Track & Field Co SA

BOVESPA:TFCO4

Good morning, ladies and gentlemen, and welcome to Track & Field's video conference for the earnings results for the fourth quarter 2024. This video conference is being recorded, and the replay can be accessed on the company's website, www.tfco.com.br/ir. The slide deck is also available for download.

[Operator Instructions] Before proceeding, please bear in mind that forward-looking statements are based on the beliefs and assumptions of Track & Field's management and the current information 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 keep in mind that events related to the macroeconomic environment, the industry and other factors cause results to differ materially from those expressed in the respective forward-looking statements.

Present at this video conference, we have Fernando Tracanella, CEO of Track & Field; Mrs. Patricia Abibe, CFO and IR Officer; and Mr. Fred Wagner, CEO of TFSports and Vice President of Strategy and New Businesses of Track & Field.

I will now give the floor to Mr. Fernando Tracanella, who will begin the presentation.

Good morning, everybody. I would like to truly thank you for your attendance at this presentation. We're very satisfied with the results we are presenting today. It's another year of a very sound performance, a very favorable context for our segment. People are ever more engaged in a healthy lifestyle, which is the purpose of Track & Field, and we ended up having a very good performance for the year.

I would like to refer to the highlights for the quarter and for the entire year. Ensuing this, I will give the floor to Patricia, who will detail some of our highlights, and Mr. Wagner will speak about Track & Field Sports, and then we will go on to questions and answers.

Now, from the viewpoint of expansion, we opened up 17 new stores. We ended up the year with 398 stores in the network. This is an important date for us. We now have 400 stores with a very, very wonderful brand, and the company grew in a very robust fashion. And of course, the fourth quarter was not different. We had a growth of 19%, 12% same-store sales.

Now my first comment is that this was very propitious growth, not only on Black Friday, but especially in December, the brand positioning as a brand that can be given as present growing stronger is something that was reflected at the end of the year and on special dates in general. We also had growth based on the garments that we sell.

It's important when we speak about growth, it's not a growth that depends on price rises. On the contrary, the growth that we're showing you, 12% same-store sales, 19% expansion comes from the garments that we sold. Net revenue for the quarter was a robust growth. Above the sell-out growth, we had a sell-in with a growth above 30%, and Patricia will remark on this. It shows us a network that is engaged, getting ready for the beginning of 2025, a year that we entered with a well-supplied network vis-a-vis the previous year. And this because our sell-in was quite high at the end of the year.

Profitability is a highlight. Once again, we had an EBITDA growth for the quarter of 18% with a 21% margin. These are consolidated figures. When we think about the core business isolated, we had an EBITDA growth very close to 30% and net revenue of BRL 40 million, 8.2% growth with 15% margin. If we isolate the effects of TFSports, we're very close to 20%. So, in our view, this was a highly positive quarter. We ended the year with cash equivalents of BRL 138 million. And here, we include credit capital and a cash generation of 28%, another highlight. So all of these values are very positive.

And if we focus on the year as a whole, it was another record year in terms of expansion. It's the year where we most opened new stores in our history with a more challenging macro scenario, an increase in the interest rate. So, we believe this is a case that sets itself apart. First of all, because we have a sound position in a retail segment that is growing more than the average in the sector, with franchisees that truly believe in the business are aligned with the strategy.

And despite the interest rate scenario, this did not decrease the appetite of the network in opening stores and renovating stores. The renovations also hit a record. We had 43 renovations, more than double the last year. And of course, this allows for the entry of resources. Patricia will refer to this. But in the renovated stores, the income was much higher than the rest of the stores, showing that this has been an important allocation. This is not only important for the protection of the brand, to keep the brand updated, but it is also an interesting return for the owned stores and franchise stores.

