Non deal road show – ny & mid atlantic

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Non deal road show – ny & mid atlantic

  1. 1. Non Deal Road Show – NY and Mid-AtlanticOctober, 2012
  2. 2.  Highlights of Magazine Luiza and Brazilian Market – 1H12 Institutional Presentation • Overview of the Brazilian Market • Magazine Luiza 2
  3. 3. 1 Highlights – Brazilian Market Brazilian GDP has grown 11% annual rate over the last 9 years The country has reached the full employment for the 1st time recently The real income growth makes us a powerful consumer nation, driven by the mid class, which already stood for 49.3% of the total residences in 2011 Consumer credit has been considered the turbine of growth, with stable compromised monthly income with debt services, despite the constant increase of family indebtedness The drop of the income rate has begun to effect the credit takers, maintaining the confidence of Brazilian consumers In order to reach a satisfactory housing shortage level, it is expected that 23.5 million new houses be built from 2010 to 2022 More houses and credit availability are an opportunity to increase sales of durable goods and also to increase the penetration of these products in “C class”, still considered low Through products financing, the retail market is usually responsible for the “C class” access to financial services 3
  4. 4. 1 Highlights – Retail in Brazil Retail growth above GDP (more than 8 years) Retail Participation of GDP (2011) Retail GDP Sellout Retail / GDP Value Added Retail/ GDP 4
  5. 5. 1 Highlights – Retail in Brazil Major private employer (2011 and 2010) Still major private employer till July 2012 Number of employees per sector (thousands) Number of employees per sector (thousands) 22.43% of total 22% of total 5
  6. 6. 1 Highlights – Retail in Brazil Retail – Regional Performance Retail growth = income, employment and wages Wages (%) Unemployement (%) Income (%) North Northeast Mid-west Southeast South 6
  7. 7. 1 Highlights – Retail in Brazil Consumption became the growth motor Durable goods growth above the average Rretail creates value GDP Retail Consumption GDP per capita Linear (retail) Durable goods Retail 7
  8. 8. 2 Magazine Luiza: drivers of value Strong corporate culture, focus on valuing people and customers Multiple opportunities Corporate governance, of growth since its foundation Excellent relationship First social e-commerce in Brazil Magazine Luiza management (CRM tools) Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 8
  9. 9. 3 Highlights – Magazine Luiza Retail Operations Sales Competitive Environment Same store sales growth – 3Q12  Physical stores • Low teens – lower than 2Q12, strong comparison base • Tough competitive environment – there was no major with 3Q11 (same store sales growth of around 20%) change in the last few months o Physical stores: impact of integration process of o Pressure for competitive prices Lojas Maia (sales force training, new systems) o Interest free sales: some players with aggressive o E-commerce: maintenance of growth level strategies, sometimes irrational ones o Magazine Luiza maintain is financial discipline of Same store sales growth – 4Q12 limiting interest free sales to 15% of total sales • Low teens, better comparison base with 4Q11 (same • Magazine Luiza drivers of value: store sales of 10%) o Multi-channel approach o Expectations of economy recovery o Focus on service quality and client o End of integration process of Lojas Maia o Competitive prices (not every day low price) Total sales growth – 2012 o Client relationship management (CRM) and best • Mid teens company to work for (focus on people) o Opening of 25 stores o Financial products and services o Maturation process of Lojas Maia and Baú  E-commerce Expectations for 2013 • Competitive environment – entrance of new pure • Same store sales growth – low teens internet players, though bricks and mortar players with o Higher GDP growth internet are performing better o Maturation process of nearly 1/3 of the stores • Aggressive prices and installment plans (still not mature) • Magazine is gaining market share every quarter o Investments in logistics and IT o Product mix (long tail) o Multi-channel approach 9
