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Companhia Brasileira de Distribuicao Grupo Pao de Acucar (CBD) Q3 2007 Earnings Call November 14, 2007 ET

Executives

Daniela Sabbag - Executive Director, IR

Eneas Cesar Pestana Neto - CFO and Chief Administrative Officer

Hugo A. Jordao Bethlem - Head, CompreBem/Sendas Business Unit

Abilio Dos Santos Diniz - Chairman

Cassio Casseb - CEO

Analysts

Unidentified Analyst

Unidentified Analyst - JP Morgan

Carrizo Behner - Citigroup

Presentation

[Call Starts Abruptly]

’07. Today we have Mr. Abilio Diniz, Chairman of the Board, Mr. Cassio Casseb, CEO, Mr. Eneas Pestana, CFO; Mr. Hugo Bethlem, Executive Officer of CompreBem and Sendas; Daniela Sabbag, Investor Relations Officer.

This event is also being broadcasted simultaneously on the internet via webcast, which can be accessed on the link www.cbd-ri.com.br, with the respective presentation. The control of slide selection will be managed by you. There will be a replay facility for this call on the website.

We inform you that the press release is also available at the IR website www.cbd-ri.com.br. This event is being recorded, and all participants will be in a listen-only mode during the company's presentation. After CBD's remarks, we will have a question-and-answer session. [Operator Instructions].

Before proceeding let me mention that, forward-looking statements are being made during the Safe Harbor of the Securities Litigation Reform Act of 1999. Forward-looking statements are based on the beliefs and assumptions of CBD management and the information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events, and therefore they depend on future circumstances that may or may not occur in the future.

Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of CBD and could cause the results to differ materially from those expressed in such forward-looking statements.

Now I would like to turn the floor to Daniela Sabbag, Investor Relations Executive Director who will begin the presentation. Miss. Sabbag, you may proceed. You have the floor.

Daniela Sabbag – Executive Director, Investor Relations

Good morning, everyone. Thank you for participating in our webcast. I will start the presentation briefly pointing about some highlights on investments and sales. Next, I will give the floor to Eneas Pestana for comments in relation to our operating performance and the results of the third quarter.

In slide two we are showing the investments of the group. In the third quarter the company invested 227 million Reals, 52% of which were reinvested in opening nine new stores in this quarter. And it also includes the construction of stores to be opened in the fourth quarter. When most of these stores will be open, we will have 17 new stores been open up to December. One Gounsa Sukas [ph], three Extra one CompreBem, five Extra Perto and seven Extra Facil. Twenty spars were tentively investment in this quarter, were in store reef for a bushee [ph] including become very sort of five carsy stores. One CompreBem and four Extra Perto.

In slide 3, we're showing a summary of store opening in the last 12 months. The stores opened up to September and the great gown of all stores opened in 2007. So we will have 38 new stores opened in ‘07. Plus Arsie [ph] stores so the sales area will grow 8.6% compared to the previous year.

Let me speak about sales now. When we look at the quarter sales real 4.1 billion, which means a 5.5% growth. Net sales grew 6% and totaled real 3.5 billion year-to-date. Gross sales grew 1.8%. Net sales 2.3% and in the same-store concept gross sales grew 1.8% and net sales 2.3%. The main highlights of the quarter were perishables; once again perishables grew over 5% driving the sales of food products.

Grapes grew 3.3% in the third quarter. Gounsa Sukas also had a very good performance. Third quarter in a row with consecutive growth above the other banners of the company.

Non-food had a low of 2.4% due to the effect of the world cup last year we had a 17% growth and because we had a price deflation especially in entertainment highlighting audio and video. Now if we do not consider these two subcategories. The reduction of non-food sales would have been 0.8%. These are the brief comments I wanted to make about sales and investment. Let me give the floor to Eneas Pestana and he will talk about performance.

Eneas Cesar Pestana Neto - Chief Financial Officer and Chief Administrative Officer

Good morning everyone and thank you for participating on our web conference. Now from the gross margin I will talk about our result, our performance and then I will make some comments about the association with… because I will believe there are still some questions that remained unanswered about this. First gross margin we have attained gross margin of about $1 billion around, 28.7% of the net income compared last year to a pro forma result of third quarter 28%. My first remark is that the third quarter last year is the first one that we can now compare to this quarter ’07 because we implemented that strategy to reduce price and gain competitiveness as of the second quarter last year so the third quarter is now compared about to this quarter, I mean in terms of the performance because of the difficulties we had in the first or the second quarter when we were not able to make a correct comparison so now as we compared this quarter our margin is a bit higher and it’s higher because we gained our prodding efficiency above all because 2.7% above last year 0.4%... percentage point came as a result of improving our store operation and also because we were able to reduce shrinkage, we also reviewed our assortment, let’s talk about authorizing amount and its clear in our result. Page five; now talking about operating expenses I would like to make some comments to help your analyst. Total operating expenses in the quarter $741.9 million compared to $691 million last year. Now we wanted a comparison in terms of value because if we are talking about expenses, our criteria’s to explain that an absolute amount not percentage. So considering last year $691 million was the total operating expense but including $691 million. We have 11.5 million due to restructuring last year. So detaching that we had $679.6 million as you can see on the chart and slide 6 on page 6. Now third quarter sales and total expenses were at 741.9 but we had some expense increase in historic stores, in new stores as Daniella said by extent [ph] we opened 38 new stores in the last 12 months with that we have added to operating expenses all of OPC [ph] expenses to open these new stores and now they will begin to mature but the expenses are already there at $38.4 million as the total. We also had the wage agreement to our collective working agreement which added $12.5 million to our personnel expenses. We have also had some restructuring in the third quarter especially because we have detached or dismissed a few people. So that amounted to 7.9 million Reals and also some projects which are under way and they have been mentioned before but I will give you more details further on during this conference call.

