Marisa Lojas SA

BOVESPA:AMAR3

Earnings Call Transcript 2022-Q2

[Renata Coutinho, executive]

To switch to English, please click on the interpretation button. And this video is being recorded, and the presentations in Portuguese and English are available at Marisa's Investor Relations website. You are listening to the simultaneous interpretation of the conference call. [Operator Instructions]

Before continuing, we would like to clarify that statements made during this conference call relative to Marisa's operational financial goals and projections are based on information currently available. Forward-looking statements are no guarantee of performance.

Here, we have our CEO, Adalberto Dos Santos; Alberto Kohn, our Sales VP; and also Rodrigo Poço, our CTO. Now Mr. Santos is going to start the presentation.

[Adalberto Dos Santos, executive]

Good afternoon to everyone. Once again, thank you very much for your attendance. We have our Investor Relations team, and we have Alberto Kohn, our Sales VP; and Rodrigo Poço, our Chief Digital Transformation Officer and Technology Officer, too.

So going straight to -- the first slide or rather Slide 2, we had relevant improvement in retail revenue. Gross margin has been growing and the operating result has grown too.

We had a positive retail EBITDA, BRL 33 million, quite tentative but reversing the previous losses. And this affects cash flow too, which was quite positive, not just because of the positive EBITDA, because of the -- it's freed up working capital, positive operating cash flow in Q2.

And the Net Promoter Score, a very important indicator for the company, which is a target for all our executives, at the level of 77.3%, a very important number for us. It's well balanced. This number for physical and digital operations is very similar. So we are very happy about it.

On Slide #2, you can see the evolution of retail and same-store sales have already exceeded 2Q '19. So it was a growth over the previous quarter and the same quarter in the previous year of 21%. When we look just at physical stores, it's 9.7% growth over 2019 or 28.7% over 2021. Of course, this is driven by the excellent acceptance of our winter collection. We -- in April and May, we had some cold weather, but we were also supported by significant campaigns from Mother's Day and Valentine's -- the Brazilian Valentine's. So our main categories, women's clothes, it recovered. And we are resuming our social -- as people are resuming their social and professional activities, but also an important highlight to the auxiliary or side categories such as men's, children's, intimate and footwear. Men's has grown 61% against 19% and 24% as compared to '21, quite important numbers for us.

And then the next slide, you can see our retail sales. Digital sales have grown 28% (sic) [ 86% ] over 2Q '19 and a minus 23.3% versus 2Q '21 because of slowdown in e-commerce optimization of store operations. APP reached 65.3% of digital sales. And we surpassed by 16.4 million downloads at the end of the period. Monthly activity users, a significant number, and we can tell you how this operation has evolved.

On Chart #5, you can see the gross margin and inventory, which is important. We exceeded the 50% margin on average for the quarter, quite significant growth, 4.8 percentage points over 2Q '19 and even more important because we had a growth in all months of the period. So in June, as naturally, it dropped. This is seasonal so usually have a slightly lower margin. But even so, it was better than previous years. Of course, this is the result of the consistent evolution of our commercial strategy associated to excellent inventory management. And Alberto will talk about what has been going on and what we are expecting for future quarters.

In the chart at the bottom, you can see inventory. We have excellent inventory management. We closed the quarter with 18.5 million items in contract with 19.4 million. So you can see the numbers that we had in March and June 2020, 33.3 million (sic) [ 31.3 million ]. So a quite significant drop, which ends up being reflected in the markdowns that have dropped 45% as compared to 2019, a quite significant evolution in margin supported not just by the commercial strategy but also by the strict inventory control.

On the next chart, you can see operating expenses for retail. As I said, very efficiently managed. So we had -- selling expenses were 5.5% above 2Q '19, which translates into a drop of 14.5% in real terms after the re-composition of operating and selling expenses for physical stores and also higher investments in marketing. G&A goes in the same direction with a nominal drop of 0.5% in contrast to 2Q '19, an even bigger reduction of 5.5 -- 20.5% reduction in real terms. The company has been working hard to reduce costs and modernize our operations.

