Vivara Participações S.A. (VIVA3) Earnings Call Transcript

Good evening, everyone. Welcome to the Video Conference of Results for the Third Quarter of 2026 of Vivara. In this quarter, the company will dedicate 100% of the time for this call to the session of questions and answers. The audio with the comments and financial comments and analysis of the financial performance done by Thiago Borges, CEO of the company; Elias Lima, Head of IR, is available on the site and can be accessed at the IR site of the company. [Operator Instructions] Representing the Vivara team, we have today Thiago Borges, Director, President; Elias Lima, CFO and IR; and Cassiano Lemos, COO; and Caio Barbuto, Head of Investor Relations. Now we'll collect any questions you might have.

[Operator Instructions] First question, Joao Soares on the sell side of Citi.

I think that I have a few important questions here that we feel are quite complicated with the question of Vivara. What were the -- we think about breaking down volume and price and mix? What explains this reversion of the same-store sales so relevant in this quarter? And what do you think are the levers that you'll be able to revert this tendency in the short term? Well, we have the perception that it's correct perception that it's a resilient product that you have lots of brand power and pricing power. So we understand what is we'll be able to do to reverse this in the short-term. And to hear a little bit more in relation to the Life brand had an acceleration? And what do you see helping to bring this -- make this more sustainable in 2027 since it will be a challenging year for the whole world. And looking at the part of growth, this is a very important item.

This is Thiago speaking. It's a pleasure to be talking with you again. I think taking a step back to understand the same-store sales in the jewelry segment in the last 18 months was very much due to prices to the price of gold globally and the gold changed that tendency from February by the end -- beginning of the third quarter. And this means that we had the necessity to increase better lower price increases, which in our opinion, which is very healthy for our business. And we felt that performing better in the third quarter, but it's not enough to offset all of the lower price increases. We've been increasing these prices. We made the principal price increases in April. And we did this call in the second quarter. Since the second increases have already -- the principal increases have already been done and in the reports that the reports that some snow sides and buy sides do on our site, give us the indication, especially because it's in the category that has to be done. Look at the price based on our costs and the coverage -- the stock coverage price of the principal raw materials, whether it be metal or stones, it's going to be evolved. We're going to try and isolate several external variables to understand what are the prices that are affecting us price-wise. We had the best gross margin in our quarter -- in our history this quarter as we commented. When we look at the gross margin for the year, it's 69%, a very, very high level. And we believe that the volume will compensate a little bit less in the third quarter. We're not satisfied with this number for growth. We think that the Vivara brand is very desirable. And we look at this to the medium-term, as you mentioned, what can be done. I think that we begin to continue investing in the right product in the right mix in the stores, lots of design in the categories that have performed better. The collections with design and with identity, we're bringing lots of new products to the stores. When we look at the -- all the work that we're doing in the design of lighter -- helping the prices -- the pieces to arrive at prices that are attractive in our stores and also investing in new alloys. Silver and our laboratory bringing more than 100% diamond -- laboratory produced diamonds. So lots of categories that have been working in Vivara as a whole to reaccelerate the growth. I think it's also worth looking at, which is sold in our stores, in our own stores and as well as digitally. In the digital sales, they grew by 20% in the quarter. So there is space. We see the brand is 100% desirable. And we're not looking at a question as a problem for the brand. As far as life, your second question, what we've been looking at during the year and is starting to be confirmed the beginning of the items -- new items that have come to the store. The first is increased in the third quarter, especially items that are commercialized or sold or commercial as wedding rings and hearings and so forth, which are selling very well. So we launched a new collection of this Harry Potter series, which has been a success and was completely sold out. And we're preparing a second launch of the same product at the beginning of the year for the fourth quarter. So that we think that the story of life is -- that's the story of life, it's more freshness and transforming our line to be less dependent on the collectibles.

