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Good morning, everyone. Welcome to the conference call for the results of the second quarter of 2022 of Vivara. In this quarter, Vivara has changed the modality of its conference call. We are going to dedicate 100% of our conference call to the Q&A session. The video with Paulo Kruglensky's initial comments, company's CEO and analysis of the financial performance by Otavio Lyra, CFO, are available and can be accessed at any time at Vivara's website.
If you need simultaneous interpretation, this tool is available, it says interpretation at the lower bar menu of the screen. And then you click on a little globe and you can choose Portuguese or English. For those of you listening to English, you can mute the original audio by clicking on mute original audio.
For sell side analysts, we make available the possibility of having a live participation. [Operator Instructions] Introducing the Vivara's team. We have here, as usual, Mr. Paulo Kruglensky, CEO of the company; Otavio Lyra, CFO and IRO; and Melina Rodrigues, Executive Manager of Investor Relations.
Now please wait for a minute while we collect the questions.
Good morning, everyone. Taking the opportunity of this time when we are collecting questions. First of all, I would like to thank you all for your presence here today. We are very happy to have you here in our conference call in the first half year when Vivara is presenting a significant gain in market share and major growth and on the focus for the second half of the year is total steam on sales end of year sales, we are going to have the 60th anniversary of Vivara, which is a very important landmark for the company.
In this second half of the year focused on training, quality in order to assure excellent services, improvement, quality processes, efficiency. And we are very excited and confident that we are going to deliver the second quarter with the same quality as we had in the first quarter and the results that we have been delivering since Vivara went public.
Year after year and quarter after quarter, Vivara has been delivering its commitment to expansion, profitability, efficiency. And this is how we expect the end of the year to be. So now we can open our question-and-answer session. Great, let's start our Q&A session.
Our first question comes from Danniela Eiger, sell-side analyst from XP. [Operator Instructions]
I'm here already. Congratulations on your results. I have 2 main questions. The first one regards prospects. I think that something that made you different from other players and what mid and low income is that you're still very optimistic about the year. And this is a point of attention. How much growth can we expect for future quarters and also considering a more normalized basis?
Could you tell us how you're seeing the third quarter? And why you're so optimistic? And what are the main drivers to keep your growth and also the dynamic of volumes, which is interesting. You mentioned that you are increasing volumes. And how does it compare to 2019?
And number 2 is the profitability dynamics. And this is very much explained by the pressure of strategic projects. But thinking into the future, how can we think of EBITDA margin dynamics and how you've been seeing the new stores and how they are maturing and their evolution? I think these are the 2 main points.
Thank you, Danny. I'm going to take your questions. Well, starting with the outlook, well, we're almost halfway through the third quarter. I think that the trends for the company's growth is similar as compared to pre-pandemic levels. To take the effect of the months that were affected by the pandemic last year and this has an impact in terms of total growth and growth of volume as we announced here in March and April are the 2 months that were most affected in 2021.
Now if we compare to 2019, the company's growth is almost equally fast. If we look at this quarter, it's 52% growth as compared to 2019 total sales. This is in stores mainly with the help of the e-commerce, which had different share in the past. Now looking and if we break down the profile of our growth, it comes both from Jewelry and Life.
So we had '21 in Life in 2019, 32% if we compare in contrast with '21 against '19, almost 50% products. So I think that we are still seeing similar rates against '19, even though we have not so hot numbers in total sales growth. We continue with the same expectations as we started the year in terms of 25% growth for the year in terms of revenue.
And for the second half, this is the main focus, especially in Q4 when we have even stronger numbers, and this is according to our expectations, and we are keeping our expectations. I think that we are -- and before getting into expansion, you asked about volumes versus 2019. I think that here something very interesting for us to talk about. We see growth in volume in jewelry as compared to '19, a 64% growth in total sales of jewelry and we see about 5% growth and almost the 50% growth in Life, it's been dropping as compared to 2019 by 15%. Why is it so? I think that the main effect in terms of this drop in volume is that as part of the launches that we made, we added SKUs in combinations of sold products. So a combination of a bracelet with 2 or 3 charms that we sell, and we consider this 3 to 4 SKUs, this is being booked as one product that is sold in the company, and it's computed in part of this drop in volume that we are seeing today.
The opening of stores, obviously, has provided a quite interesting additional volume and very transparent change in strategy that we have had since the beginning of the year in digital has taken out a little bit of Life's relevance in digital.
