Marisa Lojas SA

BOVESPA:AMAR3

Earnings Call Transcript 2020-Q4

[Operator]

Ladies and gentlemen, good afternoon, and thank you for holding. At this time, we would like to welcome everyone to Marisa's Fourth Quarter '20 Earnings Results Conference Call. We would like to remind you that this event is being recorded and is available on Marisa's IR website. [Operator Instructions]

We would like to mention that forward-looking statements made during the call are based on the beliefs and assumptions of Marisa's management and on information currently available to the company. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances, which 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.

I will now turn the conference over to Adalberto Santos, the CFO and IRO for the company, who will begin the presentation. Good afternoon, Adalberto, you may proceed.

[Adalberto Dos Santos, executive]

Good afternoon to all of you. Welcome to the earnings results call for Marisa S.A., where we will speak about the results of the fourth quarter '20 and full year. We have with us Marcelo Pimentel, the company's CEO; and our Commercial Director. We're going to begin with a quick analysis of the period that due to the pandemic, of course, has had an impact because we have been focusing more on the dynamic during the last 3 quarters. Ensuing this, I will give the floor to Mr. Marcelo Pimentel who will give you more details on the company, the scenario for 2021 and the outlook for the rest of the year. At the end of this, we will all be at your disposal for questions and answers.

We begin with Slide #1, where you see the net revenue and same-store sales evolution. Net revenues represented 7.2% down compared to 2019, but with an important evolution during the quarters. We had a drop of 9.7%, minus 6.3% in the third quarter and in the fourth quarter, minus 5.6%. October and November had a positive same-store sales. December also in the first fortnight -- in the second fortnight, we had the closedown of stores, once again, leading same-store sales to be negative.

Now the highlight is for the digital platform with a growth of 63.9% accounting for 9.2% of retail stores. This has a special number because it represents sales based on the same base. Last year, 62%. Last year, the growth had been 77%, representing significant growth for the digital platform. We see growth profit and margin.

On the next slide, once again, showing you the dynamics through the 3 quarters. After a drop of 31%, evolution to 33%, closing with 42.1%. This process is largely due to the process of the company to work with a structural inventory reduction of 30% and a quick recovery of margins. In December, it reached 50%, a level which we hope will be maintained going forward and has been confirmed in the first month of the year, below the evolution of SG&A with a drop of 5.2%. And this figure represents a certain normalcy in terms of the figures, and it brings within it what can be a legacy of all the actions adopted during the pandemic.

Of course, we have renegotiated the company contracts, adopted measures such as home office for 100% of our main office, and this will continue after the resumption of operations and the significant automation of processes carried out at all parts of the operation using certain mechanisms. Here we see the contribution margin evolution for financial products and services.

The in-house ones and the co-branding ones with a rapid evolution reaching BRL 65 and some million after a drop of BRL 34 million, evolving to BRL 49 million in the third quarter and now co-branding practically at a normalized level.

We see in the following Slide #5, the evolution of our private label portfolio in the upper left graph, a drop to 5.4% in terms of portfolio losses, the lowest level in the historical series and a reduction to 28.4% of receivables on the portfolio. You see the EFFICC. This is a prospective indicator of future default.

The same in the next slide for personal loans. And although this has a different dynamic, presented a very similar behavior at the left top in the line a drop in the losses, reaching 2.3% of the portfolio, the lowest level by far and an evolution to 33.8% on the portfolio.

Now this portfolio has a different characteristic with a lower recovery and tends to take longer to return to the normal levels. The effect below a prospective indicator, an indicator of problem. Quite the contrary, we are at the very best levels here.

On the next page, the evolution of EBITDA, the consolidated EBITDA proving the recovery of sales after a backward step, a quick evolution in the third quarter. And now we are positive once again with levels that are still very shy. If we take into account the company and its aspiration, but it is a positive figure and shows an improvement in both operations and same-store sales. And the retail market in the next slide, the evolution of our bottom line with a curve in the same format, a sudden drop in the second quarter, rapid evolution in the third quarter and once again, an evolution in the fourth quarter, still negative, of course, but very close to what we wanted.

The evolution of our cash flow in the last slide, at the top to the right, the adjusted EBITDA, which is the primary source of cash generation, quite impacted by the pandemic of minus BRL 226 million, but with a significant evolution from the release of working capital. This is because of the excellent performance of our portfolios during the process and a very conscious management linked to a structural reduction in inventory.

With this, the company ends with a cash of more than BRL 500 million. Now the third card, receivables are quite robust and will be important for us for the present time.

These are my comments. I will now give the floor to Mr. Pimentel, who will speak about the evolution during the year and what is happening at present.