  10. 10. 3 Integration Process – Lojas do Baú 3Q11 4Q11 1Q12 2Q12Lojas do Baú integration process (7 months)Acquisition of 121¹ stores from Lojas do Baú July 29, 2011 - R$80,3 millionDocumentation to start operating Most of the closed stores were closed during this periodVirtual Stores Virtual stores opening 35 stores (Paraná) Stores renovation Complete stores renovation Systemic and corporate integration End of dec/2011Conventional Stores Conventional stores opening 69 stores (34 Paraná, 34 São Paulo, 1 Minas Gerais) Stores renovation Uniforms and storefront changes Systemic integration End of feb/2012Integration benefits (synergy)1) 13 stores were alienated and 4 conventional stores were renovated and attached to other existent Magazine Luiza1 store 10
  11. 11. 3 Integration Process – Lojas Maia 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13Lojas Maia integration processBrand change – Magazine Luiza Metropolitan area of Recife 14 stores (Oct) Metropolitan area of Maceió 9 stores (Dec) Metropolitan area of Fortaleza 15 stores (Dec) Other RegionsCorporate integration Apr/2012Stores systemic integration Conclusion Oct/2012Integration benefits (synergy)1) The front end integration had been carried in 2010, which considers: sales force training, product range mix, financial services and small stores renovation 11
  12. 12. 3 Highlights – Magazine Luiza Retail Operations Integration Process Margins and Expansion Integration Process – Lojas do Baú  Gross Margin • Ended on February 2012 • From 2013, gains from Maia’s gross margin, slightly • Beginning of the maturation process (2012 first year of offset by increased share of e-commerce (which has operations) lower margins) Integration Process – Lojas Maia  EBITDA • Last phase of the integration process – systemic • SG&A synergies: integration – end in mid-October o SG&A reduction at Lojas Maia • Cost synergies from 4Q12 and mainly in 2013 o Dilution of expenses due to stores maturation o Gross Margin – there is a 400bps gap between process (marketing and logistics) Maia and ML. This margin should be converged o Rationalization of costs and expenses project of with more efficient inventory and price all offices, stores and DCs management o Improvement in stores productivity (sales and o Expenses (G&A) – costs and expenses reduction back-office services) opportunities because only a focal point will be needed in the NE, thus decreasing expenses  Expansion 2013 between 100 to 200bps • Keeping conservative growth pace, with 25 new stores • Synergy sales – synergies from the beginning of the integration and SSS growth above the company average  Expansion 2014 • Due to the improvement in profitability, the company may return to a faster pace of growth (50 stores per year through organic growth or acquisitions) 12
  13. 13. 4 Highlights – Consumer Finance Operations Macroeconomic Changes Luizacred’s Profitability Reduction in basic interest rates  Financing products: • Increase in Luizacred spread, due to ML keeping CDC • Credit card: more selective in offering to customers. and credit card interest rates in short and medium term Targeted at more active customers inside and outside ML stores. Operating costs can be offset by higher use. Reduction in interest rates of financial products Reduction in share (20-25% total sales) • The government is pressuring banks to lower credit • CDC: focus on clients who only want to finance the card interest rates , mainly revolving rates. However ML purchase, instead of applying for 5-year-credit. Low will maintain the current rates operating costs and higher interest rates. Increased o ML has competitive rates compared to other share (20-25% total sales) banks and retailers • Third-party credit card: higher share due to Itaú o Study to