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

Good morning, ladies and gentlemen. Welcome to Veste's earnings conference call to discuss the results for the third quarter of 2023. We have here with us today, Mr. Alexandre Afrange, CEO; and Elisa Lima, Director of Finances Relations. We inform you that we have available for download the data on www.veste.com at the Results Center. Before we begin I'm going to give you a disclaimer. This webcast is being recorded and simultaneously translated. The slides are being presented in the webcast platform. And after the call, they will be made available at the RI website of Veste. All the questions should be asked via chat to this platform. Feel comfortable to send questions throughout the presentation. Before proceeding, we'd like to clarify that any statements that may be made during this presentation regarding the company's business prospects, projections and operational financial goals are beliefs and assumptions of Veste's management as well as information currently available to the company. Future considerations are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, depend on circumstances that may or may not occur. General economic conditions, industry conditions and other operating factors may affect the company's future results. and may cause them to differ materially from those expressed in such forward-looking statements. Now we're going to see the Veste S.A. results.

Good morning. It's a pleasure to have you here with us this morning. I am the CEO of Veste S.A. I have here Elisa, Director of IR and Financial Planning. Third quarter of 2023 was marked for important achievements and also challenges. We celebrated 10th consecutive quarter with positive results. We had the huge margin -- gross margin in that profit because of our consistent change in strategy. We renewed the concept of our stores, and we grew digital channel. The challenges have to do with our long-term view. B2B Channel is one of the -- our most important growing avenues. We adjusted gross margin that resulted in more sales at the wrong time. So we have sustainable growth. At John John, we are in the process of risking and updating in the essence of the brand, pointing to the changes we want and that were relieved -- were already provided. This store is more colored and fluid and communication is talking to the broad public more structural actions like product review adjusting, our price permit, renewing the concept of the stores need more time. And we are sure that it just will lead us to the good pathway. And I start now by gross revenue, BRL 332.3 million with a reduction of 3.8% against the previous one. This was a result of combining the growth of 3.9% in B2C and dropping 24-some percent in B2B, 6.1%. In retail increase, consistent of this indicator is because of the rescue of [indiscernible] relevance, already finished for Le Lis, Bo.Bô and Dudalina. We have same sale -- store sales, 12% increase. And Le Lis registered the highest sales in the historical -- in our history. And these stores have been changed for the better reopenings and events, we always celebrate. In Bo.Bô, we have redesigned Oscar Freire and home away from home. That's the sensation. Art books and panels that were painted by hand by Juliana [indiscernible]. We also celebrated that, showing models that are renowned with influences besides friends of the brand. And also, we grew 51.5% of B2C digital with a great rhythm against the past quarter or last year. In profitability, we gained 4.8 percentage points in the EBITDA margin. B2B, we faced challenges because the sales of the channel had growth, 67% in the third Q '22, and this is more affected by uncertainties in the short run more than the other channels. Even so, we maintain our strategic plan for the long run, and we're adjusting the gross margin. And that led to 5.9 pp gain against the same period last year. Although we faced some tax, changes our strategy once again was correct, prioritize full price sales and a certain profitability in our channels guarantee in the year-to-year. The gross margin, 63%, gaining 2.5% in this quarter. The gross profit was BRL 174 million, stable against the previous one, 9.8% in the quarter as compared to '22. And our plan is to regain growth in the coming quarters. So decision was to maintain our expenses that are key. We are investing in capturing new clients and invest in our new brands. And we had a positive net profit for the fourth quarter in Iran. We are being consistent in delivering results, and we are constructing the basis to reach results are more, that are better and better. One of the basic of this is to focus on client experience. In this quarter, we maintained an excellent level, reaching 82 points in the consolidated indicator, 90 points in the physical stores. And this has constructed a new chapter in Dudalina chapter. And we're going to take you inside the store to see that. I am here at Dudalina, Pátio Paulista and Sao Paulo and the store gain more quality and elegance. So Dudalina is the hugeest store sales in Latin America. We now have a different look and the client is well received by the salespeople and can go around the store at ease. The product Dudalina has been renewed, maintained the quality that is the cornerstone of this brand since the beginning, and we have preserved that. This could be in any closet. The stores have 60 square meters, and they look beautiful, a store like that is ready to be franchised. Our plans include to open 30 new stores for franchise in the next coming years. So I'm going to give the floor to Elisa to talk about that.