But one of them is global sourcing, the other one is dotcom [ph], we have implemented SAP and a few other projects that amounted to $4.9 million in this quarter. Now if we do not consider these additional expenses the expense would be $678.7 million Reals. It means that on the same basis as last year our expenses dropped as a percent of net sales we were at the same level as last year which shows how rigorous, how strict we have been in controlling expenses. But we have not ceased, we will continue to further reduce operating expenses. New initiatives we will implement are OPC which will be valid already for the ’08 budget. That’s underway. Now in page 7 we have the EBITDA 6.8 or $30 million Reals above the same quarter third quarter last year as pro forma. This EBITDA of 6.8 is the highest ever since the second quarter last year which is when we implemented the strategy to reduce grades [ph] and therefore to reduce margins. Financial result have no surprises, it is negative by $54 million.

Now if you look on page seven this is very well aligned to the second quarter ’07 $53 million negative. Compared to the third quarter ’06 logically it reflects a higher net indebtedness which is the consequence of the investment made this year. In the first nine months of the year we have invested $638 million to back up this investment we had a higher net indebtedness and we can still grow. We can still increase our net indebtedness but this is the EBITDA we have been able to present in terms of equity value page 8 we can talk about the resources of FSC which were 9.9 million till negative you have seen the equity team asset. That reflect an improvement of 34.1% if compared to the third quarter ’06 however what is most relevant and I want to highlight in terms of FCS results is that if we break down the results by months July and August, September, the results of September was 1.9 million therefore we can see a curve which is reducing the loss.

It all confirms our statement which says that we will reach break even in the fourth quarter. So that by the beginning of next year we will begin to post a positive profit. In terms of volume, FSC accounted for 12% of the group’s sales, portfolio came upto 1.2 billion by the end of this quarter which means that very healthy growth that is 57% is compared to the previous year obviously it includes the credit card co-branded portfolio which was incorporated and helped us reach this growth. On page 9, I would like to talk about [inaudible]. The result is very good and I think it is worth talking about it. The sale represented 18.4% of overall sales of the first 61 million Reals. In terms of EBITDA we had a significant growth. We had a significant growth. We have attained 3.5% EBITDA in this quarter as compared to 0.9% which would be EBITDA in the third quarter ’06. It means 2.6 percentage points below the third quarter last year and let me also mention that in the first two quarters of this period, the EBITDA was 1.5%, so ultimately this is a very good result in terms of EBITDA settling for the moment the concrete results of what we said in the first and second quarters.

We have been able to improve operating efficiency, this was an initiative that coincided with Hugo Bethlem, he is here with us in the meeting today, Claudia Jordao later reinforced these efforts to gain efficiency fully focused on the operations in here to Sendas [ph]. With that Sendas had 10.6 million Reals in terms of profit. It is the first time we had a profit in Sendas, ever since it was set up and it has contributed to consolidated profit by 4.5 million Reals, that is after we have excluded the minority interest. It is also interesting to highlight that in the results of Sendas, third Q, we had a great upgrading efficiency improvement so that now we will have predictions of profit for the next quarter. It means that we were able to use our income tax credits now so it also helps to further improve the result but the net profit is not the most important. The most important is that we truly gained operating efficiency so that is the reason why we have improved EBITDA and this is something we can celebrate today.

Now, in terms of the group’s results, 2007 which was 230% better than last year and net profit of 35 million Reals which is 10.2% higher than the same quarter last year and this is pro forma figures. Last quarter if you look at the reported figures, 53% loss because of the soybean event, rates rose…disseminated and this costs with you. This is what I have to say about performance but I would like to say a few more things about questions that remained unanswered, after the conference on the association with Asahi.

In the next slide beginning on page 11 we once again described the operation. I am not going to repeat that because the explanation has been published.

Let me go straight to page 13, please me on page 13, I would like to highlight the following. The management of the new company, the new company will be managed by the original partners Mr. Hugo Jordao Bethlem confronts us have already nominated the financial officer and the controller Mr. [inaudible] complete and professional and then operating Director also who will be nominated by us. Now the administrative board has several members of which four will be nominated by 3BA [ph] in terms of the company value which was the basis that was evaluated in $347 million which of 30% multiple on gross sales. This is a very reasonable multiple and if we look at the new acquisitions we can see that this multiple is truly pretty reasonable.

Initial operative anticipation of 60% of this amount, so $208 million around was the amount to be disbursed up to December. Then we saw settlement payment of these $208 million around. The remaining 40%, I would like to focus on that because it seems like it generated some questions.