reduce revolving rate (16% currently) – conservativeness in Luizacred and increased e- less impact to ML, because their revolving is a commerce share side business, unlike banks. In this product, most customers are delinquent  Profitability Sales without interest • Approval rate stable (around 20%) • ML discourages interest-free sales in Luiza card and • Improved delay indicators third-party credit card. Limited to 15% on Luiza credit • Proportional PDD reduction from 4Q12 card • Continuing cost and expense reduction • Low expectations of changes in Brazil, because this • Improving profitability, quarter by quarter could be an unpopular government measure and due to • Profitability should return to 10-15% EBITDA level in lower SELIC (cheaper discounted receivables); however 2013 ML believes in a more rational scenario 13
  14. 14.  Highlights of Magazine Luiza and Brazilian Market – 1H12 Institutional Presentation • Overview of the Brazilian Market • Magazine Luiza 14
  15. 15.  Highlights of Magazine Luiza and Brazilian Market – 1H12 Institutional Presentation • Overview of the Brazilian Market • Magazine Luiza 15
  16. 16. Brazilian GDP has grown 11% annual rate over the last 9 years... GDP (R$ Billion) 7,5% 5,7% 6,1% 5,2% 4,0% 3,2% 2,7% 1,1% 1,5% -0,3% 4,447 4,143 3,770 3,032 3,239 2,661 2,369 1,941 2,147 1,700 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H2012 Nominal GDP (R$) Real Growth(%)Source: LCA, IBGE 2009, Estimativas 2012 LCA 16
  17. 17. ... and the country has reached the full employment for the 1st time recentlyNumber of jobs % working-agecreated (MM) population 3 2,9 14 2,5 13 2,5 12 2 1,9 1,9 1,9 11 1,8 1,8 1,8 10 1,5 9 1,0 1 0,9 8 7 0,5 6 0 5 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H2012 New formal jobs creation Unemployment rate Source: MTE (Ministério do Trabalho e Emprego), IBGE 17
  18. 18. The real income growth makes us a powerful consumer nation... Minimum Wage (R$) 622 Growth: 211% 545 510 465 415 380 350 300 240 260 200 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Middle Class Total Wage (R$ Bn) Growth: 64% 63,8 60,3 58,1 54,2 51,2 47,7 45,1 38,9 39,0 40,7 37,9 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012ESource: DIEESE (Depto. Intersindical de Estatísticas e Estudos Socioeconômicos), BACEN 18
  19. 19. ... driven by the mid class, which already stood for 49.3% of the total residences in 2011 Social classes composition - % of total residences 4.5 A Class 4.1 17.5 B Class 30.7 30.9 C Class 49.3 33.8 D Class 15.1 13.2 E Class 0.8 1998 2011Source: IPC TARGET 19
  20. 20. Consumer credit has been considered the turbine of growth ... Credit Operations Balance (R$ Bn) 26% 25% 26% 28% 31% 35% 40% 44% 45% 49% 51% ² 2.168 2.030 1.706 1.414 1.227 936 733 607 499 384 418 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H2012 Total Operations % GDP11) Total credit operations over GDP2) Data referred to June/12 20
  21. 21. ... with stable compromised monthly income with debt services, despite the constant increase of family indebtedness Debt Burden¹ 45 42.5% 43.4% 40 39.5% 35.8% 35 32.2% 29.6% 30 24.9% 25 22.0% 20 18.4% 22.2% 21.9% 19.7% 19.7% 18.0% 18.6% 15 17.6% 17.7% 15.5% 10 5 0 jan/05 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12 mai/12 Debt Burden Household Indebtedness1) Debt burden in % of disposable incomeSource: BACEN 21
  22. 22. The drop of the income rate has begun to effect the credit takers, maintaining the confidence of Brazilian consumers Average Debt Interests x SELIC Indebtedness average term (months) 100 (% per year) 25 90 80 20 70 60 15 50 40 10 30 20 5 10 0 0 Natural Person Interest SELIC Goods acquisitions except vehicles Total Brazilian’s Consumer Confidence 190 170 150 130 110 90 jan/02 jan/03 jan/04 jan/05 jan/06 jan/07 jan/08 jan/09 jan/10 jan/11 jan/12Source: BCB, Fecomércio 22
