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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to Vivara's Q1 2020 results video conference call. Please note that this event is being recorded and translated simultaneously. [Operator Instructions] Also, the display of the presentation slides available on the platform is not automatic and must be handled individually by each user. The Q&A session will then start. Questions received via webcast will be answered later by the Investor Relations team. Now we would like to hand the floor to Mr. Paulo Kruglensky, the company's CEO, who will start the presentation. Mr. Paulo, you may go on.
Good morning to everyone, and thank you for participating in our video conference call of Q1 of 2022, we are available throughout the video conference call. Otavio Lyra, our CFO; and RI manager, together with myself. We will start on Slide 2. Here, you can see the highlights of Q1 this year. And as we mentioned during the last call, we have excellent expectations for this year. The result of Q1 reflects the beginning of a fantastic year-end strengthens our optimism for the market consolidation strategy. We totaled BRL 410 million in gross revenue, a high time record of revenues on Q1, a growth of 41% in same-store sales. When we talk about physical store growth, we grew more than 61%, Joias em Ação has consolidated with 31% share and an ever-growing percentage of market share 2.2 percentage points in the past months. Our net income was BRL 46 million, 11x higher than Q1 of 2021, a net margin of 13.6% and EBITDA margin going to 15.2%, a reflection of the good pace of sales with good inventory positions, good prices and very good budget discipline. We've invested almost BRL 24 million, mainly in the layout adaptations, new openings of stores, technology and refurbishment. And the highlight of this slide, ROIC of 42% vis-a-vis 24% of the past quarter. Now on Slide 3. We will talk about store expansions. During Q1, while we negotiated the closing of 35 contracts for new stores, we focused on the renewal and refurbishment of new stores opening 4 more stores with the acceleration of the expansion for the upcoming quarters. Well, this is our focus and our projection is to close 50-60 stores of new point of sales for 2022. Here, we have 290 stores during this quarter. On our next slide, we will talk about our market consolidation within our expansion plan and purpose. According to our day, the watch and jewelry market presents strong figures of growth on Q1, which is good for everyone. It's good for Vivara, good for the market, more people buying watches and jewelry. And Vivara in this market segment continues growing and this is a growth of 2.6 percentage points. In the past 6 months, we have good market share in the market, driven not only by the opening of new physical stores, but because our assertiveness in our collection and good management might mix and price. Here, 16.3% of market share. On our next slide, we will talk about our ESG agenda. On the third of this month, when we announced the third version of the sustainability report, detailing actions, projections and indicators, bringing sustainability to the entire company. On the left-hand side, we have our strategies for this year. We talk about brand growth products, digital transformation and the sustainability is key. So this is why we're making progress in sustainability and great participation of the leadership and the management in our targets. A yearly bonus is -- the bonus is connected to the participation of our management. There are 3 major focus regarding our ESG and ESG is spearheading all of the -- here, we have supplier audits. We have the commitment with the origin of our raw material, and we have a direct supplier audit program. We also focus ethical, environmental and social pillars future vision, we work with 3 points, which would be the origin of raw material in our operations, the empowerment of women. This is a company made above 87% of women and diversity. Another important point, the circular economy, 25% of the gold used in our jewelry is from our Gold Week stocks that were -- they were in the market and they were reused for production. Our next steps in 2022, our priorities are to continue the follow-up of our supplier audit because here, we gained excellent indicators like energy efficiency, the greenhouse gas effect emissions diversity amongst others. Now I would like to call Otavio, so he can talk about our financial results in details. In the upcoming slides, Otavio, you have the floor.
