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

Good morning, ladies and gentlemen. Welcome to the Conference Call of the Results for the Fourth Quarter of GSA. Today, we have Mr. Marcelo Lima, who is the Chairman of the Administration Committee; Mr. Alexandre Afrange, who is CEO of Land; and Mr. Guilherme de Biagi, who is International Relations Affairs. We'd like to inform you all that the earnings release is available for download at www.restoque.com and the Center of Results. Before we open for this call, I have a brief disclaimer. This webcast is being recorded and translated simultaneously. The slides are being presented at our IR website and webcast platform. [Operator Instructions] If you have any statements or any other statements regarding business expectations and statistics and financial results, they are premises of our Board of Directors as well as current information available to the company. Future perspectives, they cannot guarantee because they involve risk because we live on an uncertainty future, and they may or may not occur. Investors, they should understand that the economic situations, industry issues may affect future company's results and lead to results that will be different from those that we had expected. Having said that, I would like now to give the floor to Mr. Alexandre Afrange, who will start his presentation. You may proceed.

Thank you. Well, let's go over today's agenda where we are going to cover some highlights for the year of 2022 and results for the fourth quarter, our program on Transforma Veste. And then Guilherme de Biagi will address some financial highlights and financial and capital structure. Dear shareholders, welcome to the analysis of the results of the fourth quarter and the year 2022. For those who do not know me, I am Alexandre Afrange, Partner and CEO of the company until 2014, when I sold my second life to the company because I did not agree with the direction of our brands we're taking. I returned in January 2020, invited by Marcelo Lima and Livinston Bauermeister as Head of the Le Lis brand. In July 2021, I took over as a General Manager of operations of the entire company. And in January of this year, I was elected again as CEO of the company, replacing Livinston who became a member of the Board of Directors. I'm very excited and proud to share the results for the year 2022, a transformational year and of paramount importance for the history of the company when the company adjusted its capital structure and delivered consistent operating results. This process was accomplished by capitalizing almost all of the debentures in the company's capital stock. As a result of this capital increase, the gross debt, which totaled BRL 1.77 billion prior to the operation, was reduced by 92.6% with the balance of BRL 117 million corrected at CDI plus 1.1% yearly to be paid in up to 8 years and BRL 13 million corrected TR plus 1% a year in up to 18 years. Subsequently, an additional capital increase of BRL 100 million in company's cash was carried out a process that started in December '22 and was concluded in February '23, rebalancing the capital structure, reducing the leverage levels and improving our liquidity ratios. We end '22 within balanced leverage levels with a 0.3 fold net debt-to-EBITDA ratio, considering an adjusted EBITDA of BRL 200.4 million in 2022. In 2022, our total gross sales were BRL 1.3 billion, a growth of 20.3% compared to 2021. The same-store sales, SSS, an important indicator to measure the efficiency of the store operation presented an increase of 32.1% in the year. This growth reflects the success of the strategy adopted, which allowed sales at full price to reach 83% of the B2C sales channel. The B2C channel and the B2B channel grew by 23.2% and 37.8%, respectively, when compared to the year 2021. The sales performance at full price enabled a significant increase in the adjusted gross margin of 7.2 per year in 2022 reached 62.7% in the period against 55.5% in '21. In the fourth quarter, we had constancy in the strategy and in the results of the operation for the whole year '22. In this period, the company's revenue reached BRL 347.16 million with growth in the B2C and B2B channel of 0.7% and 2.8%, respectively, even with the store base, including outlets, 17.2% smaller than in the same period of '21. Same-store sales was 8.5% in the fourth quarter '22 compared to the same period last year, remembering that the fourth quarter was negatively affected by