First, quit all the criteria to calculate the price of option for purchase and sale. There are two different criteria’s. The first is the largest between seven times EBITDA or 35.15% of net sales in the last twelve months. That corresponds to 30% of gross sales but we have decided to use net sales. This is the number you will find in the contract so 35.15% of net sales so that we eliminate tax from the amount. However 35.15% of net sales will be applied only is EBITDA is higher than 4.625% otherwise the only criteria will be seven times EBITDA.

Now criteria number two, you have the amount of the initial purchase so 348 sales than million which corresponding to the 40% in the future. However, this demand will be corrected by IPCA index plus 6.5% so that’s how its going to be corrected or adjusted. Let me talk about the option. The purchase options we have, are the following: ASTPA has to bring down the Chairman or the management for low performance according to the criteria that has been defined and has been made clear in the shareholders agreement and the contract so in this case the sales price would be according to criterion number one. If, the Chairman, that is, Mr. Abilio Dos renounces or if he is absent for more than one third of the board meetings called in a certain period in this case the lowest value between criterion one or 80% of criterion two will be adopted. So this is going to be a penalty of 20% applied to criterion number two.

Option number three. Any time, at the discretion of GPA, up to December 31, 2011. But in this case the price would be calculated according to criterion one or 125% of criterion two. Now in the year of 2012, 2013 and 2014 from the first to the fifteenth of January Sendas Distribuidora can exercise this option for the highest amount considering criterion one and criterion two. Now the last option, or option number five, would be any time in case of lack of capacity of if Mr. Abilio Dos comes to pass away. And then the sales price would be calculated by criterion number one. The sales option of the original partners is just one point to option after fourth anniversary of the contract, which means 2012, 2013 and 2014 always between January 1, and January 15. And then it’s going to basically calculated exclusively by criterion number one of the sales price. In any case, payment condition will be cash. So no stock to up or stocks could be used only cash. I hope that I have answered the questions that had remained unanswered and let me now give the floor over to Mr. Hugo Bethlem. Hugo Bethlem?

Hugo A. Jordao Bethlem – Head, CompreBem/Sendas Business Unit

Good morning. One of the subjects that took place in this quarter was our entering the business center and this is an center start for an both industry and smaller retail looking for no solutions in order to have better negotiations then better supply. There is major question to reveal for the detail of plenty of business central, which I grouped of in the Sendas Supermarket for small chain and this stock is anvil but then the service shared service center and to weight this is a major market in Brazil. Therefore, we decided to enter this segment due to our purchasing power in the industry and being able to also set conditions to small supermarket chain then through IGA, International Growth toward Association and here an American Association of small chain. We made an association with the Union Brazil Center. Its file of that located in the states of Belo Horizonte through a partnership of a smaller chain of 52 stores called multi-store belonging to Union Brazil. This is the no experience in the state where we do not have a footprint and therefore our risk of business cannibalization towards our own sells is legal or inexistence, non-existence and thus we were able to leverage from the strategy standpoint, our center of distribution and re-addition there to… in order to what supply this into Center Regional Dictation. They should develop there by this dictation in the second half of the year of 2008 and then we will have total sales like hypermarket, but there investment looking just very interesting market for states where we want to step up presence and now we just afford to cut field.

Unidentified Company Representative

Good morning. We are delivering to the sales of October, which very weak. Just despite of a scenario, I’ll share with you and it’s not to repeat… this was not to repeat in November the number for best were positives. We are delivering result of the much better price there.

I will think to two critical aspect sales and expenses. In the sales scenario, we had the first and second quarter with the very favorable cleft and we will go in the sales scenario, we had the first and second quarter with the very favorable cleft and we will go in towards meeting our target of the 5% growth in the same stores concept. In the third quarter and in October, we had result… weaker result and in October, we had bad result. I would like to discuss with you and give some transparence and disclosure to why this happens, how this happen and what behind is moved. Everything started when we started to sell the quality of sale over tracking to our company and we realize that scenario we have in Rio de Janeiro was repeating and replicating in other places and because we have low level of cross selling and we are spending too much with the promotion, sales and then when we created based statistics with the growing number of customers without having a statically result in those numbers. This is a major work been done by the group and on Decembers five, when we have our weekend review. We will present to you the most in depth joint study made in the company, which is the new slow type of office and we are positioning our slag with the promotion fields, we have and this will be able because we have the system analysis with media returned and we are able to work for a more consistent fashion and this study will be shared and we’ll impact as of the second quarter of 2008.

This slag is that till we are alive we should go after some balance between sales competitive net and profitability to improve this leverage this dating of the balance was so good and therefore we prepared the statistic plans for toiletry and cleaning product for gas station perishables and some regions such as Extra Nordeste and the change in our initial assumptions. These plans are showing positive exact reading. November, we already see the curve been reverted, tense beginning. November, we will have other adequate bills again and we are starting a new balanced level between sales and profitability. Perhaps the margin is stronger is the re-addition there to market or if we… is that we believe started… has start away from promotional sales reaching unknown level of balance. Would have better mix balance and we already have this revolution of it is backed margin from ’09 to 3.5 billion. And next time we talk I say that our major problems were in Rio de Janeiro, Escalato and the category of entertainment in which electro-electronics products are. We now have first talked two years ago, this clip was very long and it attained to 3 points[ph] and today we cannot say that the Rio de Janeiro problem is definitely solved but its going on very well. Likewise Estro Eletra despite being so young the change was implemented 60 days ago stopped the show a very good avenue. They stored in August had a negative 9.8, in September negative 2.2 and in October for the third time… for the first time positive 2.2 result and those with Estro Eletra I think we are starting to find the right back and out of a list of major problems the one remaining today is entertaining category, [inaudible] this is a work and I would like to add to what you just said because even the same stores group of [inaudible] we have a regression in October of 27 million. When we analyze this 27 million, 19 million are a regression of entertainment category. So then to the electro-electronic category we are trying to solve with the financing issues and so on.

