Marisa Lojas SA

BOVESPA:AMAR3

Earnings Call Transcript 2021-Q1

[Operator]

Good afternoon, ladies and gentlemen, and thank you for holding. At this time, we would like to welcome everyone to Marisa's Earnings Conference Call for the First Quarter '21. We would like to inform you that this event is being recorded and is available on Marisa's IR website. [Operator Instructions]

Please bear in mind that forward-looking statements made during this call referring to operational and financial goals and projections are based on the beliefs and premises of the company Board as well as on information currently available. They involve risks, uncertainties and assumptions as they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Marisa and lead to results that differ materially from those expressed in such forward-looking statements.

We will now turn the conference over to Mr. Adalberto Dos Santos, the Chief Financial Officer and Investor Relations Officer.

[Adalberto Dos Santos, executive]

Good afternoon, and welcome to Marisa S.A. earnings conference call. We will speak about the figures and the operations for the first quarter '21. We have here Marcelo Pimentel, CEO; and our Operations Director. I'm going to very quickly read the figures for the quarter, and then we will speak about the evolution of our operations in the period and what is happening in the second quarter.

We begin on the presentation on Slide #2, therefore, where you see the net revenue evolution with a drop of approximately 30.5% year-on-year, comparable same-store sales with minus 16%. In the year 2020, we had several days with the closing down of stores. This year, 30% of our stores were closed once again. And the entire month of March, with all of the brick-and-mortar stores quite impacted by this lockdown, the digital platform with a significant growth of 67.3%, very important because it's based on a relevant base of 2020; and in 2019, with a growth of 52.5%. One of the main leverages of our digital platform was the app with 5.5 million downloads. And for the quarter, 45% of the sales were done digitally. At present, of course, the figures are much better, and Pimentel will remark on them.

In Slide #3 at the top, you see the evolution of our gross profit with a loss of approximately 30% due to the sales and gross margin with a small evolution vis-à-vis the year '20. It's an important evolution as it has continued for the second year. We had a reversion of BRL 30 million that we have for provision. The normalized would be 43%. So this is a consecutive evolution. On the closing of March, this margin was over 40%. In April, once again, and now we are up to 50%. This is due to the stocks with a structure that is being better managed vis-à-vis what happened last year on the first quarter and also an increase in the margins of our digital operation.

At the bottom, the evolution of SG&A, another drop of 17.8% thanks to the actions put in place by the teams during this period. Of course, these are temporary reductions. But at least 10% of the 17.8% refer to structural reductions due to the exceptional leverage of the company that Marcelo Pimentel will refer to. And of course, this is one of our main points, the leverage.

We go on to the next slide, #4, to speak about the contribution margin of our Financial Products and Services. We went from BRL 104.5 million to BRL 146 million. Of course, we had some nonperforming portfolios. But we have the margin very similar to that of 2020 for our home products with the same contribution margin for an operation that has a receivables portfolio that is 26% below that of last year. The portfolio reduced by 25% but delivering the same contribution margins, thanks to the better performance of the stores here.

In the next slide, you see the evolution of our private label. We have a drop of 6% in our portfolio. It was 7.7% in the first quarter last year. And in the graph below, a slight increase, and this is due to what happened last year in this period. But our internal teams are already working on a recovery.

We had a significant drop in the personal loan, 3.9% of our portfolio vis-à-vis 6.3% in the first quarter '20, once again, with 21.9% vis-à-vis 27% last year. Now these are small movements and below the movements, very similar to what happened last year, thanks to the actions that have been put in place by our recovery teams.

In the following chart, the evolution of the consolidated EBITDA. BRL 8.8 million is significant contribution. BRL 99.5 million, below in red, the recovery of the retail market, not very different from what we had last year. Last year, we had only 10 days of impact of the pandemic, while this year, the entire first quarter had the stores completely closed down.

