Grupo SBF SA
BOVESPA:SBFG3
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Grupo SBF SA
Earnings Call Analysis
Summary
Q3-2023
In Q3 2023, the company saw a revenue of BRL 8.6 billion, a 22% increase from the previous year, while net income rose to BRL 1.8 billion, up 22%. EBITDA climbed 74.2% to BRL 169.4 million, and net profit reached BRL 70.5 million, a 52.5% hike. Operating cash flow was positive at BRL 115 million, significantly better than the BRL 70 million used in the same period last year, reducing leverage from 3.35x to 2.98x. The transition from growth to profitability involves adjustments in inventory, investment, and SG&A. The company is working through a period of necessary adjustments, with a focus on increasing net income and cash generation. Expectations are to normalize inventory levels by the year's end and to prioritize profitability and cash flow into Q4 and 2024.
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Good morning. Welcome to SBF earnings video conference. Today, we will be going over the third quarter results and the performance for the first 9 months of 2023. With us today, we have Pedro Zemel, CEO; Jose Salazar, CFO and IRO; Daniel Regensteiner, Director of Corporate Finance; and Luna Romeu, Investor Relations Manager. Please note that this event will be recorded.
[Operator Instructions]
We'd like to clarify as well that any statements made during this teleconference about SBF's group business outlook, operational and financial projections and goals reflect the beliefs and assumptions of the company's management based on currently available information. Keep in mind that these statements involve risks, uncertainties and assumptions as they portend to future events and therefore, depend on circumstances that may or may not unfold. Investors should be aware that general economic conditions in the industry and other operational factors could impact SPF's future performance, leading to results that may significantly differ from these expressed in these forward-looking statements.
I'd like now to turn it over to Pedro Zemel, who is going to begin with his presentation. So Mr. Zemel, you have the floor.
Good morning, everyone. And welcome to the Q3 earnings video conference 2023. Thank you for your time and your interest. In our agenda today, I will start with a brief introduction, giving you an overview with the most important messages for the quarter. And I'll turn it over to Salazar who will deep dive into the figures of Q3 2023. And then I'll be here available with my team for the Q&A.
We invited analysts from Bank who will be able to ask the questions using the microphone. Other participants can use the Q&A feature of the platform to send in your questions in writing. We will answer as many as possible live. And otherwise, our IR team is going to be available for the other answers.
So let's begin. Before looking at the figures of Q3, I'd like to zoom out a little bit and frame our discussion today. We experienced an important moment of growth in the company. And we believe that we really delivered important growth over the past few years. The IPO was held in mid-2019. 4 years ago with the pandemic in between in 2019, the company that went public was Centauro had revenues of BRL 3.2 billion and BRL 8.6 billion LTM in terms of revenue. An important share of that was the acquisition and development of these business. Centauro also grew and nearly 40%, actually 38% to be more precise which was very important. Now a company that, as I mentioned in the past 12 months, made BRL 8.6 billion.
Now our efforts focus on being able to extract the best net income and the best cash generation of this BRL 8.6 billion revenue. We understand we are not yet there in terms of efficiency. We will be migrating from a growth phase into a profitability phase and cash generation phase. So this is where we're going to focus our efforts so as to increase net income and have cash generation that are proportionate to our sales now. So this transition for one Phase to next requires adjustments. And we've been adopting a number of adjustments in the past quarters, working on the required steps to adjust inventory size, investment size and SG&A size.
And we are happy to see that in Q3, these efforts and work start to reflect on our results, our P&L and balance sheet. And the quarter figures show that our net income in Q3 2023 was BRL 1.8 billion, 22% higher than the same period last year. The EBITDA was BRL 169.4 million. This is ex-IFRS adjusted figure. It's a 74.2% growth over Q3 2022 and net profit also ex-IFRS adjusted of BRL 70.5 million, which is 52.5% higher than the same period in 2022. That also -- with important dilution of expenses, 4.4 percentage points lower than the same period last year. So this was important for the results even with the need to still invest part of the profit in inventory reduction, using discounts and accelerated markdown approach. And we've been working on that since the beginning of the year. So we've been able to be profitable and deliver results despite the need of this scenario. And we are happy to see that, that has reflected on the figures.
