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

Good morning, ladies and gentlemen. Welcome to the earnings conference call of Veste S.A's for Quarter Three 2024. Today, we have with us Mr. Alexandre Afrange, CEO of the company; and Ms. Elisa Lima, Investor Relations Director. We would like to inform that the earnings release of quarter three 2024 is available to be accessed at Veste's IR website, www.veste.com in the section Results Center. Before we start, a quick disclaimer. This webcast is being recorded and simultaneously translated. After the conference, the presentations will be available on Veste's IR website. [Operator Instructions] Let me mention that any forward-looking statements that may be made during this webcast relative to the company's business prospects, projections and operating and financial targets are based on the company's assumptions as well as information currently available to the company. These forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions, and they refer to future events and may, 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 future results of the company and lead to results that differ materially from those expressed in such forward-looking statements. Before we start, let me ask you to maximize the display of this video for better performance. Now let's listen to Veste's results presentation.

Hello. My name is Alexandre Afrange. I'm CEO of Veste. I'm here at Bo.Bô in Oscar Freire to share with you the results for quarter 3 2024. Our company has been managed with an intense focus on profitable and sustainable growth while also looking very carefully at our expenses. And our growth avenues have been the implementation of new architectural concept in our physical stores, the update of our digital channel, the complete reformulation of our B2B channel and a total transformation at John John. The first 2, both in terms of the store architecture and our digital channel have already brought remarkable results. This is the 14th consecutive quarter of growth in our same-store sales. And our digital channel in the first 9 months of the year grew by 11.3% on top of a very strong basis of almost 32% growth last year. As for the B2B channel and John John, so far, we've been working on the fundamentals that will allow us to pick up again from the fourth quarter onwards. In B2B, we made a profitability adjustment at the end of last year, which, while on the one hand, temporarily affected our sales, on the other hand, it is ensuring a healthy profitability for the channel in the long term. This year, we created a B2B vertical, which brought the evolution of this channel to the center of our management's attention. We reformulated investor relations with sales representatives and incorporated the channel's feedback into collections and pricing. All of this has been underway in recent months, which is why the channel has so far had a negative influence on the Q3 result, which was down 16.5% and the accumulated drop was 15.8% but in the fourth quarter, when we invoice the summer '25 collection of the brands that we work on demand, we will see the results of many of these actions with the channel significantly growing. At John John, the transformation went far beyond rebranding because we focus on the fundamentals of the brand. We started with management, styling, pricing, calendar, store transformation, in-store service and marketing. So far, we've been through a tough and difficult time at John John but it was necessary to make adjustments. We closed down 10 stores, turnover fell by 29% this quarter and the year-to-date figure is down 25%. As of October, as we planned and announced, we see important signs of stabilization, both in retail and wholesale, which will contribute to the Q4 result. The products in our stores are focused on jeans wear and were created to broaden the range of occasions for use. They indicate where the brand's new proposal is heading. The store where we implemented the new architectural concept at Flamboyant shopping in Goiânia confirms this expectation. Sales were up 31% from the opening to the end of October. We have the year 2025 to consolidate the resumption of John John's growth. The performance of John John in the B2B channel explained the 2.7% drop in Veste's turnover in the third quarter of 2024, which was BRL 329.2 million. Let's now turn to the other factors that influenced Veste's results this quarter. Same-store sales were up 1.9% in the quarter and 3.5% year-to-date. When we consider only the brands, Le Lis, Dudalina and Bo.Bô, this indicator rises to 4.5% in the quarter and 6.4% year-to-date. Here, we must talk about Le Lis. The brand grew by 5.6% with same-store sales of 6.8% despite some supply problems that affected its performance. With a good sense of urgency, agility and in-depth knowledge of the brand and its customers, the team was able to reorganize incoming orders and minimize the impact of product shortages. The store remained beautiful, attractive and well stocked, and the use of the collection in this quarter was higher than planned for this period, indicating that with the right offer, we would have an even higher sales potential. And Le Lis customer base grew by 4%, which is very positive for the brand. At Bo.Bô, we also had supply problems both nationally and internationally with difficulties in the delivery of goods to the port. As the brand has a smaller mix, this problem affects Bo.Bô more, and this explains the performance in the quarter with a 1.6% decrease in turnover. The good news is that whatever was in our stores sold well. Utilization was 10 percentage points higher than expected for the quarter. At Dudalina, we saw a reduction of 1.3%, mainly driven by the B2B channel, which was still undergoing adjustments, as I said earlier. In the B2C channel, same-store sales was 0.6%. For renovated stores, this indicator was 5%, reinforcing the importance of implementing new concepts for the brand's growth. Another important move by Dudalina is expanding through franchises. By the end of the year, there will be 7 new franchise stores. We spent the last 2 years restructuring and investing in multiple ways, also with a view to become one of the best fashion franchisers in Brazil. And finally, at Individual, we still see a 23% reduction in our sales. This brand is 100% B2B and will greatly benefit from the changes that we are making to the channel. When we look at the other lines, we had adjusted gross profit of BRL 168.1 million in the quarter, down 3.5% year-over-year. The adjusted gross margin was 62.7%, down 0.7% year-over-year. The adjusted EBITDA for the third quarter was BRL 44 million, down 12.1% year-over-year, and this is explained mainly by the variation in revenue since adjusted expenses, excluding depreciation, were down 0.2% year-over-year. These are the figures for quarter three 2024 with positive points and some challenges that are being overcome and managed really well. Now I'd like to hand the conference over to Elisa Lima, our Investor Relations Director, who will go into the figures in more details.

