Magazine Luiza U/Adr

A teleconferência de resultados do Magalu começará em instantes. Magalu's earnings conference call will begin in a moment. Good morning, everyone.

Thank you for waiting. Welcome to Magalu's conference call regarding its quarterly results. For those of you who need simultaneous translation, just click on the interpretation button, the globe icon at the bottom of the screen, and choose your preferred language, English or Portuguese. We inform that this event is being recorded and will be available on the company's IR website at the address ri.magazinluisa.com.br, where you can already find the earnings release and the presentation, both in Portuguese and English versions. The link to the presentation in English is also available in the chat. During the presentation, all participants will be in listen-only mode. We will then start the Q&A session. To ask questions, click on the Q&A icon on the bottom of your screen. Type your name, company, and the language of your question. When you're announced, a prompt to activate your microphone will appear on the screen, and then you must enable your microphone to proceed with the question. Questions received in writing will be answered later by the investor relations team. I would now like to turn the floor over to Fred Trajano, CEO of Magalu. Mr. Trajano, go ahead. Good morning, everyone. Thank you very much for joining us in our earnings conference call to discuss first quarter 2023 results. I am here again with all the executive team of Magalu and some of our subsidiary companies, and they will be available to answer your questions. And in the end of the call to clarify your questions regarding Q1 2023 and what we expect for 2023. I would like to start talking about the context that we had, what we dealt with in Q1. At the macroeconomic level, as we expected, we still faced a challenging environment, both online and especially online, but also in the offline market. I think we had an expectation that this was going to happen in the first quarter. And all our potential, all our expectations for this quarter were in gaining share. Talking about looking at the macroeconomic context, well, the pie was not going to grow, so we had to gain a bigger share of the pie. And new trust data in Q1 2023 showed a 14% drop. For a while, I didn't see an online performance like this. In the offline market, according to GFK, the best measurement for our categories in brick and mortar stores, also growing very little. And in that scenario, the company was able to grow in all of our sales channels. 11% growth online and 8% offline. And then I'll talk about 3P sales. And we got the highest market share in our history. We gained 6 percentage points in this period. The business as a whole grew 10% in terms of total sales. Coming from a high CAGR, we had the 2020 CAGR, we practically doubled in size from 2020 to Q1 23, growing on average 27 per annum. It's not that the base is low because we have been growing year on year and year after year. So we grew total sales 10% and we had the biggest revenue for AQ1 15.5 billion with 73%. of online share, again, achieving a high market share, offsetting this market, which in the offline was not doing that well. So we gained market share. Indeed, Magalu was one of the few companies that was able to gain market share in Q123. Looking at brick and mortar stores, we have been growing since Q4, and again, we grew. Again, in a market that was flat. Our expectation for brick and mortar stores, although we have the macroeconomic scenario, income shrinking, and credit risks, brick and mortar stores still have the default point. The default is the ICMS rate differential that we pay in interstate e-commerce operations. It came back this year, and that makes online 1P operations to pass through this tax to prices. And as we do that, the price differential between online and brick and mortar stores reduces. The physical stores have always been an important element in our value proposition for a number of reasons, but also as a sales channel. So we had 8% growth of physical stores despite an unfavorable scenario, and I see potential for this to continue in the coming quarters. So they will continue with a wave of positive growth, so 8% in total. a little less same store sales, but with a more positive trend, given the competitive landscape and regularization of pricing between on and offline, which was always the pattern before this default issue that I mentioned. Regarding online, again, a CAGR of 40% in recent years. Total sales growth for online, 11%, 6 percentage points gained in market share, again, in a market that shrank, showing that Magalu has a consistent operation. We are one of the biggest sales channels. And not only Magalu, but all of the operations for cosmetics, Kaboom, Netshoes, we sold a lot. We have an important scale in the market. But the big highlight of this quarter was our marketplace. We grew 19%. And this is strategic. I have been talking about this in the earnings calls for a while. Magalu wants to become a multi-channel digital platform