All effects combined the volume has been increasing into the future, especially due to new stores that we are bringing new customers. With Life, I think that we are super happy with the expansion of the 2 brands. I think that we have been keeping very good returns as compared to the previous season. But more specifically in talking about Life, which is we are going to expand more intensely in the future, 35 to 40 stores this year plus 15, 20 of Life and above the range of Life in our case.
And next year, we are going to even give it a little bit more for Life in this positive and balance. So going to specifics here, we are -- the number of stores will go threefold as compared to last year. And we are increasing by 10% the market. So this additional portfolio has been very assertive and it's already yielding fruit.
We're seeing that the maturity of stores on average as compared to initial expectations that we had once we approve these stores is something like 75% of the curve in year 1, which is quite fast, too. So I think that with some additional degree of optimism, I think that we are going to have a combination of 2 things, a more accelerated curve and more potential for revenue.
When we look at Life versus the plan for stores that we have approved without going into too much detail, but the stores have 4 to 5 points ROI, which is above what we have been approving for the first year of expansion, both for the 2020 and 2021 seasons of stores that we opened. And so with all this issue, 43 stores and 29 stores in maturation. So there will still be improvement in the numbers that I am mentioning to you today and also to profitability, as a consequence.
These stores and more specifically, Life stores have EBITDA between 45 and 50. And except for a few specific bigger stores that are at a range closer to 40. But they are specific store openings and it's just not the average. The numbers are there for you to do the calculation considering the median.
And for this reason, we are happy going forward. And Life is already providing good product margins. We see an additional 1.7% in product margins with the in-sourcing that we did in the factory as compared to last year, and this effect is not yet regime.
We are looking a point in time versus last year. So once we annualize these gains which in June went from 1.7 to 2.1, it's still evolving. We hope to have even more benefit for the margin and another point of concern that you usually have, and I will take the opportunity to mention, is the pressure that the factory has on our results.
So this additional Life margin, which has not yet been 100% incorporated in our financials, is greater than the effect that the factory has in our result. So I'm confident and because I am inside a long time, we are going to eliminate this pressure on the margin which causes a relatively small effect when we compare gross margin in the company year after year in our growth levels.
And we are going to see more clearly the gain of mix for Life with the maturation of all the stores for a few years. We believe that Life can get to 40% of the company's sales mix and this transformation from 30% to 40%, which is taking place today. So from 30% today to 40%, that's where we are going to see the true benefit of something that will provide 15 to 17 additional points in the margin in terms of the sales of jewelry today.
Complementing Otavio's answer on Life, he talked about the change in mix that instead of just 1 SKU or instead of selling the charm, we sell the bracelet. So a number of tickets, we are growing but we are not growing in terms of number of SKUs, so there are more customers buying Life. And weight, so we calculate it very much in kilograms. So it's been growing too.
So it's the way we are offering the products rather than SKUs dropping or not. Another important point, we talk about the acceleration of the maturity curve of these stores. We're really excited about this. And I joke with Otavio, I'm not sure whether we are accelerating the curve but down in the end, it's going to be better than our expectations.
But the truth is that it's been performing better than we imagined and we thought we will sell 4 million to 5 million in year 3. We are already selling that amount in year 1. Now what we need to know is whether they are going to get to 8 million or whether they had a faster maturation, well, only time will tell.
Congratulations on your performance.
Next question comes from Gabriela Moraes, sell-side analyst from Itau BBA. [Operator Instructions]
Congratulations on the results. Here, we have 2 questions. First one about cannibalization. I would like to understand how you are seeing the cannibalizations between Life and Vivara stores? And the second point is about your customer base. So the new customers that are joining the base, especially in Life, are you seeing these customers remaining on the base? Are you seeing that level of recurrence? That's it.
Gabriela, thank you for your questions. And starting here with cannibalization of stores. Well, that number is very much under control. We are still working with the range that we initially shared with you which was the expectation of a very small sample of stores, maybe a little bit bigger, maybe 4% of sales, but it's still very timid for the additional return for additional sales that the new stores are bringing.
So if we think in terms of numbers, even bigger numbers, we are not really worried about that, looking from the inside. So Vivara could lose 100% sales of Life that we still would have returned above the cost of capital. But without adding an overall year, of course, this is very, very far from reality.
Now we have a large sample of stores that will become even material before the end of the year. We are going to close the year with more than 70 stores probably. And so we are going to build on that number. Between 4 and 5 of Vivara sales is a very small number for additional sales that grows more than twofold in the same mall.
So I think that we are building more and more confidence that cannibalization once Life expands more intensely is not going to be a problem for us going to the future. But obviously, we are paying attention.
