Marisa Lojas SA

BOVESPA:AMAR3

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, good afternoon, and thank you very much for standing by. Welcome to the conference call of Marisa to release the financials for the first quarter of 2019. This conference call is being recorded and will be available at Marisa's Investor Relations website. [Operator Instructions]

Before continuing, we would like to explain that statements made during this conference call relative to Marisa business prospects, operational and financial projections and goals are beliefs and assumptions of the company's management and are based on information currently available.

Forward-looking statements are not guarantees of performance because 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 nonoperational factors may affect the future performance of Marisa and may lead to results that will be materially different from those expressed in such forward-looking statements.

Now we will like to turn the conference over to Mr. Adalberto Pereira Dos Santos, Investor Relations Officer and CFO. Mr. Santos, please?

[Adalberto Dos Santos, executive]

Good afternoon to everyone. Welcome to our conference call. I and my colleagues are here: Pimentel, operations; and Marco, commercial VP. We'll be here to talk about the first quarter of Marisa Lojas. Our CEO, [ Marcio, is flying so here ] with us on remote access.

So overall, we think that the results of the first quarter of Marisa were quite positive. And more than that, they have provided that confirmation of the assertiveness of the measures that we have been implementing over the past few months. As you can see, there has been a significant improvement in all pillars of the retail operation and also in our financial products. We have had a significant growth in same-store sales. In our e-commerce, we expanded our gross margin without deteriorating inventory, a relevant drop in expenses and also a significant recovery of the P&L of financial products.

As a reminder, we have gone through a period of adjustment with many nonrecurring accounting factors. And this is all very important for us to understand correctly our performance in the first quarter. We try to provide this visibility in our press release, and now we are going to make some additional comments.

Now going to our presentation. On Slide #2, you can see evolution of net revenue with 7 -- with 6% growth in net revenue and most importantly, a growth in same-store sales of 7.6%, which indicates a growing acceptance of new collections as we have mentioned in past calls.

Average price recovery. That was significant, but it was due to the reduction of markdowns.

And also, our e-commerce with a growth of 52.5% in the period after growth in -- of 77% in Q4 last year. And this growth does not result from new categories.

Now going to Slide #3, where you can see the gross profit and margin of our retail operations. Gross profit up 10% as a result of 2 factors, such as good sales and performance in the period, and also the contribution of -- and the better balanced inventory levels with a drop of 5%, which will continue helping us in our results over the next few periods.

Now on Slide #4. The SG&A with a significant drop of 7.2%. We should highlight that this is already ex-IFRS 16, and this reduction is a result of the Rightsizing Project. Sales expenses were impacted by the closing of 12 operations with low yield. And G&A with a drop of 23.6% in Q1 '19, a significant drop as a result of the optimization measures that we implemented in our central office.

Next, Slide #5, you can see the evolution of our retail EBITDA and our EBITDA margin. So we had a negative result of the adjusted EBITDA by BRL 11 million with a positive variation of BRL 21.7 million. So we had an expansion in gross margin and a 7.2% drop in SG&A. Once again, this is quite well-balanced result. As I mentioned in the opening, we should emphasize the nonrecurring facts of the previous year. Especially in retail, we had tax impact of BRL 22.5 million, which had a positive effect in EBITDA of BRL 44 million.

On Chart #6, you can see the evolution of the contribution margin of our financial products with a drop of 11.7% as a result of our own products because co-branded operations have had a stable result at BRL 25 million. The drop in the contribution of our private-label products is due to the reduction of the share of our card. It's also slightly smaller, the number of personal loans that were granted. And when I talk about EBITDA, there are some nonrecurring items that have had a positive effect on the first quarter last year amounting to BRL 27 million.

On #7, you can see the EBITDA of FPS. As a result especially of the lower share of the result of personal loans, 2.7% of increase in costs and expenses due to higher provisions and contingencies. And then in terms of recurring EBITDA, we would be talking about the growth of 20 -- oh, sorry, 18.8%.

Now on Slide #8. You can see the evolution of our private-label FPS. Everything's very positive: a drop in losses, a drop in the mature over -- and overdue receivables, everything under control.

On Slide #9. A loss on portfolios, but overdue receivables are more well balanced. EFICC -- slightly above but within historical levels. And this is considered okay for this type of product.

