© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone. Welcome to the conference call to announce the results of the third quarter 2022 of Vivara. This quarter, as the previous one, the company is going to use 100% of the conference call's time for the question-and-answer session. The video with Paulo Kruglensky's remarks and the analysis of the financial performance by the CFO are already available and can be accessed at any time at Vivara's Investor Relations website.
If you need simultaneous interpretation, this is available at the globe where it says interpretation on the lower menu of the screen. When selected choose the language of your choice, Portuguese or English. For those of you listening to English, you can mute the original audio. For sell-side analysts, we have made available the possibility of joining us live. [Operator Instructions] If your question is not answered during this conference call, the Investor Relations team will get in touch with you afterwards. Now introducing Vivara's team. Today, as usual, we have Mr. Paulo Kruglensky, CEO of Vivara, Mr. Otavio Lyra, CFO and IRO; and Ms. Melina Rodrigues, Executive Manager of Investor Relations. Now please stand by while we collect questions.
Good morning, everyone. Thank you all very much for attending our conference call. Before going into the Q&A, I would like to share with you our expectations for the fourth quarter of 2023, or rather better say in 2022. So the fourth quarter is usually the best quarter in the year, and we are very much engaged to deliver very good results in the last quarter. We have had our sales convention, and that was very energizing, motivating, and we worked out from it very motivated for the Black Friday and Christmas. We have many products in all categories with very good planning, all stores well supplied. In terms of expansion, we will be able to implement the biggest annual plan in the history of Vivara, and we are looking at opportunities to gain even more market share, which we have been doing ever since our IPO. Now we can move to the questions and answers, and thank you all very much.
The first question comes from Danniela Eiger, sell-side analyst from XP. [Operator Instructions]
Congratulations on your results. So the first one is about the Life dynamics. So it's always a very pleasant surprise, and now it has been contributing visibly in the gross margin. It really gets some attention how much it's been able to contribute even though it's so small in relation to the whole business? So what do you see for it? Is it going to provide an increasingly better contribution to the gross margin? What do you see in terms of the normalized gross margin with Life gaining more and more space? And also, what do you see in terms of EBITDA margin in future quarters? There was a specific pressure because of expansion which has generated value. But if you could help us to understand margin a long time, I would appreciate.
And you mentioned something about the fourth quarter, but about next year, well, I know it's still kind of early. We are almost there, but there's still a lot to evolve and a lot to happen. But could you tell us what you're expecting considering the current scenario in terms of growth, profitability and investments? This is very important for us to have a better understanding.
Thank you, Danni, for your questions. So first, I'm going to answer the questions you have here. So starting with Life. So in fact, it has provided a very pleasant surprise. And first of all, I think that the fast maturation of stores, very strong growth in revenues in the same mall without cannibalization of the same channel on the same mall. So it's with very good numbers in terms of Life's share as part of Vivara. So if we look at year-to-date numbers, in Vivara stores, it's gaining 6 percentage points of share. And this is what we see as compared to the stores that we haven't seen. These 2 percentage points represent in terms of revenue, much less than BRL 108 million revenues that Life stores are adding to us in the first 9 months of the year of the BRL 41 million that they have delivered this quarter.