I'm sorry, just to ask a little bit more precise in the diagnosis of Vivara. I'm trying to understand what is even holding back prices, the prices have gone up in a relevant way year-on-year. And the volume, you've seen a slight improvement, but just to understand what could have explained this volume has been compensated completely the price difference in categories, more prices perhaps holding it down. But just to understand what generated the same-store sales, which was close to 0 same-store sales growth.

The level of price increases that we've seen in the high-teens with the volume mid- to high-teens in this quarter, the volume was a little bit more negative and improved by 5% compared to what was coming, but not enough to compensate the deceleration in the increase in the rhythm in the prices. When we look at the category of wedding rings and collections and commercial products, which are all based on gold, we see that the reduction in volume was lower than what was coming, what we had been used to, but not enough to offset the price, which is the pass-through -- a little bit slower pass-through of prices.

Our next question is Rodrigo Gastim from Itau.

Two questions from my side. First, about the question of gross margin. You have made it very clear that the gross margin in release. I just wanted to isolate the understanding about the markup, the [indiscernible]. But the part of the markup, which pressured the gross margin in the quarter, I wanted to understand exactly what happened. How was the impact of the markup on these products? And how much was due to the mix? And more importantly than that, what do you -- what have you been able to -- are you able to do or have already started to do in this dynamic of the markup to improve this gross margin over the next few quarters? That's the first question. The second question is about working capital. We think that there's been a good cash generation in this quarter. You have not had to burn cash. We've been very much focused on stock. When I look at this working capital receivables, stock with suppliers, where is your inventories compared to where you'd like it to be? And what -- how will they perform over the next few quarters there will be a conversion of EBITDA into operating cash before CapEx and it will be stabilized at what level? Those 2 questions.

Okay. Thank you for the questions. I think beginning with the gross margin, as you mentioned, half of this fall has to do with the effects of the base. A percentage comes from subsidies, 1 percentage point comes from GGF. So here we have -- so we have 2 percentage points which you mentioned in the release of markup and production. With a higher production in the factory, both in silver as well as in gold in each of these commodities, we're able to do a provision of losses. As far as the markup goes, we have a different dynamic between prices and what happens in the -- our cost reflects the purchases that we've done with our clients and the cost of our inventory for a long-term cycle. So we continue with the gold cost below spot prices this fall in the price of gold in the spot market doesn't affect our prices -- our cost in the short term. As Thiago mentioned, it changes our competitors in the market does not affect necessarily our prices or our costs. So while the price of gold -- of silver on the spot market has been reflected in our SME, when we see the gross margin for the year in small jewels and the pressure on the price, we see that this this project for life, the prices of life, and we don't see any additional pressure to the cost of silver in our stocks in our inventories. The gross margin for the year is 69.9%, very close to what it was last year, slightly above when we look at these other effects in terms of comparability. So this is the principal perspective that we need to have. Looking forward, we have categories that will be -- have higher markups without sometimes without too much relevance. As Thiago mentioned, the silver, gold and the Vivara gold, silver grew a lot this quarter. It has been very similar to what we saw all year long, gaining relevance, and this has a positive pressure on our gross margins. And this dynamic of prices for the spot market and we have other adjustments in our site in our store. I think it's important to -- we have the fourth quarter coming up. The effect in November was very strong due to our sales and Black Friday, which came very strongly. And so we had -- we look at the fourth quarter of 2025. As far as this cash generation, this is a work that we did last year. As you have been accompanying, we had a stock which got to more than 700 days of stock last year. And we believe that now we're looking at almost 600 -- a reduction of 140 days of inventory, very significant reduction, and this has been reflecting in our cash flow. This cash generation and the conversion of EBITDA and cash, more than 70% cash conversion. And so the principal effect on our inventories is principally effect on stock inventories and naturally, we start looking at a reduction of this in the third quarter, the preparation for the seasonality, which we had similar to what we had last year as has happened in the past year, a reduction of inventory for the third to fourth quarter in terms of number of days. And we see that for 2027, there's still space to seek efficiencies, but these gains will always be incremental. In terms of working capital, we don't see much variation, important variation in terms of suppliers, which reflects the purchase that we have for purchases in cash and how much reflects a great deal, the payment plans and also looking at our stocks and our volumes and a little bit better volume.

