Betterware 3Q 2023 Results

Betterware de Mexico S.A.P.I. de C.V. (NASDAQ: BWMX), (“Betterware” or the ‘Company”), announced today its consolidated financial results for the third quarter of fiscal 2023. The figures presented in this report are expressed in nominal Mexican Pesos (Ps.) unless otherwise noted, presented and approved by the Board of Directors, prepared in accordance with IFRS, and may include minor differences due to rounding. The Company will host a conference call at 9:00 am (Eastern Time) on October 27, 2023, to discuss its results for the third quarter of fiscal year 2023.

3Q2023 Highlights

Group

  • Revenue Stability and Strong Profitability have driven strong cash flow generation. In 9M2023 we have generated Ps. 1,634.7, compared to Ps. 355.5M in
    9M2022.
  • Total Net Debt/EBITDA level has continued to improve, with a 2.1x ratio by 3Q2023 (vs 3.0x in 3Q2022), thanks to debt prepayments, lowering net debt from
    Ps. 6,217.9M to Ps. 5,200.4M. Additionally, remaining debt was restructured, improving terms and conditions.
  • We ended 9M2023 with a strong balance sheet. Compared to Sep’22, inventory was reduced 9.9%, debt was reduced by 14.8% and stockholders’ equity grew 39.3%.
  • We are proposing a Dividend of Ps. 200M to be paid in November 2023. This would become the 15th consecutive quarter dividend payment, starting since we became
    public in March 2020, accumulating a total of Ps. 3,760M paid out dividends over that period.

Betterware

  • Revenue continues to show stability in 3Q2023, being the fourth consecutive quarter that revenues improved Quarter on Quarter since 4Q2022. In fact, 3Q2023
    achieved a 3% increase vs 4Q2022. Thus, YoY percent decline in revenue has decreased from -25% in 1Q2022, to -5% in 3Q2023, including an increase of 4% in
    September. We expect 4Q2023 to present YoY growth of 6%.
  • We have regained strong profitability. EBITDA for 3Q2023 closed at Ps. 328M, 10.1% above 3Q2022, with a 3.3pp margin expansion. 9M2023 EBITDA closed at
    Ps. 1,184M, -6.6% vs. 9M2022, with a 2.3pp margin expansion.
  • Strong cash flow generation is back. We generated Ps. 1,272M of operating cash flow in 9M2023 vs. Ps. 399M in 9M2022.

Jafra Mexico

  • Net revenue for 3Q2023 increased 11.6% YoY. For 9M2023, it increased 17.4% YoY. It is worth noting that our consultant base closed 13.9% above last year.
  • EBITDA for 3Q2023 closed at Ps. 209M, 23.3% below 3Q2022, due to 3Q2022 reversal of “pre-acquisition” provisions that positively impacted its EBITDA. Without
    the reversal of provisions from last year, our EBITDA would have remained at the same level
    . Our 9M2023 EBITDA is Ps. 755M (16.1% margin), well beyond
    our estimates.
  • Also contributing to group cash flow generation with Ps. 548M of operating cash flow in 9M2023.

Jafra USA

  • Undergoing a complete business turnaround.
  • We saw progress toward our first goal of achieving business stability, having decreased EBITDA losses to (Ps. 6.8M) in 3Q2023, compared with (Ps. 35.7M) in 3Q2022.
  • Going forward we will continue our efforts to improve profitability and focus our efforts on revenue growth.

Message from Betterware’s Chairman

We ended 3Q2023 with extraordinary results for the Group, experiencing stable net sales in Betterware, better than expected results in Jafra Mexico and Jafra US, and achieving expense savings and operating efficiencies, which led to an increase in profit margin and outstanding cash flow generation.

Betterware Mexico has continued to show strength through its revenue stabilization at almost 2x revenue of 2019. This has allowed us to deliver strong profitability and cashflow generation.  After delivering 3% growth from 4Q2022 to 3Q2023, we feel confident that our initiatives have us positioned generate YoY growth.

At Jafra Mexico, the successful replication of our three business pillars of Product Innovation, Technology, and Business Intelligence, continues to yield positive results, both for the quarter and year-to-date. We are expecting a record year for Jafra Mexico, both in terms of net revenue and EBITDA.

