January 26, 2022

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Edited Transcript of AMAR3.SA earnings conference call or presentation 20-Mar-20 5:00pm GMT

Sao Paulo Apr 13, 2020 (Thomson StreetEvents) — Edited Transcript of Marisa Lojas SA earnings conference call or presentation Friday, March 20, 2020 at 5:00:00pm GMT

Marisa Lojas S.A. – CFO, VP of Finance, Administration & IR and Member of Board of Executive Officers

Marisa Lojas S.A. – CEO & COO

Ladies and gentlemen, good afternoon, and thank you very much for standing by. Welcome to the conference call of Marisa Lojas to announce the results for the fourth quarter of 2019. This conference call is being recorded and will be available at Marisa’s investor relations website. (Operator Instructions)

Before continuing, we would like to say that statements made during this conference call relative to Marisa’s business prospects, operational and financial projections and goals are beliefs and assumptions of the company’s management and are based on information currently available. Forward-looking statements are not guarantee of performance. They involve risks, uncertainties and assumptions because they refer to future events and, therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operational factors may affect the future performance of Marisa and may lead to results that will be materially different from those expressed in such forward-looking statements.

Now we would like to turn the conference over to Mr. Marcelo Pimentel, the company’s CEO. Mr. Pimentel, good afternoon. Thank you for the opportunity. Please, the floor is yours.

Marcelo Ribeiro Pimentel, Marisa Lojas S.A. – CEO & COO [2]

Good afternoon to everybody. Welcome to our conference call for the fourth quarter of 2019 for Marisa Lojas. Today with us, we have our Commercial VP, Marco Muraro; our Operations VP, Alberto Kohn; and our Investor Relations Manager, Lara Razza; and leading the conference with me, our CFO, Alberto — Adalberto Santos.

Our conference call today will work slightly different. First, I am going to give you an overview of 2019, our main accomplishments and our original strategy for 2020 and the future years. Then I’ll give the floor to Adalberto to give you a brief summary of the numbers and our performance, and then I will tell you how the company is preparing for the coronavirus.

So 2019 was a year of consolidation of our turnaround process of changing our sales curve. The first year of positive sales, we had positive sales in all 4 quarters during the year. Over the past 3 years, we worked intensely on SG&A efficiency, allocation processes, product improvements, store operations and our e-marketing campaigns. We have become a company of excellent operational leverage, more agile with great geographical coverage with a huge potential for growth in same-store sales. We reviewed the entire product development process, reinforcing our teams.

During 2019, we focused especially on our core products, women’s fashion and underwear, who had — which had an important significance last year. Other categories are also important, such as accessories, that responded very well to our recent initiatives.

The company, with more cost effectiveness offers to our customers, attracting new customers to our store. We have developed a new marketing strategy showing a new Marisa. We changed our logo and started a process of winning back our traditional customers who want more fashion, without giving up our current customers. We started using digital marketing more significantly, working with regional micro influencers that are part of the day-to-day lives of our customers.

During the year, we were present to our customers with more fashion, more trend and more quality, and we launched the hashtag, [Come to Marisa]. To win back our customers, we started a commercial and marketing strategy that was combined to lead them to try on our new products. This strategy led to growth in sales and very positive responses from the customers in terms of considering Marisa again in their — as an option for their shopping.

So we had 2 researches in May and December. In May, we had a quite positive indication of the movements we were doing with the store, products, pricing and customer service. In December, we continued seeing an evolution, especially in considering Marisa when they were shopping, conversion of tickets and satisfaction of our customers. At the same time, we saw an evolution in sales levels with the flow increasing throughout the year that gave us confidence that we were on the right track.

A very important growth lever during the year was e-commerce that grew more than 60% in 2019 driven by our multichannel program through the pickup in-store that our customers liked very much. We started the year with 10 pilot stores, and at the end of December, we already have 182 stores with this type of service being offered, and it became very relevant in e-commerce. And today, in 40% of all our online orders are click and pickup. Now after the first 2 months of 2020, we already have 288 stores already enabled for the click and pickup. To improve our offer and products and services for customers to make it even better, we started a process with Magalu to sell cellphones and other accessories. We have Magalu kiosks in our stores, and these Magalu kiosks are pickup points for many different products which will drive even more flow to our stores. In December, we also started a partnership with (inaudible) in the first half of 2020, it’s been encouraged.