extraordinary events such as the tumultuous presidential elections and the Football World Cup. We continue to invest in technology and employee skills development, implementing measures to improve operational efficiency and optimize spending in all areas of the company. The evolution of our processes, the better adaptation of the organizational structure and the quality of the commercial and financial planning have allowed the company to grow with higher operational leverage, resulting in a reduction of 1.1 in operational expenses in relation to the net revenue in the year '22. The improvement of Customer Relationship Management was one of the priorities in '22. Through data analysis and marketing automation tools, the company better segmented its customer base, personalizing offers and increasing the conversion rate. The result of this strategy was the increase of the active customer base by 7.6% in '22 despite the closing of 37 stores in the period while achieving same customer sales growth of 13% comparing to the same period of the previous year. The company's better capital structure added to the improvement in operational efficiency, reaffirms vast outstanding position in the national fashion retail market and accelerates the growth plan that was already underway. The company is prepared to face new challenges and confidence in taking advantage of market opportunities. The names of institutions from Restoque S.A. to Veste S.A. represents an important milestone, which reinforces the new moment and establishes a look to the future. These changes symbolizes a new phase of growth and evolution for the company. A new visual identity reflects the plan's commitment to remain a reference in the fashion retail market. Veste S.A. is ready to move forward and conquer new horizons. The name change reflects the company's determination to transform challenges into opportunities. To follow changes that take place all the time, we have here a team which is responsible to our success. We are an exceptional group that work really together for a common goal. This is very important. And what is that? First, it means expertise, objectivity, future. It's a descriptive name and simultaneously good for investment. We look ahead, we look to the future and we look inside to see what we have to do. This is a result between reasoning and emotion. I suggested to the Board of Directors a project, which is Transforma Veste, where we can deliver a result that can deliver a sustainable result, a solid one, proposing goals and objectives and pillars that will help us to transform ourselves as well as our business. In 2025, we have a project that will sustain us. Up to 2025, we want to renovate marketing and B2B evolution, improving efficiency, thanks to new tax incentives, digital transformation committee. That's a digital committee for growth that we work with sustainability, applying all our business practices. How are we going to reach it? Profitable and sustainable growth focus. These are all our pillars: focus on full price sales with a high sell-through, taking into account our customers' experiences -- exceptional experience of the clients in all channels and points of contact; evolution of digital platforms and occupation of our space remodeling of wholesale and franchises to generate growth; evolution of the active client base; a reduction of expenses as revenue percentage and continuity in cash operating cycle; simplification and digitalization of processes; strengthen our culture, our team generates our success and ESG integrated into the business with results. How can we get there? Thanks to a number of renovations with the client experience, growth and sustainability; marketing as a pillar for the active base growth; wholesale per order to transform the sales in retail to wholesale dealer remodeling; program plus our pillar ESG with the result objective and sustainability plus efficiency, it's a pillar that aims to reduce expenses and increase profitability; digital transformation committee pillar platforms and digital processes with growth and sustainability; new tech incentives with pillar for cash improvement; and an inorganic growth, which aims to grow as its main objective. We are open to see ahead, to see new opportunities in the near future. And how we're going to reach there? Thanks to innovation, creativity, dedication and transparency. Having said that, I will hand over to our RI Director and Strategy. Mr. Guilherme, you have the floor.

