Earnings Call: Q1 2024

May 14, 2024

Summary

Q1 delivered 54.3% gross margin, positive adjusted EBITDA of BRL 2.6 million excluding M&A one-offs, and BRL 2.1 million positive cash flow excluding acquisition disbursement. Online growth, Elo7’s repositioning, and the first physical store advanced.

Good morning, ladies and gentlemen. Welcome to Enjoei's conference call to discuss the results for the first quarter of 2024. This video conference is being recorded, and the replay will be available on the company's website. The presentation is also available for download. Please note that all participants will be in listen-only mode during the presentation, and then we will start the Q&A session when further instructions will be provided. Before proceeding, we would like to reinforce that forward-looking statements are based on beliefs and assumptions of Enjoei's management and current information available to the company. Future considerations are not guaranteed for the future. They involve risks and uncertainties as they relate to future events and therefore depend on circumstances that may or may not occur. Investors, analysts should consider that events related to macroeconomic environment, the segment, and other factors may materially differ from those expressed in the respective forward-looking statements. We have here in this conference Ana Luiza McLaren, Chair of Administrative Board, Tiê Lima, CEO, Igor Puga, Executive Vice President, Guilherme Almeida, CFO, and IR Director, and Joel Queiroz Júnior, COO. Now I would like to give the floor to Tiê Lima, who will begin the presentation. Please, Tiê, you may proceed. Good morning, everybody. We close the first quarter 2024 proud of making true many initiatives that we had been communicating in previous months. The first one, the online platform Enjoei really took off above our goals for the period. Second, we started a project of repositioning the brand Elo7 to unlock growth in parties and events. Third, we developed the basis to begin our operation of physical stores. And fourth, we start to recognize the result of 25% share in Cresci e Perdi, exchanging expertise between the brands. Hence, we deliver a quarter with robust growth, 109% of gross profit and 9.8 PP. Removing M&A one-offs, we deliver a positive result, BRL 2.6 million in the quarter, and cash generation BRL 2.1 million. Important landmark in the trajectory of the company. We have here with us Igor Puga, Executive Vice President, Joel Queiroz Júnior, COO, and Guilherme Almeida, CFO and IR Director. Igor, it's with you. Thank you, Tiê. Good morning, everybody. Our online operation contributed a lot for the result of the quarter, showing traction for the results of the platform and engaging of users. GMV advanced 13% against the other quarter, and the result was 8.5% quarter-over-quarter above our plan for last year. It's positive for the months of April and May. The upload volumes after was great. A 27% growth vis-à-vis 4Q23. We have products now that simplify the posting in the platform that we detailed last quarter. Looking forward, we have been working initiatives that contribute to increase our revenue and margin, including better prices and search. What we call bright price helps sellers in defining the real price of the products, therefore, with more turnover and profitability. Based on the Enjoei sales, the platform suggests the best price range for the product, besides adjusting automatically the price, maximizing profitability. Another initiative is the redesign in the search and review search, guaranteeing more refined, specific navigation, facilitating the journey of discovery of the user. Related to performance and opportunities for Elo7. Throughout the first quarter, we repositioned the brand, putting to the side non-core categories and focusing on parties and events. We have been working on redesigning the brand and products, generating a navigation environment that will take to parties and events. Our goal is to make this journey not complicated, to increase the size of the basket and the frequency of purchasing. Also, regarding Elo7, we saw the opportunity of increasing the service provided by the sellers with shorter deliveries. Now I'd like to invite Joel Queiroz to share the advances of offline operation of Enjoei. Thank you, Igor Puga. Good morning, everybody. Throughout the 1Q24, we worked in structuring the basis of our own stores, physical and own stores, and franchisees. With the support of Francap and the expertise in Cresci e Perdi, we improved in processes and technology development, applying intelligence and precificação for our businesses. We defined the commercial model and operational model of buying and selling, and so we pay the sellers on spot at site. via direct payment or in credit. We also mapped and defined statistically the sites of our own stores that are part of our pilot to expand for the physical retail plan. On April 25th, we inaugurated the first one in São Paulo, the first one out of 3 for this year. This first one is in Fradique Coutinho in Vila Madalena, and the next ones will be in Campo Belo and Frei Caneca between July and August. The initial results of this first store are quite promising. The sales conversion mean is above what we expected. In the first 10 