And the results are much better than the past quarter, but still we see this as a continuity of what we've been doing. So we are working on this transition from growth to profitability. So there is this period of adjustments, which is inevitable and the adjustments start to yield results in terms of figures. At Centauro, excellent work is being made in increasing profitability. This is a big challenge for Centauro. Centauro has had better margins. It was better in 2019, for instance. So this is why we want to achieve again in the future, not -- maybe not next quarter, but that's what we want for the near future. and team that did outstanding work firstly with a very sound work and brick-and-mortar stores, looking at growth and the quarter was complex.
Given the World Cup, we launched the Brazilian Jersey, shirt last year, a little bit before Father's Day. And the -- was important for the results. And the team adopted a number of adjustments so that could go on is extracting value from this channel. And in the digital channel, profitability was recovered. Also hard work was done to adjust freight subsidies, we're shipping and being more aware in the use of paid media as well so as to improve profitability and ROI and also trying to use multi channels to make the channel profitable as a whole. -- multichannel approach is important for our results today and future outlook Centauro has 225 stores in more than 100 cities in 26 states in Brazil. So we need to be able to make the most of this network, so as to offer better services to customers and also to become more profitable at the same time.
So this is an important avenue to pursue, and the metric that we see there is the we can collect share of sales, which is the modality with higher profitability and higher NPS, and it grew by 8 percentage points when we compare September to January. There were adjustments early on. Corrected course earlier this year, we adjusted systems and processes so as that we could again grow this channel. So for the remainder of the year, this is also our focus in next year as well, making Centauro more profitable and investing in multi-channel approach as differentiation. So the results at Centauro was good.
Now on to Fisia, we still have the same strategy and the results have been very positive. I also wanted to zoom out a little bit here. The transaction closed in December 2020 so less than 3 years ago. And then there was a pandemic and all of the turmoil. So a lot has happened. So I just wanted to point out what this team has been able to build over these 3 years, very quickly. And just an anecdote, but I think important when the transaction was announced, the relevant factor was announced, we mentioned that the net revenue of Bank of Brazil Fisia in 2019. So before -- the transaction closed had been BRL 1.9 billion. In 2019, Fisia had a net revenue of BRL 1.9 billion, and in this quarter alone quarter 3 of 2023, the net revenue was BRL 1.1 billion. So that's a testimony to the fact that this has been able to really develop this business in less than 3 years. So we plan do that, investing in our channels, with the digital and also stores. So that's also the result of hard work and effort with some hiccups along the way, because of the SAP migration and the deployment of the e-commerce platform.
And in Q3, finally, the logistic efforts of nike.com and the new Fisia brand, now working on 100% of the orders coming in from nike.com that's in September. And the operation is being flowing seamlessly warehouse with capacity to ship 70,000 items a day. And that fortunately, it's been using a good part of that capacity because the digital channel is doing well. And in Q3, Asia grew by 42.5% when compared to the same period last year, part of that because of markdowns, there were price reductions and discounts to reduce inventory, and of course, that has potential impact on sales, positive impact. But also because of the investments we made in the digital channel, and also in the growth of stores in the past 12 months, we opened 19 stores. So Fisia today operates 43 stores in Brazil and 19 of them were opened in the past 12 months. So we are very happy with the Fisia figures for Q3. And this is the result of continuity of efforts that started 3 years ago when operation was closed.
Now looking at cash flow and balance sheet, we see that the -- in Q3, we reduced inventories by BRL 120 million. Usually, in retail, there's inventory increase. So this is Q3 against Q2. Usually, there's an increase in inventory at this time of the year to prepare for Black Friday and Christmas seasons, and we reduced by BRL 121 million because we wanted to manage an healthy level of inventory. There's still some ways to go, but that was expected. That was on plan. We still need the seasonality of Q4 so as to bring the inventories to healthy levels, but Q3 is along the lines of what we had planned, and we are very happy with this BRL 121 million reduction in inventory.
