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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.

On the following slide, we detail our working capital for starters. Again, We improved inventory turnaround and we reduced inventory normally. We had already reduced inventory by 1 billion in Q122. And now comparing March of last year with March of this year, we reduced it by another 500 million. So also reduction quarter on quarter. So we improved by 12 days stock turnover. So that made working capital variation. Well, normally there is a cash consumption by working capital in Q1 of any given year. This year, the variation was 2.2 billion, 700 million better than last year's variation that had been 2.9 billion. so that is very much linked to reduction in the balance of suppliers mitigated by an improvement in inventory turnover in the quarter we reduced suppliers balance by 2.5 billion around that given the natural seasonality of purchases and supplier payments We pay in Q1 the purchases made in the end of the previous year. And now talking about the financial expenses. In a way, there was an impact which is relatively non-recurring. It is seasonal. It is typical of any first quarter. Since we reduced the supplier's balance by 2.5 billion, we discounted more receivables in the same proportion. And that led to 100 million more in financial expenses than we would see in a normal quarter without the variation in the balance of accounts payable. Last year, these expenses improved along the quarters because CDI also increased during the year. And this year, we should have the opposite trend. because there was some seasonality in Q1. So in the next quarters, the working capital dynamic is more favorable. We are not going to have payment to suppliers as we had in Q1. So the trend in receivables discount is a downward trend. And we have increased the share of pigs and cash sale. The future interest rate curves is pointing downward, and as Fred has just mentioned, we've just renewed the agreement with Cardiff, which will mean more than 1 billion BRLs in cash, thus reducing financial expenses in the coming quarters. In the next slide, we talk about the evolution of our cash flow. We started with 8.5 billion initial cash in March 2022 to 8.1 in March of this year. And this variation is totally associated with investments and capex it was 8.5 to 7.1 we had the kaboom and all of the other investments investments all together represented almost 1.4 billion which was practically the variation in the cash flow and receivables So that operating cash generation which increased last year was about 800 million and now the last 12 months it improved. It increased to 1.3 billion and it was practically sufficient to pay for all the interests and leasing. Lastly, In an additional simulation, adding the proceeds coming from the renewal of the agreement with Cardiff, our cash would be, again, above $8 billion with a net cash position of about $1 billion, considering our debts, which are mostly long-term debt. On the next slide, we talk a little about LuisaCred. Our credit policy remains conservative. We have now 7 million cards and a trend of stability and growth in the second half of the year. Sales continued to increase given the recurrence of our customers. It grew 10% in total, 15% outside Magalu. Inside Magalu, there was a small migration to PIX, which kind of mitigates financial expenses as well. Then we talk about LuisaCred with revenues growing 18%, a high pace reaching the highest historical market, 1.1 billion of BRLs in total revenues. LuisaCred has also been posting great operating efficiency expenses growing at a very controlled rate. We are benchmark in terms of operating efficiency. The result is practically flat vis-à-vis last year, still reflecting two accounts, the cost of funding, which is still high because of CDI, and conservative provisions, although we have seen NPL stabilizing. and the more recent cohorts becoming better and better. Our expectation is that very soon, in the short term, both funding costs and provisions will start declining, and then profitability will go back to historical levels. Lastly, some highlights regarding our FinTech and We have here 30% growth linked to the growth of the marketplace. We launched TAP Magalu Pay, allowing all our sellers to use their smartphones as a mobile POS. We have more than 26,000 digital accounts of sellers. They receive all of their sales, 300 million reals deposited in digital accounts of Magalu Pay. So these were the main highlights that we wanted to give to you. And now I turn the floor back to Freddie and we'll start the Q&A session. Thank you. We will now begin the question and answer session. To ask questions, please click on the Q&A icon at the bottom of your screen. Type in your name, company, and language of the question to get in line. When you are announced, a prompt to activate your microphone will appear on the screen, and then you must enable your microphone to proceed with the question. Next question will come from Maria Clara Infantosa with Itaú BBA. Go ahead. Good morning, Fred. Beto, thank you for the opportunity. On our end, we have two questions. Number one is related to the gross margin. How should we think the evolution of the gross margin looking forward, given that it is impacted by two forces. On one hand, we have the return of default tax and payment. On the other hand, we have the increased penetration of revenue from services. The second question is regarding the contribution margin of 3P. You mentioned that you have a very attractive value proposition vis-à-vis your peers. Do you believe that there's still room to improve the economics of this channel? If so, how distant are you from an optimal 3P contribution margin? Thank you very much. Good morning. Thank you for the questions. I will just add one element, which I believe also contributes to the gross margin, which is the sale of financial services. We do have some services that fit that category, and I'm sure that as we increase those, and we have very ambitious targets of financial product penetration, particularly insurance. and I'm sure that this is also going to contribute significantly to increase our gross margin looking forward. But to answer your questions, I'm going to ask Fabricio to speak about 1p gross margin and the expectations, because he runs the 1p channel, 1p online and offline, and then we'll answer about the contribution margin of 3p. Fabricio?

