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Thank you for waiting. Welcome to Magalu conference call related to our first quarter 2024. For those of you who need simultaneous interpreting, please click on the interpretation button, the globe icon at the bottom of your screen, and choose the language of your preference, Portuguese or English. This event is being recorded and will be available on the company's IR website at ri.com. The link to the presentation in English is also available in the chat. During the presentation, all participants will be in listen-only mode. Then we will begin the Q&A session. In order to ask questions, the Q&A icon can be clicked at the bottom of your screen. Write your name, company, and language of your question. When announced, a prompt to enable your mic will appear on your screen, and then you should enable your mic to continue with your question. Questions received in writing will be answered later by our investor relations team. I'll turn the floor now to Fred Trajano, CEO of Magalu. Fred, you may begin. Good morning, everyone. Thank you for joining us in Magalu's earnings conference call to discuss 1Q24 results. Okay, and I am here with the whole management of the company. And again, all of the officers will be available to answer your questions at the end of the presentation. Well, the first quarter of 2024, I guess the right way to describe it is that it was a historical achievement for the company. The numbers speak for themselves. We had some highlights that were quite significant. in a macroeconomic context, which is still challenging for all retailers in Brazil. In this context, with all of these situations, interest rates still high, increasing taxes, and all of the macroeconomic issues broadly discussed in the news, still the company posted significant growth. of 54%, with a 7.4% margin in Q1, a quarter which is normally with an unfavorable seasonality in retail and also retail in terms of credit. This 7.4% margin means a 2.5 percentage point increase over Q123. At the same time, we increased the EBITDA by 54%. Below the EBITDA line, we had a 39% decrease in financial expenses. There was a declining SILIC interest rate, 13 high, down to 11 in Q1, but still we had a 39% decrease in financial expenses. which enabled us to post a positive result of 30 million bureaus of adjusted net income in Q124. I would like to stress that even in our best years, never in a quarter, in an yearly comparison, never did we have a $600 million delta in EBIT. So for income before tax, we improved $700 million compared to the same quarter last year. Of course, with all of the situations from last year, the macroeconomic situation was worse. It's not ideal, but even with this difficult context, We saw so many companies in difficulties in their operations, and still we managed. With a lot of hard work, discipline, and management, discipline in controlling expenses, in managing margins, and with a lot of effort, we were able to improve by 600 million bureaus our EBIT. So I think that this is a result to be celebrated. Of course, we are relying that the macroeconomic scenario will improve and that we will continue with our hard work. We have a very favorable outlook ahead of us, but we need to stop, acknowledge, and clearly understand what was done and value what was done in terms of the outcome of our work. I think that in addition to the accounting part, I think it is very important to value this quarter. Roberto Bellissimo is going to detail this in a moment, which is this is the cash generation, operating cash generation. This is a big highlight for the quarter, considering 12 months, and in April, in actually March 2024, it was $2.7 billion. double what we had in the period ending in March of 2023. For the first time in a long time in 2021, we were able to end the quarter with basically the same cash as the end of the year. We ended last year with 9.1 billion in our cash in the end. of this quarter with $9 billion in cash. In the same period last year, we had reduced the company's cash by $3 billion. We had a funding of $1.250 billion in this period, but we also paid $900 million in debentures. And so this has an impact on our cash. So for many years now, Q1 didn't present such a positive cash dynamic as the first quarter of 2024, clearly showing that our work undoubtedly gave us good fruits in practically all of the line items of the balance sheet. Speaking about the debt, we paid 3 billion in BRL, 1 billion in BRL in Q1 and the other 2 billion now in April. In the end of last year, we spoke a lot about this There were a lot of concerns and we practically annihilated these concerns with our debt payment. The next debt maturing in the company is only in the end of 2025. So the company has no bank debts any longer for the short term. And I think that This is an indication of the great operating result, evolution, working capital management by the company. So now, with the funding, we have a very favorable outlook to resume investments and to step on the gas of our projects, which I will detail in a moment. From the standpoint of sales, I would like to highlight that we were able to grow. Despite a comparison base of last year, I don't know if you remember, but in the earnings call of Q123, I had mentioned that the company started paying default. And we hadn't passed through the default in Q123. Only about 25% of default passed through. So mainly the 1P operation of Magaloop had a very hard comparison base because we had the price increase and had not passed through the tax increase to our prices. And we had to pass through in one