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Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2022 Earnings Call Transcript

Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2022 Earnings Call Transcript March 1, 2023

Operator: Welcome to the conference to release results for the Fourth Quarter 2022 for GPA. This video conference is being recorded and will be available at the RI side of the company, where you will also find the material for this release. The information contained in this presentation and the forward-looking statements made during this video conference referring to the business outlook, projections and operational and financial goals for GPA are based on the beliefs and assumptions of the company management as well as on information currently available. These forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore depend on circumstances, which may or may not occur.

Investors should understand that general economic conditions, market conditions and other operational factors could impact the future performance of GPA and lead to results that differ materially from those expressed in the forward-looking statements. With us today, we have Marcelo Pimentel, CEO; and the CFO, Guillaume Gras. I will now give the floor to Marcelo Pimentel, who will begin the presentation.

Marcelo Pimentel: Well, thank you, and good morning to all of you. I would like to thank you for your interest in attending our fourth quarter 2022 results call. Since the beginning of the transition year and changes in the GPA strategy, we have recorded important changes, growth in same-store sales and an accelerated expansion, two fundamental factors for our growth. In the international perimeter, the business of the Exito Group has had an evolution in the 3 countries we are present in because of the increase in store traffic and a very good performance of innovative formats besides the multichannel sales that have a very high share. We have also evolved with the process of segregation of the Exito Group during the quarter and the beginning of 2023.

We have obtained approvals from shareholders and others. We will be obtaining another milestone of unharnessing value for the shareholders of GPA. In Slide #4, I begin to speak about the main evolution indicators in each of the pillars that are part of our growth strategy. Regarding the top line, we had a growth of 16.8% in total sales and 17.3% in same-store sales vis-a-vis the fourth quarter of '21. In different work fronts that are underway, we have already observed improvements in some of the important indicators of the fourth quarter. Among them, the evolution of the refurbishment of the Pao de Acucar stores based on the generation 7. 70% of the stores have been refurbished. A reduction of our breakage in 1.3 percentage points vis-a-vis the fourth quarter of last year and an increase of 2.79 percentage points in the share of perishables in the total sales, reaching 4.2 percentage points for the Pao de Acucar banner compared to the fourth quarter of 2021.

Perishables record 48% of the sales share, which is fundamental as part of our strategy and the renovation of our business. We continue working with a refresh project that looks upon the value proposal of perishables since the flow of merchandise, their exposure, assortment and the availability and quality of the product. We have ended up with improvements in profitability and a reduction in breakage. Our goal is to increase the share of the category, reaching a share of 53% at the beginning of next year. In the first quarter of '23, we're going to move forward in the rollout and revision in the clustering of stores, pricing, management of stock and categories we began in mid-2022. This will unharness more benefits for the operation, and it allows us to think we will have an acceleration of same-store sales, reduction of losses and, of course, an improvement in customer experience.

Our second pillar is what guide us regarding the expansion of the level of satisfaction of our customers, the NPS. We have worked in a focused way to mitigate the detractors of NPS with a very robust action plan that has led to significant strides and enhancements of 20 points in the global NPS in all of our banners vis-a-vis the first semester of 2022. In the digital parameter, we have a strategy to speed up our e-commerce, and we recorded a growth of 15% year-on-year compared to 2021, with significant improvements in the service levels that are being presented. We are retail food leaders with BRL1.7 billion for the year, 50% of which is carried out based on our own e-commerce IP. The integration of brick-and-mortar stores and online stores continues to move forward.

We're operating with 600 stores digitally to service more than 30 million customers recorded in our base. Now this result has been given thrust to -- based on the strategy based on 3 points: an increase in assortments, especially perishables, the expansion of availability of delivery schedules and the expansion of speedy delivery. Nowadays, 70% of our sales are delivered on the same day. And the 60-minute delivery called Pra ja is already available in 200 stores. We have accelerated the express delivery in 30 minutes in the proximity stores, expanding our partnership with Magalu, iFood shopping, and we have increased by more than 270,000 active users or app, reaching a total of 1.2 million active users per month. In the next slide, I would like to state that we're maintaining our expansion plan, opening 29 new stores between Pao de Acucar and proximity stores.