Finally, at Jafra US, we are undergoing a complete business turnaround, with focus on business stability and back to growth strategies. We have witnessed initial positive results, although further improvements are needed to reach breakeven levels, and consistent growth.

We continue to focus on further differentiating the Company through Product Innovation, Technology and Business Intelligence, as we are confident that the future of our Group will continue to be founded on the relations between our people and our customers, coupled with the technological tools we develop to ease our network’s sale experience and our customer’s purchase experience.

We are certain that we will continue experiencing the positive trend we have seen year-to-date and since Jafra’s acquisition was completed, which have us well positioned to achieve sustained and profitable growth in the long term.

Luis G. Campos
Executive Chairman of the Board

3Q2023 Consolidated Selected Financial Information

3Q2023

3Q2022

%

9M2023

9M2022

%

Net Revenue

$3,123,507

$3,171,289

(1.5 %)

$9,607,815

$8,275,089

16.1 %

Gross Margin

70.2 %

69.0 %

122-bps

72.1 %

68.3 %

382-bps

EBITDA

$529,424

$534,930

(1.0 %)

$1,901,416

$1,716,766

10.8 %

EBITDA Margin

16.9 %

16.9 %

8-bps

19.8 %

20.7 %

(96-bps)

Free Cash Flow

$294,227

$391,542

(24.9 %)

$1,599,274

$233,502

584.9 %

Net Income

$196,991

$51,953

279.2 %

$643,357

$622,609

3.3 %

EPS

$5.28

$1.39

280.6 %

$17.24

$16.68

3.5 %

Net Debt / TTM EBITDA

2.1x

3.0x

Interest Coverage Ratio (TTM)

2.6x

4.5x

Group’s Consolidated Financial Results

Consolidated net revenue for 3Q2023 was Ps. 3,123.5M, 1.5% lower compared to Ps. 3,171.3M in 3Q2022 explained mainly by Betterware’s slightly lower net revenues due to lower average associates and distributors base, coupled with lower net revenue in Jafra US. Year-to-date, consolidated net revenue increased 16.1% to Ps. 9,607.8M from Ps. 8,275.1M in 9M2022, explained partially by the inclusion of Jafra’s results for the entire period this year, compared to a partial year in 2022.  It is important to note that the normal seasonality causes 3Q2023 net revenue to be 3.0% lower to 2Q2023. This reflects moderation in sales force activity in the summer and back to school period.

At the closing of each fiscal year, December 31st, Jafra Mexico considers a cut-off in revenue recognition according to the IFRS 15 standard. The cut off has never been significant compared to annual consolidated net revenue. As of September 30th, 2023, the YTD cut-off amounted to Ps. 260.2M, which would imply having net sales at the end of 9M2023 of Ps. 9,347.7M and EBITDA of 1,834.7M as compared to our reported results of Ps. 9,607.8M and Ps. 1,901.4M, respectively. The cut-off amount would be added to the net revenue of 4Q2023, and so we expect to close FY 2023 with a not relevant cut-off effect again. We estimate that Jafra Mexico’s annual result will remain in line with our expectations.

Consolidated gross margin for 3Q2023 expanded 122-bps to 70.2%, compared to 69.0% in 3Q2022. Margin expansion is explained by higher gross margins in Betterware and Jafra US, with Jafra Mexico’s gross margin in line with previous quarter, and due to improvements in supply chain conditions and input costs normalization globally. And year-to-date, consolidated gross margin expanded 382-bps to 72.1% compared to 68.3% in 9M2022 mainly due to the inclusion of Jafra’s results, which has a higher gross margin profile, during the entire period in 2023, compared to most of the second quarter and onwards in 2022.

Consolidated EBITDA for 3Q2023 decreased 1.0% to Ps. 529.4M from Ps. 534.9M in 3Q2022, while consolidated EBITDA margin stood at 16.9%, in line with that obtained on 3Q2022, due to some adjustments in provisions that positively impacted Jafra Mexico’s EBITDA during 3Q2022, but not in 3Q2023, and partially offset by increased EBITDA in Betterware and Jafra US.  And year-to-date, consolidated EBITDA increased 10.8% to Ps. 1,901.4M from Ps. 1,716.8M, due to the inclusion of Jafra’s results during the entire period in 2023, compared to most of the second quarter and onwards in 2022. Year-to-date consolidated EBITDA margin stood at 19.8%.

