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

Good morning, everyone. Welcome to the results conference call regarding the fourth quarter 2023 of Veste S.A. Present with us are Mr. Alexandre Afrange, CEO of Veste; and Mrs. Elisa Lima, Investor Relations Officer. We inform everyone that the earnings release for the fourth quarter of 2023 is available for download on the website, www.veste.com in the Results Center session. Before we start the conference, I'll make a quick disclaimer. This webcast is being recorded and translated simultaneously. The slides are being presented on the webcast platform after the call. They will be made available on Veste's IR website. All questions might be asked via chat through this platform. [Operator Instructions] Any statements that may be made during this conference call regarding the business prospects of the company, projections and operating and financial goals are based on the beliefs and assumptions of management as well as information currently available to the company. Forward-looking statements are not a guarantee of performance as they involve risks, uncertainties and assumptions and refer to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the company's future results and lead to results that differ from those expressed in such forward-looking statements. Let us now present the results of Veste S.A.

Hello. Good morning. I am Alexandre Afrange, CEO of Veste S.A. Thank you for your presence this morning. I'm here in our company's showroom where we make sales to B2B customers. Here, we are the essence and the results of our work which continues to evolve in 2023. With the strength of our brands and a good capital structure, we have built the foundation for a new cycle of growth. We reached revenue of BRL 1.4 billion in the year surpassing 2022 by 4.6%. Same-store sales showed an increase of 10.4% in the year. In the fourth quarter, the increase was 6.8%, reaching 11 consecutive quarters of growth. We remain committed to selling at full price as the core of our business. And even with some tax changes that occur throughout the year, we achieved a gross margin of 65.7%, 3 percentage points more than in 2022. These gains were translated into greater profitability. The adjusted EBITDA grew 12%, resulting in BRL 224 million and BRL 400,000 with a margin of 20.2%, 1.4 percentage points above the year 2022. Adjusted net income was BRL 55.9 million in 2022 (sic) [ 2023 ], with an adjusted margin of 5%. It's a very important milestone for the company. After adjusting its debt level, which is currently at a healthy level of 0.8x the EBITDA. Achieving and maintaining the company's profitable and sustainable growth, our clear strategic actions are based on the following pillars: [ rescuing ] and updating the unique essence of each brand; focus on full price sales; management of the store base aiming at profitability; customer experience; valuing the team; and aligning around long-term objectives. Each brand and each channel is a different stage of maturity of these pillars. Hence, the difference performances throughout the year. We concluded with good results, the work to rescue the essence of the brands, Le Lis and Bo.Bô. It was a project that involved collection, purchasing, pricing, how clothes are displayed in the stores, communication and team composition. All these elements together were taken to the new architectural concept of the stores. We ended the year with 14 Le Lis operations and 4 Bo.Bô operations renovated. The results of the 2 brands in 2023 confirm the success of this strategy. Le Lis showed a sales growth of 12.8% compared to 2022, and an increase in same-store sales of 15%, while Bo.Bô gross revenue grew 24.4% with a notable increase in same-store sales of 27.6%. These brands have great growth potential based on the solid foundations created. Some of the next important steps in this trajectory are the continuity of the store conversion plan for the new costumes, investments in digital channel, acceleration of B2B and constant search for service excellence. We adopted Le Lis and Bo.Bô's best practices to Dudalina's evolution process, intensified in the end of 2022. The results in retail are clear. Same-store sales growth of 6.9% in 2023, driven by the implementation of new store concept already present in 11 operations. In B2B, there was an important increase in gross margin that contributed to a temporary reduction in sales in this channel, but which is essential for profitable and sustainable growth in the long term. We also faced challenging market conditions in the second half of the year. From 2024 onwards, we are focused on rolling out renovations, growing B2B channel, which is the brand's historical strength and starting to open franchises. At John John, we began the transformation process from the second half of '23. Like other brands, we are confident in stating that the adjustments being made will lead to promising results by the end of 2024. Each Veste brand has a unique identity and a clear positioning in our portfolio. Each Veste brand is a lifestyle. Since our origins decades ago, we have prioritized proximity to the customer and excellence in service. We were born for this. The customer returns to our stores to relive an experience that they really enjoy and will find again. With the support of a multidisciplinary customer experience committee, we take care of the brand's legacy every day, reaching an NPS of 82 in 2023. In physical stores, customer delight led to an NPS of 88. Customer expectations are one of the threads that guide us through our growth strategy. When it comes to sustainability, in '23, we intensified our social, environmental and governance commitments. It was a year in which we celebrated 15 years of Veste's IPO. We enforced our prominent position in the history and moment of National Fashion Retail. Le Lis completed 35 years of [indiscernible] flexible and resilient existence. I'm sure that committed to profitable and sustainable growth, we'll still celebrate many, many milestones like these over the next few years with our employees, customers, suppliers, shareholders, Board and society. I'm very grateful to the Veste team for all the work and enthusiasm that got us here. Elisa Lima, our Investor Relations Officer, will now carry out a more in-depth analysis of the figures I presented.