days of operation, we received a flow of 5,000 people in the store. We sold 4,000 products and we evaluated 650 batches, what incremented in 4,000 products, the inventory. These 3 owned stores are part of our pilot for the expansion plan through franchisees after the second half of 2024. We believe that our model may offer a payback that is less than the mean to our franchisees, and we're looking for investors that are interested in participation on that with the ambitious objective of opening hundreds of stores in the coming years. The registrations were open on May 2nd, and we have quite a few people interested as of today. Besides expansion of this physical market with projected growth of 29% in next year, we are planning to capture synergies with omni-channel in the medium and long run. Now Guilherme Almeida will be talking about the results of Cresci e Perdi. Thank you, Joel Queiroz. Good morning, everybody. After 1Q24, we recognized the results on our 25% share in Cresci e Perdi, the largest franchise of children and teens secondhand clothes. BRL 1.8 million in the quarter, considering the period after closing, after January 26th. It's worth mentioning that after 2Q24, Enjoei will recognize quarterly dividends related to a 25% share over the results of royalties of the operation, retroactive to the closing. In terms of synergies, Cresci e Perdi has contributed to our expertise in the expansion of the stores. We also remind you of the potential of these hundreds of stores and consolidation of solution payments. In this quarter, the total operation of Cresci e Perdi presented BRL 178 million GMV, more than BRL 200 million EBITDA. We have 100 stores to be implemented and many stores that are already ongoing. We paid BRL 25 million cash out and we have BRL 5 million to be paid in 2025. The structure foresees an added parts of run rate that will be in the balance of the company after this quarter with PPA value estimated of BRL 16 million. That depends on the incremental results of the royalties until 2028. Now the consolidated financial results. We are proud with the deliver of one more consistent quarter with gross margin that reached 54.3% this quarter versus 44.5% in 1Q23. The sequential gross margin, not only against the last quarters, but a longer journey since the last minimum point in 2Q21. The gross margin increased a lot, going from 23% and reaching 54%, an amazing result with more efficient subsidies, unitary shipment that is much lower, and the commitment of administration to go for best values. We reduced G&A. Excluding the M&A one-offs, total was 33.6% versus 35.6% of last year. This way we report again, adjusted positive, adjusted EBITDA in the value of BRL 2.6 million. Another great emphasis in the financial results of this year was the positive cash flow of BRL 2.1 million when we no longer consider the disbursement of Cresci e Perdi and what was added. This was an important landmark in the company. We are sure that we are in the correct journey, selecting topics and projects that will give us better ROI at the same time that we continue our trajectory of growth. With this combination, we are going to improve our financial indicators, and we will have better values for our shareholders. Now I give the floor to Tiê that will give his final comments. Thank you, Guilherme. Looking forward, we will continue to explore the opportunities of growth based on the cornerstones of our strategies and portfolio, which are strengthening the core online, expansion of categories, and new business units. This tripod enables us to grow from an important growth of our market and unleash values through more operations. I thank you for being here, and we are available for Q&A. We now open for Q&A for investors and analysts. If you want to ask any question, please type your name and company in the Q&A field and wait while we collect the questions. Our first question comes from Livia Mizobata. Livia Mizobata wrote two questions. The first one: We saw an impact of take rate from a higher mix going towards the classical model against the turbo model. Could you share a bit the quality of this movement? The second question: What are the next phases of the restructuring of Elo7? What are the synergies that have been captured with Elo7 and those yet to be captured? If you could share a bit of the image outlook for the company. Hi, Livia. This is Tiê. Thank you for the question. First, about the take rate. We have this mix of categories, as we said in the beginning. We are bringing more categories besides fashion for Enjoei. That was to lever growth, so we wanted to have other categories in our mix. We have this change from the classical model as part of this take rate mix, but above all, we understood, as you can see in our release that the uploads growth was quite representative. Our most important vocation is to guarantee the turnover. Somehow, in a moderated way, we use a bit of our margin to guarantee this, maintain efficiency in this investment. As you can see, we have projects for our take rate. For instance, what we call precificação with the smart price or bright price, besides other initiatives. We understand now about the second question on Elo7. Structuring the G&A of the company is stable. The first quarter was the last