Zamp S.A. (ZAMP3) Earnings Call Transcript & Summary

[Operator Instructions] We inform that this conference is being recorded and will be available in the Investor Relations site of the company, www.ri.zamp.com.br where all the material is available for these results. It's possible [indiscernible] presentation. [Operator Instructions]. We highlighted the information in this presentation. And occasional declarations that may be made during the visual conference related to the business perspectives, projections and operational and financial goals from Zamp constitute in beliefs and premises of the company's administration as well as the information available. Future considerations are not guarantees of performance. They involve risks, uncertainties and premises that they refer to future events, and therefore, depend on the circumstances that could or not happen. Investors should understand that economic -- general economic conditions, market conditions and other operational factors could affect the performance of the future performance of Zamp and conduct the results that differ materially from those expressed in future considerations. Today, we count on the executives of the company's Mr. Ariel Grunkraut, CEO; and Gabriel Guimarães, CFO; and the Investor Relations team. I would like now on to move to give the floor to Mr. Ariel, who will start the presentation. Please, you may proceed.

Thank you very much for the introduction, operator. Good morning, everyone. Thank you for your interest in our company and for your participation in this conference call from Zamp's results for the first quarter of 2024. I would like to share with you results along and a broad view of our business and updates on important initiatives that are driving our company towards a strategic position. This year 2023, overall the second quarter was marked by a revision of key elements in our business as business strategy and our cost lines, expenses and investments. And in the first quarter of the year, we started to see a maturation of these initiatives that we implemented with material performance above the industry and those according to indicators in the market. Moving on to the second line. We're going to share the following highlights in relation to the net operational revenue. For the first time in the quarter, the mark of BRL 1 billion that represents a growth of over 16% versus the first quarter in 2023, an important record for our company. Also in the first quarter, we reached expressive numbers of same-store sales being 11.3% for BurgerKing and 14.8% for Popeyes. Our consolidated gross margin was 64.1% in the first quarter of 2024, a reduction of 50 basis points in relation to the same period -- in same period last year. In this period, the digital sales grew 45.8% versus the same quarter last year, reaching 49.6% of sales in the company. Currently, around 50% of total sales are already identified. In the quarter, the adjusted EBITDA was BRL 130 million, a growth of 18%, if compared to the same period last year. For the adjusted EBITDA ex-IFRS, we reached a growth of 39%, reaching the brand of BRL 70 million, a mark of BRL 70 million, a difference that reflects an operational leverage achieved by the company in fixed rent. The quarter also was marked by the closing of 11 restaurants, 9 restaurants BurgerKing and 2 restaurants Popeyes besides delivering 2 remodeling projects. There, we ended the first quarter with a total of 1,028 BurgerKing restaurants and Popeyes. Moving on to the next slide. We see the highlights of financial performance in the first quarter in which Zamp reached a net operational revenue of BRL 1 billion, a growth of 16% in relation to the first quarter 2023. Besides that, digital sales for the quarter had a relevance reaching a total revenue of BRL 510 million, a growth of 45.8% in the same -- compared to the same period last year. The gross margin from Zamp was 64.1%, presenting a decrease -- a marginal decrease of 50 basis points year-on-year, and we reached in the first quarter 2024 and adjusted EBITDA of BRL 130 million, an expansion of 18% and an adjusted EBITDA of 12.7%, reflects of our gains in labor efficiency, operational leverage due to an ipgEm that starts to benefit us, utilities, some control initiatives, distributor generation and free market. Closing of 11 restaurants, operating loss and part of our strategic portfolio strategy and a structure that is more efficient from the corporate. In the same quarter, the same-store sales registered 11.3% gain and Popeyes of 14.8% gain. Now I would like to give the floor to my partner and CFO, Gabriel Guimarães so that he can go on important aspect of financial aspects.