Good morning, everyone. As Alexandre said, I will share with you more details about the results of the fourth quarter of 2023 as well as the consolidated results for the year. Starting with revenue by channel. In the fourth quarter of '23, we focused on sales consistency with a focus on profitability. Our growth revenue amounted to BRL 358 million, a growth of 3% compared to the fourth quarter of '22. The composition of this performance, both in the quarter and the year is largely explained by the different stage of maturity in the implementation of our strategy. In B2C, which accounts for 80% of our sales, we already completed work on Le Lis, Bo.Bô and Dudalina. Revenue in this channel was BRL 284 million, growing 5.2% compared to the fourth quarter of 2022. Same-store sales was 6.8%. Excluding John John, same-store sales 10.6% in the quarter. In the B2B channel, as we've been saying since the last quarter, in addition to a difficult market, we focused on the profitability. Gross margin rose 5.6 percentage points, but revenue fell 16.2%. In outlets, we had a growth of 23.2%, maintaining a healthy margin. It's important to say that we did not change our strategy of selling at full price. This channel represented around 6.5% of our sales, practically the same level of last year. Looking now at the numbers for the year 2023. Gross revenue was BRL 1.4 billion, growing 4.6% compared to last year. The B2B channel fell 4.8% also due to the impact of the market, but also due to the adjustments we made to profitability. In B2C, we had growth of 7%, with same-store sales in 2 digits of 10.4%. Excluding the effect of John John, the same-store sales was 15%. Here, I would like to highlight the B2C digital, which grew 24.4% in the year, representing 14.9% of our sales. Digital sales, which include omnichannel, represented 22.4% of the company's sales. Full price sales continue to be our focus. Since last year, we've been working at a level that we believe is healthy for the company. In the fourth quarter, full price sales represented 90% of B2C sales. It was the same number as the fourth quarter of 2022. In 2023, full price sales accounted for 83%, a small increase compared to last year when they were 81%. Gross profit for the quarter was BRL 189.7 million, growing 1.5% compared to the fourth quarter of '22. Gross margin was very good 67.3%, the same adjusted gross margin as last year. Gross profit grew less than gross revenue, which had grown 3% due to the performance of net revenue, which was affected by a mix of -- and it was also affected by the increase in the year, the growth was BRL 729 million, 9.1% more compared to 2022. The gross margin was 65.7%, with a gain of 3 percentage points in gross margin. This gain is explained by 2 effects, effect -- channel effect, which was positive about 40 basis points and the increase in share in the B2C channel; and the margin effect, which was 260 basis points, which is explained by an improvement in the margin of sales mainly B2B in Dudalina, Individual brands. EBITDA in the quarter amounted to BRL 61.4 million, a growth of 1% compared to the fourth quarter of '22. The EBITDA margin was 21.8%, practically in line with the adjusted margin of the fourth quarter of last year. In the year, EBITDA was BRL 224 million, a growth of 12% with a margin gain of 1.4 percentage points. The gain in EBITDA margin explained by the increase in gross margin that offset the increase in SG&A and net operating revenue in the same period. This growth in expenses was mainly explained by marketing in accordance with our planning. We believe that it was important to invest in the strength of our brands and generate greater awareness in 2023, providing support for growth going forward. With this base already built, we now slowed down this group of expenses on 2024 onwards, reducing the share of sales. On the other hand, we had a very important reduction in occupancy costs. The accounting EBITDA for the fourth quarter of '22 as well as for the year '22, in addition to other points that were adjusted had a positive impact of more than BRL 230 million from that conversion. Therefore, it's important to remember that the accounting EBITDA of 2022 is not comparable to that of 2023. Adjusted net profit in the fourth quarter of '23 was BRL 19.6 million, with an adjusted net margin of 7%. For the year, it was BRL 55.9 million with a margin of 5%. As with EBITDA, it's worth remembering that the accounting profit for the fourth quarter of last year includes the impact of debt conversion. So it's not comparable with the accounting profit of 2023. Looking at debt and capital structure, we ended the year with a very healthy debt level of 0.8x considering financial debt and EBITDA ex IFRS 16. In conclusion, now with the investments we made during the year, I'll open up our CapEx. The main highlight was the investment of BRL 66 million in stores and operations during the year, of which BRL 57 million went to bringing new architectural concepts to our stores, very much in line with our strategy. There are already 44 stores in the new concept renovated from 2022. The performance of these stores has been very positive with a very good return. In Dudalina, for example, between August and December '23, renovated stores grew 4x more than nonrenovated stores. I invite you all to visit our operations and learn a little more about these new concepts. Thank you very much for everyone's attention and participation. 2023 was a year of evolution for us at Veste. We made progress in several important areas such as B2C, store renovation, profitability, and we built the foundations for a future of profitable and sustainable growth. Okay. Now we are at our office in São Paulo. I hope you had a good presentation, and we are available to answer any questions you may have.

