Grupo Casas Bahia S A : Q3'24 Earnings Release Presentation Video Transcript

Grupo Casas Bahia Q3'24 Results

Renato Franklin - CEO

Intro

Hello! Welcome to the Grupo Casas Bahia Q3'24 results presentation. Highlights

In Q3'24, we achieved our fourth consecutive quarter of improved operating margins, highlighting the potential operational leverage ahead.

This quarter, we began capturing the impact of our Transformation Plan in GMV terms. We resumed B&M store growth, with a 6.5% increase in same- store sales. 1P online reduced the decline to 22.6%, while 3P grew 18.3% due to a mix shift towards core categories. Most importantly, all channels presented profitability improvements and positive growth trends.

Logistics

We continue advancing in monetizing services that leverage our ecosystem assets and create new revenue sources.

We launched full cross logistics, allowing suppliers to store products in our DCs before purchase orders are placed, either with our banners or third parties. This model improves inventory management, reduces storage days, shortens delivery times, enables just-in-time supply, decreases stockouts, and supports regionalization. Additionally, it allows for shared operations with marketplaces and open sea.

The industry now has access to a national-scale logistics operator with expertise in both light and heavy items, serving various retail platforms. This enables a more predictable production cycle with scheduled deliveries, reducing operational friction. We believe this will transform the supply chain by optimizing inventory, reducing invested capital, and minimizing stockouts.

We also unified our logistics operations under one new brand, CB Full, offering a complete service platform using an already established network. We serve sellers and external clients, generating revenue growth, cost dilution, better assortment, improved inventory and delivery timelines, and better service levels. We see high growth potential in this new business unit with no need for new investments.

Installment plan

Our credit portfolio grew by over R$ 150 MM in the quarter, reaching a historic high of R$ 5.7 Bn. Digital penetration also hit an all-time high at 9% of sales, both 1P and 3P, while B&M stores reached 26.5%.

This credit is being offered to a well-known customer base, maintaining profitability with healthy delinquency indicators. As a result, we saw a 0.9

1. y/y reduction in over 90 days overdue debt, and net loss remained stable.

Casas Bahia ADs

We are constantly innovating to improve advertisers' omnichannel experience. Our retail media solution, through an integrated platform, enables the creation and management of campaigns across all environments, digital and physical. In Q3, gross revenue grew more than 400% vs Q3'23 and 38% sequentially.

We are building the most complete omnichannel ecosystem in Brazilian retail, recognized by global partners such as Salesforce, where we were the only Latin American retailer showcasing our case and Casas Bahia Ads' potential at the Dreamforce event in San Francisco in September.

Transformation Plan

Our Transformation Plan is progressing, with new opportunities mapped to boost profitability and strengthen cash flow.

Among the initiatives aimed at driving revenue, I highlight the new AI- based pricing tool, already in pilot for 80% of online channel revenue, and testing starting in B&M stores.

Additionally, we implemented advanced analytics in all stores, empowering our salespeople with tools in the palm of their hands to boost efficiency and productivity. In Q4, we'll start seeing results from these levers.

Installment plan penetration, up 3.2 p.p. to 17.7% of sales, remains a key lever of our plan, driving both sales and profitability growth.

Results so far prove we're on the right track, aware of the challenges ahead but confident in our goals.

Now, I'll pass the floor to Elcio for the financial highlights.

Elcio Ito

Results Highlights

Thank you, Renato, and hello everyone!

Before diving into the financial details, I want to highlight our discipline in executing the Transformation Plan, which began just over a year ago. The plan focuses on profitability and cash flow generation through more strategic capital allocation, prioritizing our core categories, reevaluating our sales channel strategies, and implementing strict cost and expense management.

Now, turning to the quarterly results, we achieved a gross margin of 31.6%, an increase of 0.9 p.p. vs Q2'24 and 8.6 p.p. vs Q3'23. Remember, in the same period last year, we were focused on reducing old inventory, which required significant discounts, impacting margins.

Regarding SG&A, we've maintained our commitment to a lean and efficient structure, with a cumulative reduction of R$ 336 MM in the 9M24. The combination of a stronger gross margin and lean SG&A led to an EBITDA margin of 7.7%, a 0.7 p.p. improvement over Q2. This is the fourth consecutive quarter of sequential margin improvement, even with reduced revenue.

In preparation for the seasonal demand increase from Black Friday and Christmas, we increased inventory by R$ 417 MM. Despite this, we advanced in the net monetization of tax credits and strengthened our liquidity, closing the quarter with R$ 3.1 Bn in liquidity, an increase of R$ 232 MM vs Q2'24.

As part of the Transformation Plan, we made strategic decisions such as discontinuing 23 categories in the 1P channel, reducing online incentives (especially B2B), and closing 61 stores, which resulted in a planned revenue reduction. The reduction this quarter was 3%, compared to an average of 14% in previous quarters as shown in the upper left graph.

The lower left graph shows SG&A reduction this quarter, and the graphs on the right show consistent improvements in gross margin and EBITDA margin for the fourth consecutive quarter. The 2nd phase of the plan now focuses on sustainable revenue growth and potential operational leverage. Renato already mentioned the B&M store expansion and our focus on making the online channel more profitable.

Income Statement (DRE)

On revenue, besides merchandise sales, I highlight a 28% growth in services revenue, driven by insurance, extended warranties, and 3P commissions. Financial solutions revenue also increased by 38%, with installment plan representing 17.7% of gross revenue, boosted by the growing credit portfolio.

Our gross profit was R$ 2 Bn, with a 31.6% margin, an 8.6 p.p. annual increase and 0.9 p.p. quarterly improvement. This growth was supported by higher services and installment plan revenue. With structural adjustments and tight expense control, we reduced expenses by 2.9% this quarter, saving R$ 336 MM over the last nine months.

EBITDA for the quarter reached R$ 491 MM, with a margin of 7.7%, reflecting consistent sequential and annual improvements. The financial result totaled R$ 738 MM, mainly impacted by high interest rates, and we achieved a 58% y/y improvement in EBT, although we still posted a net loss of R$ 369 MM.

Cash Flow and Liquidity Position

In terms of cash flow, we were impacted by working capital due to increased inventory for year-end demand. Nonetheless, we generated R$

206 MM in net monetization of tax credits. Legal claims consumed R$ 212 MM, the lowest for Q3 in the past five years.

With stable investments of R$ 46 MM and leasing of R$ 255 MM, we ended with a negative free cash flow of R$ 179 MM. However, through new financing lines, including those related to the installment plan, we added R$ 232 MM to our liquidity position, closing the quarter with R$ 3.1 Bn in liquidity.

Thank you all. I'll pass the floor back to Renato.

Renato Franklin Thank you, Elcio.

We're excited and ready for a successful Black Friday and to capitalize on Q4 seasonality for another step forward in our results! Our team is motivated and equipped with the right tools to maximize sales and profitability.

We've strengthened our alliances with key suppliers and secured quality and deep inventories to take advantage of the opportunities, leveraging our capillarity, brand strength in stores and online, logistics network, and the potential of our installment plan! It will be an important quarter for Grupo Casas Bahia!

All of this while staying focused on profitability and cash flow, which guide all our decisions. We continue innovating and investing to ensure sustainable growth and prepare the group for a new expansion cycle in late 2025.

We remain Dedicated to You!

Thank you all, and see you tomorrow at our videoconference.