Release Date: August 09, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Magazine Luiza SA (MGLUY, Financial) achieved a historical 7.9% adjusted EBITDA margin, surpassing market expectations.
- The company posted a 62% growth in EBITDA, marking the third consecutive quarter of net income.
- Physical stores showed exceptional performance with a 16% same-store sales growth, the best since Q3 2020.
- The partnership with AliExpress is expected to significantly boost online sales and expand product offerings.
- Luizacred returned to profitability with a BRL71 million profit, a significant improvement from a BRL16 million loss in Q2 2023.
Negative Points
- High interest rates continue to pose a challenge, impacting financial expenses.
- The company had to pay BRL3 billion in short-term debt, which affected cash flow.
- E-commerce sales grew only 1%, indicating slower growth compared to physical stores.
- The telephony category underperformed, affecting overall 1P sales.
- The company had to reinforce provisions related to default, adding BRL200 million to liabilities.
Q & A Highlights
Q: Freddy, you spoke about the evolution of the EBITDA margin, which indeed is close to what you expected for the full year, and you achieved it in the first half of 2024? I'd like to understand, is there room for additional gains in the margin due to operating leverage or new initiatives, hands or monetization of services?
A: Good morning, Guanais. Thank you for the questions. I just want to mention that our margin is above what we expected for the full year. What I said is that Magalu's EBITDA margin is in line with what the market consensus was for us for next year. We are way ahead in our agenda of EBITDA margin, we accelerated it. Because the strategic option, Luiz, was that we didn't want to be caught by surprise by a negative agenda of the Brazilian Central Bank and with financial expenses as happened in 2021. So we had a strategic choice to focus on our margin. We have no target of changing this, because in the beginning of the year, everyone expected interest rates at 9.5%. Some people, 8.5%. And it is actually at 10.5%. This adds financial expenses, takes financial expenses to a different level. For us, the correct solution was to increase the margin, bring our agenda forward. So it's above what we expected. This year, in my opinion, it's close to what the market expected for us in the end of next year. The consensus of the market for this year was 7.4%. We are at 7.9% in the second quarter. I just wanted to clarify that. So to answer your questions, we do have growth avenues, ads, and monetization of services. I'll ask Edu to speak about ads, Mauad to speak about services, and then I'll be back to speak about AliExpress.
Q: I'd like to speak very briefly about physical stores. We had another quarter with strong same-store sales growth. And without accelerating credit, so I'd like to get some more color about this performance, the breakdown of categories, if there's anything that is selling more? So that would be my first quick question. And linking to my second point, thinking about 1P. Question about the disparity of physical store growth. Of course, the bases are not comparable. You had the work to pass through default. It's all very clear, but perhaps you could elaborate more if there's anything up more than that to explain this disparity, if there's any difference in the performance of the categories, the mix of categories, or something related to the competition, price aggressiveness. So that would be another theme. And if you could comment on the dynamic in the beginning of the third quarter.
A: Thank you very much for the questions. I'll start with the highlights. And then my colleagues will help me. I've spoken a little bit about this. But let's see. The results, the extraordinary -- physical stores results was extraordinary across the board for all categories. It's hard to highlight one category because I think that we performed well in many. But you know the white line, it was kind of latent, it sold a lot during the pandemic, and then had to hang over. Furniture selling really well. Portable electronics. So it was kind of across the board, but I believe that these categories would stand out. In terms of regions, I mentioned that we had a very good performance, practically all states growing a lot. I like going to the ones that I mentioned. We had market share gain and I would like to stress that I feel that physical store consumers, they're more low income. And we're in a macroeconomic situation where apart from interest rates and more recently the exchange rate, which are the two negative indicators, all of the other macroeconomic indicators are good. We are in full employment. Inflation relatively under control compared to any other country in the world. So that is a tailwind for people at the bottom of the pyramid, which people who are the ones that buy at the physical stores and we are gaining share. So it's kind of generalized. Almost all categories, almost all states, it's all very positive. Stores so not pay default. In January of last year, e-commerce lost 5 percentage points of margin. 1P, 3P does not pay default. The seller pays. 1P is an important business. For Magalu, half of our e-commerce sales are relevant part of the total GMV of the company. Having an agenda of increasing 5 percentage points in this quarter was 3 because we had already passed through a part of that in Q2 last year. It's very hard. It's very complex. It requires a lot from the commercial teams. We lost 5 percentage points of the margin. Those points would go to our margin and started going to the government in the form of tax. So it was a miracle. We didn't have a reduction in 1P sales. We have competitors that have 1P as strong as ours and they have significant 1P losses. So the commercial department did brilliant work of passing through default without losing share in those categories. The agenda is done. If we look at the comparison base of last year in the first quarter, we hadn't passed through any default. The second quarter, we passed through about 50%. Then it increased to 75% in Q3. In Q4, we have passed through practically everything, I would say 90%, almost 100% last year. So the comparison base for the second-half will be much more favorable than it was before. Having said that, I think it is important to highlight that there was a big discrepancy not in Magalu's 1P price compared to stores but the price of electronics e-commerce in the market compared to the stores, because the stores would pay more taxes than online. And there was a discrepancy. For some products, the gap was 20% in prices. It was 20% cheaper online than at the stores. Now the stores are more competitive. I commented on this in the last earnings call. I said pay attention to physical stores because the price difference from 1P to physical stores, the gap decreased the lot and the stores will become more competitive. Back then, the physical stores weren't competitive because they paid ICMS and 1P did not. But this made physical stores more competitive. So it's basically just 1P was the channel that contributed the most for the EBITDA margin of the company. Physical stores contributed the most to growth. And looking forward, this situation should normalize. Rego, could you help me with that? Anything to add? Just one minute, please. We're trying to fix Rego's microphone. It was a technical problem. Can barely hear Mr. Rego. At present, we cannot hear Mr. Rego. We apologize. Please bear with us. We have a problem here with Rego's microphone.
Q: I'd like to ask a little about the opportunities in commercial margins. I think you've already detailed the advances, the progress you made in different fonts. But considering you're also gaining a lot of share physical, specifically in the physical store market. I'd like to see whether that's also bringing new opportunities with suppliers
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