Thank you so much, Ariel. Good morning, everyone. On Slide 4, we showed an evolution of our restaurants in the first quarter [indiscernible]. We saw the closing of 11 operations being them 11 BurgerKing and 2 Popeyes. This way, we finalized the quarter with 1,028 restaurants in Brazil with 776 are owned and [ 261 ] are franchise. Move on to Slide 5. As we announced in the last quarter, we went with the new pattern of designs for booking the Royal Pavilion. This new format brings differences as a better -- better sales channels and digital service, making us more efficient. We have seen interesting results in the allocation, seeing a good increase in revenue, better customer experience and a reduction of operational costs in occupation or in people. In Slide 6, we see the evolution of the operational -- net operational revenue of the company and same-store sales for both brands as we made this comments before, it was over BRL 1 billion, and 16% increase compared to the same quarter 2023, with 11% increase from margin for BurgerKing and 15% for the brand, Popeyes. Going on to Slide 7. We see here revenue sales for the BurgerKing that reached approximately BRL 950 million this quarter, a growth of 15% compared to the same period last year. Strong results in BurgerKing also have 3 important fronts, a good balance of cost benefit for our clients with a stronger media presentation, which gave the branch and operational gain very positive, a growth of digital channels boosted by delivery and better indicators that contributed to the [indiscernible], we could have a better performance and very positive -- go launches the following slide. We bring here some important highlights for BurgerKing that once more showed our -- our -- this speed in connectivity in a business. We had great campaigns with the objective to reinforce this channel. We saw some partnership with the Stanley Cup during the carnaval period. And again, we were elected the most creative brand in the world. In Slide 9, we saw the Popeyes brand reached in 2024, a net revenue of BRL 64 million, a growth of 34% compared to the same period last year and same-store sales of 15%. We had during the first quarter an important reinforcement in our mid campaign that connected with the trial period initiative. Our biggest strength, we have been able to build consideration and frequency. We had good results in this quarter compared to the last year, we gave us positive signs in relation to the track record of this brand in the country. In Slide 10, we are able to see the continued evolution of our digital channels represented by delivery, totems and also app. The first quarter 2024, the sales performance through this channel totaled BRL 510 million, a growth of 46% compared to the first quarter in 2023, represent 50% of participation in our total revenues of the company. A growth of 10 percentage points related to the same quarter in the previous year. This growth came boosted by the totem inside the store. And Slide 11 with our ecosystem. We closed the first quarter of 2024 with 21 million registered users in our CRM, and we saw 50% of sales identified an evolution and enrichment of our database, we were able to perform better in the individualization and personalization, having gains in sales and margin. As we've seen in the previous slide, our App represents 4% of the revenue of the company in an efficient way for us to exploit experience and convenience. Our self-service Totem initiative, they provide a better experience and better ticket margin and gross margin. And we saw a growth of 9 percentage points compared to the same period last year. We keep amplifying this functionality for most of our restaurants, including those that count on digital service -- 100% digital service standard of our openings. The delivery came as an important driver of revenue for the company and represented approximately 16% of our sales in that period. And last, we show here some data of our loyalty program. At the end of this quarter, we achieved 17 million registered users, and we believe that our program is an important leverage for us to exploit engagement, frequency. And go on to Slide 12. We see here our [ CBM ] and G&A. And then in the left part of the slide, we saw that the cost of the merchandise sold, 35% or 9% of sales in the first quarter 2024. I think this margin increase related to the first quarter in the previous year. It was given to the well-succeeded commercial strategy. We have observed a favorable scenario with the commodities, which gave us flexibility in the line -- as the year goes along. In the central part of the slide, we saw that the expenses in the restaurants, 47% of net revenues up a growth of 70 basis points compared to the first quarter last year. And this variation was due to a reduction of 50 basis points in the expenses with the labor due to the growth of sales and digitalization of the experience, even with the scenario of readjustment of minimum wage of 7% in the same period, 40 basis points of marketing in the schedule of expenses, the 50 basis points, it should be better performance of delivery and channels -- in the channels and also to increasing maintenance and we should -- our business, excluding the IFRS-16, we will have an evolution of 100 basis points in expenses with sales in restaurants. In the right of the slide, we saw our G&A. The general expenses of administration had an expansion compared to the first quarter last year. This growth was a result of bringing forward of some actions due to the concentration of an impact of the BRL 46 million excluding these effects, the company showed a reduction of 140 basis points in the line of general expenses and administrative due to the initiatives that were implemented along 2023 with our objective of simplifying our corporate structure. In Slide 13, our EBITDA adjusted was BRL 130 million in the first quarter 2024 with a margin of 13%, a growth of 18% due to the same period last year. The result was a fruit of our efficiency gains in labor, with operational leverage due to the IGPM they started benefiting us. Utilities with control, distributed generation and free market; and the closing of 11 restaurants, providing losses, right? And besides that, we saw a structure -- a corporate structure that is more efficient. In the right of the slide, we could see the losses of the quarter. In most of them due to the fruit of the impact of expenses. Going on to the following slide of the presentation, we could observe the operational cash flow reported in the first quarter. It was BRL 25.2 million as a reflex of an advance in the operation activity partially mitigated by some gains in the working capital. Going to Slide 15, reported CapEx in the quarter, [indiscernible], an increase of -- of increase compared to the last year. These investments are investing essentially to our projects of remodeling of the brand BurgerKing, the expansion of new restaurants, technology and maintenance of our portfolio. In the following slide, we saw the -- in the first quarter of 2024, our debt achieved BRL 1.8 billion, which results in net -- net of [ BRL 822 million ] with a leverage of 2.2x in the graphical low. We could also see the aging of our debts. The company concludes the issuance of debentures with convertible debentures of BRL 700 million, this way, we finalized the financial session, and we give the floor to Ariel to talk about prioritization for the [ nexus ] line.