We should also mention the consolidation leadership of the company throughout the year that has been working together for 3 years, showing the continuity and consistency in implementation of a strategy designed for our turnaround, and evolution also in governance, especially with a Board formed by 6 independent members out of 7 seats. So we have Haroldo Rodrigues, and Leonel Andrade, 2 new board members, executives with significant expertise in their areas of work. And for 2020, the Board of Directors will have 7 members again and will have the priority of favoring women in our Board.

At the end of the year, we had a capital increase with BRL 550 million in the company’s cash, which provided a significant financial deleveraging and an increase in working capital and then really boosting the liquidity of our operations.

Looking into 2020, it started with very positive prospects. Consolidation of the recovery of retail released the following strategic pillars for the year: number one, first and foremost, focus on customers, putting women at the center of everything with the objective of raising their self-esteem. In the middle of the year of 2019, we started using NPS to monitor our customer satisfaction. We started the year with an NPS of 41%, and we closed 2019 in December with 61% NPS. Top line consistency with value proposition; a consistent commercial plan; stores ready to receive customers; rollout of our store playbook and new store model, which we started the process where we started many renovations; digital transformation of retail; multichannel operations; rollout of pickup in store for 300 stores until March; ship from store from 190 stores until the end of the year; we have launched our first marketplace store, and we are still expanding and continued to expand it over the first 2 months of 2020; and a low-cost model and new design of financial and digital services that Alberto is going to give you more details.

Now I would like to give the floor to Adalberto for him to share the numbers with you. Adalberto?

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Adalberto Pereira Dos Santos, Marisa Lojas S.A. – CFO, VP of Finance, Administration & IR and Member of Board of Executive Officers [3]

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Good afternoon, everybody. I think you have had the chance of taking a look at our numbers. Very positive as compared to Q4 last year. I’m going to try and be very brief so that we have more time for our questions and answers and about the company’s strategy for this very sensitive moment we are going through because of coronavirus.

So on Slide #2, you can see the evolution of net revenue, a significant growth. So in the lower chart, we had a 9.5% growth in same-store sales. It’s very positive, the best in 5 years. We grew for 4 quarters in a row. And along the year, we realized an increase in flow. So we start — so along the year, we saw some changes in the beginning of the year coming from movement and then flow with the new collections arriving to our stores. E-commerce had a very significant share, growing 68.2% in the period. As a reminder, in Q4 ’19, the basis was 77%. So we have grown 62 — 68% over 77%, so it’s an important lever, as mentioned by Pimentel, of pickup in store. And we closed the year at 182 stores at the end of December, representing 40.3% of e-commerce orders.

On the next chart, #3, you can see the evolution of gross profit. The margin had a slight compression as compared to last year, but what’s important is the trend throughout the year. We use the combined strategy. So combining commercial and marketing strategies in order to expedite winning back our customers and to increase the flow to our stores, which was very effective. So in this manner, the margin along the period showed a slight decrease. But it’s important to say that in the first quarter, it was — so the margin was — went down and down with a slight recovery. The final effect of the gross profit is positive. We went from BRL 330 million to BRL 345 million, demonstrating a recovery of sales with greater assertiveness of collections. And it’s also important to mention better quality in our inventories, so we had same-store sales of 9.5%, above the year before, with practically the same level of inventory, and we want to have a new reduction similar to the one we had before.

So on Slide #4 you can see SG&A with 0 variation, practically, with the IFRS ex — excluding IFRS, so if we compare the consulting that were nonrecurring, it would be close to 5%.

On Chart #5, you can see the evolution of the adjusted EBITDA for retail. A variation that was significant was still small considering the potential of the company, but we went from BRL 21.3 million to BRL 54.4 million. That’s a significant recovery. And the positive highlight is the acceleration of same-store sales of 9.5% and a gradual recovery of the gross margin and SG&A efficiency.

On Slide #6, you can see the evolution of our financial services and our significant recovery is more important because we are having a greater contribution of PL and P Loan products, and it is reflected by the portfolio formation throughout the year due to greater traffic in stores. So it’s the better portfolio throughout the year as a result from retail sales and also from more higher of personal loans. And so the growth in PL was 13% from 9.7% and PL 9.3%.

On the next chart, #7, the PFS (sic) [FPS] EBITDA is reflecting what I had said, the better margin of contribution with an impact that was very positive with a growth of almost 100%. And here too, quite significant efficiency in terms of costs and expenses, reflecting — or if we compare to the year before, we’re seeing strict — being strict in terms of retail if we considered PFS (sic) FPS.

