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Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2023 Earnings Call Transcript

Companhia Brasileira de Distribuição (NYSE:CBD) Q4 2023 Earnings Call Transcript February 23, 2024

Companhia Brasileira de Distribuição isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and thank you for holding. Welcome to the video conference to announce GPA's Fourth Quarter 2023 results. [Operator Instructions] We would like to inform you that this video conference is being recorded and will be made available on the Company's Investor Relations website, where we also have our entire earnings publication. [Operator Instructions] We underscore that the information contained in this presentation and forward-looking statements made during the conference referring to projection goals and financial and operational goals are based on the premises of the management as well as on information currently available. These forward-looking statements are no guarantee of performance. They involve risks and uncertainties as they refer to future events and depend on circumstances that may or may not occur.

Investors should understand that overall economic conditions and other market conditions could impact the results of GPA and differ materially from those expressed in these forward-looking statements. We have with us the CEO of GPA, Marcelo Pimentel; and the CFO and Director of IR, Rafael Russowsky. I will give the floor to Mr. Pimentel to begin the presentation.


Marcelo Pimentel: Good morning to all, and thank you all for attending our fourth quarter 2023 conference. Before we talk about our results, I would be remiss if I didn't comment on the unfortunate passing of Abilio Diniz. Few people have the power to personify an activity. And that is what Abilio was. He personified the retail market. He trained most of the great professionals who work here and in retail. And the legacy and admiration of these people are for the great professional and the man that he was. Abilio was a tireless optimist for Brazil, a very firm manager, and very close to everyone here at GPA. It is up to us to honor with respect his history and everything that he built. On my behalf and on behalf of the Board of Directors, the management and the employees at GPA, we would like to thank him.

To Geyze, his wife, his children, family and friends our sincere condolences. You can count upon us to keep his memory alive here at GPA. Very well. Let's go on to the results. This is a quarter that I am particularly happy to present to you as it shows the result of very sound and consistent work. More than that, we have had a positive evolution in operational and financial indicators that are very relevant to our business. This quarter, we closed the second year of GPA's turnaround project. We entered 2024 much better prepared. This will doubtlessly be the year of acceleration of earnings, consolidation of our position, and strengthening of the value proposition of our proximity and mainstream brands. In addition to Pão de Açúcar, on Slide number 4, we highlight the sequential evolution of margins and sales growth above the market and with market share gains.

The great news here that I would like to highlight is our operating cash generation. We reached BRL907 billion in operating cash flow in 2023, representing an improvement of BRL1 billion vis-a-vis the year 2022. This is an enormous step forward and a clear signal that our business by itself, considering all the operational work that we are conducting, has great potential for cash generation. That's excellent news. This slide also shows other major highlights of the quarter and the year with growth in all indicators, gross revenue and total growth of 6.3% in the quarter and 11.3% in the year. Pão de Açúcar revenue with a 6% growth for the quarter, revenue growth at around 19.3%, strong 20% growth of our e-commerce, both on a quarterly basis.

In same-store sales, we also evolved. It was 4.3% in the quarter and 5.9% in the year. This is the seventh consecutive quarter of positive evolution for the Company. Our EBITDA margin grew 1.8 percentage points higher than the fourth quarter '22, with net debt falling by BRL700 million, and our cash position with coverage of 3.1x the short-term debt. Rafael will go into the details about financial indicators ensuing this. Following the presentation, if we consider the top line, it is worthwhile mentioning that the growth in total sales and same-store sales was higher than the self-service food market. We recorded an increase of 0.3 percentage points in market share, even with a strong comparison of the fourth quarter '22, a growth for the fifth consecutive quarter, and stock out continues to fall with very significant improvement of 3.2 percentage points compared to the same quarter in '22.

December was a very strong month for us, even with a slower market. The same-store sales increased driven by the increase in volume. The perishables category was the highlight at Pão de Açúcar and Extra. Our NPS pillar was once again positively impacted by the improvement of our customer satisfaction, which translates into greater flow and greater recurrence. NPS evolved 10 points vis-a-vis the same period in 2022. All of our banners recorded advances as a result of the improvement of service as a whole, the reduction of time at the checkout line, self-checkout stations and improvement in price perception. It is important to mention the growth of Gold and Black customers after we relaunched the Mais program last year, which led to a 9.5% increase in the number of premium and valuable customers, which are those with the higher frequency of purchases and higher monthly spending.

