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

Good morning, everyone. Welcome to the earnings release conference call regarding the fourth quarter of 2024 for Veste S.A. Here with us are Mr. Alexandre Afrange, CEO of Veste and Mrs. Elisa Lima, Investor Relations Officer. We inform all participants that the earnings release of the fourth quarter of 2024 is available for reading in the IR website of Veste, www.veste.com in the Results Center section. Before we start the conference, I'll make a quick disclaimer. This webcast is being recorded and translated simultaneously. After the call, the presentations will be available on Veste's IR website. [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 on information currently available to the company. Forward-looking statements are not a guarantee 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. 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 -- before we start, I would like to maximize the display of the video to better watch the transmission. Let us now present the results of Veste S.A. [Presentation]

Good morning. I'm Alexandre Afrange, CEO of Veste S.A. It's a pleasure to have you with us this morning. Soon Elisa Lima, our IR Officer, will provide an in-depth analysis of the numbers. I'm here at the Dudalina showroom. And before addressing the fourth quarter 2024 results, I want to say that I'm very happy because we delivered on time each of the plans that were outlined for our brands and announced last year. They all had a very clear strategy. And in the fourth quarter, we started to see concrete results from that. The fourth quarter was a turning point in our year. Now let us look at the results. In this quarter, gross revenue grew -- growth reached 9.7%, and adjusted EBITDA was 12.8%. The channels and brands that were already on a positive trajectory, Le Lis and Dudalina in retail maintained this pace. With growth of 26.7% in B2B and same-store sales of 4% at John John, we resolved the main points that made the year more challenging. With this, we recorded adjusted net income of BRL 14 million and BRL 200,000 in the year of 2024. Gross revenue for the year grew by 2.1%. Even with a more moderate growth, we ensured the stability of our adjusted EBITDA at BRL 224.9 million and adjusted EBITDA margin of 20%, thanks to a very strict management of expenses. This reinforces our financial discipline and our ability to adapt to market challenges. Consolidated same-store sales for the year recorded a growth of 4.4%, highlight for the fourth quarter of '24 when we recorded an acceleration of this indicator, totaling 8% compared to the fourth quarter of '23. The positive indicator across our brands directly reflects the strength of our strategy and the improved sales dynamics during this period. Le Lis, our main brand, is doing very well in consolidating its position in the market. Look at sales growth figures. In the quarter 11.6%, in the year 7.8%, and the customer base grew 3.7%, reinforcing the brand's ability to attract customers. Once again, our planning based on 4 pillars became real, continuing to convert stores to their new concepts. We delivered 5 renovated stores, reaching a total of 19 stores. Renovations continue to boost higher growth in the 12 months following the reopening. Investing in the digital channel. Digital B2C had double-digit growth, accelerating B2B. In the last quarter, the wholesale grew more than 50% at Le Lis with innovations in its calendar and go-to-market. And finally, the constant search for excellence in service, which gave us an NPS of 83 this year. In addition to these pillars, in 2025, we'll focus on growing Le Lis' active customer base and will have Veste focus on innovations within the brand. We are 100% focused on the long-term growth of Le Lis, and we will also continue to invest heavily in Dudalina, which has proven to be the company's second largest brand. This makes us see that it has enormous potential. The brand's performance was positive with a growth of 4.8% in the year and 12.6% in the quarter. The growth levers announced for 2024 were rollout of renovations, growth of B2B channel and the start of franchise openings. We brought a new concept to 5 additional stores with a total of 16 stores that grew around 10 percentage points above the non-renovated stores. In wholesale, adjustment being made since last year led to growth of more than 20% in the fourth quarter. And what's more, we see a consistent growth trajectory in the coming quarters, taking into account the result of fall sales, which have already ended and winter sales, which are almost complete. In the franchise plans, we opened 3 at the end of 2024 and 3 more in February, having 10 franchise stores. We are following our plan to reach 30 franchises by the end of '26. Partners will build Dudalina future with us. At the release of 2023 results, I mentioned the adjustment we would make at John John, changing the team, changing product, changing price, allocating products and stores and also store architecture, whose results would start to show in the fourth quarter '24, and they did. Same-store sales was 4%, driven by digital channel. Wholesale sales will be invoiced in the first quarter, also showed positive growth. 2025 will be a year of stability, building the foundation for growth in the years to come. An important advance, which is part of the strategy of our brands, was the consolidation of our omnichannel operation. We are increasingly integrated, offering a fluid and consistent experience for our customers, whether in brick-and-mortar stores, online or wholesale. Digital B2C grew 18.7% in the quarter and 13.1% in the year and digital sales, which encompass all of our omnichannel tools grew around 30% in the quarter and in the year. Our house of brands Le Lis, Dudalina, John John, Bo.Bo and Individual has a clear path. We are focused on growing our customer base, providing these customers with a memorable experience with our brands, growing our wholesale and franchise channels and improving operational efficiency. Internal digital transformation will be a fundamental pillar to increase efficiency and further improve inventory management, earnings and cash generation. It's been 5 years since I returned to Veste. We have put our house in order, have a promising future ahead of us. We know clearly what needs to be done, and we are determined to continue delivering those results and transform this company always with profitable and sustainable results. None of this would have been possible without people's help. Everything here is done as a team. Our culture is our strength. And it is this committed people and focused people who deliver the results every day. Thank you. I want to thank our employees, suppliers, partners and investors. Thank you very much. Now Elisa will talk about the numbers. Elisa, please, the floor is yours.