Consolidated net income for 3Q2023 significantly increased 279.2% to Ps. 197.0M from Ps. 52.0M in 3Q2022, due to easy comparison base, partially offset by higher interest rates in Mexico, coupled with a negative effect related to the realized and unrealized loss in FX (forwards closed vs. real exchange rate). Earnings Per Share (EPS) for the quarter were Ps. 5.28, compared to Ps. 1.39 in 3Q2022.

Year-to-date, consolidated net income increased 3.3% to Ps. 643.4M from Ps. 622.6M in 9M2022, mainly explained by the inclusion of Jafra’s results for the entire period this year, compared to most of the second quarter and onwards in 2022. EPS for 9M2023 was Ps. 17.24, compared to Ps. 16.68 in 9M2022.

For the first nine months of the year, consolidated cash flow from operations increased significantly to Ps. 1,634.7M from Ps. 355.5M in 9M2022, primarily due to improved cash flow generation in Betterware and Jafra Mexico.

Balance Sheet

As of 3Q2023, the Company’s financial position remains strong, reflecting the main attributes of our differentiated business model, namely high cash flow generation and asset light business model. As of September 30th, 2023, the Company had Ps. $496.1M in cash and cash equivalents. Accounts payable increased 42.8%, inventory decreased 9.9%, and accounts receivable increased 4.6% from September 30th, 2022. The Company noted that it is comfortable with the level and composition of its inventory, which supports future growth. We ended the quarter with a cash conversion cycle of 59 days in 3Q2023.

Debt Restructuring

As mentioned in our previous earnings release, on July 10th, 2023, we prepaid the syndicated loan utilized for Jafra’s acquisition. This debt restructuring improved the terms and conditions we had on the syndicated loan, reducing our interest rate spread, as well as enhancing the maturity profile. More than 70% of the Company’s total debt allows early payments at no additional cost. Our goal is to continue gradually reducing leverage.

Net debt at quarter end was Ps. 5,200.4M, which represents a relevant decrease relative to the Ps. 6,217.9M at the end of 3Q2022. Our leverage ratio decreased on a YoY basis from 3.0x Net Debt to Trailing-Twelve-Months EBITDA ratio in 3Q2022 to 2.1x in 3Q2023, which demonstrates strong progress toward reducing our leverage ratio below 2.0x by the end of the year.

3Q2023 and 9M2023 Financial Results by Business

Betterware
Financial Metrics

3Q2023

3Q2022

%

9M2023

9M2022

%

Net Revenues

$1,420,739

$1,503,087

(5.5 %)

$4,254,128

$4,966,719

(14.3 %)

Gross Margin

56.2 %

55.4 %

87-bps

59.7 %

59.9 %

(12-bps)

EBITDA

$328,295

$298,167

10.1 %

$1,184,159

$1,267,932

(6.6 %)

EBITDA Margin

23.1 %

19.8 %

327-bps

27.8 %

25.5 %

231-bps

This is the fourth consecutive quarter with stable net revenues, which remain in the range of $1,400M to $1,500M. It is worth mentioning that each passing quarter becomes more comparable to the same period of the previous year, which demonstrates stability and a starting point for growth.  3Q2023 sales are equivalent to 87.3% growth compared to 3Q2019, the pre-pandemic comparable period.

Net revenue during the quarter was slightly impacted by a lower average associate and distributor base during the period, coupled with a decline in associate’s activity levels, and mostly offset by an 8.2% increase in average associate orders.  Year-to-date, Betterware’s net revenue declined 14.3%, explained by a lower average associate and distributor base, down 18.0% and 9.5%, respectively, partially offset by a 10.5% increase in average associate orders.

Gross margin for 3Q2023 expanded 87-bps compared to 3Q2022, related to the continued improvement in supply chain conditions and higher average product prices in our catalogs, coupled with a positive impact of the appreciation of the Mexican Peso.  Year-to-date, gross margin was roughly in line compared to 9M2022.