This is also a result of our investment and improving customer communication through the CDP tool, customer data platform, which allows us to further personalize the customer experience and allows us to leverage our customer base as well as our e-commerce sales. Now to go into our digital pillar. In this quarter, we reached a 20% growth in e-commerce sales, the best rate in the last six quarters with 12% penetration in total food sales. Both channels, both 1P and 3P showed strong double-digit sales growth. We also increased the share of perishables, reaching a 33% penetration, an increase of 6.2 percentage points vis-a-vis the fourth quarter '22, driven by the migration of sales to the 100% ship-from-store model, and we continue to be models in digital, food, retail, both in 1P and on our platform with partners.

Our e-commerce has undergone an important process efficiency gain in recent quarters, allowing for a reduction of expenses without impacting sales growth, leading to a positive evolution of the contribution margin. On the next slide, we highlight our progress in the expansion pillar. Throughout 2023, we opened 61 stores, 56 of the proximity format, with emphasis on Minuto Pão de Açúcar in the state of Sao Paulo and five stores of Pão de Açúcar, an important movement that has taken the brand's value proposition to regions with a great growth potential. This expansion led us to an incremental sale of BRL670 million in the quarter. I'm not going to dwell on the details of the profitability pillar, as Rafael will comment on it, but I can't help but talk about the evolution of our gross margin of 25.7 percentage points, an increase of 3.1 percentage points compared to the fourth quarter of '22, and 0.6 percentage points better compared to the previous quarter, demonstrating gradual and continuous improvement.

And our EBITDA, as mentioned in the opening, reached 7.7 percentage points, also in continuous evolution with the best margin of the last eight quarters. As I said, I will allow Rafael to offer you the details on our progress. And to close my opening results on the next slide, we have our progress with the social and environmental initiative agenda. As part of our sustainability strategy, we continue to increase the number of women in leadership positions reaching 41% this quarter. Our sustainability strategy is committed to a circular economy agenda and actions focused on a low-carbon economy. Thus, we reduced Scope 1 and Scope 2 emissions by 10% as a result of the gas replacement and engine room retrofit projects among the transformation and impact actions of our value chain in November.

A customer shopping in a department store, browsing through racks of clothing.
A customer shopping in a department store, browsing through racks of clothing.

We hold a multisector engagement event with all of our animal protein suppliers, with the aim of aligning our guidance and commitments on that front. And within the scope of social impact, we celebrate six years of the project, Mãos na Massa, which trains people in situation of social vulnerability on basic baking and confectionery ideas through the GPA institute. We ended the year with 207 new graduates, who will now have more job opportunities. We additionally donated 1.760 tons of food to the program, Parceria Contra o Desperdício. There was more than 3 million meals complemented through this program. I am very proud of this, and this program will celebrate 30 years of operation the next year. I close now my initial comments and hand the floor over to Rafael to comment on the financial performance.

Rafael Russowsky: Thank you very much, Marcelo. Good morning to everyone who is here with us. The following figures represent continued operations unless otherwise noted. I'm going to start on Slide 9, where we present GPA's total revenues, which reached BRL5.6 billion in the fourth quarter of 2023, representing growth of 6.3% over the fourth quarter of 2022. This increase was driven by same-store increase of 4.3% and also advancement of our expansion plan, with opening of 61 new stores since the beginning of 2023, out of which 12 were in the fourth quarter. Pão de Açúcar grew 4.2%, driven by strong increase in volume, which significantly mitigated the still present impact of food deflation in some important categories in the quarter.

As mentioned by Marcelo, this was the seventh consecutive quarter of same-store growth. We believe that this evolution reflects the consistency in delivery to the customers. It has strengthened the brand and brought more and more premium and valuable customers to our stores. Including new stores, the banner sales increase was 6%. For the year, same-store growth was 7.2%, and total growth was 13.3%. The strong increase resulted in an increase of 0.8 percentage points in share of Pão de Açúcar sales in total use of GPA. Proximity format. It has observed 5.6% growth in same-store and strong increase of 19.3% growth, which included expansion. The very good performance of this format can also be evidenced by the 2.9 percentage point increase in market share versus small supermarkets in Greater Sao Paulo.

