Zamp SA

BOVESPA:ZAMP3

Q2-2025 Earnings Call

[Operator]

Good morning, everyone, and thank you for standing by. Welcome to Zamp's Q2 2025 Earnings Conference.

[Operator Instructions]

I would like to inform you that this video conference is being recorded and will be made available on the company's IR website, www.ri.zamp.com.br, where the complete material of our earnings release is also accessible. You can download the presentation through the chat icon including the English version.

[Operator Instructions]

We emphasize that the information contained in this presentation and any statements that may be made during the 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 the presence of the company's executives, Mr. Pedro Zemel, CEO; Mr. Gabriel Guimaraes, CFO; and the Investor Relations team.

I'd like to give the floor now to Mr. Pedro Zemel, who will begin the presentation. Please, sir, you may proceed.

[Pedro de Souza Zemel, executive]

Welcome to the video conference of Zamp's Q2 2025. I'm Pedro Zemel, company's CEO. And I'm here with Gabriel Guimaraes, the CFO. I'll start here with the highlights on Slide #2, the comparison of Q2 '25 with the same period of '24, showing that we grew our net revenue by 16%, reaching BRL 1.3 billion. This is a mix of adding new brands and with the growth of BURGER KING. The base here was quite tough for BURGER KING because last quarter had an important window. And this quarter, the market was harder, but still the brand grew in same-store sales by 1.1%. POPEYES had a solid performance with growth on the same base growing by 22.3%. STARBUCKS also grew 21.7% and SUBWAY grew even more 30.1% compared to last year.

The combination of these factors led to the system sales, including sales from franchisees and Zamp's own stores reached BRL 2.3 billion in the second quarter of '25, representing a growth of 51% compared to the same period last year. Those sales were very important in the digital channel, representing 53% of the total revenue, a relevant growth compared to the second quarter of '24 of 22%, more than half of the sales, 55.3% in BURGER KING were identified sales. The adjusted EBITDA was BRL 173.5 million, growth of 16.5% year-over-year. At the end of this quarter, Zamp reached 2,668 restaurants distributed across 958 under the BURGER KING brand, 89 POPEYES, 114 STARBUCKS and 1,500 SUBWAY.

Moving on to Slide #3, just to give you a perspective of the company's transformation this year comparing to the second quarter of last year. First, 2 major brands became part of our portfolio. We added 2 iconic brands that we already had BURGER KING and POPEYES plus 2 other iconic brands, SUBWAY and STARBUCKS, which reflected in 2.6x -- a growth of 2.6x in the number of restaurants that Zamp operates directly or through franchise. We went from 1,028 restaurants to 2,668 restaurants. The sales of the system went from BRL 1.5 billion to BRL 2.3 billion, a growth by 51% and Zamp's net revenue, adding revenue from company-owned stores and the revenue of the franchises went from BRL 1.1 billion to BRL 1.3 billion, a growth of 16%.

Now moving on to Slide #4. The distribution of stores across the country, as I mentioned before, by brands shows how well we are distributed in the country in all states or regions with several brands. So in the graphs on the right, you can see the distribution of stores by brand, by format and also geographically. SUBWAY makes up 56% of the restaurants, BURGER KING 36% and the remainder is distributed between POPEYES and STARBUCKS. We have a fairly balanced distribution between in-line and malls, 43% and 45% and freestanding representing 12%.

Geographically, the Southeast region accounts for about half of the sales with the other half distributed mostly between South, North, Northeast and Midwest. But I think Zamp is now covering different occasions of consumption of consumer with several brands across all states in various store formats, which puts the company in a very, very strong and solid position.

After the summary, I'd like to hand the word over to Gabriel to comment on Zamp's financial results. So please, Gabriel.

[Gabriel da Rocha Guimaraes, executive]

Thank you, Pedro. Good morning, everyone. On Slide 5 of the presentation, we see the company's net operating revenue, which grew by 16% compared to the same quarter of previous year. This growth comes from approximately 2/3 of new acquisitions with this complete composition of STARBUCKS and SUBWAY, along with a strong growth from POPEYES and BK which make up 1/3 of the growth in same-store sales and the performance evolution of each brand within the portfolio. The reflect of that over the past 12 months compared to the same period last year is a growth of 17%, mainly driven by the acquisition of SUBWAY and STARBUCKS, which are beginning to represent an important opportunity to expand the portfolio. And even when a brand has a somewhat slower tenant growth, the other brands managed to balance it out regarding market opportunities.