Thank you very much, Fabricio.

This is Fabrizio speaking. Thank you for the question. Regarding gross margin, as we said, we are passing along the default tax since the beginning of the year. We knew that this was going to be a challenge, but this pass-through has happened gradually. Some months better than others. We started passing along, on average, 25% in the quarter, but we know that in March... We had about 50% of this pass through. And the trend is that we will continue to pass this along. We have to be careful in passing along the default with the gain in market share, but we've been able to do this. I think that the whole scenario is more rational. So we're able to pass this through and I believe that we'll continue to gradually pass this through and our margin should gradually evolve. I believe that the environment is good for us in negotiations with our suppliers. With a lower dollar price, this is also helpful. So I believe that the gross margin is going to improve month after month. For sure, this will happen. This is Eduardo Galantrini speaking, Maria Clara, to continue the answer. And talking about three-peat gross margin, as we announced in the beginning of January, we communicated to the market a change in our take rate policies, and they started into effect in February, so we have two of the three months of the quarter affected. That in and of itself has a carryover for the coming quarters. And talking about possibilities, We understand that on one hand, we have a take rate, which is, like Fred said, below the main competitors. And on the other hand, we have initiatives such as Magalu ads and monetization of the fintechs for our base of sellers. So we believe that all of this can contribute for your analysis. Super clear. Thank you very much. Thank you, Maria Clara. Next question from Eric Huang with Santander. Eric, go ahead. Good day, everybody. Thank you for taking my questions. I think that we would have three questions. You mentioned the renewal of the agreement with Cardiff. And we would like to understand, in terms of indebtedness, most of the company's debt is long-term. So could we expect any debt prepayment? How are you going to use the proceeds of this deal in this context? Do you see any opportunity for further monetization at the company? My second question is regarding debt. opportunities in operating efficiency. You mentioned that you are going to pursue these gains. I'd like to understand what is the expected pace for this to happen and consequently the impact on the EBITDA margin along the year. And lastly, a third question going back to working capital. You had improvements, particularly in inventory, and I believe that this improvement continues. It started last year. But looking at the suppliers, do you see any opportunity? We know that at least in terms of risk-withdrawn things are a little more complicated. Perhaps that might be less attractive to suppliers, but are there any opportunities to gain a little more in terms of payment terms? Thank you very much. Good morning, Eric. Thank you for the question. Well, there are a number of questions here, so I'll try to address them little by little. Number one, talking about Cardiff Proceeds. I believe that we have a net cash position. This will strengthen our cash. And our debt is all long-term. There is a CDI, a cost of CDI plus 25. So it's a relatively inexpensive debt. The market this year is relatively more turbulent. And we did not feel the effects of this turbulence on our financial expenses, for example, exactly because our debt is all long-term. Our prepayment of receivables is very efficient, very cheap in terms of spread, CDI percentage. And the operation of risks withdrawn is a cost paid by suppliers. I can explain that. But the fact is that our debt today has low cost. It's a long-term debt, and it is important to increase our liquidity. For cash generation, we have a number of initiatives, from improvement of the margins all the way to improved working capital. also including negotiations such as this recent one with Cardiff. It is important to continue to improve our cash position. And when the long-term debt becomes short-term, then we have to address our indebtedness in the best way possible, either prepaying it, renegotiating to roll over the duration of the debt, or simply by having a new issuance, and so on and so forth. But the important thing right now is that we have high liquidity, and we are increasing this liquidity even further. Now with these proceeds, we'll have another 1 billion BRLs in our net cash. The second question was linked to working capital. Again, we improved inventories turnover and we have an average procurement term, which is quite healthy in this quarter. Normally suppliers' balance is reduced in Q1. The balance of operations of risks withdrawn also reduced in the same proportion that the total balance of suppliers decreased. Actually, it decreased a little more, from 40% of the total balance down to around 30% of the total supplier balance, because The costs increased a little bit, given market variation, and there was less demand from our suppliers, in a way, given that they also have