Track & Field Co S.A. (TFCO4) Earnings Call Transcript

[Interpreted] Good morning, ladies and gentlemen. Welcome to Track & Field's video call to discuss the results for Q2 of 2026. This video conference call is being recorded, and the replay will be available on the company's IR website. The presentation is also available for download. [Operator Instructions] Before we proceed, I would like to remind you that forward-looking statements are based on the beliefs and assumptions of Track & Field's management and on information currently available to the company. These statements may involve risks and uncertainties as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors, analysts and journalists should bear in mind that factors related to the macroeconomic environment, the industry and other factors may cause actual results to differ materially from those expressed in the respective forward-looking statements. Joining us today's video conference call are Mr. Fernando Tracanella, CEO of Track & Field; Ms. Patricia Abibe, CFO and IR Officer; and Mr. Fred Wagner, CEO of TF Sports and Vice President of Strategy and New Business at Track & Field. I would like to turn it over to Mr. Fernando Tracanella, who will begin the presentation. Fernando, please, you have the floor.

First and foremost, good morning to everyone. I would like to thank you for your interest for the time you're dedicating here. Today, we started a little bit early, but yes, but I'm very happy to talk about the good results. This was a positive quarter -- and when we see the situation of the retail, this is a quarter where we grew more than 20% in total sales and same-store sales, which is very important for us, which is very important for the soundness of our business. And this is a period, especially during the month of June, we affected -- the effect of the football World Cup. The results could have been better, and I will elaborate a little bit more on this afterwards, and I will talk about the World Cup. But I believe that our results are strong in terms of growth with a number of variables that remain. Number one, a segment that continues growing, and we believe that will continue growing, that will be the retail. The retail market in terms of wellness, the company is strongly inserted in this segment. There is an external things that are helping us. People are more aware about their health. And I believe that this positively impacts our business, but we were internally assertive in terms of product. So our winter collection was new with technology. and our customers and the franchisees -- and the franchisees accepted our products. And in terms of replenishment, our operation was much more positive in terms of the chain efficiency, distribution, logistics, better supply than the same period last year. And I believe that this also contributed for our current results. Our ecosystem is a great competitive advantage that we present. Fred will talk about these initiatives. But our ecosystem strategy of providing experience in sports contribute to our same-store sale performance, which is extremely robust. Now the refurbishment of stores. Once again, we -- of course, our growth has been more than twice in terms of same-store sales. We initiated a program in 2021, and we can see significant results. The level -- the levels of performance of the refurbished stores have changed. So this is -- the main highlight was growth in terms of net revenue. It was 15.5%. With more participation of our franchises, the mix has also changed. And therefore, this is why our growth was higher in terms of net revenue. Our sellout was also very good because our own stores and franchise stores. And there was a mismatch in terms of sponsorship, but we've seen a very significant growth in our adjusted EBITDA. The margin is 23.5% and a highlight would be the just SG&A, this is because of a number of cuts from the beginning of the year. We have a lean company now with a possibility to improve our operational cash. Well, although we've had logistics expenses because of the fixed cost in logistics, we have been able -- we've had a great result, net revenue with good results, a margin that I would like to highlight of almost 16% that I would like to highlight. There were impacts in terms of income tax. The rate -- the income tax rate was higher, but this was anticipated. But omnichannel has also been extremely successful. We have a great amount of stores that work with ship from store. And we also have pickup in store, which is growing quarter after quarter. So we strongly believe that we are always focused on our customer. We're also focused on our franchise. And most of our sales today in e-commerce are built by brick-and-mortar stores and most of the brick-and-mortar stores are franchises. Our expansion is very similar. We had seven new stores, eight refurbishments, and we are highly aligned. We are aligned with maintaining the pace of the last years in terms of openings and remodel stores. Although the interest rates today are a bit higher. Well, we believe that the situation is challenging, but there is great appetite for new stores and remodeling. What are the highlights of our quarter? This is the portray of the semester. The growth has been 18.6%. The second quarter was stronger than Q1. The accrual of the semester, you can see here now same-store sales growth was 14% and our profit indicators are excellent. The adjusted EBITDA 14% and the margin 24%. And we are focused on cash generation, and this has grown. And we have combined the growth with good profitability and which improves our working capital, no risk in terms of product. But gradually, we have been able to improve this dynamic. And this has enabled us to have good cash generation during this quarter. The increase of cash generation was significant during the semester in cash generation, operating cash flow, practically BRL 100 million with 0 debt that is very important when you're facing a scenario of high interest rates. We have cash equivalent as well. But including receivable, we have cash with no debt. Thank you very much. Now I will hand it over to Patricia.