Talking about BURGER KING, we see that the growth was almost 3% compared to the same period last year formed by 1/3 coming from same-store sales and the other 2/3 coming from a portfolio with higher average sales. And here, we have the effect of a larger composition of freestandings, which have been performing really well, especially in this format called [indiscernible], which is a new format we've been implementing. And the average sales of this format have been significantly higher than the previous ones, and it has helped with the global portfolio. And we're also seeing good results from the remodeling strategy with [indiscernible] that started to push the brand to nearly 10% in growth last 12 months.

And I'd like to remind you that we have a very strong composition with the same-store sales base of almost 13% in 2024. And therefore, this year, we expected same-store sales growth to be a bit more tight, modest, mainly boosted now by commodity structures, cost impacts, especially on protein and the effect this had on the menu [indiscernible] portfolio and our pricing.

On the next slide, we see POPEYES growth. And here, the data are very, very encouraging -- reflects evolution reflects evolution of the operational consistency. We shared before that we would go deeply -- focus deeply on operational consistency. This has been happening in a very positive way, supported by some very successful marketing campaigns. We achieved a very strong growth of the quarter by 22% in same-store sales. And this is also on top of comparison in 2024, which shows that the brand is gaining important operational momentum, both in equity and [indiscernible] and experimentation.

And this quality of being a strong brand with products of high quality has become more relevant in the Brazilian consumption format. And this has helped the brand grow by 15% when compared to the same period last year. And it places the brand in a growth perspective, really strong with an average sale that ranks among the top players in QSR industry. Talking about the performance of the STARBUCKS brand, I think we're seeing the continuation of a very positive trend since we took over in October last year. This performance carry for the first quarter of 2025 and continue to rise. We reached 22% growth in STARBUCKS for the quarter, mainly driven by the recovery of ADTs, product availability and rebuilding communication with our customers.

We launched a very important campaign called [indiscernible]. And all of that has reflected the significant potential of this brand still on the rise. We believe there is much more to be done in this first phase of restoring operational quality, and we have to focus on basic metrics to provide competitive advantages for the business.

Next page -- on the next page, we'll see SUBWAY's performance, which has a similar trajectory, but even stronger. Since October, the brand's trajectory has been outstanding in the first quarter, we performed 20% in same-store sales. And that growth almost doubled.

I talked about the compared basis, reaching 30% in same-store sales for the second quarter, what reinforces the potential of the brand in Brazil is well managed in terms of allocation, marketing investment, connection with customers, innovation and portfolio architecture. We launched several initiatives throughout the quarter, strengthening delivery, the 30-day promotions and innovations like SUBWAY Séries, which have already helped elevate the brand to a new level, a new bar in Brazil. And this outlook is very favorable, especially when we're looking at the future growth, digitalization and everything we would like to build.

In digital sales, next slide, another quarter extremely important. They now represent 55% of the company's revenue, which is an interesting combination between physical consumption and how those digital platforms help drive overall results. The main components here -- there is a different journey here that provides a higher ticket by efficiency in the structure to serve the transactions that we had growth by 22% in a quarterly basis. And the biggest component here was Totem for sure, followed by delivery and the app also that is the mobile order ahead and pay.

Next slide, we'll go into more detail about these numbers, showing the delivery share year-over-year, growth year-over-year in nominal terms, delivery has been an important growth lever. And now it reflects the moment of our country. We expect a growth of this channel in a more wider way, actually reflecting the opportunities from the marketplace. And our app now represents almost 8% of digital sales or above with a very interesting growth.

At the end of the day, we're educating the consumer to use those technological products to leverage experience, service speed, interface and therefore, sales. And the app is essentially a Totem in customers' hand, the Totem is now widely accepted and we have several stores in a fully digital format represent almost 60% of our digital sales and that is 30% of the company's total revenue.

Talking about CRM and loyalty, we've been sharing some of this data with you frequently, but what we can see is a very positive NPS with a higher average spend compared to a heavy user. And this is the ideal context for us to explore those channels, both into its 2 dimensions, CRM interacting proactively with the customer and loyalty ensuring recurrency, customer retention benefits for the clients who engage with the brand.

Moving on to next slide, we see the cost structure, general SG&A. In spite of the challenges, especially regarding BURGER KING, worsens the gross margin as we shared with the release, but it's balanced the growth in the beef -- the price of the beef is balanced with the pricing strategy and the new architecture and performance of our brands. So the mix of SUBWAY, STARBUCKS and POPEYES helps offset the margin decrease, especially at a time when Burger King is experiencing specific pressure. However, across the company, we've managed [indiscernible] balanced compared to the same period last year.

