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

Good morning, ladies and gentlemen. Welcome to the earnings release regarding Q4 from Restoque. Today with us, we have Mr. Livinston Bauermeister, CEO and Director of Investor Relations. We'd like to inform all participants that the earnings release is available for download at the Restoque's website, restoque.com.br. [Operator Instructions] This event is also being transmitted simultaneously via webcast. Before proceeding, we'd like to clarify that any forward-looking statements made during this conference call regarding the company's business prospects, financial and operating projections and goals are based on beliefs and assumptions of Restoque's management team as well as on information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events. Therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could affect the company's future performance and lead to results that differ materially from those expressed in such forward-looking statements. Now I'd like to turn this call to Mr. Livinston Bauermeister. You can proceed, sir.

Thank you very much. Good morning, everyone, and welcome to our earnings call. I'd like to start by addressing what happened last year and align to what we had already presented. We started the year very confident according to the measures we had already implemented at the end of 2019, and we were prepared for this new company's growth cycle. If you have followed us, if you followed what we have been doing, the initiatives we had been implementing since 2019 as well as the results achieved in the first months of 2020 allowed us to be confident regarding the path we had chosen towards the future. However, in March, just as the entire market as well as our industry, we suffered the impact of coronavirus and the crisis that it brought. We suffered great impact. We had to keep our stores closed for a long time, but we also immediately reacted to mitigate that impact, particularly regarding sales drop. We acted rapidly, reducing expenses. We also strove in order to save jobs and also to keep a balanced supply chain. We also managed our liquidity and also our financing prospects. What I'd like to highlight is that our performance was very limited, considering the platform that we had for e-commerce at the beginning of the pandemic. When we had the pandemic declared in March of 2020, we were operating on a platform that presented many constraints. And these problems emerged from the time that it was implemented in 2019. The platform also had many limitations. It did not offer all solutions that were expected to fight this pandemic. We suffered with the stores closed and also with this issue. So it was very complicated because the only channel that we had available was online, e-commerce, but with the platform's limitations, we did not operate remotely as we wanted. We had them to suspend some job agreements of our team because we did not have the infrastructure that we wanted -- as we wanted in order to keep working remotely. After this first acute phase, in the second quarter of 2020, we drew our attention to our e-commerce strategy. We wanted to focus on improving our customer experience, customer satisfaction, and we implemented a set of activities in operations, in digital platform. And if you have followed our results in this -- for the third quarter of 2020, you are aware of the measures we implemented and took focusing on digital transformation, increasing online sales, investing on data science, renovating our brick-and-mortar stores, reducing lead time, improving and gaining on collections, reducing leftovers. Our brands were very successful. Also cash generation, improving operating cycle, supporting our employees, aligning interest to our culture as well as SGE activities. Different than several measures, I am just reinforcing that we took measures to change our structure just as we needed. That allowed us to strengthen the pillars of our business. So as we went through the pandemic and we believe that, that would be less strong in the second semester. We wanted to have a strong framework in order to keep a profitable business. One key point of this digital transformation was the choice we made at the beginning of the third quarter of 2020 regarding a new e-commerce platform. It is considered to be one of the best by Gartner, and it's being implemented since then. And we expect it to start operating quite soon. And concurrently, because we know that this is going to take a little bit longer, it may take months, we have also implemented many actions in order to ensure that the current platform operates smoothly in order to improve our customers' experience in providing new solutions that were not available before and to reduce friction on our customers' journey. Besides working with restructuring actions, we also focused on short-term results. So in May of 2020, we shared our projections for the next 5 years, considering the pandemic and we succeeded in achieving revenues projected as well as our operating results, as you could see in our earnings release. That means that we were very consistent with our long-term strategy we built, our short-term results and also considering our previous strategy, increasing e-commerce, repositioning some of the actions. And in Q4, we reduced our markdown sales by 40% compared to 2019. We believe in the recovery of our segment, and we believe that this is a sustainable strategy to be applied this year and in the coming years as well. And despite this decrease and also decreased traffic because of the second wave of this pandemic that we started to see in December, we were able to offset this loss by the increase in conversion by 26%. That means that we succeeded in this front that I have mentioned. And you can see that we achieved consistent results aligned to our strategy despite an expected pandemic that hit us in March. But we have been consistent in our actions. And this is actually what allow us to see indicators, as you can see in our earnings release that demonstrate a positive response to what has been implemented. Now let me talk about 2021. I think that it's worthwhile mentioning that we started this year, once again, very confident considering the pillars we have developed and strengthened and the entire work we had already carried out. Not to mention, signs of global and national economic recovery if you consider GDP and some other indicators. However, some weeks ago, starting in February, at the end of January to be more exact, and that was clearer in February, once again, the entire industry suffered the strong impact because of new restrictions regarding operations of our brick-and-mortar stores. Our stores are closed again. And over the last couple of weeks, 30% -- we are operating at 30% capacity of our stores in business hours. That is very clear, just 30% of our capacity. But on the other hand, everything we learned in 2020 as well as all the structuring actions that were implemented allowed us to be better prepared to overcome this new challenge. Just to give you an idea, in March of 2020, we had stores closed also with limited business hours and the sales was much less than what they would sell. But right now, same-store is selling 50% of regular revenue. And last year was just 1 digit. So we are now better prepared to face this challenge. We are working remotely. We have enhanced and strengthened the digital platform and that having said, digital sales has increased more than 90% and the strong growth in the fourth quarter. And that accounted for 15 years of sales last year. For this year, we project 20% as well as for B2B, our platform was welcomed. In the third quarter, we saw adoption of this new platform and the performance was better, considering the migration of our customers also B2B to digital commerce. So that allows us to be very confident that we will certainly face these challenges. We understand that these restrictions will probably be extended to April. But now we have conditions to have more active operations compared to 2020. And just in closing this first message, we are also following the news, and I believe all of you about resuming regular operations. We have been following vaccination. We know there is a lot of criticism. We know that we would expect more support from the government. But the outlook for the future is very positive. We expect to have all Brazilians older than 50 vaccinated by May. So more than 200 million doses of vaccines given by May. And we believe that from the second to the third quarter, we will achieve a herd immunization. With that, we believe that the economy will recover. We will see economic recovery as a whole, so starting June and that really excites us. We know that we have challenges in April. For May, we estimate that we will present a better performance of our operations with a larger number of stores opened, brick-and-mortar stores and also to have some of these impacts mitigated. So this is how we see what is going to happen in the first half of the year, but we are very strong. We are confident. We are working hard in order to overcome this challenge, but with a different perspective. Many foundations were strengthened. And also considering that we will see an economic recovery, especially with the vaccination. So this is the message I'd like to share. We are confident and not only us, we know that the entire industry was affected. But we are very optimistic, and we believe that in the following months, we will see this recovery perhaps returning to normal operations. I'd like to thank you all. I'd now like to open for questions. If you have any question, we are here to answer it. And if you have any specific question regarding the results and the numbers, please feel free. I know that this is not really the best moment. But please feel free to get in touch with our Investor Relations team so that they can certainly better answer your questions. We know that adjustments were made because of the pandemic and we know that we can also help you clarify some questions. So once again, thank you very much for your participation.