Good morning to everyone. It's a pleasure to be here in another quarter presenting very robust results for Q1 of 2022, and we will start with revenue per channel. The growth that we've seen throughout the quarter, BRL 410.9 million with 50.3% of growth vis-a-vis the same period last year or BRL 330 million, BRL 57 million in gross revenue, a growth of 55% when this is due to the activity of Manaus and the impact on our production lines and also the SSS. The growth was majorly in physical stores. Our growth in sales has increased a lot, the growth of 50 of the physical stores grew 67%, 60.5% growth, Life obviously presented a very robust growth, more than 5x the size and digital sales almost dropped 11% for a number of reasons, physical restrictions that we faced during the pandemic. And on 2021, especially in March, capturing the end of the quarter of last year and lower -- we had lower share in promotional campaigns during the period. There was a change of positioning that provides us more profitability. Here, we have a more robust ticket in e-commerce, more profitability, but sale in digital shrunk a little bit. This comes together with the displacement of capital marketing investments in the period, not only in performance but adding more investments to our branding as we have mentioned. And this is accountable for more flow in our stores. So we don't see this monetarily loss of relevance in the digital channel as relevant and because now we have more flow touring our physical stores, which offsets the results, and we believe that throughout the time we will see a sound growth of our digital platform with all the investments that will be carried out throughout the year. We will exchange the platform, and we will have good impact in the upcoming quarters. Now about the growth on brick-and-mortar stores. Here, we have volume and price. There was a good balance between these pillars of growth in physical stores that grew 65.5%. We grew 27.7% in volume of products, excluding March where we expected volume growth. This growth was 17.5%, almost 20% robust even without the effects of the store restrictions of last year. Price grew 32% and Life also has grown 3 [ digit ] with 330%, prices 25% higher. Now the next slide. Here, you can see as we build more history regarding the performance of our stores, and we have Life stores where we have Vivara stores. And here, we are building an important history of robust performance when these 2 stores coexist and the main point of sale from left to right, we start here with the Vivara stores have grown 64.6%, during Q1 of 2022 vis-a-vis Q1 last year, considering the 100% of the Vivara stores that we have here with or without Life stores. And when we start breaking out this growth, we visualize the Life product growing in the shopping malls, where we only have Vivara, 57.8% of growth. And when we see shopping malls where both stores coexist, but with a higher number of open stores. Here, we're talking about 35 shopping malls. The category has grown 132%. This shows us that the additional volume of new customers and new sales is very important vis-a-vis the shopping malls where we still do not have Life stores. So this is Life's growth in the shopping mall. This is a store with more experience, more assortment and this has an excellent reflection because of the amount of people coming in. And here, this is gaining momentum and within the shopping malls where we have both stores. When we see the Vivara stores in these shopping malls, well, they've grown 75.9% more than the average of Vivara stores and this is because we are present in the best shopping malls with better flow and we've recovered our sales life. Life has grown less than in shopping malls where we have Vivara, of course, we've expected some cannibalization in the point of sales and Life has grown 43.3% and shopping's that have only Vivara, it grown 57.8%. And it has dropped 3.9 percentage points of share from 20.5% to 16.7%. This is a shy drop in shopping malls where they coexist showing the marginal, the additional margin is important. And when we see the additional sales here, Life has grown by itself in shopping malls where both stores coexist for 461.7%, practically 5x greater. Therefore, it's important to mention it because as we attain more data, we can give you more information. But this means that any cannibalization amongst point of sales. And yes, we are observing this -- this is shy vis-à-vis, the sale of the new stores because of the experience and the strengthening of brand that Life is receiving on 8. Here, we can see the details of the sales mix of the company. Our performance was excellent amongst all categories, very little changes regarding the same period last year. I would like to highlight jewelry growth of 51.6%, almost 32% in amount. This category is the most elastic in terms of price, and we are selling volumes not only higher than last year but higher than 2019. Life with a growth of 48.8% or 49% and 16.8% in volume. Here, it loses relevance 0.3 percentage points in the combined -- in the company against 1 percentage points in the brick-and-mortar channel because of the additional flow in the brick-and-mortar stores because the new strategy of marketing and new store that loses relevancy in our digital channel because we have less shares and promotional campaigns. Watches have grown 53.8% is a significant growth of 33.7% and accessories growing almost 30%, very balanced like last year, the growth comes from price and not quantity. Now our next slide. Here, details about our gross profit and our gross margin, BRL 228.2 million in gross profit with 16.7% of gross margin, a relevant gain vis-a-vis last year of 2.1 percentage points, mainly driven by more efficiency and cost reduction and the [ assertivity ] in our collections, and there were less losses this year than last year, where last year well and last year, we had problems regarding to geographic restriction. These 3 effects grow 2.8 percentage points of margin, excluding the plant expenses. When we analyze a plant, there is an important message. The pressure is less than past quarter. There is still pressure