3Q12 Presentation

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3Q12 Presentation

  1. 1. 3Q12 ResultsConference Call October 19th, 2012
  2. 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. 3. AGENDA Highlights 3Q12 Operating Performance Outlook
  4. 4. 3Q12 Highlights  Gross Revenue of R$ 388.4 million, up 0.5%;  Sales growth of +2.1% in the Hering brand, +4.1% in Hering Kids, +10.5% in PUC and -3.6% in dzarm.;  EBITDA of R$ 74.4 million, with EBITDA margin of 23.0%;  Net Income of R$ 54.6 million.  Hering Store Chain:  16 additional stores in 3Q12 and 88 since 3Q11, with a network of 480 stores at the end of 3Q12  Total sales of R$ 303.0 million (+17.8% overall growth and +1% SSS growth); 4
  5. 5. AGENDA Highlights 3Q12 Operating Performance Outlook
  6. 6. SALES PERFORMANCEGross Revenue (R$ million) Domestic Market (R$ million) 8.1% 1,240.9 1,148.0 19.9 18.2 8.1% 3Q11 3Q12 R$ 275.0 +2.1% R$ 280.9 9.6% 0.5% 1,221.0 R$ 31.3 +4.1% R$ 32.6 1,129.8 386.6 388.4 R$ 33.3 +10.5% R$ 36.8 0.7% 8.2 7.5 -9.0% R$ 24.1 -3.6% R$ 23.2 378.4 380.9 3T11 3T12 9M11 9M12 Domestic Market Foreign MarketGross Sales reached R$ 388.4 million in 3Q12 (+0.5%), still reflecting a challengingscenario and difficulties experienced in the migration to the new distribution center. 6
  7. 7. STORES CHAIN EVOLUTION 535 581 17 472 16 1 1 77 16 76 1 6 5 76 4 464 480 392 3Q11 2Q11 3Q12 Hering Store Hering Kids PUC dzarm. Foreign - Franchised TotalIn 3Q12, the Hering Store chain increased by 16 stores and the Company updates theguidance for the year to 87 new stores, considering the advanced stage of openingsand the continuous interest of our franchisees in opening new stores. 7
  8. 8. HERING STORE CHAIN PERFORMANCE Hering Store Chain Performance 3Q11 3Q12 Chg. 9M11 9M12 Chg. Number of Stores 392 480 22.4% 392 480 22.4% Franchise 347 431 24.2% 347 431 24.2% Owned 45 49 8.9% 45 49 8.9% (1) Sales (R$ thousand) 257,321 303,015 17.8% 773,276 897,512 16.1% Franchise 216,537 258,997 19.6% 645,312 765,628 18.6% Owned 40,784 44,019 7.9% 127,964 131,884 3.1% Same Store Sales growth (2) 9.0% 1.0% -8.0 p.p 15.6% -0.2% -15.8 p.p Sales Area (m²) 51,812 65,205 25.8% 51,812 65,205 25.8% Sales (R$ per m²) 5,091 4,716 -7.4% 16,161 14,663 -9.3% Check-Outs 2,626,868 3,113,672 18.5% 7,873,189 8,982,807 14.1% Units 5,610,529 6,814,849 21.5% 16,747,701 19,400,205 15.8% Units per Check-Out 2.14 2.19 2.5% 2.13 2.16 1.5% Average Sales Price (R$) 45.86 44.46 -3.1% 46.17 46.26 0.2% Average Sales Ticket (R$) 97.96 97.32 -0.7% 98.22 99.91 1.7% (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 Store chain grew 17.8% in 3Q12 due to stores openings, whilesame store sales posted an increase of 1%. 8
  9. 9. GROSS PROFIT AND EBITDAGross Profit and Gross Margin EBITDA and EBITDA Margin 49.3% 27.7% 27.6% -1.0 p.p. 48.4% 26.6% -4.2 p.p. -2.0 p.p. -4.7 p.p. 46.4% 23.0% 48.1% 45.1% 47.4% -2.2 p.p. -4.3 p.p. 45.2% 4.3% 43.9% 5.3% 260.7 274.4 447.7 467.1 -16.2% 154.4 -7.9% 142.2 88.8 74.4 3Q11 3Q12 9M12 9M11 3Q11 3Q12 9M11 9M12 Gross Profit Gross Margin Cash Gross Margin EBITDA EBITDA MarginGreater promotional activity discounts and sales performance below expectationscaused a 4.3 p.p. contraction in gross margin that, combined with higher marketingexpenses, led to a decrease in EBITDA margin by 4.7 p.p. 9
  10. 10. NET PROFIT AND CAPEXNet Profit (R$ million) Capex (R$ million) 19.9% 20.3% 0.0 p.p. 20.3% 39.6 -3.0 p.p. 16.9% 3.4 37.0% 1.5 28.9 13.6 9.3% 7.2 19.9 0.5 50.8% 1.5 210.0 0.3 6.1 192.1 13.2 5.4 -14.2% 1.7 0.2 21.1 4.5 15.1 12.7 63.7 54.6 6.8 3Q11 3Q12 9M11 9M12 3Q11 3Q12 9M11 9M12 Net Income Net Margin Industry IT Other StoresWeaker operating result causing a decrease in EBITDA and EBITDA margin, partly offsetby higher net financial income, resulted in net margin decline of 3.0 p.p. 10
