Betterware Reports Fourth Quarter and Fiscal Year 2023 Results

GUADALAJARA, Mexico, Feb. 22, 2024 /PRNewswire/ — Betterware de México S.A.P.I. de C.V. (NASDAQ: BWMX), (“Betterware” or the ‘Company”), announced today its consolidated financial results for the fourth quarter and fiscal year 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 February 23, 2024, to discuss its results for the fourth quarter of fiscal year 2023.

Message from the Chairman

We are immensely proud of our performance throughout the last quarter of the year, which significantly contributed to our strong overall results for 2023. This includes achieving double-digit revenue growth and increased profitability. Moreover, our robust cashflow generation has enabled us to further strengthen our capital structure and bolster the resilience of our balance sheet as we enter 2024.

As a group, we have embarked upon a phase of renewed growth, driven in part by the notable stabilization of Mexico’s home solutions market following the pandemic’s disruptive impact. This, coupled with strong execution on commercial strategies based on our four key elements (Portfolio, Incentives, Ease of Doing Business, and Kinship) have fueled a resurgence in growth at Betterware Mexico, reflected in a 7% year over year increase in Q4 revenues.  Further, Jafra Mexico continues to capture the tremendous opportunity in Latin America’s second largest beauty market and the tenth largest globally.  And we are well-positioned to grow Jafra US and to introduce Betterware to the US market in 2024.  

Our Jafra acquisition has proven both successful and highly accretive; surpassing our expectations and delivering exceptional results. Prior to the acquisition, Jafra Mexico faced a declining trend in net revenue, which we successfully reversed to secure double-digit growth in 2023. Similarly, EBITDA and EBITDA margin have followed this positive trend. The initial implementation of our proven model’s key pillars- product innovation, technology, and business intelligence- has propelled the company back into a growth phase while elevating profitability to new heights.  We have also realized meaningful synergies resulting in cost savings across various areas including catalog printouts, cardboard, insurance, market research, software, technology resources, and organizational optimization.  Jafra is poised for a strong trajectory within Mexico’s large and growing beauty market, approximately 50% of which is served by the direct sales segment.  2023 has been a pivotal year in our pursuit of becoming the number one direct sales beauty company in Mexico, and we remain steadfast in our commitment to implementing all necessary transformations to achieve this goal.

We are currently ramping up our international operations.  Despite 2023’s challenging start at Jafra US, due to unforeseen decisions made by the prior newly installed management, we have successfully stabilized revenue and made important decisions to position the Company for future growth.  A key milestone was almost reaching operational breakeven in the fourth quarter. This marks a crucial turning point for the Company, setting the stage for a new phase of financial stability and expansion opportunities.  In parallel, Betterware US is ready for launch at the beginning of Q2, showcasing an enhanced direct selling model that we are confident will pave the way for success.  Finally, we made continued progress to launch Betterware in Peru during the first half of 2025.

Looking ahead, we will continue to focus on successfully executing our commercial plans to expand top line growth with an eye towards cost efficiencies, building upon our strong results for continued positive EBITDA and cash flow generation.

Without minimizing the challenges we have faced, I am confident in our promising path ahead.  Our Company’s strong foundation of decades as an industry leader, coupled with our revitalized management, remains a winning formula for success.  We are committed to setting ambitious goals and upholding the highest standards, enabling us to fulfill our mission of creating opportunities for more individuals to enhance their lives.

Luis G. Campos
Chairman of the Board

4Q23 and Fiscal 2023 Consolidated Selected Financial Information

*2022 Figures include Jafra´s operations since April 7th, 2022.

Highlights

Revenue Growth Resumes.  YoY net revenue growth of 5.2% in the 4Q23, supported by growth of our two brands in Mexico.      
Solid EBITDA Growth.  YoY EBITDA growth of 36.7% in 4Q23 and 17.5% in FY23 when compared to last year.

Gross margin increased by 265-bps in 2023, primarily due to a favorable exchange rate, resulting in better cost structure for Betterware products and raw materials for Jafra.
EBITDA margin rose by 556-bps from 18.5% in 4Q22 to 24.1% in 4Q23, and by 79-bps from 20.1% in FY22 to 20.9% in FY23.
Year-over-year EBITDA growth in all three group companies was bolstered by successful expense optimization efforts.
We exceeded our EBITDA expectations for 4Q23, and met the expectation for FY23, generating full year total EBITDA of Ps. 2,721M.

