Mobly SA

BOVESPA:MBLY3

Earnings Call Transcript

[Operator]

[Audio Gap] for Grupo Toky for the first quarter '25. Present with us today are Mr. Victor Noda, Chief Executive Officer; Marcelo Marques, Chief Financial and Investor Relations Officer; and Mario Fernandes, Director of Operations and Logistics System. [Operator Instructions]. Please be advised that this video conference will be conducted in Portuguese by the company's management. There will be simultaneous translation.

Before proceeding, mind that any forward-looking statements regarding the company's business prospects, projections and company business prospects are based on beliefs and assumptions of the company's management as well as on information currently available. Forward-looking statements are no guarantees of performance as they involve risks, uncertainties and assumptions and depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors may affect the company's future results and lead to results that differ materially from those expressed in these statements.

I will now turn the floor over to Mr. Victor Noda, who will begin the presentation.

[Victor Noda, executive]

Well, thank you, and a good afternoon to all of you. It's a pleasure to be here once again, and this is the first time we present the results of a full group for a whole quarter. Last time, we only had a partial view of our merger with Tok&Stok. We're quite satisfied with the results we are presenting to you, so you can see what we have done. Very well. Let's begin. We go on to the first slide.

I think that the main message today is significant profitability improvement, thanks to a faster capture of synergies much faster than we had planned originally. And of course, because of our gain in scale, you will observe the significant growth of the group. Of course, it was an inorganic growth, bringing about a significant scale benefit in terms of the consumer as a benchmark in the home and decor market and the efficiency that this grants to our operation and our relationship with suppliers. A large part of these results come from the growth and that capture of synergies.

We have been remarking on since the merger took place. Broad figures, of course, a growth, a significant growth crossed by the acquisition of Tok&Stok, we reached BRL 381.4 million in net revenue with a growth of 163% compared to Mobly alone in the first quarter '24. More relevant than this growth is the evolution of the group's profitability. We began with a margin of around 46%, getting to 54.8%, and when we include the effect of contribution margin after logistics and after marketing with all of the initiatives that were underway at Mobly plus the synergies, we have a gain of 14 percentage points year-over-year, reaching 30.6% of contribution margin 3.

The EBITDA result is of almost BRL 54 million for the quarter. And of course, compared to BRL 38 million for the full year last year. This shows you how significant the profitability evolution was an EBITDA margin of 14.1%, and we achieved a positive EBIT of BRL 0.7 million. Although this is merely the starting point of this trajectory of a joint company and the synergies we have, this shows you we have a rather promising trajectory going forward.

Let's delve into the details. We began with revenues of BRL 145 million in the first quarter last year, of course, considering only Mobly to BRL 381 million for the combined company with an impact in profitability going from BRL 67 million to BRL 208 million, greater efficiency in logistics going from BRL 48 million to BRL 163 million and perhaps the greatest gain is contribution margin after expenses with marketing and sales going from BRL 24 million to BRL 117 million, a fivefold increase.

The size of the company in terms of generation of results, of course, at a higher cost, but much more efficient as a percentage of revenues with an EBITDA of BRL 54 million compared to a negative result last year of BRL 3 million. As I mentioned, this quarter, we had a positive EBIT. This was the first time in the group's history that we attained that level of positive EBIT, very relevant for us. And with the interest rates of the debt coming from Tok&Stok, the net result continues to be negative and will continue to be negative until we are able to reduce indebtedness. What is more relevant here is, of course, how the business per se has made this switch towards profitability and cash generation for the short term. Let's speak about the evolution per channel.

You will recall, we had been speaking about this since the end of September, October of a new marketing investment for Mobly. We had 30% less investments in online marketing for Mobly. Of course, this had a direct impact on the sales center and website with a counterpart of contribution margin 3, much higher in absolute terms in BRL. Therefore, this was a very conscious change in the strategy that has pointed to positive results, as you can see in the profitability.

This comes from Mobly channels, stores somewhat below because of 2 stores that were closed down in the third quarter of 2024 and stores with significant evolution in terms of profitability. We have a group of stores that are very profitable and the marketplace that continues to grow, although in our vision, the marketplace is performing less than we had expected. I'm being very honest with you. we have seen some players like Magalu and Meli losing the relevance in terms of what we do and we're offsetting their share in other channels, especially in the Chinese stores.