Thank you, Gabriel. I would like to share with you our scenario for prioritization for the company to divide any for great important pillars. The first of them is our focus for the year in the pillar of sales and traffic. Our brands, BurgerKing and Popeyes aligned to a commercial strategy with the strong platforms, majority of sales, physical and digital channels, investment in media, pricing and robust pipelines of campaigns, licenses and innovation. We continue to follow the increase of sales, generating profitability. The second is related to our obsession for constantly seeking better experience for our clients in our restaurants and interaction with our brands. Besides the important improvements that we have done in our digital channels, indent opportunities and our exclusive system of evaluation of experience that we have. Currently with more than 50% of our transactions already having been identified. We continue to give priority to the process of modernization, and remodeling of restaurant with a focus on experience of clients. This initiative and some other that we prioritize along the year in this pillar will be important factors for attractiveness of the company. The third is concerning our continuous search for efficiency. We concluded in the last year, our plan to consist since simplifying our corporate structures to the focus on profitability in strategic lines of the company. These movements, the focus in our portfolio management in order to address strategies keep us -- keep us alert to a scenario that is more efficient, where we hope to retain better operational leverage and expand our margins. The fourth and last is the pillar of growth with the mapping of new opportunities and an identified white space, we are prepared to capture the best opportunities and allocate capital in a more dilution to way. We are confident that we will be able to deliver the first quarter well positioned and capturing opportunities to exploit in a strategic way the market of [ KSR ] in Brazil. Thank you. Operator, please, you can move on to Q&A.

[Operator Instructions] Let's move on to the first question that comes from Tiago from Citi.

There are some points that I would like to clarify related to the same-store sales. We had a number that was very strong. So I would like to understand the opening of this to traffic and also price for the brand, BurgerKing as well as we have discussed these issues value for money. So we understand that there should be a smaller price, a bigger volume, just to understand better this line. Second point, I would like to see the issue related to closing and opening the stores 2024, what we can expect for the brands, BurgerKing and Popeyes? And then last, a little delicate subject perhaps. The Starbucks, if you can exploit a little bit this discussion, what's happening to give us some financial some outlook, it's a delicate point. So whatever you can share in terms of information would be nice. Thank you so much.

Thank you, Tiago, for the question. Let's start going through the first question. The first should I mention, and then I'll move on to the Starbucks topic. So first, I think the strategy of the first quarter in fact is a consequence of what we have been deploying 2023. It is mainly now based on 3 pillars that we try to talk about on the call. Some of them have been executed. Others were being implemented long the fourth quarter in the beginning of this year as well. This result came as a rebalancing of strategic and commercial strategy, dominant value proposition, value for money. This equation is very important for our industry. and there are some portfolio items, the [indiscernible] and other example. There are others with CRM that we -- once we have a better understanding of our customers and can we exploit this relation in a more efficient way. And here, we are always trying to find this equation that is most favorable to the business even though some time and another, this means some investment in the management of operational leverage of some way. This speeds up the return. There's another perspective that we talked about how to sustain with a good communication plans and we tried bringing some examples for you here about the moment in which the BurgerKing brand lives, a moment of great highlights. We're well recognized as a creative brand, some awards and other emblematic campaigns that we were able to see in this first quarter. All of this brings equity, builds a better connection with the business. And third, and most important for our strategy mainly looking ahead with the main factor of growth for the company. Our model store freestanding, we had an advance in 2023 of learnings -- operational learnings as we could have a structure that is more appropriate for restaurants. We could have technology that could help us in the speed of service, availability of peak hours. We had several initiatives that will bear fruits of this learning 2023 will implement. And in the beginning of 2024, generating very interesting results with a freestanding performance, if I'm pushing the average of the store in the same stores. So I would say that this 11%, they were half came from -- traffic half came from price even though we had great work of adjustments in value equation and in other categories. There is a space for us to a longer time, calibrate this commercial strategy, and we have a clear view of commodities in the year and how this is related to our business. So this is a year that to be certainly, we have flexibility to evaluate what is the best balance points in the market share. This continued construction of the brand in a balance in the gross margin, which is very important for our industry. And then your second question, opening and closing. I will start by closing. We have a plan that is already under execution 20 last year, 11 in the first quarter of 9 BurgerKing and 2 Popeyes, and this is a plan of optimization of portfolio all the time that we find some symmetry, great symmetry of our expectations and for these assets and their reality. IGPM saw some of these contracts were far from reality. The expectations of sales had a recovery -- speedy recovery in practice. We ended up opting after evaluating other terms disclosing these assets. And this is a priority of the company, that will continue to be monitored and closely along the other quarters. And every time we have received the business that will need to be executed, as we have done in the first quarter. So in the short term, we don't have expectations of more closing or any of the 2 brands. Although in the long term, certainly, we see that in this industry, there is a run rate that is important, closing restaurants so that we can have a portfolio even more healthier. So for openings, these realities are quite different as we comment before. The focus on freestanding, we should go on a 30-year 50 openings of restaurants BurgerKing along the year. Of those, approximately half of them come from [ props ] and other franchises, all the franchises and for Popeyes, we have shared with you the first results of this quarter are very exciting. 50% same-store sales, put these brands on a track of consideration equity of trial that economically, we see a more favorable perspective but as a strategy, we decided by maturing some operational standards, also the how well the brand is known in Brazil, so that we can evolve and then later speed up the growth in the following years. So we have some growth along 2024, but mainly boosted by the franchise plan that we started last year and our partners are helping out to build this brand here in Brazil. So these were the first 2. Ariel, will go on to talk about Starbucks.