Sell out for the year reached BRL 1.4 billion. Same-store sales 13%, 18.5% versus 2023 growth during the year, speeding up a bit more in the fourth quarter, and net revenue a bit above the sell-out because of sell-in with a growth of 22%. EBITDA of BRL 176 million with a growth of 13% in the consolidated figures. When we look only at core business, last year, the growth was 25% with 26% EBITDA margin. So there is an investment here in a start-up, and we believe in the creation of value going forward.

This, of course, exerts pressure on lucrativity in the short term. But in the long term, this will end up being interesting. And it has helped us in the sales performance as these events end up generating high flows for our brick-and-mortar store, and we observe an LTV that is much higher, not only of customers. So, we do have that long-term vision.

And in the short term, we also had a positive impact in the business' top line, BRL 126 million for adjusted net income, a growth of 4% vis-a-vis 2023. That was a year where we began to accelerate track sports. The bases are not exactly comparable with a consolidated margin of 15%, and we isolated effects of 20% for the year.

Our performance in digital channels was of the utmost importance. Our e-commerce grew more than 40% in the year, reaching 10% share. And this channel began with 3% in the pre pandemic 2019 to 10% in a company that has increased its size threefold during the period. So e-commerce, without a doubt, is an important highlight and the ship-from-store highly consolidated and we're now investing very strongly in the Infinite storefront. That represents more than 10% of the company's digital sales. This is a significant lever to grow month after month, 312 stores connected to this Infinite storefront or shelf.

Very well, I will give the floor to Patricia to go into more detail.

Well, thank you Tracanella. Good morning, everybody. It is a pleasure to be here with you disclosing this information and sharing the details of these figures with you. Let's begin with sell-out. We end the year with BRL 1.4 billion in sell-out in the company. Expressive growth vis-a-vis last year of 18.5%. Same-store sales almost 13% vis-a-vis last year. And when we look at the fourth quarter, significant growth. It was 19.3%, same-store sales, 12.3%.

Well, there are several reasons for this performance. But I would like to zoom in specifically on the fourth quarter because of the excellent results of Black Friday and Christmas. The Black Friday period was extremely positive for us. It was a truly good period. When it comes to the margin we obtained from products, we had a significant share in products -- so during Black Friday, with a better margin, the customers were attracted by a very good offer, but they also bought full price products.

And during Christmas, with an appeal for a brand that you can give off as a present, well, we do this during the year and there was no slack during Christmas. And we would like to thank all of our store and digital teams for this who worked arduously during the fourth quarter. It's also important to speak about all the other points with a direct impact on sell out. We speak of expansion and we have 41 new stores throughout the year, and the renovations with 43 new stores, let's call it like that.

When we begin a renovation in the group, we end up with a new store with a growth of more than 30% in the network for the year. And when we see what owned stores and franchises brought about, the growth of franchises was higher, 38.5% of growth on stores that underwent renovation.

E-commerce with a significant growth, 42.5% vis-a-vis last year, representing 9.1% share in our sell-out increase in representativeness of the network. And this is due to the initiatives we held during the year, leading to a better customer experience. Social selling, we always mention this important figure. These are the sales that we begin through WhatsApp, through contacts with our sales team with the customer with a growth of 16%, representing 40% of sales for the year, very significant figures that we're focusing on.

And the omnichannel, doubtlessly, we can say it is very important. We ended the year with 92% of the stores connected to the omnichannel. What does this mean? It means that throughout Brazil, we have stores disseminated, working as small distribution centers. They act as national sellers. They receive an order in our digital channel, but they can sell throughout Brazil. And the rest of the stores buy from regional sellers.

It's important to mention how representative these digital sales are with the customer coming to the store to pick up their purchases. 40% are picked up at the store. And net revenue reflected the sell-out growth I have just explained, BRL 273 million in the quarter, a growth of 23.1% vis-a-vis 2023. Now we explain why this grows more than the growth of sell-out because of higher representativeness of our sell-in, which is the sale of merchandise to franchises.