On Slide #8, you can see the portfolio loss, the same percentage as the period before. This is related to the structuring of the portfolios as mentioned in the 2 previous conference calls. So we had PL portfolios, and now it changes — it goes from 180 to 380 days and there is a percentage increase. So overall, portfolio is very healthy, so EFFICC has no indication of deterioration. Same thing with personal loans on the other chart. There’s a significant decrease of expenses, going from 6.1% to 4.4%, so EFFICC also without any indication of deterioration.

On the next chart or Slide #10, you can see the consolidated results. Adjusted EBITDA combining the 2 operations, significant recovery from BRL 41 million to BRL 88 million. And still a small number considering the company’s potential, but reflects the positive variation of our initiatives, especially those related to our retail operation. Both operations have grown, but the highlight is for retail, and I would like to draw your attention to the company’s operational leverage that we’ve been saying a lot about that. The company improved its efficiency by about 40%. So our SG&A per square meter is about 40% smaller, which is really exceptional result. And as we recover retail sales and the margins too, the impact on EBITDA is even greater.

So on the next chart, the consolidated result. So the adjusted EBITDA, looking at the year, there is an even greater, going from BRL 76 million to BRL 170 million, so the impact is even greater. If we compare, retail goes from negative to positive and also a recovery in PSF (sic) FPS.

On the next slide, net results for the quarter. So it was negative by BRL 38 million to BRL 12 million positive. In the next slide, you can see year numbers, although negative, I would like to draw your attention to the size of the variation. We had a gain in results. So we had negative numbers, but with absolute growth of BRL 120 million, we went from a recurring result of BRL 240 million to BRL 120 million recurring, so it’s a significant gain in net revenue that is greater than 5%, a quite positive variation. Once again, we not — don’t really like the negative figure, but we have to celebrate all of this.

On the next chart, evolution of the cash flow. So this is a detail of the EBITDA going to 0.9x, considering what Pimentel has already said, so a quite significant cash condition and this is a very delicate time. I think this issue of raising funds was very opportune, very timely. So in terms of generation of cash, of operating cash, it was impacted by the greater need for working capital derived from higher sales in the period. But also because of the recovery of those operations, of advancing payments for the vendors that we used to use banks, but now we are doing it from in-house funds. It has a very positive effect on our bottom line.

So I would like to turn the conference back to Pimentel for his comments about — on the company’s strategy for the coronavirus.

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Marcelo Ribeiro Pimentel, Marisa Lojas S.A. – CEO & COO [4]

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Thank you, Adalberto. The company has focused on 4 pillars for this moment that Brazil and the world is dealing with. Number one is to assure the safety of our employees and customers; number two, to assure the safety of the company in terms of maintaining its consistent capacity for recovery once we are over coronavirus; number three, to support our customers, our employees and vendors, not just commercially speaking; but above all, our fourth pillar is for us to get ready to preserve our capacity to recover, to preserving the structure and the strategy that we have built over the past few years.

When we talk about assuring the safety of customers and employees, we have a crisis committee to work on preparing and preventing anything that could happen regarding the coronavirus. Marisa is on the forefront of this preparation, and we even are receiving requests for support from other companies to expedite their preparation. In terms of our internal actions, we started the process 2 [years] ago with people working from home. We have canceled all national or international trips. We have a process of daily communication of — with our employees through the workplace. We have an action plan for employees in risk groups in here. More than a week ago, we have sent to work from home all our employees that are part of this group: elderly; pregnant women; and now schools have closed also, giving priority to the employees who are mothers so that they can be with their children now.

In terms of safety of operations, we are working closer to shopping malls and trade associations so that we work together to find the best solution possible for everyone. And we are putting in practice initiatives to reinforce cash for the next few months. We are working with over stress scenario for the second quarter so that we can protect ourselves and be ready to face any scenario.

The focus is to protect our core business. We are focused on being closer to our vendors. And also, our strategy is that during this period, we want to be very, very close to our customers during these months in order not to affect our recovery capacity once the economy goes back into operation. We are not going to close our stores unless the authorities or the government tell us to do so or if we notice that there is any danger to our employees or customers, and then we might close our stores. We’ve been focusing the allocation, especially in the North and Northeast that seemed to be more resilient in terms of sales and marketing sales that we have implemented so far our regional — directed to that region.