This is Cassiano. I'm going to complete with what Elias mentioned with respect to our inventories. What's the route that we see going forward in the next quarters? We're going to continue with our plan of reduction of inventories, gradual and reduction in our coverage for days and the age of our inventories. So this evolution is based on 4 principal pillars. The first, a more better management of finished products and the items with the highest turnover in the stores. Secondly, an intensification in the reallocation of products between stores. Third, in the melting down of parts, pieces that do not sell, which has been 70% higher than what we did in 2025. And finally, seeking to have a better coverage of these top sellers. So with this work, we reduced our market tree and our assortment for each type of store and each segment, each product segment due to the managing the availability and managing the impact of this on our stocks, and our inventories. And as far as your question in relation to the results in this first cycle of 2026, we've had higher reductions in terms of inventory. And for 2027, we should have reductions of smaller -- a greater magnitude with a higher level of evolution seeking our historical levels.

Just I'll just make one quick follow-up and a question on the markup. On the markup, when you said this pressure year-on-year, due to the markup, I understand that in terms of mix, you guys are growing more in categories with better markups in this consolidated market, which what brings this pressure -- markup pressure year-on-year? Was the reduction of markup in these products or no? I just want to understand why the markup in this quarter wind up pressuring the margins or what component of this markup pressure the margin? That's an additional point, which I would like to mention. Can you help me with that?

You said that you described it correctly. The mix component mix helps on one side for life, which grew more than jewelry and has a higher markup. It helps the silver, gold and Vivara silver. It had this effect. So what we see consumed here in the Lifeline brand, we talked about this before. We did less pass-through in life in the third quarter. Since the second quarter, the CMV continues to evolve. And in jewelry, it continues stable. And in jewelry, we've had it basically stable during the important quarter, while the cost of merchandise starts continues to evolve. So we have this with the prices and the CMV increasing with the price of gold in our inventories.

Our next question is from [indiscernible] from XP.

I want to ask 2 questions. One, the question of the markup. You mentioned that some increases in prices when you look at this comment. Can you give us a little more color in which categories you're working during these first pass-throughs most recently and the timing of this? In relation to that also, perhaps a follow-up is how much has been gotten back with this first round of increases? And the second subject in Life, we've seen an acceleration in same-store sales, very relevant evolution. When we look at same-store sales of physical stores, we see it quarter-on-quarter -- we track it quarter-on-quarter. So we're seeing this more from the digital side. I wanted to ask you what is your diagnosis of these 2 channels for the Life channel or for life brands? And what do you expect Life to do in the physical stores to continue to come -- go back to accelerating in the digital realm?

This is Thiago speaking. It's a pleasure to speak with you. As far as the categories of price increases, which we mentioned in the initial speech, we protected the categories which we see a part of competitiveness, which is more sensitive. I'm not sure if you've gone through shopping centers but in general, the retailers are not very aggressive in this area of promotional sales. We have a client who seeks our brand. Our brand is very desired but we have protected the category of wedding rings, for example, a very strong category for us, and we're recovering the volume in the previous answer. This is our pricing. And we see that in the collections with design and the classic collections, the level of elasticity permits us to make the biggest increases in price. And even in the Vivara Silver and the gold/silver, we see this also with stones these pieces in our campaigns with created a great deal of desire. So people all know how much gold has gone up in the world -- around the world and have continued to invest and to satisfy the desires and look at these things as silver/gold better prepared and creating a desire -- a very strong desire on these products. So we focused more on these categories where we perceive that the desire prevails and we're able to have price elasticity, better price elasticity.