[Operator Instructions] Our first question comes from Alexandre, Solis Investment via web. Can you please comment on the need of new negotiations with suppliers and mall operators and the potential need to also negotiate new credit lines with the banks?

Alexandre, thank you very much for your question. I find it really pertinent, and this is a recurring question. Unfortunately, we are now talking to our partners, to mall operators as well as to those stores on the streets. We are discussing with them so that we can overcome this complex period of time. So we are negotiating. The conversations have been very positive. And I am sure we will reach a point in which we can agree on. We do not expect it to become a hurdle. As for our suppliers, we have been working closely with our suppliers. And we understand that the right moment is a moment in which they are suffering as well, considering that we faced a pandemic in 2020. We are being very cautious in our negotiations, but we estimate that we are not going to take any sudden decision regarding suppliers. As for the first half, we had already bought everything and we were already delivering that so regarding our inventory. And we addressed the inventory leftover from last year. It was very well managed. We sold and we profited from that. And we also learned from that. And now we are also working with inventory management and also enhancing visibility for the second half. We want to be prepared for the economic recovery, which we believe that will take place after the first half. And we wanted to have enough products in our inventory. And that's why negotiation with suppliers targets at reaching a balance, also understanding the weaknesses right now and also our operations so that we can improve on inventory management and on our capacity also to generate revenue. As for credit lines with banks, to date, there is nothing new. We are working according to what we had already addressed. So generating cash. And if there is any change, we will certainly let you know. But right now, we are working with what we had set for this year with operating cash. And there is nothing else.