Strong Free Cash Flow Generation.  Increased FY23 free cash flow 79.6% compared to prior year, which includes Jafra´s results since the acquisition was completed in April 2022.  Operating cash flow increased 67.9% on EBITDA increase, as well as inventory holding period improvements in all businesses, as well as improved supplier conditions negotiated, mainly, in Jafra Mexico.
Continued Debt Reduction. Reduced total net debt to Ps. 4,955M (from Ps. 5,625M in 2022), lowering our Net Debt / EBITDA ratio to 1.8x by the end of 2023, despite a decrease in our interest coverage ratio (derived from higher interest rates that affect our variable interest rate loans).
Robust Overall Quarter and Full Year Results. Ended 2023 with consolidated full year financial results surpassing the previous year in most of the key metrics: gross margin, EBITDA, EBITDA margin, Free cash flow, and EPS.

2024 Priorities

Revenue. Ramping up execute of 2024 commercial plan.
Cost control. Maintaining the gross margin at 68%-70% range throughout 2024 by persisting in our strategies to improve cost efficiency. This entails securing hedges against exchange rate fluctuations, negotiating costs of raw materials and products with our key suppliers, and design-to-cost engineering efforts.
Betterware US Launch. Launching our Betterware US (BWUS) operations in 2Q24, initially focusing on the Hispanic Population, with an expected annual investment of around $6M USD for 2024. While first year operations are not expected to provide a meaningful contribution, we will keep the market updated on key milestones.  The team is in place for a successful launch.
Betterware Peru preparations.  Currently assembling the management team that will spearhead the launch of our operations in 2025. This includes setting up the company and foundational infrastructure to make a significant and rapid impact in the Peruvian market.

4Q23 and Fiscal 2023 Financial Results by Business

Betterware Mexico
Key Operating and Financial Metrics

Highlights

Net Revenue Surge: 4Q23 grew 7.0% vs. 4Q22, marking the first instance of YoY growth since 3Q21 (vs.3Q20).

Growth fueled by a 3.1% expansion in the average Distributor base, a significant 1.3 pp rise in Associates’ activity, and a 14.5% increase in their average monthly order.
This follows the stabilization of sales resulting from our back to growth initiatives previously discussed. Despite softer growth recovery than anticipated, we are now on the right track and committed to executing all our strategies to strengthen this revenue growth.
2024 Focus: Adhere to strategic commercial plan.

Increased EBITDA margin: 4Q23 and FY23 margins improved by 153-bps and 170-bps when compared to the prior year, mainly explained by a more streamlined operational structure and effective expense control.

Notable decrease in direct expenses: 4.2-pps in 4Q23 and 3.2-pps in FY23 versus last year, due to efficient promotions, reduced catalog and packaging material costs, and improved pick and pack processes.
­Significant operating expense reduction: 15.8% in 4Q23 and 9.6% in FY23, mainly due to adjustments made during 3Q22 and 4Q22, incurring in extraordinary expenses to align the operational structure with the new sales level.
Financial discipline focus in 2024 to preserve gross margin and manage direct and operating expenses effectively.

Regained strength in generating operating cash flow. Operating cash flow in FY23 reached Ps. 1,178M, marking a significant 254% increase compared to FY22.

Transition in working capital from a negative to a positive change.
Marked improvement in the cash conversion cycle for 4Q23 to 14 days, down from 73 days in 4Q22, primarily due to enhancement in days inventory outstanding (DIO).
Expecting strong cash flow generation through a combined focus on commercial and operating strategies, including increased inventory management efficiencies.

Stabilized Sales Force. Stabilization in Associate and Distributor bases, although figures remain below 2022 levels.

Over the past four quarters, the Associate churn rate has mirrored the rate of new incorporations.
Improving monthly incorporation in 2023 reaching 15.2% as compared to rate in 2022 was 12.6%, thus allowing us to remain stable.
Continued growth of Distributors projected to activate recruitment of new Associates.
Churn reduction strategies include:

Generating more sales per Associate derived from a better overall portfolio management.
Offering segmented incentives for Associates to remain with us.
Developing improved training programs.
Fostering more kinship with Associates.

