Vivara Participações S.A. (VIVA3) Earnings Call Transcript & Summary

Our question is, we're talking about the buy side since yesterday that the growth of the top sign is the biggest concern for the second half of the year. You said that was a little bit below what you expected due to the impact of the Cup -- the World Cup and so forth. When you look at the trajectory of growth since July, especially after the World Cup, if you've seen a recovery of growth more accelerated with Vivara. And based on this performance, if you think that it's possible to look at a higher level of growth, a double-digit level of growth? The second point is about gross margins. You said that in this level of commodities, which is a little higher, I want to understand, what do you still have in the way of levers to be able to expand this even more, the margin expansion? We've done a lot in terms of product engineering and if there's any other levers that you still have to use to increase -- to improve those numbers.

This is Thiago speaking. I would like to think that the way we look at this internally, we have maintained the growth of the second quarter of 12% -- 11% to 12%. In the other quarters, it's more effect of calendar -- of the calendar effect. What we see is the type of pace from the growth of our business and retailing is [ beyond ]. It's very dynamic, this scenario, and these levers of growth which we've been having, the number of stores opened and something that we've done here, I wanted to comment on the digital side as well, to improve the experience, the customer journey, and we've had a very good space in this channel, so much so that we've started to -- we continue to release the same-store sales with the presence of digital, because now the client chooses and all of its efforts and its physical points, you see it in an integrated way. And so the same-store sales in the second quarter has had this calendar effect was more than 10%, which is a very, very healthy number growing on the macro side that we -- as we know very well. So we have several initiatives -- internal initiatives, and we're very confident about the top line. In relation to the gross margin, it's important to mention that this company, if we look at its history of 10 years back of our implementation of our institutional plans, the margin is 69% to 70% year after year, whether it's rain, sunshine, whatever, interest rates up, interest rates down, no matter what happens, the margins are the same. So we have several levers to say that our margins due to external levers, the internal levers, the strength of our brands and so forth to be able to continue to process any external effects and return this to the clients in an easier way. So we're continuing to look at this. And the efficiencies that we have here in-house, the base -- the main preference is to pass this to our clients through productivity and maintain our brands more and more leaders in their respective segments.

I'd like to add to that, this is Cassiano, about the gross margin. We have 2 approaches. One is looking at the products and looking at the portfolio of products. We look at the products, which we consider it to be -- the performance in city where -- in which it's located, the raw material involved and also what's happening in the unified numbers. If we look at the total portfolio of products, we see the opportunities, as Thiago mentioned earlier, to look at the lighter pieces of new technology -- new production technology and also to give greater emphasis on categories such as silver and gold. We have to read the market, see what's happening, look at our products, our portfolio and look to make these adjustments in such a way so that the variation of the raw materials is only one component of the total picture. And we have several elements that mean that we're able to be hitting the mark over time and continue to maintain the stability of our margins for the business overall.

Our next question is from Alexandre Namioka from Morgan Stanley.

I wanted to ask 2 follow-up questions, one in relation to the top line of Life, which I think was the first question of the call, focusing especially on Moments, the Moments collection, to try and unlock a little bit how did that perform and if that's being -- if the performance of that line is being impacted by the lack of new launches in the segment? And also like to reinforce if you could repeat to us what are the levers for this growth, specifically for the segment of Moments, it would be very interesting? As far as gross margins, we also felt that it was -- in general, it was a positive highlight for the quarter. And also, we thought perhaps it would be important to see what are the levers that you've commented on recent calls? One of them specifically was in the segment of -- Life segment, which you mentioned, the increase of growth and the share of direct functions. And I want to understand how much of this increase is already impacting the gross margins and how much time there is to grow in this method of production? As far as Life goes, I'm not sure how much you can share as far as the initiatives of new alloys -- new metal alloys because we've seen these products in Life arriving in the market. And how much we should think about the entrance of these products and the impact of these products over the next few years?