quarter 350 million, and there it was 1.5 billion. And that's what we had to pass through to our prices. We did this pass through along the year, and in Q1 of this year, this was totally passed through, and this meant an evolution of the gross margin of the company in 6.2 percentage points. And also, our services income also increased. Forbiddable speak about this, including a significant increase in the sale of insurance. And the increase of the marketplace take rate. The marketplace once again contributed a lot to improve our result, gross margin and EBITDA margin of the company. So a number of fronts. And the default base will cool off along the quarters. We have passed through less default last year in Q1 of 23. And progressively, we passed through the default increase. And as of the second half, we are going to have a much easier comparison base to highlight our one-piece sales. But I would like to highlight the best performance of our brick-and-mortar stores in the last two and a half years. I guess that whenever there's a crisis, the market asks about the future of physical stores. When the crisis is over, the physical stores are shown to be resilient, not just for the whole system as a whole, but as an abundant importance. Thank you. 0.7 percentage point with the gradual macroeconomic improvement like i said it's it's not totally improved but macroeconomically speaking it's better the debt service of individuals fell from 8.3 to 7.3 data from the brazilian central bank so that now the households have more money to buy and after a long period after covid There was a hangover. People bought a lot during COVID, stopped buying after COVID, and now are buying again. So we see an improvement cycle beginning again. Another highlight for physical stores, which is important, is that with the return of default, the difference in Internet prices compared to physical stores reduced, because in the Internet, we would pay... fewer taxes in 1P, not just Megalo. All companies and the physical stores found it harder to compete with the online e-commerce. With the arrival of default, the taxes for online increased, so the price gap between on and offline reduces. Physical stores become more competitive and they were convenient. People like to go to the stores. It's convenient. Now in April, this trend became significantly more marked. April was a spectacular month for brick and mortar stores, showing that this trend that we saw in the Q4 and now confirmed in Q1 is maintained. And we have a physical store position that no other competitor has. We have a huge opportunity for this general, which was once again shown to be resilient. It's very important to note this, and I'd like to congratulate all the operational team and the physical stores of Magalodi. They did brilliant work, and they continue to do even better in Q2. Now I'd like to speak a little about e-commerce. I spoke a little about 1P. 1P was at a slight decrease in the quarter. The total was 1% growth because 3P increased. 1P. not just in the controlling Magalu, but in the controlled companies, Epoca, Kaboom, et cetera, they all had increasing default. All of them had to pass through default along the year. So we had a comparison base of first Q23 with no pass-through of default, which kind of made sales a little harder. But we were able to pass through default. We were able to significantly increase the margins of our 1P operation in all of the channels of the group. in this Q1. And we already see 1B resuming growth starting in April, showing that, indeed, the big point about growth was not competition. It was the default comparison base of last year. We are comfortable and confident that from now on, this 1B trend tends to accelerate. I would also like to highlight the growth of our marketplace. I think that of all channels, the biggest profitability delta that we had was in the marketplace. We increased EBITDA by 2.5% compared to last year. the marketplace increased more than that significantly more it is one of the channels that contributed the most to our improvement in operating profit and contribution margin we want to have a profitable channel and we want to grow only if we have a high profitability If we look at the track record, it grew 39% per annum. It grew 6% this quarter, but it has contributed significantly to our bottom line. In the future, well, now that we finished the best through-off take rates in Q2 of last year, again, the marketplace will find an easier scenario as of the second quarter. And now starting in Q2, the focus of 1P brick-and-mortar stores and 3P continues to be increasing profitability. Well, the COVID pandemic is behind us, and we have a reality for digital companies that was correct, that sales growth has necessarily to be coupled with profit increase. The focus of Magalu this year continues to be increasing the income, and we're going to deliver this. Sales growth, when it comes, will be coupled with profit increase, preferably when profit increase was greater than sales growth. We want to continue to increase our margins. 