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

Good morning, ladies and gentlemen. Welcome to Restoque's Third Quarter 2020 Earnings Results Conference Call. Today with us, we have Mr. Livinston Bauermeister, CEO and IRO. Today's live 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] This event will be simultaneously webcast and can be accessed at the company's website. Before proceeding, we'd like to mention that any forward-looking statements that maybe based on the beliefs and assumptions of Restoque's management and information currently available to the company. These involve risks and uncertainties because they relate to future events and, therefore, depend on circumstances that may or may not occur. Investors should then understand that conditions related to the macroeconomic scenario, industry and other factors could also cause results to differ materially from those expressed in such forward-looking statements. Now I would like to turn the conference over to Mr. Livinston Bauermeister. You may proceed, sir.

Good morning, everyone. Thank you very much for attending our call to discuss the results, and welcome to our call to discuss the results for the third quarter 2020. As we have included in our highlights in the release that was disclosed on Friday, after the most difficult moments of our scenarios, we have returned to the new cycle of the company that we started at fourth quarter 2019 as we have been informing you. This new cycle and this new resumption after the pandemic aimed at our sustainable growth in the long term, going back to what we have been doing in terms of activities and results. We have adapted and complemented our strategy that we had defined at the end of 2019 based on 2 main premises: the total focus on satisfaction -- customer satisfaction; and digital integration and institutional positioning. We defined and approved with our Board the 10 strategic pillars that are aligning our actions for this period and for the next year 2021. These are described in our earnings release, and I would like you to follow with me. We are working strong on different fronts of the company to resume the profitability and growth of the company. We accelerated the growth and the actions for the company, including improving the relationship with our customers. We are migrating the current e-commerce platform, which has some restrictions and which has not been following the requirements required by the channel. So we are migrating to a leading technology to B2C. I'm going to describe the B2B platform as well that is related to this. With this platform, we have all our solutions of customers' experience based on the same suite and is fully integrated of our CRM. Our customer service has already been working on this new platform, just like the customer journeys and all the digital marketing campaigns that are being built considering this solution. Now as to the wholesale, we are operating a new platform of e-commerce B2B and it meets the peculiarities of each business and create possibilities for the customer to purchase in an autonomous way, in addition to an assisted sales by the representative. In addition to that, there is the functionality of the shop streaming, which has been used in the launching of previous collections, with the live interaction of B2B, our multi-brand clients, with launches in each brand and the placement of the orders. We are also making headway in the journey to cloud, which is the journey that moves towards the cloud, which is an improvement of this to be used in this period after the pandemic of migrating the services of applications on-premises to the multi-cloud by means of service providers or streams. We have launched a new version of our app for retails, and we'll use another app of speaking in the distribution center. We have made headway in the development of several solutions of technology that I mentioned in our release that includes the CRM, the live sale app, the PDX project and sales promotion managing. As to the security of data, we are also implementing a security operations center and an adaptation to the Data Protection General Act. We are also making important investments in the equipment in our stores for the renewal of the aging of the server equipment in our stores, and there is a retrofitting that will reflect more -- a better experience and more satisfaction by our customers. We are working to implement in the next month the SD-WAN, which will increase the connection of the stores and will bring more stability to all those connections and to all the apps that are connected to it. As to digital sales, we already have in the third quarter 2020 a growth of 88.6% when compared to the third quarter 2019. And the sales -- the digital sales already account for 22.2% of the final sales to consumers. At the same time that we formatted the migration of the e-commerce platform, we have always implemented lots of actions to ensure the online operations and solve the problems that we have currently on the platform and to ensure the service and reduce the purchase experience frictions in the customers' journey. This front include the loading time for the sites, the display of the pages, the index of categories, reduction of disruptions. We can also allow the segmentation of information. And another is the segmented cost of the freight. We had a growth of 115% in the number of orders, omni-channel, in the shift from stores which is the purchase that is done online and delivered by the stores. This in comparison to the third quarter 2019. These shifts from store deliveries represent 78% of the total online orders for the period. We also retained an increase of 78% of the active client base with the online stores in 86% with a recurrent purchase online and 96% of clients with the recurrence of -- on a half a year basis. We have increased 22% in the monthly flow of our brands and 66% in the conversion when we compare to the third quarter 2019. Sales from WhatsApp grew by 99.6% when compared to the third quarter 2019 and already account for 31% of the sales of the company. The modalities of deliveries -- same-delivery, which is delivered on the same day and the express have already reached 10 cities, representing 41% of online orders. We are making headways in this front trying to increase this percentage even further and offer, therefore, this resource feature to the customers. We have been working in the front of CRM, artificial intelligence, data science, as we described in our release. We are promoting a revitalization of our stores, and we are working on the evolution of our wholesale channel, as we described in our release. We described in our release the work front in relation to our collections. With reduction of lead time, we're using the collections, completing the process of enterprise pricing aligned with our brands as well as other fronts to improve our operating cycle and to reduce our inventory levels. Added to this, we also included some actions related to our employees, as you can see in our release, and also the expansion of our sales [ index ]. We know that all those actions still haven't brought the potential effect that we expected. We know that they are not immediate. In the third quarter, we reported sales 11.4% above the projections announced by the company in May 2020 during the pandemic. In spite of the positive aspect, considering that all the planning of the second half of the year were based on this projection, we are still making progress to reach levels close to the pre-pandemic levels. In the third quarter, we operated with about 64% of hours of stores open in relation to the same period of the previous year, a loss of 36% because of some stores that are still closed or with some restrictions. However, our sales reached 54% in relation to the third quarter 2019, a percentage loss which is still small when we compare to the percentage of the stores that are closed. That was only possible by the increase in conversion in more than 50%, even with the drop of 53%. The wholesale exceeded the projections that were disclosed in 4% in this period. In October, considering the sales -- same-store sales, the retail channel represented 90% of 2019 and 91% in Le Lis Blanc; 92% in Dudalina; and 96% (sic) [ 86% ], John John; and 96% (sic) [ 84% ], Bo.Bô; and 93% in Rosa Chá. In other words, all the brands have a strong relationship aligned with this level of sales pre-COVID pandemic crisis. Wholesale channel ended the quarter with 18% higher, and this happened in spite of the situation because in this period, we only have the summer collection. And this -- there was a problem with the schedule of the launch of the spring collection that did not happen. The online channel had some important achievements. Digital sales are strategic to our business, and the channel has been having our priority. And as I mentioned before, the sales of those brands had increase of 80% in comparison to the third quarter 2019. In addition, following a growth strategy, which is sustainable by an intense operational evolution, we have improvement of several indicators of service level, as I mentioned previously. The adverse impact of the pandemic on the revenues had the operational deleverage of the company in spite of this SG&A drop. As a percentage of the net income, the total adjusted expenses represented 49.5% in the third quarter 2020, 4 percentage points lower when compared to the third quarter 2019 when they accounted for 53.5%. In other words, we were able to make adjustments to our expenses to levels which were lower than the drop in the revenue. Interest and EBITDA in the third quarter reached minus BRL 9.4 million with a margin of minus 6.4%. And as a result of all this, the company has presented adjusted loss of BRL 91.8 million. Although we are still in the phase of recovering our results, we are working hard in order to construct better results in 2021. And more than that, the present management established a strategic pillar about the coherence and the positioning -- uniform positioning before our stakeholders. This is a commitment that we have assumed with our shareholders, suppliers, customers, financial and commercial partners and other stakeholders, in that all our decisions and actions are made and will be based on coherence and will maintain its consistency throughout time, even if it has to be adapted to the changes that we have, considering the scenario we are facing. This is a commitment that founds our institutional operation. This is a summary that I wanted to convey to you in relation to our operations and our results. And data -- more detailed data, you can find in our release that has been disclosed, and you can refer to the release. And now I open the Q&A session to take any questions you might have. Thank you.

