Lojas Quero-Quero S.A. (LJQQ3) Earnings Call Transcript

Good morning, everyone. Welcome to the second quarter presentation for Quero-Quero. This is our Investors Related meeting. Today with us, we have Paula Lopes, Investor Relations Manager; and Peter Furukawa, Chief Executive Officer; and Jean De Mello. The presentation will cover our pillars, expansions and projects followed by a discussion and a Q&A session. Now I turn over to Peter.

Good morning, everyone. It's always a pleasure to be with you to share the evolution Quero-Quero's towards progress and results for the second quarter 2024. We remain firmly committed to advancing our 5 strategic pillars, gaining market share, excellent in credit and collections, doing more with less, digital sales, high-performance culture. In the gaining market share pillar, we operated in a quarter marked by a still challenging macroeconomic environment with interest rates at 15% in other words, 4.5 points higher than the same period in '24 and more cautious demand in our segments. It is important to note that in the second quarter of '24, our sales were strongly and positively impacted by inventory replenishment and reconstruction efforts after the floods in the state of Rio Grande do Sul, creating an atypical or atypically high comparison base. Even in this scenario, total revenue grew 3% compared to the second quarter '24, reaching BRL 761 million. In the first half of the year, same-store sales grew over 4%. In the isolated comparison of second Q '25 versus second Q '24, we recorded a minus 3.5% variation in same-store sales explained by last year's atypical base. When we look at a more normalized base, second quarter '25 posted an increase of 6% on same-store growth, and we continue implementing the market in the regions that we work. In the quarter, we inaugurated 6 new stores totaling 674 in the period -- I'm sorry, 579 at the end of the period and be excellent in credit collections pillar, we kept delinquency under control. credit card portfolio past due ratio ended the quarter at 11.7%, below last year's figure and in line with historical averages despite the challenging macro environment. Our portfolio grew 18% year-over-year, reinforcing the quality and depth of our credit operation. In doing more with less pillar, gross profit reached BRL 216 million in the quarter, even with higher funding costs. We maintained strong cost discipline. Administrative expenses were flat year-over-year with 0% nominal increase and selling expenses grew 5%, reflecting the store base expansion over the past 12 months. In the digital sales pillar, we reached 26% of sales through digital channels that are integrated in our physical operations in line with our strategic plan. In the high-performance culture pillar, we trained 55 new managers in the second quarter of '25 with 334 employees participating in the Desponte program in June '25, preparing our team for the coming years of growth. In the next slide, we closed the period with 579 stores, totaling 382,000 square meters of sales area. In the year-to-date '25, we opened 14 stores, 6 in second quarter, and closed 8 units. Over the past 10 years, we have opened 353 stores and closed only 15, demonstrating consistency and assertiveness in our expansion. We had 8 renovations in the second quarter, totaling 16 in the semester, reinforcing our customer service standards and customer experience. In the second quarter, new stores were distributed as follows: 3 in the state of Paraná, 2 in Santa Catarina, 1 in Rio Grande do Sul, all located in towns with less than 15,000 inhabitants, maintaining our focus on the country's side. Today, 85% of our stores are in towns with less than 100,000 inhabitants. And I will now turn over to Jean, and he will provide more details on the operational and financial indicators.