7.4 for the quarter is an achievement. It is a consensus of the market for the whole year. We delivered in last season, so we want to continue to surprise positively the market, particularly in the operating markets. profit line item. We will grow and all channels, we believe, will grow. The month of April is already pointing in that direction. On the next slide, still on the marketplace, we can see the growth and take rate along the quarters. Q1, 21, 22, 23, now 24. And the cash margin. which is almost like a contribution margin for 3P in the same period, we see significant growth in profitability of our marketplace, contributing a lot to our EBITDA, just like the default was through in 1B, just like the operating leverage of physical stores with the same store sales growth for brick-and-mortar stores. Here I'd like to highlight the number of sellers. We continue to grow the number of sellers. We have 350,000 sellers, more than 138 million offers published on our marketplace. I would like to highlight that this is despite the fact that we have had a lot of sellers and offerings disconnected from the marketplace. We are in the Encanta Magalu year. Delight Magalu. We always have a theme. And the theme this year is to improve our NPS. It is already above the market, but we want to have even more. exemplary levels of NPS for all operations of the group. And we have done significant work with the sellers so that they can operate at the same NPS level of 1B in the stores, which is at around 80. 3B NPS is still at 65. It was 57 two years ago. We're already at 65. And we want to make strides forward for the NPS of the sellers to be at the same level as 1B, which is an NPS of 80, a number which is absolutely high globally in terms of customer satisfaction. This is one of the focus of the company for this year. More than increasing the number of sellers, we are very much focused on on improving the level of service of our sellers already with a high level of profitability, as I mentioned. To improve this level of service and the profitability, one of the main competitive, sustainable competitive differentials of Magalu, which was always the 1P competitive differential, which was an online multi-channel operation that led us to become leaders in the Brazilian 1P e-commerce industry. We are replicating this competitive edge for 3P, which is the truly multi-channel fulfillment. It is the only true multi-channel fulfillment in the market. What I mean is that 100% of the seller's inventories in our fulfillment operation have the same benefits of our multi-channel approach. The inventories are in the same DCs of our own goods inventories, our 1P. Our DC is more than 20 DCs all over Brazil. A good part of them are available for 3P fulfillment as well. Once the inventory of the sellers lie in the same CD of the 1P, they can benefit from store pickup with free shipping. They benefit from the 1P NPS, which is at around 80, as I mentioned. So as we increase The share of 3P, the fulfillment by Magalu, our NPS will increase. The 3P NPS, which I said, which is below 1P, and also the profitability of 3P because a multi-channel operation bears a much lower cost than a standard logistics operation. We are already at 20%. We launched this service last year. Today, 20% of 3P orders are already on this format, and we'll step on the gas. The highlight goes to the Northeast D.C., which is doing fantastic work. We have very high levels of service there, a high inventory turnover, and the operation is only growing faster. For one year of operation to reach 20% of 3P orders is a fantastic achievement and level of service of 95%. This is the focus of the operation because one of the big differentials of our 3P is to enjoy the same multi-channel performance of 1P, which gives us an array of options and a level of service to consumers way above the average of the market and with a lower cost. In terms of opportunities, while I spoke a lot about CapEx, we are evolving a lot. Our Magalu ads platform increased by 70% the revenue of sellers on the platform. We continue with robust 470 million monthly visits. The trend is that they will increase in the future in all of the companies of the ecosystem. And we have here the conviction that Magalu Ads is going to be one of the big drivers of additional EBITDA for the company looking forward. We have a significant portion of the capex increase of the company to develop Magalu Ads platform. And in the OPEX, to develop the team, to increase the go-to-market team, to make this a reality. And not just sellers, but big brands as well. We're very excited. This is an agenda that has been successful in digital companies around the world. Recently, we were in India visiting many companies there for benchmarking. They had successful ads initiatives there. This happened everywhere in the world. There's no reason why we wouldn't be able to monetize this huge audience of channels. Kaboom, Net Shoes, Epoca, they're all leaders in their categories and in all of our content channels with a significant audience. So, of course, this agenda will be successful and will translate into significant return of investment. Another highlight of the quarter is what we launched in Rio Summit, the first public services of Magalu Cloud. We had a pre-launch of the cloud in December. Now, we have the self-service of Magalu Cloud, object storage Turia, which is for identity and access management, and ID Magalu, a user authentication solution, the single sign-on. These services have already been launched. Many of the services will be launched along the year. We have more than 100 clients already using our cloud services. So, again, here we are very excited about the additional possible contributions to our margins and to our service margins. This was a highlight in the quarter. Magalu Cloud and Magalu Ads. We had a long phase of investment. I would like to highlight some businesses of the group. Magalu Banking, we're going to speak about this. It's a company that was acquired. It was Huffington Tech. It became Magalu Bank. We have a very good result of that. I spoke about logistics. The logistics companies are part of Magalog, the logistics