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

Good morning, ladies and gentlemen. Welcome to the conference call of the Third Quarter 2022 Results of Restoque. Mr. Livinston Bauermeister, CEO; and Mr. Guilherme de Biagi, Investor Relations Director, are here with us today. We inform all participants that the earnings is available for download at www.restoque.com.br. Before we start, let me make a quick disclaimer. This webcast is being recorded and translated simultaneously. The slides are being presented on our IR website and on the webcast platform. [Operator Instructions]. And before continuing, please be advised that any statements that may be made during this webcast regarding the company's business prospects, projections and operating and financial targets are based on the beliefs and assumptions of our management as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that the general economic conditions, industry and other operating factors may affect the company's future results and lead to results that differ materially from those expressed in our statements. I would now like to hand over the floor to Mr. Livinston Bauermeister, who will begin his presentation. Please, Mr. Livinston, you may proceed.

Good morning, everyone. Welcome to our third quarter earnings results for Restoque. I also would like to invite you to follow our presentation, which is available at our IR website. I also have here today with me our Investor Relations and Strategic Planning Director, Guilherme de Biagi; as well as Fernando Pedroso, our CFO. Before we open our presentation, as we always do every quarter, where we highlight our financial and operating company indicators, I would like to approach an important topic, which has been addressed by the company in the past months and more specific in the past weeks, which is the conclusion in a very successful way of our capital increase, which had been approved by our extraordinary assembly last August 18 and which was concluded last week. Thanks to the approval by the committee -- by the Steering Committee, over BRL 1.630 billion were achieved. With that, we balance our capital structure and reinforce our sustainable growth. By the end of the process. I would like to thank your resilience and our team's commitment and engagement who had collaborated to achieve such a good result. Let's keep going. Let me highlight that our third quarter is presented by the season, winter and summer. We don't have much inventory left, with a very healthy gross margin. Let me highlight the consistence on results as we are going to share throughout the presentation available as well as our -- in our results -- release -- press release results. Our performance has been very important in terms of growth and revenue. Similarly, we are also improving our business. As you can see on Page 6, during this period of time, our gross income was 60 -- BRL 351.8 million, 26.3% growth in comparison to last year's third quarter even with the reduction of our store base in approximately 15% in comparison to the same quarter last year. In accrual of 9 months, gross margin of the company have reached BRL 968 million, a growth of 32%, in comparison to those 9 months of 2021 and almost 6.8% in comparison to 2019, which was the prepandemic period, the same 9-month time slot. With that, we see a sustainable sales growth in comparison to prior years. The gross margin was of 61% with a leap of 4.1 percentage points if we compare to the same period last year. We are above the level of 60% of gross margin, thanks to sales increase and lower period of brands liquidation following our strategy adopted since the end of 2019. EBITDA margin, BRL 55.5 million, reaching an EBITDA margin of 19.3%, surpassing the second quarter 2022, which so far had shown a best indicator result in the past 3 years. Nine months of 2022 EBITDA amounts BRL 139.7 million, a growing margin reaching 17.7%. Same-store sales, which is the consolidated margin of the company, a very important indicator, which shows efficiency in our brick-and-mortar stores that was a highlight in the industry with over 32% -- 32.3% growth, to be more specific, if in comparison to last year, and a growth of 47% if we compare to the third quarter 2019. So here, you can have an idea about our results for the third quarter 2022 where there is a consolidation in our results. And now I would like to hand over to Guilherme de Biagi, who will share some additional information about indicators and available information at our press release as well as in the results presentation. Now Guilherme, I hand over to you. Thank you.

