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

Good morning, ladies and gentlemen. Welcome to Restoque's earnings release presentation for the third quarter of 2021. With us, we have Mr. Livinston Bauermeister, CEO; and Mr. Guilherme de Biagi, IRO. Please remember that this earnings release presentation will be available for download at www.restoque.com.br. [Operator Instructions] This event is also being broadcast over the Internet via webcast. Before proceeding, we would like to say that any forward-looking statements that may be made during this conference call regarding the company's business prospects, forecasts and operating and financial targets represent the beliefs and assumptions of Restoque's management as well as the information currently available to the company. Such forward-looking statements are not guarantees of performance and involve risks, uncertainties and assumptions. They relate to future events and therefore, depend on circumstances that may or may not happen. Investors should understand that economic conditions industry conditions and other operating factors may affect the company's future results and could lead to results that differ materially from these contained in the forward-looking statements. I will now hand it over to Mr. Livinston Bauermeister, who will begin the presentation. Please, Mr. Livinston, you may begin.

Thank you. Good morning. Welcome to Restoque's Third Quarter 2021 Earnings Release Presentation. Please feel free to look at the presentation made available on our website. We have a summary of the biggest metrics and figures for this quarter. All right. In the third quarter, we saw the recovery of our sales going back to levels that are higher than before the pandemic. We had revenue of BRL 279 million, representing 55% of growth compared to the third quarter of 2020 and 2.5% compared to the third quarter of 2019. The B2C channel saw growth of 66% in same-store sales compared to the third quarter of 2020 and 9% compared to the third quarter of 2019. The B2B channel was also a highlight in this quarter with BRL 62 million in revenue, growth of 102% compared to the second quarter of 2020 and 120% compared to the third quarter of 2019. It is also important to mention that in the year-to-date for 2021, we had BRL 114 million in revenue in digital channels, a 95% growth compared to 2020 and 256% in year-over-year for 2019, actually. Since the second half of 2019, we've been adopting the strategy of increasing the use of full-priced sales, reducing the level of inventory left over at the end of our collections. In this sense, our outlet stores operating under the Restoque banner was reduced in urban regions in this last 18 to 24 months. And we focused our operation in outlet malls in highways where consumers are specifically seeking discounted products. As a result, we reduced sales in the outlet channel as previously intended, and we prioritized sales in channels with full-priced products, meaning B2B and B2C. This strategy has proven successful and the sales in the outlet channel in the third quarter of 2021 were reduced by 45% compared to the third quarter of 2019 and were at the same level of sales in the third quarter of 2020, where we'd already seen reductions. Excluding the share of sales in the outlet channel, we invoiced or we had a revenue of BRL 247 million, which is a 66% growth in comparison to the third quarter of 2020 and a 15% growth in comparison to the third quarter of 2019. We're also able to establish a more balanced discount strategy with a selected mix of product for clearance in July while consistently navigating full-price sales in the third quarter with a 15 percentage point increase in our gross margin compared to the third quarter of 2020, where we still felt a lot of impact from the pandemic. Our gross profit for this quarter was BRL 128 million. The strategy of selling at full price, combined with the improved performance of the brands in physical stores and digital channels, has enabled us to deliver consistent results throughout the year. In the third quarter of 2021, we recorded EBITDA of BRL 30.9 million, exceeding the third quarter of 2020 by BRL 40 million and BRL 10.7 million regarding third quarter of 2019. Let me now turn the floor over to our IRO and Strategic Planning Officer, Guilherme de Biagi. And after his comments, we'll be able to have a Q&A session. Guilherme, go ahead, please.

Of course. Thanks, Livinston. Good morning, everyone. Let me add to the points that Livinston has already mentioned. I would like to bring you an update on innovation projects, the renovation of stores, technology and CRM. During this period, we deployed for the stores an application that we developed internally to work with omnichannel order fulfillment, reducing stock-outs by 26%, thereby reducing costs and the operating team's [ active ] time. In logistics, we integrated the inventory of the DC located in Goiás with the Dudalina brand e-commerce. Through this, we were able to strengthen the digital channel by increasing the availability of products for sale and maximizing the use of inventory that was previously directed exclusively to wholesales. As a result, we achieved an increase in transactions in the digital channel at approximately 10% of increase for the Dudalina brand. In the B2B journey, we concluded the pilot to integrate the management system for our franchisees, in order to have more visibility of inventory and sales, which will allow us to be more accurate in product allocation clearances and sales and understanding the customers that are served by our partners. After the return of operations in physical retail, our B2C customer base continue to grow. The main highlights were customer recovery actions, both in physical and digital media and the increase in the frequency of recurring customers. We also pursue constant evolution of the NPS index, which represents a higher level of customer satisfaction as well as their potential for loyalty or referrals in the relationship cycle. We had 7% of growth compared to the first quarter of 2021 and 4% of growth compared to the second quarter of 2021. Our major brands outperformed in same-store sales when compared to before the pandemic in the third quarter, which stresses our ability to have a disconsistent recovery. On Page 8, we highlight the evolution of operating indicators in the digital operation. We delivered 97% of orders on time in this quarter with a 5 percentage point growth compared to the same period in 2020. We also saw an evolution in delivery times in all models. It is something different observed by our customers and which is a competitive edge. Finally, when it comes to reducing costs and digital order fragmentation, we reduced number of deliveries per order by 18% in the quarterly comparison of 2021 versus 2020, and increased the number of pieces per order by 14%. On Page 9, we highlight the highest level of active customer base in the last 12 months, with 6% of growth vis-a-vis September of 2020, another indicator that signals the end of the most acute period of the pandemic in retail, and 19% vis-a-vis January of 2021, reinforcing the customer loyalty strategy. In addition to that, Same-customer sales grew 15% in the B2C channel in the last 12 months. On Page 12, we see the evolution of our results. We see gross profit, which is 116% higher vis-a-vis the third quarter of 2020, with an increase in margin of 15 percentage points. The gross margin reflects the company's great strategy to increase turnover of products at full price. Positive EBITDA of BRL 31 million. We also had a 6% reduction in SG&A over net revenue, raising the EBITDA margin close to 14%. Finally, following our strategy of achieving greater operating efficiency with growth in sales at full price, better use of collections and reduction of leftovers, we have achieved a healthy combination of sales growth and inventory reduction. We finished this quarter with an inventory balance of BRL 282 million, a BRL 68 million reduction or a 19% reduction when compared to the third quarter of 2020. These were our highlights for the third quarter, and you can see more details in our earnings release presentation on our website. Thank you for your time, and we now have time for a Q&A session.

[Operator Instructions] I will now hand the floor over to Mr. Livinston for his final remarks. Mr. Livinston, please go ahead.

We would like to thank everyone who attended this call. And we are available to you if you have any questions or comments. Guilherme, our IRO, is available to you as well as the team and the management team. Thank you very much, and have a great day.

This is the end of Restoque's third quarter of 2021 earnings release presentation. Thank you for your attendance, and have a great day. You can now disconnect. [Statements in English on this transcript were spoken by an interpreter present on the live call.]