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

Good morning, everyone. Welcome to Veste S.A.'s First Quarter 2025 Earnings Conference. Joining us today are Mr. Alexandre Afrange, CEO of Veste; and Ms. Elisa Lima, Head of Investor Relations. Would like to inform all participants that the first quarter 2025 earnings release is available on Veste Investor Relations website at www.veste.com under the Results Center section. Before we begin the conference, I'd like to read a brief disclaimer. This conference is being recorded and is available with simultaneous interpretation. Following the conclusion of the conference, the presentation will be available on Veste's Investor Relations website. [Operator Instructions] I'd like to clarify that any statements made during this webcast regarding the company's business outlook, projections and operational or financial targets are based on management's assumptions and on information currently available to the company. Forward-looking statements are not guarantees of future performance as they involve risks, uncertainties and assumptions related to future events that may or may not occur. Investors should be aware that general economic conditions and industry trends and other operational factors may affect the company's future results and cause actual outcomes to differ from those expressed in forward-looking statements. Let's now begin the presentation of Veste S.A.'s results.

Good morning. We're pleased to have you with us this morning. I'm Alexandre Afrange, CEO of Veste S.A. And I'll be sharing the main highlights of our Q1 2025 performance. Next, Elisa Lima, our Head of Investor Relations and Financial Planning, will walk you through the numbers in more detail. If we had to sum up our first quarter of the year, it's one word, it would be consistency. At Veste, we delivered strong performance in the B2B channel with growth above the market average. Le Lis also performed well across all channels, and at John John, as planned, we delivered B2B growth and maintained stable same-store sales. In the quarter, gross revenue grew 4%, and same-store sales were up 4.3%. Adjusted gross profit rose 6.8% with an adjusted gross margin of 62.9%, stable year-over-year. Expenses remained under control, resulting in adjusted EBITDA of BRL 46.8 million, up 5.3% year-over-year. We delivered particularly strong results in the B2B channel, which grew 12%, driven by both multi-brand and franchise operations and in digital B2C, which grew 17.4%. These results reflect our investment in our multichannel business model. We want to be where our customers are with a seamless experience. This strategy extends across all our brands. Le Lis, our flagship brand, continues to perform well and further strengthens its position in the market. Revenue grew 6.8% in the quarter. Same-store sales up 6.9% and a 3.2% increase in our customer base, reaffirming the brand's strong appeal. As announced in Q4, expanding the Le Lis customer base is one of our main goals for the year. Dudalina grew 7.8% and was the brand that contributed the most of B2B growth in the quarter, reinforcing strength in the channel. We made solid progress on our franchise expansion, opening 3 new stores in Q1, in line with our plan. We now have 10 franchises under the new operating model, and our goal remains to reach 30 next year. In Dudalina's B2C channel, same-store sales reached 1.3%. We made a strategic push to grow full price sales and saw results. Sales were up 11%. On the other hand, markdown sales fell 10%. The repositioning strategy we outlined for John John continues to prove effective in the first quarter. Same-store sales were stable, and the B2B channel posted significant growth. The 2.2% drop in the brand's consolidated revenue is due to the closure of 6 stores throughout 2024. At Bo.Bô, we took action to address supply challenges impacting key higher-priced product lines. Following the mapping and reinforcement of our supply chain, we expanded other lines within our collections. These initiatives resulted in stable sales, while brand desirability remains strong with an 8.7% increase in our customer base. Finally, at Individual, fall/winter sales built throughout the first half of the year grew versus last year. Due to calendar effects, first quarter revenue rose just 0.8% year-over-year. We expect stronger growth in Q2 across all our brands. And at Veste as a whole, our focus remains on building profitable and sustainable growth. To achieve this, we have 5 goals: grow our active customer base; further enhance the customer experience across channels in a seamless and memorable way; transform and accelerate the B2B channel, both multi-brand and franchise; improve operational efficiency, supply chain management by optimizing purchasing; and reducing inventory to drive stronger cash generation; and strengthen our technology infrastructure to support strategic growth. For each objective, we have a dedicated cross-functional team focused on delivering these key results. This profitable and sustainable growth is only possible by working hand-in-hand with our ecosystem. On April 29, we released our 2024 annual report highlighting the year's results, progress and challenges with a special emphasis on developments in environmental, social and governance matters. We reaffirmed the commitments made last year. On the environmental front, our goals for 2025 are as follows: submit our carbon reduction targets to the science-based targets initiative; source at least 25% of our raw materials from lower impact origins up to 18% in 2024; and transition the plastics used in our B2C operations to recycled materials. Procurement is already underway. On the social front, we've already made meaningful progress. In 2024, 32% of our leadership positions were held by black, brown and indigenous individuals already exceeding our 2025 target by 30%. With 62% of our senior leadership made up of women, we continue to exceed the previously established minimum commitment of 50%. In addition to our goals for the year, we also have objectives for 2030, reinforcing our view to grow, which is closely tied to building a more sustainable future. Governance, we operate under high standards, so as a company listed on the Novo Mercado segment, transparency is key, guided by strategic goals. We're committed to growing focus, innovation and responsibility. And now I hand it over to Elisa for a more in-depth look at the numbers. Thank you.