company that provides services to the ecosystem. In terms of channel two, channels that became a highlight were Netshoes, They posted a fantastic performance in the quarter. The marketplace already has a 44% share of marketplace in total sales, 13 million of adjusted net income in Q1, and a significant improvement in working capital. As of April, Netshoes has started accelerating its growth in the high two-digit. We have 7 million active customers. We have a number of good figures in net shares in an operation, which in the past historically was deficient, but recently it's been generating cash, improving results, you name it, very positive figures. The same goes for Kaboom. Kaboom posted another very good quarter, 33% marketplace growth, 31 million in adjusted net income, and the launch of its first physical store. within the Magalu unit on TET. We are running some experiences testing to have some companies of the ecosystem with brick and mortar stores. We are testing them at the unit of TET and in some others. So this is an important way for Kabum to have products in display or to sell products that were returned, whose seal was broken. Well, it's a very successful experience, which I am sure will be another successful initiative looking forward. Lastly, as I said, we are in the Incanta Magalu year. Magalu delights. And we had, like I said, two years very much directed to improving results and excessive and almost exclusive focus on improving the margin, increasing efficiency, driving down costs, improving pricing. And we felt that this year... After being successful in this agenda, we were successful in regaining profitability by Magalu. We thought that we should focus our eyes and ears to improve the level of service. To give an idea, corporate NPS at the company increased from 66 to 73, an average of 8 for 1P, physical stores, an average of 65 for 3P. We're improving on all channels, and we want to get the NPS close to 80, which is the one BN store level. But we have a significant improvement with just a few months of Encanta Magalu. In this process, there are a number of initiatives, not a silver bullet. We're talking about level of service, delivering fast services, improving returns, exchanges in all of the digital channels of the company, in all channels of the group, improving searches, have best offers, to make it easier for customers to find the best offering, faster delivery, more payment options at checkout, access management. We want to make it easier for customers to change their passwords, filters and recommendations, and again, A great focus on improving our after-sales, which is not easy to make after-sales delightful. A number of initiatives across the company, all leaders of the company are obsessed about this. There is no better competitive edge than having a level of service way above the average of the market. We already have that in 1P channel and stores. We want to take it to a whole new level across the channels, and we want to bring the 3P level of service to the same level. Fulfillment as well. The multi-channel 3P fulfillment will help us accelerate the process. And all improvement initiatives, several of development, user experience, other improvements in other fronts, business processes, and a focus that is important to – and the focus is moving in that direction. I'll turn the floor to Roberto to detail our financials, and then I'll be back for the Q&A. Thank you.

Good morning, everyone. Thank you for joining us today in our earnings release call for the first quarter of 2024. I will briefly go through the financial highlights. Fred has already said that we had $16 billion in total sales. We grew 3%, we grew online, offline, and then the next highlight is gross margin of almost 30%. We are growing significantly when compared to the previous year. Total EBITDA of 681 million, EBITDA margin of 7.4%, 30 million in adjusted net income, And it's worth noting that this quarter alone, we did not have any non-recurring events or expenses that were non-recurring. Accounting net income was very similar to the adjusted net income. And then we ended. with $9 billion in total cash in the quarter. In this next slide, again, we show the evolution of the EBITDA margin in the past quarters. I would like to highlight the main leverages. growth in our service revenue. Service revenue was up by over 10%, and this certainly contributed, again, to put us in a different level in terms of gross margin in the company. Both marketplace services also grew in a very speedy fashion. insurance and credit services in physical stores as well as through digital channels. So the insurance share has increased on the digital platform as well. Then we had the increase of gross merchandise margin. We had liquidación fantástica, just as we did Black Friday last year, more rational, much more, you know, customer-centric. We had a fulfillment expansion. We had market share gain in the physical stores with operating leverage. And Luisa, credit profitability in the second consecutive quarter also posted growth. you know, profits. Next slide shows the significant adjusted EBITDA margin evolution from 4.9 to 7.4. This is very much related to an increase in gross margin that was up by 2.6 points and mainly merchandise gross margin that was up by 2.6% this quarter. And it's also important to highlight that sales expenses, or SG&A, were almost flat in the quarter. There was only an increase of 2%. And even with increases in the marketplace segment, you know that that, you know, takes expenses up, but this is compensated through the gross margin. But it's important to