EBITDA for 3Q2023 increased 10.1% compared to 3Q2022, aided by a leaner operating structure, aligned with the current level of net revenue, coupled with lower freight and raw material costs. Due to efficient expense control and gross margin expansion, EBITDA Margin increased 327-bps during the quarter, compared to 3Q2022. Year-to-date, EBITDA decreased 6.6%, while EBITDA margin expanded 231-bps compared to 9M2022; last year we experienced significant adjustments in the demand for our products, and we had to incur in extraordinary expenses to align our operations to the current level of net revenue, which caused non-comparability on a quarterly basis.

Update on Business strategies 2023

During the quarter, we have made great advancements in our 2023 commercial strategies, namely:

  • Product offer: we recovered 100% the main concepts we previously removed from our catalog to adapt our portfolio during the pandemic.
  • Innovation: This year has been very intensive in the generation of new products and new categories, which have started to have a gradual impact on total sales. In addition, we recovered 100% of our core product offering. We will continue to promote product innovation to keep our catalogue attractive to the final consumer.
  • Staff on the field: We have continued to recover our sales staff and perfected its work processes on the field. This strengthened team is positively supporting recruitment and sales, representing a key element of our strategy to achieve the expected results.

These advancements, on top of the previous quarter strategies that we have executed throughout the year, such as catalogue redesign, product innovation, “Ideal catalogue” structure, and recovery of in-person events, among others.

For the 4Q2023, we have reduced prices on more than 160 SKUs, to reflect favorable exchange rate, freight costs, and raw material price decreases, expecting increasing returns on revenue from volume.

Long Term Growth Opportunity

According to our research, the Living Solutions market in Mexico has stabilized.  With a total market share of only 4%, and estimated home penetration of only 25%, we are optimistic of our ability to deliver growth in this market going forward.

On the international front, we are focused on expanding to the United States and South America. The progress made in the United States is very positive, and we are planning to begin pilot operations in 1Q2024. Likewise, we have recently hired the new country manager for Betterware Peru, and we expect to begin operations late 2024 or early 2025.

Jafra Mexico
Financial Metrics

3Q2023

3Q2022

%

9M2023

Net Revenue

$1,488,435

$1,333,036

11.7 %

$4,687,615

Gross Margin

83.0 %

83.2 %

(15-bps)

82.8 %

EBITDA

$209,267

$272,435

(23.2 %)

$755,538

EBITDA Margin

14.1 %

20.4 %

(638-bps)

16.1 %

* Prior to the acquisition, results are not fully comparable due to differences in accounting methods. Before the acquisition Jafra used German GAAP standards and since April 7th, 2022, we use IFRS Standards.

2023 will be a record year for Jafra Mexico in both net revenue and EBITDA. The extraordinary results are a combination of maintaining and growing the sales force, boosting product innovation, renewing the Jafra brand, and managing the business in a disciplined and responsible manner. On the production side, we have also achieved efficiencies derived from better negotiations on raw material prices, greater production volume, better planning, and synergies with Betterware.

Jafra Mexico’s 3Q2023 results reflect a significant improvement when compared to 3Q2022, as net revenue for the quarter increased 11.7%, driven by an increase in the EOP base of consultants of 13.9% to 422,956 from 371,230 in 3Q2022. Although there was lower activity (52.2% vs. 56.9% in 3Q2022), there was greater productivity ($2,088 vs. $1,995 in 3Q2022). Specifically, the month of September, which is normally a complicated month, had a very good result, exceeding 3Q2022 net revenue by 16.8%.

Gross margin for the quarter was 83.0%, practically at the same level as that achieved in 3Q2022. Year-to-date, gross margin was 82.8%, in line with our beginning of the year estimates.

EBITDA for 3Q2023 declined 23.2% compared to 3Q2022, totally explained by some adjustments in provisions that positively impacted EBITDA during 3Q2022 but not during current year period. Excluding these provisions, EBITDA margin would have closed practically at the same level of 3Q2022. Year-to-date, EBITDA was Ps. 755.5M and EBITDA margin reached 16.1%, in line with our beginning of the year estimates.