Thank you, Alexandre. The fourth quarter results were very encouraging indeed. It ended the year in which we had movements of acceleration, deceleration, movements that were very well managed within our long-term plan. In this fourth quarter, we had growth across all channels. Gross revenue was BRL 392.9 million in the fourth quarter, an increase of 9.7% compared to the fourth quarter of the previous year. This result was driven by the strong increase in the B2B channel of 26.7%. B2C channel grew 6.2% in the quarter, with same-store sales of 8% positive across all brands. In Le Lis and Dudalina, the 2 biggest brands, same-store sales was 9.5%. The growth of brick-and-mortar stores was 3.5%, while digital B2C grew 18.7%. Performance in this quarter in the digital channels was driven by strong Christmas and Black Friday with efficient expense management and maintenance of profitability. The apps of Dudalina, John John and Individual already account for 24.5% of these brands' digital B2C sales in the quarter. The outlet channel grew 18.2%, accounting for 7.7% of sales in the year-to-date. We took some specific actions to dispose of old stock that occurred throughout the year without representing a medium-term growth trend. Selling at full price remains our focus at Veste. In the year, gross revenue was BRL 1.4 billion with growth of 2.1%, driven by B2C channel, which grew 3% with same-store sales of 4.4%. B2B in turn fell by 8.3%. Since the second half of 2023, we've made changes that have increased the profitability of the channel that caused a temporary reduction in sales. In the fourth quarter, we already saw these actions also leading to revenue growth and the sales we have already made since then, which will be invoiced in the first and second quarters remain consistently positive. The B2B channel is one of Veste's main avenues for growth. In outlets, growth in the year was 22.1%. It was a one-off growth during the year with some sales opportunities, but we see a slowdown from now on. Full price sales continue to be our main focus, so much so that they accounted for 88% of B2C sales in the quarter, in line with the fourth quarter of 2023. In the year, they reached 80%, an excellent healthy level. Continuing with results, adjusted gross profit was BRL 199 million in the quarter. The adjustment made in this quarter, as in the other quarters of the year, was to make the value comparable with the previous year after we adhere to the payroll tax assumption in 2024. Gross profit increased by 4.9% with an adjusted gross margin of 63.6%. There was a reduction in gross margin of 3.7 percentage points. The main explanation for this was higher sales on Black Friday and in the sales apps of our e-commerce websites, which reduces margins in the short term. On the other hand, in the medium term, this is positive because we sell with higher margins when compared to outlets in addition to improving our cash generation. Furthermore, the 2 percentage point increase in B2B's share of sales generated a negative mix effect on the margin. For the year, adjusted gross profit was BRL 715.9 million, and adjusted gross margin of 63.6%, a reduction of 2.1 percentage points compared to last year. In addition to the factors that influenced the quarter's margin, we had an impact of lower margins at John John due to the brand restructuring. Q4 adjusted EBITDA was BRL 69.2 million, a strong performance with 12.8% growth compared to Q4 '23. The adjusted EBITDA margin was 22.1%, a gain of 0.4 percentage points. One highlight was a 4.1 percentage point reduction in the expenses to net revenue ratio, which increased Veste's operational leverage. For the year, adjusted EBITDA was BRL 224.9 million with an adjusted margin of 20%, practically in line with the previous year. We generated profits in the quarter and in the year. Adjusted net income for the quarter was BRL 13.1 million, while for