one where we did adjustments in that operation. What did we choose to do in Elo7? We decided to grow in core of Elo7, just like last year when we decided to start with fashion. The strongest categories we have in Elo7 is parties, which is a giant online market. This central lines where Elo7 represents a lot of this segment. We believe that this will be a good category. It's a bit of that. Thank you. If you want to ask questions, type your name and company in the Q&A field. Please wait as we collect the questions. Next question comes from Mr. Andrade from Bradesco BBI. The floor is yours. Good morning, everybody. Thank you for answering my question. I'm going to make a few follow-ups here. Regarding the project of rebranding or reviewing Elo7, what's the timing you expect? What's the time frame? What time of investment? What are the potential impacts? Could you further elaborate on that? Another follow-up in new categories, aside fashion, could you give an example of what type of categories you admitted? Also an update on the launching of Enjoei store. What has the last week been? How was the launching? The perspective of opening new stores until the end of the year. Thank you. Hi, João. Igor Puga here. Thank you for the question. We'll divide in three parts your question. We understood three questions about new Elo7 branding. In the next quarter, we have a rollout and launching that has to do with what Tiê answered in the first question. We redesigned the branding of Elo7 and focusing in parties and events. Not that we are excluding the other sales that we do in the marketplace. However, focusing on that in celebration, and that should be launched soon in the next quarter. I don't know yet the date, but will not be further along the year. Also, what are we thinking now besides rebranding? We will make a system of improving processes of conversion in the platform. We imagine that Elo7 is at a point in time where you would order iFood, say everything you want in your sandwich. Elo7 is on that phase. We want to make this process more dynamic in terms of conversion, besides rebranding, focusing parties, we're going to improve conversion. That's priority. We will develop this further in next quarter. In terms of category for Elo7, we will no longer use those categories that were not so common in the past. In the past, decoration would go up, then the following year it would go down, and so on and so forth. Categories that had more to do with opportunity, we don't want that. We want core categories. About Enjoei, the mix of fashion grows a lot. When we look at fashion alone, it grows year-over-year, and we see an important growth in electronics also. We have a growth that we call latent. What generates a repressed demand. If we look at the incentives chain, it has grown in a very speedy way. Good morning, João. This is Joel. About your question, Andrade, about launching our Fradique Coutinho store. We only have good news when we look at our case. I will start with the store flow. We have a flow that are people that walk by the store, and to bring these people in, they come in more than what we expected, and we are above the conversion expected. The strength of the brand helps on that. Talking about inventory, we are capturing a higher inventory than we expected without losing the quality of it, and also with an adequate cost, which is the case. When we look at the sales performance, these first 15 days of sales, when we do benchmarking with Cresci e Perdi, and I will not talk so much about the revenue, we are quite aligned. When we look at what we designed as case, and you can see it in the release, and we have something important here, which is ROI for the franchisee. We know that we are going to deliver excellent results, much better than we have calculated in the case. "Okay, thank you," says Mr. Andrade. Next question comes from Mr. João Valadares from Arbor Capital. He says, "Good morning. Congrats for your result." He has two questions. The reported EBITDA for Cresci e Perdi of BRL 10.2 million includes franchising rates or just royalties, and what is his perspective for the one-offs in the coming quarters? Good morning, Valadares. This is Guilherme Almeida. About EBITDA, you are correct. This value is the EBITDA of the franchising rates and also royalties. It is important to emphasize that royalties is continuous, therefore, the franchise tax may be submitted to seasonality. We have feasts like Carnival, where there is a potential reduction in these new agreements. About the second question, we do not expect any more one-off in Enjoei's operation in the coming quarters. Q&A session is therefore closed. We would like to give the floor to Tiê Lima for his final considerations. Thank you so much for participating in our call. One more quarter where we are consolidated all the goals and bringing good results. I am very glad that we launched our physical store, and we also had record results along with Cresci e Perdi. We delivered everything that was important for formatting the company as a whole, so very much aligned with what is yet to come. Thank you, and we will talk again in the coming quarter. The Enjoei's conference call is therefore adjourned. We thank you all for your participation and wish you all an excellent day.