2Q12 Conference Call Presentation

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  • 1. 2Q12 ResultsConference Call July 20th, 2012
  • 2. DISCLAIMER This presentation contains forward-looking statements regarding the prospects of the business, estimates for operating and financial results, and those regarding Cia. Herings growth prospects. These are merely projections and, as such, are based exclusively on the expectations of Cia. Hering management concerning the future of the business and its continued access to capital to fund the Company’s business Plan. Such forward-looking statements depend, substantially, on changes in market conditions, government regulations, competitive pressures, the performance of the Brazilian economy and the industry, among other factors and risks disclosed in Cia. Hering’s filed disclosure documents and are, therefore, subject to change without prior notice.
  • 3. AGENDA Highlights 2Q12 Operating Performance Outlook
  • 4. 2Q12 Highlights  Gross Revenue of R$ 460.7 million, up 8.9%;  Sales growth below Company´s expectations, with the exception of the performance of Hering Kids and PUC brands (+52.7% and 20.8%, respectively);  EBITDA of R$ 110.0 million, with EBITDA margin of 28.7%;  Net Income of R$ 85.2 million (+10.1%).  Hering Store Chain:  27 additional stores in 2Q12 and 89 since 2Q11, with a network of 464 stores at the end of 2Q12  Total sales of R$ 350.3 million (+11.8% overall growth and -3.9% SSS growth); 4
  • 5. AGENDA Highlights 2Q12 Operating Performance Outlook
  • 6. SALES PERFORMANCEGross Revenue (R$ million) Domestic Market (R$ million) 12.0% 852,5 25.1% 761,4 12.4 2Q11 2Q12 8.9% 9.9 R$ 319.7 +4.7% R$ 334.7 11.8% 460.7 R$ 28.9 422.9 18.0% +52.7% R$ 44.1 6.9 840.0 5.8 751.5 8.8% R$ 29.1 +20.8% R$ 35.1 417.1 453.8 +3.9% R$ 27.2 R$ 28.3 2Q11 2Q12 1H11 1H12 Domestic Market Foreign MarketGross Sales reached R$ 460.7 million in 2Q12 (+8.9%) and the Hering Kids and PUCbrands posted double digit growth. 6
  • 7. STORES CHAIN EVOLUTION 535 562 16 472 16 1 1 76 16 76 5 1 5 77 3 437 464 375 2T11 1T12 2T12 Hering Store Hering Kids PUC dzarm. Foreign - Franchised TotalIn 2Q12, the Hering Store chain increased by 27 stores and the Company remainsconfident in reaching the guidance for the year, considering the advanced stage ofopenings and stores underway. 7
  • 8. HERING STORE CHAIN PERFORMANCE Hering Store Chain Performance 2Q11 2Q12 Chg. 1H11 1H12 Chg. Number of Stores 375 464 23.7% 375 464 23.7% Franchise 330 416 26.1% 330 416 26.1% Owned 45 48 6.7% 45 48 6.7% (1) Sales (R$ thousand) 313,449 350,345 11.8% 515,955 594,497 15.2% Franchise 262,818 301,486 14.7% 428,775 506,632 18.2% Owned 50,631 48,858 -3.5% 87,180 87,865 0.8% (2) Same Store Sales growth 16.3% -3.9% -20.2 p.p 19.0% -0.8% -19.8 p.p Sales Area (m²) 48,665 62,334 28.1% 48,665 62,334 28.1% Sales (R$ per m²) 6,573 5,731 -12.8% 11,070 9,947 -10.1% Check-Outs 2,829,678 3,095,931 9.4% 5,246,321 5,869,135 11.9% Units 5,898,040 6,553,929 11.1% 11,137,172 12,585,356 13.0% Units per Check-Out 2.08 2.12 1.6% 2.12 2.14 1.0% Average Sales Price (R$) 53.14 53.46 0.6% 46.33 47.24 2.0% Average Sales Ticket (R$) 110.77 113.16 2.2% 98.35 101.29 3.0% (1) The amounts referred to the sales to final costumers. (sell out concept) (2) Compared to the same period of the previous yearTotal sales of Hering chain increased 11.8% in 2Q12 due to stores openings, given thedrop of -3.9% in SSS. 8
  • 9. GROSS PROFIT AND EBITDAGross Profit and Gross Margin EBITDA and EBITDA Margin 48.1% -1.8 p.p. 48.0% -1.0 p.p. +0.6 p.p. 28.7% 47.0% 28.1% +0.7 p.p. 28.2% 46.3% 47.2% 27.5% 46.9% -2.0 p.p. -1.2 p.p. 45.8% 16.4% 45.2% 10.8% 12.8% 5.7% 200.0 324.9 171.9 293.3 110.0 173.1 97.6 163.7 2Q11 2Q12 1H11 1H12 2Q11 2Q12 1H11 1H12 Gross Profit Gross Margin Cash Gross Margin EBITDA EBITDA MarginGreater promotional activity due to lower than expected sales caused a 2.0p.p.contraction in gross margin. In spite of that, strict expenses control and profitsharing reversion led to an increase in EBITDA margin by 0.6 p.p. 9