the year, it was BRL 14.2 million. Net margin for the quarter was 4.2% and 1.3% for the year. As part of our strategy of following a profitable and sustainable path, we remain at a healthy level of debt. Net debt stands at BRL 106.8 million, equivalent to 0.7x the accumulated adjusted EBITDA, a better rate than in the previous year. This year, the major movement carried out was the structural reduction of stocks, an important step towards reducing our financial cycle from now on. The recorded stock was BRL 249.1 million, a reduction of 16%, equivalent to BRL 47.3 million compared to the end of 2023. During this period, there was a decrease of 60 days of inventory. The main adjustment has already been made, but the process will continue on a smaller scale in the coming quarters. This movement in stocks is related to the priority given to cash generation in 2024. With this greater cash generation, we were able to reduce the balance of advances on receivables by BRL 66.9 million, both credit card advances and wholesale receivables assignment, which was 0 in December. This reduction in balances is the main explanation for the increase in accounts receivable that we saw in the balance sheet as there was no increase in the term granted to customers. If we adjust for this effect on accounts receivable, free cash flow ex IFRS 16, that is after paying all rents, was BRL 96 million in 2024, excellent news for our business. CapEx for technology, stores and operations was BRL 85.6 million in the year, 7.7% of net revenue. 56 stores, including new and renovated ones, already feature the new architectural concepts, a strategic pillar for Veste. In 2025, we will continue to invest in growth, in line with cash generation and new opportunities. In the fourth quarter, revenue, EBITDA, net profit and cash generation were the result of well-planned strategies executed within our expectations. We are very excited about the coming years of Veste with profitable and sustainable growth, goals that will be achieved with our financial discipline. I really appreciate everyone's attendance, and now we'll move on to the Q&A session.

[Operator Instructions]

I thank you all for attending. We have a question from [indiscernible]. He is asking what's the company's strategy to overcome the challenges of the industry with higher interest rates and internal, external competition.

Thank you, Elisa. Thank you for your question, [indiscernible]. It's an interesting question. Competition, I see competition always as a positive factor for our business. We've been in the market for more than 40 years, there's always been competition. And I understand that when you have a leading role as we do and there is competition, you also mean competition for other companies, and that's positive. It takes us forward. It's important to understand, pay attention to what's going on and always be a step ahead. As I said, we've been in the market for more than 40 years. So facing competition is something we're used to, or actually any company that's been in the market for so long is used to that. We'll continue to focus on our products, on an experience to our customers. As for the high interest rates, since we are in the market that's a bit more resilient and the gross margins are higher, these macroeconomic movements have a little effect on our business. Of course, when you look at the entire economy, it's much better when the economy is stronger, interest rates are lower and the economy is running smoother. But I wouldn't say that interest rates are an issue that affect us or may stop our growth. Well, I thank you all for attending the call, and I would like to say that we are very happy for delivering what we promised 1 year ago. We'll continue to follow our plans strictly to deliver ever better results. Thank you very much.

The webcast of Veste S.A. has 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.]