Good morning, Peter and hello, everyone. It's nice to be with you, we are able to learn more about our results. I will move on to the next slide and talk about the company's revenues. Peter has made a brief summary of our current scenario and in the lower graph, we can see that this quarter, we grew 3%. And in the accrued in this half of the year, and you can see the results here on the slide. And you can see that the growth is well aligned to what we did last year. However, as already highlighted, we do have a strong seasonality result. And we usually have lower sales in the first half and more sales in the second half. And this year, we also have the additional demand for the progress that we saw in the second and third quarter because of the floods in Rio Grande do Sul. And then on the top of the slide, you can see that we had a minor decrease going from a comparison basis where last year, we grew 3%. It's already been commented that we had a minor decrease in same-store sales of 6%, but once again, based on a strong basis with growth of 10% compared to the previous year, and we are doing better than in '23, even with a very challenging macro scenario. So the accrued for the year, we had a growth in retail sales with 7% in retail sales a little bit over BRL 1 billion. Financial services, we can see more stable growth. We grew 14% in the second quarter and 13%, I'm sorry, in the half of the year. So we can see that revenue in financial services, we had a more stable growth throughout the last quarters. Credit card also has had good growth of 13% and 14% in the accrued results for the first of the year. I would like to highlight the seasonality of the comparison basis because of the strong demand we had in Rio Grande do Sul last year. When we look at the stores outside Rio Grande do Sul, we had in same-store sales growth that was significant and positive following the trend of what we've already been doing. And then moving on to the next slide. We can see the gross revenue of the company. This is where we have a little bit more impact because of the margins. And regarding retail, and in the accrued results for the year, we had 12% of gross profit resulting from a retail margin. On the right side graph here on the slide you can see that our margin is very similar and maybe slightly below what we had last year. This is a very competitive environment, the macro environment does not see relevant growth even though we're gaining market. But this is where we still have some pressure on retail margins. We also have an impact on financial services. And you can see that in the first half of the year, it was 42% of the margin -- the gross margin. And Peter has already mentioned that this is an impact of the higher capital cost when compared to the same period last year. We have been working on this. And because of the average time of our portfolio and because we do not want to have an impact on sales. The margin is closer to what would be a normal margin, but this is something we will only see after the third quarter, with the stabilization of capital cost, and we will be able to include this within our costs, and we expect to have margins, especially for financial services that are closer to what we had in the previous quarters. And moving on to the next slide, it's important to highlight that this is where we can see the impact of all of the control of our expenses we've had in the company, especially in this quarter, we had a 5.3% growth, even though we opened new stores, and this was seen last year and this year. And in the consolidated, we had a growth, which is well aligned with the inflation rates even though we expanded our operation basically, we have the same nominal values this part of the second quarter that we had last year and in the upcoming quarters, we will see results aligned with the company's results. And moving on to the next slide, Slide 11, we can see the EBITDA and adjusted EBITDA results for the quarter. In the quarter, our accounting EBITDA was BRL 29 million. In the adjusted EBITDA, we remove this effect or the effect of IFRS 16 including equity expenses with rentals, with store rentals. So in the result for the quarter, we had what we had already commented, the effect of comparison basis in retail and the financial service margins. Even so there is an important trend, and I would like to highlight that in the second quarter, historically, we have lower results we expect and are used to seeing these results and we have leverage of our results in the second half of the year. So it's not only the fourth quarter but the third quarter. The third and fourth are very important for the company, especially now in August, when we have the company's anniversary and this is usually the second largest sales month of the year for us. And then in the next slide, we will talk a little bit about the adjusted net profit. This far, we had adjusted loss. And when we look at the accounting, it's important to highlight that we do not identify cred fiscal or tax on fiscal loss, and this will be done when we have a more favorable macro scenario, which will enable us to use this tax credit. But this is -- this here is just the adjusted net profit. We had an accounting loss, which was below last year's and the adjusted net income. Last year, we had BRL 12 million, and this difference results from the capital cost of the company, which exerts some pressure on our debt. And then in the next slide, we can see the credit portfolio evolution. Peter has already mentioned that along with the cash flow and this is something that we always try to keep control of. And we can see a gradual growth of our credit portfolio, reaching a little bit over BRL 4 billion. We can see the results -- the total results and the interest-bearing results. And we were importantly default has been controlled. Delays over 90 days is lower than what we had last year. It is well aligned with our historical data, perhaps even better than in the second quarter of '23 and well aligned with 2019. So we do have a very conservative view of credit granting and the objective is always to be able to provide credit to our clients so that we can leverage retail sales. So we haven't changed anything really in the company. The macro environment is too challenging, but default is under control as you see on this slide. And then moving on to the next slide, Slide #14. We can see the total payment volume with a constant increase in the use of these cards, both in our stores and outside our stores. And this growth in the use of the credit card has led to an increase of our portfolio. But I would like to reinforce this is all well under control, all very healthy, and we believe that the higher number of clients using the card over time, it will naturally bring in more clients to our store, expanding a strong relationship with these clients, these consumers who will have Quero-Quero as their first option when they want to invest or improve their homes. And then in the next slide, we can see that since '23, we chose to have lower investment amount in the second quarter of '24, we have totaled BRL 13.7 million of investments. And in the first quarter, we totaled BRL 26 million, including the opening of 14 new stores and the refurbishing of other 16 stores we intend to keep on opening stores, and we've been reaching our goals. And these stores have demonstrated their very positive capacity in the beginning of the year. But of course, they are all included in this macro environment with high interest rates. But even so, we can see that it's worthwhile keep on investing, but we are focusing on cash flow. And then this is our last slide, cash management. This is all included in a scenario of the cash of the company and loans and financing levels that are well aligned with the previous years. We have BRL 497 million. So the adjusted net debt historically, it grows in the first and second quarters, but our objective to reach the end of the year with a nominal adjusted debt that is well aligned with the previous years remains. We work aiming at our working capital. And we believe that once again, just as in previous year, as it has been demonstrated in the data for '22, '23 and '24 that we'll be able to reach our internal objective, which is reaching the end of the year with an adjusted net debt well aligned to previous years. And I also highlight that we had a mission just as we did in previous years with new series of the VerdeCard. We had a 5-year product keeping our rating or AAA rating assigned by Standard & Poor's Global Ratings while extending the funds liability profile and reducing the capital cost spread because of the quality of the results and our portfolio. But of course, we also have the Selic increase which has an impact in the capital cost for the company. I now move on to the next slide. I've discussed with you all of the main aspects. And I turn back to Paula so that we can start our Q&A session.