We're going on to the next slide to speak about gross margin. To the right below, you can see the leap that we had in margin evolution. And we have combined effects here an effect of simply adding Tok&Stok to the group, but Mobly itself ran with a 1% margin above that of 2024. And we begin to see effects. I would not call them synergies, but the impact of the new management.

I'm referring to a pricing strategy that is more ascertained in our view. A strategy that is more controlled in terms of subsidies for freight and campaigns and an ability to negotiate with suppliers to bring them in to participate in the campaigns, working much closer to them more effectively than in the past. And here, we have a margin gain without the synergies. What I'm trying to say is there is no specific gain of a renegotiation with suppliers, replacement of products or reprocessing. These are things that are happening and will begin to appear throughout the year.

In logistics, the same holds true. And efficiency gain is clear. We go from 9.7% to 7 -- 10%. We look at contribution margin 2, we're going from 32.9% in the first quarter to 42.7%, almost 10 percentage points. And here, we have a management gain. Once again, there are no significant gains in synergy, but greater efficiency, for example, avoiding having empty trucks, a destocking in the company, transport done in van, a better logistics between customer store and warehouse. And as we move forward in our synergies, reducing the distribution center from Extrema, bringing the furniture store to São Paulo. This will give us a significant gain in logistics. Of course, we will have fixed costs. Marcelo will refer to these.

And we have expected gains from a difference between delivery and assembly. All of these are initiatives that are underway. They depend on technology, on the adjustment of the existing contracts, and they are all underway so that we can begin to see the results throughout the year and throughout 2026 as well.

To speak about marketing, the gains are even more relevant. We went from 16.3% to 30.6% in contribution margin 3. There's a group effect here. effect of the consolidation of business. We're bringing Tok&Stok inside the company. Their marketing cost is much lower than that of Mobly because Tok&Stok share of sales is higher in brick-and-mortar stores, 85% of the sales come from physical stores.

So the marketing cost ends up being highly efficient. But there's also that effect of greater efficiency without -- within Mobly itself because of that trade-off we did between sales and marketing as of the third quarter of last year and the beginning of the fourth quarter. This has brought us significant gains in percentage terms and in absolute contribution margin that was fivefold higher than that of last year. To speak about expenses, obviously, the evolution is the inverse.

We have a base of fixed cost that is much higher because the business is much larger, the business we added to the group, but we have gained efficiency as a percentage of net revenue compared to what Mobly was able to do as a stand-alone company. We're speaking about gains of scale and the possibility of a gain in efficiency. When we speak about the synergies captured, the stake of those synergies are here in personnel expenses in G&A. We have carried out significant reductions in our teams, especially our office teams, but we also have gains in terms of contracts, services, renegotiation with service renders and third parties. And these are reflected in the first quarter results, and they will grow as the months go by and as we conclude these reductions and negotiations.

And finally, the results of these gains in all of our margin line items of course, with an impact on the company EBITDA. We're going from a negative BRL 3 million to BRL 54 million positive for the quarter. Only this quarter, we have made more than both companies had individually last year, we began with a negative base of EBITDA of BRL 21 million last year to BRL 1 million positive this year. As I remarked, we're quite satisfied and happy with the results we have obtained at a faster pace than the original plan, and we have created a good foundation to capture the new synergies we will see in the coming quarters.

The trend, therefore, is to continue to show you evolution in all of the line items with an impact on an ever higher EBITDA.

Marcelo will speak about the synergies to update you in terms of synergies.

[Marcelo Marques, executive]

As we mentioned last year, we expected that this would happen, but they're happening at a higher volume and pace than what we had foreseen and with the potential of surpassing what we had deemed to be a minimum. We can expect a maximum of value in terms of the synergies.

We have 3 broad blocks for synergies. We're speaking of a first block where we capture the synergies in up to 6 months. We have BRL 29 million of synergies already secured by March of 2025. Now in this first block, what do we have? Optimization of the administrative structure, personnel, the office suppliers from third parties. We have changed our sourcing, the IT licenses cost reduction, a reduction of COGS of our national suppliers. We have begun a very broad process of dialogue with them. We have had a reduction in warehouses, the one in São Carlos for Mobly and a reduction in shipping costs. Of course, there's much more to be done.

