Companhia Brasileira de Distribuição
Q1 2021 Earnings Call Transcript

Published: 9 May 2021

[Operator:]

Good morning and thank you for holding. Welcome to GPA Conference Call to present the Earnings Results for the First Quarter 2021. This event is being broadcast simultaneously on the web through web video conference and it can be accessed at www.gpari.com.br where the respective presentation is available. You can flip through the slides at your convenience. The replay of this event will be available soon after closing. We would like to inform you that the press release on the company's results is also available on the IR site. This event is being recorded and all participants are in listen-only mode during the company presentation. After this presentation, we will go on to the question-and-answer session when further instructions will be given.

[Isabela Cadenassi:]

Hello. Good morning everyone. Thank you for your participation in our conference call first quarter 2021. The dynamics of our call will be a presentation of Jorge Faical, the CFO of the GPA; and the CEO of GPA. And then we'll have a Q&A session. In addition of our CEO and CFO, we have Carlos Mario Giraldo CEO of Grupo Exito. I'm going to give the floor to Guillaume Gras for the beginning of the presentation. Thank you all very much and enjoy the conference.

[Guillaume Gras:]

Thank you, Isabela. Good morning everyone. On behalf of GPA Brazil, Jorge and our entire team I would like to thank everyone for participating in the GPA Group results call. I will start our presentation by talking about our financial performance and then I will give the floor to Jorge who will comment on operational highlights in the quarter ESG and the prospects for the year 2021. On slide three, the results that the GPA Group presented in the first quarter reflect a profitable growth even considering a very challenging scenario impacted by the following elements; the strong comparison base of 2020 impacted by the storage movement before lockdown the negative calendar effect due to the loss of one day in February the tightening up of restrictive measures against COVID-19 in all the countries in which it operates with the closing of stores, reducing the opening hours of stores and prohibition of sales of some categories considered non-essential. In Brazil, we've also had the end of the emergency aid and the cancellation of carnival. In this context the revenue of the whole group was BRL213.7 billion and grew 4.8% in the comparison for the first quarter 2020. The major contributors for this growth were the online sales whose evolution was 138% at GPA Brazil and 145% at Grupo Exito with an increase in the penetration of total sales from 3.7% to 8.2%.

[Jorge Faical:]

Thank you very much, Guillaume. Good morning everyone. I hope you can see me. It's really a great pleasure to be here and to share Q1 results. I'd like to start talking by GPA Brazil Page 10. And I'd like to also talk about our major growth platform e-commerce. As for e-commerce this year, we keep focusing on growth. Our GMV achieved BRL 311 million in this first quarter, approximately BRL 1.3 billion over the last months. So, this is a very robust strong growth month after month. And we are focused -- very focused on omnichannel in which customers' expenses that use in this omnichannel that is a buy-in brick-and-mortar and digital channels that their ticket is more than 3x above compared to those that by only brick-and-mortar stores. And we see this growth month after growth. And we see a 60% growth in the digital platform compared to last year. And as for omnichannel, we see a 40% increase also for this first quarter. So besides growing we want continuous growth month after month and we want to grow with profitability. Our profitability was already positive and it increased 1.9 percentage points compared to the first quarter of 2020 which means, that we are highly motivated to keep on working on this path. For this quarter, I'd like to highlight this 137% growth on a very solid basis and compared to the same period in 2020. So, we'll see that we keep a continuous and constant growth for GPA Brazil in this quarter. Some highlights for this quarter. We changed our relationship and our partnerships particularly regarding last milers in Brazil. We have our own last miler; James and its volume keeps increasing compared to previous quarters. And more specifically for this quarter what we saw was a fourfold growth compared to same period last year.

[Question-and:]

[Operator:]

Now, we'll going to open-up for the Q&A session. Our first question comes from Mr. Joseph Giordano from JPMorgan Bank.