That, combined with a number of measures regarding payment terms, minimum payment installments or maximum number of installments and adoption of fixed payment method. So a number of initiatives led us to generate BRL 115 million in operating cash flow. And last year in the same period, we used up BRL 70 million. So that helps us reduce the company's leverage from 3.35x Q2 2023 to 2.98x in Q3 2023. So that's as of September, and with Q4 seasonality and the adjustments I mentioned, we expect to be back to history -- historical levels by the end of the year. So this is just an overview of the big picture. And also wanted to let you know what we expect. So Q3 results were, of course, much better than Q2. But this is work of continuity. We went public, and we grew -- the Fisia grew, Centauro grew. And we are now just adjusting things so as to be able to increase net income and cash flow from this large operation. adjustment and requirement so that we will be at a good expense level.
And also, we will put inventories to healthy levels to this new moment of income generation. So this is what we are going to go on doing in Q4 and 2024, focusing on profitability, net income and cash generation. Just like in Q3, also in Q4, we expect to have a higher than normal discount level because we are committed to bringing inventory down to healthy levels. But we believe that what we delivered in Q3 indicates that we found a way to doing this SG&A adjustment proportionate SG&A adjustment to have healthy results in spite of this need for markdowns.
Now our guards are up because Q4 for retail is the most important in the year in terms of sales and profit. There's Black Friday, there's Christmas, and we will focus on that, deliver what is required by the end of the year. So eye on the wall, and delivering the earnings and cash that we expect in Q4, and also keeping on working on key projects.
I'm proud to see our team's ability to deliver results and at the same time, delivering on a very well-led project for the new warehouse and also investing in multichannel and delivering short-term results and at the same time, building for the future and the coming years results. So this was Q3 very briefly. I'll turn it over to Salazar who will deep dive in the figures, and I'll be back with you for the Q&A. Over to you, Salazar.
Thank you, Pedro, and good morning, everyone. I'll give you more details about the main items in the company's P&L. So 22% growth, as Pedro mentioned, so year-on-year. So well distributed along the different channels, An important point here is to show consistency in business digital growth. That's very important. Of course, Pedro mentioned that we are also decreasing inventory, but that shows that we've been able to do that and at the same time, remain adequately profitable, and we start to see the recovery in the wholesale market in Q2. There was a low in wholesale orders, but now we see a recovery in wholesale orders, and there was a 20% growth year-on-year. And brick-and-mortar stores in general for the 2 businesses had a robust performance.
So that includes Centauro again, especially considering the world -- the World Cup was held. So these channels are ready for growth and also adjusting so as to become more profitable even with the discounts. This is a breakdown of our EBITDA, which reflects a number of efforts. We see Fisia contribution increased by 41%, even if margins are under pressure. There are 2 main reasons for that. First, strong work on SG&A and with recovery of growth, a dilution of fixed costs in some channels such as wholesale for instance?
And another important point that I should mention here is that with inventories back to healthy levels, the seasonality benefits the company because I'll be selling inventory that was there in the first half of the year, and most of them have paid royalties already. So that also has a positive impact on Fisia's figures at Centauro the e-commerce profitability, as Pedro mentioned, and also cost adjustments that were really strong there. So as to face this moment of the market for more discount. Non-allocated SG&A, which is the support teams for the BUs. We also see hardwork in expense reduction over the first half of 2023. So the efforts we're everywhere at the company efforts to -- in this period where we are working with greater discounts because of inventory, but that is offset with this efforts of expense reduction. So that's very disciplined execution of expense management.
So in the company, well, we look to find all of the opportunities that could be found. And also, of course, we are always looking for more opportunities, but we've been able to execute on them. Without neglecting long-term results, we didn't do anything that would be just a chicken run in terms of expenses. We are really concerned with the longevity of the organization, and we are working hard on expenses, but with a focus also in the mid and long run. So this is our net profit breakdown. The net profit -- net income growth was led by better operating performance, there was a 74% increase in EBITDA.
Financial expenses were higher also basically because of highest net debt, the net debt is higher than what we would like to have because of the higher inventory levels, but we are reducing that. And of course, when the company becomes more profitable, you can't have your cake and eat it. And therefore, you're going to be paying more taxes than we paid last year.
