Zamp SA

BOVESPA:ZAMP3

Earnings Call Transcript

[Operator]

Good morning, everyone, and thank you for standing by. Welcome to Zamp's Q1 2025 Earnings Conference Call. [Operator Instructions] We would like to inform you that this video conference is being recorded and will be available on the company's IR website, www.ri.zamp.com.br, where the complete material of our earnings release is also accessible. [Operator Instructions]

We emphasize that information contained in this presentation and any statements that may be made during this video conference regarding the business' outlook, projections and operational and financial goals of Zamp constitute beliefs and assumptions of the company's management as well as information currently available. Future considerations are not guarantee of performance. They involve risks, uncertainties and assumptions as they relate to future events and therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operational factors can affect the future performance of Zamp and lead to results that materially differ from those expressed in such forward-looking statements.

Today, we have here the presence of the company's executives, Mr. Pedro Zemel, CEO; Mr. Gabriel Guimaraes, CFO and Investor Relations. I would like to now give the floor to Mr. Gabriel, who will begin the presentation. Please, sir, you may proceed.

[Gabriel da Rocha Guimaraes, executive]

Good morning, everyone, and welcome to Zamp's First Quarter 2025 Earnings Call. I'm Gabriel, the company's CFO; and today, along with the Investor Relations teams, we are pleased to welcome Pedro Zemel. It's his first week here at the company, and he's joined us for this first quarter 2025 presentation. Welcome, Pedro, I wish you all the best.

[Pedro Zemel, executive]

Thanks, Gabriel, good morning. Good morning, everyone. I'm really happy to be joined Zamp. I think we have an incredible story and a lot ahead of us to build. I'm just getting started. At the beginning, I will mostly listen and learn. But I'm here alongside of Gabriel on the call, available to all of you from now on. Thank you. Back to you, Gabriel.

[Gabriel da Rocha Guimaraes, executive]

Thanks, Pedro. Let me kick off today's call by following our usual structure. We'll begin with the highlights of the first quarter, then in sequence, we will go over the company's performance during the period. And finally, we are having a Q&A session to address any questions that may come up.

In Q1 '25, we reported around 13% revenue growth. It was mainly driven by a combination of organic growth from Burger King and Popeyes, led by same-store sales, especially since restaurant expansion was a bit more modest last year. And we also had some closures, especially of Burger King this first quarter. And together with the acquisitions, that contributed almost half of that. So we're essentially splitting 13% in 2 and roughly half comes from Starbucks and Subway and the other half from the combined performance of Burger King and Popeyes.

Looking at comparable sales, Burger King kept a positive trend of same-store sales. In '24, we reached nearly 13% same-store sales. And we're starting this first quarter with close to 5%, which is solid, especially considering the current consumer environment, that's a little bit more cautious. Popeyes is showing consistent performance compared to last year when we had about 13% same-store sales as well. And this quarter, we came in close to 9%. So it reflects the continuation of the work we've been doing over the past few quarters. And we also have positive developments following on last quarter. We began a turnaround with both brands, both Starbucks and Subway showing good results and good trajectories. So we delivered 16% month-over-month.

This is the consolidated figure, but it's an ascending trajectory. And Subway had a similar story, we had 20% same-store sales growth for the quarter. So this outlook is very positive for those brands that we brought into our portfolio even within a [indiscernible] time frame. So it brought the systemic revenue, [ Zamp and indirect ] with our franchises. So we have BRL 2.3 billion revenue in the first quarter. It's a growth of almost 60% compared to first quarter '24 and great part of it comes from the franchise segment. Digitalization of our sales and experience is still a vector that's very important, and we are talking essentially about channels that don't require a level of human interaction in the sales point. So delivery, self-service totem, mobile order [ head and pay ] and loyalty.

So we had, in this quarter, almost half of the revenue of the company coming from this channel and following a growth of 23% when compared to '24. And from this, almost 55% of BK revenues are identified, especially in the loyalty program that feedbacks the consumer support CRM and all the marketing initiatives, that customized market initiatives.

When we look at EBITDA, we have a dynamics that is in spite of the growth in sales, we had the beginning of a pressure of inflation that, in reality, maybe it's not exact beginning of the cycle, it's the impact at the beginning of the year. It's a consequence mainly of a protein curve that we have been seeing in the latest 12 months. We had an increase of 30% in this important component of our core at BK. It's where we suffered a little in the gross margin. So there's a consumer environment, a little restrict with an inflationary environment, which brings some pressure. We lost some basis points, and we lost at the consolidated practically 70 bps, and it came combined with an operational lever in expenses.

