Release Date: August 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Natura &Co Holding SA (NTCOY, Financial) reported consolidated revenue of BRL7.4 billion for Q2 2024, up 5.7% in constant currency.
- Natura &Co LatAm grew 10% in constant currency, driven by strong performance in Brazil and Spanish-speaking countries.
- The company issued a green bond of BRL1.3 billion, maturing in four years, reflecting financial solidity.
- Adjusted EBITDA margin improved by 80 basis points year over year, driven by gross margin improvements and reduced G&A expenses.
- Natura Brazil saw a 15% revenue growth compared to Q2 of last year, driven by successful sales campaigns and product innovation.
Negative Points
- Avon International's revenue declined by 8.4% in constant currency, impacting overall performance.
- The company reported a net loss of BRL859 million for Q2 2024, compared to a net loss of BRL732 million in the same period last year.
- Free cash flow from continuing operations was negative BRL675 million, despite an improvement from the previous year.
- The Body Shop's ongoing impact contributed to a 180 basis points contraction in Avon International's margin.
- Working capital consumption was high at BRL941 million, primarily due to seasonality and increased accounts receivables.
Q & A Highlights
Highlights of Natura &Co Holding SA (NTCOY) Q2 2024 Earnings Call
Q: Can you provide more details on the timing and dynamics of Avon's Chapter 11 filing?
A: Fabio Colletti Barbosa, CEO: The timing is uncertain, but we believe it might take a few months. Operations outside the US will continue as usual until the auction process concludes. The corporate streamlining study is on hold until the Chapter 11 process is completed.
Q: What are the logistics integration plans for Latin America, especially considering the complexity and timing?
A: Joao Paulo Ferreira, CEO of Latin America: Logistics changes in Brazil and system updates in Mexico are planned for the second half of the year, ideally before the Christmas campaigns. Everything is on track to be completed this year.
Q: What happens if the Chapter 11 filing is not accepted by the US courts?
A: Guilherme Castellan, CFO: Each case is different, but we believe Avon's case is less complex. If the filing is not accepted, we will reassess our strategy. We remain committed to Avon's turnaround and believe in its potential.
Q: Can you explain the working capital situation and its future outlook?
A: Joao Paulo Ferreira, CEO of Latin America: The increase in working capital is due to planned investments in inventory and credit extensions with low delinquency rates. This is expected to normalize, and we remain focused on cash conversion.
Q: What are the sales expectations for Natura Brazil in the second half of the year?
A: Guilherme Castellan, CFO: We are confident in the sales trend, driven by strong market share gains, successful innovations, and healthy consumer spending. We expect continued strong performance in the second half.
Q: How is the gross margin being impacted by the product mix and geographic focus?
A: Joao Paulo Ferreira, CEO of Latin America: The favorable mix of geographies and categories, along with the optimization of the portfolio, has improved gross margins. We expect further optimization opportunities moving forward.
Q: What are the plans for Wave 2 implementation in Mexico?
A: Joao Paulo Ferreira, CEO of Latin America: We are taking a phased approach to Wave 2 implementation in Mexico, focusing on commercial rules, IT platforms, and logistics. Full integration is expected in the first half of next year.
Q: Can you provide more details on the digital business and recent platform changes?
A: Joao Paulo Ferreira, CEO of Latin America: We have replaced our e-commerce engine with Salesforce and adjusted commercial rules. This has led to an upturn in digital operations with strong top-line and profitability performance in Q3.
Q: What are the initiatives to improve productivity and EBITDA margin for Avon International?
A: Guilherme Castellan, CFO: We are focusing on a small number of countries and running commercial pilots. Positive KPIs are emerging, and we expect continued improvement in productivity and profitability.
Q: How should we think about the health and future of Avon LatAm?
A: Joao Paulo Ferreira, CEO of Latin America: We are revisiting Avon's brand positioning and focusing on product development and commercial integration. We expect substantial growth in key categories like make-up and continued improvements in other areas.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