[Operator Instructions]

Douglas, I believe that the merger of these two companies is good for our segment. It will bring a very positive look for this industry. And the -- there are several retail issues in the beginning of last year. So this industry was somewhat damaged by how people looked at it. And so I think this will highlight the industry and will be very good. The companies are competent. They would do a good job. I don't see a negative impact for us because we've been coexisting with the two companies already, each one within their industry. I don't see this as a negative impact on -- rather it's positive so that investors can look at this fashion industry in a more positive way. As for the B2B -- the second question is about B2B, what our plans and how it will grow in 2024. Yes, it can resume its growth. In 2024, we are executing the plan that was designed last year. So last year, there was a slight recovery in sales at the same time that we had a significant growth in the gross margin which was our strategy. In order to have a sustainable growth with profitability, we needed to correct or adjust the gross margin. Once this goal has been attained, now we can resume growth. Right now, we are in line with our plan for this year. So yes, we should see this channel becoming more significant.

Now there is a question from [ Umberto from La Barca ]. He asked for more detail about the financial results, even we still have a significant financial expense.

The capital restructure brought the levels of financial expenses to reasonable levels when we look at the financial statements in detail. Right here, we -- you have to remember that we carried the leasing agreement, which is accounted for here. We have a one-off impact of BRL 22 million of notice of inflection. And the rest is prepaid receivables is very well detailed in our financial statements.

Now there is a question from [ Walter from Kotta Investments ]. Asking about the franchises, how many do we have today? And what's the goal?

Today, we have 10 franchisees, and we'll start opening new franchises this year. We are now focusing mainly on Dudalina. With this test is a test for growth avenue. So throughout the year, we'll provide more detail about this. But what's important is that it won't make so much difference in terms of growth, but we're building a plan for long-term growth of Dudalina. And after this pilot with Dudalina, we can test on other brands.

A question from [ Pedro from W&T ]. He asked about inventory, saying that the average term for inventory has grown up, what are the reasons? And what's being done to improve the financial cycle of the company?

Okay, Pedro, inventory was our focus last year. We grew this account due to our projected growth. Our inventory level is healthy. And we have decreased it at year-end. And this is how it should be throughout this year with an expected reduction still. There is seasonality throughout the year. Of course, you have to grow inventory for Mother's Day and then Christmas sales in -- towards the end of the year, but we're highly focused on reducing inventory levels to free working capital.

Another question from Pedro was about Individual brand, what are our plans?

Our plans for this brand is to continue to focus sales in B2B. We won't have major investments throughout this year. There are 2 channels in which we distribute the goods, B2B for multi-brand stores and a website focused at full price sales.

Another question from [ Umberto from La Barca ]. To which we attribute the growth of digital sales even after the end of the pandemic?

This is an interesting question. Our focus on digital sales has always been at full price sales according to our strategy. Our strategy in our own stores, other channels and digital is focusing on full price sales. And digital is the same. So the same investment we made in brick-and-mortar stores, we continue to do in our digital channel. So with this omnichannel, the digital channel is very important. We can serve customers whenever they want, whatever they want to be, but focusing at full price. So this constant work on customer experience is also taking to digital channels. So the growth comes along.

Another question from [ Otavio Suzuki ]. He's congratulating us on the positive year in our presentation. And what has caused the year-over-year negative result of John John and Rosa Chá? And what are the actions to revert this? Well, regarding Rosa Chá, we no longer have brick-and-mortar stores or the website. This is a brand that is just present in the outlet. So that explains the reduction in sales. During the time we worked with this, we were rescuing the essence of our brands. We have prioritized some brands. And right now, Rosa Chá was not prioritized, which explained this result. I'll now give the floor back to Alexandre.

Thank you for the congratulations. [ Otavio ], we've been very dedicated to our work, and it's very good to reap the fruit of that. And myself and on behalf of my team, we thank you. John John was the last brand that we focused on to conduct all the transformation as we did for the other brands. So when you look at Le Lis and Bo.Bô, you have to understand that this process is complete. Of course, when we talk about retail, wholesale and clothes -- apparel sales in general, the process is complete for Le Lis and Bo.Bô, but it's a continuous process in terms of development. So these two brands are at that moment right now. With everything we set, change in prices, the pricing product, stores, et cetera, the same applies to Dudalina. We are now in the advanced process at Dudalina. So B2C of Dudalina shows important results. In B2B also when you look at gross margin and sales were slightly lower last year, but this year is going back to our target levels. So all these operations with the execution of this design to change price, product, qualification, training at store, allocation was made. At John John, we're doing the same. So this John John was the last brand in which we focused to conduct the same process. So based on the success we had in the other brands, we believe we'll have the same success with John John now. So during some months in 2024, we will have lower performance as it is expected. In the meantime, all the tasks are being implemented. We have changed the leader of the brand, leadership team. We have rebuilt the pyramid of products and prices, and this will show in the stores in mid-June. And this change in products and perception will be increased in September. So I believe that during the second half of this year, we'll be able to see all the results of the changes implemented in John John.

Thank you, Alexandre. We thank you all for attending and all the questions set. We remain available at the company to answer any other questions you may have. And we thank you all for participating. Thank you.

Veste S.A. webcast has now ended. Thank you for attending, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]