[Operator Instructions] First question is [indiscernible] Vinicius. Peter regarding competition, do you see or how do you see the proposal value in terms of prices?

Good morning. It's always good to hear from you. It's interesting that you ask this question. This quarter, we had 2 interactions with our Board. And this is something we discussed a lot last year. we had a very comprehensive survey with clients and on clients with a lot of people participating. The findings were all very interesting in the bottom line of what you're asking about penetration in the different categories was a surprise for me. In Construction Materials, for example, we had a penetration of 3% in the marketplaces of the cities that we work at. But e-commerce penetration is over 50%. However, it's always on the marketplaces that you are well aware of. But people still buy at those places. I think that perhaps one of the main players in Brazil can deliver fast far from what it is in the bigger towns with attractive costs, I would say. However, penetration is lower. So we divided the segments according to the size of the cities, the smaller the city, less penetration, we have in terms of marketplaces and e-commerce. So in a city with more than 300,000 inhabitants, we have a few stores there, and you can see better penetration in furniture and household appliances. But when you go to 50,000 inhabitants, city penetration still low in these categories, but the fact that you can buy from person or a store there and talk to somebody, you know still gives us some competitive advantages in the market that we are strong at. We have also seen a larger number of competitors closing their stores, which only shows that the market is very difficult. And we should congratulate our team for having been able to maintain our focus in the markets that we work at.

Well, thank you very much, Peter. The second question is also by Vinicius and he says you mentioned a deacceleration in the quarter within a more competitive environment. Could you comment about the deacceleration, are they concentrated in any specific category?

Good morning, Pretto. How are you doing. No, we do not have anything specific here regarding this debt in terms of frequency in the short-term. We already commented that it's important to highlight the differences between sales in and out of the state of Rio Grande do Sul. In the end of the second quarter, we had a deacceleration of sales, but it was positive outside Rio Grande do Sul, but it was very disseminated. We do not have anything specific, nothing that calls our attention that would be worthwhile commenting. We just commented on the macro trends because of the capital cost. We still have a positive view for the rest of the year. This is an important time of the year. And we -- beginning of the third quarter was very similar to the second quarter. But once again, I highlight our comparison basis in Rio Grande do Sul very strong, especially in the third quarter and now in August which is a very important month for the company. The company is concluding its anniversary, celebrating its anniversary actually and the company as a whole is mobilized so that we can deliver services with special promotions to our clients, and therefore, August is usually a very successful month, which makes a lot of difference for the results in the third quarter. But this variation that we see is well disseminated throughout the different categories.

Thank you, Jean. The third question to Peter physical person, what is the performance of the stores open in Sao Paulo and Mato Grosso do Sul.

Well, this is very interesting. The best expansion we had in the history of Quero-Quero was in Mato Grosso do Sul. It was better than in Santa Catarina and Paraná. I think we have a lot of people from Rio Grande do Sul, there, and we were very successful in these openings. In the state of Sao Paulo, it was a little bit more challenging, as I mentioned before. We had some problems with some managers. But today, things have gone back to normal with all of the openings we made there and in other states. It's important to highlight that even here in the store, we are always careful when going in the state of Sao Paulo because everybody believes it's very different. And I'm talking about the smaller towns where we work at, okay? So when we went there, and we saw that the rental price is the same, the challenges and opportunities are also the same. So because we chose cities where the population is below 50,000 inhabitants. It was very similar to the openings we have here without any major differences. I don't see any difference between opening stores in the middle of Minas Gerais. We're very far from that. We still have a lot of opportunities here, and we're going to do so, but I do not see any important geographical challenge that could make things more difficult for us.