other options and they did not want to to anticipate costs that were relatively higher than before. But we continue to work with all of our suppliers, with all the partnering banks. And when the volume reduces a little, we also lose a little bit because in a way, It's a partnership. It's a win-win partnership. The bank gains, we gain a commission, suppliers gain with the prepayment. And I think that this is a temporary situation and very soon the cost of this line item should go back to normal ranges. And most likely this line item will stabilize as a percentage of our total supplier balance. Again, we disclosed this balance and the average term of this line is of only 47 days it's a very usual time well these suppliers they want to be paid beforehand and they choose to anticipate payment And we paid the bank on the day that we would pay the supplier. So it doesn't really change the total balance. It doesn't change the cash flow. It doesn't change the balance of payments as a whole. And lastly, in terms of operating efficiency, I think that we spoke about this. We diluted one percentage point compared to total GMV. Improving all lines from marketing, logistics, administrative, and fixed expenses. We closed down some kiosks. We closed down 1DC. Always seeking to improve operating efficiency as much as possible. Thank you, Beto. Just a follow-up question in terms of working capital. In terms of opportunities, do you see anything or are the gains presented to be maintained with no greater opportunities of improvement looking forward? In working capital, Eric, we are always seeking improvements in terms of inventory turnover. We continue to try to improve inventory turnover and maintaining procurement terms that are healthy and monetization of taxes. As we mentioned, this year, since we're paying more taxes, given the return of default, We have monetized more taxes with an expectation of reducing the tax balance. So there's an expectation of generating more cash with working capital. Thank you very much. Very clear. Thank you.

Next question, Gustavo Sendai with XP. Please go ahead, Gustavo. Good morning. Thank you for taking my questions. Coming back to default, you mentioned that in March 50% of the pass-through was already performed. Just to have a better understanding of the remaining 50%, what is your expectation by the end of the second quarter? Should we expect to have a neutral impact or should it continue until the end of the year? The second question is about ads. You said ads is a strategic option for the company. Can you tell us more about KPR for more sellers coming in and what about functionalities for ads in the future?

Fabricio?

Gustavo, Fabricio speaking. About pass-through of default, it's hard to say anything if it will be fully pass-through by the end of Q2. There is a market dynamics, also difference by categories. I can say that the second quarter will be better than the first one. We'll try to pass through as much as we can. And over the year, we expect to pass through nearly everything. But certainly in the second quarter, we will pass through more than in the first quarter. Gustavo, answering a question about ads. It's Eduardo speaking. When it comes to external metrics, we have two important variables. The first one is about expanding the inventory. ads versus non-ads, and the second is about the quality of our algorithm, which is measured by CTR. So we have two metrics. Naturally, we cannot disclose the figures, but we watch them very closely, their evolution. And to some extent, this has been, well, the evidence is that we disclose some numbers of sellers, on our ads platform from 150 to over 3,000. We have more than 10 campaigns and we have a revenue specific for the platform, but it's still in the early stage. We still have a long way to go. The most important thing is to consider the team which is stronger commercially with a new leader in the area. For labs, we're more than doubling the size of the IT team involved in these strategies. And our expectation actually is to evolve sequentially on our platform, which will be perceived by yourselves. Whenever you navigate, you see more products on ads, which is our plan to evolve the business. Perfect. Thank you. If I may, just one last question. It's about the outlook for CapEx. Could you give us more color about the expectation for the year? Investments in IT are growing a lot. So just to better understand the dynamics that you expect to see for the coming quarters this year. Thank you for the question. Fred speaking. André Fatala is going to tell you more about it. Like I said before in previous calls, the capex for IT is increasing a lot. We are investing less in physical assets. And the marketplace operation, a platform, depends more on IT compared to an analog one. Fatala is going to give you more detail on our investments and initiatives for labs. Good morning, Gustavo Fatala speaking. Thank you for your question. Answering about investments and CapEx, like we said in the presentation, we've been evolving a lot in our platform area, like Fred said. At the end of the day, investments are higher in IT, considering growth of some