say that last year, in the same quarter, we had non-recurring expenses of around 120 million BRLs. and we simply eliminated these non-recurring expenses. So we had an operating efficiency in terms of operating expenses. So the numbers were much better this quarter vis-a-vis last year. Next slide, we show the evolution of working capital. When we look at the last 12 months, there was an impressive evolution of $2.1 billion from March 2020 to March 24, and this is the result of a great evolution in inventory turnover and procurement in the past quarters, and as I was saying, in the last... call, we improved turnover, we reduced purchases, our working capital at the end of last year was much healthier. And this was also reflected early this year, because when we compare March to December, there is also some seasonality. But this quarter, the working capital balance was down by $700 million. This is totally related to the supply accounts that was down by $800 million due to seasonality. And because of that, this may come back in the coming quarters. But now, when we look at last year, the variation was much greater. And this year, the variation was quite smaller. And this... called for the need of prepayment and a much better cash flow and and i will show you that further on it's also important to to note that in addition to the turnover and the procurement timeline we reduce our inventory balance over by approximately 200 million brls and we also reduce the balance of taxes to be recovered in approximately 200 million brls this quarter and this contributed to the cash generation of the company as a whole. Now, when we look at financial expenses, the trend is quite positive. Maybe this is the first quarter where our financial expenses are lower when compared to the fourth quarter of the year before. And this is... quite an achievement because that represents almost six to seven hundred million left in financial expenses and this is positive for our results mostly influenced by improvements in working capital also impacted by reductions in cdi and improvement in our overall capital structure in this next slide we show the cash flow for the quarter it's it was the best Cash flow for a first quarter in our history, its balance, even though there was a variation in working capital, that was totally offset by our results. And at the same time, we maintained a total cash position that was quite solid. Capital increase contributed to the debt payment in January. Next slide, we show evolution in the last 12 months. Here you have the fast flow of all of our operations. We have $2.7 billion. This is a record number for the period. And this is very much related, once again, to the increase in EBITDA, variation of working capital, and reduction of expenses with prepayment. That is all part of that same calculation. In this next slide, we show the history of our quarterly payments. transactions, operating cash flow, which is much better than the first quarter of previous years. And in terms of the last 12 months, this is only comparable to the flow of 2020-2021 in the midst of the pandemic. So very positive flow and very strong for this current period. Moving to the next slide, here we show our net cash position. We increased our net cash position this quarter, going from 1.7 billion to 2.4, meaning that we generated almost 2 billion of cash flow in the last 12 months. Also, there was an increase in net cash. We paid debt, and at the same time, our cash position was kept at a high level. Our debt is now all long-term. Now we have the highlights of Magalu Bank, 25 billion in TPV, also growing 6% year-on-year, 8.6 million of fixed transactions with our proprietary technology. and in underacquiring almost $50 million in the first quarter, and some other new things on the seller side. The number of seller accounts continues to grow, reaching almost 100,000 digital seller accounts. The volume of transactions is getting close to 1 billion, and now sellers can activate the digital accounts using the portal alone. And they can also use the services of the digital account straight from the portal, and they can also apply for loans that are secured. Secured loans. This is something else, and this will certainly help the product to grow even more. Finally, talking about Louisa Kragi here, the highlight is the reduction in the level of delinquency. There has been a significant reduction. NPL over 90 days is dropping by 10%. It was 10%, and now it's 9.4%. And there is also a decrease vis-à-vis December because seasonally this is not the best period for delinquency. But once again, we managed to make things different. The coverage ratio increased at the beginning. We had lower provisions, lower cost of funding. We succeeded in operating efficiencies. We were able to reduce operating efficiencies. And once again, we posted net income of around $13 million at Louisa Khaji, reverting a negative result that was negative by $35 million. It is also worth mentioning that this month we agreed with our partner, Itaú, a new capital increase of about $1 billion, $500 million for every partner. Now Luiz Acrede is posting profits, and we see – good prospects for the coming quarters as well. So this capital increase will help LuisaCred to be more capitalized and to prepare it for the new growth cycle. With that, I conclude the financial highlights and I turn the floor back to Fred for his final remarks. Thank you. Thank you, Beto. I think that we could not conclude this presentation without talking about this immense strategy that has hit the state of Rio Grande do Sul. We've been in that state for 20 