[Marcelo Pimentel, executive]

Good afternoon, and thank you, Adalberto. Good afternoon to all of you. The COVID-19 pandemic set forth extraordinary challenges on our operation, especially on our teams. We were resilient and maintained our focus on the protection of our workers and customers. We also protected the business per se. Trying to preserve the cash, as mentioned by Adalberto and the health of our inventories with a structural reduction of more than 30%. We also strengthened our ecosystem coming closer to our customers through several different on and off-line platforms at Marisa.

Despite all of these efforts, we maintained our focus on the company's long-term strategies, especially the strategy of becoming the platform for the Brazilian woman.

We moved fast on our digital platform and adopted the ship from store model in 60 stores in the network and we're now focusing on units that have a strategic position. We launched our first operation in the city of São Paulo with a mix of online and off-line products for the customers of the state and the Southeast, reducing delivery lead times and the logistic cost for the last mile.

We activated click and withdraw in all of the stores of the network with a participation of 35% of digital sales. And we are a channel of flow and conversion for our physical stores. 35% of the customers withdraw products from the store and carry out a new purchase.

We accelerated the implementation of our app by launching a native version representing an impact of 109% of downloads in the fourth quarter vis-à-vis the third quarter. The app has more than 4.5 million downloads and represents 40% of shares of digital sales at Marisa. We have other performance indicators, rate conversion of 50%, and the average ticket, 14% above the base.

Now the share, 86% of our customers assessing the app with 5 stars. The app has also enabled us to move forward with our CRM strategy when it comes to cost notification and customization for the clients.

We also launched new sales channels, live shops based on certain data like Black Friday, [indiscernible] for direct digital sales launched in the second quarter of 2020. And that presently has 24,000 members. We produced purchase models through WhatsApp and we have 60 stores offering sales and product withdrawals through drive-throughs.

We began the digitization of our traditional portfolio for financial products. Besides enhancing the customers' experience, this will enable us to work better with marketing, with retail and introduce financial services in the app.

Now the result of all of these efforts, the sales on digital platforms grew 38% in 2020, as mentioned by Adalberto on a high base for the year 2019, representing 9.2% of total sales in the fourth quarter and totaling 13.4% for the year 2020 compared to 5.6% in the year 2019, more than double the growth vis-à-vis 2019.

That is important in the brick-and-mortar stores. We concluded 7 pilot stores that will be used in the renewals and the new inaugurations that will be begun in 2021. We consolidated the NPS as one of the main corporate KPIs. And despite the challenging moment, we have advanced the brand by 56 points in January to 72 points at the end of the year. Now this figure has grown continuously in the month of January, February and March of this year. We continue committed in maintaining a relevant role for women's causes through our causes of fighting against breast cancer, against violence, against women.

And in 2021, we began a new arm to foster women's entrepreneurship. In 2020, we complemented the makeup of our Board of Management that adjusted to our priority of having women at the center of everything that we do. And we now have 3 council members that are women. And 50% are now women.

One of the highlights of the year 2020 was the signature of the contract with a startup [indiscernible]. We're going to make Marisa in the fashion hub to speed up our digital transformation in fashion, in tech, intelligence and relationship with our customers.

Luckily, the year 2021 began with a exacerbation of COVID-19 pandemic, increasing the challenges in the business scenario. Nevertheless, the learning that we accumulated in 2020 and our operating goals, such as a structural reduction of inventory, the consolidation of remote work, the consolidation of processes in a great scale have allowed us to continue moving forward in our multichannel strategy. The actions to reduce inventory in the last quarter of '20, put us in a sound position to work with a high flow of products with high margins and consequently, a reduction of markdowns, which was a problem in the past.

The digital channel will have a new trust with inauguration of our marketplace in the second semester. And our financial services portfolio will be renewed with a digital account, which will be the backbone for the offer of new products and services.

We're confident that we will have challenges before us. But we can bear all of this with our teams, our shareholders and customers and we will be able to successfully implement our strategy.

These are our comments. And we are now at your entire disposal to respond to your questions. Thank you.

[Operator]

[Operator Instructions] We have the first question from Helena from Itaú Bank.

[Helena Villares, analyst]

Our question is to attempt to understand the post-pandemic processes about we discussed this during the turnaround on a follow-on of the company. You said that according to polls, you had customers who had not been lost that you were able to increase conversion and that this would bring more flow to the stores. Of course, the fourth quarter '20 is still not a normal scenario, but which is your vision of this data, which has been the evolution of this data throughout the year 2020? Anything you can share is interesting.