teams, like Eduardo mentioned in Magalu Ads, and also a review map of the platform, which is very much focused on empowering sellers that are joined. So we want to create several tools which allow them to run their business in a more to-the-point manner in Magalu's platform. We are also investing a lot in logistics. Like we said before, the fulfillment service has investment from development and also IT, evolving the processes in the hubs. We increasingly improve the volume. At the end of the day, We also have to improve the time of our packages and products to ship, so we have also been working very heavily in logistics. In addition, we are also investing very strongly in physical stores and infrastructure. Physical stores are increasingly being more connected as a hub of support to the platform. And at the end of the day, we invest a lot in connectivity and also investing in tools which perform operations in the store in a more simple manner for those who are running. from hunting up to packaging that come to our stores. And lastly, this year we've been strongly investing in artificial intelligence, AI. So that's a hot topic for us. We have a fully dedicated data team working in some AI areas so we can streamline several of the processes in the company and also in the future allowing us to have fewer people working in processes and AI supporting us in scale perfect crystal clear thank you thank you next question irma scars with goldman sachs please go ahead irma thank you my question is about magalu's operation There was a drop in the number of cards, two bases of cards. I understand maybe there is some seasonal effect from Q4 to Q1. I'd like to understand to what extent this reflects perhaps some hurdles in politics and also cleaning up the base. And do you believe that your product is adequate To what extent do you think it complies and it meets the expectations and competitive forces in the cards market in Brazil, which increased a lot in recent years? Thank you. Good morning, Irma. Carlos Mawad speaking. Thank you for the question. The move you saw in the reduction in the card base from Q4 to now, to date, Well, at the hurdle, you said, like you said, we have a tougher credit environment. At the end of the day, clients have an involuntary credit attrition owing to the pressure in the credit environment and also more restrictive So the number of new customers becomes smaller compared to historical figures for Luisa Credit. So these two drivers at the end of the day bring the active base downwards. As time goes by and the credit environment improves, we will recover the growth in the base as time goes on. When it comes to the value proposition, the big challenge here, well, the value proposition is pretty much centered in credit limit and the purchasing power. of our customers through the payment method. First thing is to have an approval rate and a limit that is adequate to our customers' needs. And then, considering all the market structures we have in the Magalu ecosystem, we want to work on a promotional layer which builds long-term engagement with these new customers. This will provide us with a competitive advantage today, so we have conditions to compete with all players there are in the payments arena today, be them incumbents, big techs, fintechs. We can have a competitive product. I hope I've answered your question, Irma. Perfect, Mawad. Thank you. So maybe just adding, or because you're in the call, I would also like to understand precisely about the last point. about engagement, long-term engagement with a product. Do you believe today there is, or you have all the products that you need in order to engage or to generate this core in the customer base? And I wonder if you could give us an idea to which share of the customer base you expect to see an intense and strong relationship with the platform that you have. I do believe that considering all business structures we have, Irma, I think we do have the elements to have this present engagement, the combination of them all. in order to increase customer engagement more and more with the services and the market structures. A lot has been done, but we can still combine things for the future. We just spoke of the renewal of our insurance agreement with Cardiff. This will be a cross-sell growth in the digital environment. We also have Magalu Card, which today is exclusively sold via digital channels, it still has a lot to offer in terms of growth within the company. We also have a credit platform direct to consumer, which is something very powerful and significant. It will bring more scale to our store operation and also to the digital environment. So I will tell you that it's not so much related to building new things. in order to have this customer engagement over time, but rather a combination or acceleration of elements that are already present in the ecosystem. Very clear. Thank you. Thank you, Irma. Next question, Joseph Giordano with JP Morgan. Please go ahead, Joseph. Good morning, everyone. Good morning, Fred, Beto and team. Two brief questions. The first question, you talked a lot about historical market share levels. I would like to dive deeper and