Marisa Lojas SA

BOVESPA:AMAR3

Earnings Call Transcript 2021-Q2

[Operator]

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

Bear in mind that the forward-looking statements made during this call referring to the business forecast, operational and other goals are based on the beliefs and assumptions of the company as well as on information currently available. These forward-looking statements are no guarantee of performance, may 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 other operating factors could affect the future results of Marisa and lead to results that differ materially from those expressed in the statements.

We would now like to turn the conference over to Mr. Adalberto Santos, the CFO and IRO, who will begin the presentation. Good afternoon, Mr. Santos you may proceed.

[Adalberto Dos Santos, executive]

Good afternoon to all of you. Welcome to our conference call to release results for the second quarter '21 for Marisa S.A. We have our CEO, Marcelo Pimentel; Rodrigo Poço, VP of Technology; and Renata Coutinho, the Director of IR.

We would now like to go on to the presentation on Slide #1. A very quick summary of our figures. As you were able to observe in the release, we had an impact on revenue due to the restrictions on store operations and the economic slowdown that began in April. And we had a slowdown, a slow beginning in June. Strong sales for the digital platform, and it continues to grow, and this holds true to the other pillars as well. This negative sales impact continued to perform positively.

Despite this, we are at appropriate levels with a better quality of our inventory. We're maintaining our lower structural SG&A, our MBank's portfolio recovering to normalized levels and close to historical low provision and cash leverage position stable vis-à-vis second quarter last year.

On Chart #3 to the left, a graph, which shows us the difficulties with the stores during the period in gray at the lower part of the bar. In April, only 13% of the stores were operational. In May, this increased to 31% and in June, to 35%.

We had -- operating our restrictions, 59% in April, 67% -- and more than 63% in June. In June, a strong retraction, and we're referring to figures that refer to up to 35% retraction in June.

On the positive side, the conversion had a good evolution. And of course, it converses with our NPS. And this offsets the slowdown in flow. I'm referring to a conversion of 15% to 20% throughout the quarter. In the following chart, the retail sales performance evolution to the left in absolute values, BRL 492 million for the second quarter '21 after the impact we had last year when we closed down with BRL 49 million. Now in the pointed line compared with 2019, when we did have growth, you will recall that we recovered our top line with a growth during the semester. This is positive in the second quarter. And compared to this positive base, we had minus 6.1%.

Now it would be positive 0.8%. And this is what we're trying to show you in the upper graph at the right. To the left, we have 0.8%. In the gray bars in the middle, in the graph, the evolution month after month. April positive, May slightly positive and June, a very strong retraction in flow and negative results. It is important to mention that in the third quarter, we once again became positive in July somewhat more timidly, and in August with stronger figures.

We go on to Chart #5 to refer to our digital retail sales month after month. To the left, beginning in January from the left to the right. We were positive 139 in May, 191 in April, a significant growth. Now you can see the average for the month. And of course, the base of comparison is quite strong. And digital sales growth, all in all, was 14% with an impact on the total of the company. Part of the stores are already operational, and therefore, the retail represents 14% of total sales coming from digital sales.

Formerly, this was only 5.6%. In 2018, 3.6%. So you can observe a positive evolution in the last 3 years. To the right, the evolution of our app. In the close of June, 67% of sales went through the app, 67%. And representing 8.8 million downloads at the end of the second quarter of '21. Now these figures have been surpassed, and we will be referring to this very soon.

In the next page, the gross margin, gross profit with a positive evolution, especially in the month-versus-month comparison vis-à-vis 2019. Of course, there was a pressure because of the need to maintain appropriate inventories, and we have to use the appropriate comparison base. We're comparing June 2019 to June '20, and you see a strong retraction in margin, practically 3 percentage points, a figure which is also being repeated that interaction dynamic of retraction is something that we're able to observe once again in June.

We're maintaining 22.6 million items, approximately, which allows us to make strides, and our markdowns have been 50% lower than in previous years on the average. So quite positive results due to the appropriate levels and because of the better quality of our inventory.

In the following chart, the evolution of SG&A broken down in selling expenses and G&A expenses. At the top, the selling expenses, and we have the absolute values compared with 2019. We have a significant gain. And of course, all of this arises from the actions we have mentioned in previous quarters. These are actions for a structural reduction, and we're on our path to a greater efficiency and, of course, on a path to automation and a renegotiation of all of the contracts.

