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

Good morning. Welcome to the conference call for Veste S.A.'s results for the second quarter 2024. Today, we have Mr. Alexandre Afrange, CEO of Veste; and Ms. Elisa Lima; Director of Investor Relations with us today. We'd like to let all participants know that the earnings release for the second quarter of 2024 is available to read on Veste's IR website, www.veste.com, in the Results Center section. Before we start the conference, a quick disclaimer. This webcast is being recorded and translated simultaneously. Following the conference, the presentations will be made available on Veste's IR website. [Operator Instructions] We'd like to clarify that any statements that may be made during this webcast during the company's business -- regarding the company's business outlook, projections, our operational and financial targets, constitute assumptions made by management as well as information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions and they 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 these forward-looking statements. And finally, before we begin, we'd like everyone to zoom out and maximize the video display to better view the entire webcast. We'll now move on to a presentation on Veste S.A's results.

Good morning, and thank you for being with us this morning. I am Alexandre Afrange, CEO of Veste S.A. I'm here at the Bo.Bô store on Oscar Freire to talk about the results from the second quarter. Highlights from this quarter include consolidated brands, Le Lis, Bo.Bô and Dudalina, which together had same-store sales of 8.2% in B2C with the digital channel growing by 17%. We had a growth in adjusted EBITDA, and adjusted net profit generation NPS was 83, excellence. We, therefore, are working within expectations, and I'd like to point out that we have achieved these results by overcoming some very significant outside factors. Early in May, we were all very moved by the tragedy in Rio Grande do Sul, and our absolute priority was to serve our employees and people in general, the customers and the community. The measurable effect of the closure of these stores was 0.5% on sales, and the hardest hit was Dudalina. In addition, high temperatures were recorded in May. This exceptionally impacted our sales of winter products. We compensated for the loss in winter sales with a much more assertive mix of collections, which shows our successful strategy to adapt to adverse weather conditions. Internally at John John and Individual, we are still working in a few different areas. And this has had negative impacts on our results as predicted, but I'll talk about that in a second. Let's go to the numbers. Gross sales, BRL 371.9 million, up 3.3%. If we were to remove John John from that calculation, growth is 6.1%. Same-store sales was up 5.3%. If we remove John John same-store sales were up 8.2%. B2C is not one of expansion, so all movement comes exclusively from renovation and efficiency gains in the stores and operation. Gross profit, BRL 190.6 million, down 2.3%. This was caused by an increase in deductions from gross revenue and a reduction in gross margin. Elisa Lima, the Director of Investor Relations at Veste, will go into this in detail later. But the important thing is to point out that adjusted gross margin of 65% in the quarter is within plan and in line what we see as healthy for the business in the long term. I'd reinforce that selling at full price is the heart of our strategy. Adjusted EBITDA of BRL 67.2 million with a growth of 2.9% and a 0.3 percentage point gain in margin. Adjusted net profit, BRL 10.7 million. In addition to these financial indicators, note the performance of our digital channel, which grew 17% on top of growth of 42.2% in 2023 over 2022. The channel share of total sales was a steady 17%. Digital sales, which include omnichannel tools, the outlet website and B2B digital sales, were also excellent. Growth was posted at 20.9%, reaching 26% share of total turnover. These results are the results of investments and efficient management made in the channel. Our aim is for customers to have the same experience in e-commerce as they do in store. Second