Thank you, Alexandre. Good morning, everyone. Now I'm going to give you a little more details on the results for the quarter. Gross revenue was BRL 329.2 million, down 2.7% year-over-year. This result was largely explained by the B2B channel, which was down 16.5%, like you heard from Alexandre in details. The channel's Q4 results are already showing improvement and the full 2025 sales, which are happening right now are also showing good signs. The B2C channel was down 1.1%. The main element here was our physical stores with a drop of 3.3%. And here, the main explanation was John John with 10 stores fewer than last year. One highlight was digital B2C, which grew by 6.8%. It's always worth noting that digital growth for us is always focused on good profitability with a margin gain of 2.5 percentage points posted for the channel. This quarter, we launched the digital apps for Dudalina and Individual and the John John app, which has been live since the end of last year, showing very good results. At John John, the app accounted for 21.5% of online sales in September. The outlets channel grew by 27.5%. In the year-to-date, this channel has accounted for 7.5% of our sales. In quarter 3, we saw a significant growth due to some one-off actions to get rid of old stocks. This does not reflect the continuous growth of the channel. Our focus continues to be on selling at full price. Speaking of which wholesale prices -- full price sales represented 85% of the B2C channel sales in this quarter, a very good and healthy level in line with the previous year. Moving on, adjusted gross profit for the quarter was BRL 168.1 million. The adjustments made in this quarter as in previous quarters was to make the figure comparable with that of previous years after the adherence to the payroll tax exemption in 2025. The drop in gross profit was 3.5%, and the main factor here was lower sales. The adjusted gross margin was 62.7%, down 0.7 percentage points year-over-year. And the main explanation was the growth of the outlet channel with the one-off sale of old stocks. As a result, the margin effect was negative by 66 basis points and the channel effect in the period was very small, 10 bps with the B2C channel being the company's main sales channel. On the next chart, we see our adjusted EBITDA of BRL 44 million, down 12.1% year-over-year. The adjusted EBITDA margin was 16.4%, down 1.8 percentage points. This result is due to the reduction in sales since expenses remained stable compared to the third quarter last year. As a result of these dynamics in the quarter, we had an adjusted net loss of BRL 10 million. Seasonally, the first and third quarters of the year have the lowest profitability. In the next quarter, quarter 4, quarter 4 is the most important of the year for us. In terms of our debt, we remain at a healthy level in line with previous quarters at 0.8x the adjusted EBITDA. On the next slide, you can see that we have good news on inventories. We continue with our reduction plan. And in quarter 3, we had a reduction of 10.5% or BRL 34 million year-over-year, and BRL 8 million compared to December last year. When we look at our investments, we had a CapEx of BRL 22.2 million for technology and stores and operations. Our focus continues to be on implementing the new concepts in our stores with excellent results. The renovated Le Lis, Dudalina and Bo.Bô stores had a significantly higher revenue and EBITDA compared to the non-renovated stores in the quarter, even those that were renovated a longer time ago in 2022. In quarter 3, 4 stores were delivered with the new concepts. At Le Lis, we had Flamboyant shopping in Goiânia and a new store at Manauara shopping in Manaus. At John John, as Alexandre said earlier, we also reopened the John John store at Flamboyant Shopping in Goiânia and Bo.Bô had its store renovated at Shopping Iguatemi Campinas. These investments, together with all the initiatives that you heard from Alexandre earlier are fundamental to guaranteeing Veste's profitable and sustainable growth. Thank you all very much for attending. And now I give the floor back to Alexandre.

Thank you, Elisa. Now we're back at our office in São Paulo, and we're ready to take your questions.

[Operator Instructions] Our first question is from Pedro [indiscernible]. He's asking us to talk about our plan for new openings and renovations in 2025.

Thank you, Pedro, for your question. Our plan is still underway. We're still developing it for next year. We don't have the exact numbers but you should see a path similar to what we had in 2024. We believe these renovations are very important for our growth, for our profitable and sustainable growth. So you should see similar plans for 2025 as we had in 2024. I can give you more details later in our next calls. We have been seeing excellent results, and we plan to maintain this path in the next coming years.

We also have a question from [ Thina ]. She's talking about suppliers, the impact of suppliers and the numbers that we presented and what is their role for the company?

Thank you, [ Thina, ] for your question. Our suppliers are vital for the company. We call it an umbilical relationship. They have always worked really closely with us, and we work closely with them as well. Recently, we had a meeting with our suppliers in our office in São Paulo, where we showed precisely that the importance -- the important role they have in our business and how we depend on them to be able to keep growing. It's a relationship that is a healthy one and has been really healthy, and we plan to continue keeping it healthy in the future. We had some trouble, some turbulence in the start of this quarter regarding some deliveries, deliveries for Le Lis and Bo.Bô, as I explained in my video. For Le Lis, we were able to reorganize because it is a larger collection, and we also have more agility because we don't have an order base B2B. So we were able to organize our business in a streamlined way. So this decreased the impact of the shortage of some products we had on our sales. But in Bo.Bô, we had a greater impact because it is a smaller collection. So any delays on deliveries from our suppliers will cause turbulence. But overall, everything is progressing well. We have reorganized in order to minimize these impacts starting next year, this dependency that we have on our suppliers. And now it will be much more related with the need to expand our supplier base. So we need to expand our supplier base but this has been addressed. And next year, we will not see the same level of impact that we saw in quarter 3 this year.

Thank you, Alexandre. Since we have no further questions, I would like to thank you all for your time. And now I'll hand the conference back to Alexandre for his final remarks.

Thank you, Elisa. Thank you all for your time and your interest in our company, and we are always here available if you have any questions in the future. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]