Renner gets real about Realize

Lojas Renner’s operation has returned to running well in recent quarters – with sales rising and margins gradually returning to the pre-covid level.

But a question mark still disturbs part of the market: the performance of Realize, the group’s finance company.

Questions about Realize gained strength last week after Itaú BBA projected a worsening in Renner’s loan portfolio, which according to the bank would have to significantly increase its provisions in the coming quarters to something close to 120% of non-performing loans. over 90 days. Today this coverage is at 98%.

To settle the matter, Renner’s CFO, Daniel Martins, and Realize’s credit director, Carlos Roberto Medina, held a meeting with the buyside today on BTG.

According to the managers present, the company spent a good part of the time explaining the technicalities of the credit portfolio provision model.

O Bottom line: according to the CFO, Renner has an adequate level of provision, its models are robust (they were built together with a Big Four consultancy), and the credit quality is improving in the new vintages.

“The impression I had is that they held the meeting because this is generating a lot of noise and disproportionate to the size that Realize has in the operation, which is only about 10%-15% of EBITDA,” said a manager who participated the meeting.

In the report, Itaú called the fact that Renner is expanding its credit portfolio (the portfolio has almost doubled since 2019) a “yellow sign” at the same time that the level of coverage is falling.

“They explained that the fact that coverage over 90 days has dropped does not mean that there is a greater risk. For them, the level of coverage is adequate and in line with what the model shows,” said a manager present.

The CFO also said that while ‘over 90’ coverage has dropped, coverage of the total loan portfolio has increased from 13% to 15% — above the historical average of 12%.

The coverage of the arrears portfolio remained stable at 66%, in line with the historical average.

The executive also noted that Renner writes off all unpaid credits after 360 days, which reduces portfolio risk — some retailers carry these credits for years — and said that the default ‘over 90’ of Realize should slow down in the third quarter and stabilize in the fourth quarter.

The CFO also addressed the growth of the loan portfolio, which has doubled since 2019, despite the number of customers having grown by only 9% in the period. This happened, according to him, because Renner migrated its credit card model from private label (which can only be used in Renner stores) for the cobranded (which can be used for everything).

As a result, Renner had to increase its customer limit, which doubled its portfolio. The objective of this measure was to make the store card more attractive in a scenario of high competition.

In addition to credit, Renner spent part of the time talking about its growth prospects — another point questioned by Itaú, which called the company’s organic growth story “less attractive than in the past.”

At the meeting, the CFO said that the company plans to open at least 170 more Renner-branded stores in the coming years, most of them high street stores. The company has already mapped 130 cities that still do not have a Renner and that would have room for it.

He also said the company is able to open “about 100 more Youcom stores.”

Youcom already earns BRL 400 million a year. In other meetings with investors, Renner said it sees potential for the business to reach revenue of R$1 billion to R$1.5 billion in five years.

Pedro Arbex

About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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