Q4 2019 Lojas Americanas SA Earnings Call
Saúde – Rio de Janeiro – RJ Feb 22, 2020 (Thomson StreetEvents) — Edited Transcript of Lojas Americanas SA earnings conference call or presentation Friday, February 21, 2020 at 5:30:00pm GMT
TEXT version of Transcript
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Corporate Participants
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* Fabien Picavet
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Conference Call Participants
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* Helena Villares
Itaú Corretora de Valores S.A., Research Division – Analyst
* Irma Sgarz
Goldman Sachs Group Inc., Research Division – Equity Analyst
* Joseph Giordano
JP Morgan Chase & Co, Research Division – Senior LatAm Healthcare Analyst
* Robert Erick Ford Aguilar
BofA Merrill Lynch, Research Division – MD in Equity Research
* Tobias Stingelin
Citigroup Inc, Research Division – Director
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Presentation
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Operator [1]
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Good afternoon. Welcome to Americanas conference call to discuss Q4 2019 financial results. Here today with us is Mr. Fabien Picavet, Americanas IRO; and Mr. Raoni Lapagesse, B2W Digital IRO.
We’d like to inform you that this — today’s call is being recorded (Operator Instructions) It’s also important to remember that today’s event is supported by a presentation. It’s available at ri.lasa.com.br.
Before proceeding, we’d like to clarify that any forward-looking statements made during this conference call regarding Americanas’ business prospects, financial and operating projections and goals represent beliefs and assumptions of the company’s management as well as on information currently available. Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions. Therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect Americanas’ future performance and could lead to results that differ materially from those expressed in such forward-looking statements.
The company clarifies that the accounting information underlying the comments are presented in accordance with the international financial reporting standards, IFRS, and standards issued by the Brazilian Securities Commission, CVM, and in reals.
Now I’d like to turn it over to Mr. Fabien Picavet. Please, Mr. Fabien, you can proceed.
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Fabien Picavet, [2]
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Good afternoon, everyone. It’s really a great pleasure to welcome all of you on this call. Please allow me to introduce myself. I’ve been in this company for 12 years. I started as an intern, and then I worked in different financial areas. Amongst them, investor relations, planning, means of payment, insurance and services. In 2019, I took over as an IRO, and this is my first call. I’d like to thank the company for their trust and the opportunity.
So let’s start our 2019 results of Americans Universe. On Slide 2, we have some highlights of 2019. It was a very important year. Our first store in Niteroi celebrated 90 years. Americanas and website — Submarino website also celebrated 20 years; B2W, 13 years; and AME, 18 years, and it was already born a giant.
On Slide #3, we introduce Americanas Universe. It is unique, flexible and resilient. It combines the physical platform with a very strong penetration with the digital platform with the most favorite Internet brands and is a driver of innovation, seeking to accelerate platforms, disruptive businesses and enhancing many initiatives. By bringing together these different fronts, it’s a strong inspiration with the coordination of innovation and future.
So we have 38 million active customers, 37 employees, more than 46,000 sellers and 1.5 merchants. We are present now in more than 700 cities and most of them [fire] countries through our digital platform. Universe Americanas — Americanas Universe is guided by the proposition of fulfilling dreams and meeting the needs of consumers, saving time and money and exceeding the expectations.
On Slide 4, we introduce the progress of Americans Universe. Over the last 3 years, we went through an expedited transformation of our business. We have changed the way we interact with our customers, and we have strengthened Americanas Universe. Our total GMV increased from BRL 23.3 billion in 2016 to BRL 32.6 billion in 2019, a BRL 9.3 billion increase. Assortment increased from 2.7 million SKUs in 2016 to 29.5 million at the end of 2019, increasing by 26.8 million SKUS. Number of transactions also increased 67 million during this time frame, coming from 260 million to 327 million transactions. All these achievements directly reflect Americanas Universe results, coming from a cash burn of BRL 2.5 billion in 2016 for cash generation to BRL 587 million in 2019.