Now the second block, what will happen still in this year, COGS reduction from imports we have returned from China and the news is very positive. China has a huge appetite for Brazil. Now the terms of payment, the frequency of delivery and much more were negotiated in a positive fashion. Because of the nature of imports, the negotiation made in April needs to go through the shipments to materialize in terms of processes, people and systems. We're thinking of the company as a sole company. The back office and logistics are from a single company. But for this, we need to demobilize what we have now. We have to break with some contracts, deliver new contracts.

Now for IT, we are working with longer contracts that need to reach maturity. We're working on them and the marketplace for the Tok&Stok products. Tok&Stok did not sell at any marketplace. We have held negotiations, and we're moving forward to maintain the brand and for revenues. We're speaking of a full integration of IT, the drop shipping that we do at Mobly implemented at Tok&Stok tax optimization, adapting everything to have the best taxation strategy, full logistics integration. This means a conclusion of logistics system until we reach the optimal model and to begin the cross-sell model in store and in the website.

We have begun this, of course, but our intention is to grow this throughout the period. Now the total synergies were BRL 135 million upon maturity. And we will update you on the calls in terms of what we are truly capturing here.

[Victor Noda, executive]

Very well, that is the presentation in a summarized way. As we mentioned, we're quite satisfied with the results. The result of our work to capture synergies and reduce costs at both companies. This already has an impact on the results.

We still face significant challenges when it comes to resuming a faster pace in business. The second quarter is a low-seasonality quarter. There's a great deal to be done on that front. On the other hand, the cost initiatives are doing very well, 6 months after taking on the company, we have a better notion where the opportunities lie. And as Marcelo mentioned, those opportunities are much larger than the ones we had planned and something that does not appear in the figures that is fundamental for the company.

Presently, we're operating as a sole company, a single company. We mentioned we wanted to work independently with both brands, each with their target audience, their value proposition and their portfolio.

However, we have a single team, single processes. And as time goes by, we're going to demystify the systems to ensure we capture all of those gains from working in this unified way with these 2 companies, bringing profitability for the company. This is the summary for the first quarter, and we would now like to offer you the floor for questions.

[Marcelo Marques, executive]

Before that, Victor, we did not include this in the presentation. We have concluded the communication for the Toky Group. As of the coming week, we will be changing the ticker at B3. They will be negotiated as T-O-K-Y in the B3, the Brazilian stock market. Thank you. Rodrigo, we can now go on to the question-and-answer session.

[Operator]

[Operator Instructions]. Our first question comes from Andrew Ruben from Morgan Stanley.

[Andrew Ruben, analyst]

Victor, Marcelo. I guess 2 from my side. The first on marketplace. We saw both the fairly sharp deceleration quarter-on-quarter and also you mentioned some shift between the platforms. So I'm curious if you could go into a bit more detail on what drove that?

And then second, on Tok&Stok, its contribution. We can see the mix impact on sales and on margin, but I'm curious if you could give some color on how Tok&Stok trended year-on-year, whether on sales growth or margins for that part of the business would help a lot.

[Victor Noda, executive]

Absolutely, Andrew. Thank you again for your question. I will answer in Portuguese. So the first question refers to the marketplace trend, if I can give any details on that. What we have observed here is that Magalu and Meli have slowed down, especially in their marketing campaigns. They've slowed down those aggressive incentives. Campaigns that had worked very well on both platforms with free freight have stopped a bit. We see less investment on their part. This has a direct impact on sales. That's the movement we have observed now as a counterpart, Shopee is gaining relevance steadily for us, and we are holding conversations for an integration with Shein, who will open up their furniture category.

We believe that it will have the potential to gain share from the other players that apparently seem to be slowing down in their search for profitability. Now to speak about Tok&Stok, we haven't broken this down. We haven't audited the last quarter of Tok&Stok. But net revenue, the company grew 4% year-over-year and gross margin -- the growth was almost 3 percentage points. So the results here for the first quarter was the best for the group historically, not only for Mobly, there was a significant evolution in Tok&Stok vis-a-vis the first quarter '24.