  11. 11. CASH FLOWCash Flow - Consolidated (R$ thousand) 3Q11 3Q12 Chg. 9M11 9M12 Chg.EBITDA 88,800 74,431 (14,369) 260,656 274,414 13,758Non cash items 603 815 212 1,642 2,556 914Current Income tax and Social Contribution (23,187) (18,022) 5,165 (65,026) (62,571) 2,455Working Capital Investment 2,010 48,779 46,769 (37,308) 51,936 89,244 Decrease in trade accounts receivable 34,599 33,835 (764) 5,002 39,101 34,099 Decrease (increase) in inventories (26,047) (10,459) 15,588 (32,712) 3,158 35,870 Increase (decrease) in accounts payable to suppliers (1,675) 20,610 22,285 (11,030) 24,503 35,533 Increase (decrease) in taxes payable 4,466 (1,748) (6,214) 16,027 (16,647) (32,674) Others (9,333) 6,541 15,874 (14,595) 1,821 16,416CapEx (13,224) (19,875) (6,651) (28,895) (39,596) (10,701)Free Cash Flow 55,002 86,128 31,126 131,069 226,739 95,670Reconciliation from accounting Cash flow to adjusted Cash flow (R$ thousand) 3Q11 3Q12 Chg. 9M11 9M12 Chg.CFS - Cash provided by operating activities (accounting) 74,217 113,636 39,419 179,712 296,130 116,418Adjustment – Financial items allocated to operating cash (5,991) (7,633) (1,642) (19,748) (29,795) (10,047) Unrealized exchange and monetary variation (1,164) (151) 1,013 (3,713) (2,263) 1,450 Financial Result (5,890) (8,082) (2,192) (19,503) (29,612) (10,109) Interest paid on loans 1,063 600 (463) 3,468 2,080 (1,388)CFS - Cash flow from investing activities (13,224) (19,875) (6,651) (28,895) (39,596) (10,701)Free Cash Flow 55,002 86,128 31,126 131,069 226,739 95,670 Increase of R$ 31.1 million in free cash flow, mostly due to lower investments in working capital, associated with lower level of growth and reduction in inventories of finished goods versus previous year. 11
  12. 12. INDEBTEDNESSNet Debt (R$ million) Short Term x Long Term 4.6 3.5 Short 0.1 Term (0.2) (0.2) 98.8% (0.7) (0.5) (0.7) Long Term 201.3 184.6 1.2% 11.0 (33.4) (25.1) (61.9) (207.3) (301.0) 2005 2006 2007 2008 2009 2010 2011 3Q12 Gross Debt = R$ 25.8 million Net Debt/ EBITDA* * LTM EBITDACia. Hering closed 3Q12 with a net cash position of R$ 301.0 million and reduced itsdebt by R$ 2.1 million. 12
  13. 13. AGENDA Highlights 3Q12 Operating Performance Outlook
  14. 14. OUTLOOK Market factors as well as internal factors led to a performance below expectations, bothin terms of sales and results throughout past quarters Actions pursued by the management together with signs of improvement in themacroeconomic environment tend to normalize sales performance of our brands  High summer showroom has shown increase in demand from both the franchised chain and the multi-brand retail Hering brand maintains high growth potential, although not in the same levels from pastyears:  Stores openings (update in guidance to 87 in 2012) and SSS growth in Hering Store network (improvement in product mix offering, visual merchandising actions and increase in stores traffic)  Multibrand retail channel: continuous market share increase in existing clients through distribution specialization. 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 in 2012  Continuous adjustments in PUC chain, with discontinuation / relocation of a few other operations Maintenance of the dzarm. strategy, combined with investments in marketing and flagshipstores Resumption of good performance in online sales, post period of investments andadjustments 14
  15. 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

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