So again, we begin with the deleveraging that we are expecting next year -- actually, not next year, for the next quarter, actually, there will be also lower pressure on financial results as well. And this is an important point -- some cash generation figures. This is also something that Pedro pointed out in his presentation, Q3 against Q2. we see the net debt variation of BRL 39 million roughly.
When last year in Q3, the variation was BRL 185 million. Why is it smaller, well, basically because of the company's operating cash flow. When we should be using cash to grow in Q4, we are actually adjusting working capital and inventory and working on dispenses. There's also dividend payout in Q3, early in July and financial expenses slightly higher. So that's the result of the cash generation efforts. So this BRL 185 million improvement in cash flow when compared to 2022. So this is yet another sign that the execution discipline is being achieved. And of course, there's still Q4 ahead of us, which is just the most important quarter of the year for retail. But again, highlighting what Pedro said. This is all aligned with the plans we had for Q3.
So this is just a backup slide. Just keep over that, and this is Fisia's P&L showing you Q3 2023 compared to Q2 2023. And there are some important points to be highlighted there. And there were some questions about Q2. First is that operating leverage growth naturally as the company grows. Second, that we start to see the effects of royalty timing. In the first half of the year, we were under greater royalty pressure because of our higher inventory levels. Now we are doing all of the adjustment of the inventory, which is going to go on in Q4. So there's going to be an impact on royalty expenses. There is a decrease in fixed expenses at Fisia, as I mentioned earlier. Also, there was a concern in Q2 regarding our discount level. If maybe it should be higher over the year than it was in Q2. But in Q3 -- we gave fewer discounts actually regarding -- when we compare to the first Q, which would be the ideal margin. So comparing the markdowns in Q3, they were smaller than in Q2.
There's still logistic effect that are reducing our inventory costs. We are also getting this expense line right. So also smaller pressure in Q4. And also there is the warehouse duplicity, which is against us. But as Pedro mentioned, there's the warehouse project that finalized in September, and this also decreases the pressure on this expense line. So Fisia will again recover a better profitability level more in line with its business than it was in Q2.
So now I'll turn it back to Pedro. But again, I'd like to stress that as Pedro mentioned that we have Q4 ahead of us, we are doing everything according to plan, but still Q4 is ahead of us with 2 important seasons in it. Thank you, and back to you, Pedro.
Thank you, Salazar. We've been in touch with some funds that gave us feedback on our video conferences. So we adjusted a little bit our Q&A. So first, we are doing a video conference instead of just the call and the sell-side analysts will now be able to ask the questions using their microphones, so that's for the sell-side analysts.
[Operator Instructions]
And the ones that we are not able to answer here will be answered by our Investor Relations team after the call. So -- let's have a look at, who wants to ask questions. So the first question is Irma Sgarz, Goldman Sachs.
I'd like to better understand your inventory adjustments. I know that it's an ongoing effort, and it's likely that in Q4, it's going to be a big revolution. When do you think your inventories will be on a balanced levels? And then as of when -- can you normalize your markdown levels and the other lines of procurement and working capital. The second question is, is this wholesale channel. Of course, it was less important during this inventory adjustment, but you said that there was a recovery in Q3 after hitting rock bottom in Q2. But I'd like to learn more about the health of this channel? Or in other words, how is it that we can imagine the breakdown between channels in 2024 onwards, I know that the DTC overall will become more important. But the wholesale channel also plays an important role. So I'd like to hear from you about that balance.
Thank you, Irma, for your questions. So I'll start and then Salazar and Daniel can add on. So regarding inventories, our expectations, and I'll mention the risks later on, but the expectation is that we will be back to normal inventory levels by the end of this year. And then next year, we will be planning a more "normal year". So what needs to happen for that to come true? First, procurement needs to be the right size, and it will be because this is a decision that was made months ago, and we adjusted procurement for the second semester. The second, which is the risk that we are not going to be achieving our goal, what we expect is a Q4 sales, which are huge because of Black Friday and Christmas. So [indiscernible] leaving the company, and this is something you don't control. So we are working to limit any excess, and we hope that this is going to be materially possible because next year and onwards, the profitability goals we have, but not would be not supported by the markdowns we are offering now, and your second question about the wholesale channel.
