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

Good day, everyone, and thank you for waiting. Welcome to Unicasa Indústria de Móveis S.A.'s conference call to discuss fourth quarter 2024 earnings results. For those who need simultaneous interpreting, we have this tool available on the platform. To access, simply click on the interpretation button using the globe icon at the bottom of the screen and choose your preferred language, Portuguese or English. For those listening to the conference call in English, there is an option to mute original audio in Portuguese by clicking on mute original audio. We inform you that this conference call is being recorded and can be accessed at 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 including the one 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 or 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 afternoon, during the month of April and May of 2024, we had the biggest climate catastrophe in the history of the state of Rio Grande do Sul. Considering the company's location and the fact that our revenue comes from practically every state in the Federation and abroad, the impact of the floods on our business was momentary. Our main challenges were logistical and even today, there are impacts on the state's infrastructure that have yet to be restored. On Slide 4, we see our sales performance. In 2024, we consolidated our presence in the U.S. market with the operation of 3 own stores, New York, Miami and Orlando. At the end of the second half of the year, we began to focus on relationships with consumer decision makers rather than on the relationship with the construction market. Our own stores in the United States saw a 42% increase in revenue recognition, while contract signings grew by 31%. As a result, revenue from stores abroad grew by 26.3%, reaching 20% of Unicasa's total turnover. In the domestic market, revenue from exclusive dealers under the same-store sales criterion grew 8.3%, increasing revenue by BRL 12.5 million. Open stores or maturing stores added BRL 6.7 million to revenue and closed stores subtracted BRL 18.6 million from revenue. The main impact on the company's revenue has been the gap in turnover between a new store starting to contribute to revenue versus the reduction in revenue of a closed store. Even if we have managed to balance the number of store openings and closings, this revenue gap would still exist due to the time it takes to build the portfolio and to generate revenue in the industry versus the speed of reduction in revenue when we have a closed store. We have increased investments in our store opening capacity, reviewing processes and requirements for store opening and increasing our prospecting team. Slide 5 shows the evolution of our exclusive and multi-brand points of sale. We ended the fourth quarter with 126 national exclusive stores, 16 exclusive stores abroad exports, 17 national multi-brand stores and 6 export multi-brand stores. Moving on to operating expenses. Please go to Slide 6. The expenses of the American operation grew due to higher variable expenses, which followed the increase in revenue recognition and due to fixed expenses of the New York store opened in October of 2023. Thus, the New York store contributed with fixed expenses during the 12 months of the fiscal year 2024, while contributing for just 2 months in 2023. In the Brazilian operation, excluding contingency expenses and the impact of donations to those affected by the floods, we had a 2.3% reduction in operating expenses due to productivity gains in variable expenses. Over the course of 2024, we incurred service expenses for customers of closed stores that were higher than those in 2023 due to the one-off closing of some operations. In 2024, 34 operations were closed and in only 3 did we have to intervene to serve the remaining customers. On Slide 7, we present the executive summary of the results. The company's gross margin was 38.1%, growing 2.7 percentage points with the recognition of revenue from end consumers in the United States being the main driver of this increase. The Brazilian operation also saw an increase in margin, mainly by virtue of a better mix of brands. The impact of the American operation, which is operating below the breakeven point due to the time to maturity of the consumer portfolio as well as contingencies were the main factors behind the 4.4% reduction in net income with net margin dropping 1.4 percentage point at 9.7%. As approved at the Board of Directors meeting held yesterday, dividend distribution totals BRL 12 million, resulting in a dividend payout of 101.5% of adjusted net income. The payment date proposed by the management is May 29, 2025, and this will be the subject of a resolution at the ordinary shareholders' meeting to be held by April 2025. 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 will now start the Q&A session. Our first question is from [indiscernible], investor. Could you explain the increase of PP&E?

Thank you for the question. For PP&E, it has been increasing since, if I'm not mistaken, 2021. 2021 was the year when we published an investment plan for the company. Since then, we have been purchasing equipment. We announced this plan of about BRL 100 million. And it was this investment plan that gave rise to some funding. So this -- in 2022, we announced a FINEP loan or funding. And this was for the acquisition of machinery as part of our strategic planning. So this is how we can explain this increase in the PP&E.

Next question from Fernando [indiscernible], investor. He says, I would like to understand the company's expectation regarding breakeven in the United States. He also asks, likewise, if you could give us some color on the expansion of new stores in the United States.

Fernando, regarding the breakeven of the United States operation, we have 3 own stores in the United States, Orlando, Miami, New York. The New York store opened in October of 2023. So the addition of the New York store expands a little our breakeven -- in terms of breakeven expectation compared to when we had only for those 2 other stores. We're in the process of building the portfolio, recognizing revenue. So we still need a little more time to achieve a breakeven point. I cannot really precise when we would achieve breakeven and when we expect to for strategic reasons. But what I can say is that this plan is unfolding according to our expectations. To your other question, it is about expansion and new stores in the United States. Well, we started doing a more in-depth analysis of the market to think about expansion. What do I mean by in-depth analysis? What I mean is that we are actively trying to expand our business more in the United States. That's all I can say about this strategy at this point. So yes, we are thinking about expanding our business in the United States. This is not something that will come too fast, but we are prospecting.

Next question from Pablo [ Martins ], investor. There was a decrease in the company's balance of cash and cash equivalents year-on-year. Was this cash used for something specific, CapEx maybe?

Pablo, yes. The answer is connected with the first question asked about the increase in PP&E. In 2024, we made payments related to the investment plan. So if you look at our cash flow and the amount of investments made by the company, almost BRL 48 million was earmarked for CapEx. Another important variation that you can see in the cash flow is that we had some prepayments of customers in 2024, which dropped compared to 2023. In other words, one part of the 2024 turnover was paid with prepayments made during the year of 2023. This had a significant amount of prepayments made. We don't expect this to happen this year. These are the main variations. If you need any further clarification, you can look at our cash flow. And any further questions, you can get in touch with our Investor Relations team, and we can explain this to you in more detail.