[Operator Instructions] The first question is from Olivia with JPMorgan.

I would like to understand how you see in the fourth quarter the inventory quality. And there -- we understand there will be lots of promotional efforts. My second question, looking in the long term. Due to the pandemic, we saw many channels being used in the retail market as a whole. And how do you see this in the long term, maybe multi-brand channels, what would be ideal?

Thank you very much for taking part for the questions. They were all very interesting. And the promotional effort for the fourth quarter 2020, well, this period, we resume the strategies focused on full price sales. In the fourth quarter, our sales are going to be significantly full price. Except, of course, the Black Friday in November, we are accompanying the movement of the Black Friday on the market, but we are following it in a restrained manner. We had a design very similar to what happened in November last year when we started this focus on full price in order to reduce the size of Black Friday to make it less relevant, so that it will not impact so much on our December sales, which are historically the strongest sales that are sold at full price. So our Black Friday is limited. We are using all the opportunities or the inventories that are going to be participating in Black Friday are segmented. And these are the stocks that we had since the beginning of the collection, so we are waiting newer and healthier inventory that has been in the stores for a shorter time for the full price sales. So you expect a smaller effort in terms of promotion because this was already done when the store started operating again. And then in mid-August, we launched the new collections. And the full price sales have been responding very well. As to wholesale, we had -- we made a -- we reached all targets that we had for wholesale. And in the fourth quarter, we are launching the new collection, and John John has already reached its goal, and the launch was less than 3 years ago -- 3 months ago. Dudalina as well is doing quite well. Wholesale have been reaching the levels pre-pandemic, nearly 90%. So we are very confident in the recovery of the normalcy of the sales as of the fourth quarter this year. In relation to your question about the channel movements. Obviously, as we have mentioned, we are very focused on the availability of online sales to our customers. We are very focused on increasing -- enhancing this channel. This is a channel with lots of growth perspectives. We made it a point to include in the release all the actions, all the fronts that we are executing to reinforce the channel, which is quite strategic. And we are so glad to see that it represented in the third quarter [ 10% ] of the sales. Online channel is a priority. The wholesale channel has been responding very well. And the retail channel cannot be -- seems to be strategic to us. This is the basis of our revenues. It has a very long history. And all the channels would cooperate the results in a uniform way. And this is why we are working so hard on this online integration, off-line to online, but always offering the experience that the customers have in our stores, bringing the experience of those customers who are at the stores and offering the -- in the digital side, all the experience they had in our physical stores. So the movement that we expect is, first, the recovery in the retail sales and an increase in the digital sales, and this trend is already quite clear to us. And we are going to invest in this even more, and also a strong recovery on the wholesale, which has always been so important for our brand, especially Dudalina, John John as well who's growth is very strong in this channel, and Le Lis is -- has this growth in a segmented way. I hope I have answered your 2 questions. And if you have any additional questions, please ask.

[Operator Instructions] We have a new question via webcast.

[indiscernible] I would like to discuss the B2B new platform or what's the target public, the customers? And will it not be against the strategy of the company to reduce the online sales by third channels, third-party channels? And what is the contribution do you think it's going to bring to the wholesale channel?