On Slide #8, the evolution of our net results in the company, a recovery, BRL 53 million negative but a significant contribution vis-à-vis 2020. And in the coming quarters, we expect to move towards the positive field for bottom line.

Finally, the cash flow. At the top, the impacts of the cash flow, the better operational cash flow vis-à-vis BRL 193 million. This year, it was BRL 143 million. Of course, it would have been better had it not been for the lockdown. But we did have a recomposition of our inventory in terms of cash. A net debt BRL 60 million higher than last year, which is quite reasonable for a period of 14 months of pandemic with a very relevant impact, BRL 400 million, BRL 450 million negative in the company's bottom line during this period and only an increase of BRL 60 million in our net debt.

Now these are the figures that I wanted to mention. I will now give the floor to Marcelo Pimentel.

[Marcelo Pimentel, executive]

Thank you, Adalberto, and a good afternoon to all of you. It is a pleasure to be here with you and to speak about the results of the first quarter '21. The first quarter was one more period where the company had to focus its attention on countermeasures to face up to the second wave of COVID-19.

Besides the measures to guarantee of financial security, we also adopted several measures to guarantee the operational capacity and our ecosystem. We had the protection of our suppliers and the entire expense structure, for example, where we based ourselves on the experience of the first wave of 2020. Despite all of these challenges, the company moved forward in its strategic agenda, especially in the commercial and digital areas. Because of our multi-channel agenda, we are determined to consolidate Marisa as a platform for women in Brazil.

In concrete figures, we see that this strategy is being materialized. First of all, our main ambition is to focus on women, to foster self-esteem in women, and we have observed this in our NPS scores. Our operation continues to deliver levels that were never delivered formerly, continuous growth. And in April, we went beyond 80 points of NPS in our brick-and-mortar stores. This already is a benchmark for reference in the market. Our commercial value proposition will lead to the sales growth and gross margin.

In the first quarter, we concluded the review of the assortment of our products. This is imposed by the pandemic, and we are now focusing on products that offer you comfort because of the fact that everybody is home. We already have positive results in the top line. Despite the lockdown of stores, we maintained our inventories under control, operating on the average 30% below what we had in the past. This enables us to operate with a healthier cash flow, reducing the need for markdowns that we used to have in our recent history. Our low-cost products, once again, have been a very important pillar for our strategy. And the first quarter allowed us to show our ability to manage the business with considerable productivity gains in our operations with the nominal reduction of SG&A of 17.3% (sic) [ 17.8% ] vis-à-vis the year 2020.

Our mission is to be the platform for the woman, and we integrate all of our strategies. The integration between stores, apps, financial services and the experience of women customers have given us good results. In the first quarter of '21, we inaugurated our first dark store operation in São Paulo, and we were able to offer our customers shopping with a reduction in lead time with freight and logistics cost.

We worked with digital sales through social selling, WhatsApp, live shop, the drive-through structure that we have in more than 70 stores. We have more stores that have been enabled, working with the ship-from-store model. 100% of our stores are doing this and with a buyback percentage that is above 35% for all the women who come to withdraw their products.

Our app is a great protagonist. We have gone beyond 6.3 million downloads. Our share in the app as part of the total sales of the company goes beyond 71% of all digital sales, and the conversion rate of the app is 132%. The ranking of the category has been growing week after week. And in the quality assessment of the app, we are benchmark. We have the best score among all the magazines stores in Brazil.

Now the engagement, the average time of navigating, goes beyond 6 minutes 14 seconds, which is above the market average. And the monthly average users are more than 2.5 million, which means that we have been able to attract women, have them buy, experience the app and come back with an average ticket that is 5% above the traditional average.

We're digitizing our stores, and we're offering truly exceptional experiences like self-checkout, the activation of discounts on the app and personalized offers. Now all of these initiatives are in a pilot phase in brick-and-mortar stores and will be implemented in the rest of our network. We have new store models in the Dom Pedro shopping mall close to São Paulo with very positive results, and we're going to do this with a greater number of stores till this year to confirm the results before initiating the rollout and expansion in 2022.