Thank you, Alexandre. Good morning, ladies and gentlemen. This was a transformational quarter to Veste as it was sad a year before due to a number of reasons. I'd just like to add to what has been said and to go into details about financial and operational results. Here, we have sales per channel. During this period, the fourth quarter, which is a very relevant period to retail considering all the festive holidays, we see consistency with adopted strategy, seventh consecutive quarter of growth in same-store sales. Thanks to a strong growth base that we had faced during the fourth quarter of 2021, consolidated revenue, we see a drop in our revenue, especially due to the reduction in the outlet channel, which is aligned to that significant reduction in this channel and a consequence of the increase of the commissions throughout the year. In the same period, let me highlight that we have a sales store -- same-store sales. And for the 7 half consecutively, we see a growth in this indicator. This is an indicator which reflects really well a better operational efficiency. Besides, we see a growth in -- if revenue per store -- sales per store, plus 18% versus the fourth quarter '21, and now we see the highest level since 27th. Here, we have a base of active clients and digital sales. We also see a growth throughout the year, mainly related to the main pillar, which is the core of our client strategy. This is due to a continuous work and omnichannel tools implementation, which wants to see growth and conversion rate growth. Multichannel customers, we see those customers as being very important in our active base because their frequency was threefold higher than those in the omnichannels. And by omnichannels, I mean off-line clients and online mono clients. That amounts 23% spendings, higher than the whole base line of clients. So we see a growth in the customer sale, which is another indicator and -- which also shows assertiveness in our strategy for personification products and all other aspects addressed previously by Alexandre. Financials. Here, we see a detailed overview about some adjustments considered in the period. Here, we have a full table, which has been breakdown -- which has been broken down in 2 blocks. In CMG, we see management EBITDA. This is the reason why we have low inventory, especially for raw material and textile with a value of BRL 7.5 million. Here, other expenditures and revenues. We adjusted our capital as a conversion of shares, and debenture is BRL 233.9 million. We also adjusted one-off effects or dubious, that's BRL 21.2 million. Expenses related to the closing and demobilization of stores that were closed throughout the period, stores that would add some earnings as well as to adapt the structure amounting BRL 11.8 million in the period. Let me also highlight that in the amortization and depreciation of G&A of those stores, that will be refurbished during this year of '23, BRL 6.7 million. And as other expenses -- for those of you that are following our results, that we'll be able to understand the estimate of EBITDA and adjusted EBITDA that our refurbished stores amount to BRL 10.5 million. In addition to that, we have some adjustments that had impacted our financial result, BRL 8.4 million in relation to the active value of the debt as we postponed the deadline up to 20 years. And then an adjustment was considered to reflect the present amount. Ex gross profit and EBITDA, where we see some improvements in the period and which also reflects the whole change and operational change. On the left of our gross profit, we see BRL 186.8 million of gross profit with a margin of 67.3%, a significant growth of 7.1 percentage points for the fourth quarter '21. And in the accurate of the year, BRL 168 million, over 37% in opposition to '21 with a margin of 62.7%. The growth indicator in both periods, especially in the fourth quarter, was a result of the improve of the better margin and B2C and B2B channels. And here, the margin effect with 507x higher a year and a drop in the representativity considering the closedown of some stores and what we had in terms of leftovers as a result of the channel effect being responsible to that margin increment of 110-fold. Let me point out though, now to the right to the slide, operational expense is BRL 107.9 million, which amounts 46.1% of our net revenue in the period. In comparison to the same period of '21, a level of expenses was linear -- was kept linear. The company's adjusted EBITDA was BRL 61 million per quarter, over 28.8% versus the fourth quarter of '21, and BRL 200.4 million in the year of '22, almost 116% higher than 2021. And such an advancement in this indicator is a consequence of increase of efficiency and quality of the margins that had evolved throughout the month. And here, I'm talking about sales channels with a focus with earnings and better sales. Now talking about flow -- cash flow. We had BRL 75.7 million, a variation of BRL 107 million due to a better performance on sales, which has been reflected in the EBITDA, better efficiency in the turning capital. And the company generated BRL 242 million, a growth of 55.5% in relation to '21. Now highlighting indebtedness and capital structure. I will briefly cover indebtedness with the recent closeness of the indebtedness process, an increase of capital of BRL 100 million, which started in December and which was concluded in February '23. Our capital structure has reached a level of balance and control, which allows to design new plans of investments and expansions. And by the end of the quarter, that has amount 32-fold, aligned to a more sustainable level. Net income throughout the last earning releases allow a clear perspective about our business results regarding debentures, capital structure and the annual scenario and the capacity to generate net earnings. It's possible to check that assuming the adjusted result for 2022 and excluded the interest effect, the company managed to have a net income of BRL 55 million equivalent to a net margin of 5.2% and a net income of BRL 44 million. Well, those were my main highlights for the semester. I would like to thank you all for your time and participation, and I'll open this session for your questions. Thank you.