Thank you, Gabriel. So I hope that you -- you are well, you and your family. About Starbucks, we have a greater admiration for the brand and for all the strength, the competitive -- competitive strength that it has in the whole world and also in Brazil, we believe that as a company, we have a lot of opportunity in this segment that is very relevant and very little exploited in Brazil. As we have been updating during the last 2 weeks, we have the green signs for the corporation should be the developer -- excludes the developers here in Brazil to operate this brand from now on but for us, we are focusing our efforts at this moment so that we can start operations in the existing restaurants. So that, as you know, this takes -- takes time and it's a judicial process that is long and was published. We are involved in finding the best solution. Then the figures is truly to just say whatever is public. The brand Starbucks in Brazil before the judicial recovery was around 200 units and the revenue, BRL 500 million a year. But I think these are the biggest figures we started. We're keeping updated on how things are going. And we hope that in the following weeks, continuing bringing you some new things and then sharing with you. Thank you.

Our next question comes from Thiago Bortoluci from Goldman Sachs [Operator Instructions].

I would like to start with a follow-up on the Tiago's question that is in the same-store sales and price. From what I understand, Gabriel from your answer you said from [ 11 ], half traffic and half is price. We are talking about mix single digit [indiscernible], which is the real price mix. But how is this growth above inflation of price stocks with a loss in gross margin when your main raw material is going down? I'd like to understand how this comment of price talks about the evolution of your margin? And now so the second question is the follow-up of the following -- of the previous question in this quarter, you opened in 0 stores, so you focus on losing stores. So I know that this is a slow quarter. I think you opened 15 last year and this acceleration comes from when you start talking about M&A. So I think here it would be nice to listen from you Gabriel, Ariel, how is the stock on StarBucks talks should the allocation of capital for growth of BK and Popeyes? How should we think of allocation of capital with 3 brands within your umbrella? I'd like to a more technical question. This closing had any impact -- important impact within your same-store was you removed 11 stores underperforming. So these are 3 questions.