It's important to mention that the wholesale channel suffers the impact of this pricing scenario, that's not healthy for Fisia's partners who are under great pressure as well -- and this change in scenarios and we all expect it was going to be at a different level this year when compared to last year, also led to increased inventories actually for most retailers and everyone's dealing with that. First, most important thing is to adjust the channel to its right size. So when we get the sales expectations right for the channel, then we will adjust logistics and expenses for the channel accordingly. And then we will be able to have a profitable and healthy channel. So the challenges in this transition period.
Looking forward, we think that this channel will improve gradually and not overnight. Inventory levels and the chain as a whole, we adjusted gradually. And with that, gradually, the channel group. In the coming quarters, we don't expect the wholesale channel to grow significantly. Growth is coming from stores and nike.com. Well, further down the road, when inventories are normal, this can become a very important channel. There is a number of consumers or customers that only buy Nike through these partners. So these they are important partners for us because they're geography coverage and the type of customer that they serve. So our relationship with these partners is very important for Fisia's success.
Danniela Eiger XP. You can ask your question.
Congratulations for the call. And the video conference now is much better. Congratulations for this change. I have 2 questions. First is about your leveraging dynamics. You mentioned that the expectation is that it's going to be levels according to your historic levels by the end of the year. So what are the main levers for you to achieve that? You mentioned your procurement adjustments and risk then for Q4 demand. So if you can tell me more about working capital inventory supplier receivables. And operations what to expect, I think that would help me understand what the risk level is?
And the second question is about profitability dynamics. So I'd like to hear from you more about Fisia's gross margin. And what was the impact of lower taxes as a percentage of your gross revenue. And you've also mentioned that you still need markdowns, but how do you see the situation going forward as the channel is going to be increasingly helpful in your channel mix.
So Danniela, in answer to your first question, there's a number of levers. So let's talk about some of them -- the first one is reducing our purchases. We decided to reduce purchases because we wanted to reduce inventory. We adjusted until the end of Q3, and for Q4, the holiday collection, we did a more stringent adjustment. So that's already a given. That's the first point. The second point is expensive. So we expect that results will improve when compared to last year because we are cutting down on expenses and there were expenses in the first half of the year that will no longer be there also in Q3 there were royalty expenses. For instance, we will no longer be there. So that's also a given. Also, tax credit seasonality at the end of the year is a given. There will be higher sales in Q4 and better performance because we scale up and sell more and therefore, there's going to be more tax credits. So the assumption is that that's going to happen because of this natural seasonality. So overall, I know that there will be higher tax credits that's also a given. What else is a given.
So as Pedro mentioned, steps we took in terms of receivables. We increased the number -- we will increase the minimum installments. We decreased payment terms that used to be 12 months -- also in Q3, we started offering fixed payment with 5% discount. It was very successful. So you give 5% discount, you can work on your gross margin to offset that discount, and so it's positive for cash flow, even if not on overall results. So that's all good. So that's not a given yet. This is precisely the most difficult part, which is Q4 sales because there are 2 important dates like Friday and Christmas. So I'd say that everything we could have done has been done, and we already see the results.
Our ambition now is for a specific Q4 sales. And as to your second question, I don't know if I understood your question. But I think Daniel understood your question. We turn it over to him to answer your second question.
Thank you, Salazar. If I understood your question correctly, you wanted to know how taxes benefited Fisia. So we deployed SAP last year and we started then designing our own shipping routes in Brazil, and we did vertical import corridor, so receiving our imports through [indiscernible] therefore, a tax benefit that Centauro was already receiving and Fisia no visits receiving as well. So with that, we reduced taxes paid and that improved profitability. So now Fisia enjoys the same tax benefits that Centauro already had before, and that's a very good effect. That was precisely my question.
Maria Clara Itau BBA is going to ask the next question.