Thank you for your question. As far as starting here, I think all of us are in a certain way in the same boat, looking at Life. The Moments collection category, you have different pieces, bracelets and so forth. We have a lot to do with these 2 fronts. New launches -- new product launches should start arriving at the market more strongly in the third -- starting in the third quarter in our stores. And that's what's going to change the category. So I think that, certainly, there'll be lots of space for this category to continue to be relevant in our business. And we're going to look at that -- the question of the level of prices, we can protect it for that category and look at the work of evaluating the costs to see where we'd have space to cut costs. And so your next question and the direct answer, it's more directly connected to gold, but it also have to migrate to silver. Silver, of course, has a -- just a few centavos of the price of gold. So, it has a direct impact on gold and has a comeback that's much quicker. So we focused on this margin. As you saw in the first half, as a direct function, it helps, but something marginal in -- because the company has been doing this work in the direct function for a long time, this migration for the products that we can touch. And our mapping today of products which is possible to have space to increase, which is already being done in the direct results, the 60% more or less, and they become -- we've been working on -- month after month to increase that percentage. In relation to the new alloys -- new metal alloys, this is a subject which is very strategic and very important for our sector in general. We have accompanied the world -- worldwide tendencies in relation to that subject and standards of -- different market standards, depending on the geography in which we're looking at. We have accompanied this very closely. And we've also been working on to have this in-house, this technology and the methods that are necessary to be able to react quickly. So I think it's -- part is methodological and part is industrial, which we have evolved to be able to be ready if necessary, when necessary, not even so much if necessary, more or less when necessary for our business, we understand that we can continue changing. As far as new alloys, I think that it's a characteristic very similar as it was the mix of metals at the beginning when we introduced Life silver 15 years ago, when we introduced the gold, silver in Vivara and innovation as a laboratory product. Innovations, I don't see any break in this line, much more continuity of what we have always done using new alloys as we have done over the life of the company -- over the history of the company.

Our next question is from Guilherme Domingues from HSBC.

I have a question about the digital sales, which continues to grow well, very strongly. In the quarter, there was a lot of growth in the app. And I wanted to see -- how do you see the opportunity to increase the digital penetration in the next years? And to what point this growth could happen without impacting the productivity of the stores? That's my first question. And the second is in relation to competition of Pandora investing heavily in Brazil, markets in the launch of new products. if you see this as an important change in the competitive environment?

Thank you, Guilherme. This is Thiago speaking. Starting with the answer to your first question. We analyze external benchmarks. We see a penetration of digital sales above ours, which gives us confidence that there's still space to work, to grow there, to work there, to increase our participation in that channel internally in a consistent way over the next years. I think the company has been doing that and -- very successfully, but however, there's still space to increase even more our participation in that market. And in the short term, this has made an evolution of our digital platform and the layout of several pages I have already seen the increase of the rate of conversion. But in several others, on customer journey and some other pages, we have been -- improved the experience, increasing the time of involvement that the clients spend, which has reached almost 2 minutes on the site. The initiatives looking at these splits is the participation in the app. The conversion of the app reaches more than 2x the conversion of the site. The client who is more faithful, who communicates more efficiently, more constantly, we have a number of -- a relevant number of clients in our app already, which already helps us with the launch of new products and the speed of reaction. So these actions have been happening, have been accompanied operationally, our delivery periods, with our relationship with our clients and several other items which are the backbone of digital sales. We've evolved quite a bit. However, there has been an evolution in search and personalization, the big agenda of content, and we see lots of space for the digital to continue to grow at strong rates of growth and for various semesters to come. At the first moment, we see lots of synergy with the stores. Between 20% and 25% of our sales, the digital sales are done with the code of the salesperson. So our salespeople are very well trained, and they don't lose sales if the client is willing to go and buy online or come back later -- come back 2 or 3 later to the store -- 2 or 3 days later to the store. We've done this work very carefully, incentivizing our sales team, which is one of the strengths of our company, to not lose sales and use the concept to the maximum. And not only competition, as you mentioned specifically, but we also measure in the shopping centers that we have stores and Pandora also has how was the Life performance compared to the Life in shopping -- shopping centers that don't have a Pandora. But we see that there hasn't been many correlation. It's very little coincidence. We even actually grow slightly more in shopping centers where Pandora is present. So we see that in relation to the -- the relations that they're doing compared to what we've shared in the way of results. Obviously, we're not immune to what they do, but our actions today are affected by internal effects as well.

Our next question is from Wellington Santana from Bank of America.

A couple of quick questions from my side. The first is on the question of the expenses in the marketing line. I want to understand a little bit about if you could separate how was the level of higher marketing level that -- due to the commemorative dates like Mother's Day and Valentine's Day compared to the past? If you could look at the seasonality, perhaps this is a level of marketing, which is -- which you have done a higher level of marketing and which we can expect going forward, and how we should think about that going forward, if you're able to deliver that as well? And the part of generation of cash, you've had a good cash generation in this quarter. However, one of the questions that has caught our attention when you look at the receivables from last year, it was a question of you having anticipated a little bit last year. We also have this tendency that you are closer to the consumers with more time sales, more monthly payment plans. And so finally, another quick question. Due to this interesting performance and the question of watches, if you give us a little color about the growth in that category, that would also be interesting to hear?

