Veste S.A. Estilo (VSTE3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Restoque's First Quarter 2020 Earnings Results Conference Call. Today with us, we have Mr. Livinston Bauermeister, CEO; and Mr. Jean Passos, Investor Relations Officer. Today's webcast and earnings release may be accessed through Restoque's website at www.restoque.com.br. We would like to inform you that this event is being recorded. [Operator Instructions] There will be a simultaneous webcast that may be accessed through the company's website. Before proceeding, we would like to mention that any forward-looking statements that may be made during this conference call related to the business perspective of the company, projections, operating and financial targets of the company, are beliefs and assumptions of Restoque's management as well as information currently available to the company. Forward-looking statements are no guarantee of performance. They involve risks and uncertainties because they relate to future events, and therefore depend on circumstances that may or may not occur. Investors should understand that conditions related to macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Now I turn the conference over to Mr. Livinston Bauermeister, who will begin the presentation. You may proceed, sir.

Good morning, everyone. Welcome to our earnings call to discuss the results of the first quarter 2020. 2020 has been a year that started with a lot of optimistic -- optimism. We were very encouraged by the positive results we have been reaching both in sales, recovery, achievements and the new clients, important improvements in several indicators. To put you into perspective, in the pre-pandemic period, from January to 11th of March, we had growth of 7% in sales as a whole and 19% of increase in stores; 8% in the number of items sold and 20% of number of clients; as well as a better use of stocks; increase in sales at full price, an increase of 13% and a reduction of 37%. We were well aligned with our strategy that we had defined the previous year. As for -- with wholesale, we had an important evolution in the pre-pandemic season, 20.7% at John John and 0.2% of Dudalina. In Dudalina, we were looking for a better market share for stores which had the single silo of the brand; and an increase in the average ticket price that grew by 29%, in line with our strategy. As for the online channel, sales reached 5% of the total revenue of the company in this first quarter, a growth of 79% in relation to the first quarter 2019. The pandemic, the novel coronavirus that was declared by the WHO, generated deep impact in the world economy, affecting directly and negatively the outfit area and our company. And all network of stores closed from 11th to 21st of March. And this also happened in the multi-market stores in the wholesale channel, and these were also closed right after the pandemic was declared. With this new situation, we had to adopt some measures which were hard, very tough, but they were necessary to go through these turbulent times. This involved our suppliers, our employees and other commercial partners. Among the measures that were immediate so that we could optimize our structure and preserve the cash was to grant holidays, layoff of about 26% of our employees, a reduction in the working hours and also the compensation from 25% to 40% and 40% of the compensation to the officers and 100% for the Board. We suspended about 3/4 of employment contracts of our employees and -- which also affected the distribution center. And we had this delta that would last 2 months. We renegotiated suppliers and service provider. We reduced marketing expenses, and we suspended the investments in mobilized assets. Considering the economic effects caused by the pandemic, we had to review the forecast for future results and we organized the Dudalina approach. And we also had a tax credit on the fiscal loss in the amount of BRL 650 million. And we also had a provision for receivables in the amount of BRL 80 million. And we also had the write-offs in the assets in the advancements to suppliers. And these are related to the market campaign that lost their value, considering the new pandemic scenario. And all those adjustments have a cash effect. All of the data related to the first quarter 2020 are described in our earnings release, and you can do this follow-up during our conference call. In summary, we reached the ex-provision EBITDA in the first quarter 2020 of BRL 33 million. It was a drop of 39.4%, considering this result -- operating result of 2019. This reflects the negative impact of the pandemic on the sales in the channels of retail and wholesale. We had ex-provision loss of BRL 47.2 million. The adjustments are fully described in our earnings release. And we are gradually allowed to open our physical stores. The first stores were reopened as of April 21. And from this date until the end of March, 57 stores were opened, and they were -- they accounted for 27% of our income. In June, there was a relevant addition in the stores opened. And after the 11th, the stores in São Paulo were reopened. And the total amount in operation accounts for 86% of the sales in 2019, a total of 195 stores. And now, at the end of June, only Minas Gerais, Bahia, Paraíba and Alagoas are closed and -- which are planned to open in the beginning of July. The stores that were reopened are operated at a high level of restriction. And in most cases, they work 50% lower in terms of hours in comparison to the standard. The business opened before what was planned, and we considered the stores were open -- were closed in April. And the reopenings are -- would be happening only in the beginning of June, both in the second quarter 2020. We had higher sales than the projections we had, considering that the demand was -- had been taken down and in spite of this fiscal comparison and the sales of the winter and fall that began in June. And in the beginning of the year, because of the restriction, we can see that the profit is much lower. In addition to the result that was higher than expected for the retail market, wholesale and online results have been better than expected for the second quarter 2020. In spite of the prospect of a drop of 37% of annual income, which is our estimate and the great impact due to the closing of stores in the first quarter of 2020, the operation has been showing some resilience and even better than we had expected. At the same time, we have -- we see the support of our financial creditors, bank and debentures during this month of June. We had agreements that would extend up to 4 years, the period we have to pay our debt. And considering this agreement, we have 1 more year as a grace period to pay the interest, 3 years of grace period to start the payment of the amount of the principal and maintaining the financial costs very close to the present costs. And this agreement also contemplates a capital increase of BRL 150 million up to the end of June. We were the first major company to have an agreement of such a nature in this moment of crisis, and this will allow us to concentrate our efforts on our operation and in the recovery of the effect caused by the crisis. And the support we have by our financial support shows the solidity of our company and the strength of our brands. And such recognition motivates us to work harder so that we can keep our brands as one of the most admired in the country. And also to meet and exceed the expectations of our clients provide a collaborative environment and maintain a long-lasting relationship with our commercial partners and to provide service to the communities we serve. This is the message I have to bring today, and we are now going to open the Q&A session. Thank you.