Good morning to everyone. Well, let's start talking about sellout in detail. So we can analyze everything that took place in the quarter. We've grown almost 21% in terms of sellout vis-a-vis last year and 16% in same stores. The growth is higher than what we pointed out in Q1. There are a number of considerations that justify this growth. Let's talk about expansion. There were eight new stores in the group. One was an own store and this increasing the coffee operation of a store in Sao Paulo in [indiscernible] Boa Vista in the village in Porto Feliz that is within the gated community of Boa Vista. I would like to invite people to go there. This is an open operation. The coffee is extremely well positioned in front of the store. I believe that the operation is extremely cool. In terms of remodeling, there were eight remodeling, seven were franchises and one is owned [indiscernible] we have to mention about the growth when we remodeled the stores in the network. This has seen a growth of 37%. But when we zoom these operations, the franchises presented 38% of growth, which is significant and directly proportionately for the franchise is extremely important to remodel the store. The payback is -- the payback is quick with this growth. Now regarding all our drivers, the winter collection was extremely strong in the stores. There were periods of COVID that contribute for the sales. And during the Brazilian Valentine's Day, this was extremely good. And of course, replenishment, that is something that we have been improving throughout the years, but it is gaining more momentum in our operation because the chain as a whole win when you reduce rupture in a store with the right product at the right time and when you reduce rupture, this has been gaining relevance. It's important to talk about e-commerce with a 16% growth during this quarter with a share of 9.4% of our sellout. Omnichannel is extremely important. These are all the stores that are connected to a platform where I can deliver to our customers throughout all Brazil, throughout the small [indiscernible] and they are scattered throughout Brazil, streamlining the delivery process and satisfying more and more of our customers. We have practically 94% of our network connected. And an additional point, now 39 acting as national sellers. Now something important, if you are not connected, you have to update the app that was updated at the end of the second quarter. But regarding the process of omnichannel of ecosystem, it is connected to our entire strategy. So what was relevant throughout the app update, we integrated all our channels. So this means that you are going to deliver something during the weekend, let's say, a T-shirt from Track & Field. You want to buy a technical product that is offered by our marketplace, the TMO and you can also include supplement like [indiscernible]. So your car will be able to share all the needs and provide comfort to our customer. Now this is an opportunity that will create more sales. I would also like to talk about the event calendar. During this calendar, we had 1,300 events in our operations. This was a growth of practically 34% vis-a-vis last year that also contribute to strong sales. This increases the traffic of the store. Now all the initiatives regarding the -- influencers in our platform media and branding as we -- we focus strongly on this, and we've made progress with a ticket growth of 14% vis-a-vis last year and 13.4% in terms of apparel. Now when we talk about net revenue, we had a growth of 15.5%, and this is explained by -- Tracanella mentioned this. What is different from the seller? We have a royalty share that we were expecting from a stronger growth because we saw during Q1 in our net revenue, a significant sell-in participation. And when we have a greater sell-in participation in our revenue, what do we expect? We want the franchise to sell out and to receive the royalties. This is why this explains the first line of 24% because of a more significant performance on Q1. There was a greater sell-in participation share. During Q1, the share was 2.5% in sell-in, which is relevant. And this is a figure that you see here. Nonetheless, during the quarter, the protagonism is shared with sell-in. Sell-in is also performing well. The franchise -- the franchisee has strong share with sales for Father's Day and sales -- and we also accelerated our sell-in almost 22%. And when you see this is 13.8% and this is lower than the franchise operations, and this neutralized the growth of the ROI, then we will see this growing in this magnitude. The events in TF Mall will slow down 18%. It's important to explain that during this year, that has been very positive participation of our sponsors in event that are more connected to the circuit. Here, we have the running circuit. We have the experiences -- so therefore, we had new sponsors within our initiatives, but they will remain with us until the end of the year on what -- and sometimes you have a mismatch of revenue appropriation. We compared the base to have an idea. And if I were -- if we would have been the same conditions last year, our revenue would have grown 14%. This is something important to bear in mind. Now gross profit. As I said, during this quarter, we have the mix of channel and the net revenue, but there, we made progress. When we see our gross margin that was almost 56.7% [but you said] there's a drop of 0.6% because of the mix of channels that I was mentioning. Now when I have greater representativeness in our channel and here, we have a greater share of ROI here, we neutralize this, and this impacts our margin. But this was an important share of almost 15%. Now --and operational expenses. Well, we end with 33.3% of our net revenue, a gain of 0.6% in efficiency. If we see these two entries, we will see sales expenses that increased 1.3%. And it's important to remember that when we analyze Q2 of last year, the base was more atypic [indiscernible] or the investment in marketing was slower and this normalized during Q3 of 2025. So during Q3 this year will be more comparable for explanation. And Q1 and Q2 last year was growing 30%, 34% vis-a-vis 2024. So here, you can balance and you can offset things when we see the investments in media. As a matter of fact, we will see a normal situation on 2025 and the impact during Q1 and Q2 this year. On the other side, we would like to highlight that all the SG&A that are diluted in 1.6 percentage points. This result reflects all the adjustments that were implemented at the end of Q1. And even more important, we can dilute this significantly placing all the initiatives during -- in our DC to face the growth of last year. Although when I see the impact of Q1 and I transfer it throughout the year, I can offset and deliver an expressive dilution. So regarding expenses, this is an important message, and this is regarding all the dynamics here in order to result -- in the results that we see here. And when we talk our EBITDA, our EBITDA is almost 66% and growing practically 16% vis-a-vis last year and a margin slightly above 0.1% from 23.5%, which is something extremely robust. What explains this the dilution of 0.6 percentage points of gross margins because of the slowdown regarding the net revenue, and we offset in the expenses. So we gain margin. Now when we see the semester we can see basically BRL 127 million. This is a growth of 14% vis-a-vis last year. This is a margin of 24%. This is a very significant figure. And when we talk about net revenue here, almost BRL 45 million, net margin of almost 16%. Now when we compare it to last year, it's important to explain a slowdown of 1.1 percentage point regarding last year because there was -- there was a significant impact by the income tax rate and this impacted 0.8% of our net revenue. Why? Throughout the last years, there were a number of operations that were calculated profit. And as this was eliminated, we've brought some benefits and we're impacted. It's important to see that the actual rate of income tax, it's around 22% last year. If we see the same period, it was 19%. So this impact is reflected on our last entry. And in terms of cash position, well, we had an extraordinary cash position, 96% of growth in our operating cash flow. This is, of course, because of great sales. But here, we have to see how we've improved the average day of inventory. We've dropped our average period almost 16 days. And now our investments are almost BRL 15 million similar to last year. Our investments are focused on brick-and-mortar stores and more stores and remodeling and also technology, especially in the app that we just mentioned, we all saw there was more financial disbursement. When I see the [JSP] that is our distribution, that was -- it was excellent. When compared to last year, we end last year with BRL 145 million of cash generation, and we continue with no debt and a highly prepared balance, which is prepared, which we expect by the end of the year. Now Fred, let's talk about TFS Sports -- TF Sports.

