Lojas Quero-Quero S.A. (LJQQ3) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to Lojas Quero-Quero Second Quarter 2026 Earnings Conference Call. My name is Igor Sehn, Financial Planning and Investor Relations Manager. And joining me today are Peter Furukawa, Chief Executive Officer; and Jean De Mello, CFO and IRO. To begin our presentation please turn to Slide 3. Today we will begin speaking about our strategic pillars, followed by our expansion and key projects. We will then review our financial and operating results for the second quarter of '26. And finally, we will open the floor for a question-and-answer session. Questions may be submitted at any time by using the Zoom Q&A button. We will now move on to Slide 4. I turn the floor over to Peter.

Well, good morning, everyone. It is a pleasure to be here once again to share the highlights of our second quarter 2026 results. As we reach the midpoint of the year, we continue to see operations evolving consistently in line with the expectations we established at the beginning of 2026, although the macroeconomic environment remains challenging, particularly due to the high cost of capital, but we remain focused on what is within our control, strengthening our customer value proposition, maintaining financial discipline, preserving the quality of our credit portfolio and continuing to execute our long-term strategy. Throughout 2025, we made a deliberate decision to enhance our customer service and competitiveness in order to gain market share even in a weaker consumer environment. We had positive signals delivered in the first quarter of the year, and we now see that strategy reflected more clearly in our operating performance. During this quarter, we continued to make progress across our 5 strategic pillars. Under our first pillar, gaining market share, gross revenue increased 9.7% year-over-year, reaching BRL 834 million. The main highlight you can see in same-store sales that represented 7.6%, showing the gradual recovery we observed since the second quarter of last year. We also inaugurated 3 new stores, ending the quarter with 576 stores in operation. We have had significant market gains, in credit and collections excellence, we continue to balance growth with portfolio quality. Our credit portfolio grew 12% vis-a-vis the second quarter of '25, while delinquency remained under control with loans over 90 days past due at 12.5%, in line with the company's historical levels. This reinforces our confidence that our strategy of continuously refining our credit models is still appropriate for the current economic environment. Under the do more with less pillar, we continue to improve operational efficiency. Selling expenses increased only by 1.8% on a nominal basis below the inflation rate. Now once again, this is below the inflation rate, reflecting our ongoing cost control efforts. Administrative expenses remained virtually flat compared to the previous year, demonstrating disciplined resource allocation even as sales growth resumed. In digital sales, our digital initiatives continue to account for approximately 23% of total sales, reinforcing the consolidation of our fully integrated physical and digital business model. Finally, under our high-performance culture pillar, we continued investing in leadership development. We graduated 26 new store managers and ended June with 254 employees employed in our Desponte leadership development program, preparing future leaders to take on management positions across our store network to support the company's continued growth. In expansion, we ended the second quarter with 576 stores in operation across 495 cities in the states of Rio Grande do Sul, Santa Catarina, Parana, Mato Grosso do Sul and Sao Paulo. During the first half of the year, we opened 5 new stores, including 3 during the second quarter, 2 in Parana state in the cities of Mariluz and Borazopolis and 1 in Iguatemi, Mato Grosso do Sul. We also completed 3 store remodels as part of our active portfolio management strategy, always aimed at continuously improving the profitability of our store base. A key characteristic of our business model remains unchanged. 56% of our stores are located in cities with fewer than 25,000 inhabitants. 73% are in municipalities with fewer than 5,000 inhabitants. Now the results achieved in the first half of the year reinforce our confidence in the strategy we are executing. We continue to prioritize cash generation, credit portfolio quality, sustainability to allow for consistent growth for the company during 2026. With this, I will give the floor to Jean, who will refer to the financial results during the quarter.