with a multi-channel marketplace. Our growth focus and our opportunity to grow and to be profitable lies on this channel. Since 2020, this channel grew 52% per annum on average. We grew 19% over a base that had grown 50% last year and that had grown 98% from 2020 to 2021. So difficult comparisons, but the marketplace still grew. And we grew GMV while we reduced shipping subsidies, while we optimized marketing investments and passed along part of the costs of the operation to our take rates. And we were able to have positive growth in this period, showing the strength of our strategy. The marketplace for the first time surpassed the physical stores in the quarter as a whole. This is historical data because we have had the marketplace for five years and the physical stores for 65 years. It shows the potential exponential growth of this channel and how relevant it is. and how successful it was in our initiatives here among them. I'll speak more about better delivery times, better conversion, increasing the number of sellers, number of sellers that sell every day, increasing our catalog and catalog of available goods. in other words a number of initiatives that all together have led to consistent growth so I really think that this is an an all-time high mark that is relevant marketplace already surpassing the physical stores showing all its potential in terms of scale and growth But I believe that all of this becomes even more positive and powerful in a context of improved margins. We have been working consistently to evolve 3P take rates. I feel the platforms in marketplace markets becoming very irrational. Almost every month there is a platform rationalizing its prices and passing costs along to take rates, commissions or via charging for shipping costs. And this has allowed Magalu to also pass along with these costs. although we are still charging a lot less than many players in the market. So the total of collections, considering Magalu pagamentos, Magalu entregas and take rate, we divide that by total GMV, and we are still one of the best options for sellers, the most profitable one. And that's why we have attracted so many sellers, and that's why we have increased the number of sellers that sold daily. So we had 19% increase in GMV, but when we look at revenues coming from the marketplace, and Beto is going to speak more about that when we talk about the impact on our gross margin, we grew revenues by 39% already with a clear impact on our P&L balance sheet, showing that we are walking the talk. and in terms of cost we increased our logistics efficiency reducing the percentage cost of 3p having smarter shipping policies with a more efficient logistics operations and with the growth of fulfillment since fulfillment is developed and designed based on the same operating basis of 1p the marginal cost of operating 3p is very low as fulfillment evolved In the share of total deliveries of 3P, that cost tends to be reduced. The percentage of store pickup of 3P tends to increase, and we'll be able to share the same efficiency that we had in 1P and in cost of delivery, continuing this positive trend. And this is reflected in the contribution margin, which is positive. It is the channel that grows the most with the most profitability and expectation of growth. So the growth of marketplace becomes even more relevant in this context of greater efficiency, higher profitability, showing that we are betting on the right things and that our path is paved and we are on the right track. We have to celebrate these improvements. One thing that I would like to point out is that the e-commerce market is worth hundreds of billions of BRLs in Brazil. It is a big market with all kinds of categories. And we believe that we have the right to win in categories with the best unit economics. Magalu comes from a 1P operation with higher tickets, and we want to operate our marketplace with quality products, the best brands, and higher tickets than R$200. I always bring this breakdown because I think it is almost impossible to get results in the Brazilian operation with tickets of around 50, 60 BRLs, under 100 BRLs. When we look at the shipping cost over your GMV, When you add marketing costs, et cetera. So the unit economics becomes very difficult with low tickets. We have to have take rates of 50, 60% to operate in a positive territory. But we have a channel that consumers trust and visit. They know we are selling good products. It's not smuggled products. We are talking about real brand products and not counterfeit products. We have payment options to buy. uh uh the products and we have logistics for mid to large items which are the items of this category and we have been focusing a lot on having a bigger share not that we're not going to operate with other products but we want to have a higher share of products with higher tickets our three uh p has been profitable because of the assertiveness in the family of products more than 190 product families very difficult than what we worked with originally But we have an opportunity to grow our sales looking forward.