I'm now on Slide #10. You can see the consolidated EBITDA, retail and our financial operations. This was driven by the better performance in retail. And it's worth mentioning the nonrecurring items of last year. And if we add retail and FPS, it is significant, amounting to BRL 53 million in terms of positive variation in the adjusted EBITDA.

On Chart #11, you can see the evolution of our net income. Numbers are similar usually with a negative bottom line by about BRL 40 million. But once again, if we exclude nonrecurring items that we had both in FPS and retail, we would have had a quite positive variation because last year, we had about BRL 58 million, almost BRL 60 million of nonrecurring items. And therefore, it's a quite positive variation for the period.

The last slide, #12. You can see the cash flow. I think that you should pay attention at the -- more working capital. Because of more sales, our receivable portfolios have increased by about BRL 100 million, which is a quite positive factor and will drive the FPS results over the next months. In terms of leverage, this is also under control, 1.5x. And everything is under control. These were my considerations, and we are here all available to answer your questions.

[Operator]

[Operator Instructions] The first question comes from Mr. Felipe Cassimiro from HSBC.

[Felipe Cassimiro de Freitas, analyst]

First of all, Adalberto, thank you for the explanation about the positive impact in same-store sales. Could you give us a little bit more color on how are the price recovery, the improvement in traffic and how is e-commerce also contributing to same-store sales, as it is not yet representative as a share of the revenue? Secondly, if you could give us a more qualitative idea about the month of April and Mother's Day also? Are you still keeping the same trend as you had in the first quarter?

[Adalberto Dos Santos, executive]

Felipe, this is Adalberto. First, about e-commerce. E-commerce has been presenting quarter-after-quarter positive results, and we have been working very hard to attain that. We have a new platform: Omnichannel has demonstrated to be a very significant leverage for the share of e-commerce. So I think that we will disclose this business today is like 3.5% of the company's revenue, and in -- last year, it was 2.5%. And it is evolving very well. January was slightly stronger because of our markdowns, and non-promotional items also had a quite significant growth about -- accounting for about 50% of the sales [ pool ] margin.

And in February also, we had quite interesting dynamics. In -- March started slightly weaker, and there was a recovery on the last 15 days. So overall, the quarter was relatively well balanced. April started -- continued what started in the second half of March, and then it slowed down. And you must have heard this from many retail store owners there has been a slowdown in retail as a whole, in the industry as a whole, which is then increasing competition. So at this time of the year, that our winter and non-winter products -- non-winter products are selling very well, but for winter products, we still depend on the weather.

[Felipe Cassimiro de Freitas, analyst]

And then secondly, I would like you to tell me more about your financial products. The overall dynamic that has been dropping successively in your revenues because retail sales were very weak last year. So when are we going to see a reduction in the share of financial products assuming that the retail sales continue to be strong and positive?

[Adalberto Dos Santos, executive]

I think that the drop in revenue really is related to the performance of retail and the sales [ along ] with the higher -- the increase in the portfolio of about BRL 100 million, which is very significant for the size of these portfolios. It will provide better results in terms of revenue. The FPS team, together with operations, they are working in terms of the value proposition of our cards. Some results have started to show. The results we had in April confirm this. And I think that the trend is for stabilization and gradual growth from now on.

[Operator]

[Operator Instructions]

[Unknown Executive]

Please, there's a question being posted on the webcast is about the stores and new closings as reported in our last call. We said that we would be closing stores. We have closed a few ones, and -- but we have canceled 2 of those closings, and another 3 will be closed by June. Apart of that -- apart from that, we are not expecting any new store closings in the first -- in the second quarter.

[Operator]

[Operator Instructions] And we are now closing our questions and answers session. I would like to turn the conference back over to Mr. Adalberto Santos for his closing remarks. Please, Mr. Santos.

[Adalberto Dos Santos, executive]

I would like to thank everyone for your participation in your -- our conference call. I hope you have liked our performance and our results. I would like to invite you to come to our stores. We have beautiful collections and so that you can buy your Mother's Day present. Thank you.

[Operator]

Marisa's conference call has now ended. We thank you for your participation, and we wish you a very good afternoon. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]