This is Elias speaking. We also -- your first question regarding our marketing expenses. We see that the biggest in growth that we've had was in the first quarter when the growth is much more -- much higher due to the comparative base of the first quarter of last year, which was a growth in expenses compared to our history -- historical levels. We work here with to maintain our marketing line along this historical lines of 4% to 5% of net revenue and dividing those expenses between what we spend on the online marketing and the offline marketing. This online marketing, we invest a great deal in performance marketing as well as in sales to bring the customers to the store to communicate with them, the Gold Week and so forth and all this attached to our brands, and the performance that we use to promote sales. In the offline market, the events and the influencers, all of the actions that build our brand in the medium- to long-term. So the biggest increase that we've had -- the biggest part of the increase that we've had was in offline marketing. It's where we had the biggest reduction last year, and we saw this sequential difference of increase this year. So this is an investment which it brings returns in the medium- to long-term, building the brand. And also most importantly, for Life, we have a brand that is younger and that is building this brand over time more and more -- it is a brand that's more and more our own brands, a complete jewelry store and a brand that doesn't compete with the Vivara line. Looking at the 2 lines together, the 2 markets, on and offline, we see growth in offline gaining efficiency. We are improving our ROES year after year. As far as working capital, we see that the biggest driver for cash generation is our inventory. In other words, the reduction in the number of days or whether it be in the reduction of the advances that we make to suppliers, especially suppliers' imported products. This generates more cash. It uses more cash, and we have reduced our inventories, but we also see the behavior of the consumer when the interest rates are high, there's a tendency to pay things over time. The percentage of time -- sales done on credit cards doesn't change too much, but the percentage of these sales, which is done -- paid, which was cash or made in only a few payments has increased up to as much as 10 monthly payments. We have a minimum payment for both brands, but since our average ticket and many clients have decided to use time payments for these purchases. So -- and increase the length, the stretch -- stretch out their time payments. So this affects us, but when we look at the natural cost of cash on hand.

Second part. This is Thiago speaking. The last part of your question about the category of watches. This good performance is due to the work of the team, which has been working on this category. We're looking at the internal aspects. We have strengthened our relationship with our partners, but also looking at our own brands like Life, which is the second brand of watches in our portfolio, which has been growing year after year. Today, it's the second largest brand. And this shows that this work of selecting external brands in the development of products. We also have a cost -- which store -- breakdown of which stores, where we're going to put which mix of watches. In some, we have to negotiate with partners, and we've been working very strongly with that, with our partners, and also work a lot on the management of the availability of these inventories. This is a category which has no substitute products, obviously. If the client wants a certain brand, that's what he wants. He wants that and he's -- and we're not able to offer him anything else. So the availability is very, very important. The channel -- online channel also helps us quite a bit in this category. Online is a product which the customer does not necessarily have to prove -- to protest the amount. We need the [indiscernible] online and offline, it goes very well. So these characteristics, which explain internally the good performance of the category.

My next question is from [ Gustavo ] from Bradesco BBI.

I just wanted to follow-up about the line of finished products. When we look at this -- the breakdown of these products, we see that the participation of Life has increased year-over-year. I want to understand a little bit about the quality of this inventory and a breakdown of how it is between collections like Moments and collections. Looking forward, if you can give us a little more -- if there's any way to reduce this inventory. And I want to understand your question in terms of gross margin and reduction of stocks of finished products looking forward.

Thank you for the question. This is Cassiano. In relation to the stock of -- talking about the portfolio, on the proportion of stock, it's well balanced between the different types of products and these products with -- between products of high and low turnover. As we mentioned, we're heading for a -- to become a complete jewelry store, which means that some types of products have a development and a commercial use that is a little more accelerated than other types of products. With the adjustments, both in the relation of the proportion of product categories as well as the products of higher and lower turnover, so we're able to do with a great deal of constancy during the year. We have Moments in which we have commercial activities well-structured, aimed at accelerating the sale of a certain type of product or a lower turnover product. And so this product of balance is not a problem in terms of the expectation that this might bring to inspect our margins. And this -- we don't have this expectation because it's continuous and very well distributed over time.

The question-and-answer session is now closed. I'd like to pass the microphone to Thiago Borges for his final comments.

Thank you all very much for your participation -- active participation in our call, on the second quarter, the entire team of Vivara and our commitment and the deliveries that they've made. And as a final message, I just want to reinforce what we had the opportunity to comment on during the call, which is the generation of cash being the highlight that we perceive as important for this year. And our business model has shown, once again, its resilience. And we have been able to have a gross margin -- a high gross margin, healthy gross margin. And considering the calendar effect, looking at the first quarter, we continue to be very confident. And to close, I wanted to invite all of you this Sunday, Father's Day, if you haven't yet bought a present in our stores. We have a complete mix of rings, [indiscernible] bracelets as well as excellent watches. And beyond this full mix, you're going to find things at the price at which you desire any product in our store. So let's go visit the Vivara stores and Life stores in the next 3 days so that we can honor our fathers of our families. Thank you all very much, and have a great day. The teleconference results for the second quarter of 2026 of Vivara is closed. The Department of Investor Relations is at your service to answer any other questions you might have. Thank you very much, and have a great day. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call]