So this is accelerating this contribution of Life's margin. So the sales mix is less and less dependent on moments, on the collectibles, bracelet with charms, much more dependent on collections with a wider ranging mix. So in terms of number of items available, 38% more in Life year-on-year. So which kind of explains of its more robustness in terms of revenue that these stores can provide us compared to the year before. And we can reap the fruits of more in-sourcing in our factories, even though it's not so representative in relative terms, as you have mentioned. If we see its evolution in the company as a product the whole year of 2022, we have a much higher in-sourcing than we used to have in the past. And so because of the mix that -- and also it's higher insourcing and the unit cost is quite significant. And in some quarters, it's more relevant because of the pressure of the factory because we needed to add more people in the factory. It's been very intense in the last 2 years, we almost doubled it, especially because of Life, as you know, and now the benefits are coming up more clearly. We can see it more clearly. And the growth of the company has helped us to dilute the factory, which still causes a lot of pressure in our bottom line. So the evolution of this is positive going to the future in the mid and long term. We hit 0 to 2.5 and 3 points for its growth. We hope that Life may increase, and in the long term, get to 40% of the company's revenues. And this brand that today is about 17% -- 15% to 17% in product margins, obviously, this differential accounts for what we are expecting in the future without considering improvements with a new factory towards the middle of next year. So in terms of expectations for 2023, and in line with what I have just said. I think Life accounts for most of the increase in gross margin levels. This is what we are betting on. This will be another year of growth despite the uncertainties. So the new stores are relevant. I think there will be 50 to 60 new stores still selling a lot of Life because of faster and bigger return. And so in this number, about 90% of that chain would be when new Life stores and fewer Vivara stores, also because of the higher penetration in malls. So the year will be very similar in terms of what we have been having in 2022 in terms of stores, just with an additional acceleration in terms of new stores in '23. So this part of a same-store growth dynamics that is much more under control than we had in 2022. And so we are seeing the results of more robust same-store sales growth. So it's greater than 40% just in stores because of the strategy of increasing inventory. So we invested a lot of capital there this year, too. And now we have been reaping the fruit of that as part of the entire basis. So most of the benefit for additional inventory, we are seeing it already, and the stores will go for a growth dynamics with numbers above inflation. So we still have an advantage basis, considering all the macro scenario. So we still see space to gain share in the same mall, but most of the growth will come from new stores, as I said. Maturations today. We have 75 stores in maturation, 26% of our chain. We are going to add another 50 to 60 next year in the maturation of portfolio plus the new stores. So with 2-digit growth rate 15% to 20% is what we see for next year. And it will help us to dilute expenses in a more efficient manner. So in the last 2 quarters, they carry a higher weight in terms of expansion of the company, with preoperational expenses causing pressure on our numbers and sales expenses, too, and SG&A with a very small growth. So this year has been a year of major investments. So with these results, we've focused a lot on that. We did our homework in terms of expenses. But sometimes it doesn't show so clearly to customers or to you. But obviously, this is going to produce lots of fruits and will enable a more robust growth in the future, this acceleration of investments and expenses. So in terms of personnel, infrastructure, in support of the company when we add expenses, this is relatively smaller. So we hope that we have another year of growth and profitability just as we had in 2022. And since the end of last year, the expectations have been this. This is our guidelines. Strong expansion with a growth in gross margin, especially with Life with investments. And I think that next year it can be even a little bit better. Is it clear? Paulo is going to complement.
I think that Otavio identified and mentioned very well the opportunities that we have with Life in the current moment. It's important to say that the questions we had in terms of the growth potential of Life and its potential in the stores, well, in the last 6 months, we have answered that question. Ramp-up acceleration, maturation of Life stores, especially in mid-tier shopping malls, this is a highlight to us. And I foreclose as the second biggest jewelry store in Brazil. We are going to close the year with more than 70 stores. And this will make it possible for Life to build that muscle and gain even more -- to gain even more market share next year. So it's been empowered and how this is going to evolve in the next year and how it's going to position itself. We have been seeing its growth, and we're really confident about that. So in the first 9 months, Life has been performing almost BRL 20,000 per square meter. So this is a performance that is very good in terms of footage.
So we will be able to work in terms of exposure, communication, marketing products in a more standalone fashion with an evolution for next year. So Life's growth is a very, very clear avenue for us. And so we are ending the year with great performance.
If I could ask a third question, if I may. Well, in practice, so the shareholding agreement with its amendment, does it change anything in the shareholding structure? So the controlling or the corporate structure, is it changing in any way?
Well, good question. Well, to us, nothing changes my routine, but the management's routine, we continue with our day-to-day operations. We have a management system that is, together with the Board, we have our governance forums and then all the levels of approval, and the plan is the same ever since the IPO. So we want to expand. It's related to expansion and positioning. This is a company that decisions need to be made by consensus, and we are not seeing an impact for management or for the planning over the next few years. So every road for growth since the IPO, expansion of Life, expansion of Vivara, international expansion, to have additional brands or to work with accessories, we are following the same model and the same value proposition as we had in the IPO. Nothing will change for us as nothing has changed since the IPO. Obviously, since the IPO, there have been a few adaptations with the digital and the COVID experience that has accelerated a few channels, but nothing that will change much in terms of the overall structure.