Update on Business Strategies for 2023

We have continued to successfully execute our commercial strategies, namely:

  • Product Innovation. We continue to accelerate our product innovation process, which contributed 13.9% of 3Q2023 revenue, as compared to approximately 7% last year. We already began recovering market share in our Color and Skin Care categories and continue strengthening our leadership in the Fragrances market.
  • Catalogue Redesign. We continue to improve our catalogue design, making it more attractive for our consumers, thus yielding a higher conversion in sales.
  • Rebranding. In September, we officially launched the new brand image of Jafra, which extends its appeal to a younger demographic, while re-vamps sales force emotional attractiveness to the brand.
  • Technology: In May 2023 we launched the first version of JafraNet, the new app for Leaders and Consultants. We further develop functions on the app, as we have done in Betterware. We are also rolling out our CHATBOT in November, which will allow us to service our Leaders and Consultants more efficiently.

Long Term Growth Opportunity

The Beauty and Personal Care market in Mexico grew 8.5% in 1H2023, while Jafra Mexico grew 12.5%.  As of this 3Q2023, Jafra Mexico has a share of 3.5% of the Total Market, which represents a great opportunity to grow going forward.  Among other things, we will focus on home penetration, innovation, and revenue growth management to achieve this growth.

On the international front, we are analyzing the prospect of expansion to Peru and Colombia.

Jafra USA
Financial Metrics

3Q2023

3Q2022

%

9M2023

Net Revenue

$215,952

$335,166

(35.6 %)

$667,691

Gross Margin

74.1 %

73.7 %

40-bps

76.2 %

EBITDA

($6,856)

($35,672)

NA

($36,999)

EBITDA Margin

(3.2 %)

(10.6 %)

NA

(5.5 %)

* Prior to the acquisition, results are not fully comparable due to differences in accounting methods. Before the acquisition Jafra used German GAAP standards and since April 7th, 2022, we use IFRS Standards.

In August and September, Jafra US has consistently exceeded initially projected performance levels. These months have marked a critical period of comprehensive business transformation, in which we have been actively reshaping our business strategies to improve opportunities, both for consultants and leaders and for our end customers, while promoting organizational stability. With this momentum in mind, we maintain our optimistic outlook for improved performance in the fourth quarter of 2023 and beyond. As our strategies continue to evolve and mature, we are confident in our ability to unlock and realize the full potential of our business.

3Q2023 results reflect the expected performance as net revenue for the quarter declined 35.6% compared to 3Q2022, driven by a 15.4% appreciation of the Mexican Peso YoY, a YoY decline of 6.7% in our average consultant base, coupled with 661-bps lower activity rates and partially offset by higher average orders. Measured in US Dollars, net revenue declined 24.9% compared to 3Q2022. However, August and September net revenues grew when compared to the immediately previous month; September net revenues grew 18% vs. August.

For the first nine months of the year, Jafra USA contributed with Ps. 667.7M to our net revenue, representing 7% of the group’s consolidated net revenue.

Gross margin for the quarter was 74.1%, expanding 40-bps vs. 3Q2022, mainly explained by sales mix, with higher share of revenue of lower gross margin products, and partially offset by lower manufacturing costs.  Year-to-date, gross margin was 76.2%, in line with our beginning of the year estimates.

EBITDA for 3Q2023 of negative Ps. 6.9M but improving compared to negative Ps. 35.7M in 3Q2022. Results were a consequence of efficient expense control related to synergies and optimizations after the acquisition.  Year-to-date, EBITDA continues on negative territory, but corrective actions are showing positive results. Continued improvement have us confident that we can deliver the profitability turnaround as previously expected.

Update on Business Strategies for 2023

The Jafra USA management team is focused on realigning the company’s trajectory, with the goal of achieving profitability and revenue growth. By fortifying our business pillars: Product Innovation, Business Intelligence, and Technology, we aim to establish a strong foundation for Jafra USA’s resurgence. The key elements of our comprehensive strategy where we have been focused on are, among others:

  • Product Innovation: We have embarked on a mission of continuous innovation, introducing our first Vegan skin-care line, new makeup formats, and extensions to key brands.
  • Product Marketing: Simplifying and reinforcing our product marketing strategy by increasing the page count of our client brochure to boost activity and productivity percentages.
  • Digital Marketing: Expanding digital and social media training resources, leading to higher web traffic, improved ROI, and productivity.
  • Business development: Strengthening our consultant and client network, and providing effective sales training.
  • Technology: Our investment in state-of-the-art technological solutions includes the development of an enhanced e-commerce and virtual office platform, developed on Shopify +.
  • Business Intelligence: Leveraging advanced analytics and market research to make informed decisions and address an elevated attrition rate among new consultants.