[Marcelo Pimentel, executive]

Helena, and good afternoon. A very relevant question. And all of the works that we began to do at the end of 2018 and that we continued on in 2019 with the pandemic had an impact. Now what we observed is a reality that confirms the adherence of our customers to this proposal that we're working with. When we see 2 very important points. Stores that are open at present have a greater flow, an increase in the average ticket, a higher turnover of products and higher profitability. We're very sure therefore, that when we go back to normalcy, we will because of the actions that we adopted to structurally reduce our inventory that allowed us to put a new and correct inventory in the stores, especially mass products for the customer when the purchase behavior has changed, something that has worked very positively.

What we observed in our stores, including the online part at present is a true increase in margin vis-à-vis, the previous year and a sell-through of the new products with a faster turnaround than in the past.

The number of inventory days at present have been greatly reduced. We have worked in partnership with our suppliers to maintain fresh products for our customers at the point of sales. As the stores reopen, the impact that we feel will be very positive and confirms our original strategy.

[Operator]

The next question is from Richard from Bradesco Bank.

[Richard Cathcart, analyst]

I have 2 questions at my end. I take advantage of the question made by Helena and the answer given by Marcelo Pimentel. I wanted to ask about the collection, the type of fashion. What is happening to this activity for consumers at the store? This has become very important.

Secondly, in the short term, you have stated that you're facing, once again, a very difficult situation. How is the trade reacting? And what is happening with the sales that do not happen in the store and that are migrating to e-commerce?

A last question to Adalberto, if possible. If you could give us a view of what it is that we should expect in terms of cash generation for this year? And what will happen with your net debt until the end of the year?

[Adalberto Dos Santos, executive]

Richard, this is Adalberto, and I'm going to respond to your questions in order. Well, beginning with the cash generation. Cash generation depends on the primary source, which is the generation of EBITDA, which depends on sales.

We have thought a great deal about the possible resumption scenarios. There are several possibilities, of course, and everything will depend on having a good mix.

We're going to maintain the finances in the company. Last year, we had a very difficult experience, but with the teams, the final result was quite gratifying, and this reflects in the figures. Now this year, there won't be great differences in terms of the uncertainties we face.

Now the novelty is the eventual vaccination, but the scenario for resumption is the same. Now all of the learning has remained. We're working based on that, and we're able to move very quickly. We have just seen that in our cash production that had a loss of BRL 400 million. We now have a very sound cash generation, an important cash generation. It reflects the works that was carried out with the team, that presently has more experience uses all of the mechanism, the automation that was done throughout 2020.

Now what is interesting here is that this cash generation allows us to be calm. Calm about the process of rollovers and our financial situation. This has almost been concluded. We're quite advanced in terms of this. And when you do the restatement of our short- and long-term debt and when we work with the necessary reclassifications because of the covenant that exists, we have short-term debt of approximately BRL 400 million, BRL 421 million improved less than you will see in the balance with a liquidity of BRL 700 million.

I will try to re-spin what I have said. Our situation with the banks has made quick progress. And cash generation, of course, will depend on the scenario. The company is quite attentive to what will happen, of course, but when it comes to the very conscious management of inventory and the portfolio recomposition, we're quite confident that we will have sufficient cash generation to move forward without sacrifice and without impacting our investments. This is a [indiscernible] non-condition that we set forth for ourselves. The first year of this turnaround we want to be able to guarantee a healthy cash generation. That, of course, will depend on the movements that we carried out last year. I will now allow Marcelo to answer the other questions.

[Marcelo Pimentel, executive]

In terms of e-commerce, e-commerce continues to be very accelerated. It began with the size open with a very fast pace and continues in this way. Now the structural work that was carried out will guarantee this growth ever more not only in an organized way, but also a profitable way. Now I'll explain why.

First, regarding the new categories, we began last year and accelerated this this year in bed and in the perfume part and accessories. These are new categories for this channel that have offered positive results for us during the pandemic.

Secondly, the advance in that constant quest for new channels to sales channels WhatsApp drive-throughs, live shops and a few additional marketplaces, where we prepare our own marketplace.

The third point is our supply model, especially now with the data store in São Paulo, which enables us to deliver the last mile at a lower cost and faster for the customers. And this has a direct correlation with the adherence of the customer. And all of these systems along with the OMS from [ Lynx ] have allowed us to work with all of this. And notwithstanding this the most relevant channel that has given us the best adherence vis-à-vis the past was the native app that we launched at the end of the quarter, with truly incredible adherence among our customers.

Now all of this to say that our vision for the digital channels is a sustainable delivery of sales and aggressive delivery, but a sustainable one. At present, we're not going to buy out the market. We have been able to deliver all of this growth, with the growth of gross margins in the channel and the reduction of the last mile logistics costs. This is a profitable channel for us.