[Operator Instructions] The first question comes from Mr. Ruben Couto with Santander.

I think it's very clear the idea of your own store. Could you share some information how the sales played out in June? I know it's very hard to talk about expectations for the next quarter, but how do you see it as for wholesale? Is there orders being placed and stores being planned to open?

Ruben, thank you very much for your question. The wholesale channel, as we have mentioned, have been responding well in the first quarter. Multi-market stores are -- have received the authorization to reopen. And there were many orders that have been held before the pandemic. And many of the orders have been placed now. And we are now -- since May, we have been processing all those orders. And all those who were afraid to place an order, provided that they received the information about the pandemic, they were a bit afraid. But now we are very focused on the wholesale channel as well. We are in -- on the lookout for this recovery. And many locations are -- have their stores open, many regions. We imagine that this channel, the wholesale channel, will also be impacted, but we have many efforts. We have many efforts, and we have many funds. We have a lot of inventory stocks which are available to deliver the product immediately so that the client will not have any long-term risk. So the client will be able to place an order and receive the item immediately. And then, as soon as they receive the products, they can place another order. And this is the way we can manage during this period. So we have been seeing recovery also in the retail channel. And there is an advantage that there were many orders that were being held back, and they are being fulfilled now in those few months.

Do you have any comments in relation to your own stores for June?

The performance has been very positive since the own stores have been opened. And we have been noticing that there has been an increase in the total of sales a long time. The longer the stores opened, the better its performance if compared to the same period of last year. So the stores would reopen. And we have seen that the evolution along May and June came close to 50%, and many of the stores were performing at 60%, 70% in comparison to last year when we compared to the sales period, which is May-June, depending on the brand. And the comparison may become a bit more difficult because it would -- we will compare to previous period, which was normal. So we can see that there is a proportion which is tough, but we understand we have a lot of restriction in relation to time. So the stores will be open only for 4 hours in some regions. So we have -- we can see that there has been an increase of 30% or 40%, even with the difficult measures to compare.

[Operator Instructions] We end the Q&A session now. I would like to turn the call over to Mr. Livinston for his final considerations. You may proceed, sir.

I would like to thank you all for having attended our conference call. And we remain available for any clarifications you may have, and we are ready to provide any information you may wish. Our team is available as well. We will keep you informed during the crisis. We will be ever closer to you, as we have done in the last 2 or 3 months, so that you will be informed of everything that is happening. I would like to thank you once again, and have a good day, you all. Thank you.

The conference call of Restoque's First Quarter '20 has been -- come to an end. Please disconnect your lines, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]