And besides we are doing very well in Rio de Janiero last October and this month also was the anniversary of [inaudible] and we made the strategic decision of decreasing the impact of the re-promotional sale in the middle of the anniversary celebration. So part of this 27 million also comes from another 14 million of regression. We can go before the debtor [ph] for the fold and unfolded categories also concluded this month with a positive effect of 6 million. So having sold the two points you mentioned I think that we will be in a very positive event. While in containing this category before is our major problem and its obviously in fact very much Astra [ph] and also beside the specific plan of this category we could be allowed one word we took the strength in these stores of Astra with largest development potential and that was bearing the specific terms with them was the greater freedom degree changing some of our rules and this has to be implemented on November 21st. This will also be of great help towards the end of the year. So all these measures together with the entrance of new format convenient stores in Apacadisu [ph], I think will give us the arm to fight the war in equal level, in equal footing with our competitor. We are in a different level and on this [inaudible] we will tell you about the conversion trend. Conversions in fact [inaudible] was a more aggressive plan which will bring about in December, bring to net in the first month of 2008. As to our FOS [ph] evolved as an asset. That’s a relative figure its not matched the level we expected for. Since we didn’t grow infield and before we don’t have all those any dilution. But I will like to say we drew two graph, which were shown at the last board meeting and once more shows that we are going towards quality above our figure.

So if you look at page 17 you will see on page 18 that we show an analysis of productivity for sales per employee with an increase of 8% in efficiency in sales per men… per employee. So we are gaining efficiency now in stores. And on page 19 we see the following. In FTE [ph] equivalent we go from September 2006 from 57.018 to this year September 56.908 a very small drop. So if we increase the area of sales area in 6.1% in the same period we were able to make the following. With the productivity project and streamlining of our headcount we were able to gain efficiency and pay our exposure. This means that we were able to grow 6.1% in sales without growing, but those were meant for as achieved. This is a very important point I think in terms of quality. Another interesting chart is the one big slanting ones. It shows what was done in the corporation overall. The adjustments at the corporations calls a reduction equivalent to Reals of 44 million in the corporations map [ph] among the… first part is present [ph] but no projects that we have started to implement or else be… expedition of e-commerce and the reduction of the trinkets and the… with the contributors of a good result and the global sourcing CFT also and this all stemmed the equivalent to 15.8 million Reals a year so this means that we are generating a net economy of 28.2 million Reals in the company out of the 44 million Reals total. So, the real economy generated was 44 million Reals, we spent 15.8 million Reals in new production so net economy of 28 million Reals, all in an annual basis.

To conclude I wanted to say that we are still very focused and at full strength and we do believe that we are going to harvest in 2008 the results of all the moves we are doing. Daniela corrects me but the meeting I referred to on December 5 will be December 14, a Friday. Thank you.

Now I give the floor to Abilio.

Abilio Dos Santos Diniz- Chairman

Good morning. I would like to talk to you today trying to take this leaf from our one and most have come off the Board and also as a shareholder and also a holder of preferential shares, if you… as a person who follows our management and is not in the daily management but is sitting in the same room and listening and discussing the same problems with them. And I think that like that, I am able to better identify with you and I would like to be able to have better dialogue with you at the market edge and I would like to be more person by you both as the member of the management but also in the position I hold and by… having said that, I would like to tell you that I am happy with the results we are obtaining so far.

In the last ITR, in the first half of the year, I told you that results despite being weak or consistent and before we were heading towards the attainment of what we had projected for this year. We didn’t have a very ambitious project but I think we have been doing what we planned for and before I’m calm. I’m comfortable, I’m happy with the result. They are coming in a consistent fashion. They are growing and looking towards the future makes us have good prospects as of 2008 on. I am not happy; I am satisfied with the results. But I’m not satisfied with sales. I am not satisfied with sales but I am not concerned but I would like to have higher sales. I am not concerned however, because its very well identified as we're said by Cassio and all my biggest efforts. Sales are very localized and they are being the result of what we are doing. We have decided to be more competent in Rio de Janeiro. We started to cry over the market. Over the market fashion in Rio de Janeiro, the market behavior and we decided to attack Rio in a very consistent manner. This was a management decision. We took several measures and the results are better not only because crowds are going to be at this dera [ph] I think he’s doing a good job. However, he is consolidating what had been done in the past and what is taking Rio de Janeiro and especially the Sendas banner to a valiant standpoint which is very close to attain. This is one aspect. The other aspect is that in the company overall, we are decreasing some how the promotional product offers and maintaining a more sure stability of prices in the daily routine and another really important point is that this drop in sales conversely to what was happening in the past years and past times is very localized in the electro electronic sector. This industry is growing in the Brazilian market and we are… its falling so much and it is growing and despite football, soccer on account of last years problems. The Brazilian market for electro, electronics is growing. There is a price deflation but market is increasing and we are falling. And this is very clear for us…me. Everything we do, was reshaped all the non-food drafted area we reshaped. Today we are much more confident in global sort thing and this off course represented a drop in a future which had given moment. We still have to recall and go afterward. So because it is localized I am not satisfied with sales but as I said I am not concerned, I am sure that we will find the right way and the management will find it.