I'm sorry, just complementing this part of cannibalization. The universe is still small, considering the number of stores that we believe that Life can have and the time is also very short. There are many stores in the first year of revenues, but something that really motivates us and makes us confident with the expansion is to see in all clusters kind of a stable cannibalization from additional A plus clusters to C cluster, cannibalization is very much under control.
Another point that we should monitor going to the future is the maturation of C cluster stores, they are much faster than A cluster in the mall. So this makes us much more confident about the expansion of Life. So we are confident in thinking of the number of complexes and a number of B and C malls that we have in Brazil, and we have been performing very well without affecting the performance of Vivara.
Otavio, if you would like to complement the answer?
Well, I'm going to the next question about customer base. As I said in the previous question, the growth is very much based on new customers, in fact, and the recurrent is still around 1.7x. So we still haven't been able to see this number changing much with the addition of new stores. So without any major changes in that regard.
We have received a question from Wellington Santana, a sell-side analyst from the Bank of America, and I am going to read the question. He wants to know about Life stores about their capacity to have good points of sales for these new stores? How they are performing as compared to our expectations? And I think that Otavio has touched on that already. And whether we could give some more information on the maturation curve of these stores? How is maturation going? How we see sales versus profitability of mature Life store as compared to Vivara mature stores?
Okay. Thank you, Wellington, for your questions. I need to admit that I had read your questions already, and I tried to include to answer them together with the previous answer. And I'm going to complement what I have already said.
So starting from the first topic, capacity for new stores. I think that we have been able to open a small number of stores in the first half of the year, considering the challenge for expansion that we have with the year with the confidence that we already have 100% of our expansion contracts closed, and we know the timing to open all stores this year and openings of the third quarter will be much more relevant as compared to the volume.
And then we still have a slightly bigger number for the fourth quarter with a little bit more than 20 stores for us to open in October and November. And the conversation is still very receptive with the malls. Life is revenue per square meter, which is very interesting. And considering our ambition of reaching major penetration into being many malls our conversations -- we are talking about batches of stores. So for example, in [indiscernible] and other more relevant shopping mall owners, we've been able to close and lock negotiations to make sure that if we can open more stores. At the same time, the group negotiations takes slightly longer than individual negotiations.
And I think in order to assure the quality, both of malls and the points in the malls that we are going to, I think, the time or a little longer delay for the opening of stores is natural and justified, as we see it. Obviously, it's more appropriate for expansions to be better distributed from the first quarter onwards, and we always work to integrate it in the future.
But this is part of us having a bigger number of store in this first phase of the expansion, and then we are going to correct our trajectory in future years. About performance, I talked a lot when I answered Danny's question. So the thing that we had a threefold growth in the number of stores, fourfold growth in footage and adding 10% of value, we see a capacity for marginal results with very high margins, adding to the results of high profitability that Vivara has for future years.
Almost 2/3 of the stores that we have opened are still maturing, and we are going to build on top of those numbers as we see here, these are stores of BRL 3.5 million, BRL 4 million yearly revenues for Life. As we said, we have positive surprises in spectacular malls as we have outliers for Vivara, clearly for Life too. And we will see this for Life, too, in very differentiated malls in terms of flow and sales potential. So we have even higher number getting to expectations for 2022 or BRL 7 million or BRL 8 million yearly. The maturation curve also touched on it on year 1, it's 75% of our -- the curve estimation in our plants.
And then we think of sustainability of Vivara stores. Vivara's mature stores have an average of 40% margin -- EBITDA margin, more specifically, and the new Life stores were looking into their maturity, and they have an EBITDA margin even higher 10 points above. It's about 50, sometime some of them even higher depending on the region. So they add profitability even during the maturations as compared to Vivara's portfolio of stores.
Once again complementing Otavio, Life is going to a positive cycle of expansion when the brand starts to be desired by shopping malls. We are going to close the year as the second largest chain of stores in Brazil. Top 1 is Vivara, #2 is Life. So we are going into malls and malls want to have our projects in terms of performance.
Sometimes it was difficult 1.5 years ago to engage them with the new brands. Today, this brand is already a reality and the marketing volume, processes, expansion, visibility of life will increase year-on-year. So you will be seeing these practices of Life in gaining power in the future this year and next year too, even more so.
Okay. Now continuing our next question comes from Eric Huang, sell-side analyst from Santander.
We have 2 questions, actually. Number one, we've been seeing the evolution of Life. Could you tell us a little bit how the mix has been evolving? So if you think in terms of collections, it would be interesting for us to understand sales. And another question looking into e-commerce that you are conducting the whole migration, what can we expect in terms of acceleration of sales once the platform is fully implemented, and will this provide extra or additional sales leverage for Life?