During the year, we have reached the opening of 72 new stores. Regarding the refurbishment, we are at 60% of our store park that have been revitalized based on the Generation 7 model, and we have an increase in sales in those units. For 2023, we're going to inaugurate 103 new units aligned with our new expansion plan. And until 2024, we will have 309 new stores, 250 will be proximity stores with a focus on Minuto Pao de Acucar because of its maturity and the greater potential it has for capital clarity. This year, we will close down 100% of the -- we will refurbish all of the Pao de Acucar stores. Now we're going to increase the number of stores in the city of Sao Paulo in verticalized regions in Pao de Acucar. Our focus are the cities with a high premium potential, where we have a strong presence of the brand, the large centers in the hinterland of Sao Paulo and some of the cities in the Northeast.

Regarding profitability, Guillaume will explain the details to you. Therefore, I will not refer to this, but I would like to reinforce that we continue on with our work to recover profitability, working along 3 main lines: an improvement of our commercial lines, a reduction of breakage and a decrease of expenses. We are gradually evolving in this sense and it enables us to believe that we will reach an adjusted EBITDA of 8% to 9% until the end of the coming year. I would like to end my presentation on Slide 6, highlighting the pillars of ESG and culture regarding our goals of consumption of energy. We have reached 97% medium tension energy that comes from renewable sources. We would like to attain 100% in 2024. The Scope 1 and 2 emissions have more than 40% reduction compared to the base year of 2015.

When it comes to fostering diversity and inclusion, I have to highlight the work that has been done to focus on female leadership in the company. We have reached 38.3% of women in leadership positions and our goal is 0.8. And this has been set forth for the year 2024. This allows me to believe that we will comply with our goal of reaching 40% until the end of 2025. When it comes to social impact, we work sadly in terms of donating food led by the GPA Institute working along with all of our stores, we have offered more than 4.2 million supplementary meals, working with partners, social entities benefiting thousands of companies. This is a work of incentive, and I'm very proud to be part of this. With this, I would like to end my presentation and give the floor to Guillaume, who will speak about our financial highlights.

Guillaume Gras: Thank you, Marcelo. Good morning to everyone. I thank you all for participating in our earnings result of the Group GPA. I would like to highlight that as of Q4 2022, the Exito operations were considered discontinued operations, raised the IFRS 701 -- now in the accounting statements we can no longer see the breakout between the P&L lines of Grupo Exito. But in management view, we've reproduced in the release and within this material division of Exito to facilitate the comparison. Starting by Slide 8, here, you can see the total sales of GPA Brazil -- new GPA Brazil. That is BRL5.3 billion on Q4. This is a growth of 12.3%. Excluding taxes, the sales was BRL4.9 billion, resulting in an increase of 16.8%, driven by the hypermarket converted stores and by the consistency of customers in our stores in the past quarters.

Variety Store
Variety Store


Now same-store sales indicators grew 6.3%. This is an improvement in all the banners when this is compared to the increase of 6.6% that we observed during Q3 of 2022. A highlight once again, the proximity format with a double-digit growth of 17.3%, explained by the increase of the passage stores and more number of stores servicing the last mile partners. Now, Pao de Acucar or same-store sales totaled 6.7%. This is a sequential improvement since Q1 2022. This result is a consequence of the decrease of perishable penetration and by strong growth of basic groceries. Now mainstream banners Mercado Extra and Compre Bem, the growth of same-store sales was 4.1%, an improvement vis-a-vis the growth of 2% of Q3 2022. Now finally, in e-com, we had BRL448 million.