Well, now in terms of expenditure, everything that [inaudible] may have said, it is evident and obvious that I say everything that they said and I am not satisfied with that but we are far from what we have to do and this is something that the management has to deliver, they have to spend no effort, they have to do everything to have things happen. It is evidence that the expenditure are vigorously connected to sales and these expenditures with higher sales will to much lower percentage and wont affect our result. However, we still have lot of work to do and we will have to do it and I am confident that they will do it.

Well, the message I wanted to convey to you even less than conveying results because results are here and our manager are delivering them but I wanted to convey to you that the sense that I want to increase our concept. The concept leaving you and me, I want to be questioned by you about my position in company in Brazil as the member of the Board of [inaudible] and this subtending I would like to be achieved service for questions for, for clearance and for explanation any time, thank you.

Now question.

Question and Answer

Operator

We will now start the question and answer session so if you have any question please ask [Technical Difficulty]. We would like to request all participants to pose there questions at once. Mr. Fernandez from [inaudible] has a question.

Unidentified Analyst

… who had a joint venture with [inaudible] in Columbia pretty easy format which I find very interesting. Now, have you thought about doing these things in Brazil? This will be my first question.

Unidentified Company representative

No, we do not have any plans to do something like that currently. Now, as you know… because I looked where Sentro was specific for Colombia Sentro Stuod [ph] has just come to the Brazil through Barbosa to achieve our broad band, in fact, they came in and… a somehow strange way, we questioned that, but we have to be concerned about our business and not their business. We will see them as competitors, we do not have any plan, we do not have any agreements with them at this time. Okay, fine. The other question is more related to this drop in entertainment… in the entertaining category, television, DVD and so forth. As you said the statement is growing quite happily and results we knew are going the opposite way, that is downward. As we identified the problem, is it the product which is not updated and then you have to give the rebate. Is it because we do not provide enough credit, I mean how do you identify it… a specific problem, why you are having a reduction in a segment that’s flying in other stores.

Abilio Dos Santos Diniz- Chairman

Well, Becart [ph] I’m going to give the floor to Hugo so that he will answer. Because I think that he will give you a management reply. Let me just give you a very short answer as the Chairman of the Board. Amaytru [ph]. Yes. Together it was lettuce in the supermarket. So when you sell lettuce or other foods products that is when you sell electronics together with these products and your electronics has a margin of 8% or 10% so that’s going to contaminate the profit of lettuce which is much higher than 8% or 10% so we're now separating this business. We want to sell a lot of electric and electronic appliances and we will do that. You can talk to us again about this next year. We are now preparing the foundation to have higher sales next year. However, in this moment of transmission and my view is quite official, we did faced problem. And I think the management will have to solve these problems. Okay. I just wanted to add and make a small correction, I mean it’s not a correction, but let me give you some more details in the categories. First, the categories which on slide eight, are LCD plasma, portable sound system, home theatre, we are also having good results in these sub-categories. Now in this restructuring process, we had to clean up our inventory which was not adequate for the stores. They were not exactly what was fairly and these are problems we carried on since 19… since 2006. Now this problem I mean we felt on the same-store, we sell letters and electronic product. So, what did we do? We’ve talked… talking about assortment in like tricking electronic appliances and if you want to sell electronics, you must have. If you are the specialist, you must have different product. I mean if you are going to buy and electronic product for your home, you want to go to a store, if that has a small inventory of this product. We are now replenishing our inventory and all import of electric and electronic product will be arriving this week at the store. So this recovery is about to be seen. So as of the next month we will have much difference to result in ’08 will have already different performance.

Unidentified Analyst

And how are you going to position this in this segment?

Unidentified Company Speaker

I mean because if I go… if I’m going to buy electronic in the store I expect to get a discount, but I expect a good price above all. So what are you going to do, I mean are you going to provide surface and not to the aggressive pricing or both things. So I will have to differencing. We have estimate to and Cassio had mentioned that this is a department store. This is a specialized store and its business is to some pieces in a war [ph], which causes diarrhea going to see this and I think at least that there is continue what with other department stores and that as it is mix of price and stores. Now, for other stores for this supermarket for SF, we want to be price leaders. We are and want to continue to be so what we will provide to what estimates will be estimated sales, can try to help them make a decision but its not the true concept of surface, the reason why this customers are driven to Extra to buy electronic will be price and payment conditions. Okay, he got Dwayne and we are also see the profile from our surface personnel in this area Extra. It has just, we have just started program here because we conducted a review to see if we were hiring the right people the right profile for this area in terms of age, school out [ph] for and a proactive attitude. So we are now recruiting on hiring based on this attitude because I believe that we have training, we will be able to get a more efficient profile. So we’ve seen the training program, the conduit to perform it and we also change the profile of people been hired. We are also changing the commissioning format. So the commissions will now be paid in a different way. They will have a different type of compensation. Of the 2000 employees in this area, I believe 600 will be replaced in the next 90 days.