Eric, thank you for your question. So I'll talk about the mix, and then Paulo will talk about e-commerce. As to the evolution of mix, the Moments category, which is the category of charms for bracelet, its share has been dropping in recent years in a recurrent way. This is partly combined with the strategy of increasing the mix that we have implemented in this category. We have invested in building a mix with higher value added with stones and collections, and this has reflected very well in sales. For the first time this year, we saw the category of collections in Life exceed the category of Moments which is something very interesting for us because this product is more profitable, provides us more flexibility in terms of price transfers.
It's more differentiated as compared to others silver players, and this is a delivery that we have been celebrating which is something that we were looking after when the thought of empowerment and a mix composition for this category. This is what we've been seeing in the last quarter. Paulo will talk about the new e-commerce platform.
So talking about the implementation strategy for the new platform, today, 20% of the flow of the site is in the new platform. We decided to have a migration that would not be big bang or more structured rollout. So to understand, we have replicated layout structure from the old website to the new website and this new website just done with the speed and a more advanced technology, by itself, it has increased conversions.
So the first numbers that we have here, we see higher conversion regardless of journey improvements. So site is very important for us. More than 90% of our customers go through our website to buy at Vivara regardless of where they finalize, whether they finalize at WhatsApp store or in the site itself.
So this flow and this omnichannel journey is very important for us. And there is a package of improvements that is almost ready. After the first wave once we migrate the website 100%, which should take place until the end of next month, we are going to start implementing customer's journey and experience improvement to search for product integrations, upsell, cross-sell and to have a more random window with higher technology. We're very excited that the technology development team is working intensely to that and the migration is very well structured.
Let me complement, if I may, Paulo. We have -- with this 20%, we have already reduced the upload time by half. So it's -- the new website is much faster, rejection rate is down by 400 bps. And so we are really confident, because of those numbers, to evolve in a migration. After Father's Day, we are going to intensify trainments of stores for the omni operation and then we are going to start rolling out the old platform so that we migrate to the new website.
Looking into the future, while still seeing the omni strategy, when we think of websites, it has become increasingly more difficult to separate things. Today, 26% of our stores are sold through digital. So this number is already quite relevant. So the ship is growing. So most than 20% of e-commerce sales are being shipped by stores, and we are expecting to have an increasingly more technological platform, more and more prepared for the omni strategy.
So the 2 channels can coexist and complement each other. One should support the other in terms of technology experience because in the end, it doesn't matter to us whether we are selling through the store or website so long as the customer has the best experience so that they can decide where they want to buy and how they want to receive.
This is our mindset. We see space in e-commerce for higher revenues. But today, with this issue of mobility coming back and the leadership of our stores and to our business, this is very clear because our product is very much about seeing and touching and so the stores have a leadership in terms of the customer journey, but we are not giving up e-commerce because we believe it's still very relevant to assure full experience for our customers.
Our next question comes from Guilherme Vilela, sell-side analyst from JPMorgan.
Could you tell us a little bit more about the store expansion and how they are going to be distributed in terms of geography in Brazil? And my second question is related to e-commerce, whether this 14% drop is related to the change in e-commerce platforms? And if so, what should we expect in the next quarter, considering in terms of special dates and the important calendar going towards the end of the year?
Thank you very much, Guilherme. So starting to talk about the expansion and the orientation of new stores and how they are being distributed in the country. We are still prioritizing the malls with higher return. They are concentrated in the regions in the Southeast, although we had very good mall spreads in other regions of Brazil, but about 75% of the new openings that we did this year and in the last business year, 78% to be more precise, they were concentrated in the Southeast region, 11% in the South and the Northeast and other regions with 11%.
So this year, specifically, we haven't opened any stores in the north, neither in the Center West region. So when we talk about Life expansion, there can be Lifes everywhere in the country, now 100% of Brazilian states. So this is it. They are concentrated in the short term in the region where we have a higher sales potential.
Now the drop in sales of the e-commerce is not caused by the system. It's something that has been going on since January this year because of the strategy that we have divided that shared with you last call. We don't want to offer so many promotions. As Paulo said in our last conference call, to be slightly less present in promotional campaigns.
So in the short-term, this can provide some effect in terms of limitations, especially for Life, and that's why I mentioned before that in a digital channel, Life is still suffering a little bit more as it suffered last quarter, but this is also going to be normalized, and it's very good for the channel as a whole.