in the quarter because of new people that we need to face the greater production expected for the entire year, more head count training and 90 days for them to become productive. So with this, yes, there is short-term pressure because we add people, the message is that when we analyze March in the quarter, this pressure doesn't appear. And here, we have selling back comes from the maturing effects of the stores that were opened a year and 1.5 years ago. So we start eliminating this pressure and the trend that will continue in the upcoming quarters of the year. Now the following slide here, we have our -- here, we have BRL 130 million of 2022, a growth of 34% regarding the BRL 85 million during the first quarter last year. And this growth not as strong as the revenue because of their real expenses. One would be commissioning, leasing, marketing that are relevant as the company grows 50% in sales. These expenses represent 33.7% of the period's revenue and this is an additional dilution of 5.3 percentage points material margin gain, especially in variable expenses and because of 2.9 drop in personnel expenses point, 8 percentage point in expenses with rents and condominiums and 0.6 percentage points in expenses with freight. So although with additional relevancy, e-commerce still represent a good part of our revenue. We have broad efficiency to our freight line, thanks to the team of logistics because the development of more segment practices in cities where we become more relevant. On the next slide, Slide 11. Here, we give you color about as general and administrative expenses. Here, BRL 42 million, a growth of 30%. Despite this growth, there has been a dilution of 2.4 percentage points amongst periods, mainly coming from personnel expenses, 1.5 percentage points less and 1.4 percentage points in third-party contracted services, everything that supports our digital strategy and our strategic discussions that despite increasing our losing relevancy regarding the growth of the company. Now on Slide 12. These here, we have excellent results, operational and results here, we have BRL 52 million of adjusted EBITDA. So going back to the rent expenses with 15.2% of EBITDA margin, 10.4 percentage points above last year. Therefore, here, we see an EBITDA growth of almost 4x of almost 5x with 388% of growth vis-a-vis the same period last year, impacted in March by strong restrictions throughout Q1 last year. And when we see our net income, BRL 45.9 million you can hear, we have 13.6% of net income margin, a growth of 11%. This is an excellent result that is because of the restrictions in '21 and all the good results from same-store sales and because of greater activity in our plan that is benefitting social contribution and income tens over net income. And the signals are excellent. This has exerted less pressure over income, and this is contributing to convert our income and cash in indebtedness. Now on Slide 13, no major changes regarding the end of the year. In the company's in depth and its profile, we end with BRL 285.5 million in funding and debt with a subsequent event in April, we are more to size a major contract of BRL 50 million amongst other small maturities, which was BRL 54 million. So we are dropping the debt of the company in a scenario of ever-growing interest rate and this has benefited the future. This will benefit the future results of the company. Now we ended March with BRL 579.6 in cash flow. This is a drop of the net cash flow since December up to the date of 18.9%, mainly because the operational cash consumption that we presented in the period, and I will show details and what happened in Q1. On our next slide, Slide 14, you can see the investment throughout the period. Paulo has mentioned this BRL 23.9 million on Q1, also a high time record of investments to support all of the upcoming cycles and it is for new stores for also maintenance and refurbishment, and they are distributed in factory systems. And due to the expectations that have been announced in our last conversation, we expect a very robust year of investments, mainly because of between 50 and 60 new stores and because of the return of maintenance and the displacement of point of sale during the pandemic, we took the foot of the gas, but also investments in factory systems to support the increase of production and to support our digital channels and also technology because technology has been relevant for some time. And that last on Slide 15, here, you can see our cash generation. We use 45.9% -- BRL 44.9 million because of the increase of inventories. We continue growing the same-store sales base. This is not only from the organic growth of the company or new stores, but this is due to the company's sales that comes from our base. Here we added 92.6% in new inventories and other assets and liabilities that due to the credits of ICMS recognized in 2019 or PIS/Cofins. Here, we start collecting these taxes as we've consumed all of our credits. So in the future, we expect to use other credits, the ICMS that are accumulated on our balance sheet. But this, we will be more diligent. We will focus on this in the upcoming quarters, but I believe that we will start using this ICMS credits. When it comes from our strategy to open a distribution center in the region of Pernambuco to leverage the accumulated credits in this region. This operation was initiated in the beginning of April, and we're already sending products to this distribution center from our Sao Paulo distribution center. So we can consume these tax credits, I believe that we will see some benefits in our company's cash. Okay, 68.8% of free cash greater than last year. Free cash generation in addition to the investments that we've seen in detail. Ladies and gentlemen, thank you very much for participating in our earnings results call. We are so excited with this period, April and May have exceeded our expectations in terms of sales, especially also in revenue, and this is what we will discuss with you in the upcoming months. And I believe that now we can initiate our Q&A session. We will now initiate our Q&A session only for investors and analysts.