try to break down by channel. How do you see the evolution? On the one hand, we can see more strongly the take rate supporting marketplace. I'd like to understand the evolution of margin. beyond competitive dynamics to the channel. The second question is about the context of LuisaCred. You have a more receptive credit policy for a while. I wonder if you could measure to some extent the magnitude and to what extent it might have an impact on the company's revenue today. These are my questions. Thank you. Joseph, thank you very much. Thank you for your question. About the dynamics in 3P, the figures for Q1 tell us a lot in the sense that we increase GMV by increasing take rate. This is only possible because the competitive scenario is far more rational compared to when we launched Marketplace five years ago. I remember I heard in conferences that take rate was just a piece of detail and many companies wouldn't even work with take rate and subsidize freight for sellers. Some would give 25% of the seller price because price management in marketplace has to do with seller, not marketplace, not platform. So there was a time in which the environment was very irrational. even powered by media platforms that brought a fee rate. What I can see here is that every week, every month, there is a platform increasing some fee or rate, rationalizing the operation. And something that is still outstanding for the seller, but it's not so good for all parts, client-seller platform. So it's more economically rational. And I think we showed enough. last two quarters. This is the market reality. So I think it's positive. And when it comes to credit, it's a fact that we've been coming from 2021 with a more relevant operation when it comes to opening new accounts. And it does affect mostly physical stores, selling physical stores. I believe we are coming to the end of a tight cycle, squeeze cycle, not only at Luisa Credi and Magalu, but the economy at large. And by the way, I'd like just to make some final remarks, adding to your question. Oh, by the way, there is another question. I'm sorry. My point is the following. I believe the bad news when it comes to macroeconomics and credit, I think bad news are coming to an end. And now we'll have a positive cycle. Clearly, the company's operation has improved, but not the Brazilian economy. And I think there will be a convergence point. And I think we'll come to this inflection point in which the company will improve as well. And then we will have a tail wing in order to work in-house. And credit is one of those points.

Thank you, Joseph.

Next question, Vinicius Eto with Bank of America. Please go ahead, Vinicius. Hello, good morning, everyone. Thank you for taking my question. A follow-up question about the advertising business. How do you see seller demand in 3P and also suppliers in 1P for the business? And what still needs to evolve when it comes to IT and platform to absorb this demand? You also mentioned the fulfillment contribution to the margin. How do you consider the dynamics between growth in fulfillment versus monetization? And lastly, could you just make a comment on the dynamics for the second quarter and particularly Mother's Day? Vinicius Eduardo speaking. When it comes to ads, overall speaking, like I said, the challenges we face lie in increasing our inventory of sponsored products, be it in home or product page or search results. We're going to post ads. And this has happened from the moment the CTR, when you click on the ads, from the moment it evolves. We have to improve our algorithms and have more ad sellers. When it comes to demand, we increase the number of advisors, 150 to 3,000, and the platform from one year, 3,000, and also more on our platform. So we have plenty of room to grow. From the moment we improve these two drivers, particularly via IT, naturally we will capture demand and revenue. As for full and monetization, fulfillment and monetization, we launched fulfillment last year, constantly evolving and becoming representative in sales at Magalu Entregas. We advise to the market and we improve the take rates. subsidizing for fulfillment by mid-year, and we are working precisely right now on how to deploy this for the second half of the year. We cannot disclose it yet, but like we said, for the second half of the year, there will be changes in this context. Joseph Fabricio speaking about Mother's Day. This year we had a favorable calendar. May 1st was a Monday. The best we have. At the end of the day, we have two weeks of sale until Mother's Day. And sales were good. We performed well in both channels, online and offline. So we had a good result when it comes to our goal and also with Avi last year. Vinicius, I'm sorry. I said Joseph, you are Vinicius. I'm sorry. Thank you, folks. This concludes the Q&A session. Now I would like to give the floor to Frederico Trajano for the final remarks. Please, Fred, go ahead. Just want to thank you all for joining today and wish you all a great week. This concludes Magalu's earnings conference call. The IR team is here at your service to answer any questions you may have. Thank you all for joining us today. Have a good day.