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

Good day, everyone, and thank you for waiting. Welcome to Unicasa Industria de Movies S.A.'s conference call to discuss third quarter '25 earnings results. [Operator Instructions] 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 information contained in this presentation and forward-looking statements that might be made during this 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 market conditions, general economic 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. I now will turn the floor to Mr. Oliveira.

Good afternoon. On Slide 4, we can see the company's sales performance. Consolidated numbers show revenue growing 13.4%. The corporate segment stood out with a 57% increase, a direct reflection of the strategic changes adopted by the company in this market. In the multi-brand segment, the initiatives implemented also yielded good results, enabling growth of 13.4%. We performed particularly well in our Exclusive stores, especially with the New and Casa Brasileira brands driven by initiatives launched in 2024. Store sell-out has shown continuous improvement over the last 12 months with a reflection on both this quarter and in the previous one. In the export market, the delivery of corporate projects in Uruguay was one of the main drivers of growth. In our own stores in the United States, revenue remained at the same level as last year. However, the volume of contracts signed with end consumers increased by 48%, indicating that the measures adopted to offset the impact of tariffs on sale prices are having an effect. We have noticed that American consumers are more inclined to shop around due to price fluctuations caused by the import tariffs. This more competitive landscape has pushed discounts upward. Moving on to Slide 5. We see that our domestic distribution network decreased by 4 points of sales. We closed 5 low productivity stores in the suburbs and opened a new Dell Anno store in Ribeirao Preto, a strategic market. However, this store will only begin to generate sell-in in 2026 following the normal maturation period. Slide 6 presents a summary of the quarter's results. Here, we see the increase in production costs exceeded revenue growth, which was the main factor contributing to the operating loss. The highlights in production costs were higher depreciation with almost all machines in the investment plan already in operation and another part of those coming online in 2026, higher personnel expenses due to overtime and staff increase as we needed to temporarily deactivate one piece of equipment for structural renovations and shift part of the operation to less productive machines, which require more operators, greater weight of sales originating in showrooms, sale of discontinued items and additional tariffs on imports from the United States. It is worth noting that there was a price adjustment in August with a small effect on this quarter. EBITDA grew 33%. In operating expenses, we saw an increase in personnel costs and expenses related to serving end consumers of the closed stores, mainly Dell Anno dealer and one New dealer that closed at the end of 2024. We ended the period with a net loss of BRL 1 million. On Slide 7, when analyzing cash flow, we see that operating cash generation was 7x higher, driven both by better results and by the offsetting of taxes paid at the beginning of the year on the imports of machinery. Q3 '25 reverses the cash consumption observed in the comparative quarter if we exclude the loan from that quarter. As disclosed in a material fact on October 15, we raised BRL 35 million with BNDES through the Brasil Soberano program, Giro Diversificacao modality created to support exporters affected by additional tariffs imposed by the U.S. government. The interest rate is 5.5% per annum with a 12-month grace period and repayment in 48 monthly installments. On this loan, we committed to: one, exporting $6.6 million to countries other than the United States during the 60 months of the loan life and maintaining or increasing the average number of employees between the fifth and the 16th month after signing the contract using the average between July 2024 and June 2025 as a reference. 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] Next question from Santiago Santos. The tariff applied on Unicasa exports to the United States are 50%. Doesn't this make exports to the U.S. unfeasible? And the U.S. was the only significant foreign market or export market of Unicasa?

Santiago, in terms of making it unfeasible, no. It makes the market -- our export market a little bit more complicated. But as I mentioned in our earnings release in Q3, we had a sales performance, which was actually greater than our expectations. In this quarter, we had applied the corrections of prices that we thought were necessary to deal with these extra tariffs imposed, and we performed actually beyond our expectation. American consumers, they're behaving slightly different because now they're shopping around more because they know that foreign companies are being subjected to extra tariffs, and that has allowed us to provide new quotes. So this is not making the business not feasible. It's making it slightly less profitable, but we understand that we should face this moment to keep our market share abroad.

We have another question from Santiago Santos. How will it be possible to replace the North American market as Unicasa committed to doing?