2019 is also the landmark of very important cycles as our physical platform opened 806 stores between 2015-2019, delivering the most ambitious expansion plan of our company, 85 years in 5. Our digital platform also produced a positive cash generation, also closing with a high note of BRL 189.9 million, so paving the road for our future.
Slide 5, we have the results of the fourth quarter. Our GMV increased 20.6%, representing acceleration compared to the previous quarter. Gross margin achieved 35.2%, a 0.6 percentage increase, reflecting the rapid growth of our marketplace and the expansion of our physical platform margin. EBITDA margin achieved 20.2%, with an increase of 1.2%. Adjusted net income increased to 62.1%, considering nonrecurrent fiscal credit. Our net income for this quarter increased 143%, totaling BRL 596.6 million.
On Slide #6, we have 2019 results. It was a year in which we have many achievements despite the challenges with the end of a tax incentive law, Lei do Bem and the 2018 World Cup. You — Americanas Universe, GMV increased 17.2%, coming from the acceleration of B2W marketplace, which increased 49.7% and the robust growth of our physical platform that increased 8.1%. Our gross income achieved 8.9%, totaling BRL 6.6 billion with a gross margin of 35.4%, increasing by 1.1% compared to the previous year. EBITDA achieved the BRL 3.5 billion with a gross EBITDA of 18.5%, representing also an increase of 0.9% compared to 2018. Our adjusted net income increased 65.4%, driven by the progress in our operating results and also the drop in financial results. Considering nonrecurrent fiscal credits, our net income increased 130.4%, totaling BRL 704.1 million, the largest income of our company’s history.
In 2019, we also delivered a positive result in all our businesses, considering also that we are going towards the right direction. We have combined growth also with increased profitability, decrease of our investments and excellent services.
For Slide #7, we discuss O2O. Considering the accelerated transformation in the physical and digital world, Americanas Universe embraces a unique integrated strategy in order to retain and gain new customers. LET’S, our shared platform for logistic assets from Americanas and B2W, continues to promote the concept of Everything, Anytime, Anywhere, accelerating O2O initiatives. Now we are on the — in the third phase of these initiative. The first focused on technological integration, the second focused on implementing at all stores. And the current one is improving customers’ experience, both in brick-and-mortar stores as well on the website. We are very excited with this new interaction means with our customers and the first result. In 2019, the 5 O2O initiatives combined exceeded BRL 2 billion, a 153% increase with this — with a highlight for the pay and collect now. So the customer buys the product on the website and collect at the store they choose in less than one hour without having to pay in freight. And this is available in 100% of our stores.
On Slide #8, we highlight our working capital evolution. Net working capital was 3 days, presenting a reduction of 33 days when compared to the previous year, reflect not only an increase and improvement in working capital and the physical platform but also a review on the assortment of 1P and an increase in participation of 3P and the digital platform sales. The fiscal platforming improved by 20 days, closing the year with 10 days of need. This gain was driven by improvements across all components of working capital, with a highlight of the reduction of 10 days in inventory levels. The reduction in the need for working capital is directly linked to the evolution of LET’S, which has been contributing with operating improvements, reduction of lead time in the creation of synergies between companies. We are confident that data analytics is key to support decision-making, which has to be faster and more efficient. And the evolution of working capital also reflects an increasingly intense use of technology in our dynamics around purchase and the distribution of merchandise.
On Slide #9, we’re going to be touching upon cash generation. As a way to capture all the effects, cash generation is measured by the variation of the net debt, excluding potential operations to increase capital. That way, for 2019, the calculation for cash generation, excluding the participation of Americans and minority shareholders for B2W in increasing capital and the digital platform. For the past 3 years, we have presented a short evolution in our cash generation for Americanas, allowing us to continue to invest in expansion in stores and into B2W. We have thus sped up the growth, both in the physical and digital platforms. Cash generation evolved BRL 3 billion in 3 years, moving from a BRL 2.5 billion burn — cash burn in 2016 to a cash generation of BRL 586.8 million in 2019. The cash generation for the physical platform reached BRL 363.4 million vis-à-vis a cash burn of BRL 743 million in 2016, an evolution of BRL 1.1 billion. Under the digital platform, evolution reached BRL 1.8 billion, moving from a cash burn of BRL 1.6 billion to a cash generation of BRL 189.9 million in only 3 years.