[Joseph Giordano:]

Hello. Good morning everyone. Thank you for taking my question. I'd like to explore a little bit with you growth. We see the company for some quarters actually consolidating not only on the Pao de Acucar, it's also hypermarket. I'd like to understand a bit what you see in terms of competition, especially in the hypermarket format that would explain this performance so below competitors considering that the overlap of stores is quite big? We're talking about quite similar marketplaces. Second point. So thinking about the bone, banner or brand. So people leaving the cities with the reopening in Sao Paulo that you see this coming back. And the second point is within the digital strategy, how do you see your marginal share if the aggregating factor is sharing some or the aggregator is adding or sharing some data with you? And lastly, take a bit of what you see in terms of outlook for the forthcoming quarters because the basis start becoming more difficult. Okay. The last 15 days March on were difficult. And I'd like to know how you see the prospects for the next quarters and the viewpoint of the company – strategy for the company in terms of growth for the future?

[Jorge Faical:]

Thank you, Joseph for the questions. Pleasure to speak to you again. Well, competition in this quarter has been a competition that suffered just like everyone suffered on some impact some restrictions businesses compared to our competitors are different, different proportions, different sales mix that led each one to have slightly different impacts. Some growth that we were able to observe in the market are focused on online. They're focused on – especially in the appliances – electric appliances online and focused on the events of the last milers. What we managed to observe is that some of our competitors, direct competitors that over 70% of their growth came from those two assumptions. We made a decision for this direct competition with last milers. We made a decision at the end of Q4 changing our strategic planning, very much focused on collaboration and partnerships the fact that we actually try to seek. We were a bit behind let's say, and now we're recovering or catching up. And you're going to see in the near future robust growth of our digital basis. We're going to fight for consumers that have started using those sales or purchase platforms and fighting against local regional competitors and this is a mitigation measure. As you know, we are not yet focusing on the household appliances, categories for online sales. We have lost a bit of market share in driving online on this household appliances. We have a – it doesn't mean that we're not going to sell household appliances at some point. These are the factors that well, considering your first question that are very much faced with direct competition there are main highlights. Well, our positioning, as I mentioned to you, price territory and hypermarket its firm is position in which we are betting very much on this new positioning. And we have absolute confidence that this price perception in the mind of consumers will change and that's what we see in our first stores in some cities where price perception has already changed. Our market share gain in those cities in micro regions specifically has already been happening in food in another proportion. Your question regarding Pao. Pao de Acucar has also lost because of last milers. It had an impact in the city migrations in the second wave in this quarter that was not expected. As I said, Pao de Acucar does not want to take up the price, land or territory. Wants to maintain the territory of authority in terms of assortment, quality of perishables, of its bakery, of its fruits and legumes and vegetables. And that we believe, no matter how much we go through one or two quarters, go with certain difficulties, Pao de Acucar is very strong with it's value proposal and its future expansion. When you talk about share or market share yes, we did have a loss in our market share in the first quarter. As you could observe, we have had within the food market we had a loss of share. When we see expanded retail, we have total resilience considering the moment the country is going through and broad retail and services when there is a drastic impact food retail maintains quite sound growth rates. Even losing some market share at the time due to all those environments that have been already explained, we are confident that our strategy is good and our recovery strategy for the future quarters the outlook Joseph. For the short term, Q2 should be maintained with certain levels of difficulties. But reminding you that Q2 last year where food, retail is mostly benefited with the abrupt shutting down our restaurants, we should have second quarter a bit more difficult when compared to second quarter last year but our rates are of recovery week after week April or May starts better than April. April was a difficult month considering the peak of restrictions that was late March, early April, April suffered from those impacts be it in Brazil and Colombia. And we're still very confident in the recovery situation for the country in the second semester for this year.

[Joseph Giordano:]

Perfect. Thank you very much Faical.

[Operator:]

Our next question comes from Mr. Guilherme Assis from Banco Safra.