And there's a big benefit that this revenue growth provided by operational leverage in sales, we had almost 180 basis points improvement. We achieved Some level of efficiency in costs and expenses. And on SG&A, as we've shared before, this variation is negative for profitability, essentially reflecting the large investments made in the corporate structure to support those new brands and integrations. And there is also some one-off items from TSAs and the transition process, until we have the complete integration that we can conclude after 9 months of integration. Thus, we have 140 basis points decline compared to the same period last year.

The result of that in the adjusted EBITDA is that we have a growth of nearly BRL 12 million nominally, which is a very similar margin but a significant growth given the relatively modest revenue growth, mainly for BURGER KING, but we have a very strong operational efficiency work and scale gains, which allowed us to have a 13% improvement in adjusted EBITDA, excluding IFRS effects. When I exclude those effects, growth is a bit larger due to occupancy costs. And the profit or loss scenario is a bit worse, mainly driven by higher financial expenses, which are a consequence of the reclassifying costs related to labor contingencies, and we've been adjusting interest and correction within the line of financial expenses and not the operational one.

Next slide, we see the working capital dynamics, essentially benefiting from the cash generated from operation due to the EBITDA growth we discussed. There are no -- so there's nothing structural here. This is essentially functional movements of cash that impact on inventory and the integration movements that go against the generation of working cash for the quarter, but it doesn't affect and it's going to be corrected in the next quarters. Then we closed the year with a good capacity of converting operational results into operational cash.

Next slide, we look at CapEx growth, which has been mainly used to support the investment plans in technology, store openings and restaurant remodeling, which is no different from what we've done in recent quarters. And that takes us to a company with a capital structure of 2.5x net debt-to-EBITDA ratio, slightly more leverage company than the same period last year, however, with a significant seasonal factor. And we imagine that the deleveraging trajectory will be positive by the end of the year as we expect operational cash generation to be more concentrated in the second half of the year, which should impact positively the company.

And we have a debt structure relatively balanced with the maturities until 2029 without any major commitments in the short term, which leaves the company with a capital structure and exposure controlled relatively when we look ahead for the future.

That being said, we will end the earnings call, and I'll pass it back to the operator to start with the Q&A session. Thank you so much, and have a very good day.

[Operator]

[Operator Instructions]

Our first question comes from Thiago Bortoluci from Goldman Sachs.

[Thiago Bortoluci, analyst]

Can you hear me?

[Pedro de Souza Zemel, executive]

Yes, we can hear you, Thiago.

[Thiago Bortoluci, analyst]

Pedro, before anything, welcome. It's very good to talk to you. I have 3 questions, and I'll ask all of them as you instructed. First, about the performance of the quarter in same-store sales. If we could share with us how much same-store sales BK was ticket and how much was price? And beyond the quarter, how do you think about pricing, especially in this consumption environment that's a little harder? And if you could give some color on the performance of BK in July, that would be the first question.

The second question is directed to Pedro. From your experience, Pedro, you have had success in store experience, including remodeling and uplift in mall stores and et cetera. Given your trajectory, your experience, where do you see the biggest opportunities for Zamp in the next 12 months? Just for me to understand your perspective when it comes to store experience.

And the third question, we see some changes on [indiscernible] level of the company in middle management. And I'd like to know about your structure and how well adjusted the team is to take on the new challenges. Those are my questions.

[Gabriel da Rocha Guimaraes, executive]

Well, Thiago, before I give the floor to Pedro, let me address the first question, then Pedro will answer questions 2 and 3. Talking about same-store sales of BK performance, I'll break that question into, first, the dynamics of the first quarter, what happened was in June, we had a very different performance compared to the other months because of our strong performance in 2024, as in June, we had a big blockbuster called [indiscernible] and it had a very big impact in our food courts. And then because of that, same-store sales were about 20 -- over 20%, which caused the second point. So last quarter was 16% of same-store sales coming from those 16 -- out of those 16%, 2/3 from traffic. So I know it's a hard answer, but that was very, very true, boosted by the cinema window.

So our same-store sales basis, so we had over 10% traffic and 16% in same-store sales. So we had this expectation that for this quarter, our performance would be a little more modest compared to last year. But when we see some sales comparable metrics, it shows that we had a very consistent performance in this quarter in this outstanding one, by the way. But this year, not only this year, but the last 12 months compared to the second quarter, it hadn't happened. But when you see the protein, the beef protein curve, pricing going up since last August. So it reflects in guidelines and reflected on the growth of the price of beef that rose almost 30% of our purchases. So the reflects on that is like we had to change the architecture of portfolio, the pricing structure.