Moving on to the next slide. We’ll be talking about the expansion of our store network. In 2019, we finished our program of expansion, 85 years in 5, which led us to a total of 1,700 stores across all states of the country. Between 2015 and 2019, we opened 806 new stores and we opened our first store in 400 cities across Brazil. We are very proud of what we have built, taking big names at fair prices to all corners of the country. The expansion was totally in line with our purpose, and the investments made in the period reflect our optimism about Brazil and about our business model.
On Slide 11, we’re going to be talking about gross sales under the concept same stores. Throughout the year, we accelerated the same-store sales. We saw a growth of 5.2% in the first half, 6% in the third quarter and 6.8% in the fourth quarter, confirming the uptrend in sales growth. In the year, grow sales under the same-store concept grew by 5.9%, driven by a 2.8% increase in average ticket by an increasing flow of the stores, especially during promotional periods, and by the fast growth of the O2O initiatives.
On Slides #12 and 13, we highlight the fast growth experienced by AME. AME or the one-stop app for the Americans Universe has the objective of making customers’ lives simpler. AME’s app reached the level of 6.5 million downloads after a simplified payment via a QR code, cash back and access with a series of financial products and other services and features, which makes their lives easier.
On Slide #13, we talk about partnerships established by AME in 2019. only 18 years after being launched, AME has already set — layed down an extensive road map with important partnerships, including Cielo, Stone, Linx, Vtex, Mastercard and Banco do Brasil with the offering of a new credit card. AME is already accepted in over 1.5 million stores and has more than 35 features from payment solutions to urban mobility.
On Slide 14, we have the results of B2W Digital in the fourth quarter. The GMV and the digital platform continues to grow strongly, having reached BRL 6.5 billion, up 30.9% in the quarter. Marketplace saw a growth of 47.2%, reaching BRL 4.3 billion and accounting for 64.2% of the company’s total GMV. Also noteworthy is that this result had a great contribution from Black Friday. For the ninth year in a row, we were leaders in traffic and in sales during that seasonal event. Using EBIT numbers, you had about 40% of market share on Black Friday. Customers, once again, shows our digital platform to make their purchases. They trust our reputation, they trust the quality of our delivery and they also trust our service.
In the quarter, we also reached important operating results with the addition of 8,100 new sellers and 9.8 million new SKUs.
On Slide 15, we have the results for B2W Digital in 2019. Total GMV reached BRL 18.8 billion, up 25.1%. Marketplace reached BRL 11.6 billion, a growth of 49.7%, which accounted for 61.7% of the company’s total GMV. In the digital platform, we closed the year with an assortment of 29.5 million SKUs and 46,800 connected sellers. We have exceeded our initial objectives, which was to close the year with 20 million SKUs and 40,000 sellers.
On Slide 16, we’ll make a summary of the highlights we had during our Investor Day in 2019. As for opening new DCs, distribution centers, 3 of the 7 centers which were announced have already been opened. Throughout 2020, another 4 DCs will be opened in the states of Paraná; Esprito Santo, Serra; and Bahia. We have also opened an office in the city of Shenzhen in China. And this year, 2020, we’ll open a second office in Asia in Hong Kong.
Last month, we started the rollout of AME Pro, a PDV and ERP mobile solution with the launch of the lite version, a self-service model in which the retailer has access to the full solution once they download the app.
About our partnerships. We are finalizing the integration with Stone. And by the end of the first quarter, AME will be available in over 400,000 credit card machines. The credit card offering with Banco do Brasil is still being developed and is expected to be launched in the first half of 2020. The company’s Pedala and Courri are already integrated to the LET’S operations in AME Flash, allowing for the speeding up of new delivery models right now working in operation on the cities of São Paulo and Rio.
Another highlight was the dream of reaching 100 million items until the end of 2022. We closed last year at 29.5 million SKUS, which makes us all very confident that we will reach the new challenge.