[Guilherme Assis:]

Hi. Good afternoon everyone, Faical, Guillaume and Mario. I'd like to delve into this question of the change of strategy at Extra. I understand that this is recent. You have some evidence in the stores that have been -- have had implementation of stores. So Faical mentioned where that's where the price perception can be seen. And there's a recovery. But I'd like to understand I know the complicated time we have effect both of the pandemic and categories, for example, appliances electric appliances. And we -- if there's something else. And I'd like to know that I want to sort of understand that has an impact on the gross margin positive result of the quarter is that you managed to maintain profitability and gross margin and EBITDA margin in the various formats and categories there. I'd like to understand looking ahead as the rollout strategy happens for Extra is happening, should we expect some impact in the gross margin in the format that is relevant for the company this is translating into an impact in the gross margin of GPA Brazil as a whole? This is a question okay? And the second question that I have, I'd like to know if you can update on the demobilization or sales of assets speaking specifically whether you have an update of the North Cnova abroad gas stations and pharmacies in Brazil and also talking about potential sales of stake in Uruguay? Those are the questions I have.

[Jorge Faical:]

Thank you Guilherme. It's a great pleasure to talk to you. Thank you for your questions. Growth margin in hypermarket it's not being affected. So let me rephrase it. Hypermarket EBITDA is not being affected by its positioning. We see a decrease in gross margin one point approximately, but that's offset by decreasing expenses with the dilution of expenses using this format. As we mentioned at the end of last year and we are using the same strategy. As I mentioned, the evidence in the cities in which we have this positioning for a longer period of time since the half of last year we saw changes in volume, changes in consumer behavior and consumers understand what is our wholesale price. The reduced price is a fact. And we are really, really inexpensive in Hipermercado right now hypermarket. And we are very optimistic, but we are always very cautious. We understand that Hipermercado will react based on this price perception, but the EBITDA does not have any impact. It's not a concern. As for selling assets, I'd like to turn it over to Guillaume.

[Guillaume Gras:]

Thank you. With regard to selling assets, right now, there is nothing new that allows us to share or to disclose. As for Cnova, we are still examining that. We are studying how we can really get the best value for this asset and we expect to perhaps to close this in the second quarter and then make an announcement afterwards. I'd like also to say that GPA is involved in this analysis. We have three Board members that participate of Cnova, Board of Directors, Eleazar. And we also -- Eleazar is an independent member. And that will allow us to really obtain the best value possible for this asset.

[Jorge Faical:]

So just a follow-up about Cnova, if I'm not mistaken there are some studies that are still being conducted. But I'm still not sure about what I read about the potential operation. So I don't understand really what's going to be done with regard to the subsidiary. Or if you are going to take offers on Cnova? And based on what I understand from the commitment agreement GPA refers to sell up to 90% of shares or up to 90% of it is strict considering if there is an offer for Cnova. But in the announcement it seems that you could also have a discount, but I don't know if GPA would still keep this preference on the discount. I don't know.

[Guillaume Gras:]

Well, that is -- once again that will depend on the scenarios that will emerge and there are different possible scenarios. And we need obviously to understand the impact of each one. And we need to consider the different impacts and the different opportunities for monetization. But that will depend on the very clear outcome of these studies.

[Guilherme Assis:]

Yes. Thank you, again. Thank you very much everyone.

[Operator:]

Our next question comes from Helena Villares from Itaú.

[Helena Villares:]

Hello, everyone. Thank you for taking my question. I'd like to talk about the digital ecosystems that you are developing. So can you please talk a little bit, can you share some color on what to expect for the next five years? And also how -- what about the impact over the years? You have been discussing the last milers strategy what impact does that have on your margins? Thank you.