I will now give the floor to speak about the new collection and its performance in the stores.

[Alberto Kohn de Penhas, executive]

This is Alberto Kohn, speaking to you, and I'm going to speak about fashion. Adalberto spoke about the reduction of our inventory by somewhat more than 30%. And this has already favored us. It has also favored us in terms of product mix.

We have been working towards increasing the quality and not only reducing the quantity. We're continuing on with the work that began 1.5 years ago for product evolution. When you bring together product evolution and put in products that are more casual, more comfortable, especially at this point in time, you increase the motivation to buy the product in terms of mix. We have put together our commercial actions based on our event calendar. The products that are coming into the brick-and-mortar stores and digital channels have had a very positive turnaround, as explained by Marcelo Pimentel.

Now when it comes to product evolution and the evolution of mix, the priority is to replenish the favorite products in our collection, the best sellers, and we're increasing the volume of sale of these products. And of course, this has had a very positive response. These are the main points in which we work when it comes to assortments and products.

I would like to add that we have also tried to evolve in terms of the fashion grid that we offer throughout Brazil.

[Operator]

At this point, we will conclude the question-and-answer session. And please allow me a minute. Just a few seconds more. It seems that we do have some questions from the webcast. We have a question from [ Luiz from ASA Capital ]. A question of interest for everybody about the rollout of our digital portfolio, that we mentioned in the release and which are our expectations.

[Unknown Executive]

A year ago, approximately we began to work in this field. We understood that this was a field that has always delivered robust results for the company. Even during very difficult times, we never had any problems with this area. Now this is an area that is highly disputed in the financial market as a whole and it refers to traditional financial operations. Because of digital operations implemented by others or financial operations of different modalities coming into the market. It seems that we would have a problem in this area. We began working with a consultancy specializing in this field of business. And 1 year ago, we came up with a design of what the financial services of Marisa would be for the future. If it would be a wallet or something similar.

We had several initiatives underway. Some of them already taking one step back. We would advance with a model and for one or another reason, we would have to move back and not make this movement. That is why we look for the help of specialists. At present, this process is quite advanced. And until the second half of the year the beginning of the second semester of the year, we will be able to speak more at length about this product.

It is a digital wallet that will work as back money and the entire portfolio will be revitalized to take on that aspect of a product geared towards the female audience, a very beautiful project with a new visual identity something more feminine. And we're also seeing, which will be the need for adjustment in terms of the capital of this business. Once again, this business is well advanced and should come up again in the second half of the year with a great deal of enthusiasm on our part. Thank you.

[Operator]

Very well. We're awaiting new questions. [Operator Instructions] We have another question for Adalberto. Once again, the comment from [ Carlos ].

In terms of the evolution of the first quarter, I will give the floor to Marcelo Pimentel. How will the first quarter end? And what are your expectations for the second quarter?

[Marcelo Pimentel, executive]

This is Marcelo Pimentel. Good afternoon. Obviously, the first quarter was impacted by the closedown we had in March, but there are very positive signs underway, and they allow us to confirm and maintain our original strategy. When it comes to the reduction of inventory, this has enabled us to make a new inventory turnover with a better gross margin, significantly better than in previous years. And this has an impact not only in the physical sales, but on our digital channels.

In the stores that have remained open, as mentioned, we perceived aggressive movements with a positive growth. And this confirms our expectation that whenever we resume, we can go back to our original growth plans. Now when it comes to a share in financial services, this share is still robust and better than in the previous 2 years, allowing us to be very optimistic now, not only in the brick-and-mortar stores, but we have also worked towards increasing the share of digital channels for financial products. All of our work is ready. It's ready for a resumption and we hope to harvest the hard work that we put into this.

In the meantime, we have a channel with an ever greater share. As mentioned, we ended the year with a share above 13% in digital sales as part of the total company sales, and we hope to increase this share during the year 2021.

[Operator]

At this point, we would like to end the question-and-answer session. We will now turn the floor back to Mr. Marcelo Pimentel, for his closing remarks. You may proceed, sir. Thank you.

[Marcelo Pimentel, executive]

Thank you, Marcelo, I would like to thank all of you for participating in our earnings results, we're very prepared, ready to deliver our strategic plan. We're going to resume our sales with quality, with an impact on our gross margin, gross profit and the company results.

We confirm our vision of being the platform for Brazilian women, and we're going to continue to grow our share in the digital channels, offering women products, services and an experience in all of their interactions with Marisa. Thank you very much, and have a good afternoon.

[Operator]

The Marisa conference call is finished. We would like to thank all of you for your participation. Have an excellent afternoon.

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