And then Danni, if we talk about investment and cash in answering your second question and shedding more light into next year's expectations. As the company is still growing robustly in terms of working capital, where we're going to try to gain more efficiency in terms of products, we have leveraged inventory. And so there were, in our trials, some things we did more right or less right. But all of this is important for the company's cash. We will continue to consume cash, especially because of the volume of investments and payout of profit. So stores with the cost level that you are all familiar with, we are going to continue making robust investments more than BRL 115 million. So in this manner and considering everything that we are seeing in this end of year, we have net cash, and we have space for leverage so that we can continue on this accelerated growth dynamics. Obviously, considering the market that we are seeing after yesterday, I don't need to say anything. But it's very obvious that this is the right way to go. We leverage the company a little bit, and we continue to grow. Despite higher interest rates, the spread is very favorable for us to reduce the cost of debt and to bring in investments for this operation. And you're still winning space and share.
Our next question comes from [ Benicio Sprit ], sell-side analyst from the Bank of America.
Congratulations on another result. So this quarter, again, we are presenting a strong same-stores volume. We could understand it more in the quarter, what was the performance between different categories and brands? And what have you been seeing in the fourth quarter until now?
Second question about the migration to the new factory. Should we expect any sort of impact in the fourth quarter? And what would it be?
[ Benicio ], thank you for your questions. Now exploring more the volume dynamics, in fact, we are seeing a growth that is based on volume, very much in line with the price of commodities, which is one of the main components in our cost. So we don't have much to do about that. So when we look at the categories with Jewelry, Life and Watches, so the growth dynamic has been reasonably similar. So the growth of 11% in jewelry in sales, 18% in volume of items.
And when we look at Life as a product, we can see as a channel, the stores are growing at 3 digits very strongly with the great billing volumes, but when we look at volume, it has grown 30.4%, 19.5% of which coming from volume. And so yes, Life balances a price increase or rather the volume increase is higher. I think that in terms of Watches, this is the category that is kind of different from the other 2 main ones. So this is a category that grew 17.7% in the quarter, 20.6%, of which was price, not quantity. So this is very strong work in a category in terms of curating the availability of products. And now we have increased quite significantly in Watches, the new line of Vivara, our private brand, is very nice, very strong. Sales are really surprising us more and more. And in this manner, we have gained robustness in terms of average prices for items sold, which in this dynamic and strategy is not really a concern for us. So talking about factory. This is a very important project for us to enable Vivara to grow in the next 20 -- 10 years. So we are going from a factory of about 3,500 square meters to 10,000 square meters. So we are insourcing production. So we are bringing many items that were manufactured elsewhere. We are in-sourcing bringing it all into our factory with new technologies and products. We are not seeing any significant disbursement of CapEx in Q4, which would not have an impact here. And now looking into next year, the future of the factory, the main point is quality improvement, and to work on the perception of product, prices and delivery to end customers. We are not expecting any major synergies in the migration of the factory. This will come later on in the future, but we want to enable it for growth and quality improvements.
Our next question comes from Eric Huang, sell-side analyst at Santander.
I think that there are 2 questions. So there's a good vision, both in terms of number and breakdown. I would like to understand about seasonality. How are you preparing for next year for the openings that there are some -- that are more distributed along the year? And points of sales, especially for Life in the first half of the year, what you already have in terms of what you have the intention of opening? And secondly, more towards e-commerce. So the jewelry market still has a physical presence that is much more relevant. But looking at recent migrations and then with potential gains more into the future, what brings in terms of knowledge, in terms of costs and everything?
Eric, thank you very much for your question. Well, the expansion plan. The expansion will be more spread throughout the year. It's not going to be so much concentrated in the first and second quarters as we did this year. Otavio has already mentioned 50 to 60 stores. We have signed already 2 stores in the beginning of the first quarter. And this -- we already have the contract.
