Uniao Pet Participacoes (AUAU3) Q2 2024 earnings summary

Executive summary

• Announced definitive merger agreement between two leading pet retail companies, creating the largest integrated pet ecosystem in Brazil, pending regulatory and shareholder approval.

• Digital channel revenue surged 29.2% year-over-year, now representing 44.4% of total revenue, with omnichannel sales at 94%.

• The combined entity will have 494 stores, BRL 6.9 billion in gross revenue, and BRL 464 million in EBITDA for 2023, representing about 11% market share.

• Leadership will include Paulo Nassar as CEO and Sergio Zimerman as Chairman, with a balanced board and governance structure.

• Store network expanded to 252 units, with three new openings in 2Q24 and 44% of stores yet to reach maturity.

Significant events and developments

• Merger terms include a 52.6% stake for Petz shareholders and 47.4% for Cobasi shareholders, with a BRL 400 million cash component split between closing and extraordinary dividends.

• Mark-to-market of derivative (swap) on dollar financing caused a non-cash negative impact of R$12.4 million in 2Q24.

• Share buybacks in 2023 contributed to an increase in net debt by R$50.1 million.

• Investment discipline led to a 35% year-over-year reduction in total investments and 64% reduction in new store investments.

• Launch of Petz TV as a retail media platform and opening of Atacado Pet pilot store targeting new customer segments.

Financial highlights

• Q2 2024 gross revenue grew 18% year-over-year, driven by a 29% increase in digital channel sales.

• Gross revenue reached R$980.9 million, up 3.8% year-over-year, with a strong comparison base in 2Q23.

• Adjusted EBITDA was R$59.9 million, down 14.4% year-over-year, with margin at 6.1% of gross revenue.

• Adjusted net income dropped 79.8% year-over-year to R$5.0 million, reflecting increased depreciation, amortization, and financial expenses.

• Operational cash flow of R$53 million covered investments, with improved cash cycle by ~4 days year-over-year.