stage, we will be going through the highlights of each of these brands. Le Lis grew by 8.8% in the quarter with same-store sales of 8.9%. It was its second best quarter for B2C sales in its history and the best Mother's Day, Saturday sales on the channel, historic results that reflect the results of the brand strategy and shows there's plenty of room to grow. Dudalina posted growth of 8.3% with same-store sales of 5.7%. We have the right products in the right stores and stores are being renovated. In early June, we reopened the shopping center in [ Campo area ]. With a new concept store at the location, operations grew 28% in the quarter compared to 2023. We also brought this current concept to the Flamboyant Shopping Center in Goiânia and opened a new store in Campo Grande. With the brand's foundation strengthens, we decided to focus more on brand awareness. The Mother's Day campaign with Giovanna Antonelli, who already has a history with Dudalina, increased engagement on social media, 546% higher compared to the same period last year. We're now working with Murilo Benício for the Father's Day campaign, and this has been very successful. Brand growth has started to increase at the retail level and has reverberated to wholesale. We're starting to see this effect for summer sales, which are happening now and will be billed in the fourth quarter. First 5 weeks of sales, we had 31% growth compared to the same period last year: gains in garments, number of customers served, same-customer sales and average order -- average ticket. At John John, we took very important steps to change the plan to build up the brand and we'll be opening the first store in the Flamboyant Shopping mall in Goiânia, 100% in line with the rebranding. The project was incredible, and we hope to move back on these shrinking sales. We see all these transformation brands, and we're starting to see very good signs. Number of products sold to same customers increased 5.8%. Individual shrank by 36.9% in the quarter, negatively affecting the company's performance in the B2B channel. Please bear in mind that over last year, we made some major adjustments in this channel to increase profitability of the different -- of the 2 brands, Individual and Dudalina, projecting long-term profitable growth. Individual is still going through this transition of the price pyramid and will soon be growing again. Sales for the summer collection and the sales in the fourth quarter, we had better performance so far with growth in sales and the number of garments, which is good. And Bo.Bô has kept its growth trajectory with same-store sales of 7.8% compared to second quarter 2023, when the indicator was 37.9%. We're growing, and our base is very strong. I'd like to take this opportunity to talk about something that's also very important for Veste, which is sustainability. In June, we published our third sustainability report, where we reinforced our environmental objectives and we disclosed our social and governance goals. Since 2022, we've been the only signatories in Latin America to The Fashion Pact, the main global initiative by CEOs to boost sustainability in the fashion industry. We have medium- and long-term goals on the following fronts: climate, biodiversity and oceans. By 2025, we will submit emissions reduction targets to the Science Based Targets initiative. In the social sphere, our goal is to achieve a composition of at least 30% people of color and indigenous people at Veste's leadership by 2025 and 40% by 2030. We're at 26% right now. We're also committed to keeping the level already achieved for at least 50% of the company's top leadership consisting of women. Just to support what we're -- our high level of governance, our goal is to be part of the B3 Corporate Sustainability Index portfolio by 2030. These commitments reinforce our strategy, were driven by long-term profitability and sustainable growth, and for this, sustainability in the ecosystem is extremely important. Veste's brands have been here for decades, and we would like them to be here for many, many more. And now from here at our headquarters, I'd like to hand it over to Elisa Lima, who will go into the numbers.