We're also increasing our share. We increase our share in products. We don't give specific figures, but on this slide, we can have an idea about the share of the online market in the first quarter. of 2023, for products above R$ 200, we increased from R$ 200 to R$ 1,000 and over R$ 1,000, gaining a lot of share. In these categories, we've been working with a lot of assertiveness, categories like tools, for instance, lighting products and several categories that are very significant. And therefore, at the same time, they diversify our base without us having a trade-off very heavily on our economics. Next slide. Magalu hit 280,000 sellers. We are consistently increasing our seller base, 21,000 new sellers this quarter alone. from 260,000 by the end of last year, and more than 9 million offers, hitting a base of 100 million offers. Like I said, these sellers, increasingly more liquidity, selling more every day. We have on the next slide, a characteristic that shows a good value proposition for big sellers. By the way, we started Marketplace with big sellers with major sectors and big brands. Big Brazilian sellers at Magalu, they have their main channel sales and they have leadership in many seller categories. In the pandemic, at the bottom of the pyramid, we work with uniqueness. working on small, hyper-local sellers with Parceiro Magalu. This is one of the drivers, a driving force of our diversity, geographical diversity, and also the base of categories. Because we're hyper-local, we can work with slightly smaller categories, and very strongly we have a competitive advantage for this base. Remind, we have six million retailers in Brazil, only 300 000 online and we have the physical store to ship products and also to use as a source of support the attractiveness are the physical stores and also focus on growth on medium sellers we already have a very good potential for market share And we are providing a couple of new tools like fulfillment, integrating 1P to 3P and also assisted sellers. We have a whole team for medium sellers providing service, consulting, so they can use new tools and our whole platform. So we have a value proposition today that is very well addressed for all kinds of sellers. And we've been managing to grow all into this assertiveness. Now I'd like to highlight I said marketplace exceeded physical stores, but it's important to say physical stores are very important in marketplace. Our point of uniqueness in our value proposition is also the physical store. It plays a critical role. in what I mean by marketplace multi-channel. It's important when it comes to hunting. Many sellers come from the support and attractiveness of store teams, and it's highly important when it comes to logistics. 70,000 sellers, particularly at the bottom of the pyramid, use the stores as merchandise drop-off rather than using a postal service. They use our store in order to ship these products for lower costs. These stores are in several Brazilian locations. And we have another uniqueness when it comes to the first mile to last mile, which is click and collect or store pickup. And only 10% of 3P at Magalu was store pickup. Now we doubled to 23% this year, vis-a-vis the last quarter of last year. Next slide, please. Another one, I already talked about Marcelo Magaló. What about the future? Growth triggers for 3P are in conversion, and this conversion increase necessarily goes through improving the deadline for 3P, for 1P we have outstanding Undoubtedly, we have the operation with the shortest delivery time for 1P. 85% of everything we deliver in 1P is delivered up to two days, an operation that does leverage the inventory of the stores for delivery purposes from our DCs as well. And we're also evolving in 3P, trying to make the delivery times in 3P being close to 1P. from 31% in 2022 to 45% in the first quarter. At the end of the day, the conversion gap between 1p and 3p, which was 2.3 times in the first quarter of last year, 2.3 times in the first quarter of 2021, went down to 1.4 times this year. So the difference from conversion to 1p to 3p is shorter. As we improve our delivery times, we do manage to greatly improve conversions. And like I said, we have some initiatives and the most important one is our fulfillment. When the seller leaves, or ship the merchandise for fulfillment, the conversion increased by twofold. We have CDCs already working with fulfillment, hitting more than 1 million orders by fulfillment this week alone. And we started very recently, just a couple of months ago. If you are in fulfillment, we have deliveries of 30% and up to D plus 1, not D plus 2. So this is truly... A very good evolution. Like I said, this operation is integrated to 1P, so the cost is marginal, is really low, more than 102,000 sellers already using Fulfillment. That's how we've been evolving. We have a slide just to give you a glimpse of the performance of the connection of our ecosystem. We've been speaking a lot about it. This is the year of Simplify Magalu. The key is to connect to our delivery platforms, payment platforms, search, back office, with companies that were acquired and also ads and everything related to content, the connection that adds value to many things. When it comes to Magalu Entregas, all operations are up and running with our delivery. Magalu, Netshoes, Epoca, Kabum, Partially Logistics 3P is the same. Financial services, we also have Magalu, Netshoes, Zatini and partially