Marisa Lojas SA

BOVESPA:AMAR3

Earnings Call Transcript 2021-Q4

[Renata Coutinho, executive]

Good afternoon. To switch to English, please click on the interpretation button available. We'd like to inform you that this event is being recorded, and the presentations in Portuguese and English are available on the IR site of Marisa. We also have simultaneous translation on this broadcast platform. [Operator Instructions]

Please bear in mind that the forward-looking statements made herein referring to the business outlook, projections and operational and financial forecasts are based on the beliefs and assumptions of the company management as well as on information currently available. These forward-looking statements are no guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and depend on circumstances that may or may not occur. Investors should understand that economic conditions, industry conditions and other operational factors could impact the future development of Marisa and lead to results that differ materially.

Here with us, we have our CEO, Marcelo Pimentel; our CFO and IRO, Adalberto Dos Santos; and our Commercial VP. I would like to give the floor to Mr. Pimentel, who will begin the presentation. You may proceed, sir.

[Marcelo Pimentel, executive]

Good afternoon, Renata, and it is a pleasure to be with you for another earnings results call, this one referring to the fourth quarter '21.

Now to begin, I would like to highlight the renewal of stocks that we have been working on for digital transformation strategy. It reached 80% in December of 2021. This is very important and is in accordance with our plan for commercial reinforcement

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new products coming in under the leadership of Alberto Kohn. And this is beginning to show results, as we have said, during the entire year. But during the growth, we had a gradual recovery of our results.

The fourth quarter showed us this recovery. This is the first positive quarter vis-à-vis 2019, 3.6%, a growth of 7.3%, referring to 2020. We also observed an improvement in terms of our gross margin, a continuous improvement, a resumption of the gross margin going beyond 51% in December of 2021.

Our Digital Platform sales continued to grow and gained share in the total sales of the company, reaching 9.6% of total sales of the company in the fourth quarter and 12.5% for the entire year. And in the fourth quarter, we already had a normal scenario with the reopening of stores. We're also celebrating the recovery of the retail EBITDA with an important recovery in the fourth quarter 2020, referring to previous results.

Now all of this will bring to us a net result that is very close to breakeven, once again confirming the recovery that we have been perceiving throughout the quarters of the year 2021.

When it comes to our strategy, 2021 and especially the fourth quarter 2021 was very important. We reached 13 million downloads in our app. 62% of Digital sales already take place through the app. Presently, this figure surpasses 15 million downloads. In November, we had the launch of our marketplace, a marketplace for women concentrating and confirming our focus for the platform to be for the women in Brazil and focusing on complementary categories of our value proposition. We have surpassed 10,000 SKUs with 16 partners, and we continue advancing and growing our marketplace as a strategic sales channel for the company.

We additionally had the launch of M Universe, our interaction and communication platform with women, an area that is not transactional. It is for experience. We speak about trends, fashion, health, financial education, but what is very important is that we had adhesion with our customers. We had more than 11 million accesses. What is more important, on the average, we have 8% to 20% of conversion of purchases that come in through M Universe. We're quite satisfied with the acceptance of this new channel in our app along with Mbank, which was also incorporated into the app, bringing us very positive results.

In November of the last quarter, we reopened 4 icon stores based on the new formats, continuing on with our plan to test the new store model. We began with the Dom Pedro store in Campinas. And in November, we opened up 4 stores in São Paulo, in Avenida Paulista, Osasco, Interlagos and Aricanduva. Now these stores, although we're speaking 4 months that have gone by, are performing very well with a growth above average and all aligned with our expectation for the project. And we're planning on continuing on with this project as part of the resumption of Marisa in the coming months and years ahead of us.

We also had a significant progress in our digital supply model, inaugurating another dark store in Belo Horizonte. This helps us to fulfill the need of delivering the products to our customers with a shorter lead time and with lower logistic costs. At present, we have surpassed the mark of 50% of all deliveries done by our dark store in São Paulo to the web in São Paulo, where we work with next-day deliveries with lower logistic costs that we had through the Navegantes distribution center.

And finally, what I would like to underscore is the launch and integration of Mbank in the app. Presently, we have the entire Mbank portfolio available in the app. 43% of our digital sales already take place in the Mbank, which is a very important milestone. And we launched this in the last quarter of 2021. And now again in the last quarter, we produced 81,000 new cards through the app, validated through the app, and more than BRL 10 million in personal loans that were carried out through the digital channels. And once again, this represents a new opportunity to attract and reach customers through digital means.