Well, good morning to everyone. I thank all of you for being here. It is excellent to see these results and at the same time to know that within the result, there is a strong platform that has been built. I will talk a little bit more about this. And simultaneously, we can deliver results. And in our view, we can build something differentiated. This is when we compare to a simple retail operation to talk about our platform and our TF Sport app. We have over 1.4 million users. This is almost a growth of 36% in terms of number of users, but it's important to state that this growth is aligned with a similar figure of growth of events that we performed. We carried out 1,300 events during Q2. This is a brand that has had a record number of events and also the number of registered growing 34%. It's not only the effort of simple users, and this is reflected in the chain of events and services of our app. And here, we're able to deliver almost 35% of more users participating in the events. But the users that buy products and participate in the event, well, this increases the share of closet -- of the closet of the consumers say they have a more track and feel apparel within their closet. And this way, we can convert this consumer to become a consumer that connects with the brand in a differentiated way. Also, when we see trainers, this initiative is flat. Its flat on purpose. We still have not had a more structured rollout of our trainer platform because during the last semester, we focused more on the integration of the service channel with the product channel, TF Mall, TSL, TFC was integrated, and we're integrating this with a number of brands. So we focused on this. And during the next slide, we will show you how this initiative has been very successful. Now here, we've evolved. Regarding TFC sales, here, we see a growth of 35% amongst people that buy food and supplements within our network. We are learning a lot about this market. And I believe that TFC is a new market for Track & Field. We sell a lot through our app in terms of food and supplements, the TF Mall that is our marketplace with brand curatorship now integrated with the app. This is a GMV that grew 37%. So our integration initiative has been very important. These figures are small for the size of the company, but -- but anything that delivers what we're delivering here year-on-year shows that this presents a great differential. And we are approached by premium brands to be part of our channel. And we also are paying attention to what type of product -- we have to -- we will focus on what kind of product can complement what we already have. These are initiatives from this platform. Our delivery pace, our innovation pace and the experience of our platform is excellent and our NPS is 83% in the company, by and large, this is very high. And we measure this in a granular way. We have NPS from each one of the assets of the TF Sport, e-commerce store operation, TFC, and we improve the consumers' experience, and we're focusing on wellness. We want to be a one-stop shop for wellness in Brazil, and we're highly satisfied with it. So regarding the new businesses, -- we are opening our fourth new store in Portugal. We're highly satisfied in being able to replicate this operation in Portugal. Portugal, this is a very timid operation, but we see great potential in Portugal. So this is it. So we've had good results. We've been able to deliver new solutions. We've seen innovation in the company, and we're very happy with the situation despite the adversities that we face in the market as a whole.