On the other hand, our current collection has safer patterns that will help us to recover sales. We also have to strengthen e-commerce with freight policies in terms of supply models, our supply chain. So if we compare — if we think of our winters and fall collection, the whole inventory was already in Brazil when things happened in China. So we are prepared to recover for the comeback. So this has been our reality. We divided it in 3 groups in terms of protecting customers and stores, protecting the financial health of the company. So as we said before, it’s a perfect follow-on that we had in November, and it was very positive for us.

And lastly, this concern in the marketing strategy, especially digital marketing, keeping our — the contact with our customers during the whole period, making sure that Marisa will be in the minds and hearts of our customers for when we come back.

Now, Adalberto, now we are going to the questions-and-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) So the first question will come from Helena Villares from Itaú Bank.

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Helena Villares, Itaú Corretora de Valores S.A., Research Division – Analyst [2]

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The first question is to understand more about your e-commerce operations. You have announced some very nice data, but could you tell us about the customers? They are one of the reasons why the flow to stores had increased in terms of same-store sales or are those customers that were already your customers? Are they new customers? So could you tell us more about the profile of these customers?

And my second question regards supply and the difficult times we are facing now. How much is your consolidated position during the year in terms of imports? And if the crisis lasts slightly longer, could you focus more on the domestic market in order not to be so exposed to the foreign exchange rate?

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Marcelo Ribeiro Pimentel, Marisa Lojas S.A. – CEO & COO [3]

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Well, this is Pimentel answering your question. In terms of omnichannel, omni was, to Marisa in 2019, one of the main pillars of our strategy, not just because of the results it provided to e-commerce as a business, but certainly, they were very relevant partners in helping us to increase flow. Just to give you an idea, 30% of all multichannel sales and the click and pickup sales were done by new customers, people who had never bought neither in e-commerce and physical stores before.

Now when we try to dig down to know what was going on, it was very clear that these were customers living in regions where we didn’t used to deliver, especially in the suburbs, more dangerous regions of cities where our deliveries didn’t go, or for the majority of times, those were customers who didn’t have anyone at home to receive the delivery. So one of the feedbacks we got from them was when you open the possibility of click and pickup, this open the opportunity for us to increase the number of — to have more multichannel customers, especially new customers.

The other thing was the strength of Marisa’s in terms of its store portfolio, both in shopping malls and in the stores. Now for the click and pickup model, the store — street stores are one of our main strengths. They’re very well located, close to subway stations, train stations, so they are places that are easily accessible for click and pickup. Once they’re going to and from work, they go by the store and pick up whatever they want. Another important point is the work that retail has conducted in terms of repurchase, something we call repurchase. And today, 22% of all customers who come and pick up a product in our stores end up buying something else in our physical stores, which helps not just to expedite flow but also to increase the top line of our physical stores. So we see and are still accelerating our rollout for the project. 2019 was important to set up the pillars for the click and pickup. And in our last call, we said that we had started the second phase of the pilot of the — not — it’s not a pilot project anymore, it’s the project. So it’s the ship from store. So we’re using our store products to send products, both reducing lead time for delivery and also reducing freight costs.

And we have also advanced last quarter of 2019 with the first marketplace store. We launched our store in MercadoLibre, and it is exceeding our expectations. And so — and you might ask, is the number of new customers coming from this channel? And this is a very good surprise. We don’t need to share customers. So in the first quarter, we expedited this. We have already communicated in terms of marketplace. So we started working the market with MercadoLibre, and now we are in B2W and Netshoes and Zattini. So as to supply, our structure of purchases comparing imported and domestic. 70% of our products are domestic and 30% imported. Of the 30% of imported products, they are concentrated on the season of fall and winter. They are winter products. And as I said before, they were all already in Brazil, and we are protected. Now looking into the rest of the year, with the gradual recovery of China, that would not impact us because the next stations — or the next seasons, rather, we work more with national suppliers.

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Operator [4]

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Our next question comes from Felipe Cassimiro from HSBC.

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Felipe Cassimiro de Freitas, HSBC, Research Division – Analyst of LatAm Retail [5]

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I would just like to follow-up on Pimentel’s comments about the temporary closing of stores. So it’s very clear we are going to wait for the official position of the authorities. There are some shopping malls being closed and some measures already being taken. Could you give us more details, breakdown on how many stores you have already closed completely? How many are partially closed, and the likelihood of the company taking more drastic measures because the competition is already doing that? This is the question number one.