Lastly, we have 6 stores in the digital mode already operating on this new mode of store is highly integrated with O2O initiatives with a highlight of the Pegue na Loja and for the assisted sale and of the complete assortment provided by the digital platform.
On Slide 17, we will be talking about the next 3 years. On top of important accomplishments on the operational front in 2019, the year saw the end of 2 important development cycles. The first one was the conclusion of the expansion program, 85 years in 5; and the second was the achievement of the positive cash generation in the digital platform, which successfully concluded the transition to a hybrid platform, including marketplace and digital services. For the next 3 years, we have established a slogan, Everything, Anytime, Anywhere, which will guide our decisions to maintain current customers, increasing their frequency and also the aim of attracting new customers. And also, always trying to exceed their expectations to reach that objective, we intend to continue to seek the best talent to increase the offering of products and services, to intensify the use of data analytics, to increase customer recurrence, to expand O2O initiatives, to expand our supply chain platform, to further improve our innovation environment, to continue generating value and to continue to reinvest more to grow more. We are quite proud of what we’ve done, and we understand the best is yet to come.
Those were the main comments concerning the performance of Americanas in 2019. Now we have time for some questions. Thank you.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Our first question comes from Helena Villares from Itau.
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Helena Villares, Itaú Corretora de Valores S.A., Research Division – Analyst [2]
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Would like just to have a better understanding about the strategy you have already been discussing for quite a while. Now we also see an increase in your gross margin, so it’s about private label. So what type of products presented positive performance? And what do you foresee for the future regarding this strategy? So private label. Can you share a little bit more about exposure in this strategy? And my second question is about a decrease in your SG&A. This is something unexpected for us. So which are the major drivers that will add to that? And we actually saw that drop. So what can you tell us about that as well?
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Fabien Picavet, [3]
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Helena, thank you for your question. Starting with the private label question, your first question about margins. The margins of the Americanas Universe saw an expansion of 0.6 percentage points in the fourth quarter of last year, gross margin in the physical platform of 0.3. Private labels or our own labels might help in that makeup of the margins. As you mentioned yourself, it is a project which has been around in the company for some time. We have today 15 owned labels, over 17,000 SKUs of our own private labels. They have been gaining more relevance, more importance throughout the years. Today, we have some highlights such as Brink Mais, for example, a very strong label, our brand in toys. They help in the margins, but they also help build customer loyalty. And that’s a strategy that, today, we cannot give you the breakdown of the numbers in terms of total sales. But it has been gaining relevance, as I said. I’d say we have managed in the fourth quarter to combine significant growth in the seasonal events such as Black Friday along with margin expansion. So the planning leading to the event was quite efficient, and that made a difference. And for Christmas, Christmas was also very good that helped striking a balance between margin and sales. And private label is an important part in striking that balance. As to SG&A expenses, under the Americanas Universe, expenses grew less than revenues, which led to a dilution in expenses. And that has to do with our focus. We’re always focused on bringing expenses down, and we are quite disciplined about that. We’re quite focused on that throughout or across our — all our platforms. As for G&A, specifically, we saw an effective reduction driven by a review work done by our asset assessment team, especially reductions in lease and ranked values. That was an important initiative, and we’ve been working hard in terms of managing all of those assets, reviewing lease contracts. And we’re trying to be very selective when owning new stores. That also helped us control expenses more efficiently.
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Operator [4]
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Our next question, Joseph Giordano, JPMorgan Bank.
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Joseph Giordano, JP Morgan Chase & Co, Research Division – Senior LatAm Healthcare Analyst [5]
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So can you give us an update? I do not know what you can tell us about convenience stores considering discussions with BR Distribuidora. So this is one question. Then the gross margin. You talked about private label as well. So can you tell us about the pricing strategy? So what is changing in the company with AME and data analytics? And also, as for supply chain, what have you changed? And what was the impact in your inventories?
