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

Good morning, everyone. Welcome to the conference of the results for the first quarter of '24 of Veste S.A. Mr. Alexandre Afrange, CEO of Veste; Mrs. Elisa Lima, Investor Relations Officer, are here with us today. We inform all participants that the earnings release for the first quarter of '24 is available for reading on Veste's IR website www.veste.com in the Results Center section. Before we start the conference, we make a quick disclaimer. This webcast is being recorded and transmitted simultaneously. After the end of the conference, presentations will be made available on the Veste IR website. All questions to be asked via chat through this platform. Feel free to submit questions throughout the broadcast. I clarify that any statements made during this webcast regarding the company's business prospects, projections and operational and financial goals -- right of the Executive Board as well as information currently available to the company. Future considerations are not a guarantee of performance and invoice risks, uncertainties and assumptions as they refer to future events and therefore and in circumstances that may or not occur leading to results that differ materially for those future considerations. We will now move on to the results of Veste S.A.

Hello, good morning. I am Alexandre Afrange, CEO of Veste. It's a pleasure to have you here with us this morning. First of all, before moving on to the results, I would like to say that we are deeply sorry and solidary for those who are facing this challenge. All of our employees are joining us in supporting. We've provided medical and financial support and also in the Board, we approved the release of a financial loan to those who had lost everything. We've also donated drinking water and mattresses to the state, and we are also trying to donate some clothing items. So we believe that our strategy will lead to the company's success. The first quarter of '24 was a very challenging one with a lot of control. We were able to reach a breakeven of our operation, Le Lis, Bo.Bô and Dudalina, all the results upwards into sustainable results and sustainability to the business. John John and the B2B channel were responsible for decreasing our results for this quarter, the positive and negative aspects will be seen in the video that we're sharing with you now. BRL 312.6 million were our gross of revenue for '24, 2.7% below last year's. The adjusted gross margin was 62.9%, a small decrease of 1.1 percentage points when compared to last year. Our adjusted EBITDA was BRL 44.4 million, a decrease of 6.8% year-over-year. This nonlinear growth is expected in our growth pathway. The architecture of our accounts is responsible for our strategy. And now we have over 40 physical stores, Le Lis, Dudalina and Bo.Bô were remodeled in '23 and had an excellent growth of 10 percentage points when compared to the stores, which were not remodeled. John John right now is going through a deep transformation period. We have prepared a new manifest for the brand, which totally redefined its positioning. We've also made changes in style, and this will be available in the store in the fourth quarter. We developed a new architecture project with a renew concept collection aligned to the manifest and this is going to take place in Goiânia at the Flamboyant Mall. It requires resilience and results are seeing in the mid and long-term. And therefore, right now, John John is responsible for the main decrease in our revenues. When the brand is under pressure, this is a channel with the last opportunity for adjustments in B2B. But in B2C, we can adjust collections, exhibits, Dudalina individual also had a lower B2B revenue because of a challenging market and also because the adjustments carried out to increase the profitability in the long run have not been absorbed by clients. The B2B share, especially for Dudalina, remains one of our most important growth leverages. And this will take place as the brand is strengthened with excellent effects in the retail and also in wholesale. We have an organizational structure, which is dedicated to B2B. We would like our partners to be part of the results we can see in retail and the 3 brands that has been confirmed that the new architecture concept was a fundamental aspect to leverage the revenue in these stores. We -- last quarter, we had the 12th quarter with growth. If we remove John John effects, this was even greater in Dudalina, this was 10.9%, the positive trend. Remodeled stores in '23 grew almost twofold when compared to the operations, which were not remodeled. EBITDA grew over 15 percentage points. In Le Lis, the stores that were remodeled had a 15 percentage point growth when compared to those who have not. The SSS was positive 4.8%. Full price sales grew 9%. However, the same-store sales of Bo.Bô was 14.1%. The collections are extraordinary. I now turn over to Elisa Lima, our DRI, and she will give you a more in-depth idea of our numbers.

Alexandre shared with you our strategy, and we will now talk about the next -- or the last quarter results. We had a reduction of 2.7% when compared to last year in the revenue. This was triggered by the B2B channel as explored by Alexandre. The B2C channel grew to 2.4%. I would like to call your attention to some important highlights. Without John John, this growth was 2.3%. And as Alexandre also mentioned, John John is going through a transition period, and it's important for us to monitor the results of these brands. Same-store sales was 3.2% and 6.9% without John John. B2C grew 9.8%. We continue increasing our digital share so that we can attract younger clients in the hybrid journey. Our channel represents -- our B2B channel represents 2.3% of our sales. We continue focusing on full price sales, and our full price sales were 9% of B2C, very similar to -- 69%, I'm sorry, very similar to last year. The adjusted gross profit of Veste was BRL 158.2 million. The main explanation is a decrease of 5.2% of the adjusted net revenue. It was more impacted than the gross revenue because of an increase in the deductions on the gross revenue. A lower participation of B2B is responsible for this. Furthermore, we also had an increase in the ICMS. In 6 states, we were able to offset this effect, but it affects our difference between gross and net revenue. The adjusted margin was 62.8%, a variation of 1.2% in the period, and John John was responsible for it. Once again, it's a temporary effect. Our commitment is with full prices. Now looking at the profitability, our adjusted EBITDA was BRL 44.4 million with a margin of 17.7%, basically aligned with last year. EBITDA decrease was 6.7%. And it's very important to mention here that we were able to keep our margin by controlling fixed expenses and also with marketing. Throughout '23, we made extraordinary marketing investments to prepare the brands for a new growth cycle. We understand that this basis was created. And in '24, we go back to a level -- to a normalized and recurring marketing level. Once again, the adjusted net profit was BRL 0.4 million. In terms of our debt, we remain sustainable in line with prior quarters. And to conclude, I'm going to open our CapEx for the quarter. We had BRL 24.5 million invested in technology. We continue focusing on implementation of new architecture products in the stores, as Alexandre showed us, this level is going to be a little bit lower than what we saw in '23, but it will be accelerated in the next quarters. I thank you all for your attention. And now I turn over to Alexandre.

Well, now that we've shared our numbers with you. I would like to move on to the Q&A. We will now start the Q&A session. In case you have any questions, please write in the Q&A icon.

[Operator Instructions] I would like to start with Pedro's question. He asked us about the sales expense costs, what our expectation is for the rest of the year, and we're going to keep this share of our revenue.

For the rest of the year, we expect something very similar to what we've already seen this quarter, which is reduce or maintain this percentage when compared to our revenue. But that has to do with the control of our marketing expenses. When we look at the gross margin and look at the rest of the year, we do not see a lot of differences when compared to last year. Our first quarter had a lower gross margin than the other ones because it is a quarter where we have sales in the beginning of the year, and that ends up driving the gross margin down. But it does not have a significant effect in our businesses.

Furthermore, -- we have another question by Francisco Burke from EY. He asked us to focus a little bit more on CapEx for '24 and whether we are going to continue our store remodeling.

Well, I thank you for the question. We are going to continue focusing on remodeling our stores. We will reduce expenses a little bit when compared to last year because last year, we had increased our capital, but we continue focusing on that because we've seen very good results, driven by this strategy. This year, we have inaugurated 3 Dudalina stores with new concepts, and the results have been excellent. We had a problem with a camera, but we are going to swap here.