Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Empreendimentos Pague Menos SA (BSP:PGMN3, Financial) reported a 5.5% increase in the number of customers, indicating strong customer retention and attraction.
- The company achieved an 11.4% increase in same-store sales, outperforming market expectations and demonstrating robust sales growth.
- Adjusted EBITDA reached BRL176.9 million, with a margin expansion, highlighting improved profitability.
- The company successfully reduced its cash cycle by 8 days, enhancing operational efficiency and cash flow management.
- Empreendimentos Pague Menos SA (BSP:PGMN3) gained market share in all regions of operation, showcasing competitive strength and market penetration.
Negative Points
- The gross margin experienced a 60 basis points reduction compared to the previous year, primarily due to lower inflationary gains and stock losses.
- The company faced higher stock losses due to imbalanced stocks inherited from Extrafarma, impacting profitability.
- Despite improvements, the company's leverage remains a focus, with a target to reduce it to under 2 times EBITDA by the end of the year.
- Operational expenses, although reduced, still require diligent management to maintain profitability amidst tight retail margins.
- The integration of Extrafarma presented challenges, including stock level adjustments and maintaining brand strength in certain regions.
Q & A Highlights
Q: Can you provide a rating from 0 to 10 on how much of the basic improvements have been completed in your store portfolio, and what are your expectations for working capital for the rest of the year?
A: We have started the work on improving processes and reducing friction in our stores, but this is just the beginning. We are diligently working to connect our people with our purpose and priorities. Regarding working capital, we have reached a significant point with an average stock time of 102 days, the lowest since 2020. We still see opportunities to improve, particularly in stock management and logistics, which will help evolve our receivables recomposition time.
Q: What are the opportunities for further expense reduction, and is there a possibility of completely eliminating the Extrafarma banner given the performance of converted stores?
A: Expense reduction is about creating a culture of diligence, and we have already made significant headcount reductions and operational changes. Regarding the Extrafarma banner, we are conducting tests in four states to measure performance and cannibalization. While a complete elimination is unlikely, especially in strong markets like Para, we will continue to evaluate conversion opportunities.
Q: Why did you revise the guidance for synergies from the Extrafarma integration, and what was the magnitude of one-off impacts on SG&A expenses this quarter?
A: The guidance was revised to account for accumulated inflation and to narrow the range, which was previously too broad. The one-off impacts on SG&A expenses were about 10 bps, similar to the adjustments in personnel investments and training.
Q: What is the outlook for leverage and gross margin performance, particularly between Extrafarma and Pague Menos?
A: We aim to maintain leverage under 2 times EBITDA by year-end, even with a gradual resumption of expansion. The gross margin gap between Extrafarma and Pague Menos has narrowed due to stock losses, but we expect improvements as we clean up stocks and enhance commercial strategies.
Q: Can you elaborate on the omni-channel strategy and the competitive scenario in gaining market share?
A: Our digital channels have improved, reaching a 14.1% share of total sales, with a 2-point margin improvement due to better sales, gross margin, and expense dilution. The competitive scenario remains stable, and we are gaining market share through improved store performance and customer experience, without significant price wars from competitors.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