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Fabien Picavet, [6]
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Joseph, thank you for your question. Starting with the local issue we raised. Our business model for the Americanas Universe is quite flexible. We have 5 different models of stores today, including the local store, our convenience store. 2019 was a year where we went through a very steep learning curve. We have — we tested those models extensively in terms of assortment, location, layout. It’s been like a big experimentation lab for us. We tested the sales of Asahi, for example, different types of coffee. The convenience store front has also proven to be an important O2O hub in the Americanas Universe and has participated in now this journey from the customer journey, from breakfast to a late evening launch. So it is part of our strategy, I mean, the convenience store is part of our strategy. We understand there is a lot of room in Brazil to explore that format, specifically about the BR Distribuidora, the gas station model, we are working along with BR Distribuidora. We have moved ahead, but there’s nothing new to share at this point.
As for the gross margin issue, there are several combined initiatives. Private label, as it was mentioned in the previous question, private label really helps. Our pricing strategy is also helpful since we created our lab within the University in Rio, PUC-Rio. That became an initiative which became an integral part of the company’s strategy. All departments have been modeled according to that strategy. Several benefits have been reaped, and it’s also been an important point in our margins. Pricing can help sales. It can also help margins, and we are quite happy with what we have seen in terms of margin evolution. There is no one specific driver. It’s a combination of factors, as I said.
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Operator [7]
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Our next question comes from Tobias Stingelin, Citibank.
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Tobias Stingelin, Citigroup Inc, Research Division – Director [8]
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Adding on Joseph’s question, it’s about data science that you’ve mentioned and the diligence you’re carrying out. You told us that, that also support sales. So what we see is a recovery in this field. So I do not know how much you can share, but can you give us an example, a category? So after implementation, can you tell us about some increase you saw in this pricing strategy? How much is it being adopted, considering the different categories? Because we know that, that — we see that we will depend increasingly on sales coming from other initiatives. So if you can share that you are already seeing this type of impact.
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Fabien Picavet, [9]
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Tobias, thank you for your question. Well, the use of technology has been growing in our business. It is part of our growth of our evolution. We have been using data analytics. We have been moving along in terms of data banks in order to make a more efficient decision-making process or to have a better, more efficient decision-making process in place. And that has been happening across different fronts, from purchases, procurement to distribution to different options for payment with installments. We have been actually using AI to help customers choose the best payment options for them without causing an impact on our accounts receivable entry. So in summary, we have been using technology quite extensively also in digitizing our store routine processes. Today, store managers can follow-up on everything that’s happening at their store on a device in the palm of their hands. They can pull up on sales online, knowing what happened on that very day. They can manage their stores in real time. And that’s part of an evolution, which has been taking place over the past years. So that increase in sales is a result of all those initiatives. And we do believe that we’ll see an acceleration of all that as technology becomes more intensely used across all fronts of our universe. Americanas stores, mobile platform, on-site logistics, in that case, LET’S, has been a key player in terms of reducing lead times and creating synergies and bringing in operating improvements. So as you said, data science is here to stay.
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Tobias Stingelin, Citigroup Inc, Research Division – Director [10]
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So can we say that you see a gradual growth that you’re going to expand from one category to another? Or should we see a strong wave adopting this strategy? I’m just trying to understand how this is going to happen. So are you investing? And if so, how much also?
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Fabien Picavet, [11]
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Our business is dependent on details. There is no silver bullet. We have to do more, better every day. And we do that by rolling out all those initiatives, trying to reach a gradual increase, as you said. We do not believe in big leaps. We believe in gradual change, which will end up or lead to a more sustainable growth process. We are happy. We’re confident that we are on the right path, but on a gradual, slowly but surely.
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Operator [12]
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Our next question comes from Irma Sgarz from Goldman Sachs.
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Irma Sgarz, Goldman Sachs Group Inc., Research Division – Equity Analyst [13]
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My question is about inventory levels. You mentioned LET’S platform, but you also mentioned the distribution centers and distribution channels. So have you discussed any increase on inventory days? And I think that now you’re starting to bear the fruits. So can you tell us about next steps or next future projects in order also to change inventory days in order to reduce them? I understand that your business is becoming more and more integrated. But how can you tell us about how the parent company is going to do that?