Thank you, Livinston, and good morning to all of you. Just adding to what has been said, I would like to go deeper and allow our investors to understand about our B2C sales evolution. Now switching to Page 8, B2C sales channel showed a significant improvement in the volume and quality of its sales. A growth revenue, BRL 228 million with a gross margin of almost 71% and a growth of 1.6 percentage points even though there was a reduction of our store base of 15.7% versus third quarter '21. What is evolving is the mid-ticket per store in the period has reached 47% versus the third quarter '21. Let me point out August, which was the Father's Celebration Week and the strongest peak in the whole history of our main brands, John John, Bo.Bô and Dudalina that has reached amazing levels of sales in the same period. The e-commerce registered BRL 32.2 million, 25.1 percentage growth in relation to the third quarter '21, and gross margin, 7.4 points percentage above that same period. Such a growth has been reached, thanks to the sales in the e-commerce and also a markdown strategy, which was more assertive and individualized by product category and product brands. Performance and importance of our digital sales represented by B2C digital, our omnichannel ecosystem and outlet website that had a share participation of almost 18%, 17.9% in the company's total sales in the third quarter 2022. Let me highlight the growth that was fivefold higher in the same level of the 2021 for digital sales performance. Page 10, we have a breakdown, full price sales breakdown, increase in full price sales and shorter markdown period for brands, thanks to the assertivity of our brand collections, the right product at the right time and with the proper price. In that period of time, 33% of our sales were carried out under full price and an increment of 20% of items sold at full price versus third quarter '21. Page 11 now. Same-store sales breakdown per brand, that was a record performance, and I would like to highlight the industry. We have grown for the sixth consecutive semester in relation to the prior year or the same period during 2019 with relevant results in most brands. Page 12. Inventories management. Those customers that had purchased in the past 12 months in increased trajectory a total of 65,000 active clients with an increment of over 20%. Such a growth is a consequence of a strong ending for where we focus loyalty, enchantments, recurrence increase and frequency of customers, as a result, generated a same customer sale of over 20% in that period. That shows that our brands are not just recovery and retaining their customers but they are part of an active base, attracting a new public. Let's highlight as well digital clients that are present at our base of sales, reaching 30%, 1 point percentage growth in relation to 2021. And that became a new growth manager, recovering our active base. Similarly, we are increasing our lifetime value of our clients. Page 13 now, active customer base. 7.8% variation in reduction where our sales had grown more than 16%. With that, we have inventory comp -- capital reinforcing a more balanced capital. We went down with our inventory to 16.1%. Going now to Page 14. The main business lines and company's brands, they show the sales evolution versus 2021 with B2B channel had a significant sales growth with BRL 103.5 million revenue over 67% in relation to the last quarter of 2021. And the company achieved BRL 18 million for this channel, over 50.6% versus the same period in 2021. In addition, that channel that became a positive for complementary sales, and to get rid of past collections had a gross margin of BRL 19 million, a readjustment of our store bases with a better use of collections and a reduction of some collections. The gross margin at the channel had achieved 40%, represents an increment of over 27 percentage points versus the third quarter and a gross margin of BRL 6 million, over 63% in relation to the same period last year. How about brands performance despite a significant growth of the main brands. Let me highlight, Dudalina, BRL 60.7 million in the third quarter, a growth of over 50% versus last year. And in the 9 accumulated months, the gross revenue, BRL 21.2 million, over 34% over the 9 months of 2021. A net revenue per square meter, 69% higher than the same period. Even with the reduction in the sales of 32%, the brand has achieved a historical sales during the Father's Week celebration, above 108%. Page 16, our performance strategy that generates results, gross profit. The gross profit reached BRL 175.2 million in the third quarter, recording a plus 36.9% growth versus third quarter '21. Gross margin was 61% in the period, an increase of 4.1 percentage points. The consolidated gross margin was 61%, and that advance of 4.1 p.p. is significant in the share of the B2B channel, considering the nature of the business has a much inferior margin for the company. Page 17 now, another indicator, which reflects our operational improvements, generating consistent results. EBITDA in the quarter reached BRL 55.5 million, plus 79.9% in comparison to the third quarter '21. And the EBITDA margin was of 19.3% and showed strong growth in the same period, plus 5.6 pp. All of that due to improvement in the margin over the sales channels. Full price items sales. Once we understand operating sales during the third quarter, they were equivalent to 42.2% of the net profits of the company in comparison to '21. There was a gain of efficiency of 4-point percentage points. Thanks to expenses dilution as we increased our revenues and profitability in the company. Among those lines, let me highlight marketing and occupational expenses. Page 18 now and almost concluding my presentation. I'd like to state an important analysis regarding profitability of the company. With an increase of capital, our gross debt was decreased 93% with the remaining debt of BRL 9 million. And to increase the performance just related to net profit, we have an adjusted perspective of the period, excluding the income taxes of the debentures of the 12th issue. With such an adjustment, the company has a more positive performance consecutively for the second semester with an amount of BRL 8.2 million net profit and reversing a damage of the same -- the same period of last year. Well, those were my comments for this half, which are detailed in our press release in the IR's website. And I also would like to thank you for your time and participation. Now we are going to open for the Q&A, and we are at your availability. Thank you.

