Release Date: August 16, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Pet Center Comercio E Participacoes SA (BSP:PETZ3, Financial) announced a merger with Cobasi, creating a combined company with significant scale and synergies.
- The merger is expected to create the best and most integrated pet ecosystem in Brazil, benefiting consumers with improved services and competitive pricing.
- The company reported a 44.4% share in the digital channel, with an 8.7 percentage point growth year over year.
- There was a 21% increase in active customers in the digital channel and over 500,000 subscribers, representing an all-time high.
- The company achieved a positive same-store sales performance of 0.9%, reversing a negative trend from the previous three quarters.
Negative Points
- The second-quarter earnings were weaker than expected, with a gross revenue growth of only 3.8% and pressure on gross margins.
- The company faced a 60 basis point pressure on gross margins due to increased digital share penetration.
- EBITDA experienced a 130 basis point pressure, partly due to gross margin issues and increased sales expenses.
- The net income was negatively impacted by a non-cash effect of BRL13 million due to a debt in dollars.
- Operational expenses, including leases and personnel costs, grew at a higher pace than sales, impacting profitability.
Q & A Highlights
Q: Can you provide a timeline for capturing synergies and the listing structure for the new company?
A: We expect to capture 85% of the synergies within three years. The new company will be listed under a new ticker on Bovespa, with Cobasi incorporating Petz and registering as a publicly held company.
Q: Why did Petz keep 52.6% of the shares in the merger?
A: This adjustment was made to reflect better-than-expected conditions at Cobasi, ensuring comfort for both companies. The cash installment was adjusted to BRL400 million, split into BRL270 million at closing and BRL130 million in extraordinary dividends.
Q: Will there be any store closings due to the merger?
A: We prefer to see it as an opportunity for optimization rather than a need for closings. McKinsey will conduct a detailed study to identify areas where rationalization can make the business healthier and more profitable.
Q: How will the merger impact gross margins through commercial rationalization?
A: Both companies are already efficient in supplier relationships, and while there may be some opportunities for margin improvements, this is not a central focus of the merger. The primary benefits will come from cost optimization and operational efficiencies.
Q: What is the expected impact of the online channel on the combined company's profitability?
A: The online channel will continue to be competitive, driven by consumer demand. We aim to reduce the price difference between online and physical stores by optimizing costs and improving operational efficiencies, rather than increasing online prices.
Q: What factors are behind the pet deflation trend, and how does it affect store-level performance?
A: The deflation is measured by comparable sales prices, not costs. The increased share of digital sales, particularly in pet food, has pressured margins. However, the merger's cost efficiencies will help restore healthier margins.
Q: Can you explore the service model and what each company does better?
A: Both companies will continue their current service models. We will conduct a detailed study with McKinsey to identify best practices and opportunities for improvement in the service segment.
Q: What is the potential for synergies and the impact on EBITDA?
A: We expect to capture synergies worth BRL220 million to BRL330 million annually, with 85% realized within three years. The combined company's EBITDA margin will improve through operational efficiencies and cost optimizations.
Q: Is there a penalty if either party withdraws from the merger?
A: The signed agreement is binding and cannot be revoked without penalties. The completion of the merger is subject to approval by the antitrust body, CADE, and the shareholders' meeting.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