So we are more efficient than last year, but since we [indiscernible], the overhead structure to support the potential of those acquisitions, here, we have a mix of reallocation. We put investment in the maturity of those operations that didn't reach their maximum capacity. And two, we have a series of [ interference ] situations and expenses that were one-off expenses, for example, PMO for the integrations, the transition [ services ] agreement and all the expenses we had that will not be carried on looking forward. But at this period, they had a [ punctual ] impact. But looking forward, they will [ smoothen ] the curve [ because of the ] effects. We withdraw the one-off expenses, and we mature the operational results of both brands that will contribute to the growth of EBITDA along the next quarters.

In the part of restaurants, we have almost 2,700 units in Brazil and [indiscernible] 960 Burger Kings, almost 90 Popeyes, 114 Starbucks and 1,518 Subways. This next slide, you can see the ecosystem of Zamp today in this relative period. We show you that in the latest quarter, but it's important to show you again, just to show you the reality of the acquisitions and the construction of this platform that supports on synergy, scale, economy. And this is the fundamental that we believe in this field in Brazil because we have many growth opportunities in Brazil for both brands, all the brands. And we left the system from over 1,000 units to 2,680 in the first quarter of '25. So an increase of almost 60% of gross revenue. We went from BRL 1.4 billion to BRL 2.3 billion this quarter. And the net revenue grew by 13%, almost roughly came from organic ways and the other from [indiscernible].

So If we move on to the next slide, we're going to see a portrait of the portfolio. We didn't have so many changes compared to last quarter. Great part of our operation, 50% is on the Southeast region because of the concentration of the Brazilian GDP. And we operate in different formats. We are concentrated in malls for Burger Kings and Popeyes. In Starbucks, the dynamics is a little different, [ we have ] airports and food courts. And when it comes to Subway, we have a different mix. We have many like street stores, some mall operations. But the most important part of this situation is the versatility when it comes to capital allocation.

Looking forward, we have many investments that are possible varying from BRL 600,000 to BRL 6 million, and it requires [ levels ] of revenue and risk assessment differently. So in different formats for different brands, we still have certainly many opportunities to introduce our operations in the national territory [ that's way ] good. It's very positive for our ecosystem.

But talking about optimizing our portfolio in this first quarter, we closed 11 operations of Burger King and 4 Popeyes operations. So this combination is very positive because those were stores that unit economics were like below the waterline. When we kick off the revenue, the negative revenue, the operational leverage was very positive. So it will help us looking forward.

If we move on to the next slide, we're going to see that in the history of the latest 4 years when we have a CAGR of 13% of growth, top line organic growth. And in the picture of the latest 12 months, you see coincidentally 13% again, roughly. And I told you a little, but it's very important to break down the brands and to see their contributions to the revenue of the company. So it's still very overindexed in Burger King, but we have a big expectation for us to speed up the representativeness of the portfolio, not only Burger King will keep growing because we have many opportunities, mainly at free standings and in operational growth, productivity growth.

But the ratio of the other brands will mature. So they will have a biggest growth compared to Burger King [ and their relative ]. So those brands will gain representativeness on our portfolio along the years. So in the last 12 months, we had a strong perspective, a growth of almost 18% of top line. Considering this picture of the first quarter of '25, we have a very important component here in the latest 6 months. That is the revenue from the brands that we acquired recently.

When we move to the other slide, the performance of Burger King, you see a growth by 6.1% after BRL 1 billion -- passing the milestone of BRL 1 billion and same-store sales and new stores and the closure of some stores, but the net brings almost 60 basis points. And it's very positive when we think that this growth in a restricted [indiscernible] environment, that's very challenging because of the [ pressure of ] inflation and it comes over a base of 11.3%. So it's a composition in [indiscernible] of over 16% that is materially superior to the nominal GDP in the period. So it shows that Burger King has been consistent. And this consistency comes from the digital channels, the performance of the free standings, a good balance in its portfolio when it comes of like menu architecture with a good balance from other platforms that work very well, desserts premium and some campaigns that we had that helped bring traffic experimentation and attendance to our stores. And when we see the last 12 months, we had almost 14% growth compared to the same quarter of '24.

When it comes to Popeyes, the message is a little more positive. So it's a different brand with a different maturity level, but we had almost 9% of same-store sales over a base of 15% last year. So we've been growing way above the market and way above even our internal benchmarks. So it reflects an evolution of the store, operational consistency. And therefore, the unit economics of these assets has been growing a lot, almost 14% for the last 12 months. So as soon as we are confident that the consistency of the operation, the brand consistency and sales levels will go back to a stage that we believe that we will keep scaling that because we believe the fundamental of this company, we're very well positioned in terms of brand and product quality.