Now on Slide #7, you can see the evolution of our operating results, the contribution margin of our private label and co-branded operations. We had a rise in net revenue, so total revenues minus taxes and funding costs. So we had a high net revenue for private level and the co-branded cards in addition to additional funding costs that we are having right now. This revenue growth and the cost and expense efficiency ended up mitigating part of the impact of the increase that everyone is seeing in NPL. We closed the period with BRL 42.2 million net contribution margin in contrast with BRL 60 million in previous period, showing that the contribution from co-branded dropped BRL 35.5 million to BRL 25 million. And our private label, so the drop fell BRL 24.9 million. And our private label fell from BRL 35.5 million to BRL 25 million, all impacted by higher provisions.

On the next slide, you can see the evolution of the portfolio of receivables for private label. On the top right, you can see the evolution of losses. The line is at 9.3% over the total portfolio, reflecting higher provisions. On the bars on the same chart, you can see the evolution of total overdue over gross receivables. It's above average. So the initiatives that we have implemented to improve collection efficiency, in addition to being more conservative in credit concessions, are already beginning to show results, as you can see in the bottom right chart where we have the EFFICC. So you can see that we are getting better as to the top line above [ store ] funneling. And so we are getting closer to historical levels, and this has been confirmed for our July numbers and also in our daily monitoring for August.

On the next slide, the same analysis for personal loan portfolio here. So the loss was 7.9% of our total portfolio. And overdue, 32.7%, the number which is slightly above our track record but already in a process of recovery. Again, more efficiency in collection and in credit concession made the new [ rollings ] to indicate that these numbers are going back to historical levels, as you can see on the right bottom chart, where you can see the credit collection efficiency index.

Now on Slide #10, you can see our consolidated EBITDA. So you can see BRL 17.3 million, and so combining both our operations and the result was driven by the reversal of the losses in the retail operations translates in higher operational expenses, higher dilution of our operating expenses in retail with a partial impact from the negative Mbank operating result. So the retail was BRL 16.5 million negative for the Mbank and BRL 33.8 million positive for our retail operations. The net result, so it was minus 3.8% with an impact from the retail and then also the Mbank negative result and the increase in financial expenses with higher interest rates.

Now on Slide 12, we have the cash flow accumulated cash variation of negative BRL 6 million with a positive variation of BRL 136 million in Q2. This was driven by a positive consolidated EBITDA in the quarter in retail but also working capital release of BRL 48 million related to the issuance of BRL 50 million in commercial notes associated with the unlocking of BRL 41 million in cash collateral. Closing our net debt, we closed at BRL 603 million above what we had last quarter last year, and we had a better debt profile for both operations, both retail but especially our debt of the Mbank, both with better profile.

Now we are briefly talking about the outlook, and then I'll give it over to Alberto Kohn to talk more about our commercial strategy. So in the second half of the year, it's already going on. The macroeconomic challenges continue. We still have high inflation and high interest rates affecting the income of our consumers. We have an atypical event, a World Cup, which somehow opposed this challenge for Q4. In spite of that, the company is very much focused on monetizing both channels, not just the physical channel but also the digital channel.

And of course, this is a consequence of our continuous sales recovery and margin gains and also comes from the gains that we have in the commercial and operational front and logistics too. The recovery of Mbank, we believe it can be quite fast considering what we've been seeing in July in terms of recovery of losses and the numbers for August.

So this is our overview for the rest of the year. And now I would like to give the conference over to Alberto Kohn to talk more about the commercial strategy, and then Rodrigo Poço is going to talk about our digital strategy.

[Alberto Kohn de Penhas, executive]

Good afternoon to everyone. Once again, you're all most welcome. Adalberto talked about how we exceeded the margin as compared to pre-pandemic levels and compared to the pandemic. It was 50.3%, exceeding by 4.6 percentage points 2019 and, of course, exceeding 2021 too. But the most -- the best thing is that this is going according to plans, which demonstrates the consistency that we always mention as pillars of our commercial strategy.

