Lojas Quero-Quero (LJQQ3) Q2 2024 earnings summary

Executive summary

• The second quarter of 2024 saw a strong recovery with gross revenue up 14.3% year-over-year to R$736.6 million and same-store sales rising 10.3%, despite severe floods in Rio Grande do Sul that directly impacted 12 stores and partially affected 29, all of which resumed operations by mid-June.

• Opened 10 new stores in the quarter, reaching 562 stores, with a focus on small and medium cities in southern Brazil, Mato Grosso do Sul, and São Paulo.

• The business model combines retail of building materials, appliances, and furniture with financial services, including the VerdeCard credit card, which finances 53% of in-store purchases and has over 3.8 million cards issued.

• Strong community and employee support during the floods included R$250,000 in emergency donations, R$1.1 million in product support to employees, and sales at cost to affected customers.

• Maintains high entry barriers and a differentiated small-store concept adaptable to small cities, with strategic expansion mapped to over 900 cities and 96% of stores in cities under 300k residents.

Financial highlights

• Net operating revenue for the quarter was R$638.3 million, up 13.9% year-over-year, with gross profit at R$221.5 million (+17.5%) and gross margin at 30.1%.

• Adjusted EBITDA reached R$12.7 million for the quarter (+162.6% year-over-year), with adjusted net loss at R$11.9 million and reported net loss at R$56.4 million due to a R$41.2 million tax credit reversal.

• Retail revenue grew 12.8%, financial services revenue rose 19.6%, and credit card revenue increased 7.5% year-over-year.

• For the semester, net loss was R$2.4 million, a significant improvement from a R$28.2 million loss in 1H23.

• Gross income rose 18% year-over-year, with gross margin at 34.7% for the quarter.

Outlook and guidance

• The company reaffirmed its projection to open 20 to 30 stores in 2024, with 11 already opened by June, and expects continued operational leverage and cash generation in the second half, following historical seasonality.

• Management remains cautious about the ongoing economic impact of the floods and the challenging macroeconomic environment, with interest rates not declining as previously hoped.

• Delinquency rates are expected to remain controlled, with no major changes in credit policy anticipated.

• Store model improvements and digital initiatives, such as the "Infinite Store" project, aim to broaden product mix and enhance customer experience.