Thank you, Alexandre. I'm going to be talking about our second quarter results. Starting with billing. Gross revenue was BRL 371.9 million, that's up 3.3%. These results were largely driven by the B2C channel, which grew by 3.7%, as Alexandre already explained. An important highlight is B2C digital, which grew 17%, and it's important to remember that this digital growth always comes with a focus on positive profitability. Outlets channel grew by 7.3% in the second quarter. This level of between 5% and 7% is what we see as normal in our operations, and we will continue to focus on selling at full price. The B2B channel saw a 3.9% drop in sales in this quarter, primarily caused by Individual. As Alexandre shared with us earlier, we've already seen some good signs for summer sales that are taking place right now and will be billed in the fourth quarter. Looking now at our full-price sales, which represents -- accounted for 79% for B2C in the second quarter of 2024, which is excellent and very healthy, a little bit lower than last year, which was 84%. This was because there was a bit higher level of liquidation. Clearances. Clearance sales was a lot bigger at John John because at the time of the transition it was going through, and we made some adjustments to stock. These liquidations also happened at Le Lis. There was a stock-adjusted profit at markdown that was lower than last year, but no major discounts. But demand was higher, leading to greater utilization. If we look at gross profit and adjusted gross profit, BRL 190.6 million. Adjustments in the quarter as well in the first quarter left the numbers comparable to the last year after adherence to CPRB, which was in 2024. Adjusted gross profit fell by 2.3%, which was driven by two main factors. Firstly, an increase in deductions from gross revenue, which led to a slightly lower net growth revenue of 1.7%. This was caused by two main factors: lower share of B2B, which generates higher tax rate and also fewer tax benefits; and also an increase in CMS (sic) [ ICMS ] rate in 16 states. We managed to offset a good part of this effect, but it still affects the difference between our gross revenue and our net revenue. The first factor that explains this reduction is adjusted gross profit, that was lower -- was a lower adjusted gross margin, which fell by 2.7 percentage points to 65%, which is a very good margin and in line with our plans. As I explained with full-price sales, higher clearance sales was the main reason for reduction in gross margin. As a result, the margin effect was negative by 266 basis points. We had a positive channel effect of 30 basis points, driven by a greater share of B2C and a negative mix effect of 40 basis points. If we look now at our EBITDA, we had adjusted EBITDA of BRL 67.2 million in the quarter and adjusted EBITDA margin of 2.9%, which is slightly higher than last year. EBITDA growth was 2.9%. By reducing expenses with the reduction of the net revenue on 3 percentage points compared to the second quarter of 2023, we were able to more than offset the reduction in gross profit. We control expenses in general, but especially in marketing, which is in line with the first quarter. We worked with a lower level of net revenue than in 2023, which is when we made an extraordinary investment to regain brand strength. In adjusted net income, we had a result of BRL 10.7 million. This is an adjusted net margin of 3.6%, and that reinforces Veste's ability to generate profit with adequate capital structure. In line with previous quarters, debt remains at a sustainable level of 0.8x adjusted EBITDA. Another very important issue this quarter were our stocks inventories. We are planning to reduce stock, reduce inventory, and we saw important gains in this regard, reduction compared to second quarter 2023, fourth quarter '23 and also the first quarter '24, and will continue over the next quarter -- the next few quarters. Just to conclude, just a little bit about investments in this quarter. We invested BRL 20.6 million in CapEx, in technology and in stores and operations. Our focus continues to be on implementing the new concepts in stores with excellent results. In this past quarter, we had 5 deliveries for new concept stores: Le Lis at Pátio Savassi in Belo Horizonte; Dudalina in Ibirapuera shopping mall; Dudalina in Flamboyant Shopping Mall in Goiânia; and Dudalina in the Campo Grande store as well as in the outlet premium. Number of stores refurbished this quarter was lower than in 2023, but again, there was a capital increase last year that was made precisely with the aim of making this investment viable. When we look forward to the rest of the year, we'll continue with these new concepts in the stores based on the excellent results that we've seen for our operations thus far. Thank you very much. We'd now like to invite everyone here to send in their questions.

[Operator Instructions] Pedro has a question from [ WET ], and you're asking for reduction of costs and expenses.

What we plan to do this year is to keep our gross margin roughly where it is, a few changes, but nothing very significant. And in terms of expenses, we've been working on reducing expenses as part of our reorganization, administration reorganization efforts. And we've actually been doing this for the past few years. So we're going to continue focusing on austerity moving forward. There's always room to improve, and that's what we're going to be doing.

Just adding to what Alexandre said. As revenue has grown, we've been able to control expenses even more. We want to grow with our excellent structure. And our current growth is based on our stores as they are. So we're going to -- basically, we're going to be focusing on becoming increasingly more efficient. We see that there are no other -- no further questions. Thank you very much for being here today. And we are very pleased with what we're doing here at the company. Veste has been quite successful in the path that we've been treading, and we're very excited about the growth moving forward. Thank you very much, and we look forward to seeing you next quarter.

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