[Operator Instructions] We have a first question from Luciano from [ W&T ]. Thank you, Luciano, for your question. Retail in general is suffering quite a lot, but that is an exception. How can we justify the continuity of such a growth in face of a crisis -- economic crisis?

Thank you, Luciano, for your question. That is a very intelligent question, I must say. We have been preparing ourselves to regain our concept, our brands, recovering each one of our brands. This work that we have been doing lately, our brands have always been very strong that somehow they suffered some change in the pathway in its journey. And now looking ahead and bringing results to the present, we see consistent results. And as a result of that, thanks to rescuing a proper result with attraction with a fair price with a store that was well taken care. We are recovering everything, and we are regaining our space. With that, we are able to see what is taking place so far, and I guess we'll be able to continue growing with positive results, regaining our space in the business.

A question from [ Malek ] [indiscernible] from [indiscernible]. First, thanks for the outcome. Thank you, Malek. Indeed, it was a very effective and positive results to the company. And he would like to listen a little bit more about wholesales in the beginning of '23. And what we expect to do to increase this channel performance. Have we been able to expand or if we have other retailers that see that macro scenario has been not favorable?

Yes, we have been growing. This first quarter, we grew. Actually, we are growing in average 23% to 25% in relation to the first half of last year in the B2B channel. I don't see any significant instability in any of our brands. We still have a long way to recover our position. I see our work quite positively. How we have been working? Well, we offer a good product, a good commercial condition with a fair price, with a product that is widely cared about. And our brands are recovering their position. And our multi-brand customers, they buy in a higher volume than what's taking place at the market right now.

Next question from [ Mr. Ribeiro ] from [indiscernible] Investments. And his question is, to reach our goal, which is to gain efficiency and brand improvement to best intent to work more in revenue growth or operational expenditures decrease, is what will be your main focus for this quarter?

Thank you, [ Ricardo ], and -- for your question. A bit of both. Margin improvement, especially gross margin, is a consequence of a sales of more products under full price. Our sales mix is much higher with full price than in outlets, which guarantees a higher gross margin, which helps quite a lot in decreasing our expenditures. We have a sales growth plan, which is related to the B2B. And now in the B2C, we have not reached it yet. Space, which we have in the market, sales growth is expected as well as spending reduction. And that reduction is not just a matter of cutting off some of those expenditures. It's a matter of a restructure in a constant manner, detailed way to cut properly to have a more proper spending for our level of revenue. So earnings will come from both grounds.

We have another question now from [ Luciano Penga ]. Again, thanks, Luciano. And the question is, as we have some value depreciation, acquisition is somewhat in your radar.

Thank you, Luciano, for your question. We are mainly focused on our business, our business strategy, a better operational transformation and sustainable strategies. Well, but still, we might be open for opportunities. That's not a priority right now, but we are open for that, why not?

We have another question. We are almost about to close our Q&A. If you still have any questions, please don't refrain from submitting that. Now we have a question from [ Rafael Bahus ]. Thank you. What is Veste's perspective to the retail market into the next 2 years? And how should we face poor performance during this period?

Thank you, Rafael. Historically speaking, we have been through crisis quite well. We haven't been widely affected, I should say. So I guess, we are prepared to go through that in the future. Our sector is not widely affected by that, so I guess we won't have much trouble about that.

One final comment, that is a suggestion by -- given by Antonio, which is our need to keep a recurrent needs for stores and Transforma Veste, as Alexandre mentioned. Indeed, it's a way to adapt and give a continuity to maintenance and continuity.

So we appreciate your suggestion. Thank you.

One final question. That will be the last one, indeed. It's from our Walter, [indiscernible] Investments. How -- what should we expect -- or what sort of performance should we expect from Veste for the first half of 2023?

Thank you, Walter, for your question. First quarter sales are very strong. We have a same-store sales around 17% in the first quarter, so I'm sure we are going to throw -- we are going to break good news when we release our earnings again for the first quarter.

We are closing now the Q&A session. I would like now to hand over to Mr. Alexandre for his final remarks.

Thank you. This positive reached earnings is thanks to a team that has worked really hard and did whatever it took to take the best opportunities. I'd like to thank all the stakeholders that were closer to us throughout the past 8 years, our vendors, providers, especially our clients and collaborators. Thank you so much to participate at our call for the earnings results for 2022. And very soon, we are going to be back sharing the results for the quarter of 2023.

So the webcast for Veste S.A. is closing now. We would like to thank you for your participation and wish you all a great day. Thank you.