Now, franchises supply their stores more in the fourth quarter. They diversified their inventory. They went more in depth to avoid breaks with the customer when sell-in. And of course, part of the sell out, we were referring to, and we entered the year 2025 extremely well supplied, prepared for the exchange period, which is important, and a period where we had sales of course, after the exchange period.

It's important to speak about expansion of franchises. 32 franchise year-on-year. And we have -- well, this is very important. In the share of our net revenue, we ended with an increase of almost 22% in net revenue year-on-year, representing BRL 273 million for the quarter and BRL 832 million for the entire year.

Gross profit. [ Gross profit ] had a growth of almost 21% vis-a-vis last year with a healthy margin when we consider last year, but there was pressure on our margin, especially due to that higher representativeness of sell-in in net revenue. When we have this representative of sell-in, which is the sale of merchandise to franchisees, it exerts pressure in the group's gross margin with an impact. Of course, we neutralize this effective mix of channels to bring visibility.

Now, if we hadn't had this impact, what would the margin have been like? It would have been a gain of 0.3 percentage points. We have an acceleration of events as well with the company acting ever more in 2024, 2025 as sponsors of events, especially the experiences that will be mentioned by Fred. All of this has an impact on gross profit. We ended the year with BRL 417 million, a growth of 19.3% with a margin of 56.6%.

Operating expenses. When we followed up on expenses in pre-pandemic, they represented 40% of net revenue, in 2019. We're now standing at 35.3%, despite all of the initiatives we carried out in 2022, we did not have these initiatives and the level is the same. Notwithstanding this, it's important to give more visibility to this when we look at selling expenses and administrative expenses.

In selling expenses, there was a dilution in the quarter and the year. For the quarter, the dilution is 1.6 percentage points and for the year 0.5 percentage points. What does this mean? That we have a better dilution of our own costs. All of the sales that had variable costs on the sales underwent dilution because of a higher representativeness of the franchise channel. This pressures margins. You saw that in gross profit, once again, because of the representativity of this channel in net revenue.

Now with selling expenses, we seem to have more dilution, and this offset the increase in expenses related to events that are also considered as sales, and they are mostly marketing expenses focused or earmarked for events.

In administrative expenses, well, here, we have an increase of 1.4 percentage points year-on-year and 0.9 percentage points vis-a-vis last year because of TFSports in the operation. Now look at the weight of TFSports. We're speaking of the team and all of the back-end team that we had to structure because of this new investment.

If we set aside this impact, we also have representativity very much aligned with 2023 EBITDA. It reflects everything I mentioned. Net revenue with a margin more impacted because of the channel mix, and at the same time, maintaining our level of expenses on net sales, we have 17.9% vis-a-vis last year and for the year, 13.4%. It's a margin of 21.2%, a slight drop of 1.5 vis-a-vis last year because of the acceleration of our events.

When I look at EBITDA, that drop of 1.5, if we look at this acceleration, it has 1.1% of importance in the consolidated EBITDA in 2023 and 3.4% in net revenue in 2024. All of this explains the drop in our margin year-on-year in net benefits. Then to underscore that we have an increase in depreciation because of the new stores, store renovations, all the investment we're making on the platform for TFSports and well, newly inaugurated renovations. Now we went from 1.5% in 2023 to 3.9% in 2024, when we look at adjusted net profit. Important information here.

Cash position. In cash generation, we had a growth of almost 28%, BRL 100 million. A significant figure for us. But it's important to draw your attention, when we look at cash and cash equivalents, it dropped year-on-year. And it's important to highlight some investments we made, the buyback of our shares that we carried out throughout the year, approximately BRL 28 million in buyback. The inaugurations and renovations that sped up in 2024 vis-a-vis our own network and the app for TFSports. We ended the year without debt. We did not anticipate receivables, and we maintain a consistent cash generation.