  23. 23. In order to reach a satisfactory housing shortage level, it is expected that 23.5 million new houses be built from 2010 to 2022 CEF’s Housing Credit (R$ Bn) 76 70 80 47 56 23 33 11 14 12 21 18 4 6 7 9 2004 2005 2006 2007 2008 2009 2010 2011 Disbursed Contracted Housing Projection (R$ MM) and Housing Shortage (%) 100 11,3% 12,00% 80 79.5 10,00% 69.0 74.3 63.3 8,00% 60 8,2% 6,00% 40 4,00% 5,0% 20 1,5% 2,00% 0 0,00% 2010 2014E 2018E 2022E Unsuitable Cohabitants Suitable Housing ShortageSource: LCA: (Construbusiness 2010 - FGV); Caixa Econômica Federal1) Includes estimative of new families – 1.326 million per year; 2) % of families in the housing shortage 23
  24. 24. More houses and credit availability are an opportunity to increase sales of durable goods… Household appliances (MM units)1 Electronics (MM units)2 25,6 22,8 22,0 22,0 21,0 19,8 19,9 19,8 16,3 13,3 13,0 9,8 2007 2008 2009 2010 2011 1S2012 2007 2008 2009 2010 2011 1S2012 Computers (MM units) Mobiles (MM units) 57,2 9,6 47,8 42,9 41,4 6,2 6,3 7,1 5,4 5,1 30,8 27,3 2007 2008 2009 2010 2011 1S2012 2007 2008 2009 2010 2011 1S20121) Includes: refrigerator, wash machine, stove, microwave, air conditioner and freezer; 2) LCD, LED, Plasma, 3D, DVD, Home Theater, Mini-system, and auto sound systemSource: GFK Retail 24
  25. 25. ... and also to increase the penetration of these products in “C class”, still considered very low Percentage (%) Total population “C class” 2 Door Refrigerator 93 37 Computer 50 39 Wash Machine 68 61 Smartphone 1 35 19 Thin TV Screen 13 7 Air Conditioner 12 6Source: PNAD 2009 (Pesquisa Nacional por amostra de domicílios), IBGE,1) Nielsen - Consumidor Móvel 2011 25
  26. 26. Through products financing, the retail market is usually responsible for the “C class” access to financial services Access to current account Number of store cards (MM)1 CAGR: 16,9% per year 247 225 39% 196 63% 173 85% 147 118 97 86 61% 71 37% 15% AB Classes C Class DE Classes 2003 2004 2005 2006 2007 2008 2009 2010 2011 With Access Without Access1) Number of store cards – total of the populationSource: CETELEM (PesquisaObservador 2012, December 2011 – IPSOS) , ABECS (Associação Brasileira das Empresas de Cartão de Crédito e Serviços) 26
  27. 27.  Highlights of Magazine Luiza and Brazilian Market – 1H12 Institutional Presentation • Overview of the Brazilian Market • Magazine Luiza 27
  28. 28. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 28
  29. 29. Besides the retail segment, Magazine Luiza has two JV’s – partners on financial and insurance sectors – and the Luiza Consortium Controllers Free Float 67.9% 32.1% • Retail chain with focus on durable goods, only one brand (Lojas do Baú and Lojas Maia - corporate integration concluded 50% 50% 100%• Joint Venture with Itaú Unibanco • Joint Venture with Cardif• Financial institution established established in 2005 • Established in 1992 in 2001 • Products: • Household appliances, furniture,• Products: o Extended warranty services and vehicle consortium o Co-branded card (Mastercard) (The other insurances belong to the operational agreement • 55 thousand actives clients o Direct Credit(CDC) o Consigned loan between Magazine Luiza and • 220 thousand goods delivered o Personal loan Cardif) 29
  30. 30. Currently, 32% of the company’s stocks are in the free float, the remaining belong directly to the family and to the LTD holding Pre – IPO After– IPO 12.4% 32.1% 75,4% 87.9% 87.6% 150,000,000 stocks 186,494,467 stocksControllers ControllersCapital Int’l Inc. (Private Equity Fund) Free Float (includes Capital Int’l Inc.) 30
  31. 31. Experienced executives with strong corporate governance Executives with a wide experience in the Brazilian retail industry Corporate Governance Years with the Experience Name / Post Company (years) Luiza Helena Trajano >40 >40 President  Controlling shareholders with more than 50 years in the Marcelo Silva 3 34 industry CEO Roberto Bellissimo  Board of Directors with independent members since 2005 >10 >10 CFO  Audit Committee led by an independent member Fabrício Garcia >10 >10 Chief Commercial Officer  Financial statements audited for the past 10 years by a “Big Frederico Trajano Four” firm >10 >10 Chief Sales and Marketing Officer Isabel Bonfim  Senior Management: retention plan (stock options) Chief Managemente and Control >30 >30 Officer  Fiscal council established in 2012 Marcelo Barp (1) 4 9 Luizacred Luis Felipe (1) 6 >20 LuizasegNote 1. Years of experience in the financial services industry 31