Pedro and Daniel. Congratulations on your performance, I'd like to ask about these sales. We were positively surprised, especially for wholesale for Fisia. So what -- how do you see the inventory health of the most important partners of that channel? And in case they are healthier, the promotions at Centauro also should improve in Q4. But thinking about Fisia, I'd also wanted to ask you if, given the focus on improving inventories for Q4, if you're going to be aggressive in your promotions than you were in Q3.
Also if you could give any more details about sales dynamics in Q4 with the Black Friday and Christmas. If there's anything, you could share with us.
Thank you, Maria Clara. So you asked about wholesale. You've asked about Centauro's margin dynamics. You asked about our discounts in -- for Fisia, and fourth, our expectations for Q4. Okay. So 4 questions. First, we don't expect that in Q4, all of the inventory issues of retailers who are Fisia's customers will have been sorted out. They have not been in Q3. They won't have been in Q4. It's a gradual process. So we don't expect that this problem has been solved and that the wholesale channel will take off because retailers are demanding product. It's a gradual process. And it is expected to remain gradual. We don't expect this issue to have been solved by the end of the year.
What's the impact of that on Centauro's margin? Centauro is also contributing to reduce the industry's inventory level, which is going to be important in Q4, going to be there in Q4 as well. Inventory levels are high for all of our Centauro's partners, and Centauro is part of this solution. that help us increase sales and decrease in inventories, just like we did in Q3. So again, I don't expect that Centauro's gross margin will not be impacted by the markdowns just like we saw in Q3, actually.
And your third question, there is an important impact of sales volume in Q4. And we are working on some variables. Our ability to generate gross income and profitability and to decrease inventory at the same time. So Q3 is a good indication of the balance we've been able to strike so far. So again, I don't expect any drastic or dramatic changes in this strategy, in this design before 2024.
But then we expect to gradually reduce markdown levels and drive the market to a healthier dynamics. And finally, Q4 is going to be the topic of our next earnings call. We are here focusing on what we can control and manage and preparing for Q4. I'm very optimistic regarding our execution capacity. And so let's see what the Black Friday and Christmas demands will look like. But our teams are ready. There's new warehouse it's working properly and well. The stores are ready, Centauro and Fisia, many stores and everyone is excited. It's a challenging time in retail, but it's the best time of the year in retail at the same time. So I'm happy with our preparation, and let's wait to see what the results will be. I think I've answered your 4 questions.
Gabriela Ferrante, Safra, you'll ask you the next question.
I have 2 questions. You mentioned that your markdown levels in 2024 is going to be lower than this. But what about Q4? What level of markdown are you planning? In Q3, markdown was lower than 1Q. And also question about new stores. Are you planning on opening new stores in 2024?
For Q4, we go along the same trend this year. We need the markdowns just like in Q3. the difference in Q3 is that we could already see SG&A adjustments that were also adopted over the year, but now we see the impact on results. So is it that it's possible to deliver on performance and in spite of the markdowns. And we still need the markdowns. And the sales volume of Q4 is to get inventory to healthy levels and to generate the cash that we expect this year. So it's a gradual process.
In 2024, with healthier inventory levels and healthier buy, it's going to be much easier for you to buy correctly so that you can manage your markdown on a healthier level. But that's as of 2024. As to opening up new stores, we will open new stores looking at opportunities in the market. But in terms of pacing, our priority in the following year is profitability and cash generation. So in that regard, we might slow down the opening of new stores when compared to the past few years. Centauro is going to work really hard on profitability or area and multichannel, and Fisia, after this surplus inventory is solved, there is opportunities for Fisia to be more efficient in working capital so that we can have higher return on invested capital. So this is going to reduce inventory, and we'll have projects, and we will do it smartly. So the number of stores that we open is not be as many as in past years, but we are open to new opportunities, and we will open new stores if they are good business opportunities for the company.
So about Centauro stores specifically, do you expect to close down stores so as to improve the profitability of the other ones.
No we're not planning on doing that. We are not planning on shutting down any stores. But looking forward, we don't plan on. In the short run, we are not planning on shutting down any store. We look at the quality of the project. During the pandemic, there were some shopping malls that weathered the prices shopping malls that didn't weather the prices lower. At the same time, inflation was high. Many contracts were adjusted to IGPM, which is the general price index and that had an impact on leases. So we were able to renegotiate leases in most malls and that combination, and that, combined with high interest rates and the expectation that stores needed to be more profitable to support the working capital that they require led us to shut down some stores earlier this year, Centauro stores. But the portfolio is healthy now, and we are not planning on shutting down in the additional store.