Our next question comes from [ Eduardo Lobo ] from Butiá Investimentos.

My question is related to your reorg plan. And I have 2 questions. First, what about your action plans regarding payment of interest at the end of the year? And also, the provision of BRL 150 million, is it still being considered? Or how do you plan to realize that? And then I will have a follow-up question.

Thank you for your question. There is no change to what we had already shared. As you have mentioned, our reorg lasted a very short period of time. We ended that in September. And the entire planning that we have mentioned regarding debentures, and the plan is still on. Regarding also payment of interest, that starts also at the end of this year. Nothing has changed.

Now thinking about the strategy for 2021, you already mentioned the beginning of this year with this new lockdown. Have you considered some other options? For example, some other means of commerce, retail or wholesale to third parties or not yet?

We have not discussed anything regarding this. We have been working on the same, guided on the same assumptions that had guided us last year. So as for operations and also we -- our goal is to generate operating cash, cash flow to pay the debt. And then we know that we have also an amount to be paid in 2023. So if we think about now the second wave and the restriction, we believe that this will affect mostly in by April. But if we consider also the actions we have implemented that I shared, I think that everything will be just as we have projected. So regarding also cash flow, revenue, but that does not have an impact on changing the entire plan for this year or the future.

[Operator Instructions] Our next question is from Evo, James from -- via web. Could you please comment on results of the first quarter of 2021 against first quarter of 2020? And also regarding second quarter of 2021, considering that these pandemic restrictions may last longer.

[ Walter ], thank you for your question. I am going to address your questions. Obviously, I cannot share numbers. But as for the first quarter of 2021, our performance is very similar to what we had in the first quarter of 2020 regarding sales. The current impact produced by the pandemic affected us earlier than last year. Last year, I'd say that the impact was even stronger. And for this year, we have implemented actions that mitigate the closure of stores, our digital and omnichannel operations. So that will offset the closing of stores. And therefore, the first quarter, what we see is that it's similar to what we had in 2020. As for the second quarter of 2021, based on what we have today, we expect that April is not going to be worse than March. We observed that there was this drop in March with the closure of some brick-and-mortar stores and some business hours restrictions. But now we believe that, that will be either be maintained or things will improve. So some of the stores were closed for a long period of time. We had some stores that were closed almost entire months of March. And now they are opening again. And we are following and monitoring on that. We are also assessing the number of hospital admissions and deaths in Brazil, and we know that what we see today is the consequence of anything that happened 2 or 3 weeks ago. But we believe that in April, we will see some improvement compared to March. And this is the most probable scenario that we see for the second quarter of 2021. And if we are right, we will see a gradual improvement, especially considering that we are vaccinating more people and that more people will be vaccinated by June.

[Operator Instructions] Our next question via web, [ Tiago Nascimento ]. In 2020, there was a substantial decrease. Now for 2021, do you foresee new adjustments?

[ Tiago ], thank you for your question. The internal adjustments that were made in 2020 that had a strong impact on our revenues, we had that impairment and we had already anticipated that considering our expectations. And we also made an additional adjustment at the end of December because we already had an outlook for the entire year. But considering the current scenario, we do not see any need to have another impairment in the short and mid-term in 2021.

[Operator Instructions] I'd like to turn the call over to Mr. Livinston for his final remarks. Mr. Livinston, please go ahead.

I'd like to thank you all for joining us to discuss our results and our earnings release. We are available to answer any questions from our investors, shareholders. Our IR team is available to answer your questions. So thank you very much. Have a great day.

Thank you very much. Q4 earnings results of Restoque is now closed. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]