[Operator]

Our next question comes from Heloísa Neves, buy-side analyst.

[Unknown Analyst]

Congratulations for the results. We look at the evolution. Unfortunately, we cannot see Tok&Stok figures for last year. I have 2 points. I would like to see more color in terms of what is selling more furniture, more decoration? And how do you compare Tok&Stok mix with your total mix? Which are the proportions?

Another question. You have an evolution in margin and a price evolution that was very positive. In the release, you say you have set aside some of the marketing expenses in Mobly to have a higher contribution margin. Conceptually, how should we imagine your work in terms of marketing vis-a-vis cash generation, which are your priorities for the year 2025?

[Victor Noda, executive]

Thank you, Heloísa, for the questions. To answer the first one, nowadays, Mobly is 95% of sales with furniture and 5% in accessories, especially because the pickup of sales of accessories at Mobly takes place in the physical stores. In Tok&Stok, 60% furniture, 40% accessories, decoration. This is a stable trend in the last few years. We have just come back from China. Marcelo was there with our commercial team. For 40 days, we spoke to more than 80 suppliers from Tok&Stok, renegotiating costs, minimum amounts, payment terms. And the expectation is quite positive with the results of our negotiations.

We believe we will be able to enhance the sale of these products. Several of these decoration products will increase their sales. And this is part of our business strategy to ever more strengthen Mobly with accessories or decoration. Accessories are a relevant category. They generate recurrence. And although the ticket is lower, it will bring -- attract the customer to the store and will maintain the customer engagement with the brand. We saw this clearly at Tok&Stok, and we want to strengthen that assortment at Mobly. This means we will have exclusive accessories and decoration products at Mobly with a design team that is coming from Tok&Stok and visual merchandising in stores to foment that consumption of accessories and of course, to have some inspiration as a whole.

The second question refers to Mobly's marketing. As I remarked, we had a significant reduction in online marketing for Mobly at the end of last year, at the end of September, beginning of October. We're always testing this, and the test showed us that we could generate more [indiscernible] per money invested with less investment. What we hope, of course, and the focus for this year is 100% in maximizing the cash generation of the business bringing about greater profitability ensure the business generates cash and to grow based on this new level.

We have interesting growth initiatives that are underway. And in the next quarter, we can already give you figures. I'll give you an example. We were running as a pilot for more than 6 months. We're scaling up the Mobly Prime service where the consumer pays BRL 70 per year and has free freight in all of the purchases. This has significantly increased the average ticket and recurrence for the consumer. And the margin per customer has increased significantly. We're now scaling this up and following up to see if the results of the pilot are maintained.

This should lead to a growth in Mobly without investing more in marketing or enabling us to invest more in marketing and bringing more results in PT 3 and contribution margin 3. And at Tok&Stok, we're presently launching part of the Tok&Stok portfolio in some marketplaces, Mercado Libre, Magalu, and this should gain strength, trust in the next months and bring growth to the business. We're going to continue with a more efficient marketing, but begin to grow based on these new levels of investment that we are working with.

[Operator]

Our next question is from Carlos Castrucci from MOS Capital.

[Carlos Castrucci, analyst]

Victor, Marcelo, Mario, I have 2 questions. If you allow me, I will also have a third. Two topics here. First of all, your taxation planning. There's a lot of corporate taxation, of course. But I would like to explore that balance of taxes that you should recover and the taxes that you have to pay [ BRL 170 million ] as liabilities. A lot of this refers to the ICMS.

Now do you have planning to decrease your payments in liabilities, tax liabilities? And how are you going to recover your fiscal assets?

My second question refers to the synergies. You spoke about cost and expenses, synergies and revenue synergies. How much of this account is due to the revenue synergies? Simply to have a reference for my calculations, if there's time.

[Victor Noda, executive]

Can you answer Marcelo? Yes.