So the last 2 years have been fixing problems we had to fix and go back to growing. So Popeyes, that's one of the biggest advantages of having a platform that has a diverse performance. On the other hand, like if we're suffering with protein in Burger King, Popeyes is not. So this is a brand that can support, consolidate and gain relevance in the market. Of course, on each, we are going to adjust the prices. But with Popeyes, we can be very aggressive in menu architecture and gain share in the market. So that's our direction along the year.

When it comes to Starbucks, as I mentioned before, Starbucks is still -- we're still fixing -- they're very, very important pillars. We've been essentially building the right structure with the right products available on the supply chain. We're beginning to look at diversification of pricing and the portfolio architecture, food and availability of beverages. That is the key for this brand, obviously. But the trend is very positive, and we had 16% of same-store sales on the quarter. But month-over-month, we've been growing almost 300 bps. And we have a lot to do. So it keeps us excited because the curve to get this consumer in is not as fast as we want to, but this is -- work here is to tell everybody that Starbucks is back with the right fundamentals with the quality of the products, with the quality of our experience. And then as soon as we get there, the consumer will lead us to the levels of performance that preceded the turbulent moments that the brand faced. So we're talking about 20%, 30% of traffic that's running below the baseline. So we have a big opportunity for recovery here along the next quarters. So we need to seize this opportunity and make this brand grow.

So the reality is very similar with different dynamics, different business models, but the recovery dynamics is quite similar. And when it comes to Subway, we see a big growth in same-store sales. Here, we've been doing a very close franchising management, and we are the allocators of investment. So we're co-responsible for the commercial strategies, the portfolio pricing and all the launches. So we did some relevant things that were brought or pivoted and adapted to Brazil as we did with the Subway series that has been working a lot of growth in delivery, optimization of the franchise system, engaging Zamp as an operator. And the reflect of this effort is the same-store sales curve. We went from 16% in January to almost 30% in March, and this is -- it adds up to almost 20% to 20.4% same-store sales growth. That brings a very positive effect for the brand.

And here, we have a very important component for the results of the company of the latest years. In 2022, it represented just a little before it was almost -- and now looking at the [ film, not a ] picture, we almost doubled the relevance of the digital channels inside the business. We had 32.6%. So this is very important today in the retail because it connects the physical experience to the digital world and the digital environment. Many times it brings not [indiscernible] units, but you can either have less costs and expenses where a user experience and an interface that is capable of presenting a better average ticket with a bigger gross margin. It's very positive for the business. But you start to acquire a big volume of data that feedbacks in the system and brings an advantage in relation to our competitors in a big scale. That's very relevant for the industry. So we closed the quarter with almost 56% of sales coming from the digital channels, especially coming from the self-service totem, but a very important component comes from delivery and apps.

Next slide, I will go into detail. But from all the channels in the digital ecosystem, delivery has been growing very, very well. Over 17% of representativeness in sales, almost 20% year-over-year in nominal terms, 6% in Burger King. So delivery is still a protagonist and the scenario in Brazil tends to be favorable. As you can see the news latest months, it's like many, many big players are coming to the Brazilian market and it will heat up the industry, and we are very well positioned as the largest restaurant operator in Brazil. [ In this, still ] we have much to do in the delivery service, speed of service, quality. Naturally, everything will -- as a consequence, revenue growth.

We have the app that particularly, in my opinion, is shy, [ close to ] its potential as the app can be the totem in the hands of the client. So at some moment, we believe that it's going to happen. And we have a solution that is well rated a good service level with many levers on the app that should boost the engagement, the delivery, the CRM program, the loyalty program. And they bring monthly active users [ directly ], the self-service totems. And here, it's a mix of stores that have like human service and some stores that are 100% digital. And those totems are very important because they mix both cases, a bigger average ticket and a bigger gross margin, CRM with the loyalty rewards program. And it's a very good platform for data acquisition. We have over 20 million people subscribed.

And with this data, we have a very good dialogue channel with our consumers. [ In terms of ] experience and performance, that represents almost 55% of the total sales of the company.

So moving on to the Slide 12. You have here, cost of goods sold and SG&A. Yes, on the right side, you can see the SG&A. For the cost of goods sold, you have a mix. If you look at in detail for the release document, you'll see that 70 bps is a mix of Burger King. With Burger King, that's a little worse. And on the other hand, you have PLK getting better, Starbucks. And Starbucks is a little better. And Subway that has a revenue that is naturally helping to bring the leverage for distribution of this raw material cost.

So the biggest challenge here is, as I mentioned, the increase of over 30% in each protein. So in our perspective, the latest 12 months were more volatile than the following months should be. So the beef price is very big, but we expect more predictability, and it's going to affect the curve, and it might bring some pressure. We'll have some leverages here. Talking about pricing and menu architecture to try and to dilute that in time for the consumer efficiently protecting market share, traffic and gross margin evolution, but it's going to be a challenge because all the players are exposed to that [indiscernible]. But I would say that this is our main point of concern. We've been doing some adjustments, our layered platforms, and 2 [ whoppers were 25 and 90 ], and now in April, we changed it a little. So we have products that cost [ 25, 26, 29 ]. This is that the dynamics we're going to chase on the year.