years. We have more than 2,000 employees working in that area. We have a deep love for the state and the people from that state. We are very solidary, not only that, but we are adopting concrete actions to support the state and its population in this dire moment. First of all, with our team, we have, out of the 2,000 employees, 160 of them had to leave their homes or they were heavily impacted, so we have a people, our people management team helping all of them. Magalu takes good care of its team. But beyond the team for the general population of the state, we are also donating mattresses for the shelters, NGOs, you know, city halls are receiving a lot of mattresses. This is just the beginning of this this effort, and as things evolve, we are constantly looking at requests from local organizations in terms of the operation. Six of our stores are closed. I mean, all of the others are operating again. The average daily sales remain the same. I mean, in terms of physical stores, nothing changed, and in terms of e-commerce, I mean, there was an impact, so e-commerce was mostly impacted. But I think things will get normal very soon. Still talking about our support to the local population, our partner, Tadif, decided to expand and include flooding coverage for all insurances sold in terms of extended guarantee. We have also an insurance for residence assistance. And in the past, we didn't have that coverage. But now... we are including these new coverages in the two products that we sell. And this is for Rio Grande do Sul alone. This is just an exception. We suspended collection and also credit card payments during this period. So we are absolutely solidary to the people of Rio Grande do Sul, and we are working diligently to help things go back to normal as soon as possible. And with that, I now turn the floor over to the analysts for their questions. And once again, as I often say, all of our executives and officers will be available to answer your questions. And then I will be moderating the Q&A. Thank you.

We will begin now the Q&A session. To ask questions, click on the Q&A icon at the bottom of your screen. Write your name, company, and the language of your question to get in line. When announced, a prompt to enable your microphone will appear on the screen. You should then activate your microphone and ask your question. Our first question comes from Luis Guanais with BTG. Mr. Guanais, go ahead. Good morning, Freddie, Beto, Vanessa. I have two questions. First, Freddie, you talked a little about the improved profitability of 3P. I'd like to understand, how can we expect this to improve looking forward? Which would be the main drivers for this improvement? By a category or new services you're plugging into the platform? My second question is about working capital, which was a highlight both in Q423 and Q124. Could you elaborate on your negotiations with suppliers? Because the market seems to be more positive for this kind of negotiation given the state of some competitors.

Thank you.

Good morning, Guanais. Thank you for the question. I'll answer about the marketplace, and then I'll turn the floor to Eduardo. And then regarding working capital, Fabricio will answer your question. As you said it yourself, and as I mentioned at the beginning of my presentation, Guanais, I think that we had an exponential improvement in the marketplace results. In 2021, we had a negative contribution margin. Then in the marketplace, we had a contribution margin that was just breaking even. And then we started posting a very positive result last year. We had a number of take rate improvement, pass-throughs, we changed shipping policies. All along last year, particularly in the first half of the year, as I mentioned, and in the second half of the year, we had a full reality and we increased our margin above 2.5 of EBITDA into one compared to last year. A good part of the improvement actually came from the marketplace, not exclusively, but mostly. So we have a high margin level. From the standpoint of margin, actually, the possibility today is higher in Magalu ads to increase our results via Magalu ads. Although ads is not just for 3P, it's for 1P for all of the companies of the group. But, of course, a part of it will be boosted by ads. But looking forward, I think that our margin level is already high. And in addition to Magalu ads, in the future, the results will come from less operating leverage and growth of sales. Would you like to add? Then I'll turn the floor to Fabricio. Hi, Luis. Good morning. Just right, undoubtedly, Magalu ads. is one of the main drivers to grow profitability and sales. And I would also highlight logistics because we don't monetize 100% of the pool. We monetize it just for heavy products and collection items. There is also financial services, financial services to sellers and even to end consumers to increase sales. The service penetration level, Mawat is leading that front. Thank you. And this is Fabricio Guanais. Fabricio speaking. Thank you for your question regarding working capital. We have to remember that Magalu is the largest and one of the largest players with our suppliers, including the big ones, and globally. So we do have a bargaining power, quite expressive. We have very strong partnerships, very consistent partnerships, And this is a favorable moment for Magalu. We are a priority for our suppliers. We take advantage of that with great negotiations. This is a reflection in our working capital, in our gross margin, and we'll continue to work to increase working capital. In addition to increasing working capital gross margin, we want to increase