Let's speak about our [ turns ]. They're not on the slide. When I speak of the average inventory turn, the turn is highly aligned with that of the previous year, in the consolidated position. Nevertheless, I draw your attention to the fact that this inventory position year-on-year has 2 important factors. If we isolate the impact of imported products, it practically doubled year-on-year. Now these imported products will pressure this [ turn ]. You should remove that to have a better visibility, because of the anticipation of orders that we carried out with these products.

Non-comparability when it comes to raw material. In 2023, we already had the Santa Catarina plant, but we were not self-sufficient in our [Indiscernible] fabric. If we look at 2024, we became self-sufficient. We have threads that we did not have in the same magnitude in 2023. So do isolate these factors to have a better comparison, and we have a reduction of 20 days approximately in inventory.

Average term for receivables aligned with last year. We sped up our net revenue, and we incentivated our franchisee to buy properly, to supply properly to cover the month of January. That began very positively, very well, and let's speak about expansion.

During the presentation, we spoke about the 17 new stores in the fourth quarter, a significant number; 1 company operated and 16 franchises. We had 41 new stores opened, and we renovated 15 stores in the quarter; 11 franchises, 4 company-operated stores and 43 stores throughout the year. Of the 398 stores that we ended the year with, 45% of the network had already adopted this new format or layout.

TFSports, we will give the floor to Fred for this. Thank you.

Good day, everybody. It's a pleasure to be here with everybody. I'm going to speak about TFSports. As you know, we're working on the creation of an ecosystem, creation of a brand and the impact that we have in participating with this ecosystem and the pool of customers, we see that this is a very healthy interaction. It brings about several consumers to the store, and it puts our brands at important levels among consumers.

Now, it helps us to have exponential growth, which is something very complex to do. We have been growing the number of users, an exponential growth in number of users throughout the year. And while we're complying with this for another year, we have grown at 46.7% year-on-year. We had significant growth in our user base. They enter through a platform that has more than 868,000 users.

And, as part of our plan, we begin to monetize them with initiatives that are part of the plan and that we are testing with very positive results. Now this growth in users obviously reflect an increase in how we organize all of this. We had a growth of 27.7% in number of events in 2024. We had 3,600 sports events. I think it's the largest number of sports events in Latin America, perhaps in all of the Americas.

Now, the events that we are organizing have allowed us to increase the number of enrollments. We had a growth of 65.9% versus 2023. This is not only for the Track & Field running series, but Track & Field experience. We have 40 different modalities. We have been able to bring in users. And in the last few months, these 2 assets are well equipped when it comes to the acquisition of users. We're highly satisfied with the results of this structure.

And of course, this brings a large number of people to our stores. We see the number of tickets increasing in the stores because of all of these events and an increase of net revenue because of these enrollments and because of the increase in sponsorships as well. We have ever more brands looking at our system and the data that we are beginning to have now refers to the user base.

This is what we're doing in terms of monetization and in the digital environment. Now, if you want to get to know one of our stores, you can come to the TFC. Here, you see the number of sales we have. And in terms of nutrition, we have a growth above the percentage of the network. We show a connection of that initiative of increasing the addressable market and increasing nutrition in a very real way within the stores.

We have a digital part that will be incorporated this year, and we have a growth of 63% in the growth, a growth of 61% in the number of customers served. So all of these figures are quite high when we speak about talent. We're quite satisfied with this, and there's no specific concentration. We can service several segments. We're learning from this. We have several brands of experimentation and nutrition that, of course, want to join. We're working strongly on third parties. And these are increases based on the health reality, which is what we would like to reach in terms of the practice of sports.

Tfmall with an increase of 10 brands that we included in terms of sports articles, a growth of 161% of GMV. We're quite satisfied here. and having a high growth of this sort is important for TFC and tfmall, and of course, this enhances our possibilities for monetization. In TFSports, we're complying with what has been planned. We will continue on with this initiative, and we will, of course, increase the addressable market. And we're thinking once again on new content and health going forward.