I would now like to give the floor to Adalberto Dos Santos, our CFO, to continue with the presentation.

[Adalberto Dos Santos, executive]

Good afternoon, and welcome to the conference. I would like to refer to the main figures for our fourth quarter '21 release.

On Chart #4, we have the same-store sales. And in the bars, you can see the growth of net income. As Mr. Pimentel mentioned, obtaining the levels of 2019 once again, significant growth vis-à-vis the previous year, but still a year greatly impacted by the pandemic in 2020. Now we're very close to 7 million total same stores, 7.3%, which is important if we compare this with the base of 2019 where we had a growth of 9.5% only in brick-and-mortar stores, a same-store growth of 6.9% and practically flat of minus 1%, once again impacted through the Digital Friday and Black Friday in November. In December, we had a better recovery in same-store sales, a growth of 17.7% vis-à-vis 2020 and 4.9% versus 2019 and positive performances of female casual wear, male and children wear also with a significant increase.

We continue with the evolution of retail sales as well, 82% compared to '19, a vigorous growth, and total sales with a growth of practically 10% compared to 5.5% before the COVID-19, which means we have increased this twofold. 62% of the digital sales are originated

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as was already mentioned. At the close of the quarter, we reached 13 million downloads in February, 14.5 million downloads.

In the following slide, in the upper left graph, the gross margin evolution, we broke down by month the last 3 years. So you can see the gradual evolution. It may seem very slow, but it is quite consistent month after month. In all of the months of the year and vis-à-vis 2020, that was greatly impacted by the pandemic. But vis-à-vis 2019, we had growth every month. October and November impacted, but we had a significant recovery in the month of December with 60 basis points above December 2019, indicating not only an acceptance of our collections, but this associated to good inventory management.

39% reduction in markup vis-à-vis the fourth quarter '19, and this, of course, is very relevant. And this ended up once again taking us to this significant reduction in markdowns, 38% vis-à-vis the fourth quarter of '20 and 28% vis-à-vis the fourth quarter '19. Below, you see the healthy inventory levels that the company has compared with December of 2019, where we had a level that was 30% below our average.

In the next slide, the operating expenses at the top, the sales expenses, a nominal growth of 7.2%, although it was recomposed vis-à-vis the previous year. We had several temporary negotiations. This recomposition was necessary, but we had a nominal growth of only 7.2%. We have had 2 years of inflation. And in real terms, this leads us to a drop of 7.4%, and this because of the investments made in marketing and the implementation of our digital strategy.

Now in terms of leases that are an important part of expenses of the company, there was less impact attenuated by the small growth of contracts linked to IGP-M. 20% of the contracts are linked to this. At the bottom, a negative nominal G&A expense compared to fourth quarter '19 with a drop of 21.5% in real terms, once again showing the efficiency in expense management.

Now let's look at the results of the Mbank for both operations. We have a partnership with Itau co-branding in the gray bar, an evolution of practically 20%, going from 20.6 to 24. At the bottom, our Private Label and Personal Loans, a growth of approximately 10%, going from 64 to 60, this because of a gradual reduction impacted by the small slow. We only got to a level of 35% in some regions and an increase in the cost. Now the recovery of Personal Loans with a better recovery because of the opening of some stores. A contribution margin of Itau partnership also growing at 15%, I believe.

In the next slide, the evolution of our Private Label portfolio at the top graph. In the line graph, a significant reduction down to 4.5% vis-à-vis 5.4% in the previous year and 6.7% in fourth quarter '19. In the bar graph in the same top position, net losses were practically stable compared to fourth quarter '20 once again with the figures and a positive evolution until December. Now despite that, at the bottom, you can see worsening beginning in August, and it required additional measures that we took last year. And this year, we're going more in depth related to credit concession and recovery because we had a worsening in this.

In the next graph, the same figures relating to Personal Loans. At the top, we see the impact, net losses of our portfolio of 5.8% vis-à-vis 2.3% in the fourth quarter of '20 and 4.4% in the fourth quarter of '19, once again due to some launches, the reversion of IFRS. And officially here, we do have an impact here. And in the bottom graph, once again, additional measures that have been addressed to resolve this.