Good morning. Thank you for joining us for our first quarter 2025 results presentation. We are on a consistent path toward building Veste's long-term growth. This strategic direction is reflected in our financial management and in the performance of -- across our sales channels. Gross revenue was BRL 325 million in Q1, a 4% increase compared to Q1 2024. The B2B channel is one of Veste's main growth avenues and has delivered excellent results with revenue 12% higher than the previous year. B2C grew 2.9%, with same-store sales up 4.3%. This performance was mainly driven by digital B2C, which grew 17.4%. This growth reflects investments made by the company, one of them being the launch of our apps. The Dudalina, John John, Individual and Bo.Bô apps already accounted for over 20% of digital B2C sales for these brands in the quarter. The outlet channel posted a 9.3% decline and now accounts for 5.5% of total revenue. The decline in sales in this channel reflects the inventory reduction efforts implemented last year. Alongside the efficiency gains from inventory reduction, full price sales remain a key focus for the company and held steady at 69%, in line with Q1 2024. Adjusted gross profit for the quarter totaled BRL 168.9 million. This quarter's adjustment was made to ensure comparability with periods prior to the payroll tax relief implemented in 2024. Adjusted gross profit rose 6.8% with a margin at 62.9%, in line with the first quarter of last year. The impact of increased share of B2B, which typically carries lower margins, was offset by the reduced contribution from the outlet channel. Adjusted EBITDA was BRL 46.8 million, up 5.3% from Q1 last year, with adjusted EBITDA margin of 17.4%, a decrease of 0.3 percentage points. Expenses remain under control despite a slight increase as a percentage of net revenue. The main increases come from variable expenses in B2B and digital B2C channels, both of which posted double-digit sales growth. It's worth noting that Q1 last year, we reported a 31% reduction in marketing expenses as we began the process of bringing that investments back to normalized levels. On the bottom line, we reported an adjusted loss of BRL 10.5 million. Pretax income was consistent with last year's results. As part of our strategy to pursue profitable, sustainable growth, we continue to operate with a healthy level of leverage. Net debt stood at BRL 123.8 million, equivalent to 0.8x trading adjusted EBITDA, in line with 2024 levels. In our 2024 results, we stated that Veste's main financial focus at this time is improving cash generation. As part of that plan, we continued our inventory reduction efforts this quarter, contributing to an improvement in the cash conversion cycle. Inventory ended the quarter at BRL 271 million, down BRL 34 million and 11.2% reduction year-over-year. It's important to compare year-over-year to account for the effects of seasonality. Maintaining disciplined financial management is critical to advancing Veste's strategic priorities, including scaling our digital channels, strengthening our technology infrastructure and rolling out new architectural concepts across our stores. To support these initiatives, CapEx for technology stores and operations was BRL 25 million in the quarter, 9.2% of net revenue. As part of this investment plan, we opened a new Dudalina store at Ribeirão Shopping and renovated the Bo.Bô store at Pátio Batel in Curitiba. I invite everyone to visit these locations. We closed Q1 with meaningful progress on strategic initiatives driving Veste's growth, including the expansion of B2B channel, the rollout of Dudalina franchises and the acceleration of our digital platform. We also kept a tight grip on spending and inventory, which is key to steadily building up our ability to generate cash. We are well positioned and ready to deliver profitable and sustainable growth this year and in the years ahead. Thank you all for joining us today. We will now begin the Q&A session.

[Operator Instructions] Thank you for your participation. We have 2 questions. First one from Pedro. The question is, when do we expect investments to generate growth? And what time frame do you expect these returns to come?

Thank you for your question. Investments we've made have already brought in returns. The renovated stores are already bringing in returns. The growth is above average when compared to those stores that haven't been renovated. We have about 1/3 of them. And out of 176, about 60 are renovated. So we still have a long way to go. In the B2B channel, we've already been reaping the harvest of those investments in the past 2 years. In B2C digital, we have a sustainable growth. And in the case of John John, that growth will come in next year. This is a stabilization year for the brand, the way we see it.

We do have a second question, Rui Pereira. It's a similar question. What's the company's plan to grow revenue in the future?

Thank you, Rui, for your question. As we have been saying, we are focusing on long-term growth, sustainable and profitable growth. We're not taking any -- or cutting any corners. We don't want growth that won't be sustainable. So we want to expand our customer base. The brand is attractive enough. And by expanding on the number of active customers, we can grow our business. The B2B channel is a driver for growth, and there's room to speed up that growth through that alternative. In the B2C digital channel, we have room for improvement as well. In franchises, as we said, we have a plan to start 10 stores for Dudalina, and we'll be reaching 30 by next year. So that's our growth plan focused on, again, profitability and sustainable growth through time.

Thank you, Alexandre. So those were the questions. I hand it over to you for your closing remarks.

Well, thank you very much for being here today, and we are very excited with the trajectory of the company in recent years and for the future ahead of us. Thank you so much.

This concludes Veste S.A.'s earnings call. Thank you all for joining us, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]