As far as the channels go of Life, what we see is that, the digital world has had growth, very expressive growth in the principal -- 3 principal categories, both in jewelry, as we mentioned, 20% growth with Life as well as 15% with Life as well as with watches with this high growth. The digital, we have been able to have a very high growth in all 3 categories in digital sales because we have been investing and starting the fruits of this investment. One of the important points that we -- which favor principally Life, but also even more so watches going into these marketplaces had a positive effect in this quarter. The app, which more than doubled the amount of sales that it brought going from 36% to 40% of sales. And the app is very important because we're able to communicate more clearly with our clients, understand their habits, speak with them through our pushes. It's very important for us to continue to evolve our app. And we see that when we look at this going forward in the next few quarters, digital will continue to be an important lever for growth of the company. Yesterday, there have been several evolutions that we've seen in CRM and the customer newspaper and the customer journey, and we continue to evolve in the digital over these next few quarters.

Very good. Just one quick follow-up in relation to the physical stores. You talked a lot about your digital because what you're diagnosed as far as your physical stores, your brick-and-mortar stores in a Life brand.

I think our focus on digital because we've seen that the client has sought an omnichannel journey. So we see that the percentage of help our assisted sales, those which have the registration of our salesperson increased by 44% year-on-year. In other people go to the store, they try the product on, they look at it and wind up buying it on the site or even in the same store, have a notion of what they're buying and they make this purchase online. They look at it in the store, but they make the purchase online. When we look -- we see at the sales, same-store sales through the digital world, we have to see what is the Life brand and with the brand, the Vivara brands. These are the principal indicators. We look at the -- look at everything store to store and channel by channel. And we don't think it's bad when a sale is done through digital instead of the store. We have to seek to maintain these clients loyal, make a fast delivery for him. And we have the stores as our delivery hubs, very important. And we've done deliveries even faster than we've seen in the site. Exactly so that our experience with that client, he can pick up in the store or you can have it delivered to his house or so it's the type of client that we would like to offer.

Our next question is from Eric at Santander.

Two from my side. The first has to do with a follow-up on the specific points regarding Life. I want to understand a little bit this question of the markup. We understand that in the short-term, there's a reduction in markup. And we see that eventually is more structural? Or how much of this to be seen as a reversion? And how much elasticity you see at the end of the day of the consumer as you do a recovery in this markup for historical and how much this could impact at the point at the moment of sales? If you see this as an accel -- sequential acceleration. And I think another point, when we look at Life, think about the stores, and this -- the role of Life specifically and how do you look at the store economics? Is it where you're allocating more capital in terms of expansion? And I understand how do you look at it if you isolated in terms of stores. How is your -- on the level of ROIC and EBITDA? And if it makes sense to rethink the strategy of expansion of Life specifically since you have an important line and thinking about the allocation of capital.

This is Thiago speaking. Thank you for your question. Starting with the first question and Elias can look at the second one, and we can complement that. The question of markup of life, which you asked about. So this quarter, the silver, which goes to the same of Life sales all comes is tied to the spot price came in a little bit lower with the increase in silver of BRL 4 having -- hitting as high as BRL 12 and now down to BRL 11 per gram. And now we have an inventory which is priced with the spot price of silver. So over the last 12 months, so this margin that we presented in this quarter is a margin. There's no more pressure coming from a new increased silver prices. However, there are also the initiatives that we're taking, which are underway. So that margins -- the Life margin structurally remains at the same level as the increase of silver. But looking at what is that, it does go up year -- doesn't go by 10%, 5% year-on-year. It's been a little bit less than 60%. This year, it's a little bit below 60%. But looking at the few quarters over the last 2 years, we've seen it as high as 75%. So at least more table on the table to have a structural markup for Life. We have everything that we've done for gold for transparency in the technology for trans -- for production for molds and rubber molds and so forth for 3D makes sense due to the price of silver. And we have an investment which we've done, which should arrive at to purchase machines to make lighter bracelets. And this will also be arriving to the client in the first quarter of next year -- first half of next year and also a new alloy -- Life alloy mix gold. Looking at looking at the state, we understand that the benefit of this will be in the margin or in lower price increases and more volume for the client. This is a decision that we're going to make looking at all of the variables of cost and market and control and elasticity and then decide. But I think it's an excellent question because it makes it clear that the silver is, in our market price and there's more pressure on.