Gross Margin: Gross margin contracted 730-bps in 4Q23 compared to 4Q22, which can be explained by: 270-bps from prices reductions to be more competitive (benefits from the appreciation of the Mexican Peso passed on to consumers), 170-bps from a higher promotional share within the sales mix due to a very successful Christmas portfolio during the season, 180-bps for air freight incurred to have enough merchandise for a higher demand than expected, and 132-bps contracted due to an increase in import taxes (in some products) made by local authorities in 4Q23. For FY23, the gross margin closed at 57.3%, hitting the lower boundary of the expected range for this business.
For 2024, we anticipate our gross margin to be in the range of 58% to 59% derived from: (a) sales mix shift towards core products with higher margins, (b) Cost structure fortified through FX hedging and fixed freight costs, and (c) 2024 pricing strategy designed to maintain competitiveness and ensure profitability.
Reducing Inventory: 13% reduction in total inventory compared to the previous year, but still have excesses from heightened innovation activities in 2023.

During 2023, we achieved a 77% reduction in 2022’s excess inventory, exceeding our target of 50% for the year, with the balance intended for 2024. Nevertheless, the year’s innovation efforts resulted in additional inventory accumulation, hindering expected reductions.  We expect to reduce almost all excess inventories throughout 2024.

2024 Priorities

Strategic commercial plan: Several initiatives to grow net revenue included in our 2024 commercial plan, which comprise the launching of new Betterware sub-brands, licensing collaborations for specific products, Betterware Design Lab expansion, sponsorships (Mexican Olympic Team), catalog enhancements, branding campaigns, social media presence, tailored incentives for Associates/Distributors, as well as, more training, innovative financing options for product purchases, and technological enhancements to the Betterware+ App.

Jafra Mexico 

Key Operating and Financial Metrics

*2022 Figures include Jafra´s operations since April 7th, 2022.

Highlights

Strong Net Revenue. Growth momentum continues, reflected in robust 4Q23 and FY23 performance driven by the prior year’s growth.

Two consecutive years of growth, with a 51.4% year on year increase vs. 2022, which includes Jafra´s results since the acquisition was completed in April 2022.
Increased revenue resulted from the implementation and execution of our business model, which includes refreshing the brand and accelerating product innovation with time-to-market reduced to 7.8 months (compared to 18 months previously), applying commercial technology, redesigning our catalog, enhancing incentive programs, and boosting overall sales force motivation, among other initiatives.
Double-digit net revenue growth expected for 2024 on more of our commercial model fronts, including Revenue Growth Management (RGM) initiatives, continued product innovation enhancements, and further technological implementations to ease the way of doing business, regaining a foothold in historically successful cities, among others.

Resumed consultant base growth. The consultant base reflected a considerable 10.6% sequential quarterly increase by the end of 4Q23. Leaders saw almost a 1.0% increase in the same period.

FY23 strategy led to a reduction in Leader base for quality improvement (re-engage leaders in the business to increase their sales and those of their lineage), while Consultants grew by 2.6% year on year.
2024 strategy: Focus shift to recruitment from retention (2023), supported by planned monthly initiatives to encourage enrollment.
Established program to develop more Consultants into Leaders.

Average monthly order increasing. 8.7% and 14.4% growth in average monthly orders for Consultants and Leaders, respectively, in 4Q23 compared to the previous quarter.

Consistent optimal monthly activity rates for Consultants and Leaders throughout the year.
This productivity created an ideal mix for revenue growth of 9.6% in 4Q23 and 51.4% in FY23, when compared to the previous year.
2024 focus on encouraging the involvement of the next generation within our base of top leaders and increasing our conversion rate from the base of young Consultants to Leaders.

Enhanced Gross Margin. Significant 5.8-pps gross margin improvement during 4Q23, driven by a favorable exchange rate (2.9-pps), reduced costs achieved through supplier negotiations (1.7-pps), and a favorable variation in production volume and mix (1.2-pps). This also applies to the 1.9-pps enhancement for FY23.

Favorable product mix and exceptional performance from a strategic plan to boost sales of top and medium product sellers, supported …

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