Our IT area continues to move forward with projects and automation. We have impacted 10 process areas. And until the end of the year, we will get to 40 projects with an investment of BRL 45 million, enabling us to gain productivity and structurally reduce our expenses.

Our Financial Products and Services area continues to have a sound performance, and we have had a very good penetration in the app. 40% of our customers with a card buy on the app using the Marisa Card as a means of payment.

To speak about the second semester, although we are concerned with the negative reflex on the first semester, the scenario that we observed after April '20 has proven to be much better than we expected. Most of the stores are operating with a positive top line, many with a double-digit growth vis-à-vis the year 2019, and we're speaking about same-store sales here. Mother's Day was the crowning of all of this movement. On the last weekend, we celebrated Mother's Day, and we had a high double-digit growth vis-à-vis the year 2019. This was the best figure we had in the last 5 years not only with the growth of sales but also with gross margin.

So at this moment, we reaffirm our confidence in the strategy that we put in place since 2018. We have been very assertive with our customers. We're undergoing a positive moment of transformation in the company with a rapid resumption since the stores were reopened. We have a commitment of bringing fashion to our customers at accessible prices.

We are now at your entire disposal should you have any questions.

[Operator]

[Operator Instructions] Mr. Richard Cathcart from Bradesco Bank would like to pose a question.

[Richard Cathcart, analyst]

Pimentel and Adalberto, I would like to ask once again on your gross margin. Pimentel, you said that now that the stores have reopened, you have seen an expansion of your gross margin. Is this comparable with the year 2020, 2019? Is it sequential?

The second question refers to your stocks, considering that this reopening has turned out to be better than you expected. How do you feel about the entire second semester and the need perhaps of having to hold a relevant sale?

[Marcelo Pimentel, executive]

Thank you for the question. Let us first speak about gross margin. The comparison is always with the same-store sales in 2019, and we have been very cautious to guarantee that we have comparable basis. What we have observed is a growth of this margin, a structural growth in all relevant categories. We had an exponential growth in the sale of lingerie, which is our main item, a growth with profitability. We see that the women's wear is resuming the relevance it has with profitability, and accessories for children and for men have also had an increase in sales with an adjustment of inventory and with profitability.

All the work that was done in 2020 to reduce the inventory, and this takes us to the second question, has enabled us to operate with a quality stock, with good management, guaranteeing that this product will get to the end with great expeditiousness. And this will reduce the need for markdowns. And this has happened with very relevant categories. We're referring to the basic categories that begin to have a very good performance, and this is a very relevant category and a structure where we have focused during the moment of the pandemic, where we have concentrated our strategy on selling mass products, tableware products with very good acceptance among our customers. And these are products where we can generate a very good margin and a lower need for markdowns.

When it comes to our stocks, once again, we had the opportunity, the result of everything we did in 2020 because of the structural reduction in stocks. One of our main concerns in the second wave of COVID-19 was to work actively controlling the stock, not allowing it to grow again so that upon resumption, we would not have to have the need of working with aggressive markdowns. And this has happened since the reopening on April 20, where we have grown with a double-digit growth vis-à-vis the year 2019. And Mother's Day, of course, was a highly important date. It's the second most important day during the year for us, and we had the best figure in the last 5 years with the growth of gross margin, a very positive sign of the work that we have done under the leadership of Adalberto and the sales team. And we're now harvesting the results.

We continue to work with stocks that are 30% vis-à-vis the same period last year, and this will enable us to continue to move forward aggressively. Now markdowns and seasonal sales will, of course, continue to take place but differently to what happened in previous years. We're not going to do anything outside of the traditional calendar.

[Richard Cathcart, analyst]

Excellent. If you allow me a follow-up question, the drop of SG&A truly is impressive. I would like to understand if this price will go up again as the stores open. And how much of this is truly structural?