sales. The market seems to be positive, and we're very confident. Excellent. Thank you very much for the answers. Thank you, Luis, for the questions. Next question from Irma's Gars with Goldman Sachs. Irma, go ahead. Hello. Good morning. Thank you for taking my questions. I have two. I'd like to know about the performance among categories, particularly for the 1P and source operations. Have you seen any category standing out, such as home appliances? And looking forward, I'd like to understand how you see the moment. Fred, I think you mentioned in your initial remarks that the demand is not that strong yet, but How do you see consumers now also given deflation in some categories, not all, but in some? Of course, that brings some challenges in terms of growing through volume. Second question is an update on your plan to close additional stores. I think you closed 23 stores in Q1. And I just would like to understand if there's more coming in the rest of the year. Thank you. Good morning, Irma. Thank you for the question. I will start answering. Talking about the category mix and then I'll turn the floor to Fabrizio again. Well, for starters, I think that the store's performance in Q1 was, like I said, the best in the last two and a half years. Last time I saw stores performing like this was at the time of the Corona voucher. The performance is very positive. there is an important microeconomic component of market share gain. I also mentioned, and I think it's important to highlight, that default was bad for 1P, but it reduced a lot the price gap from online to physical stores when there was a 20% difference in the price. Of course, it was very hard to have sales in the brick-and-mortar stores, but this price gap is shortened. So physical stores are... competitive again. So default was bad news for online e-commerce in general, but it was good news for the stores in terms of reducing this price discrepancy. I want to stress that because that is a very important point about the good performance of the stores. April was extraordinary for the physical stores, even better than at the time of COVID. This was very positive, a very positive month for the stores. From the macroeconomics standpoint, I don't think that we have improved, that the context has improved everything that it could. But like I said, with Central Data Bank, the debt services dropped 100 basis points for individuals. in terms of what individuals pay in interest on their income. So it's at a level of 7.3 today, well below the 9.3 of 2015, because that was the last crisis we had, and below the 8.3 we had at the start of 2023. So we have 200 basis points better than 2015 and much better than last year. The trend is that this will translate into a growth of the pie in the future. So things improved just a little, but things will improve more along the year. In terms of category and category mix, Like I said, all categories are doing well. There's not just one category pulling the growth. The good side, Fabricio will speak about this, is that now we have a diversified sales mix. We are not relying on just one category. Fabricio will speak more about this. Good morning, Irma. This is Fabrizio speaking about categories. Freddie has said we have performed well practically across category, gaining shares in all of them. The big highlights are portables, furniture, and home appliances. We're having some deflation in telephony products and portables. but that doesn't influence a lot. When there's deflation, you sell more, and this ends up offsetting the deflation. At every quarter, we do a thorough assessment of the stores. and of their operational result with a sales increase. Now we have improved the results of many of our stores. Our mission is that 100% of the stores will be profitable. The 23 stores we closed, practically all of them, is because there was another store close by. So large centers, large cities with five, six stores, it is only natural that the number of stores will be reduced. So we are looking into this. This Q2, it is possible we'll close one or two other stores, but always taking into account that the sales of the closed stores will be absorbed by some store nearby. So that's what you can expect. Perfect.

Thank you. Our next question is from Felipe Reboredo from Citi.

You may proceed, sir. Good morning, Fred, Beto. On my side, we have two questions. First of all, I would like to get a better understanding about the same-source sales performance. We saw some companies posting strong results in the Northeast region, and I would just like to understand whether there has been, you know, a spreading of that growth and what regions are performing better than others. Second point is whether you see any room for increase in financial expenses because SELIC should be close to 10%. Thank you. Good morning, Filipe. This is Fabricio. Thank you for your question. About the performance per region, the Northeast today has one of the highest share in terms of physical stores. It's a very mature area for us. So it grows in line with other regions because we grow very well in our regions. As I said in previous calls, we are trying to gain share in the new regions where we open our most recent stores like Rio de Janeiro, Pedro District, and the Midwest. We are growing above, you know, average because our share is lower. Therefore, we can advance in these regions, which is part of our strategy. So, all in all, all regions are growing well, but in regions where we have the most recent stores, that's where we grow the most. There is no any one-off effect that is boosting growth in one or another region.