  32. 32. Proven history of strong organic growth and successful aquisition even throughout adverse economic scenarios18 90016 728 731 70014 604 Madol, Killar12 444 455 500 Rede Wanel 39110 Lojas Líder 351 346 Baú: +104 stores 253 300 Nordeste: 8 174 +136 stores 7,1 111 127 São Paulo (Capital): 6 Santa Catarina: +46 stores 5,3 100 Rio Grande Sul +100 stores 3,9 Campinas: 3,8 4 Interior de SP: +20 stores +51 stores 3,2 +5 stores 2,2 2,6 -100 1,9 2 1,4 0,6 0,7 0,9 0 -300 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1H12 Gross Revenue – Retail Operation (R$ Billion) Number of Stores 32
  33. 33. Broad geographic footprint including in the Northeast of Brazil Geographic Footprint Gross Revenue evolution – Northeast R$ MM 731 stores 84% 597 Cabedelo Simões Filho 490,7 501,4 Ribeirão Preto Contagem 31% Ibiporã Loureira Navegantes % of stores per region (1H2012) 323,8 328 Caxias South 30% 24% Southeast 48% 20% 2% Northeast Mid-West 1H10 2H10 1H11 2H11 1H12States with stores Distribuition Center(8) 33
  34. 34. Ranked the 23th most valuable brand in Brazil Ranking published by Istoé Dinheiro Magazine – May 2012 1. Petrobras First 5 2. Bradesco 3. Itaú most valuable 4. SKOL 5. Banco do Brasil 6. Natura 11. Vivo 16. OI 7. Brahma 12. Perdigão 17. Casas Bahia 6 – 20 most valuable 8. Vale 13. Lojas Americanas 18. Totvs 9. Sadia 14. Bohemia 19. TAM 10. Antartica 15. Ipiranga 20. Cielo 21. Multiplus 26. Net 31. Iguatemi 22. Porto Seguro 27. Extra 32. Odontoprev 21 – 35 most valuable 23. Magazine Luiza 28. BM&F 33. Pão de Açúcar 24. GOL 29. Banrisul 34. União 25. Redecard 30. Hering 35. Embratel 36. Anhanguera 41. Durafloor 46. Havaianas 37. Amil 42. Arezzo 47. Deca 38. Lojas Renner 48. PDG 36 – 50 most valuable brands 39. MRV 43. Gerdau 44. Drogasil 49. Localiza 40. Marisa 45. Swift 50. Riachuelo Magazine Luiza brands values USD 479 MM1) Source: Istoé Dinheiro, Milward Brown/Brandanalytics 34
  35. 35. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 35
  36. 36. Strong corporate culture assisted by a sales model that is supported by enthusiastic teams High influence of service and credit on 15 years among the Best Place to Work purchasing decision Offered Brands Others Punctuality of 7.1% Delivery 4.5%Product Variety 3.2% 8.4% Price 39.8%  Luiza Consortium: for the last 2 years among the best companies to work (small and medium sized companies)  Communication: Luiza TV, Radio Luiza, Town Halls 37.0%  Transparency: availability of management information and frequently alignment Service/Credit  Empowerment: sales staff and managers have flexibility to negotiate sales conditions within a range  Compensation: based on gross profit, financial margin and sales 36
  37. 37. Supported by robust CRM tools, the exceptional relationship management drives customers loyalty • Base: 30 million clients – 30% actives CRM Tool Golden Client  CRM available to all stores: telemarketing tool based  Unique program in the sector: recognition and in propensity to buy benefits to the most loyal clients  Boomerang: telemarketing incentive campaign  Over 1 million clients: 5% of total, 20% of total income  Telemarketing during sales downtime – average of 500  Golden clients usually spend 50% more than regular thousand calls/month¹ ones  Return average: 5%  Golden day: stores opened exclusively for program clients with memorable experiences and purchasing  Telemarketing represents 30% of total income in some differentials stores  Buyback and loyalty increase1) Data referrers to 2012 37
  38. 38. Magazine Luiza clients are mainly from “C, D and E classes” Millions of clients – South, Southeast and Mid-West1 22.2 10% +20% 18.9 10% 16.0 14% 13.2 10.8 14% 86% 90% 90% 14% 86% 86% 2007 2008 2009 2010 2011 AB Classes CDE Classes CAGR1) Do not include Lojas do Baú and Lojas Maia database 38