[Adalberto Dos Santos, executive]

Richard, thank you for the question. This is Adalberto. Now we had a participant in the call, Carlos from the webcast, also made a very similar question, which were the great contributors to this reduction of SG&A. Now perhaps this doesn't apply to the entire year, but at least 10% refers to a structural reduction. We did this in the second semester. We had additional contributors, and we were able to move up to this figure.

Now which are the measures adopted? It is a set of measures. The ones we worked on during the first wave of the pandemic, optimizing the activity of our associates in stores, once again, with the contribution of multi-channel worked. And we changed the structures. And we also implemented remote work, which will probably continue on even after the end of the pandemic. This, of course, improves the quality of work, even when we go back to normalcy. And it does bring us some savings. Pimentel also referred to the impact we had on processes that have had a significant contribution, and this contribution will reach BRL 45 million.

And finally, perhaps one of the greatest contributions is what we did in stores, the renegotiation of all of our contracts. We began that last year. We continued to do this, intensifying this during the first quarter. It's all the contracts of the company, not only the lease contracts. All of the contracts, absolutely all, have been reviewed during the period. And the result is a highly efficient company because SG&A should not represent more than 10% in terms of a variable component. And as we attain our top line, this will have an impact on EBITDA. This is the leverage, and we're fully convinced that this is the best in the Brazilian operation, certainly the best by far. And this was not done in detriment of our operations. The same-store sales continues to make huge strides during 2020 and also during this first quarter, despite all of these changes.

[Unknown Executive]

I would like to respond to the question from [ Guilherme ] from Safra Bank. There is a highly competitive impact and the impact of the pandemic, and those that are competing with Marisa perhaps are beginning to think that they will not survive.

Yes. [ Guilherme ], thank you for the question, a very direct and pragmatic question. Yes, unfortunately, this is one of the dire consequences of the pandemic. But for my view, that has brought about a benefit, especially the consolidation of the street stores. 30% of our sales are carried out through these stores. In the resumption, we see a reduction of informal and regional players. And in shopping malls, there has also been a reduction of franchisees who have smaller stores. And our value proposition contributes towards this enhancement of the results of Marisa.

Since the beginning of the project, we have worked with the mission of offering fashion trends with accessible prices. And at this point in time, Marisa is perfectly well poised to face the demand of our customers and that of other players who have had an impact on their disposable income and deem that Marisa is a feasible option to buy fashion but at a good price. We have seen an increase in the percentage and the share of products that are sold at full price because our products are in accordance to the needs of these customers, and this is one of our strategies. The final cost is better than those of the competitors.

So we have seen a benefit in these 2 channels: one, because of the reduction of local competition due to the pandemic; and secondly, better adherence to our value proposition in the moment of the pandemic that has brought us new customers and new flow into our stores. This was made very clear. Last week, I was reviewing the figures of our store in the Dom Pedro shopping mall. And there have been younger customers that are more affluent visiting our store, buying from our store. And the NPS of that store has increased in terms of quality. And we're fostering products and good service. And this is the proposal that we have to enhance the experience of our customers. The answer is yes, and we do believe that this will continue on in coming quarters.

[Operator]

[Operator Instructions] The next question comes from Bob from Bank of America.

[Robert Ford, analyst]

Adalberto, what are you thinking about the recovery of the credit business and the attributes that your products will need to maintain their relevance as there is more development in Brazil?

[Adalberto Dos Santos, executive]

Thank you, Bob, for the question, an excellent point. And of course, this has drawn our attention. It has been a matter of concern for approximately 1.5 years. We do have a team that is focusing on this issue. Our financial team has been very efficient. I think the figures of the first quarter are proof of that in a complicated moment. And this is what has happened in the last years, a very resilient team.