[Marcelo Marques, executive]

Yes. We do have a plan to offset liabilities that were much higher at Tok&Stok as part of our logistic planning and how distribution works for stores, we're taking this into account. There's a good indication that we will be able to eliminate most of the liabilities with the assets Unfortunately, I can't give you a figure. We're understanding the process, we don't know how long this will take. In terms of the ICMS, the tax on circulation of merchandise, we have some alternatives.

As part of the model, we can increase the compensation of these assets using a different model, a different place to issue our invoices. We're also working with the legal department to see if we can reverse these securities and sell them. And we're speaking with several firms to see what we can do with all of these assets. We are being counseled by 2 offices in taxation to know what will happen beginning in 2027 with the new taxation model, if there will be a grace period or not. So we can increase the use of this, but we want to know how legally we can sell these and use them in some financial transaction.

[Carlos Castrucci, analyst]

I think that was very clear.

[Victor Noda, executive]

We worked with Bain and they were very honest with us. The synergies in revenues had not been fully explored. I don't know if you've worked with other companies, but the standard of these consulting companies is that revenues are something that are out of the control of the company. They depend on other factors, although they do exist. So we have less than 10% or 15% of synergies from revenue. Most are from costs and expenses. They know that they understand that. And we've opened up the range because of the potential we have. But because of the Board, we have made it clear that the revenue synergies when they happen will be upside basically.

If there are no other questions, I believe Carlos can pose his third question. Go ahead, Carlos.

[Carlos Castrucci, analyst]

My third question refers to gross margin and inventory. We can see that your gross margin at Tok&Stok and Mobly, perhaps it's the best historically, but it was much better than last year. And in a scenario where we see impairments in the inventory, what do you attribute this enhancement in gross margin? How much of it is structural? How much is seasonal? And which is your level of comfort with the valuation of your inventory presently very well?

[Victor Noda, executive]

We did not have an impairment of inventory. And that was done in the past. We had BRL 15 million that we deem to be obsolete. We created provisions in the fourth quarter of last year. This year, we have worked very well with margins and promotional discounts. We understood we were being overly aggressive without obtaining results. When we took on the company, we saw that we were giving discounts, hoping to have sales, but they made no difference.

The same holds true for free freight that brings in no results or imbalanced offers. We had a significant adjustment in the pricing of Tok&Stok. We adjusted the prices regionally because the taxation base is very different between regions and states. And nowadays, the company reflects those taxation basis, the ICMS and the inventory regulation. This comes about less because of impairment and aggressive campaigns, much more due to a better control of inventory levels, especially at the stores. We thought that there were too many items with high coverage. We eliminated this. We had a reduction in inventory. And I confess that when we began reducing our inventories, we eliminated the fact.

We saw the errors in the system of how the stores were supplied. Some stores with an inventory were being supplied. Other stores with no inventory were not being supplied, and we had to make adjustments in the system because of this new reality of efficiency that was masking some of the problems. And in April and part of May, we had a problem in terms of supply to stores, a problem we have already resolved. And by June, all stores will be fully supplied with new levels. This thanks to our efficiency gains and a more assertive management of our inventories.

[Operator]

[Operator Instructions]. The question-and-answer session is concluded. I would like to return the floor to Mr. Victor Noda for the company's closing remarks. You may proceed.

[Victor Noda, executive]

Well, as I mentioned, we're very satisfied with the results of only 3 months of work in integration. There's an impact on the profitability of the business. This is clear. And of course, that makes us more enthusiastic because this is only the beginning. Much more will happen. This will extend until the end of 2026 with significant changes every quarter, but always in the right direction. There's still a great deal to do, several challenges.

Of course, the second quarter tends to have less sales, we suffered with a lack of inventory, something we have redressed. And as we are taming this business, we see ever better results. We are quite optimistic with what lies ahead of us and with the results we can expect in coming quarters. Thank you all very much for your attendance, for your bet on the business, that combination of the 2 businesses. And doubtlessly, we are a much stronger company than we were a year ago or 6 months ago. And this will have an impact on our shareholders and on consumers with a very strong value proposition. Thank you all once again.

[Operator]

The earnings results for the Toky Group end here, we would like to thank all of you for your attendance. You can disconnect now, and have a very [Technical Difficulty].

[Statements in English on this transcript were spoken by an interpreter present on the live call.]