  39. 39. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 39
  40. 40. Magazine Luiza is the only truly multi-channel retailer in Brazil  Free-standing stores or in malls  Small or mid-sized cities  Physical showroom and in-store  Direct delivery stock  No physical showroom or stock  Size:  Size: 150 m2 • Free-standing 700m²  Sales per m2 is double • Shopping 1.000m² conventional store624 stores in 16 states 106 stores in 4 states  Same product mix as the Internet  30,000 total SKU s  Dedicates sales team  More than 8 million unique visitors  Constant growth Trained Teams 82 million page views 40
  41. 41. Gross revenue growth for conventional and virtual stores was 29% annual rate over the last 4 years ...Gross Revenue (R$ Bn) 6.3 0.3 +29% 4.8 0.2 3.5 3,4 0.2 0.2 3.0 0.2 6.0 4.5 3.3 3.2 2.8 2008 2009 2010 2011 1H2012 Virtual Stores Convencional Stores CAGR 41
  42. 42. ... and the e-commerce is growing above market average, influenced by the increase of products mix on the websiteGross Revenue (R$ MM) 821.1 +51% 568.7 512.0 324.9 239.5 157.6 2007 2008 2009 2010 2011 1H2012 CAGR 42
  43. 43. Magazine Luiza’s growth was significantly greater than the market growth in general, turning into relevant market-share gains CAGR 2002-2011 Market x Magazine Luiza 28% 19% 12% 14% 4% GDP Retail Furniture & Home Appliance Furniture & Home Appliance NE Magazine Luiza ¹ Same-store Sales Magazine Luiza vs. IPCA 35,0 3,0 2,4 30,0 2,2 2,5 2,1 25,0 2,0 20,0 1,4 1,5 1,1 1,2 1,1 1,5 15,0 33,0 31,1 30,0 24,3 25,6 1,0 10,0 1,0 20,0 14,4 15,9 13,0 0,5 5,0 0,5 10,1 0,0 0,0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 Same-store sales Inflation1) Gross Revenue CAGR of retail operations, do not include Luizacred, Luizaseg and Consortium revenues 43
  44. 44. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 44
  45. 45. Pioneer in the financial services through Luizacred ... Comments50% of sales are made through Luizacred • Financial institution established in 2001, resulted from the partnership between Magazine Luiza and Unibanco (nowadays, 25% 22% 22% 25% Itaú-Unibanco) 27% 30% • Consumer finance operations available in every Magazine Luiza store 25% 27% 26% • Luizacred finances approximately 50% of 24% 30% 1% 31% Magazine Luiza’s total sales • Credit card base: 4.2 million (2Q12) 19% 34% • Products: co-branded card (Mastercard), 39% 34% 23% direct credit(CDC), loans and other 49% financial services 30% 17% • Another important tool to enhance 13% 11% 16% customer loyalty • Itaú-Unibanco: responsible for credit- 2007 2008 2009 2010 2011 1H2012 scoring and funding CDC Luiza Card Third-party Card Cash Sales / Down Payment 45
  46. 46. … and Luizaseg Joint Ventures Comments Products • Joint venture with Cardif since 2005; operates in the massif insurance segment and features on the extended warranty distribution • Luizaseg has a complete structure toward client support, with staff in stores, customer service department, exclusive team to take care of customer damages and a wide network of technical assistance for the extended warranty insurances • Over 3 thousand accredited workplaces distributed all over the country • Featured among the best retail’s insurers • In 2011, 4.8 million new issued insurances. Equivalent to R$ 220 million in prizes; 15% growth over the year before • R$ 5.3 million distributed in prizes • Over 2 million extended warranty insurances • Operation with high cash flow generation and low damage Luizaseg: significant growth in insurance product sales 46
  47. 47. … and Luiza Consortium Products Comments • Through the letter of credit system, consortium is based on the union between natural or artificial person, aiming to participate in a common activity or to pool their resources for achieving a common goal • Luiza Consortium distributes furniture, household appliance, vehicle and service consortium • Available in every Magazine Luiza’s store • Over 85 thousand active clients • More than 60 authorized commercial representatives • Over 220 thousand goods delivered 47