Hugo A. Jordao Bethlem – Head, CompreBem/Sendas Business Unit

Just to reinforce I’m Hugo again the logistic issue. We have open our distribution center in this city to the Northeast between South of [inaudible] distribution center had extended to meet the needs of the Northern parts. Now in addition to pricing edition to more training we will also ensured the best delivery in the region. The best delivery in their homes, in there household. One more question I remember, you bulk of doubt [ph] the higher of course to higher then 8 million revs in this quarter.

Unidentified Analyst

So we are going to have more I mean I’m sorry, I could not understand your question. I’m talking about the restructuring cost?

Unidentified Company Speaker

We have spoken point at during 8 million were out and I’ve remember that you said that in the next quarter, you are going to have more then that. You are going to have 20 million or 25 million. So my question this 8 million is spend in the third quarter, are you going to have further expenses with restructuring cost in the fourth quarter.

Unidentified Company Speaker

No, zero. Everything we should not done in September has been provision. So the cost of restructuring in the first quarter will be zero. It’s important to highlight that despite statistic OT we had in the electric and electronic sales. In a dot com if you look at the results of this quarter and compare to last year, we had a growth of 39%, while it would be interesting to break that down. While 69..3% compared to the third quarter in the previous year. So we’ve grown 69.3%.

Operator

Okay, let me add a correction. [Operator Instructions] Miss Andrea Sheridian [ph] from JP Morgan has the question.

Unidentified Analyst - JP Morgan

Hello good afternoon everyone. I just wanted to clarify what was the behavior of sales in October? What is the figure for sales in October? My second question if you remove the entertaining category then what is the performance of October? Considering last year I think we had a flat growth but I think we had one day less… one day few. I think we had a negative calendar effect because we had one Saturday fewer in the month but I wanted to know the right figure for October because I could not understand it during the conference call. If you remove entertaining question to Abilio Diniz what is the position of CBD as regards to Budweiser [ph] because there are some new developments in the negotiation. So do you believe there is any kind of interest in doing business together with Budweiser or has that been discarded?

Unidentified Company Speaker

Well on the 3rd of October we communicated that this morning as we do in every quarter. The effect of entertaining on October the 2719 was entertainment. Let me now give the floor to Abilio so he can answer your third question.

Abilio Diniz - Chairman

This is Abilio Deniz. Andrea your question to me comes as a surprise. Unless my partners know something else about GBY [ph] the business has been concluded. We were communicated by the bank that was with UBS. We were communicated that the game is over. I don’t know anything new about that so I cannot give you a reply based on things I don’t know. Yeah well what UBS said I didn’t know what was published. I only have the information of what was published in the newspapers but I don’t even know if the source is truthful.

Unidentified Analyst - JP Morgan

I am sorry Cassio, but for some reason I did not receive the amount of sale by email. So I would like to know if you could please tell me the October sales.

Cassio Casseb – Chief Executive Officer

Hello Andrea yes we sent it by speed mail. I will check on that and I will send it again to you but the performance was 1.9 negative. 1.9, but if we exclude the entertaining category it would have been positive by how much?

Hugo Bethlem - Executive Officer, CompreBem Sendas

Okay. This is Hugo Bethlem the regression was 27 million of which 19 million was the entertaining category, 14 million with Rio Janeiro. So the other categories had a gain of 6 million.

Unidentified Analyst - JP Morgan

Perfect so in percentage, I sounds that we just have to reduce the 19 million. Okay, fine. Thanks.

Hugo Bethlem - Executive Officer, CompreBem Sendas

As we have said before this is Hugo in November we will have a positive figure again.

Operator

Now Mr. Carrizo Behner from Citi has a question.

Carrizo Behner - Citigroup

Morning everyone. Cassio, would you please focus on sale. I would like you to give me some more details as how you view the future what we can expect. You spoke about 5% then 4% please correct me if I am wrong but now I believe you will not be able to deliver this 4% why not? What’s going on? I mean you had a strategy to focus on sales. What are the next steps you will take? Why do you believe these measures are not yet producing effect and what is it that you can change or reinforce in terms of actions to be taken to improve the situation from now on?

Cassio Casseb – Chief Executive Officer

Hello well I don’t know if you were listening to us before. But I tried to explain that we deliberately decided to take our foot up because pedalled to our compressing abilities. So we made a decision not to deliver 5% because we would deliver 5% but the quality of customers that is not we needed to grow in the future. We were attracting people who were only looking for promotional prizes but now we are at a different growth level but we are also at a different profitability level. So I said we were going from 5 to 4, but if November is going to produce positive results the final number would be between 3 and 3.5. That’s going to be the yearly result.

Carrizo Behner – Citigroup

Okay and anything for ’08?

Cassio Casseb – Chief Executive Officer

We will talk about that closer to year end. Its still too early to talk about that because of the plans we have described but December 14th we will have another opportunity to talk about that.

Carrizo Behner – Citigroup

One more detail for you to implement these initiatives on sale are you also going to continue to reduce prices?