Thank you, Alexandre. Now we're going to see in more detail the figures for this quarter. I'm going to begin by channel billing. As Alexandre said, this quarter was very important in achievements and also challenges. Consolidated billing was an increase of 3.8% or a drop, a combination of B2C growth and reduction to be of 24.7%. In B2C, we also have good performance in income per store. Digital B2C was very good this quarter, growing 51.5%, excellent profitability. In B2B, we reduced billing when we adjusted the gross margin of the [indiscernible] that increased 5.9%. Our plants grew 16%. That's not relevant in the stock participation. That's still around 6% to 7%. Here, we can see importance of full price in our strategy. The proportion of sales at full price in B2C increased from 83% to 85%, a good distribution that contribute to profitability. Now the gross profit, BRL 174.3 million in the quarter, stable as compared to the same period '22 with gross margin of 63.5%, 2.5 percentage points above the second quarter last year. The evolution of gross margin was 110 basis points of [indiscernible], 100 points in margin, in fact, because in 40 basis points in the mix effect. Adjusted EBITDA, we reached BRL 50.1 million in the quarter. We had a drop of 9.8% against last year. As Alexandre said, we decided to ensure important investment for the strategy like marketing. And we maintained some fixed expenses in the year, 2 year, we -- EBITDA was 16.7% and also gained in margin. We value profitability and consistent in our results. We had an adjusted net profit of BRL 2.5 million in the quarter. In the first 9 months of the year, the adjusted [indiscernible] margin is BRL 36.3 million, net margin BRL 4.4 million. Indebtedness of the company did not change much. It's in a balanced level. We closed the quarter with net debt, BRL 98.8 million and EBITDA [ debt ], 7x, not considering the effects of IFRS 16. 100% of the indebtedness almost is in the long run. And now, investments in this period, BRL 19.5 million in stores and operations, continuing our program of renewing our stores, 14 operations were transformed and throughout the year, 30 stores, investing BRL 40 million. And that's an essential corner store for our strategy. With that, we have double effect, growth in revenue, commence that an experience that has to do with construction in our brands as we saw in Dudalina and more efficiency and expenses with opportunities to change. We will keep investing in our future. We are prepared to face short time challenges as we have seen, and we go on with our long-term strategy of profitable and sustainable investment. These were the most important highlights for this quarter. Now we open for Q&A.

[Operator Instructions] First of all, Alexandre, we have a question from Douglas from Mapa Capital. He congratulates us for the results, and especially for the 10th quarter in a row that we had positive results. Yes, what are the perspectives for high-end retail in 2024 and what our main growth strategies?

Douglas, thank you for the question. We understand retail for '24, we see it in a positive way. We are preparing ourselves for that. Our main growth avenues are in B2B. We still have large room to strengthen ourselves on that channel. We have our strategies that we are taking actions on that. And we're still -- we're already seeing results starting this quarter with better margin than we had last year that sustains us for this growth with product profitability. And we keep doing what we have always done, which is grow in our own stores, B2C, also good growth. It's an important avenue and also franchises for Dudalina that we understand that we are structured to take this tab regarding this brand. Nothing much different from what we have doing as of today. We'll keep on doing that, focus on sustaining the business and profitability.

Thank you, Alexandre. We also have a few questions from Pedro from BMT. He comments that we had a drop in sales in this quarter, not only in retail, but also in physical -- I mean, wholesale but also in physical stores. And he would like to understand that better in what we expect for the fourth quarter and to close this year?

Thank you, Pedro. It's a pleasure to have you here. Pedro, in B2B, we had a step back in sales, 24.7% of decline against the previous year. In this quarter of last year, we had grown 67% against 2021. So we had -- we reorganized, our margin was very healthy, and we understand that, yes, we had the idea of selling a little bit more in B2B, a little bit less, I mean, nothing -- it was a little bit worse, but nothing much different from what we forecasted. B2C regarding the physical stores, this is the way we talk about our customers. We look at this channel together, physical and digital. If we separate John John, which is where we are facing the most difficulties, as we had foreseen, we are reorganizing just like we did in Le Lis and Bo.Bô and Dudalina, reorganizing the brands. We understand that John John, now in this quarter was the one that had the most important drop. If you look Le Lis, Bo.Bô and Dudalina one by one, we had a growth in the same-store sale around 12.6%. So the physical stores keep growing. So separating John John from them, the others keep growing.

Pedro also comments that he did not see a large variation in inventory when you compare 2Q '23. And he has how the company is getting prepared to increase the sales at the end of the year.

Our inventory is healthy. We have good control over it. We noticed that sales had a negative variation in the third quarter. We took actions upon that. So we had a variation of inventory in that sense, what maintained and prepared for the fourth quarter. So it's healthy, and we are prepared for the sales in 4Q '23. Next year, we're going to see a decline on that indicator that's planned. We have a strategy for it to reduce this indicator for next year. But today, we consider that it's okay as compared -- or when we think about the sales for 4Q. So these were our questions. We thank you all for your participation in our conference call. And we are available to answer any further questions. Thank you so much for your participation.

Veste S.A. webcast is closed. Thank you for your participation.