We remain committed to driving positive change and steering the company towards stability by the end of 4Q2023, and thereafter sustained growth and profitability.

Long Term Growth Opportunity

The US represents a huge opportunity for us.  It is the #1 direct selling market worldwide, with an important growth in the Hispanic market, which is more natural to us.  It is also one of the most relevant Beauty and Personal Care markets in the world.

Capital Allocation

The priority for cash flow generation has been focused on debt paydown, which has led to our end-of-period 3Q2023 leverage ratio of 2.1x Net Debt / TTM EBITDA, down from 3.0x in 3Q2022.  We have prepaid Ps. 1,235M since we acquired the Jafra debt in 2022.

Having said that, we remain committed to returning value to our shareholders through quarterly dividends as the Group’s results are stable or growing. Therefore, our Board of Directors has proposed to pay a Ps. 200M dividend to shareholders for the quarter, which is subject to approval at the Ordinary General Shareholders’ Meeting of November 9th, 2023.

Our financial strength will allow us to distribute dividends in 2023 for a total of Ps. 650M. Considering the dividend of Ps. 200M to be paid in November 2023, we will be reaching the fifteenth consecutive quarter with dividend payments, adding a total of Ps. 3,760M over a period of 3 years and 7 months, that is, since we went public in March 2020. The dividend yield has ranged between 4% and 20% per year, with the estimated yield for 2023 of approximately 7%.

2023 Guidance and Long-Term Growth Prospects

Considering year-to-date results, which have been moderately below our beginning of the year estimates, we are slightly modifying our prospects for the rest of the year, adjusting our previous full year guidance for our consolidated business as follows:

2023

2022

Var %

Net Revenue

Ps. 12,500 – Ps. 12,800

Ps.11,508

9% – 11%

EBITDA

Ps. 2,400 – Ps. 2,500

Ps. 2,316

4% – 8%

*Figures in millions

Although we are adjusting our expected net revenues by 5-10%, we expect our FY2023 EBITDA to close near the low range of our original guidance. During the first 9M2023, we were able to increase our profitability margins, improve our cash conversion cycle, and, therefore, normalize cash flow generation. Our leverage level has decreased significantly to Ps. 5,697M in 9M2023 from Ps. 6,689M in 9M2022. The Company will end the year with a strong balance sheet, which demonstrates the strength and resiliency of its business model.

There are some exogenous risks that may affect the results of our businesses, such as adverse global and National macroeconomic conditions, inflation, exchange rate, freight costs, disruptions in the supply chain, and political matters, among others. Nonetheless, we may also have several opportunities that can have the opposite effect, such as the expansion of our sales force, higher margins, superior activity, greater penetration in the market derived from different approaches such as new product categories, product innovation, differentiated sales channels, and of course, taking advantage of the synergies between Jafra and Betterware.

In the longer term, we are confident in our growth prospects in Mexico, the US, and internationally, as Betterware exits stability to regain growth, and our recent Jafra acquisition provides a compelling and diversified product portfolio as a group, contributing to our financial strength in changing business environments.

Betterware de México, S.A.P.I. de C.V.

Consolidated Statements of Financial Position

As of September 30, 2023, and 2022

(In Thousands of Mexican Pesos)

Sep 2023

Sep 2022

Assets

Cash and cash equivalents

496,068

471,585

Trade accounts receivable, net

1,275,837

1,219,961

Accounts receivable from related parties

48

229

Inventories

2,178,018

2,416,485

Prepaid expenses

129,138

119,208

Income tax recoverable

112,215

Other assets

177,761

552,151

Total current assets

4,369,085

4,779,619

Property, plant and equipment, net

2,877,944

1,815,290

Right of use assets, net

339,446

137,187

Deferred income tax

386,657

302,651

Investment in subsidiaries

1,237

Intangible assets, net

1,671,845

665,905

Goodwill

1,599,718

3,158,464

Other assets

53,794

116,875

Total non-current assets

6,929,404

6,197,609

Total assets

11,298,489

10,977,228