Cassio Casseb – Chief Executive Officer

No as I said before as of the second quarter we stopped this movement of price reduction. I spoke about that when we delivered the ITR for the second quarter that we had finished, we had concluded the price reduction initiative. So the only thing we would do was a small margin recovery and you can now see it has occurred in fact, from now on we see stability.

Carrizo Behner – Citigroup

The gross margin was 28.7, do you believe that this is sustainable in the future?

Cassio Casseb – Chief Executive Officer

Yes I believe so. Thank you.

Operator

Now, Mr.Louis [ph] Testa [ph] with BS Securities has a question.

Unidentified Analyst

Good afternoon everyone. I have three questions. Number one about the shrinkage reduction program what is the level you have attained in the third quarter? And what do you believe is the key to support for the next quarter? Do you view any improvement? My second question is about the number of FIC[ph] customers. In the press release you have a number of 5.6 million which shows stability compared to the previous quarter. So what efforts are you conducting to attract new customers and the overall result of their safety. Next announced date one standard stocks or shares, do you have any expectations to change anything in the beginning of next year? Thank you.

Unidentified Company Speaker

Okay. Our losses in the third quarter as we said in the last release there was hope that we are changing very few months in product taken much more. And the major challenge now is the last quarter because since sales grow along there is a lot of concentration revealed. Shrinkage risk is higher and therefore we are totally focusing November/December and the movement is very high. The F&Bs now are Wednesdays are gigantic and the year end movement are very large beside the important products that we receive at this time. So there is a seasonality in shrinkage it is slightly higher than the last quarter. But we are attaining the benchmark levels we wanted and all of our plan for 2008 are geared to maintain these very good shrinkage levels.

Hugo Bethlem - Executive Officer of CompreBem Sendas

As to FIC, this is Hugo speaking. We are doing several important actions in terms of capturing new cards and activating the ones existing. One of the major we have kept in new card one of the major one internal refers to now going to the external one on one, looking for the non-customers of the GPH. Also granting them the same overdraft limit that they have in out their private level caught where they got forward EBITDA of plus 10%. By doing that we want to encourage them and boost the no credit limit with us. This drive has given very good results of our internal clients and now in the North East, mainly we are going after these external clients. In terms of activation of clients we just implemented a week ago, the new concept of CBC electronics within the card. This expands the ability or the capability of buying through installments. The process has been very well received and the stores and this all stores led in the sales of electrical and electronic products. Supplementing this as I speak, information, which is Stemantle Perly [ph] was the President of this IC was abroad and he analyzed some examples in other countries of their actions in the lower income strata. We learnt a lot from this trip and we are living a very special moment in our relationship between tahu [ph] and group of bonchai tooker [ph]. We are moving so as to state… moving the model from a very financial model to a more balanced… between retail and finances model and I think that in the short term, in the middle term we will harvest very good results. We are questioning the way we work, altogether, questioning looking for another degree of balance and I think that some of these changes are already being incorporated in the way we look towards 2008. Our teams are working very intelligently together and I am sure we will have a very good… right fruit from these changes.

This is a naïve [ph] and about your third question on the flow chart and the discussion on the Sendas’ stock interest. As we all know we are in an ongoing litigation claim in Rio de Janeiro and this is described in detail in our explanatory note, step-by-step this painting but I can tell you that the last two happenings were that on October 4 the hearings took place and November 5, each of the parties handed the discussions and the arguments in writing of the last hearing. This now goes to the La potence [ph], to the judges in order to have their result in 60 to 90 days. These issues are not so firm and are flexible to some extent but it is possible that we will have solution in 60 to 90 days. Thank you very much.

Operator

[Operators Instruction]. Mr. Mastell Morias from Bradisco [ph] has a question.

Unidentified Analyst

Good morning my question relates to commercial expenses in the third quarter. In the third quarter, which if we do not consider the non-recurrent expenses. We have the decrease in the net percentage of expenditure excluded the non-recurrent including opening of new stores, there is some slowdown in the third quarter, in the fourth quarter we will open the same number of stores as the last year. So I could conclude as a percentage of net revenue your expenditure will have some retraction compared to last year. What’s your expectation?

Eneas Cesar Pestana Neto - Chief Financial Officer and Chief Administrative Officer

This is Eneas Marcellos talking to you. Well, first as to the third quarter the comparison between this quarter and last year, I have already talked about that in the presentation we submitted to you but if we compare with Q2, expenses even improved as compared to the second quarter. In the third quarter we had total expenses including on recurrent of $741.9 million. In the second quarter we had total expenses of $743 million. In percentage in BPS, it’s 21.2 total of this quarter as compared to 21 in the past quarter. If we remove the non-recurrent items, only dismayful [ph] and restructuring expenses and setting aside the collective varganing [ph] new stores and not just to compare through quarters one another in removing only the dismissal expenditure, even thought the third quarter was lower than the second so year-to-date comparably shows a reduction in expenditures, they are not an expansion. You want correct us to 4Q because as a cast you just said we shall not have expenses for restructuring or else we wont have that is there and you can see this and compare but the number of stores in the fourth quarter deserve the following start. The number of stores open in the second and third quarter this year will be at full strength and will be generating the revenues. Last year they didn’t [Technical Difficulty]. In terms of percentage, this is softened because these expenses also bring in sales but since they do not have the right maturity to decrease expenses to consider a similar level as to last year is reasonable. Okay. Thank you. Eneas.