We have significant amounts of things in this, and we're quite satisfied with the result of TFSports. Now regarding TFSports, that is all. We have created a unique case of integrating a significant retail brand with other addressable markets, sports articles, nutrition, health, all integrated. And we, of course, have consumers highly engaged with the brand, which will protect the brand going forward.

Thank you very much for your attention, and we are now open for questions and answers.

[Operator Instructions] Our first question comes from Gustavo Senday from XP.

We have 2. First of all, your mindset for TFSports for 2025. You're thinking about diluting investments. I would like to understand the magnitude of this dilution. And if you could say more about this operation for this year in TFSports, how much does it contribute to your incremental revenues?

A second question referring to price and volume and growth in 2025. The dollar rate has reached higher levels this quarter. So what will happen in terms of price volume ratio this year?

Thank you for the questions. Let me speak about TFSports. In 2025, we will remain our level of growth with high levels of net revenue and we're looking for exponential maximum growth, having users enrolling in events, increasing the number of events. We have a promising agenda in terms of the events that have been set up. So, we're going to maintain the amount that we invest this year and we're going to make TFSports something important in the future.

Now, regarding the impact, it is a significant impact. We don't disclose these figures, of course. But of course, there is the impact of users when they come to enroll for the events. [ 44% ] of users participate in events, a significant figure. So, each person enrolled in the event means 44% of LTV, which will be reflected throughout the year. And this has an impact on the growth and same-store sales.

Now, Gustavo, simply to complement the answer regarding price volume ratio in 2024, 2/3 of our growth came from volume, 1/3 from price. What we have been planning this year is very similar. We still have some levers to increase the volume, the number of garments sold. We see this in the first quarter with enhancements in the store supplies, new products, innovation, marketing initiatives, the growth in digital channels, the events that have brought in several people to the stores, an increase in athletes. So these are the levers we have, and they show that we will be able to sustain the same-store level of growth and also the volume of garments sold.

Nothing should change considerably in 2024; 2/3 of growth coming from volume and 1/3, once again, based on average prices. We should speak about the impact of the growth in the wellness market. This is a significant new trend and it changes the way of positioning brands in this segment. And we see how consumers are ever more present in this segment. They're more concerned in having a healthy nutrition. They're avoiding processed foods, foods with high glycemic levels and much more.

So, we're quite aligned with those initiatives. And the growth in this wellness market will, of course, bring in new sales, new flows of customers and will reflect on an increase in sales. Now, when we speak about volume, last year, we carried out 43 renovations. Important stores were renovated, and they will now have this new format during 2025.

So, there's a significant impact of the carryover of renovations in 2025, besides the stores we will renovate this year. Now, stores that were renovated will have a significant impact. Most of the differentiated growth of renovated stores began since the program began in 2021 because of the flow in stores and because of the customers and the increase in number of garments sold.

Our next question comes from Bob Ford from Bank of America.

Congratulations for your results. You've spoken about those levers, but as -- how is 2025 beginning for Track & Field? And what is happening with the competitive environment?

Rob, it's a pleasure to speak to you once again, and thank you for the question. We can't refer to figures, unfortunately, but we had a very good beginning of the year. The network began being better supplied compared to 2024. There is a difference in terms of operations. And alongside this, something that Fred mentioned, wins in favor of our business.

The trends that, of course, have existed since the post-pandemic period have sped up significantly. People are ever more engaged with physical activities, with health, with healthy nutrition, and this has an impact on our business. We have a large number of people enrolling in our events. And I think we have gotten it right when it comes to products at the beginning of the year. This new collection, because of its profile and the official launch on the 20th showed significant acceptance.

So, it's a mix of favorable factors. Nothing new in terms of offsetting this. When it comes to competition, our segment grows at a speed that is greater than that of the rest of retail, because of the trends that I mentioned. There are more competitors, but this does not impact our growth. We have been growing at a very good pace despite having new players or other retailers trying to penetrate the segment of sports fashion.