Now we consider expenses based on square meters that went from 47 to 500 and more. These are simply nominal figures with a growth of 10%. And we had a drop of 20% in real terms. Below the same analysis in absolute values, BRL 34 million vis-à-vis BRL 41 million in the second quarter '19, and in the dotted line, a 133 per square meter, down to 88. And this becomes ever more relevant when we apply the direction based on the figures of 2017. It increases to 160, representing a drop of 40% in the SG&A of the company. And of course, all of this related to an operating enhancement, remote work and the automation of processes through RDA.

Now SG&A dropped from 820 to 620, a reduction of 25%. What's important is to recall that only 10% of the expenses of the company had a legacy. So we have had a very good deleveraging in the company. In the following Chart #8, the results of our newly born bank with a positive contribution margin, 64.5% vis-à-vis the 2 previous quarters, a total of BRL 57.5 million, compared to BRL 101 million. BRL 24.9 million in terms of contribution margin compared to what we had last year. So this portfolio is still under recovery, and this is an in-house product, and we're having, of course, a drop in the retail sales during the last periods, and we will have that quick recovery, as I mentioned.

In the following Chart #9, the portfolio loss. To the left at the top, the losses on the portfolio that are already dropping to a level below our historical level of 2017 to '18, we end up with 8.6%. Once again, losses on the portfolio. And as we operate with a more conservative provision for doubtful debts, 1.1 in the past, we're now at 8.6%. What is also positive is the accelerated recovery. And so we see a positive EFFICC. We had a peak in March, repeating the same dynamic of last year, and it now dropped to levels even below historical levels for this season of the year.

So this portfolio is in a rapidly accelerated recovery. We have 10% to 12% of regulable products in the portfolio. Now this is due to the strong share of participation, 7.1 percentage points, relevant gain in share of Marisa cards. And this is the best share so far in this segment due to exceptional work, of course, and also due to the fact that we made available these products and especially the private label. And we will give you more details in terms of these movements that the company is making.

On Slide #10, the same analysis for personal loans and the dynamic is the same. To the left, once again, at the top, 7.7% of loss on the portfolio, very close to the levels of 2019. And in terms of overdue accounts, and we have the lowest percentage in the historical series. The EFFICC with this dynamic has a peak in March and then drops to levels that are very similar to historical levels.

Now this portfolio is undergoing a somewhat slower recovery process due to the more conservative concessions. While the private level portfolio is at 12% below the normalized level, this portfolio is 30% below the normalized portfolio but with that trend going upwards.

On Chart #11, the consolidated EBITDA, we ended with BRL 20 million negative, but with a recovery compared to the second quarter last year. We would like to remind you that we're considering the IFRS effect. If we weren't considering, we would be at BRL 40.5 million.

In the next chart, net results with a very similar curve. After the peak in the second quarter last year, a rather rapid acceleration, reaching BRL 60 million.

Next chart, #13. Our cash flow. At the top to the right, what we call the primary cash generation. Our EBITDA is still negative, but with a lower impact of BRL 10 million with a better growth generation vis-à-vis last year. And we would like to remind you that in the first quarter, the company went through a recovery and recomposition of historical portfolios. We consumed more capital. While less than what we consumed last year but still strong. And despite all of this, we ended with a very good cash balance in the last 12 months, a continuity of the pandemic that began before June of last year and a minor impact on net debt.

Net debt, when we analyze it in the traditional way, we see a growth of BRL 50 million to BRL 60 million only. Now when we analyze it with an adjustment of the receivables portfolio, third-party cards and other factors, the drop is BRL 417 million to BRL 363 million. And you see the capital structure and a very robust balance.

In the last chart, #14, we observed the evolution of our net debt. BRL 417 million, a growth of 52% in gross debt, change in [indiscernible] and a change in third-party cards and growth in this portfolio. With this, we end this quarter at BRL 363 million.

Very well. This is my part, and now we will give the floor to Mr. Pimentel, who will speak about the evolution of the company's strategy.

[Marcelo Pimentel, executive]

A good afternoon to all of you despite the challenges and the drop in flow mentioned by Adalberto. And due to the operating hour restrictions for stores, we had a growth in sales, and we know that there will be a market resumption that we will refer to further ahead.