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Fabien Picavet, [14]
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Irma, thank you for your question. I’d say in the working capital, as a whole, has evolved, have achieved significant gains across all our operational fronts on both platforms, physical and digital. Specifically about the physical platform, we saw an improvement of 20 days in working capital with improvements across all fronts. Inventory stood out, as you mentioned. We have improved inventory days by 10 days. And we have improved our supplier turnover by 5 days. So we thought about finding new synergies between the logistic platforms with LET’S, acting directly that looking for operating improvements using hubs, using stores to make increasingly faster deliveries, more efficient deliveries. That’s something we are looking for, we are going after. That process really advanced. Last year, we are already collecting the benefits in the third quarter when we saw an improvement of 10 days. That continued into the fourth quarter with an improvement of 20 days. And we see that improvement as sustainable that is part of our evolution.
As for LET’S, that was the first wave, and the second wave will be related to technology. In other words, doing more information in our purchase dynamics. That way, we’ll be more efficient in delivering that merchandise. We also have the new DCs, distribution centers. We want to be closer to stores, closer to customers, to be faster, more efficient in delivering merchandising, not only delivering to customers’ homes, but also having those products available at the stores as fast as possible. We have opened 3 DCs. Another 4 are coming up. We opened with a limited capacity, and that capacity increases as demand increases. That’s a very important front for us that is sure to help us become more efficient in delivering and in bringing working capital down going forward.
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Operator [15]
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Our next question comes from Robert Ford, Bank of America Merrill Lynch.
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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division – MD in Equity Research [16]
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Congratulations for the results. Fabien, can you please talk about locals and profit? And also, what about if you do not achieve an agreement with BR distribution? And also, about the use of technology, e-commerce? So how should we consider the increase in the number of stores and e-commerce?
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Fabien Picavet, [17]
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Thank you for your question. As for the convenience in stores, that’s one of our growth fronts, no doubt. It is part of the Americanas Universe in the concept of the physical platform. Among the 5 store models that we have, we have the traditional model, we have the express model, the convenience store model and also digital and the AME Go, which was launched last year. Specifically about convenience stores, we have big plans for that front this year. We understand there is a big opportunity in Brazil to develop and explore that model, and we are close to finding the ideal model to think about really rolling it out. We have over 50 stores under that format. That format has proven to provide more sales, but also they’ve shown to be an opportunity for us to test, experiment other things besides being an important O2O hub for the universe as a whole. We are talking with — we have been talking with BR. We have advanced in conversations. But as of today, no major news to be shared on that front. Convenience stores leads to a high recurrence level, which is quite in line with our strategy for the coming years, increasing clients, increasing purchase frequency that fits well with the convenience store model. And as I said, moving on breakfast, lunch or late afternoon lunch and so on. So those stores have proven to be an excellent growth opportunity. But no news, no big news to be shared as of now.
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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division – MD in Equity Research [18]
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Okay. But Fabien, if you achieve an agreement with BR, — if you don’t, actually, so what expansion plans do you have if that does not happen?
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Fabien Picavet, [19]
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Bob, we do believe in this opportunity, and we’re going to go after it. We’re going to pursue the opportunity irrespective of our partner. We believe in the model. We are in conversations with BR. But above and foremost, first of all, we believe in the model.
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Robert Erick Ford Aguilar, BofA Merrill Lynch, Research Division – MD in Equity Research [20]
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Congratulations once again.
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Operator [21]
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With that, we close the Q&A session. Now I’d like to turn it over to Mr. Fabien for his final comments.
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Fabien Picavet, [22]
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Thank you all for participating in our earnings call for the fourth quarter 2019. I’d like to wish you all a great Carnival, a great holiday for all of you. If you’re going to celebrate Carnival in Rio, AME is one of the official sponsors of our street celebrations. AME, no moderation. Our IR team will remain available for further questions you may have. Thank you all. Have a nice day.
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Operator [23]
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Lojas Americanas audio conference now has now ended. So thank you very much, and have a great afternoon, everyone.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]
