Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Natura &Co Holding SA reported an 18.5% increase in sales in constant currency, showcasing strong revenue growth.
- Profitability expanded by 340 basis points, with EBITDA showing more than a 50% improvement.
- The company successfully implemented Wave Two in several regions, leading to six consecutive quarters of margin expansion.
- Natura's brand in Brazil grew by 19%, maintaining strong seasonal dynamics and benefiting from productivity and volume gains.
- The company has a strong cash position with 3.3 billion in cash, sufficient to cover obligations through 2027.
Negative Points
- A non-cash, non-recurring loss of 7 billion BRL was recorded due to the deconsolidation of API subsidiaries, impacting net income.
- Avon in the Hispanic region showed a 2.7% decline in revenue, excluding Argentina, due to ongoing channel reductions.
- Higher financial expenses were incurred due to a shift from a net cash position to a projected net debt position.
- The company is not planning to pay dividends until the end of the Chapter 11 cycle, impacting shareholder returns.
- There are concerns about the company's net debt being higher than previously expected, linked to the Chapter 11 process.
Q & A Highlights
Q: What remains to be delivered for the new operational models in Argentina and Mexico, and how does the company's net debt situation look?
A: The financial aspect of the quarter was impacted by the deconsolidation of Avon International (AP I) and its subsidiaries, causing accounting noise and net income impact. The leverage impact can be reversed depending on the Chapter 11 process outcomes. Strong cash flow in Latin America and good operational performance, especially with the Natura brand, offset the discontinued operations' impact. The company is working on integrating operations in Mexico and Argentina, using lessons learned from other regions to minimize disruptions.
Q: Can you provide insights into the market growth and the royalty agreement with Avon?
A: Natura's growth is significantly above the market average, which is around 7-8%. This growth is attributed to investments in marketing and brand support. The royalty agreement with Avon is based on a percentage of total revenues in Latin America, negotiated at arm's length. The agreement is structured to be a fixed rate under normal business conditions.
Q: How is the company addressing the challenges in direct sales and the gap in profitability between Avon and Natura?
A: The company is witnessing high satisfaction levels among its representatives due to improved logistics and support. The focus is on continuous improvement and leveraging best practices to enhance cross-sell and upsell opportunities. The profitability gap is being addressed through strategic investments in services, training, and capacity building to align margins across brands.
Q: What is the outlook for gross margins and the impact of system integration on Q4 results?
A: The gross margin in Latin America is healthy, and further integration of operations is expected to optimize the portfolio mix and emotional investments. The system integration process has been smoother, and the company expects a stronger Q4 performance compared to last year, which was affected by operational challenges.
Q: How does the company plan to utilize online channels like Mercado Libre, and what is the strategy for balancing direct sales with online presence?
A: The company aims to diversify purchasing experiences for customers by participating in online markets like Mercado Libre. While proprietary markets remain a priority, the strategy is to complement the reps' efforts without hindering their business. The company is aware of the dynamics and works closely with reps to ensure a balanced approach.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