So thank you. Thank you for your question. So let's start by -- in the end. First, closing these 9 stores of BurgerKing for the same-store sales and 2 for Popeyes, these are some material numbers, should have an incremental revenue on the portfolio of the company, should have any levels influenced by same-store sales. So the practical answer is no. So there is no impact came from the closing. So the second is important. When we look at the composition of recovery of revenue between price and traffic in practice, what we have seen due to the commodities -- the decrease in commodities by the protocols that we signed with our suppliers, they take 3 to 4 months so that we can embed. So the forward is the picture of the [indiscernible] the previous [indiscernible] in practice, even though we had a combination of, for example, [ protein ] being explicitly in a longer [indiscernible], and we haven't captured 100% of this benefit within our price structure, our expense structure that within our mix, there are some important components such as potato, they had a situation -- a global situation also provide that as related should commodities went up in an expressive way. So in the end of the day, so looking at the 5% of the theoretical price now directed that should mitigate the growth of the inflation. We haven't captured all the benefits of the decrease of commodities along this period of 2024 as [indiscernible] and we've seen this fall and potato now even in a more favorable situation. So we're continuing monitoring what is the perfect balance among the traffic gains and also the pricing in a favorable situation due to commodities. In the end, I think what we have built here at Zamp is a company that can have the capacity of being a multi-operator of brands and we have a strong criteria for these brands. They don't need to be brands that are the best in their segments related to product, having the best products, strong brands, with the capacity of scale, very big in the Brazilian market. And obviously, that we're able to deliver synergies and -- and then build on what we have -- something on what we built, Starbucks additionally to what we have fits this level of criteria. Today, we -- so first of all, the strategic or the rational strategic of the long term has always been -- should be a multi operator of brands. And in this moment, have to be find an opportunity as this one with a brand they have this strength. Obviously, it's a very interesting moment for us to connect to our store and how does the stock to the current scenario of capital allocation in the company, well naturally we come from 3 or 4 years of a pandemic. We came out to 2023 clean year. So naturally, this expansion of organic recovery expansion, we'll take some time to have an impact so that have a stronger practice. So we see a good allocation of capital together with the suitable capital so that we can leverage the growth. We're talking about several opportunities that we see with BurgerKing. We retrust the freestanding. So when I say 30, 50 a year, I think this could be considered basically a year of transition. We have the ambition to do more, and we understand that the Brazilian market can accommodate a more expressive number than that. In reality, for Popeyes, we are dividing with you our plans and the truth is that we ended up building a brand during the pandemic. And now we need to -- to organize something and take some time to build the equity, and this is being done. So soon, we'll have a financial perspective that is more favorable for this brand. So we will come back and increase this growth plan, which is not part of our own capital through plan 2024. And all of this talking to -- for the brand, Starbucks, we are talking about the company that should have operational cash generation to support the growth plan for these 3 brands. Capital structure and how we're going to take these decision in the future, just balance among all of these fronts are decisions that are extremely strategic. So soon, as we have at visibility of a conclusion of M&A, will certainly will have with our shareholders and our Board decides these information.

Our next question now comes from Julia Rizzo from Morgan Stanley.

I have some questions and follow-up on some of the issues that have been answered by you already. So -- maybe, Gabriel, if you could help us bring forward what you're seeing ahead related to the representation, especially in margin. If you have ticket and you have promotional in this [ discretion ] in value proposition, I understood that it would be an important part in the reduction of gross margins. So I don't see where these discounts have been allocated and what is the perspective on hand? How do you see these points of reduction if you stay at this level or if you will recover a longer time, a new level that maybe the company will allow itself. So the question that I would like to make is related to how are the sales? We first -- strong first quarter. We are already in May. So if you continue in the same way what has been done again in the portfolio to keep this strong retake in sales that you have had.

Thank you, Julia. So we were able to understand most of it. So here is the result. The result is in the growth margin. Just to be clear, within the portfolio in a general way, there have been some initiatives generating traffic that could have a level of investment in the gross margin to speed up this product and where we have less necessity in price, we have been able to have a great advance because added to year-on-year, we have -- we had [indiscernible] above inflation. And I have explained to Thiago, this in an environment where you expect to have the cost of input following obviously, there should be favorable to your evolution of gross margin. And my previous comment had been in the line of steel. We're not seeing all of this price changes in our cost structure because our protocols are measured every -- by quarter. So we sign protocols in the future based on past results, and we should be benefited along this year mainly because within our parts further, there is this part of component, which is the price of the potato that this is a little bit outside the curve compared to all the super mix of the company. So from now on, if this is Dallas and this price is in a more favorable curve of input, we should have a margin reasonably stable compared to the fourth quarter without great expectations because in order to capture this decrease in our cost structure, we will continue to evaluate what balance of what we want to reinvest from this benefit in the -- in the gross margin and increased top line growth or maybe the best decision for the business to have a gross margin a little bigger. So these are decisions that we assess all the time here in our business. And for your second question related to trends of our second quarter, I would say that they're very similar to what we have performed in the first quarter and the initiatives that we have put in place. They are very structured. As I said before, have operational gains. We have brand gains, which is a consequence of several investments and decisions. And we have an expectation that this is sustainable along the year because we have strong brands. And so there is no event that take us otherwise for now.

[Operator Instructions] I'd like to inform that the session of Q&A is over. And now I'll give the floor to. Mr. Ariel for the final considerations of the company. You may proceed.

Thank you, everyone. We would like now to close our call today. Thank you for the participation of everyone. Now -- the Investor Relations team is available to answer any further questions. Have a great day.

Now the video conference of the first quarter results for Zamp is now over. The Investor Relations team is available to -- to answer any questions you may have. Thank you so much for all the participants and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]