We began at TFSports by scheduling events very strongly. This is something that we do with great capillarity throughout Brazil. We have events scheduled well above our expectation. So, this means we will have a higher number of people enrolled. And -- well, this is a policy we use for the number of users that we have, and we work with the marketplace, direct sales. We also work on the part of nutrition to ensure a continuity of this trend.

We're quite consistent in terms of what we intend to do. We have that feature of being very consistent of making decisions and offering a consistent delivery. We're not going to make significant changes in what we did before, and we're quite optimistic about the buyback -- about our buyback. The plan remains open. It has not been concluded, and we detect the opportunity of generating value for the shareholders when we buy shares and cancel actions at price levels that are worthwhile.

We can't say if we will continue this, but the concept is, of course, capital allocation that will make sense when it comes to generating value to shareholders at price levels that make more sense. We are a company that generates cash and we're doing this without compromising our situation. We have no debt. We have good net revenue. We have minimum cash policies and others. And we detect opportunities within these parameters we go ahead, of course, with the intention of generating better value for shareholders with this buyback and eliminating that cash surplus we may have.

That makes sense.

The next question is in writing from Mr. Ricardo Borges from SFA Investments. Could you give us more details on the business plan for TFSports for 2025? You said the structure would suffice to support growth despite that expansion of operating margin and your expenses?

Another doubt, could you give us more details on how much TFSports contributes to the growth of sales for the core of 2024 and your expectation for 2025?

Well, for the second part, we have an increase with an impact on that figure. In 2025, we will maintain the investments we have in TFSports, but increases a bit more beyond the impact, and you will have positive news during the year. We will increase the revenues of different lines with sponsorship, with shopping, but never in a negative fashion.

This business plan and budget do have a positive impact, but in 2025, I still don't have the expectation of a dilution. It is a year for exponential growth of users. We have also launched a new app. So, it continues to be a year of investment so that we can collect results going forward.

Well, in terms of dilution, the first part in TFSports, we imagine that we will maintain the percentages of net revenue, the investments and all the impacts. In the core business, we do detect an opportunity of having operational leverage. You said that we have sufficient structure to sustain growth, and when we look at the core business, we have to look at the start-up differently. It's at a different stage like TFSports.

In Track & Field, we have planning and budget for the year, very fair in terms of headcount, corporate and personnel expenses. In the last few years, we restructured some areas that proved to be important because there is growth. Therefore, it's a year where we will -- do have a different operating level compared to previous years. And your question does refer to the core business, but TFSports is at a different business stage, of course.

Question from Victor that I will read here. How Track & Field sees the competitive edge of the company, the difference between male and female gender in the sector?

Thank you for the question. We have several advantages. First of all, we have a long background of more than 30 years of the construction of a very strong brand with a focus on the segments. We are active in product quality, in store experience and what is difficult to replicate now that we have created throughout this period is a very efficient ecosystem. It goes through the Track & Field products, but also the sports events, the network of franchises that is very robust. These are the differentials that we have.

And for the second part of your question, it's another differential that we tend to remark on. The brand is very strong in sports fashion and the female part represents 60% of the network purchases. We don't become distracted. We focus on this, on the type of customer, a specific type of customer with higher purchase power, women with a focus on a healthy lifestyle.

So, it's a story of significant focus through time without distractions, without M&A, growing with same-store sales and the opening of new stores.

Very well. The question-and-answer session ends here. We would like to return the floor to Mr. Fernando Tracanella for the company's closing remarks.

Well, first of all, I would like to thank all of you for your attendance. but also thank the Track & Field team, our network of franchisees, shareholders for a fantastic 2024. I thank Fred and Patricia, of course, and we're at your disposal should you have any doubt regarding our figures or regarding 2025.

Thank you very much, and have a very good day.

The Track & Field video conference ends here. We would like to thank all of you for your attendance, and have a very good day.

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