Santiago, actually, let me continue answering your question about the foreign market. The export market, it's not that we have to replace it. We have to export $6.6 million to countries other than the United States. So when we analyze the demand in the contract today, we can supply -- we can fulfill this obligation. We already exported to other countries other than the United States. And of course, this will allow us to fulfill the contract obligation. And we are also expanding our actions to expand our footprint in Latin America. So of course, we will be able to fulfill this obligation, but we will not replace the U.S. government. We'll continue to export to the United States. And hopefully, we intend to increase, expand our exports to other countries.

Next question from Bruno Carbinari. What is the strategy to increase sales in 2026 in the domestic market? Is it to focus on Dell Anno or New plus Unicasa?

Bruno, well, we have a strategy for all of our brands. We are not going to focus on any single brand in detriment of the other brands. So we have strategies for Dell Anno, for New, for Casa Brasileira, for the export market, for the corporate market. So in our planning, we have investments planned for all of the brands. It's not because of the tariffs that we will stop investing in one brand or investing more in one brand in that trend of another.

Next question from [ Fernando Moya ]. I have 3 questions. Number one, do we have any expectation of payment based on profit reserves? Two, the funding got in October. Will it be used to prepay the debt that you took on last year? Three, as regards to the tariffs, will we absorb this in the price? Or is there any expectation of passing the tariffs through to the customers?

[ Fernando ], let's try to answer your question one by one. As regards to payment of dividends or interest on equity, interest on capital, that's a decision that the company will make in the beginning of December. It depends on what is going to happen in the month of November and the expectations for December. So at this moment, I cannot give you any guidance regarding that. The second question was regarding the funding we got now in October. We will be making investments to expand our business in Latin America. This possibility of paying another debt is still on the table. But at the moment, I cannot give you any final information regarding where and how to use the proceeds. And as regards to the tariffs, we've already made the necessary moves. When President Trump announced a date -- not actually the date, when he announced the tariffs, the sales that were made to consumers. Well, they have some time to be delivered. To be delivered, they take about 8 to 9 months. So we always have to think whether in 8 or 9 months, the tariffs would still be applied. So we made all of the necessary moves based on the current scenario, which is that the tariffs will remain. So we've already taken action. In the release, I mentioned sales in Q3 were beyond our expectations. And why? Because we made the changes that we thought were necessary. And we had an increase in sales in Q3. So we've already done what we thought was needed to cope with the tariffs. I cannot break it down the measures that we took because there's a lot of strategy involved. But what I can tell you is we've done what was necessary.

We have another question from Santiago Santos. The reduction in gross margin from 38.2% to 32.7% year-on-year is explained mainly -- would it be explained mainly by the depreciation of new equipment?

Santiago, if you read the message from the management in the release, we speak about all of the impacts in the percentage point estimates of each one of them. Depreciation increase is one important point that impacted gross margin, but there's also a personnel effect. We had an increase in overtime. We also increased our headcount in Q3 because this is a quarter when we have the highest occupancy of the plants, particularly in September and having to pay overtime and more people in our headcount. All of that happened because we had to renovate one of the pieces of equipment of our factory. And we had to shift production from that machine to less productive machines, which required more operators, more overtime and some extra expenses related to production losses and so on. So it's not just depreciation that drove down the gross margin in the percentages that you saw in the earnings release.

Another question from Mr. Santiago Santos. What is the current idle time of Unicasa? In other words, what percentage of the installed capacity is currently being used?

Well, Santiago, that's kind of hard to answer about idle time because it really depends on the production mix. For example, when we speak about Dell Anno, we have a production mix that involves a lot of accessories, we have greater capacity than when we produce more Casa Brasileira, which has many products which are made here. So it's kind of hard to precise the installed capacity. In our reference form, we try to give you some guidance on north of our installed capacity. This piece of equipment, which I mentioned in the previous answer, will go back on line, and we will expand our capacity. So I estimate that we have room to increase revenue considerably without the need to further invest in other new equipment.

Another question from Santiago Santos. When the current investments are complete, in other words, with the start of the new projected production capacity, how much will this represent in terms of increase over the current installed production capacity?

Santiago, I think that I answered that in your previous question. If you have any additional points that you want to clarify, please let us know.

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

Well, thank you very much for joining us, for attending this conference call. For further information, please contact our Investor Relations department. Thank you for attending, and have a good day.

Unicasa's earnings conference call for the third quarter 2025 is now closed. Thank you very much to all participants, and I wish you a very good rest of day.