Second question is a follow-up on Adalberto’s comment about working capital. According to my calculations, it has increased significantly towards the end of the year, also because of the Chinese New Year. But looking now, considering the new scenario with the coronavirus, how do you see that?

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Marcelo Ribeiro Pimentel, Marisa Lojas S.A. – CEO & COO [6]

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Felipe, I will answer to you about closing, and then I’ll turn it over to Adalberto. Our vision is not to close prematurely any stores, but have always as a priority, preserving the care with our employees and customers. Within that context, we have been working very closely with the Ministry of Health and also working with our partners, the competitors and also with local unions. The reality we have today is the concentration of stores being closed is very much focused in the South and Southeast, more specifically in São Paulo. So we are seeing that the North and Northeast are slightly slower. Today, we have 175 stores already closed because of the crisis, because of local governments have determined that. All other stores are open, plus the e-commerce.

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Adalberto Pereira Dos Santos, Marisa Lojas S.A. – CFO, VP of Finance, Administration & IR and Member of Board of Executive Officers [7]

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Felipe, so let’s talk about inventory. So number one is the issue of the increase. But when you look at the balance on Slide #18, there is a financial increase in inventory levels of about — of 22%. On comparison basis, December ’18, it was artificially reduced because back then, I had a provision of inventory low. So my accounting number is reduced artificially. The effective financial growth would be 10% approximately. So this is related to the improvement in quality but also with an earlier winter. So strictly speaking, if you look at the volume in terms of items, we closed the year with exactly the same number of items as the year before for sales that were 9.5% higher. So this is the strategy that we are implementing, reducing the level of coverage every month. And our plan was to close 2020 with a reduction of 10% in coverage as we had the year before, and we can do that because of the improvements of the new system of allocation, which is much more assertive. We tried to close it last year without having an allocation system that was appropriate and effective and it didn’t work.

Now we are confident and reassured that our system is much more effective. And we are doing it, gradually improving allocation; and allocation being able to reduce levels. What’s going on right now is not just Marisa’s problem because the future is very unpredictable, we don’t know what will happen. Our procurement people are working very closely with our vendors, suppliers to have longer times. And we need to do this together with them because we don’t want to solve our lives and create problems for our customers, we want to strengthen the bonds we have with our vendors and customers. I don’t want to just cancel my portfolios and then cause trouble to our suppliers who are very important partners to us. So we want to have minimally healthy inventory levels to ensure the capacity of recovering as the market recovers.

Let me just complement, there’s a question that was asked in the webcast, which I find relevant for us to address here because it touches what Felipe has mentioned. And the question came from [Thomas] from (inaudible) Capital about more orders from e-commerce. He wants to know if we have noticed an increase of more orders being placed through e-commerce, especially in the places where the crisis is aggravated.

The answer is: e-commerce numbers, to us, remain very strong, very similar to what has — to what they’ve been throughout 2019, and the percentage growth is practically the same. As to the click and pickup, we see a changed behavior, going back to the traditional model of home delivery.

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Felipe Cassimiro de Freitas, HSBC, Research Division – Analyst of LatAm Retail [8]

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If you allow me, just following up in terms of stores closed, 50% of the stores have closed, so we are calculating internally. How is traffic this week for the stores that are still open? So has it gone way down? What are you expecting? What are you seeing internally? What are you working with in terms of the stress scenario for the next months? If you could give us an outlook, that would be helpful.

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Adalberto Pereira Dos Santos, Marisa Lojas S.A. – CFO, VP of Finance, Administration & IR and Member of Board of Executive Officers [9]

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So this is Adalberto speaking. We — yes, we have noted a drop in flow in the stores that are still open, a 50% drop in flow. In terms of stress test, [you think] of economic issues, the company’s economic security. So every time, we want to assure if we want to be secure economically speaking, we think of the 0. So we might close because of risk to our customers or because of government determination. In terms of assuring the company’s liquidity in terms of financial, our financial department works with the scenario of 0 revenue. So it’s based on this scenario that we are working on in terms of liquidity, cash investments and everything.

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Operator [10]

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Our next question comes from [Paula] from [Condor].

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Unidentified Analyst [11]

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Could you give us an idea of what you’re expecting for 2020 in terms of revenue and margins? So what should we pay attention at?