During the second quarter, the great highlight was after April 18, with the reopening. And of course, the second seasonality, which is Mother's Day, where we had the best Mother's Day in the last 6 years despite the period of restrictions, and the sales continued to prove a relevant growth pointing to the productivity of our stores and the gradual enhancement in gross margin that is being recovered. And this shows that our commercial strategy is having a positive effect.

We refer to strategic milestones. And the main one was the nomination of our Chief Digital Officer, who is here with us today. This is one more demonstration of our commitment to the digital strategy for the future of the organization. As we have mentioned, this has gained ever more relevance. And in the second quarter, referring to 14% of sales as part of total sales. Well, the APP downloads are the main tool for the platform for women. We have already surpassed the figure of 10 million downloads, the greatest load -- the greatest figure in the retail market.

Now 67% of our digital sales take place through this APP, and we continue making strides in terms of intelligence and CRM through the APP. We have notification and geolocalization, representing more than 30% of our CRM. Our multichannel customer base had a growth of 50% vis-à-vis 2020.

And its representativity as part of Marisa as a whole had a growth of 60%. Our multichannel revenues had a growth of BRL 114 million vis-à-vis the same period last year and was responsible for 21% of the share of this channel. We continue to move forward very quickly in our multichannel strategy. Now the launch of the Sacola de Vantagens the sale bag was very important, and it has enhanced the multichannel experience of our clients at home and in our stores. This has been activated in 100% of our stores. And last month, we had more than 10,000 transactions arising from this experience.

During this period, we continue to offer our products through several channels, WhatsApp and others that are present in our APP. The greater highlights for the semester was the launch of a space devoted to women with relevant content about health, education, curatorship with partnerships devoted to women. We have had more than 16,000 visits confirming that women adhere to this proposal. We will have the official launch of this new product in the market.

Now the digitization is another highlight in the quarter. We have 13% of conversion for cars that have been offered through the APP. More than 20% of all personal loans are taking place in a digital way and outside of our brick-and-mortar stores. Our dark store model in São Paulo continues to confirm how assertive our choice was. We have an improvement of 30% in delivery terms in São Paulo, a reduction in terms. And we're going to expand this model. And in the third quarter, we're going to inaugurate the second dark store in Minas Gerais. And until the end of the third quarter, we will have 3 additional openings throughout Brazil in strategic geographic sites, the Southeast, Rio de Janeiro, Bahia and the Federal District.

The automation project has been fully concluded and is already showing a good control of the expenses of the company. We were able to show this in our statement of results. We have had an increase of product sales within stores, a reduction of personnel and an improvement in our service. One of our great concerns at this point is the NPS that continues to be a very relevant and important metric for our success.

We continued on for 6 consecutive quarters with improvements in our NPS metrics, especially in the digital channel the greater highlights are the store experience, agility in cash out and the experience of our customers. What I would like to highlight is that improvement in the perception of the delivery of our products in the brick-and-mortar stores and otherwise. All of this work has been carried out by the team, and we have ended up as the finalist for an award in Brazil. And through a popular vote, we ended up among the 7 most voted companies and with the best classification as a retail fashion company in Brazil.

If we look at the outlook for 2021, despite the macroeconomic scenario, because of the acceleration of the National Vaccination Program, this will be viewed positively to the retail market. The last 2 months already point towards this enhancement. We have a better sales result vis-à-vis through 2019 to '20. Our commercial initiatives are being rolled out in the stores, and the results of these stores are very encouraging with a double-digit growth compared to stores where this has not been rolled out yet. This rollout process will end in September.

Our commitment towards the company have proven to be very assertive. We had the opportunity of having the highest level of novelties and products for our customers. And despite the challenges of the pandemic, we were able to have a substantial enhancement in the gross margin of the company vis-à-vis 2019 and a significant enhancement when it comes to 2020. The resumption of sales and the excellent management of expenses has given us a very good operating level for the second semester.

We have tested our new store in Campinas. And because of the success, we're going to renovate another 2 stores in the state of São Paulo to expand this pilot and to prepare the model for the year 2022. The digitization process in the company will continue, and we're going to digitize the MBank portfolio. We're on the right path for the marketplace in for women. The expectation is to have this running in October of 2021, and we will begin the process of rollout and expansion in 2022. We believe that we have the right strategy for the resumption of the company now in the second semester and going forward.

I would like to thank all of you, and we are at your entire disposal for questions and answers.

[Operator]

[Operator Instructions] The first question is from [indiscernible] from Bradesco Bank.