And we are going to work with more perennial features. And we are going to get to December with a full expansion plan already implemented. And so we're always looking at business opportunities, anything that might come up in the market, for example, in terms of working with different products. Talking about the digital, it's important for us to confirm that our omni model. And today, we have almost 240 source -- stores for pickups that can work with a pickup store system, and we are working not just with next-day deliveries, but we want 2-hour delivery. This is what we are seeking with the omnichannel project. Customers, to us, they are unique. And as part of their journey, they go to our website to get inspired, and they are served by the Jewelry in Action salesperson. So wherever they close the sale, the digital model will strengthen. What we need to seek is to improve next year is the website experience with technologies, filters, with their journey being much more similar to that of our stores. So this is our objective next year, and this is the objective of our digital channel.
Well, I would like to reinforce what Paulo has said, especially e-commerce accounted for almost 30% of our sales. So this is a channel that is increasingly more participative in the journey. It's not just transactional. So this is what we are doing. This is how we see the channel. Obviously, this is a year of reasonable investment so that we can implement future improvements. There have been clear improvements. This is a platform that is already providing benefits in terms of navigation, faster loading. So our website is more functional, the evolution based on full integration and the possibility of more flexibility. This really facilitates the services that we provide to our customers in terms of convenience. So today, on the same order, part of the items will come from stores, the other part will come from our warehouse. So this makes it possible to have more variety for products delivered to end customers, inventory in stores. Customers can check the inventory in the store -- of the stores that are close to them so that they won't waste the time to go to the store. So we want to make offers of more selected products. So we want to evolve to the next steps where we increase and improve the experience, as Paulo said. So the more we are able to add -- so build your bracelet, and you can see it being configured, present list, you can share your shopping cart and then you can see it ready so that they can convert. So we are going to invest very much on customization. And that's it. I think that we need to invest on the experience next steps, and this platform is ready to do that.
Our next question comes from Maria Clara Infantozzi.
Congratulations on the results. I would like to ask you about your customer active base. So 50% of your active base and new customers. So what is your strategy to bring new customers to the base? And what are your retention strategies? And it's very nice that you make public the different profiles of Life and Vivara. Since there is a difference in age, as years go by, how can we think about the migration of Life customers to Vivara?
I'm going to answer this question, Maria Clara. I think that the active base, so the growth comes from Life, it accounts for 44% of the active base. The customer profile of new customers in the stores has really made our customer base younger and younger. This is a strategy that is our aim for this channel.
And this is a little bit of the new experience and customers having a more dynamic experience in making them feel slightly more comfortable. Those that do not have the idea of going to Vivara stores, with a more customized service, and then they feel more welcome in this new shopping experience. And then these newer and younger customers. Well, Vivara's basis is growing too. We have new customers coming to the new base. And this is also part of the numbers that you're seeing. But I think that the main highlight is our base of customers in Life. So when we think about the channel and the idea of the model and the empowerment of the brand as a whole, it's just to take in the additional addressable market that Vivara is not -- cannot take in because it's very much focused on more traditional jewelry. So Life is an item that cannot just meet the needs of customers on self-purchase. This is a great difference that we see between men and women. 70% of women in Life, they are buying for themselves. It's not just a customer that buys to give as a gift, which is a very typical feature of our business. And so we have our sales for the person and also to give a gift.
And the main challenge of Life as a product is to go into the journey to choose a gift and to compete with other brands with similar tickets. So this is a little bit of what we are seeing as a strategy. And I think that we can reach that with the numbers that we have been seeing so far for this channel.
And what about the migration from Life customers and turn them into Vivara customers as years go by? Have you already defined any structure? How -- what are you thinking about that?