Kabum. IKIFONI as well. Kabum, we are doing the processing. And SmartHint, which is our search operation that we acquired two years ago, is already in Netshoes. And as a recommendation, in Estante Virtual in Cabo, Hub Sales also in all operations. Our back office is nearly fully integrated. So it's totally in Franca City, lowering costs, optimizing operations. And the same goes for Luisa Resolve, which is customer service. So we deeply evolved and also content, our content companies working to all our partners. And now Magalu Ads, which is the platform that was the first to be implemented at Magalu, we also want it to be deployed. The seller should be able to post ads in all companies of the group. we achieved 3.3K active ad users and we multiply the revenue by four fold, more than a thousand campaigns and Magalu ads in the search is a driver for growth and it's been one of our main bets when it comes to profitability, additional profitability to what we already have for marketplace. This goes for all our digital channels in the future. And later on, Eduardo can give you more color on this operation during the Q&A. When it comes to monetizing the company, I would like to add my part to turn it over to Roberto Bellissimo to talk about insurance. It was not so well known in our business. Magalu sells more than 1.3 billion reals per year in insurance. We've been selling all kinds of insurance, extended warranty against theft, some packed to credit and also insurance for home protection, home safety, which is very strong. We sell much more than many banks, insurance banks. And last week we renewed our contract with Cardiff. up to 2033. The total amount between the renewal and the sale of Luisa Seg, we can operate in a leaner manner, focusing on what really brings value to the company. The total 1 billion, considering both operations, both elements, In our negotiation, our deal shows the size and the magnitude of scale of the company. And undoubtedly, we made this agreement keeping our take rates, our commissions, profit sharing down the road. We believe ads, insurance and other initiatives that will be shown later on, but I'd like to highlight these two. We are making the company's focus leaner. in products and elements that do bring a significant contribution margin, ads, insurance, and focusing on a broader scale of these elements in-house. Now I turn it over to Roberto to talk about the financial highlights, and then we will open up for questions. Good morning, everyone. I also want to thank you for joining our earnings conference call today. Let me begin with the financial highlights. Fred Aletti spoke a lot about growth throughout our channels. Very high growth and 100% in total, 11% and 15.5 billion in total sales. We also highlight gross margin around 27.3%. On the next slide, I'll dive deeper into the evolution of the gross margin and also the EBITDA margin close to the level of 5%. And the final net income negative at 309, pretty much affected by the high interest rates in Brazil. and also seasonality of financial expenses, which I will address later on. Just highlighting here we can see adjusted income also owing to some non-recurring expenses, which were one-off events and posted in the first quarter of 120 million. Speaking of the evolution of the EBITDA margin, we nearly maintain the same level vis-a-vis last year. As a reminder, the first quarter for retail, seasonally speaking, has lower margins owing to the big sales and also to seasonal sales that are usually smaller in the first quarter. Last year, we increased a bit the margin throughout the year and this quarter, We repeated the same EBITDA margin of last year, and the dynamics was a variation in gross margin, around 0.5%, offset with operating expense dilution expenses. as G&A expenses were diluted 0.6 point vis-à-vis net revenue, and if we consider total sales, a reduction of 1 percentage point. The main impact, therefore, in the EBITDA margin was caused in gross margin and by default, which we highlighted here. Default came back and an increase in tax burden on the merchandise grows profit, as you can see on the slide. We began to pass through this increase in taxes since January. a little bit in January owing to the big sale as well, and then we evolved a little bit in February and increased a lot as of March. On average, we passed through 0.8%, 0.8%, so about 25% of the increase in taxes since the beginning of the year. as if we started very close to zero, going to 25 and 50% already in March. So the main highlight here in gross margin was the growth in service revenue, particularly marketplace, which contributed with 1.9 percentage point in the total gross margin. That's why the gross margin for merchandise went down 2.4 points. But the service revenue nearly offset this variation, so the consolidated gross margin went down only 0.5%. Except for default, our gross margin would have been expanded 1.9%, almost 2% at points. Just to give you an example of the impact of the growth of Marketplace and the adjustment in commissions that we did last year, and we repeated this year in February, so it didn't even reflect in the whole first half of the year, but the combination of growth in sales in Marketplace of almost 20%, where the growth in the take rate led to a service revenue marketplace to grow nearly 40%. And that's a long-term trend that marketplace provides when we speak of evolution of gross margin for the future.