6.5 percentage point increase in gross margin contributed to the 335% increase in the operating income of the company. It should be noted that in Q2 2023, we had not yet opened the New York store, which added significant expenses to the result for the second quarter of 2024. In terms of gross margin, we have returned to prepandemic levels. Currently, we have little impact from discounts granted as a result of advanced payments as price increase events are more balanced now due to the normalization of the supply chain. Income from short-term investments and revenue from exchange rate variations were the main factors contributing to the increase in the financial results. As regards to income tax and social contribution, Unicasa recorded gains, favorable outcomes from tax lawsuits in Q2 '23. So we ended the quarter with 166% increase in net income. On May 29, 2024, the company paid interest on capital in the amount of BRL 11.6 million. We expect in the end of September to receive BRL 12 million referring to the second tranche of the funding from FINEP according to material fact published on September 12, 2023. We would like to thank our shareholders, dealers, employees, suppliers and other stakeholders for the end of another quarter. I now hand over the floor to the operator to begin the Q&A session.

[Operator Instructions] We received a question from Mr. Pedro with regard to the stores that closed last year, what is the estimated time for the new stores that will replace them to make up for this loss of turnover?

Pedro, well, to answer this question, we have to make reference to the prospect process for a new dealer of Unicasa. When the store closes, we do an evaluation, whether that macro region, whether that city can still have one of our stores. And then we start funding from investors, will look for new investors to open a new store. Once we find the person, we move on to the step when we actually have to find the right location for the store. And depending on that location, well, it might entail some civil work. And once we pass that stage and sometimes concomitantly, it really depends on the location that we choose. Then we move on to the stage when we develop the showroom and then we open the store. After the store is open, then we go through a maturation process and this maturation process of sales to end consumers, that's the time that it will take for us to have a sales conversion. So since the initial prospecting after a store closes until we actually open the store, it takes about on average, 1 year, but it really can vary a lot depending on the time it takes for us to find a new investor and depending on the conditions of the store in terms of whether it requires renovation. And then, of course, the maturation process for the store will take from 1 year to 1.5 years. So the whole process should take 2 to 2.5 years from the moment a store closes and we have no longer turnover from that store until a new store will get to the same level of turnover of the store that closed. And that is why choosing the right person to open a new store in our segment is really very important. And that's why sometimes we take a little longer to find, to select the investor because we also have to take into account that we have a lot of work to do to select the right person. If we choose wrong, we still need to find another investor. So to answer your question objectively, it takes about 2 to 2.5 years for us to, again, get the turnover from a store that closed.

Our next question comes from Ms. Claudia. Are the increases in operating expenses for customer service, isolated cases? Or is this the company's new operating expense level?

Hello, Claudia. Well, we did have some stores closing in the period. In the recent year, about 30, a little over 30 stores are closed, and 2 stores left some customers to be served. So that was an isolated case. But in conducting our business, we kind of expect these cases to happen. And it is a recurring event. It's actually a regular business for us. So it increased now. We have 2 places, but we have an expectation that this will always happen. It's the nature of our business.

Moving on to the next question from Caio. Could you comment on the U.S. operation, its recent evolution maturation process of the operation? And what is the expectation of impact in the short run?

Caio, regarding the United States, we have a slightly longer maturation process than initially expected. Now in terms of the evolution, it's -- there's something important that we mentioned in message from the management is that the profile of the consumers that we are serving now has changed vis-a-vis last year. Now we have a lot more end customers than corporate customers. So this expanded our gross margin of the operation. So one of the growth drivers for our consolidated margin of 6, 6.5 percentage points comes from this improved profile of customers in the United States, because we're focusing more on the end customer. And the expectations for the short term, well you can probably remember, we made a comment that this quarter, our operating expenses increased because of the addition of the New York store. The New York store opened in October of last year. So we -- naturally -- when we compared the expenses now with those of 2023, for the whole year of 2024, we have expenses related to rent, personnel, labor, fixed expenses of the store this year. So we have a new level of expenses in the United States because of the addition of this store. And as for this longer maturation process, this has an impact on the accounting of the operation. So for the New York store that opened last year is not recognizing revenue yet. So it's efficient for now, but this is a condition that will remain during this year.

[Operator Instructions] We got a question from Paolo. The question reads, what is the reason for the reduction in the amount of short-term investments in the cash flow?

Paolo, well, the cash [ flow ] itself, you will see that this quarter, we had some relevant cash outlays for the payment of interest on equity or interest on capital, IOC. And for investments, PPE. If you look at the explanatory note for PPE, you will be -- the breakdown of the investments we made this year, the investments are compliant with our investment plan that was approved back in 2021. These are the main disbursements of cash. And that's why we had to redeem the investments in order to pay for these 2 points that I mentioned.

Moving on, we received from Lucas the following question. Can you shed more light on the effects of advanced discounts and price increases on gross margin?

Lucas, sure, let me try to clarify. In 2019, we launched -- we facilitated the process of the reseller being able to prepay the purchases at the plant to protect themselves from price increases -- our -- the company's internal inflation. And then in 2020, we have the COVID-19 pandemic. For the end of 2020 and the year 2021, we had successive price increases because there was an imbalance in the production chain, in the supply chain. If you look at our releases in the past, you will find some explanations about these movements. And this was a moment of a lot of price oscillations. So the dealers prepaid a lot. If you look at the income statement, in the end of the quarters in 2020, 2021, you will see that prepayment had a lot of high balance, and this allowed the dealers, the resellers to postpone the impact of price increases on their business. Now of course, on the other hand, the impact of our price increase was also postponed. So if you look at the year 2021-'22, these were years of low margins, low margins when we compare to prepandemic years. But now, we are in the moment of greater predictability in the supply chain. So we are having fewer price increase events, and of course, the margin is naturally going back to prepandemic levels because now the prices have been updated. So if you compare with 2019, the margin now is very similar to that of 2019.

Moving on, we received from Edwardo the following question. Can we expect a consumer profile similar to that in this quarter in the U.S. operations? What is the estimated time for the operations to mature?

Eduardo, well, regarding consumer profile, yes. As I mentioned in my answer to Caio, we have been targeting more the end customer. It does not mean that we will deny service to corporate clients, but our main focus now is in serving end customers. This tends to maintain our margin at the current levels. And as regards the time of maturation, I think that in my answer to Caio, I also mentioned that. We are observing a longer maturation time frame than we had initially expected for this operation.

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

Well, thank you very much for joining us today. Have a great week. For further information, please contact our Investor Relations Department. Thank you for attending.

Unicasa's earnings conference call for the second quarter 2024 is now closed. Thank you very much to all participants, and have a good rest of day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]