So this strategy has not yet been defined. So this is not something that takes place automatically. Today, Vivara customers and Life customers as part of Vivara, they are all very similar because it's basically the same customer that is buying with different journeys. When we look at the customer that go in -- that is going to Life at a given time, it's not just because of age. Because with Life products today, we can also meet a higher age group, and then there are products that are specially collection with stones. We are no longer talking about very young products, which was typical of Life. Today, there are sophisticated products to meet the needs of older women, too. That in terms of age groups, they are more similar to our Vivara customers. What we are seeing as a strategy is that we want to be present in the lives of customers at different times. So for example, they go to Life to buy a day-to-day item, and they go to Vivara to buy a special item. So we don't want to bring customers from Life to Vivara once they get older. But it's for them to go shopping in all our brands at different times in their lives. Just complementing. So this starts when a woman is born with a baby earring. And so when they are 15, bar mitzvah, marriage. So times of celebration will be along with Vivara. Life is more fast fashion, and we work more with fashion. So the same woman buys Life and Vivara during their journey. And the challenge with Life is to get into some journeys where it is not yet today. I think that the future of Life is to think how to leave that niche and to grow a little bit more.
Great. Congratulations on your results.
Our next question comes from Guilherme Vilela, sell-side analyst from JPMorgan.
We would like to have an idea, 1 year after you've decided to expand Life, what is the maturation curve and returns for that brand? And secondly, if you could give us some color in terms of price and volume and revenue growth in the quarter. These are my questions.
Guilherme, thank you very much for the questions. So in the beginning of the call, I mentioned that we see a slightly accelerated expansion curve for the stores and revenues. So there are expectations. And then we are surprised on both ends. And I think that on one end, one of the reasons is that we are going to the best points. So the best points for us to evolve and increase penetration so that our contracts for early next year and in terms of high revenue and return that is attractive. So there are expectations of stores that are working above average with mature stores. So there is a very good part for Life in the beginning of this expansion cycle. So closing with another 30 stores next year, another 120. And then from then on, we will start going into mid-tier malls, as Paulo said, and then we see what has been tested. So we can even see cannibalization, that is 2 percentage points, and there are 2 points where we see that happening. But this is very much under control. However, the new Life store in these malls where it has a higher penetration than Vivara, most of -- has been part of this very nice surprise. So these stores have been growing a lot with much wider assortment of products that we make available. So between 45% and 50%, or 40% and 50%. Not all expansion takes place in the ideal order as we would like it to be because this is dynamic. And so we closed groups of store with the main entrepreneurs this year. So in the beginning of next year, we are going to have a slightly more distributed expansion next year. Of the 17% growth, in fact, I broke it down per category, but this is much more based on volume than on price. So what has been really driven the growth in volume on jewelry and Life with 18% and 19.5% growth in terms of volume. And then there is the Watch category that goes slightly against, it was a slight shrinking in volume. So all segments are growth of volume in items. And this is the dynamics that we are seeing.
Just complementing. It's difficult for us to tell how far these stores can go. We will only get to know that in the 3 to 5 years, we see that it's been ramping up more than we had originally expected. So it's been ramping up 20%, 25% above expectations right now. How far it's going to get, whether it's maturing more in a faster way, whether it's going to get beyond our original plans, we won't know it until 3 or 5 years.
But we were pleasantly surprised with its fast maturation so far, especially in the shopping malls -- in the mid-tier shopping malls, B, C cluster, this is where Life has been performing very well, even compared to Vivara stores in the same mall, they are doing very well. And this is a complement to what Otavio has said.
This is super clear.
The new model has been performing very well. And when we look at seasons, the '21 and '22 stores are really leading in terms of growth and profitability. They're really surprising us. So considering the short term, we get into a very good mall season that is very beneficial for us.
Thank you very much. If there are no further questions, we are now ending our questions and session. The Investor Relations team are available to answer any questions that have not been answered of yet. Now we would like to turn the conference over to Mr. Paulo Kruglensky for his closing remarks. Mr. Kruglensky, please.
I would like to thank you all for your presence here in our earnings call. Thank you very much for your participation, and we are available if you have any questions to ask. So get in touch with our Investor Relations team. Thank you all very much.
Vivara's earnings conference call has now ended. The Investor Relations department is available to answer any other questions you may have. I would like to thank all participants... [Statements in English on this transcript were spoken by an interpreter present on the live call.]