[Operator Instructions] Our first question from Thiago Suedt, XP Investments.
Congratulations for the results of Q1, which were strong. I believe that we basically have 2 points that we would like you to elaborate on. And some of you've given some -- you've given us some color in the call, but in the sales -- in the short-term, could you elaborate what the beginning of Q2 has been like when you break out the performance of Vivara and Life.
And like we had Mother's Day recently that has been positive for you and linking this point to the e-commerce expectations. So from the consolidated result penetration and the absolute result. I believe that the flow of customers in your stores has become more normal. So this is no longer a problem. And you talked about the positive prospects regarding all the investments that you are carrying out to improve your e-commerce service, changing your platform. And a follow-up on profit, if you could give us more color regarding, what do you see in terms of gross margin and EBITDA because you are still investing in your factory to deal with the expansion of this major operation. And we were highly impressed by what you have achieved in vis-à-vis the material purchase opportunities that you had. So this means that you have inventory at a better cost or you've attained material at better cost to produce.
Thiago, thank you for questions. There are a number of them. I will start and please tell me if I forget answering one of these questions. So yes, we are excited because of the month of April and the first days of May. In last year in April, we felt the effects of the pandemic. This is why this April is strong, not as strong as March, but is stronger than the average that was announced on Q1. And this is still a growth that touches all categories, very similar to what we saw in Q1. There has been a material change in sales mix, it's strong in life accessories, jewelries and watches, a bit lower in accessories, but it's still robust because it's 30%, 40%. So I believe this is the continuity of accelerated past during Mother's Day, we had a great assortment of collections and additional inventories for our traditional products. This has driven the growth in jewelry, and this is why there has been a growth in volume among and growth in other categories and the end of the restrictions in some regions and also the lift of using masks has allowed greater flow of people, and then we see the displacement from digital to brick-and-mortar stores as something natural. In the beginning of May, slower figures of growth but still strong. Well, here, we had a high time record in sales for Mother's Day, you know it was higher than any day last year, including Christmas. This was a reason of celebration in our company. So I believe that this will spill over on the other quarters. And I also believe that there is not a correction, but how we see e-commerce internally. You cannot see e-commerce as a deterrent of growth for the company. The company is integrated regarding how we allocate capital marketing and regardless of the return and are off to on. And of course, we have opened more Life store in shopping malls, and these point of sales are maturing. All of these stores opened last year, but this -- and this results in this migration, this is why Life is losing momentum in digital, but this is momentary. This is just for some time, but you will see it grow throughout 2022. But the profit of our channel is very attractive, and we will. And we will continue strongly investing in the growth of this channel. In the subsequent years, we do believe in the sustainability of elevated shares because of the search profile. This is a category that is searched by the consumption market much more than fashion, for instance, amongst other luxury markets. And we must participate as pioneers and leaders of the jewelry industry in the country [ Vitec ]. Well, [ Vitec ]well, there are increases that are part of the investments. So this is to sustain all our growth in the digital channel. And then this is in a test environment in our company as we are going into 2 important seasonal months here, May, June, Mother's Day and Brazilian Valentine's Day. So we are carrying our adjustments in the system. And as soon as these 2 relevant periods come to an end, and we eliminate the risk well, we will turn the system on. And we will have a much more agile platform prepared for changes and for changes with less marginal investments from here on. This more fosters -- facilitated integration with other supplier and allows us to increase these services and provide more options to provide convenience from here on. The focus of the company is to provide additional experience to our consumers, and we want to work better than what we're doing today. We want to use CRM and we want to funnel more on persona and on great then on greater groups. And perhaps the last part of your