[Operator Instructions] The next question from Ms. [ Franciole ]. On the historical evolution of productivity of exclusive stores in Brazil, could you share with us what differentiated strategies have been implemented recently that have brought positive results surpassing the performance of previous quarters?

Yes. We had some main actions. There are many actions, but the main ones I can list now are we had a repositioning of the new brand. That was a very strong repositioning move, trying to build relationship with architects. The kind of work very similar -- that is very similar to what we do with the Dell Anno brand, and that was a good push for the new brand. And also the relationship with architects is something that we've had ongoing for a long time with the Dell Anno brand. So this also explains the improvement in this relationship, the fact that we improved productivity at the stores. Both for new and Dell Anno as well as Casa Brasileira, we have improved our points of sale. We have invested a lot recently. Our dealers have also invested a lot in their points of sale. We have supported the dealers more now in the refurbishment of the points of sale when we speak about training of the teams at the stores. So we are working closer to the dealers so they can have a better performance, our resellers can have a better performance, so we can link this to the stores. Also product launch, in 2023 and also in 2024, we launched differentiated products in the market, and that also drove up the performance of the stores.

Next question from Ricardo Sanchez [indiscernible]. He wrote, are you expecting to open new stores abroad?

Ricardo, right now, I cannot say anything about that. I cannot give you any guidance regarding store openings. What I can stress though, and this is linked to the other question asked by Fernando is that we are prospecting in the United States, but I cannot really give you any guidance regarding store openings.

Next question from Carlos. With the closing of 34 operations and the increase in operating expenses with stores abroad, is there any risk of an imbalance in financial results for the first quarter of 2025? We would like to better understand this impact.

Yes, there is an impact of stores that closed naturally. This is a number that is given. We know how much each store contributed every quarter. So that's information that we have. Now of course, for strategic reasons, I cannot give you this number here, but it does have an impact. What you have to consider is that the other stores will develop. We have maturing stores. We have new stores, same-store sales and the stores will develop work during the quarter and will possibly offset the stores that closed down. To have -- you can have an idea of the impact of the closed stores, looking at the prior earnings release because we always disclose the impact of the stores that closed. It can give you a pretty good idea of the impact of a closed store. Regarding increase in operating expenses abroad, it is important to break this down. There's a part which is variable expenses, those linked to revenue recognition in the United States. These expenses naturally grow as we have more revenue recognized. And this quarter, we had a significant and relevant revenue increase in the United States. So that is one of the impacts. And there is also the addition of the New York store. It's a store that opened in October of 2023. Over the course of 2024, we had 12 months of expenses. Last year, 2023, only 2 months. For 2025, we are going to have a comparison because the revenue base has increased. So this is a new level of expenses for the company. So you also have to analyze the variable expenses.

Next question from [indiscernible]. The last quarter seems to have shown an inflection to resume sales growth in the annual comparison year-on-year. Can we expect revenue growth in the coming quarters as well?

We had in Q4 a 9.5% increase in net revenue. In the year, we grew 4.2%. So yes, that Q4 was a quarter above the other quarters of the year. As regards to the next quarter, well, that data I cannot share. However, what I can share is regarding sell-out that we had in Q4, particularly in the last 2 months of the fourth quarter, we had a good sell-out. We have to consider that, that sell-out will take some time for us to see a reflection in the sell-in. Sell-out is sales to end consumers, contracts that our stores are signing with the consumers. This takes some time until the order actually gets to the factory. So an improvement in sell-out is an indication that we are going to have a better sell-in. But as the market moves forward, I cannot guarantee that there is a direct relationship between an improved Q4 with the performance of Q1 '25. So to be direct, I cannot give you any expectation regarding the first quarter of 2025.

[Operator Instructions] Next question from Ricardo Sanchez. What measures is the company adopting to increase its net margin?

When you look at our income statement, you will see that our gross margin for Q4 was reduced. And in the message from the management, we mentioned that 2 impacts led to that. We had pressure of the suppliers in the end of the year. And there was also a price realignment that was carried out over the course of 2024, which led our margin to decrease a little. So we have a price increase already planned to be -- to happen now in 2025. So this is for the gross margin. Another very important point, which is -- the main driver of revenue for the company is closing of stores. We mentioned in the message from the management that we have increased our efforts to open stores. We have increased our expansion team. We have done more work. We have reviewed processes and requirements for store opening. So this issue of closing and -- or stores closing and opening, that's what explains the improvement of revenue for the company and also the increment in net margin consequently.

Next question from Pablo [ Martins ]. There has been an increase in gross debt, especially in the long term. What is the context for this increase in debt in 2024?

In the end of 2023, yes. In the end of 2023, we had a FINEP funding. And like I mentioned in the beginning, somebody asked about the increase in PP&E -- and our strategic plan involved the acquisition of some machinery. And this project to acquire machinery was approved as a FINEP funding. If we look at our indebtedness section, FINEP has interest rates of TR plus 3.3%. So it's a subsidized rate, a very lengthy rate. We will start amortizing that funding now in October of 2025. This is the main reason explaining our indebtedness. Parallel to that, we had an issue of a commercial note this year. We have that issuance to reinforce our cash. And we also used it to acquire some equipment. So this is how we can explain the increase in debt. So this was mainly used for CapEx.

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

I would like to thank all of you for joining us in this call. For further information, please contact our Investor Relations department. Thank you.

Unicasa's earnings video conference call for the fourth quarter of 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.]