And now we will initiate our Q&A session for investor and analysts. [Operator Instructions] Our first question from Robert Ford from Bank of America.

Congratulations for your results. Due to the frailty of the market for the consumer by and large, can you talk about the competition and the expectations for the rest of the year and where you see strong performance in areas of weak performance. And as you continue remodeling stores, how do these remodelings compare to past remodelings in terms of the increase of sales and same-store sales?

I can start. Maybe Patricia can add on. Number one, it's excellent to have you once again in one of our video conference call. Regarding competition, our view is that the market that we participate that this wellness market grows at a pace that can absorb newcomers. We do not see any movements that are new in terms of competition that can affect our businesses. And we are strongly focused on our operation on the product, on the client experience. Of course, we see we pay attention to what the competition is doing, but the market grows at a pace that allows us -- that allows the entry of new competitors or already competitors that were already in the market. I see no major differences from what we've seen in the past. So here, this is a continuity of past periods. Fred, would you.

I was just going to say that our current structure that connects to our customers in different ways, protects and here, we have the loyalty of our customer base, especially because of the innovation with our product, they are more connected to our brand when they participate in one of our races because this is a differentiated experience or when they buy a product or they eat at one of our TFCs. I believe that we are doing something that creates loyal customers, and this is important. And this is why we're a little bit better protected against the competition by and large. And regarding the remodeling of stores, we have not seen significant changes regarding the first store that was remodeled in 2021. This new layout with improvements, which changes from store to store. And we are very happy with the results that we've seen. And when we compare the beginning of this program of the first stores that were remodeled and the stores that are being remodeled, now the results have been very similar. We've seen remodeling of recent stores with significant results. like stores in [indiscernible], the first two malls, we reopened our store in the [indiscernible] shopping mall that is significant in terms of growth, Eldorado, Fortaleza shopping malls. These are stores that are performing above the pre-remodeling period with consistent results now. And the financial return here is significant, but we work with the strategy to protect the brand. So the remodeling has two roles to provide more -- better financial results and also to strengthen the brand with a more modern store.

And something that so -- where are we better? Where are we not better? Where are we worse or weaker? What can I say? Number one, we have not seen major variations amongst categories during the first semester, all performed well. I would just like to highlight the growth of the kids line, which is a line that we strongly bet on. We've improved the product and it's improving consistently. The mini collections, we performed well. We have lots of collection, and we've been very assertive with these mini collections in terms of sales. The men's line, the women's line has gained share. This has been positive by and large. I believe that there has been no problems in terms of category. We've launched new products. These are products with new technologies, with new fabrics. We just launched and we -- a new sneaker -- it's a track and feel sneaker that is essential that you can use when you go to the gym. And you can also wear it to go out for the rest of the day and the price is highly accessible. We've tried to launch new products, and this is a trend that we will see throughout the rest of the year. I don't know if Fred or Patricia would like to add something.

What I'm going to mention here was regarding what didn't work well, in an environment where you have World Cup, lots of holidays, high interest rates. Our projections are not as accurate. There are ones with more rupture, ones with less rupture, but there's nothing that is different from what we do on our day by day. Well, you have to -- well, a year like this is quite demanding, and we're focused. We're just focused. But this has been a challenging year because everything that has happened, and we are focused on continuing to deliver results. We're not -- we're not in --we're always in uncharted waters, but we're always steering well our ship.

Our next question, Laryssa Sumer from XP.

Congratulations for your surprising and significant results. On my side, I would like you to elaborate what you see in terms of expenses. Here, we saw lots of marketing investments. What do you see in the future if the idea is to continue investing? Or are you going to change in the G&A. There was a significant cut at the end of Q1. Do you see space to affect one entry to be more effective? I would like to see what you think. It's good to know that you will open more stores in Portugal. If you can give us an update regarding your international expansion speed. I know you have a franchise in Portugal. I don't know if there is something new regarding this new stores in other countries.

Can I start talking about the expenses? And Fred will talk about Portugal. Expenses we want to continue very lean in terms of expenses in company structure. We performed a number of adjustments during Q1, and this was something that was necessary. And all of this helped us to improve the operational cash flow during Q2. So the company is lean. We have controlled our headcount. We've grown, and we are trying to gain efficiency using the available technology to avoid repetitive work. And we're in the beginning of this journey. There are a lot of opportunities ahead of us. I don't know if we will be able to deliver something regarding -- something extremely relevant when we compare it to what we're doing right now. But our company is prepared to be a lean company. And in terms of marketing, we're not changing our strategy. We are focused on our base. Patricia stated this that our base will be compared to marketing. In terms of marketing investments during the second semester, but we're pursuing efficiency with AI. We will have less cost with production. And all of this will be scalable when we think about marketing pieces. We are not changing our strategy. This is more -- we will be able to compare the base during the second semester.