question. Now gross margin expectations and EBITDA expectations for this year are different from last year. We have delivering profit during Q1. The second quarter will be more relevant because of the seasonality, especially on Q4, especially December, which there is a great concentration of revenue and net profit. So this is a year where we will show the profit capacity of the company coming from more elevated gross margin and not pressured by the increase of cost that we saw during the past 2 years. And also the potential of showing more efficient operational dilution. And perhaps, we are in a stronger position than what we expected, but we believe in margin expansion of 100 days per year, well depending on the exchange rate and the impact of gold, but we will see this in more stressed markets as we get closer to the presidential election. Well, I do believe that we will deliver robust gains in this line. For the time being, we are seeing this delivery. We've bought metal above the average cost, and they are in an inventory, and this will help us to deliver the short -- to deliver the mid- and long run because there's a specific impact takes some time as also the price increase takes some time. That would be 10, 12 months. Here, the deflation on metal takes some time to appear in our results. It appears as the inventory is turned over in inventory and the retail. So this is a scenario post Russia and Ukraine conflict where the increase of the price of gold wasn't as high as we expected and Manaus has become an important area with good gold prices.
Our next question from via web Maria Clara, Itaú.
From Itaú we would like to better understand the Life perspectives and the dynamic of the competitive environment. One regarding Life, could you share how you see the sales evolution of new stores, especially in new cities, how have you seen the cannibalization index between Vivara and Life 2 with the resumption of the economy and the recovery of the jewelry market, how have you seen the recovery of the competition? Do you see your competitors frail and with difficulties to make up their inventory as we saw on the past quarters?
I am going to answer. Thank you, Maria for your question. Well, the Life possibilities are better than what we expected, actually. The maturity speed of these new stores is above expectations. So stores are selling more than what we expected. Now the margins of the stores have been better than Life selling within Vivara is very important. So Life jewels selling have better performance than Life inside Vivara because of the exposure, the communication, the average ticket and the experience inside the store and what is new and what we've seen is new customers through our Life stores. We are increasing our customer base inside the shopping mall in an accelerated fashion and in a very good way. So we are gaining new customers. We have relationships, new relationships. Life is a success. All stores that we've opened have presented positive results with excellent performance. And this reassures us to continue expanding on Life. The cannibalization level is very lower in existence, actually and the participation or the share of Life jewel in the mall grows, the mall EBITDA that would be the sum of both operations and Life growth in percentage and in volume, same stores are still maturing. And the ROIC is above our expectations. So I believe that as a whole, Life is providing us excellent results. Now the competition. Well, I always like to strengthen how difficult it is to compete with Vivara in the omnichannel, channel, we have 16.3% of market share and the second place as 2%. And this omnichannel, the purchase of online media will always punish the smaller and Vivara with its size and with all that it invests in media. We invest 50% of the turnover of #2. So for them it's very difficult to bid in Google or to buy word to impact the customer. So it's difficult to see our customers being impacted by the competition. And if they were impacted, the competition had to pay a lot to acquire this customer much more than Vivara within the omnichannel when you -- to impact the customer and bring the customer to the store, it's difficult during Mother's Day, for instance, there were many customers that sell their products through the site. They were impacted by Instagram, Facebook they came afterwards to the store totally decided to buy the jewel and it's even more difficult when Vivara opens a Life store because now you have 2 points of sale. If it was difficult to compete with 1 Vivara, now it becomes even more difficult to deal with 2 stores. So it's difficult to talk about the competition. I see the competition trying to replenish their inventory to transfer prices. But I don't see any great change. And in the malls where we're opening Life stores, I see a more affected competition for the competitors.
Our next question from Guilherme Vilela, JPMorgan.