Thank you, Peter. A good day to all of you. I will go straight to the next slide to speak about the behavior of our revenues during this quarter. We'll go into a little more detail. We had a quarter that shows that consistent and gradual improvement of the company's sales and consequently of the revenues. We had a 10% growth in revenues for the quarter and the main indicator is same-store sales. In the graph at the bottom of the slide, you can see that throughout the second quarter of last year, we had signals of a lower demand. We were able to implement some changes, improving proposals for customers, and we saw benefits as of the fourth quarter of last year. Therefore, the performance improved through time. In the first quarter, we mentioned that with the exception of lines geared to air conditioning that had done very well in the first quarter '25, all others were positive. So we had a slight improvement, and this has been consolidated now in the second quarter, where we reached same-store sales growth of 6.7%, total sales growing 8%, 8% growth in financial services and a growth in credit cards, 9%. Now this was based on our expectation, a gradual operational improvement throughout the year. And this expectation, of course, remains and what we had been planning, I think, has become ever clear here. On the next slide, we were able to maintain a virtually stable position with the retail margin in a scenario of weaker demand. And despite the gain of share, we were able to maintain a stable retail margin vis-a-vis the first margin, 2.5% based on gross profit compared to last year. And -- we are performing somewhat below the plan, and we have the financial services. We knew that we would have a higher cost, as Peter mentioned, because of the cost of capital somewhat higher that had been foreseen at the beginning of the year. And of course, we have been very cautious. We're careful with default levels. We maintain our customer portfolio under control, and we can speak about this in detail subsequently. But to ensure that everything is under control is to be more conservative in the granting of credit. This means to say to have less products that have a high rate of default. So we sort of put aside the revenue margin for the short term to guarantee that in coming quarters, even in an adverse scenario, we can maintain a controlled credit portfolio and a healthy growth for the company. On the next slide, we have [ construction ] during the last quarters and during the last years, always keeping a focus on the level of expenses. It is important to keep this under control and to decide where to allocate our investments. And in this second quarter, we have a nominal reduction in operating expenses very similar to what we saw in the first quarter. So in the second quarter, specifically, we had a growth of sales of 1.8% below the inflationary pressure. And yes, we do have that ability to have operating leverage. General and administrative expenses aligned with the second quarter of '25, positive as well as other SG&A expenses. So this part of expenses is being kept under control, and we can go back to having a better operating leverage as soon as the sales increase. On the next slide, we reached an EBITDA of BRL 32.6 million vis-a-vis BRL 29 million for the previous quarter. Now as the same-store sales begin to show an improvement as we saw in the previous slides, we can show you that we have an opportunity for operational leverage, very similar to the second quarter of '25. The same holds true for adjusted EBITDA aligned with the previous quarter. On the next slide, we maintain the cost of capital a little higher, but more aligned with the second quarter of 2025. And the net result of BRL 30 million nominally is virtually the same as that of the second quarter of '25. This is what we had been remarking on that as soon as we could have an increase in sales, same-store sales on a positive direction, we would be able to stabilize our results and have that possibility of improving throughout the year. On the next slide, we will go into greater details. We maintain the quality of our portfolio. And here, you can see the growth of our credit portfolio historically, especially with the 90-day default rate that is maintained at 12.5% for the second quarter. This, of course, is a historical achievement, especially if we compare this with '24. We follow up on the default levels in the market as a whole. And you can see that we have been able to maintain the quality of our credit portfolio, and we have an ever-growing credit portfolio growing in a very healthy way. So we stand at 12.5% in the second quarter compared to 12% in the previous quarter. Now these results are due to a broader use of our credit cards. We had a growth of 13% in this quarter, and we're gaining relevance in our credit cards for our customers. And for the customer, this credit card is becoming ever more relevant in their day-to-day uses. We now go on to the next slide. And something that will have an impact as Peter mentioned, the maintenance and control default and our credit portfolio, but also have an impact on our cash flow. We have a guidance of opening up several stores this quarter. We opened up 5 in this quarter. So this shows a reduction of investment once again because of the high cost of capital. And you see an investment of BRL 16.2 million -- and -- all of this will lead us to what we see in the next slide, which is a controlled net debt. In the last 4 quarters, we haven't had cash consumption even with our financial expenses and the high cost of capital. Despite this, we're working strongly, focusing on investments, working capital to maintain the net debt under control. In the second quarter, we have the same net debt as in the first quarter of '26, which is the nominal debt with variations of BRL 1 million or BRL 2 million, and this compared to the second quarter of '25. We had already remarked on this, and it becomes clear in the second quarter that we're working on cash flow to maintain once again, the company debt under control. Well, I don't want to be repetitive, but this is what has been happening historically. We have a cash consumption in the first half of the year and cash production in the second half of the year. This is what tends to normally happen. And we don't expect anything different throughout this year. We have that opportunity to improve and generate cash beginning in the second half of this year as we have done historically. Very well. With that, I would like to end my presentation, and I will return the floor to Peter, who will begin the question-and-answer session.

[Operator Instructions] The first question is from Vinicius Pretto from Itau BBA. It will be answered by Peter.

Do you think the FIFA World Cup had a relevant impact on sales in the second quarter? Were they positive or negative? Did you estimate the magnitude of this effect? And looking forward, which will be the evolution of demand in the third quarter and your expectations for the second half of the year?

Well, it's always a pleasure to speak to you. Now regarding the FIFA World Cup, yes, we did have a slight increase in the sale of television sales, but nothing that truly impacted our sales. And at the end, I would like to comment on our growth in share, but we were not able to identify a true impact caused by the FIFA World Cup. Regarding your second point, the evolution of consumption in the third and fourth quarters and our vision until the end of the year. I don't foresee a growth of the market in the second half of the year. What I do see is our gain in share. And I think there is significant room to continue to gain share. I don't believe the market will grow very much because of the interest rate that we have. So we're going to focus on improving our performance, products, price and assortment to gain share. This is our quest. And we have seen competition that is also suffering significantly. This gives us the opportunity to continue to grow. This is my vision of the rest of the year.

Well, thank you, Peter. The second question is also from Vinicius Pretto from Itau BBA. This will be answered by Jean.

What are you thinking about in terms of cash generation for the second half of the year?

I had already remarked on this. We do have a seasonality that benefits us in the second half of the year in terms of sales. Now in this quarter, we have a net debt very aligned with the net debt of the quarter in 2025. And this is a trend that we should see repeated in the third quarter. The trends are very similar to have a good performance. Well, formerly, we didn't consume cash in the first half of the year, and we would produce cash in the third and fourth quarters. Of course, we have to maintain sales at the levels they are presently. And this is what happened in the second half of 2025. But we do have a few factors such as the drop in the Selic rate that might end up being positive. What we do expect is to maintain in the third quarter a debt that is equal or perhaps lower than what we saw in the third quarter in 2025. And we will continue with that focus. On the control of our working capital, you see that our accounts and the balance are properly under control to continue to see an increase in sales and improvement of results in the coming quarter, resulting in the continuity of a controlled net debt and leverage. And we hope to have a third quarter that is better than that in 2025.

Thank you, Jean. The next question will also be answered by Jean.