In the next slide, #11, we see our consolidated EBITDA, a growth, a timid growth. But what is important is the evolution of our results in the retail market. And of course, this remits us to the negative performance of previous quarters, especially during the period of the pandemic. Mbank, although weaker than previous quarters, is already coming closer to the pre-pandemic year figures.

In Slide #12, our net results already mentioned by Mr. Pimentel, minus 3.2 vis-à-vis BRL 30 million negative the previous year, a timid growth. But when you look at the annual figures, these are quite relevant. Despite being negative, there's a reduction of presently from BRL 230 million to BRL 70 million, a very good evolution.

On Slide 13, our cash flow, quite positive. We had a primary generation of EBITDA, BRL 47 million [ plus 3 ] in the period after the pandemic, and simply to remind you of the negative impacts of BRL 226 million in 2020. Now we increased capital consumption in 2020. And we have an operation that is now recovering. And of course, this has had an impact on our cash flow. We now have BRL 70 million, which is the first installment that was concluded in February, part of the BRL 250 million of capital increase that was concluded, and the final cash balance would be BRL 440 million.

When we speak about our net debt, the company has had a small reduction in consolidated gross debt. And besides this reduction, there is a significant improvement in the profiling of both Marisa and Mbank debt positions for the long term. Net debt at the end of the year ended at BRL 544 million, reflecting a larger allocation to working capital, and this will take us to a position of BRL 360 million compared to BRL 301 million the previous year.

Once again, these are the points that I wanted to share with you. We will now speak about the outlook for 2021.

[Marcelo Pimentel, executive]

Thank you, Adalberto. And concluding this first part, it is very important to speak about a macro vision for 2022 because probably you will have questions on the scenario of this resumption during this year.

It is important to highlight that after a more challenging January directly related to the very low flow in stores due to the Omicron variant after the Christmas season, we have observed the results of February that are very positive with the sales growth vis-à-vis 2019 are up on a real base. And to continue on with that, there is a recovery of gross margin, a healthy resumption of sales, which is a point that I mentioned at the beginning. And that refers to the new collection, the activity of our new inventories that are coming to the stores and the customers reacting in a very positive way.

Now March continues with sales margin and profitability that are positive vis-à-vis 2019. And we're quite optimistic that despite the very challenging macroeconomic environment, our trend towards value and price sensitivity will respond to the need that the customer has in an environment like this one. So there is optimism and resumption of sales in the macroeconomic scenario in the last few months.

Regarding our annual planning, we have recovered our vision of CapEx for 2022, basically focusing on 3 points. The main one is a continuous investment that we have made in the commercial area to add value to our products, of course. And in the first month -- between January and the end of last year, we have been working in partnership on our projects for commercial consolidation. And this is the first point. The second point, we are working with the new stores that we have already mentioned. We will continue on with that process presently with 5 stores, preparing that vision for an expansion. And finally and not least important, we continue on with a multichannel transformation of the company, making investments and investing in the app as a platform for the women of Brazil. We're going to continue to invest here.

And when we speak about digital transformation and commercial transformation, these continue to be the main priority of the company. We're launching the program Sou Sócia, I'm a partner, that began in the last quarter of 2021. And we now have 31,000 partners this year, and we will continue to progress on this channel that is important for our sales.

We have advances in digitization of our portfolio and new products as well. A new product that was launched in the first quarter is health insurance. This was very well accepted, offering us positive results. And very soon, Adalberto and the Mbank team will be able to offer you more color for these products and speak about the extension of the digitization of Mbank and our platform.

Marketplace expansion. We're very keen on having this marketplace. We kicked off very well. And our main concern and focus here are neither volume nor quality. We want to remain loyal to our value proposal of having a marketplace for women. And in this context, we have been quite stringent in terms of the types of products, categories and players that we bring in. But we're very aligned with what was planned for the year 2022.

Our stores are under expansion, not only the store model or format but wherever we see opportunities for new categories, categories like female lingerie, core categories and opportunities to increase in accessory categories such as male and children wear. And this is a focus to be able to increase the basket of the women who are the ones who come and buy.

Finally, we would like to celebrate with you the launch of the campaign ChegaMais. This is a campaign that will extend through the year. It focuses on the resumption of Marisa, the resumption of the product. Now the model is a calling to bring back the flow to our stores. We state that the street stores that suffered more during the shopping mall stores during the pandemic period was due to the growth of home office. People were not returning to work. We now see that this flow is returning. We see that recovery of sales growth on street stores, which is very important for us. We launched the campaign on the 9th of this month on national television, and we do have a fixed position in the soap opera. We show fashion products and make that link with multi-channels, in digital, off-line and out-of-home channels as well.