[Operator Instructions] Well we have some questions. The first one from [ Luciano Penga ].

What can be done to decrease the company's costs?

This is a very relevant topic, Luciano, and that has been our main focus, and that will be our highlights for next year. Now that the operation is performing really well, that we have a balanced capital structure, our capital is on profitability to deliver net profit and cash flow generator. We are addressing a number of opportunities for cost reductions in expenses, investments. The idea is to optimize the company's investments, reinforcing the strategy that we have already disclosed to you. And we are going to go after better net profit and -- throughout expenses reductions, we are in a quite advanced step regarding our next year's budget, and that has been our focus so far. So that has been addressed by the management of the company and by our Board.

We have now another question from Arthur this time.

Now that the capital increase has been concluded, do you have an expansion plan? What are the next steps to the company?

Well, Arthur, we have a very clear that we have some room for improvement and growth and to keep on growing with our current brand base and our current store base is in the omnichannel. That is some room that we have been reaching since the last year. Our client base is also increasing as well as sales. So in the short run, the company understands that the store installed bases and the currently brand bases will allow such a growth. And in a mid run, maybe 1 to 2 years, we are already analyzing different pathways for growth. There are projects that will allow us to keep on growing, expanding our sales, our results throughout other growth pathways. So this is a topic that has been addressed. We are really working on that after we conclude our capital increase as part of our pipeline in the next 5 years. That has been addressed and very brief. We are going to introduce and share to the market our long-term plans.

There is another question. This time from [ John Paolo ] from [indiscernible]

The question is fully aligned to the previous questions. What are the future perspectives to the company after there was a capital increase.

Well, John Paolo, as I said, the company is unleveraged right now, and we are recovering. Now we have already recovered, and we are reinforcing its capacity to invest again, to grow -- to keep growing consistently and that will be available in our plans for new outlooks in the long run for the company. But these are some projects that we have available that will indeed address that.

Another question from Luciano Penga.

Are there any merger and acquisition projects for other brands?

Well, we are always very careful, and we watch closely the market, assessing opportunities. Of course, that in the past 2 years, with the pandemic those projects, they became in second rank as our priority was the whole construction of the operation with results. And acquisition was not a priority. Mergers and acquisition was not a priority. But to reinforce our current operations, now this topic is back to our radar. The company has an opportunity to invest, that will be assessed and understood, but more in the mid- to long run. In the short run, our focus is net profitability and cash flow.

[ Voltaire Jime ] has another question.

Considering the capital restructure, the company is after -- is the company after financial lines in the market to replace that for a more long-term line of credit?

Yes, the company is being pursued by several financial institutions with a much more comfortable balance statement right now. And our priority is to go after some lines of business that may replace the current ones. So we can go after financial reduction expenses. That has been our focus so far. And it's possible that will happen again. Let's see if we have any other questions. We have some comments. I would like to thank [ John Paulo Valero's ] participation. So these were the questions that we have collected and answered. Anyhow, Guilherme de Biagi, the whole IR team is at your availability anytime for anything. In the next few months, we are going to reinforce our relationship with the market, sell-side and buy-side analysts, we are going to strengthen that relationship. And we are here to answer any questions to update any model, you name it. Anything you need to regarding the company, we will be at your disposal. So thank you so much for your time and participation at our call, and I wish you a great weekend. Thank you.

The Restoque webcast is now closed. Thank you all for your participation, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]