  • 10. NET PROFIT AND CAPEXNet Profit (R$ million) Capex (R$ million) 22.3% 0.0 p.p. 22.2% 21.9% +1.3 p.p. 20.5% 21.0% 19.7 25.5% 1.9 15.7 1.1 25.4% 12.3 10.1% 5.6 8.2 1.2 155.4 9.8 0.5 0.3 128.4 1.5 4.4 4.1 85.2 0.1 77.3 1.3 8.3 8.5 6.2 4.3 2Q11 2Q12 1H11 1H12 2Q11 2Q12 1H11 1H12 Net Income Net Margin Industry IT Other StoresNet profit growth, as a result of EBITDA growth and lower tax rate due to investmentsubvention, even with the effect of non recurring gains in 2Q11. 10
  • 11. CASH FLOWCash Flow - Consolidated (R$ thousand) 2Q11 2Q12 Chg. 1H11 1H12 Chg.EBITDA 97,550 110,008 12,458 171,856 199,983 28,127Non cash items 674 953 279 1,039 1,899 860Current Income tax and Social Contribution (26,900) (25,329) 1,571 (41,839) (44,549) (2,710)Working Capital Investment (21,380) 17,484 38,864 (39,318) 2,999 42,317 (Increase) decrease in trade accounts receivable (47,156) (38,824) 8,332 (29,597) 5,266 34,863 Decrease (increase) in inventories 7,116 34,086 26,970 (6,665) 9,468 16,133 Increase (decrease) in accounts payable to suppliers 3,463 (964) (4,427) (9,355) 3,893 13,248 Increase (decrease) in taxes payable 9,049 18,782 9,733 11,561 (14,899) (26,460) Others 6,148 4,404 (1,744) (5,262) (729) 4,533CapEx (9,801) (12,348) (2,547) (15,671) (19,721) (4,050)Free Cash Flow 40,143 90,768 50,625 76,067 140,611 64,544Reconciliation from accounting Cash flow to adjusted Cash flow (R$ thousand) 2Q11 2Q12 Chg. 1H11 1H12 Chg.CFS - Cash provided by operating activities (accounting) 59,691 111,084 51,393 105,495 182,494 76,999Adjustment – Financial items allocated to operating cash (9,747) (7,968) 1,779 (13,757) (22,162) (8,405) Unrealized exchange and monetary variation (1,201) (1,220) (19) (2,549) (2,112) 437 Financial Result (9,691) (7,429) 2,262 (13,613) (21,530) (7,917) Interest paid on loans 1,145 681 (464) 2,405 1,480 (925)CFS - Cash flow from investing activities (9,801) (12,348) (2,547) (15,671) (19,721) (4,050)Free Cash Flow 40,143 90,768 50,625 76,067 140,611 64,544Increase of R$ 50.6 million in free cash flow, mostly due to EBITDA growth and lowerinvestments and working capital needs, with reduction in inventories. 11
  • 12. INDEBTEDNESSNet Debt (R$ million) Short Term x Long Term 4.6 3.5 0.1 (0.2) (0.2) (0.5) (0.7) (0.6) Short Term 201.3 184.6 98.4% Long Term 11.0 1.6% (33.4) (25.1) (61.9) (229.8) (207.3) 2005 2006 2007 2008 2009 2010 2011 2Q12 Gross Debt = R$ 27.9 million Net Debt/ EBITDA* * LTM EBITDACia. Hering closed 2Q12 with a net cash position of R$ 207.3 million and reduced itsdebt by R$ 2.4 million. 12
  • 13. AGENDA Highlights 2Q12 Operating Performance Outlook
  • 14. OUTLOOK Challenges faced in 1H12 might continue to influence negatively in the short run Measures are already being taken in order to offer a more assertive product mixin addition to further marketing investments Hering brand still with high growth potential, despite not in the same pace ofrecent past Children’s market:  Share increase in the multibrand channel with Hering Kids and PUC brands  Expansion of the Hering Kids format – opening of 20 stores, concentrated in 4Q12  Continuous adjustments in PUC chain, with discontinuation / relocation of a few other operations. Maintenance of the dzarm. strategy, combined with investments in marketing andflagship stores Rise of dollar and the possibility of additional promotional actions may pressureresults in 2H12 14
  • 15. INVESTOR RELATIONS TEAM Fabio Hering – CEO Frederico Oldani – CFO and IRO Patrícia Salem – IR Manager Tel. +55 (11) 3371-4867 E-mail: ri@hering.com.br Website: www.ciahering.com.br/ri