Unidentified Analyst

Okay, thank you

Operator

Mr.Albano Franco from Paktoar [ph] has a question.

Unidentified Company Representative

Good afternoon. Well, I have seen a better strategy of standard but slowly before we said that sort of, sales increased due to lower prices but now it seems to be higher prices left special offer and also having a much better margin of standard and I think won’t this impact fields of standard was a new policy, a new policy I would like to understand your sale strategy will inspect one of these strategies much more broader than this is not as simple as that limited to the points mentioned but the fact is that this balance is unstable, there is a given volume that we can see and the special offers were going too down without generating any gross sales, selling and that’s why we started to go back, trying to adjust this balance but this is not something that comes alone. It comes together with many other measures that are being implemented and we are also changing our positioning, we are changing standard within the clusters. We are changing and reviewing assortment so we underwent a very deep survey with customers and started to redefine our Rio de Janeiro business in a deeper fashion. I would like to add saying that the reading or the understanding that prices are increasing is not seen but self prices on the contrary are low and more aggressive than before but the major program with Rio de Janeiro is that when we compare it to Sao Paulo, for instance comparing CompreBem in the Bashata fluenencing [ph]. We see a very high verticalization offered, special offer participate within BPS more than the participation of this Sao Paulo office with stores of five margin point less. So with that we are not afraid to move in our image but in the first moment, we have the courage to rule non-healthy sales.

Unidentified Analyst

Okay thank you.

Operator

This will be the last instruction. [Operator Instruction] [inaudible] from J.P Morgan has the question.

Unidentified Analyst - JP Morgan

Well thank you for my second question today. But I would like to make it clear some points regarding to sales in October, there was a decrease of 1% in food product despite the high sales in the product. I would like to understand given the comments of whole group on sales I would like to understand why this drop by 1%. I imagine that there is color and there is stat, which would give us approximately 1% of negative effect. But I would like to know if we could have some type of respect of the new sides positioning because in October last year, you also faced a very strong price reduction. So I would like to understand it better?

Unidentified Company Speaker

Andrea [ph], I want address something. Yes, in fact food stuff drop 0.8% but we have $14 million riyal in food stuff belonging to religion native [ph]. We really didn’t have a strategy. It was sounds us on the virtually and sounds us it is inspect. We are moving the gear foot over foot of offers and this have very strong effect in the company as to the food stuff inflation, enable need to correct deal. This is a shoes information month mainly in diary product. Mainly Milk and nurture, milk… other milk, migraine and other which have increased much up to September have much of inflation in October. Just to give you an idea, we opened store [ph] by selling milk in the CompreBem anniversary at 1.18 liter and we opened Extra’s anniversary, which is been celebrated in November at $0.79. This is major deflation in food stuff but the major effect was the change of strategy in Brasileira.

Unidentified Analyst - JP Morgan

Thank you both.

Unidentified Company Speaker

Okay. I made this account about $14 million is 1% of sales. So it will be even in the year-to-date… in October because if I’m doing the right calculations with the Real 14 million. You have 1.4 sales so it’s approximately 1% drop. I know that in sequential consideration the mill prices went down. But not year-to-date. Because October this year compared to October last year and inflation is approximately, for stamps and foodstuffs if… I would like to know what would be your explanation for this discrepancy?

Cassio Casseb Lima - Chief Executive Officer

Well they are going back towards… This is Cassio again I’m going back to what I explained before effectively in quarter 3 and mainly in October we forged this rebalancing between sales competitiveness and profitability. So the calculation you're doing is not correct because its more against us because within the14 and we're generally it’s part of it the lifts for food stuffs And we did work with the different brands we didn’t change three categories as I mentioned before and in two regions beside Rio de Janeiro the fact is that October was the bottom of the well and in November we're ready are both in positive figure. Okay. Thank you. Cassio.

Allois Stansa - Best Securities

Mr. Allois Stansa from Best Securities has a question. In fact it’s more an update as to the ongoing projects. I don’t know if you can talk about it. But I wanted an update of the share of these products in the total of sales of the company. If they are growing or not and what are the efforts that you're giving to this project. The figures are not involving so far an aggressive fashion in our increases in our own brand are internal. We have been changing the way we work with our own brands. The way we work with our economic choice for the first prize and we also were for some time to be able to identify is that is a client because growth was involved in quantity and not in focus in the different point and we thought it would be better to change our own brands and we changed the management of the area because that is now in charge of Alexandre coming from marketing. And we didn’t have an evolution and even some involution in the very short-term quarter-after-quarter because we stopped some products of economic choice and customer brands that we are growing very much, we are not counting them as own brands, they are still in a test phase. They have tour our movement for redefinition and not for acceleration and this will be reverted in 2008 with a larger movement of acceleration and this is good for us to deal in our December 14 meeting, this private label issue. Okay Louise 5% of private label sells, sales are what accounted for in the total feel of the company. Thank you.

Now we close the Q and A session now. Now we give the floor to Dr. Daniela Sabbag for final consideration.

Daniela Sabbag – Executive Director, Investor Relations

Now I would like to thank you all for attending and just remind you that we are to service for more questions. Good afternoon.

Operator

Grupo Pao de Acucar conference call is closed. Thank you for your participation and good afternoon.

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