  48. 48. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 48
  49. 49. Focus on the best product mix...Mix% of sales, 1H2012 Others 10% 31% Household Furniture & Kitchen Appliances 15% appliance 20% Tecnology 24% Sound & Image 49
  50. 50. ... to support changes in consumer behavior (1/4) Television Television South, Southeast and Mid-west Northeast Units sold (%) Units sold (%) 7% 5% 67% 91% 93% 95% 33% 9% 2007 2011 2007 2011 R$ 783 R$ 1,406 R$ 636 R$ 1,007 Flat TV 1 CRT Weighed average ticket1) LCD, Plasma, LED, 3D 50
  51. 51. ... to support changes in consumer behavior (2/4) Computer Computer South, Southeast and Mid-west NortheastUnits sold (%) Units sold (%) 30% 47% 84% 88% 70% 53% 16% 12% 2007 2011 2007 2011 R$ 1,364 R$ 1,124 R$ 909 R$ 818 Desktop Notebook Weighed average ticket 51
  52. 52. ... to support changes in consumer behavior (3/4) Washing Machine Washing Machine South, Southeast and Mid-west NortheastUnits sold (%) Units sold (%) 43% 48% 52% 73% 57% 52% 48% 27% 2007 2011 2007 2011 R$ 701 R$ 884 R$ 581 R$ 586 Washing Machine “Tanquinho” Weighed average ticket 52
  53. 53. ... to support changes in consumer behavior (4/4) Refrigerator Refrigerator South, Southeast and Mid-west NortheastUnits sold (%) Units sold (%) 20% 40% 35% 64% 80% 60% 65% 36% 2007 2011 2007 2011 R$ 1,323 R$ 1,501 R$ 1,139 R$ 1,142 Without freezer With freezer Weighed average ticket 53
  54. 54. Evolution of plans and interest rates have also supported those changes 2007 2011 Interest Rate 5.50% 2.99% Main changes • Interest rates became more attractive Form 0+15 through Luiza Card financing Minimum Wage (R$) 380.00 545.00 • Purchase power increased while risk decreased Class C Minimum Wage (R$) 1,140 1,635 TV LCD 32" Notebook Washing Machine Year 2007 2011 2007 2011 2007 2011 Price (R$) 2,947 1,187 2,002 1,246 1,159 1,046 Installments (R$) 293.00 99.36 199.45 104.30 115.47 87.56 Installment/Class C 25.7% 6.1% 17.5% 6.4% 10.1% 5.4% Minimum Wage1) Analysis: March to June 2007; April 2011Source: Flyer Magazine Luiza 54
  55. 55. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 55
  56. 56. Magazine Você: leading our multi-channel strategy to the highest degree Direct Sales E-commerce in Brazil Social Networks•Brazil: fourth-largest market • 23 million buyers • 85% claim to be in a social – Revenue (2010): R$ 26 bn • 46.5% from “C class" network•2.74 million direct sellers • Revenue (2011): R$ 20 bn – Facebook: 30 MM users –Orkut : 29MM users•The user creates its own store with up to 60 products from Magazine Luiza website (magazineluiza.com.br) andshare the products with its friendsthrough Facebook and Orkut• Comission goes from 2.5% to 4.5% per product sold in the store• No initial investment is required•Magazine Luiza is responsible for logistics and paymentSource: Ibope, Ebit, Forrester research, Magazine Luiza 56
  57. 57. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple opportunities Company of growth Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 57
  58. 58. Excellent organic growth potential North 30  Multi-channel model with broad geographic reach gives Magazine Luiza Northeast advantage to spot new stores opportunities 56  Around 240 priority cities for new Magazine Luiza Mid-West stores 18  240 priority cities for new Magazine Luiza stores − 30% will be opened Southeast with the Virtual Store Concept 109 South 28Source: IBGE, Company 58
  59. 59. … and multiples opportunities to grow all over the country Relevant Growth of Virtual Channels • Amount of virtual store and internet sales above market Increase Share of Financial growth Products • Over 4 million clients have a Luiza credit card – fidelity potential • Penetration of Luizacred in Lojas Maia sales Industry ConsolidationOrganic Growth • M&A potential with high• Increase presence where industry fragmentation – currently operating, more than 50% of the especially the northeast industry is in the hands of and Greater São Paulo small companies• 33% of the stores have not reached their maturity• Remodel to increase same store sales 59