Revenue has also grown by 2 digits compared to the 2 years -- to combine provided the 2-digit results and the gross profit, plus 33.9% as compared to 2021. And this is because of a colder winter as we had, but we are also prepared for that with volume and assortment and appropriate products.

Number two, the need of customers to renew their wardrobes. So it was appeared after Omicron and recovery of flows in the second quarter. And second, our ticket is 30% above 2019, which minimized the impact of inflation in inputs in raw materials. Both EBITDA and retail margins were higher than they were in the first quarter showing the consistency in our work.

In addition, we also have the commercial transformation, a project that started early last year. And I mentioned this on our last call. We had better assortments, better operational model to support the assortment and the value proposition in all integrations that we have had in the commercial organization of Marisa.

The main pillars of commercial transformation that have taken us and that we have reaped the results this quarter was the review of the sector division in 100% of the stores. We want a versatile woman focusing on CD too, so more C class, a little bit of D class, in the review of style guides. In addition, we have evolved with our assortment plans too in order to support the commercial transformation.

A few important pieces of information. So this growth was especially in women's clothes, as we said before, demonstrating that new collections showing that the strength of Marisa women's and underwear are recovering. And we are working intensely in other departments where we have a commercial transformation.

The other important is the turnaround. So it has grown almost 24% versus 2019 and 25% versus '21. This shows the good acceptance of our collections and how we can keep the evolution. Markdown has also dropped to minus 37% once again demonstrating that inventory management is on a consistent track. Of course, we don't control just volume. We control mix too, and mix control have provided a return to avoid major markdown. And then the increase in proximity with our suppliers, with our supplier relationship program where we have concrete pillars in this program is as we said before, have provided to us consistent deliveries, avoiding ruptures in our chain.

So in the future, in terms of commercial transformation along the second half of the year, there are 3 important points: number one, continuity and refinement of the strategy based on our value proposition, assortment and consistence and pricing. Number two, the implementation of all of these strategies in other departments. We believe that we still can benefit a lot for that prioritizing women's and underwear and the revision of our allocation and replacement of products per store. So we think that we will continue with the consistency in our deliveries.

[Adalberto Dos Santos, executive]

Rodrigo Poço, the details of our -- of the evolution of our digital strategy?

[Rodrigo Poço, executive]

Thank you very much, Adalberto. Good afternoon to everyone. As we said before, digital sales in the second quarter of '22 grew 86% in contrast with 2019 where they shrink about 23% as compared to Q2 '21. So this is a period when the relevance of this channel in the second quarter of '21 was very relevant and very important considering all the difficulties for people to go shopping in physical stores.

Considering everything of the digital channels for the entire company, we are continuously seeking to be more efficient and assertive in our digital marketing expenses and also in strategies and management of our freighting policies and distribution policies too. This is an ongoing policy. It's continuous and it's very clear in our day-to-day work with all our teams.

We should highlight too considering the fronts where we are working very intensely here with the technology and digital teams, the evolution of our app. Our app still representing very solid results with a strong indication that we have been able to build a digital product and a robust value proposition that is consistent, which is the fundamental item in our strategy, to build the digital platform and the platform of Brazilian women. And data confirmed that our app is still very relevant for our customers in terms of points of contact with them, in terms of content access, because of Mbank and also the sales of our retail channel.

Last quarter, on average, we had almost 2/3, a little bit more than 65% of the sales in the digital channel were through our app. Moreover, our app also closed the second quarter with more than 15 million -- 16.4 million downloads and a quite significant indicator, which is the indicator of monthly users of 25.7 million, demonstrating that customers really see value in having access to our app frequently.

And so for the rest of the year, our idea is to continue our digital strategy in 2022, always on focusing on improving the shopping experience, dedication experience of our customers in the digital experience and continued evolution and building of the Brazilian women platform. So we are evolving in projects that seek improving customer experience. And of course, it has a positive impact on the consistency of our NPS indicators and initiatives that may provide operational efficiency gains. All of these reinforces our vision in the women's platform.