We keep our eyes open. We are not -- our business is not that of shutting the stores, of course. But we are always monitoring our portfolio. And we work hard for the stores to be profitable and to generate but in case they don't, of course, we review our plans.
Vitor Fuziharo, Santander will ask the next question.
My first question is about inventory quality. Did you use any metric? We know, for instance, average age of inventory items more qualitatively. Do you have any metrics for your inventory? And the second question is about the company's SG&A. You made adjustments, but do you still see room for further adjustments because this could be an important profitability driver for you.
Thank you, Vitor. So first question about inventory quality. Good question. Well, there are 2 points there. First is a structuring element. Most of our inventory is not perishable, of course there is some dated items for instance, the jerseys of soccer teams. But most of our inventory is not dated or perishable. So we've never had problems with inventory quality, but rather of surplus inventory, there was too much inventory, too many things in our inventory. Not a problem with quality.
And the second question. We've been very careful in designing our discount approach, and we've been using markdowns to we have higher markdowns in order items. So we wanted to reduce inventory, but also at the right place so that we can yet 2024 started on a healthy inventory low. So we are looking at that.
And also, you asked about the SG&A. We are still looking for opportunities. It's an important driver. We're looking for opportunities to be more profitable. And it is inevitable that we put on greater pressure on our SG&A, greater scrutiny on everything we do. That's always going to be an ongoing effort. And I believe that Q3 has shown the results of the adjustments we adopted earlier, but this is going to go on being an important point for us in Q4 and 2024 and 2025 as well. Our objective is to become increasingly efficient.
And as I mentioned earlier, we want to turn growth we've seen in the past few years of up to BRL 8.6 billion in revenues in the past 12 months. We wanted to turn that into less line result that is consistent with that. So SG&A is an important point for us and remains.
JP Andrade, Bradesco will ask the next question.
Congratulations, Pedro, Daniel and Salazar. I have quick questions. Well, one is about suppliers. Is there any adjustments regarding suppliers? Or is this a level you have today standard going forward? In terms of royalties, how do you see Q4? Is this recurring royalty expenses? Or is there anything to be expected other than that?
Thank you, [indiscernible], for your questions. You asked first about suppliers. There's the effect of our inventory adjustment. So we are buying less and that has an effect on suppliers, and we buy less and then we stop making payments. And then you see the effect on cash. So I'm not benefiting because I'm not buying. So when inventories are back to normal levels, we will be buying regularly every quarter and the supplier account will go back to normal levels as.
And also, Daniel, the commercial terms we have with our suppliers have not changed. I still pay Nike in the same terms. Centauro's paying its suppliers and the same payment terms as always. So after this situation normalizes, we'll go back to normal levels. As to royalties, Salazar mentioned that we pay royalties to Nike when the products are delivered and not when we sell them. So when you receive and then you sell royalties will be consistent with sales, which is not what happened -- is going on now because we were buying a lot that inventory. And so we were paying royalties more than we were selling. And now it's going to be the opposite. We're going to be paying more -- less royalties when compared to our sales. So there's going to -- we expect positive effect on our results Q4 and then everything is back to normal in 2024.
So with that, we end the Q&A session. I'd like to turn it over to Mr. Pedro Zemel for his final remarks.
Thank you. Thank you, everyone, for your questions. I think we answered all of the questions. But in case we haven't we are available to clarify additional questions later on. Thank you, everyone, who's been together with us along this journey, all of the investors, shareholders, the Board, the management team. This has been a challenging year, but everyone has kept their cool and executed and delivered performance despite the challenges. Challenges will always be there, but this execution capacity makes me confident that this company will achieve its goals and we'll grow its profitability and its cash generation in the coming years. Thank you for your attention and for your time. And do get in touch in case you have other questions. Have a great day.
SBF earnings video conference ends now. Thank you very much, and have a great day.