This is a growth of 7% vis-a-vis Q4 2020 excluding sales from hypermarkets during this period and totally an online penetration of 10.5% of total sales. On Slide 9, you can see the EBITDA and the adjusted EBITDA margin and new GPA Brazil. Here, we have certain expenses that cannot be classified for the discontinued operations and partly discontinued of hypermarket operations. Now the adjusted EBITDA totaled BRL297 million with an adjusted EBITDA margin of 6.1% during Q4 of 2022. This is a reduction vis-a-vis Q4 of 2021, explained mainly by the pressure of gross margin and profit caused by the strong food inflation of 2 digits with the impact on merchandise cost, labor and also transportation to supplier stores. This effect was partially mitigated by the good performance of the SG&A, which dropped 1.8% when compared to Q4 of 2021, generating a dilution of 2.2 percentage points vis-a-vis the net income.

Now this dilution is contemplated in SG&A with the restructure carried out in the headquarters after the transformation of the hypermarkets and efficiencies that were captured with operation expenses. I would like to highlight that we are focused on gradually recovering our margin according to the projections to the market between 8% and 9% of adjusted margin EBITDA in 2024. This evolution is based on 3 main lines: commercial margin, SG&A, and in 2022 we observed the first signals of improvement in our SG&A, something observed in Q4 of 2022 breakage, which reduced 1 percentage points when it was compared to the beginning of the year. Now throughout of -- throughout 2023, we will have an important rollouts of project that will increase these gains, mainly in the commercial margin.

Now the year-to-date, the adjusted EBITDA was BRL1.2 billion with a margin of 7%. We go to Slide 10 now. With the total sales of Grupo Exito, which presented a solid sales performance in Q4 of 2022, tolling throughout the 6th consecutive semester double digits. In same-store sales, the gross sales was BRL7.8 billion. This is the same-store sales growth of vis-a-vis Q4 of 2021 because of the depreciation of the peso, the total growth demonstrated a drop of 6.8%. In 2022, the Exito Group had a gross revenue of BRL20.3 billion. In e-commerce, the GMV was BRL709 million in Q4 with an online penetration on 9.5%. Now same-store sales of 16.3% was driven by growth of the 3 countries. In Colombia, the growth of same-store sales growth was 12.1% because of the sound performance of cash and carry during the quarter.

In Uruguay, the significant growth of fresh market stores with high share in sales, which was 52.9%. This total same-store sale of 13.7% throughout the quarter. And finally, in Argentina, the growth above inflation was a result of the increase of traffic in the stores, good performance of commercial galleries and the consolidation of real estate business resulting on a same-store sales of 95%. Now on Slide 11. Here, you can see the evolution of the EBITDA and adjusted EBIT of Grupo Exito, that was 8.6% in Q4 with an EBITDA of BRL599 million. This is a drop of 2 points, mainly impacted by one of the fact during the quarter with the adjustment of the balance of the stock that affected the gross margin and higher inflation level in these 3 countries.

Now year-to-date, the EBITDA totaled BRL1.9 billion with an EBITDA -- adjusted EBIT of 7.8%. Now Slide 12. This is our net income consolidated result and where we analyze the exceptional elements that impacted the result of a quarter by approximately BRL1 billion. These exceptional elements are broken out in 3 major parts, BRL900 million regarding tax matters, BRL300 million regarding labor contingencies, and BRL200 million regarding restructuring costs. Now when we see the details of each one of these points now regarding tax matters, there are 3 points: one, BRL285 million regarding a decision of the Supreme Court that invalidated our ICMS contingents on energy and limited this credit for essential and productive areas. The other one would be BRL288 million regarding CSLL provision.