I would like to thank all of you very much. This is simply a summary of what we observed for the year 2022. And we are all at your entire disposal to respond to any specific issue, commercial issue. Renata, Adalberto and myself, therefore, are at your entire disposal. We will now go on to the question-and-answer session.

[Renata Coutinho, executive]

[Operator Instructions] Eric Huang from Santander Bank will pose a question.

[Eric Huang, analyst]

We have 2 main questions on our side. Look, we saw a significant improvement in gross margin in the fourth quarter. If you could mention what we can expect from this dynamic throughout 2022.

And we see that the inventories have grown year-on-year. This, of course, is part of the recovery of sales dynamic. If you could give us more color on the quality of your inventory and how this will behave throughout the year.

A third question speaking about your CapEx. If you could give us further details on how much of this CapEx will be geared to the variety of initiatives that you have mentioned, especially in terms of store refurbishment that you mentioned here and that has been very positive. How much of your CapEx will be geared, therefore, to the new store format?

[Marcelo Pimentel, executive]

Thank you, Eric. We'll give the floor to respond on gross margin to Adalberto.

[Adalberto Dos Santos, executive]

Eric, thank you for the question. I'm going to begin with the inventories. We have been working important work in terms of management and inventory turnover with an impact on sales and margins [ mentioned by Adalberto ]. Now when we speak about inventories, we're working with turnover control, room by room, category by category. And we have been working with an expansion of the assortment that has had a very good performance, and of course, the elimination of assortment and portfolios that have not had a good performance. We have been doing this since the second quarter of '21 with a very good response in the fourth quarter.

Our inventory at present is a new inventory, highly qualified, and it enables us to have better margins and turnovers. The more modern our inventory, the better the turnover and the better our margins, of course. To speak about gross margin since last year, we have been working, referring to our value proposition for women. And we have defined this positioning since 2019. Our focus is on a versatile women, [ plus B2 ] upwards. And nowadays, we have guidelines that are quite aligned with the wardrobe of these women. And ever more, we're working with our spaces according to the wardrobe, and of course, spaces based on inventory turnover. And this has offered us an interesting gross margin.

In the second point, what has brought us important margin is a very clear definition of our assortment plan. We, during the preseason, follow up on the execution of the purchase and the performance of our plan. And we truly do not deviate from the plan that we have set forth. We have control metrics in the organization who warranty this assortment and products with a high performance. I think this is the most important point regarding margin.

Regarding CapEx, we have a very clear vision. And well, originally, our target is 60% of our CapEx geared to the new store format. Now we should take into account the macroeconomic reality, and the context when April will begin, we will follow up very closely on the 5 stores that we are refurbishing. And they all performed 10% better than the group stores. And this allows us to confirm our vision of refurbishing and expansion. But we're going to do this very cautiously so as to protect the company cash. Because of the year that we are having, we're following up on this very carefully before

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refurbishment, we have 45 operations in the company for this as well as areas and shopping malls in the Northern area. Our priority, of course, will be shopping malls where we have a smaller share. And we're holding conversations and active negotiations with some players but always being very careful not to do this too fast. We do it gradually and always keeping in mind our cash position.

[Renata Coutinho, executive]

The next question is from Renan Sartorio from Bradesco BBI.

[Renan Sartorio, analyst]

About Mbank, what do you expect in terms of the EBITDA dynamic in 2022 as we have a scenario of greater default and inflation and -- which is the e-commerce that is being carried out by dark stores? Has there been an increase in conversion?

[Adalberto Dos Santos, executive]

Renan, this is Adalberto speaking to you. And then we'll respond to the dark store question. Now this is very challenging for the industry as a whole. We began the year working with higher levels, the result of the bad rollovers that we had in the second half and in the end of the semester. And of course, this impacted our results.

Now it was necessary to transfer this impact and this additional cost to the customer, especially customers from an operation that work with an important level in the retail market. We have to be very careful when doing this. In previous years before the pandemic, we tried to increase funding because of the default that we had. This year, what we're doing is working towards reducing the cost. But initially, we won't be able to have a reduction in default, which is somewhat higher at present. It was in the first quarter.

