Natura &Co Holding S.A. (NYSE:NTCO) Q1 2023 Results Conference Call May 9, 2023 9:00 AM ET
Company Participants
Fabio Barbosa - Chief Executive Officer
Guilherme Castellan - Chief Financial Officer
Joao Paulo Ferreira - Chief Executive Officer of Natura &Co Latin America
Conference Call Participants
Danniela Eiger - XP Investimentos
Joao Soares - Citi Group
Joseph Giordano - JP Morgan
Irma Sgarz - Goldman Sachs
Eric Huang - Santander
Robert Ford - Bank of America
Andrew Ruben - Morgan Stanley
Operator
Good morning. Welcome to Natura &Co's First Quarter Earnings. On this call today are Fabio Barbosa, CEO of Natura &Co; and Guilherme Castellan, CFO of Natura &Co. Joao Paulo Ferreira, CEO of Natura &Co Latin America will join for the Q&A session. The presentation they will be referring to during this call is available on the Natura &Co Investor Relations website.
I will now hand the call over to Fabio Barbosa. Please go ahead.
Fabio Barbosa
Good morning or good afternoon to all of you, and thank you for joining us today. I'm very happy to be with you again. Natura &Co's performance in the first quarter is in line with our plan and previous communication. This is reflected in our Q1 numbers with a solid improvement both in gross margin and adjusted EBITDA margin.
In this meanwhile, the company continues to put in action important structural change in its portfolio, focusing on simplifying its structure, and improving its capital structure. Excluding Aesop Q1 '23 showed a strong profitability improvement, mainly driven by gross margin expansion across all business units and continuous cost control that were partially offset by sales deleverage at The Body Shop and Avon and Latam.
This quarter's gross margin is driven by price increases carryover and more favorable mix, more than offsetting the inflationary environment we continue to experience. As per the normal seasonality of the business, cash consumption in Q1 was high as planned, and working capital management was impacted by a buildup of inventories for Q2, and change related to the continued integration of the Natura and Avon brands in Latam.
From a revenue standpoint, the highlight remains the Natura brand, which continued its strong momentum from last year with Natura Brazil's sales growing 25% along with volume and productivity growths. Shortly after the close of the quarter, Natura &Co announced the size with strategic steps.
First of all, the group announced it has entered into a binding agreement to sell Aesop to L’Oreal for an enterprise value of $2.525 billion. The transaction is still subject to customer regulatory approvals and is expected to close in quarter three, 2023. The proceeds from the say of Aesop will strengthen and deleverage Natura &Company's balance sheet, freeing up resource and to sharpen our focus on strategic priorities with discipline. Notably implementing the second wave of integration of our brands in Latin America. Further optimizing Avon's international footprint and accelerating the body shop's transformational agenda to generate sustainable and profitable growth.