[Jorge Faical:]

Thank you, Helena for your question. In five years we want to be one of the most relevant players in digital. This is our goal. But we know that for achieving that we will have to focus on where we already stand out foods. So our platforms focuses on major categories. As I mentioned beverages, personal care, cleaning, pet care. And we are strengthening our platform. And when I say platform, I'm talking about selling what we call 1P. And I'm also talking about 3P in which we will have the major counter sellers selling on our platforms. And we will also be sellers of other platforms in the market. Just as I mentioned MercadoLibre or B2W or the last milers these are very important platforms in the market. And we will really benefit from our major expertise i.e. food distribution and we will be the major sellers in these platforms. So we will strengthen our site and we will also strengthen the sites of our partners. So this border between competition and the collaboration is -- will become a great area. And that's how we are going to work. Obviously that involves e-commerce planning as well as loyalty. We are strengthening as I mentioned our knowledge on data consumer -- on consumer data rather. We have now just launched in first quarter and we are still running the pilot of our fulfillment center, our distribution center of services to sellers. So all for digital. And this is our goal for the next five years to be one of the major players. But let's go step-by-step. We need to build categories and add new categories considering what categories are more relevant to our consumers not only in food. And we don't see any negative impact on margins. On the contrary, we believe that these partnerships will provide us benefit in increasing our EBITDA and our margins. We know we are aware of competition. We know that competitors are also moving forward in this segment, but we want to take agency in these transformations. I hope it's clear.

[Helena Villares:]

Thank you. Thank you very much. Very clear.

[Operator:]

Our next question comes from Joao Soares from Citibank.

[Joao Soares:]

Hello. Good morning, everyone. Thank you for taking my question. My question is also a follow-up on digital. I'd like to ask you to elaborate on profitability also accelerated growth we see using this channel. But can you talk a little bit about marketing and consumers' perception in trying to also accelerate the migration of those consumers that are still off-line to online? And also what's your take on the profitability of this channel considering also the use of this other platforms such as MercadoLibre?

[Jorge Faical:]

All right. So let me start talking by the partnerships and the margins and then I'll address marketing. Partnerships. We have different types of partnerships with MercadoLibre for example. We send them our goods GPA goods and we have them at MercadoLibre's distribution center and they are responsible for logistic services for taking those to consumers home. Now with Supermercado now they work with inventory from our stores. It's a ship-from-store concept. So we are talking about two different types of partnerships. And they are based on different fees -- different to negotiation fees and different costs. Obviously, whenever we disclose an agreement. It's important to bear in mind that we have been working on that agreement for months in order to ensure the profitability of our business. We already mentioned that last year and I'd like just to reiterate that. Our digital growth will not be disorganized and will not produce loss. We want a profitable digital growth. So even if we establish these partnerships, it's important to bear in mind that these partners also provide us some benefits. So I can ensure you that the digital growth will not have a negative impact on our margins. And we are very proud of that because we know that some of our competitors they announced digital growth but at a very low profit or negative profit. As for cost of customer acquisition month-after-month, we are also strengthening our digital marketing department. Once again, strengthening partnerships and I'd like to take this opportunity to thank two important partners Google and Facebook, besides lower demand with us -- our publishing companies or the companies we work with. So we provide hyper customization. We do have a great deal of information of our consumers and we can target our consumer. We can even go to an individual IRF identification number and that is really a strategy guided by hyper customization. And we are also improving and growing and following consumers wherever they are, also performance using Google Search. For example, we're using in a tool such as SDK that allows us to identify where our app users are. So I don't want to go in that into the technicalities, but we are certainly using the best technologies to strengthen our marketplace and our platform as a whole. If you have any question, a more specific question, we are available, Joao, so that we can provide more information if you need. Thank you. I hope my answer was clear, Joao.

[Operator:]

Our next question comes from Felipe from Goldman Sachs.

[Unidentified Analyst:]

Hello, everyone. Can you please add some color on inflation and your strategies to fight it?

[Jorge Faical:]

Felipe, thank you very much for your question. When we talk about inflation pressure and compared to last year what we see that is, it’s stable for many categories that we have. For this first quarter, we did not see any relevant price decrease for consumers. For some categories, particularly those that are manufactured using raw materials that are imported, we saw price increase and that's because of our foreign exchange rates. But right now what we see is that dollar is stable, so to speak and companies are now adjusting to work at a BRL 5.5 exchange rate. So for this first quarter, we did not see any decrease and we also have some new cost tables. And of course, we did have to pass that over to consumers. Now for Q2, we expect to see a decrease in some products, particularly grocery. And for vegetables, for example, we saw a drop. But right now we cannot even say that that's a trend. So that may be related to seasonality, weather, conditions and many other factors. And that's why we don't see decrease -- price increase, nor inflation pressure. We find that we expect a very neutral environment when we think about major products that we sell or resell. Thank you very much.