As Paulo said and Melina has reinforced, the first indications of the new platform are very positive, very rapidly and still during the test phase, we have the ATG conversion. ATG was the previous system. And other benefits, loading time, lower rejection rates and the better experience as a whole. So quality of images, projection of products and other improvement potentials and some of them are in the second wave that Paulo has mentioned. We are only expecting good things. We are not seeing any negative impacts coming in the future.
And just to complement Otavio, if you allow me, there is one issue of comparison basis. April last year was very much impacted by store shutdown, so we had a very high penetration of e-commerce that month because until the end of April, we had the impact of stores being closed.
So one part suffered this effect. And the other is because of jewelry in action, there was a drop in penetration in e-commerce because of this year's seasonality and because we are not depending so much on inventory. So sales person do not depend on e-commerce inventory. So they had the infinite shelf, but e-commerce is complete. There's a full mix. And because of inventory composition in stores, they are not depending so much on the e-commerce inventory, and that's why this has reduced the share of Jewelry in action. And these 2 effects explain the 14% drop in e-commerce, which is not a concern to us. As Otavio said, everything goes as expected.
Our next question is from Raphael Teixeira, sell-side analyst.
Congratulations on your results. And I would like to understand the dynamics of higher costs in your factory expenses. How much of that increase is related to a sales increase and how much of the new investments will be able to support sales growth in the end? And when are we going to see a higher dilution of these factory costs?
Raphael, thank you very much for your question. We are still within a volume expansion trajectory that is quite significant because of the contribution of the Life provides to our business. To show how different Life is as compared to Vivara, Life is -- accounts for 30% of our volumes and more than 30% of our items. So the expansion, the opening of stores -- of Life stores that we are going to open in future years too will continue to accelerate the factory in that direction.
So the growth in the volumes manufactured are still significant. So in that direction, we are evolving to a new factory along the first half of next year. It will be ready, and we will have completed our change in Manaus because of all the benefits that, that region provides to our business.
And over there, we go -- our capacity there is going to grow twofold, our manufacturing capacity. Obviously, this is related to growth in future years and it's not going to be immediately in the following year. So we will continue to see some pressure, but smaller than the current of the factory on our margins. So the higher headcount is very much significant.
We doubled the headcount in the factory, and we are going to hire a significant number of people for the new factory and with the growth of Life that will come and with higher volumes too. So in terms of face values, the factory's payroll is going to go on growing, and we also see the benefit of NP in '21. So this pressure is not so significant or slightly smaller, but it suffers the impact of one-off effects that we had in the past.
And once again, what I said to you about Life before, the expansion of product margins for Life that we are already seeing today in our business as compared to one year ago, it's already enough to more than cover this 1.2 percentage points coming from the factory, which adjusted to AMT would be below 1 point. So once it is -- this benefit is annualized, this pressure is going to go down next year.
Another important point is our seasonality history. As we work with just one factory, we try to eliminate peaks and troughs and try to produce or manufacture the same volumes every month so that we get to the end of the year. We have inventory and we don't need to pay overwork and to hire temporary employees to do that, if we look in the midterm and long term.
And then the pressure that we have in terms of revenue, the pressure in the margin in percentage terms, it's in the first quarter, it's always bigger than in the second quarter because in the first quarter, we are always selling [indiscernible] and in the second quarter or second half of the year, we always sell more, and we are not going to increase the headcount in the factory in the second half of the year just because we are selling more.
So the customer is more diluted. So we have this pressure and as the company grows, this is going to go down. It's the size of our manufacturing plant that we need to have to cope with or to serve the expansion in stores. So sometimes we're manufacturing or we have capacity that we are only going to use next year.
And we are very confident with the expansion of the factory both in terms of expansion. In terms of headcount and also the expansion in technologies, so we are in-sourcing more and more technologies. When we're talking about gold factory, it's not just gold goes in and products go out. So we work with many different types of products and manufacturing technologies, and we always try to get to find new technologies, and we have been in-sourcing these technologies.
If there are no more questions, we now end our questions-and-answers session. And now I would like to turn the conference over to Mr. Paulo Kruglensky for his closing remarks. Mr. Kruglensky, please.
Thank you all very much for your presence here today and especially I liked the new model of us focusing much more on questions-and-answers in our discussion time. I think that we managed to have a good quality and more questions-and-answers being used, and maybe we are going to use it in the future, we'd like to hear your feedback. Also in terms of how we can improve it even further, we are counting on you for future conference calls. We are possibly going to have a Vivara Day. So I would like to invite you for our Vivara Day and so thank you very much, and see you soon.
Thank you all very much. Have a good day.
Vivara's Conference Call has now ended. Our Investor Relations department is available to answer any other questions you may have. Thank you very much for your attendance, and have a good day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]