But also, our teams are very much focused in seeking to improve the profitability of our channels, especially in the digital channel. That's it. Well, this is it -- and now we have completed our presentation, and we are available to answer any questions you may have about the second quarter.

[Renata Coutinho, executive]

[Operator Instructions] Our first question comes from Vitor Fuziharo from Santander.

[Vitor Fuziharo, analyst]

Can you share with us the sales in the beginning of the third quarter? And the third is about the EBITDA retail margin, which was quite strong in the second quarter. And I think it's because of the seasonality of the winter connection, but can you give us some color of EBITDA margins for the rest of the year?

[Unknown Executive]

Vitor, it's difficult to talk about EBITDA margin prospects because of many different factors. Our expectations -- so as we are still working tirelessly on SG&A efficiency, we continue seeking alternatives to automate the operation to find intelligent ways to have an increasingly lower cost operation. This is something that we do all the time.

On the other hand, we are working sales and margin, so we have quite good levels in terms of sales per square meter. If you look, you can see that it's well superior. So we have a lot of room to grow in terms of store opening. And basically, this is what we are working towards. And this has been led in a very competent way in a part of products that was a problem in recent years of the company, product allocation, pricing, pyramid balancing, considering the work as they have led and also a growth on the digital front that is quite relevant.

So the current retail provides a balance of 2 things. So in trying to be very objective in terms of EBITDA projection, it's impossible to make any projections, but we continue to see in the months that have already closed a quite interesting performance in terms of sales and margin and again, with the growth and the necessary balance in inventory.

Your question was about sales in the turn of the quarter. Of course, at some other players, we have also noted an earlier winter. After that anticipation goals in May, so June, and then it continues in July. So in June, that's when we have a transition of collection. After that and as the new collections go in, the preview of new collections gets to stores, we still see excellent acceptance of these new collections and the gradual return of the flow.

After the vacation period, there is a combination of 2 things. After the vacation period, as we close the promotional of winter balances, there's a new collection. And then we see a gradual recovery. Of course, this week, it's kind of atypical because it's a little bit cold. But our prospects are very positive despite the elections and World Cup in the fourth quarter.

[Renata Coutinho, executive]

[Operator Instructions] Next question comes from Eric Huang from Santander.

[Eric Huang, analyst]

This is a follow-up. Now looking to Mbank. So you've mentioned the many initiatives that you've been making in trying -- seeking recoveries here and also the outlook for future months and a recovery. Could you talk a little bit more about what you've been seeing in the last weeks and months, the evolution in addition to the numbers that you have already shown? It's interesting for us to think when we might see the turnaround of your results going back to positive after a slightly more difficult quarter.

[Unknown Executive]

While operations have different features from one player to the other, in Marisa specifically, what we have been seeing, and this is today's information, and we monitor this every day at today's numbers, so the NPL level is almost back to historical levels. And the NPL level in terms of private label is also very quickly getting to those levels with 10%, 15% our historical NPL levels. Maybe in August will be the last month when we are going to have a level slightly above historical levels. In terms of NPL, we are almost going back to normal after September. So the quarter will still be affected because of higher levels in July, August, and they're more normal in September. But according to our estimates, in the fourth quarter, we'll be back to historical levels, which will affect our results somehow. And this will be even -- it will be less about NPL and more about revenue generation.

And of course, this has to do with flow. We're still dealing with a lower or less people going to stores, so we have 30%, 35% of flow. And today, these levels are more closer to 10%, 15%, so this affects Mbank services and also revenues. And the challenges are more and more related to revenues and less and less related to NPL, in our case.

[Renata Coutinho, executive]

If there are no further questions, now we end our questions-and-answer session. I would like to thank you all very much for your attendance and give the floor to Adalberto for his closing remarks.

[Adalberto Dos Santos, executive]

Once again, I thank you all very much for attending our conference call. Once again, I would like to say how happy we are with our retail operations, especially, which is the focus of our efforts. So on the commercial front and all our teams in our distribution center, central office and our investors, and I would like to thank you all for your attention. I hope to see you again in our next conference call.

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