[Operator:]

Our next question comes from Mr. Robert Ford from Bank of America.

[Robert Ford:]

Good morning, everyone. Thank you for taking my question. And so what about the Aliados program in Brazil? What's the profile of this business? And how do you expect it to evolve, please?

[Jorge Faical:]

Thank you, Robert, for the question. Well, Aliados -- well, three years ago we launched Aliados in Brazil in 2016, 2017, if I'm not mistaken. The first two years, it was -- there were experience period, maturing the business, especially in terms of logistics. When we - in 2019 -- mid-2019 managed to adjust the logistics chain with service rendering, delivering 24 hours to our customers that were B2B, the business started growing at very satisfactory rates. The growth in the past year was 40%. We are talking about significant numbers here. I'm not going to disclose specific numbers in sales this format. There are already non-marginal numbers. They're quite significant. We use the logistics chain that makes them same distribution of our proximity -- our own proximity stores. We're using the same logistics to distribute to those small retailers. This is still a limited distribution in the area of Greater São Paulo. We are now migrating to the inter side of São Paulo in the segments. And also this year, we are selling some perishables categories, fresh and refrigerated and non-refrigerated products. These are new chains, over 1,200 clients that we serve and we have a profitability of one digit that is high. And we can -- through the use of our costs and our logistics array, we managed to have positive profitability and that is quite satisfactory. Aliados today contributes positively for the EBITDA increase of GPA. And I'd say, CapEx is practically zero. It has no CapEx. It does not involve CapEx. Many times CapEx is just negligible, or some kind of infrastructure, some minor things, but it's practically a business that is going to grow more in the next years and it will be an interesting contributor to our revenue in GPA.

[Robert Ford:]

And where is this business being consolidated, please?

[Jorge Faical:]

This business is being consolidated in the proximity business.

[Robert Ford:]

Okay, great. Thank you very much.

[Jorge Faical:]

Thank you.

[Operator:]

Our next question will be in English from Mr. Andrew from Morgan Stanley, and we're not going to translate it.

[Andrew Ruben:]

Hi. Thanks very much for the question. My question is on e-commerce and Exito, specifically the Rappi partnership and last mile. I'm wondering what you're seeing from consumer behaviors, if it's basket size frequency when they use the service? And how you think that could translate to your last mile use in Brazil? Thank you very much.

[Jorge Faical:]

Carlos, would you like to talk about Rappi?

[Carlos Mario Giraldo:]

of groceries. For the future what we think is that we are going to launch and we already announced a service of a 10 minutes delivery in the main parts of Bogota, Medigene, Kali and and the most affluent places working from our stores, but also in our alliance with Rappi from dark stores that we are going to establish for that. The consumer trend is to continue expanding this service and especially in these times of restrictions of opening up stores and social protest, the home delivery service input has become absolutely key for our customers.

[Jorge Faical:]

And adding to Carlos Mario's answer for Brazil, we see in Brazil through these last milers and also on the other platforms like Supermercado, now MercadoLibre we see a change -- a drastic change here of consumption platforms where online consumers can buy. We believe that in Brazil, the only retailer that will be able to keep the food platform is us. We would have on paodeacucar.com, easy.com and last milers, and other platforms. So, we see a wave of large supermarkets aligned to those last milers in the country. And last milers, increasingly strengthening their technology, the usability of their apps to the benefit of the convenience of consumers. So what we see in terms of behavior change, on the part of consumers, is something that we actually are going to beyond selling on our website we're going to compete also on those other websites. So competition within those platforms happens through time to market. So the initiatives -- as Carlos was saying, the initiatives we see of 10, 15-minute delivery on the country ability of delivering fresh products, a complete food basket, ability of having promotions and fair prices for this platform and not charge from the consumer the cost of convenience. So, we are very attentive to all those competitive attributes that we will face, the supermarket industry in Brazil will face, this new global trend of competition through third party platforms. And we're specializing to be the main player in third party platforms not only on our platforms.