So after the decision of the STF funnel in the exception of payment of this tax that the company enjoyed benefits since the past. And the third point is tax matter that represents BRL288 million is regarding the tax reform in Colombia with an increase of the deferred income tax in Colombia, that would be 10% or 15%. And as a consequence, this impact in the deferred income of the Grupo Exito. In addition to these tax issues, we also had labor contingencies of BRL309 million, reflecting the highest value during the second semester. So our total label provision totaled BRL660 million, which is twice as much as last year. And in 2023, we have a more comfortable provision level. We would like to signalize that we reached the peak of labor contingencies in May of 2022, and there has been a constant drop of these labor contingencies since that year.

Since Q3 regarding these points, we also had costs with restructures, which represent BRL227 million, and the matters regarding the closing of the hypermarkets restructuring of stores and the resizing of our headquarters and also Exito segregation projects. At last, we had positive points that mitigated these effects. #1, ICMS credit of BRL313 million. This is the monetary update on fiscal credits and the tax deduction on the exceptional negative adjustments. Now after all of this when we analyze these exceptional elements or consolidated net profit goes from minus BRL102 billion to BRL146 million -- minus BRL146 million. Now on Slide 13, you can see our financial leverage. And here, we can see that the company continues with the sound cash position of BRL3.8 billion, or BRL3.7 million.

The short-term net debt, that is Indiscernible billion were refinanced by the new CRI issuance last week. Now on the left-hand chart, we can see that we totaled a net debt of BRL2 million in Q4 of 2022 with a leverage level of 2.3x the EBITDA. Now when we compare it to Q4 of 2021 pro forma Brazil, which excludes the position of Grupo Exito, here, we can see a drop of approximately BRL900 million of the net debt and 0.2 percentage points of leverage. The transaction with the supermarkets has been fully concluded and received with an anticipation of the installments of 2023 and 2024, generating a net cash in of BRL2.2 billion, which have been allocated towards a reduction of our net debt. However, part of these gains were consumed by the higher interest and the higher cost of the tax and labor contingencies that we were faced with.

We continue on to Slide #14, where I would like to remind you the schedule for the separation process of the Exito Group that we announced last year. Up to present, we have concluded the negotiation with creditors. This has been filed at CVM and we're under the process of filing this at the SEC. In February of 2022 though, we approved in an extraordinary general assembly a capital reduction for the issuance of new shares for Exito. The approval was carried out with a record vote of 68% of the shareholders and the approval of this item was done by 92% of those that were present. Beginning now, we will be waiting for the term of the legal position of creditors that ends on April 15th, and we will wait for the conclusion of the filing at SEC and CVM.

We believe that the conclusion should take place in the second semester of 2023. Now with this, we would like to end the presentation of financial results, and we will now go on to the question-and-answer session. We would like to remind you that with us, we have Carlos Mario, the CEO from Exito; and Ivonne, the CFO from Exito.

A - Guillaume Gras: Let's go on to the first question from Filipe Casemiro, a sales side analyst from Bradesco BBI. The question. Well, we will open up your microphone so that you can pose your questions. Filipe, you may proceed, please. We cannot hear Filipe. Filipe, if you could please turn on your microphone, it has been opened. I believe that Filipe might be having a technical problem. We'll go back to Filipe. We're going to go on to our next question from Marcella Recchia from Credit Suisse. Marcella, we will be turning on your microphone so that you can pose your question. Marcella, you may proceed, please.

Marcella Recchia: Good morning, everybody. Thank you for taking my questions. I do have some questions here. First of all, if you could explain and give us more color on your gross margin dynamic. The margin compression has been quite high this quarter. When we compare this with other players, of course, you're different. But there's a great deal of resiliency in your gross margin. If you could explain the dynamic and what we can expect for the year 2023? The second question, when we look at your reinforced base, your EBITDA is negative because of the growth of other operational lines. If you could give us greater visibility of what is happening in that line item, part of the provisions that you have posted and what we can expect recurrently throughout the year?

Finally, you have also spoken about your labor provisions. What do they refer to exactly? And although you have mentioned that this brings you a more comfortable base for 2023, what is it that we can expect in that front for the year? Thank you very much.

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