And we've been very assertive on doing that. But of course, we had to adjust 2.35. Now we have a different sales campaign. So when you have that kind of impact, we expect a reflect on traffic as a consequence. So obviously, in this scenario in which 1% of same-store sales, traffic territory was negative. And then we have a ticket component that made this negative become positive, and it was expected. So we've been doing that intelligently. So since June was a more hard month, in July, we had a performance way more aligned with what we expected at the beginning of the year, better than June, especially because it was minus 1 year regarding our current strategy. So we see that July is more aligned with our performance for the year.

And with the changes in the portfolio and everything that we have been doing, we've been -- that we've been well succeed in that. And everybody has been impacted by the same leverages. So the perspectives for BK compared to a very good year 2024. So we have a year -- we're going to have the same-store sales very similar to the inflation curve that is -- this is in our understanding, it's a very good performance compared aligned to what we have expected. I hope I have answered your questions.

Now I'm going to give the floor over to Pedro.

[Pedro de Souza Zemel, executive]

Thank you, Gabriel. Thank you, Thiago, for your questions. I have 2 questions, one about my experience in stores and the other is about our team. I think that I would expand the scope, right, [indiscernible] store experience with service, and we have a very big opportunity here in BK to improve metrics on services, operational factors, NPS service. And we can see which levers we have to serve our customer a little better and physical remodeling of the stores is may be one of them, but we have several other opportunities. And what we've been doing here is focusing on services, and we believe it's a very relevant lever to boost BURGER KING. This is a priority. I think some related experience may help us to boost that.

And regarding our team, as you said, I think it's natural. We've been facing some leadership changes, especially about ownership this year. So we changed our model. We've been changing from 2 brands managed as 1 to 4 big brands.

So there is a very big adjustment that we have to do that not only in what we can expect and all the skills and competence of the Executive Board and also expectations over the directors themselves to see what they can bring. So it's a big adjustment, and I evaluate that. I assess that as natural, and I'm very, very happy with the team. We have some relevant positions to be fulfilled. But I'm very excited with the team that we're forming to push [indiscernible]. I think that's it.

[Operator]

[Operator Instructions]

Our next question comes from Julia Rizzo, Morgan Stanley.

[Julia Rizzo, analyst]

I'd like an update on sales and regarding traffic and same-store sales, if things have been improved -- have been improving. And if you could also talk about the competitive environment, is part of this acceleration of the sales -- the comparison was very hard, but the whole field adjusted the prices to cover the beef costs. But could you give us some benchmark just for us to understand, are we in a different level and then the customer has to adjust its recurrence or if it's a new scenario. And with that new price, we have less traffic and we have to find new channels to sales? And how do you see that? And what's the competitive environment now?

[Gabriel da Rocha Guimaraes, executive]

Okay. Thank you, Julia. Good question. I covered in my last answer to Thiago. Let me summarize that. The biggest responsible for the decrease in same-store sales in BURGER KING was the comparable basis. It's not that we had that big change in pricing strategy and the average sale took us to that level. No. On the contrary, we've been adjusting the new architecture since the last quarter of last year, starting from October and every quarter, we've been doing some movements. In June, we had a negative performance compared to last year. But in July, we recovered, and we believe that BURGER KING should have a very -- a performance very close to inflation, what we delivered on the first quarter.

And when we take our average sales to the end of the year with the leverages we have last year, of course, we have a lot to do yet. And we've Pedro talked about some non-commercial levers like the quality of our experience, the speed and the quality of the service, the freestanding performance on drive-thru. We have a lot to do. And our expectation here is that a big part of what we had to do, especially when we look at the commodity cycles, maybe we're expecting some stabilization. And we did everything we had to do, all the main levers were recovered.

So I think we have 6 months should be a little more subtle than what we saw in the last 12 months for beef and talking about benchmarks for the market regarding pricing, I think it's very hard to say. 30% increase in beef costs [indiscernible] had a big mix in our costs and all the other companies have been adjusting their menus and adjusting the prices. We did it. The evolution of the gross margin in the U.K. was very subtle, they have been worse, but we adjust the price. So I think that's it.

[Operator]

[Operator Instructions]

The Q&A session has now concluded. I'd like to give the floor back to Mr. Pedro Zemel for the final considerations of the company.

[Pedro de Souza Zemel, executive]

Thank you, everyone, for attending this earnings conference call. Thanks for the questions. And let's move on. I'll see you again in the next quarter. Thank you.

[Operator]

Zamp's earnings conference call for the second quarter of 2025 has now concluded. The Investor Relations department is available to address any further questions or concerns. Thank you very much to all participants, and have a very good afternoon.

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