[Andrew Ruben:]

Very helpful. Thanks very much.

[Jorge Faical:]

Sorry, Carlos. Would you like to add anything?

[Operator:]

Our next question comes from Mr. Jan Paulo from Bradesco BBI.

[Unidentified Analyst:]

First of all, good morning and congratulations on your results. I'd like to ask a question regarding quality of service of consumers on digital platforms. You've talked about your own platforms or the other partners compared to the market. So what's the KPS -- KPI and considering NPS whether that's relevant? If you could comment on the initiatives you are envisaging for that? Thank you.

[Jorge Faical:]

Thank you for your question. Within our own platforms, we -- SLA and NPS of consumers were think that we are very much focused in the past months we've reached levels of improvement of customer satisfaction that were quite significant two or actually three KPIs that we look quite constantly every week is what we call perfect order which is a KPI that we deliver to consumers. What's the percentage of delivery we have for consumers regarding what they have ordered. The second KPI is delivery time. Basically, in logistic terms as if we call it on time and in full. So on time, is the time of delivery and in full is the complete order. And the third one is NPS. And the two first NPIs we have obtained in this quarter levels above 95% of attaining perfect order and delivery time. We had indices in the past around 80% -- below 80% and we have evolved to above 95%. In some cities, it sounds we are over 99%. In other words, close to perfection in some cities within our own platform. On third-party platforms, we're still at levels that are not desirable, low levels around 80%, 85% of satisfaction rate. NPS is not yet at the level we would like to have. And we are totally aware of what needs to be done for us to seek this higher level, especially in the inventory integration with those platforms, so this inventory integration is happening today every hour or every three hours. And we expect to have online integration of inventory and this greatly improves customer satisfaction and also the relationship that we have in the delivery. Many times the dissatisfaction of customers is when the delivery is different from that the picker actually getting or picking products and actually shipping to consumers or delivery to consumers is actually a process that presents certain flaws. So customer satisfaction is key for our growth in the digital world. I hope I have managed to give you some satisfactory examples to you Richard for your question?

[Unidentified Analyst:]

Yes. Thank you.

[Operator:]

The Q&A session is ended. We would like to give the floor for the final remarks of the company.

[Jorge Faical:]

Thank you very much for the opportunity for your time dedicated to us. We would just like to reinstate that the first quarter despite having had some sales hindered by non-expected results, we were prepared for the first quarter, since last year with much more strength on the basics of our business on the defense of our cash at this time of volatility that the Brazilian, Colombian and Latin American economy is going through as a whole. We reflect to you profitable growth, growth through our shareholders profitable to our controlling stakeholders and shareholders. Our profitability levels have been a reversion from negative to positive with various productivity efforts costs and expenses that have been made over the past three years and are now consolidating. The consolidation of our initiatives of our strategic planning formatting new stores is also reflecting favorably to our business. Digital world as we've talked a lot about it. It's a road with no return for GPA for the group as a whole. It is path with continuous and growing trajectory. We always highlight that we are a Latin American company. We are not only Brazilian company. We have the Éxito Group that is worth BRL 9 billion in the Colombian Stock Exchange that has a sound group of sound results. The cash reach continuous cash generation for the group and this helps a lot for our company to evolve as a whole. We are very confident in our development of the company in the future. Very confident, we'd like to thank for the partnerships with strategic partners, our suppliers and especially my thanks to our internal team, all our associates of GPA for another successful quarter in terms of results. Thank you all very much. See you next time. Thank you.

[Operator:]

The GPA earnings conference call is closed. The IR Department of the group is available to answer further questions and doubts. We thank you for your participation and wish you a very good day.