Talking about SG&A, because of the operational leverage, we didn't have any surprise in SG&A. We had a good control and the growth in same-store sales that would generate the operational leverage and dilution gains and expenses was a little shy. It was not a double-digit year or quarter. So the level of leverage is not absurd, but we had a good control in the expenses in a way that we had a slight increase in comparison to last year. And at last, talking about SG&A, it comes from the preparation of the company, structuring different business units. And those business units will speed up in decision-making. So they will lever the operational execution. And in short term, it might take some overlaps. But in the medium and long term, we are confident that those businesses will reach their maximum capacity. And therefore, this math will be positive for the company in a consolidated way.

And talking about Q1 '24, we had a one-off and -- we had some one-off events, as you can see. But in the operation, we had decrease in approximately 120 bps that reflects the investment that we mentioned before. In combination of those factors, especially the cost of goods sold and SG&A brought our EBITDA to decrease a little. The IFRS 16 effects was about BRL 10 million, so the margin went from 6.9% to 5.2%, mainly especially to -- [ because of ] investment in COGS and SG&A. But we have a very big perspective that along the year, this trajectory will be better. So we brought a loss that's materially better than the first quarter of last year, but very well impacted of one-off effect. So if we exclude that, we would have a net loss almost neutral, practically neutral.

So if we see the cash flow adjusted, so from accountable to operational, that's the way we interpret that. So we go from the first quarter '24 of practically minus BRL 30 million because of the seasonality and we had some variations. So IFRS [indiscernible] that had a bigger impact in the composition of that quarter, that put the operational flow to almost BRL 104 million negative, especially the working capital because of the incorporation of the inventory in comparable periods of Starbucks. That's practically 60% of this difference. And another component was we had the latest quarter last year with an inventory level vis-a-vis our internal politics way lower, especially from imported items. And the recomposition of that in this quarter had an unfavorable dynamics for working capital. But it doesn't reflect any change in the original cycle of the company. There are adjustments that derived from the acquisitions and consequences of inventory levels from previous quarters that impacted the quarter, but they will not carry on [indiscernible].

So looking at other variations, we had essentially 2 effects, growth of an account coming from tax planning. So taxes to be recovered and some -- and there is an impact from like labor contingents. And in Brazil, it has been a challenge. So we need to control the turnover levels because of the dynamics of the business. So following this slide, we had consumed almost 36% less CapEx. So the CapEx is a reflect of the investments in the beginning of the building construction of new stores, new restaurants, technology, maintenance, some systemic infrastructure situations here, but the majority of that investment is opening technology and remodeling of our assets.

So we don't believe that this year dynamics is going to be reduced compared to last year. It's the biggest part of the plan to keep growing growth plan. But essentially, this quarter, we had 36% below the baseline. So in this slide, we have our indebtedness. So this is our capital structure, very similar to last year. The net debt-to-EBITDA ratio is 2.2. But the company has nothing due and have BRL 376 million in cash. So this is like a minimal cash and net free cash flow [indiscernible] that do not represent any point of concern or any relevant due that's going to be impacting our debt.

So our priorities in 2025 are the same as we released last call, sales and gross margin for all the brands in different scenarios. This is a priority for all the retailers because this is where we create value. And this brings a very important consequence coming from operational indicators, therefore, experience in our restaurants, good products with good service level and good locations that generate great experiences. We've been concluding this first 6-month chapter of integrations. We've been very well succeed in Starbucks and Subway, looking at operational culture, systems, people, very important components in brands when it comes to brand integrations, companies going on a good path, and we want to [indiscernible] the growth plan. We have no questions about Brazil. Brazil has great opportunities in all the 4 lines, and we've been following that, chasing that idea in different ways, but in all of our brands.

With that -- so we close this first session, and we're going to open the Q&A session for us to answer any questions that may come up. Thank you.

[Operator]

Now we will begin the Q&A session. [Operator Instructions] The Q&A session is now concluded. I would like to give the floor back to Mr. Gabriel Guimaraes for the company's final remarks.

[Gabriel da Rocha Guimaraes, executive]

Well, I'd like just to thank everybody for your time and understanding the company. Our team is still fully at your disposal. We're still focused with the arrival of Pedro and focused on the future of Zamp. Thank you. Have a great weekend. Best wishes.

[Operator]

So the Zamp's earnings conference call for the first quarter of '25 is now concluded. The Investor Relations department is available to address any further doubts or questions. Thank you very much to our participants, and have you a very good day and afternoon.