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Unidentified Company Representative [12]

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Well, I didn’t really understand the second part of your question. So for the first part, I can tell you what we have in mind. So we have in mind and we were executing, we were expecting a continuation of the top line’s company’s process, the continuity of the strategy of giving up margin to recover top line, also because we have an effect in the gross profit and the famous cash margin. So we’re delivering margin but more than offsetting in terms of significant top — our margin, and we are expecting to deliver positive results. And I don’t know if you remember, I talked about BRL 120 million, and we are expecting to have a positive result. This is what we’ve been working with until now.

Now considering the coronavirus and the possibility of us having to close down for 3 months during the year and not knowing how recovery is going to be, any numbers or anything we say here, it will be just guessing. So I’d rather not say anything. So the focus of the company now is very clear, as we said very clearly. Number one, to assure the safety of our customers, employees and of the company in terms of cash liquidity, but more than that to make sure that we will not lose everything that was built during the turnaround that was very expensive. Not just in terms of money, 3 years of turnaround, lots of work that we — and we will not let that be hurt or lost in any way. It’s not the right time for us to talk about top line or margin because in terms of margin, all retailers will need to deal with the challenging reality of managing inventory. So this is going to be challenging for everyone, so I’m not going to make any guesses.

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Unidentified Analyst [13]

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Right. The second question is the main triggers that you think we should look at in order to monitor your company. I know that there’s the coronavirus problem, but could you say what kinds of triggers should we pay attention at?

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Unidentified Company Representative [14]

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I don’t understand what you mean when you say triggers. Could you be slightly clearer about what you mean when you say triggers? If I try to answer to you, when we built our 2020 plan, our strategy, as I said to you before, we were obsessed with top line and have consistency in product delivery that our customers have been acknowledging, are still acknowledging as flow increases and there are stores with better products, better service and better value for their money. And the third strategy was continuing growth of our digital strategy, which is also being very well executed and still has an exponential growth. And in this manner, together with our marketing strategy, these were and are the pillars that, in our understanding, will continue to drive us to that recovery. So we think that it is unavoidable that the retail in Brazil will fuel over the next few months with coronavirus arriving to our country.

But in terms of triggers, we are not looking at triggers in this process with the crisis committee. And as I told you before, the subdivision between the 3 areas exists precisely to protect our strategy. When the recovery time comes, we need a strategy, the strategy exists, so we have the right team to execute it. So when recovery comes, we need to continue everything that we were making.

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Operator [15]

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(Operator Instructions) Our next question will be from Alexandre Melo from Valor.

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Alexandre Melo, Valor Econômico – Media [16]

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I have — there’s something that I would like to ask. Right now, when you are closing stores, you said 175 stores closed. There’s a stress test that you consider stores being closed for 3 months, but e-commerce might have demand. But could you tell us how this would be considering that consumption will go down? Could you try and explain that? And how are you organizing e-commerce to wait for an increase in sales?

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Unidentified Company Representative [17]

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Thank you, Alexandre. As to e-commerce, some numbers we’ve been working with show to us that in the first week, we haven’t yet felt that. But what some studies show, especially what happened in Europe, so there is a kind of a cooling down in the first few weeks when people are just going home and getting in isolation, followed by a stronger recovery on the sales curve through the digital channel because they’re home and this creates demands.

As to e-commerce, we have implemented 2 measures in our Santa Catarina distribution center. Number one, which is the most important, is to protect our employees. So we have increased work shifts and reduced the number of people working at the same time. So this assures the continuity of the DC and prepares us for a higher demand, but also protects our employees because we are reducing the number of people working together. So this is our strategy. And yes, we are preparing ourselves for a potential increase in demand. And within this context, for example, categories such as children’s, which is very important for us, we think that we can meet the demands of our customers right now.

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Operator [18]

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Next question will come from [Paulo] from Santander Bank.

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Unidentified Analyst [19]

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My question regards the reduction of your loans and financing lines in 2019. You see in circulating liabilities, there is an increase. So what is the strategy for 2020? Is to increase it back? Or to stay at the reduction — or reduced level, so to speak?