In the year, Proximity grew 8.2% in same-store and 19.8% when we also include expansion. In Extra Mercado, same-store sales growth reached 2%. Food deflation played a very relevant role in this format, but we were able to accelerate the growth in the volume of perishables, mitigating the deflection effect. In the year, Extra Mercado posted same-store increase of 3% and total store of 7.9%, driven by new stores which were converted from the hypermarket model in 2022. Now let's move on to the performance of gas stations. We achieved significant growth of 14.6% in sales, especially with increasing volumes. Finally, we had significant increase of more than 20% sales of e-commerce, reaching BRL538 million in the quarter with both sales channels, IP and 3P, showing double-digit growth.

The speed up in growth was observed thanks to 100% ship-from-store model, which we implemented in the second quarter of 2023. This model allowed us to advance even further in the order quality and meeting our delivery time to our customers, in addition to accelerating the increase in the share of perishables in e-commerce sales, which is a fundamental pillar for recurrence of purchase and increased profitability of the model. In the fourth quarter of 2023, we achieved 33.2% penetration of perishables, 6.2 percentage points higher than the previous year. Slide 10, we can see GPA's financial performance, excluding the effect of international perimeter. Please bear in mind that with sales of Cnova in the last quarter and the conclusion of sales of Éxito in January '24, we are a company focused on 100% Brazilian food retail.

Regarding profitability, 2023 was characterized by the reversal in the margin compression process we had observed in 2022. The initiatives we implemented in our context of turnaround plan were critical, and they have begun to show results as of the last quarter of '22. Since then, the Company has been reporting sequential exposure in our gross margins and adjusted EBITDA, evidencing effectiveness and consistency of our initiatives implemented. Gross profit reached BRL1.3 billion, 25.7% margin, as we can see on the chart above. We've seen gradual improvement in margins since the fourth quarter of 2022, with gains of 3.1 percentage points in the comparison between the fourth quarter of '23 and the same period of '22. Adjusted EBITDA totaled BRL404 million, margin of 7.7%, showing an increase of 0.7 percentage points over the previous quarter and 1.8 percentage points compared to the fourth quarter of 2022.

Now forwarding to Slide 11, we come to consolidated financial performance. On the left, we can see net income from continued operations improved by BRL185 million compared to previous year. As previously indicated, the reduction in losses is mainly due to improvement in operating results. The chart on the right, we can see the net income of our discontinued activities in the fourth quarter of 2023, where there was improvement of BRL615 million compared to previous year with net loss of BRL216 million. The positive change reflects primarily the reduction of negative impacts on the discontinued operation of hypermarkets. Now let's move on to Slide 12. On the left, we can see material operating cash flow. In this quarter, we had strong operating generation of BRL1.1 billion, which is a progression compared to the fourth quarter of 2022.

On the right, we can see cumulative view in 2023 of operating cash flow. We had operating generation of BRL907 million, strong positive results of BRL1.4 billion based on operating cash consumption over the comparison with 2022. The results generated from significant improvement in our operating results as well as significant four-day improvement in our working capital, resulting from higher inventory turnover after the implementation of our project for review of assortment and the category management in Pão de Açúcar. Slide 13 shows the change in net debt, which reached BRL2.3 billion in the end of the period. In the fourth quarter of 2023, there was a reduction of BRL721 million in net debt, mainly due to operating cash generation of BRL1.1 billion.

First cash generation was partially consumed by BRL164 million in CapEx and BRL174 million in net financial costs. It's important to emphasize that the progression in our GPA financials performance is the result of discipline in operating management that we've been implementing as part of turnaround plan. We are also very rigorous in the execution of our financial deleveraging plan to have a capital structure that is in resonance with our operations. Therefore, in the end of the fourth quarter, we completed the sales process of our remaining stake in Éxito with financial settlement on January 23, 2024. It resulted in cash inflow of BRL789 million, not included in the end of 2023. Considering this additional cash, the net debt would have been BRL1.5 billion.

These recent developments confirm the effectiveness of our initiatives that we've been implementing and further increase our confidence that we are on the right track to deliver increasingly consistent sustainable results. I close now our initial presentation, and I would like to open for the Q&A session. Thank you.

Operator: [Operator Instructions] Let's see, our first question by Gustavo Senday of XP.

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