On the other hand, we have a very positive impact of the EBITDA on the digital sales. For the time being, we're working with total EBITDA figures, very close to the normal figures we had in 2019. And if there is an evolution downwards, it should be a minor evolution.

[Marcelo Pimentel, executive]

And Renan, to speak about the dark store, it is important to refer to the main objective, the rationale of the dark store in response to 2 primary needs regarding the multichannel operation: first, a reduction in lead time delivery to the customer, which is very important; and secondly, a reduction in freight because it is closer to the end point, that last mile to the customer.

What is important here in the case of the dark store in São Paulo, which is the most mature, that we already have 60% of the orders of the dark store in São Paulo that are delivered in the city itself. It has reduced our lead time. And for these orders, the average lead time is 48 hours or less, which is very important in the digital operation. I think the lead time is what attracts you the most.

To give you an idea in the [ TD ] operation, that figure of 48%, 60% of the orders being sent to 48% is 31%, practically double in terms of productivity and performance compared to the traditional DC model. So our plan is to consolidate São Paulo and the main capital, Minas Gerais. And we further have plans for Salvador and Rio de Janeiro, the capital.

[Renata Coutinho, executive]

We have some questions that we received from [ Carlos ], I believe. If we already see a slowdown in the first quarter of the year and the macro worsening in the retail market. The second question, if we see a higher rate of default, which was just responded by Adalberto. And when are we going to increase our cash so we can avoid having another capital increase?

[Marcelo Pimentel, executive]

Well, let's speak about sales. And [ Carlos ], thank you for the question. What we observe is a different scenario, in truth. In January, yes, we did have a certain slowdown, a moderate slowdown directly related to a lower flow due to Omicron. To give you an idea, there was a drop of 5%. And in the retail, January was impacted because of the slow flow due to the pandemic.

Now inversely to this, we have February and March. As people return to the stores, what we have observed is the recovery of flow, quality of purchases, average ticket, the number of items increasing. And up to present, to speak of February and the accrued figures for March, we're quite optimistic with this recovery.

Would you like to speak about cash, Adalberto?

[Adalberto Dos Santos, executive]

[ Carlos ], as we have already mentioned, cash is a combination of several factors. In a regular year, we have certain quarters. In the first quarter, the cash generation tends to be weaker. And this year, we're not working differently. We have to be very cautious with what we do. We have a greater use of CapEx in the second semester so as not to go beyond our budget. Now regardless of that, we have a new capitalization already contracted for November, and we hope that this will be above the level that was triggered. This no longer depends on our will. It has already been contracted for November for an additional BRL 250 million.

[Renata Coutinho, executive]

Another question from Renan asking what it is that we expect in terms of investments in technology for 2022.

[Marcelo Pimentel, executive]

As I mentioned, Renan, technology, commercial and expansion, these are our priority areas. Within these 3, number one, commercial products; number two, technology. Now in this area, we have not stopped investing during the entire pandemic since 2020. For -- those who follow up on the company know this, and we're not going to stop. Marketplace is an example of this. The expansion or bringing the Mbank into the app is another example. The launch of Universe M in the last quarter. We also launched what is called [ Advantages Bag ]. It's something in the app that allows the customer to take the app in the brick-and-mortar store and have that multichannel interaction until the purchase is concluded at the point of sales.

Now all of the investments that we have done and will continue to do are for this. We're halfway through the work, and this should be concluded in the second semester. And we will advance with a CRM intelligence program, leading to customization, geolocation to bring together the margins of Marisa fashion, Mbank, financial products, aligning the customers. So in terms of investments in technology, this is one of our priorities. And the amount, of course, have been earmarked in our investments to continue on with what we began in 2017 when we began the company's digital transformation.

And I'd like to give you additional color why we have a greater level of default, there's nothing very new here, [ Carlos ]. When it comes to credit concession, we have surgical adjustments as we call them. And of course, these are different from every region, and the stores have a different performance in different regions. So we have a very careful look upon this.

And these are different operations. We have a portfolio generated in the app, and it's different when we compare this with a physical portfolio. In terms of collection, traditional measures have been used in different combinations. 100% of collection as of the 10th day, in which there is a delay. We begin on the fifth day. We speak to the customer. And we also try to work with preventive collection from that profile of consumers that tend to extend their default period. Basically, this is what we have been doing.

[Renata Coutinho, executive]

[Operator Instructions] As we have no further questions, we will end the Marisa call today. 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.]