[Unknown Analyst]

I would like to gain a better understanding of how you're going to act on the gross margin. What happened in July that led to a decrease? And I would like to know how you think this gross margin will evolve in the longer term.

[Adalberto Dos Santos, executive]

This is Adalberto, [indiscernible]. Well, in June already, it was quite weak. We had a gain of 3 percentage points in the margin. It was somewhat below in April. And this is due to the team's exercise to have more balanced inventories. This is because several of the stores have been closed down in April, and we had begun a process to replenish our inventory, and we had to have a more commercial strategy so that the stock would not become obsolete. We had a gain of 3 percentage points. And in June, this dynamic was repeated now with the same magnitude but with a gain in gross margin. We have spoken about the future expectation of this dynamic. And we believe that with the present day technology that does not use SID or a distribution center, SKUs, the company will very quickly go beyond the 50% in the short term.

[Operator]

[Operator Instructions]

[Marcelo Pimentel, executive]

We have a question that has come from e-mail from Roberto [indiscernible] . And that asks us to detail our CapEx investments expected for the coming years.

Roberto, thank you for the question. We have a pluriannual planning in the company and it contemplates some strategic points that are important. Evidently, we want to continue to accelerate in terms of our digital strategy, and we see important opportunities to work with all of our legacy process, and we can begin receiving new technology. We mainly want to move forward with our APP as a great hub that will materialize the platform for women.

And secondly, we're going to look at other opportunities that we're still not prepared to disclose about digital channels that are new and the opportunity for growth for the company. Now if we put aside the digital part, as I mentioned at the end, we're extremely satisfied with the performance of our new store. This year, we will be investing in 4 renovations more, which will consolidate our vision for this new model. And if this confirms our expectations according to our pluriannual planning, we will be offering this product with renovations and expansion beginning in 2022.

[Operator]

[Operator Instructions]

[Marcelo Pimentel, executive]

We have an additional question from Pedro [indiscernible] from [ Safra Bank ] referring to the drop of sales in June. And what is happening with sales in the third quarter as we have mentioned here, Pedro, we had a same-store sale drop in June after the Mother's Day in May. As we mentioned at the end of July and during the month of July and the beginning of August, what we have observed is a significant growth in same-store sales and an improvement in inventory management, also leading to better margins and better sales. What we expect in terms of performance for the third quarter, up to present is quite optimistic with the growth, both in sales and in margin.

[Operator]

[Operator Instructions] We have Carlos from 3R investments.

[Unknown Analyst]

If you could remark on your capital structure, structure that you disclosed? And if you could give us more color on this, please?

[Adalberto Dos Santos, executive]

Carlos, this is Adalberto. Well, there's not very much that we can add beyond what was said in material facts. Well, beginning with MBank, we are going to have to start with branding. We have the Marisa signature at the bottom. And this has been granted to Marisa, but we wanted to grow outside of Marisa. What we are doing, and that was mentioned in the material fact was precisely this: To begin conversations on potential partnerships for capital and otherwise. With funds that specialize in fintech, for example, we want the MBank to be operated to bring in products and to be considered as a fintech, the fintech for Brazilian women. This is the movement that we're involved in and everything was clarified through the material fact.

[Operator]

[Operator Instructions]

[Marcelo Pimentel, executive]

I am going to respond to a question that is coming in from one of our investors. He is 92 years old, and for many years has been investing in Marisa. Thanks for this long-term confidence. He has realized that in the release, there's an increase in the price of leases. Mr. [indiscernible], if you could please contact our IR department, they can give you more details. But in truth, we have a reduction in the last few years, significant reductions in our lease account. The negotiations have been ongoing in the last few periods. And we have been able to come to a new composition, whether it is for shopping malls or street stores. We do not have any stores that belong to Marisa. All of these are owned by third party. Thank you so much for your confidence and for your trust in us.

[Operator]

[Operator Instructions] As we have no further questions, we would like to return the floor to Mr. Marcelo Pimentel for the closing remarks. Mr. Pimentel, you have the floor.

[Marcelo Pimentel, executive]

Thank you very much. I would like to thank all of you for your participation. And once again state that, we are very confident in the company's strategy. Our vision is for a more positive second half of the year with stability in the retail market and the opening of brick-and-mortar stores. And once again, we're committed to growing the digital retail. Thank you very much, and have a good afternoon.

[Operator]

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

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