Now of course, we're part of an industry that, for some time, has been disrupted with the entry of new digital operations implemented by store owners, others and banks and digital operations and the Central Bank regulator motivating competition. Of course, this is a business that does not have a risk in the short term, but we do need to have a strategy for this. Additionally, we have hired highly specialized consultants to help us in this turnaround, this inflection. And this ended up in a project that has 3 pillars: Altering the portfolio; creating a business unit with its own identity so that we can go more in-depth into this; and I don't know if you are aware of this, but we do have a business unit focused on credit. We have the credit card, but we also offer other financial options. And in the coming months, you will hear more from this project.

This is a business that will have its own identity, its own look and will connect especially to the Brazilian woman who is the focus of Marisa, offering products that will be completely changed around to have a better connection with that segment. And it will be a business with enormous integration with our digital business, allowing for synergy among both operations that already happen in the brick-and-mortar stores that will now migrate to the digital environment.

Initial results show us that the way we have designed this project, and that we have started to announce it, will have the power to revitalize the portfolio. It will be very powerful, and it is something that causes us a great deal of enthusiasm. And it is a pleasure to share with you this new stage that will begin very briefly.

[Operator]

[Operator Instructions] At this point, we would like to conclude the question-and-answer session. We will now return the floor to Mr. Marcelo Pimentel for his closing remarks.

[Marcelo Pimentel, executive]

Now before we conclude, I would like to give the floor to Adalberto to respond to a question from [ Sergio ] on the performance of new categories and categories that are part of our commercial area, all categories basically since the reopening.

[Adalberto Dos Santos, executive]

It's a pleasure, [ Sergio ]. Now all of these categories are doing very well, as was remarked very generally with the growth of 2 digits. We are referring to the home fashion that is being marketed through the site, and our performance there has been highly productive. And in our brick-and-mortar stores, we have seen a pickup in pace, especially because of our partnership with Argentina.

In other categories, since the reopening, we have been growing at a 2-digit growth. And we have had an excellent resumption of all the lifestyles and especially the child segment through our portal in Marisa. Now this is because we have been working very productively since the end of last year and the beginning of this year, especially in March and April, where we're attempting to maximize profitability by reviewing our entire assortment and having a closer relationship with our supplier base. We have practically doubled our supplier base. We have optimized it, and now we have a much closer relationship. And of course, this has aided and abetted our results, and we're having an evolution in our products.

We spoke about our NPS. In 1 year, we went from 50 to 80, partially due to the operation, to the store operations and also because of the evolution of our products. Our products are being well evaluated by our customers. And of course, they have better quality. Thank you very much.

[Marcelo Pimentel, executive]

Thank you, [ Sergio ]. I would now like to conclude by reaffirming our vision of the second quarter and year to go. Beginning now, we have consolidated the entire process. We have transformed Marisa in a platform for women, one that is ever more digital with brick-and-mortar stores. And the structure is a mandala that is connected and will strengthen this perception among women, all the way from the collection, the insertion of marketplace, where we will begin in the third or fourth quarter of this year with complementary categories based on our value proposition. And what we have already in our stores is connectivity with women, with click and with drop ship from store. We have figures of 25,000 partners in terms of our social selling, and the marketplace is becoming ever more consolidated as a feasible alternative to platform for female fashion and lingerie. We have the automation project, the presence of financial services as part of our strategy.

Now all of this, always placing the women at the center of everything that we do. And of course, crowned with the NPS, which confirms the work that we have done in the digital experience and in brick-and-mortar stores. We're highly optimistic with the resumption in terms of the sales growth that we see since mid-April. Our work continues to focus on delivering the budget that we planned. And the way that the market has reacted has been a reaction to our value proposition. This is very encouraging and should improve in the year to go.

I would like to thank all of you for your presence, thank our team that played a very important role this quarter and convey to you the confidence that we have in the future. Thank you once again. Have a good afternoon.

[Operator]

The Marisa conference call ends here. We would like to thank all of you for your participation. Have a good afternoon.

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