As the level of tax incentives were higher during this Q and increase net sales. I would like to understand how this line will perform during 2022. I would also more clarification regarding the sales level of April. What is the level of SSS for the month? And what do you believe will be a feasible growth rate for Q2?
We had problems with our audio here. Before answering your question, I would just like to mention something I think that you were talking about Pandora after the fourth quarter of last year, where they closed stores. Now they've also closed stores on Q1. I think they closed 7 stores. This is -- we're talking about competition. So this is, we're talking about their stores and franchises. Now this is just an add-on. Now regarding your questions, I believe that the Manaus activities and the production pace is increasing because of Life. Life is driving production, and we are increasing our production because of the company's organic growth, be it in jewelry or it be in Life. Well, we've had more production volume and Life, I believe that we will continue benefiting this line, and we will have better net revenues, but perhaps not as strong as what we have seen in the beginning of the year. It is a combination between the increase of production and the company purchase. So throughout the company's activity and throughout the upcoming months, this balance could be better or worse for the growth of our net revenue or can be slower than gross revenue. So once again, I believe that we will continue observing this in the upcoming quarters, but not as distant as it was on Q1. Now the anticipation regarding April sales, the acceleration regarding the 50% of growth that we presented during this quarter. And also -- and the change and the effect, I can't talk about reopening, but the lack of restriction benefits growth in brick-and-mortar stores, we were growing almost at 60% same-store with e-commerce continues higher riding 45%,50% and it's even higher in stores because e-commerce once again continues driving a similar trend, something that we observed on Q1 of this year. So this is what we observed throughout the month of April. And probably we will see this throughout this quarter. And last April, we felt the pandemic effect. This is why it's stronger, especially in brick-and-mortar stores.
Our next question via Bob Ford, Bank of America.
Congratulations for your results. Could you elaborate on the mix of evolution, you are strengthening your high prices and building more offerings of accessible prices. Is this a correct interpretation?
I will start answering and then Otavio can come in. This is a correct analysis. We have been developing SKUs to increase our mix. Our active mix from 1 year up to the date has increased a lot. We are focused on long tail with the emergence of opportunities. So the main effect that we can visualize in the mix development and working with more expensive and more expensive is the increase of the amount of pieces and the gain. We started doing this in the past years. And now we have a growth in same-store sales and in mature stores that hadn't grown this way. And so for so many years, shopping Morumbi has grown 40% that for some time, hadn't grown. And this is due to our solidity and mix and in terms of inventory, and we see more opportunities in other categories as well, why not jewelry for men, metals, silver. We're bringing different types of technology to have a lighter appearance. We're working with customization. We will continue developing products to increase our same-store sales. Okay. Now I'll mute myself. Otavio, you can go on.
Bob, Paulo's answer was just perfect. Regarding what we've seen throughout the quarter, but the effect on the average ticket which has affected us in this quarter, especially the summer campaign that is the January campaign, where we have less items and especially for Life, well they help us to contribute with the increase of price that I mentioned throughout my call. Now the average price per unit and it's not the price transfer. Just regarding of this effect during the quarter because of the summer promotional campaign that took place in January that impacts the total figures presented on Q1.
I would just like to -- now when we talk about campaigns, it is important in what Vivara has been doing not all retailers are doing this. The retailers depend on campaign and promotions to sell and maintain a high growth share. And Vivara during Q1 delivered growth, delivered margins without campaigns. So without offering specific promotions, I'm talking about promotional campaigns, and this is very important for the sustainability of the brand now that camp, the campaign that Pandora did abroad, they were selling only when they had a promotional campaign, and I see many retailers only selling with promotional campaigns. We did the other way around. We eliminated discounts and we delivered growth. So this -- we were bold during Q1, and this shows that we have a long-lasting brand.
Thank you. As we have no further questions, I would like to hand it over to Mr. Paulo for his final comments. Mr. Paulo, you may go on.
I would like to thank all of you for participating in our earnings results call. All the Vivara team for delivering the results on Mother's Day and the results achieved. Should you have any questions, we are at your disposal. Thank you very much.
Thank you. The earnings results call from Vivara has come to an end and have an excellent day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]