  60. 60. Growing for more than 50 years in the Brazilian Retail Market Financial Information – 2Q12 Multiple growth Company opportunities Strong corporate culture,First social e-commerce in Brazil Magazine Luiza focus on valuing people and customers Focus on the best Multi-channel model product mix under the same brand Pioneer in the retail financial service 60
  61. 61.  Key Financial Indicators - Historical Evolution Integration Process – Lojas do Baú and Lojas Maia Latest release – 2Q12 61
  62. 62. Net Income Evolution (R$ million) 1,928 18 1,805 1,802 161 18 21 1,596 1,603 158 167 16 1,473 18 108 1,416 17 135 1,197 16 116 117 1,073 15 14 100 941 95 14 93 1.780 1.659 1.643 1.501 1.477 1.309 1.368 1.105 987 8491Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12Retail LuizaCred LuizaSeg Consortium Eliminations Inter-Company 62
  63. 63. Gross Profit Evolution (R$ million) 36.0% 34.3% 34.5% 32.6% 33.2% 32.8% 32.7% 34.7% 31.8% 33.5% 668 17 603 574 135 19 521 524 17 15 470 483 17 146 132 88 15 15 413 108 94 94 368 14 339 13 84 13 81 81 549 451 457 469 403 430 388 339 297 261 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12Retail LuizaCred LuizaSeg Consortium Eliminations Inter-Company Gross Margin 63
  64. 64. Adjusted EBITDA Evolution (R$ million) 6.4% 6.6% 7.9% 5.9% 5.6% 4.5% 5.9% 5.5% 2.4% 4,1% 107 95 94 2 2 94 2 2 2 9 79 26 74 70 27 2 67 9 2 61 3 2 5 13 9 43 2 10 2 111 92 71 77 76 73 62 64 60 54 (5) (8) (6) (8) (9) (8) (8) (9) (12) (8) (8) 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12Retail LuizaCred LuizaSeg Consortium Eliminations Inter-Company EBITDA Margin 64
  65. 65. Adjusted Net Profit Evolution (R$ million) 1.0% 1.5% 1.9% 1.3% 0.6% 0.1% 1.2% 1.4% -0.6% 0.5% 33.8 2,1 27.7 2,0 23.1 13,5 1,6 20.5 15.9 1,7 14.9 14.8 1,6 5,2 16,3 1,5 26,7 9.3 2,5 7,9 4,6 8.8 1,9 1,3 19,0 1,8 13,2 5,9 8,7 6,2 9,5 6,0 5,2 2,2 1,0 2,6 (1,6) (10,3) (8,3) -15.4 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12Retail LuizaCred LuizaSeg Consortium Eliminations Inter-Company Net Margin 65
  66. 66.  Key Financial Indicator - Historical Evolution Integration Process – Lojas do Baú and Lojas Maia Latest Release – 2Q12 66
  67. 67. Integration Process – Lojas do Baú 3Q11 4Q11 1Q12 2Q12Lojas do Baú integration process (7 months)Acquisition of 121¹ stores from Lojas do Baú July 29, 2011 - R$80,3 millionDocumentation to start operating Most of the closed stores were closed during this periodVirtual Stores Virtual stores opening 35 stores (Paraná) Stores renovation Complete stores renovation Systemic and corporate integration End of dec/2011Conventional Stores Conventional stores opening 69 stores (34 Paraná, 34 São Paulo, 1 Minas Gerais) Stores renovation Uniforms and storefront changes Systemic integration End of feb/2012Integration benefits (synergy)1) 13 stores were alienated and 4 conventional stores were renovated and attached to other existent Magazine Luiza1 store 67
  68. 68. Integration Process – Lojas Maia 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13Lojas Maia integration processBrand change – Magazine Luiza Metropolitan area of Recife 14 stores (Oct) Metropolitan area of Maceió 9 stores (Dec) Metropolitan area of Fortaleza 15 stores (Dec) Other RegionsCorporate integration Apr/2012Stores systemic integration Conclusion Oct/2012Integration benefits (synergy)1) The front end integration had been carried in 2010, which considers: sales force training, product range mix, financial services and small stores renovation 68
  69. 69.  Key Financial Indicator - Historical Evolution Integration Process – Lojas do Baú and Lojas Maia Latest Release – 2Q12 69
  70. 70.  2T12 Highlights Financial Performance Operational Performance Expectations for the Next Quarters 70

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