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Adalberto Pereira Dos Santos, Marisa Lojas S.A. – CFO, VP of Finance, Administration & IR and Member of Board of Executive Officers [20]

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So [Paulo], this is Adalberto. This reduction is because of amortizations that already took place in 2019. So one of the assumptions of our follow-on was to use these funds 80% for amortization of debt and prepayment and 20% for the improvement of our working capital structure, as we did. We had other prepayments, so our leverage is very low. What we are doing now is to assure a higher liquidity level, leaving some credit lines in standby. But comparing the pre follow-on, the company situation today is much more — is much better. So we have no amortizations to be made, and the amortization we’ll have in Q4 would be BRL 20 million, BRL 25 million.

I’m going to take the opportunity, and [Daniela], she’s asking a question. She’s talking about us working with 0 revenue just for simulation purposes when I think 0 revenue — 0 retail sales, I mean. So my stores will be closed, and I don’t know for sure how many will be closed. So just for simulation purposes, I assume that they would all be closed and with 0 sales in retail, and I would still have receivables coming from my receivables portfolio. Most of my customers, and I would like to go back to this point, the customers will still be paying and irrigating the cash flow. So the portfolio will mature over the next few months and will feed the cash flow. So I will not have any retail sales but I will still have receivables, and this is basically it. I think I have answered your questions.

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Operator [21]

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Our next question will be from [Juan Bosco] from (inaudible).

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Unidentified Analyst [22]

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So first, congratulations on your results. So there was an increase in net debt in spite of the follow on. Is this because of the operational lease of this line that you have? Does it have any cash effect? Is it a debt? What is it? Could you tell? Was it just for booking purposes related to IFRS?

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Unidentified Company Representative [23]

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Well, you picked the point. So we’ve changed the way we book our lease. So according to IFRS, they are considered debts. So this is a significant change in our accounting methods. So if you look at our financials, you will see what happens. There’s a significant impact, but it’s just an accounting effect. So in terms of us analyzing leverage, so sometimes we exclude — and if you want to talk to our investor relations, we can give you more details. So strictly speaking, related to these operations once again, IFRS, we are talking about BRL 569.6 million. So this is on Page 15. As for comparison purposes, you need to exclude that. And if we exclude that, there is a reduction in our net debt, a significant reduction. But — so if you want, please call our IR, and they will give you the details.

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Unidentified Analyst [24]

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Congratulations on your results. It’s too bad; I’m really sorry for what is happening in the world because you had very good prospects or outlook otherwise.

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Unidentified Company Representative [25]

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Just in answering [Francisco], about the — our intention of having our partnership with retail players to share digital platforms to sell e-commerce. Where, Francisco, our vision as to our strategy is to keep the discipline of the plan that we have outlined. In our digital strategy, we had phase 1, 2 and 3. Phase 1 is what we have rolled out 100%, was the click and pickup. Phase 2, we are now rolling it out. It’s the ship from stores. And then going to marketplace that we start including Marisa in others platforms but keeping the official logic as part of the marketplace. And in the phase 3 that we are also planning is to have what we call infinite aisle where customers can buy from the store, both physical and digital products.

We have a very bold vision in terms of the opportunity we have to become leaders in the market of multichannel in terms of women’s fashion. This is our mission, and we believe that our strategy will lead us there.

So you see the share of digital in our total sales in 2 years has grown threefold. However, we need to be very disciplined in delivering our strategies so that we don’t lose focus. And the process of going digital and maybe becoming a specific digital site for women is a mission that we have been — we believe that we will come in the future, and I think that not now in 2020, maybe 2021.

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Operator [26]

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We now end our questions-and-answers session. I would like to turn the conference back to Mr. Pimentel for his closing remarks. Mr. Pimentel, please?

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Marcelo Ribeiro Pimentel, Marisa Lojas S.A. – CEO & COO [27]

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Thank you very much. I would like to thank you all for your participation, and to praise again the entire Marisa’s team for the excellent performance that you have delivered not only in Q4 but certainly the demonstration of the recovery that took place throughout 2019. I would like to say that we are very confident with our strategy. We know that we are going to go through challenging times that lie ahead of us, as all other Brazilians, but we are very confident that all the necessary pillars to put Marisa at the right point for the recovery time is very right. So our cash is preserved, and once recovery comes, Marisa will continue its growth. So I wish you all right now to keep safe and wishing to ourselves and to Brazil a brisk recovery. Thank you all very much.

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Operator [28]

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Okay. Now the conference call of Marisa has ended. We would like to thank you for your participation, and have a good afternoon. Thank you.

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Editor [29]

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Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.

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