Thank you.

Good morning, Philippe. Thank you for your question. I would just refer to one part of your question. We do believe that the trend I mean, you saw in that chart, the trend is for a consistent decline. That is partially associated to CDI. In the first quarter, CDI was 11.2%, and the expectation, I mean, there has been an additional cut. The expectation is to see a lower CDI. There is still some room for further reduction of expenses due to CDI throughout the year, but most important than CDI itself, more important than that, we are now going on experiencing a very positive phase in terms of our operations. As for seasonalities, the second, third, and particularly the fourth quarter season, are more favorable in terms of working capital dynamics and cash generation. This is not a guidance, but if you look at the trend itself and seasonality, cash generation usually evolves going forward, combining with that higher cash generation and with everything else that we are doing to optimize our financial expenses, like We are reducing expenses with prepayment of receivables and, you know, revenues with prepayment to suppliers and also the growth of marketplace. the sales term is usually shorter. And so the cost of prepayment of receivables is also lower. And so as all of these factors, when all of these factors come into place, the trend is for a natural reduction in financial expenses. And in the long run, I must say that even before increase in interest rates, our financial expenses would range between 2% and 2.5% of net revenue. So interest rates were coming down, and they were lower than they are today. But on our side, we will constantly seek for better efficiencies in that line alone, too. Thank you, Felipe. Thank you. Very clear. Thank you for the question, Felipe. Thank you, Felipe, for your question. Our next question is from Nicholas from J.P. Morgan. Nicholas, you may proceed. Thank you for taking my question about Magalu Cloud, because I think in your release you said that you launched new products. I just want to see your view about your customer ramp-up. Okay, thank you. Thank you for the question. We publicly launched these services during the Web Summit event last month. And as part of the services, the largest one is the cloud storage, the object storage product. And when we look at the numbers that you mentioned, RAMPAP figures, the opening of the cloud is running for some invited company, if it's a private preview, they can use all the services that we offer in the cloud. And we have already surpassed the figure of 100 companies using all of the services. In addition, we also have the opening of these three services where any user can create their account, they can do their onboarding, put in their credit card and use all the public services. But now when we look at a total number of active accounts in the cloud, we have 1,457 accounts that are active accounts. And within these accounts, since the launch last month, Object storage, as an example, already has almost 200 clients using the service. So in summary, adoption is as expected. So when we offer the service to everybody, there's a lot of people already trying out the system, so that's the view we have. A lot of developers, also small companies, software developers can already adopt and use the services available. In the case of larger customers, we believe that the ramp-up will be higher as soon as all their products are available to a larger audience, and this should happen as of the beginning of the next half year. Thank you. That's very clear.

Thank you for the question, Nicolas. Our next question is from Vinicius Strano with UBS. Vinicius? Thank you, Vanessa. Good morning, everyone. Thank you for taking my question. I'd like to know how do you see credit offering and payment terms looking forward, also considering the inflow in LouisaCred? And what are you thinking in terms of offering additional financial services, additional to what you already have? Thank you. Thank you for the question, Vinicius. Of course, with improvement in the credit environment, as we have seen in recent quarters, we – reopen the higher-yield products so that we can accelerate GMV through credit, particularly at the stores, because that's a channel very much dependent on this kind of product. And, of course, when we speak about mechanisms to fund customers with declining interest rates, we can be a little more flexible, give them more terms to pay and improve affordability for our consumers. Because that's also in the purpose of the company, of democratizing access to goods.

I think that it's all pointing to some... mercantile structures and, obviously, performing from a financial point of view. Did I answer your question? You answered yes.

Thank you, Mauro. Thank you.

Thank you for the question, Vinícius. Our next question comes from Gustavo Sandei, from AXC. Gustavo, please, you can go ahead.

The higher penetration that he had in the marketplace, I just want to know whether there is a goal for higher penetration by the end of the year and how this expansion of representation, you know, dialogues with 3P. My question may be a bit more specific, but with the issues in Rio Grande do Sul, Did you have any supply issues from any particular supply, whether you saw some risk of supply scarcity? Thank you. Thank you for your question. In terms of bull, yes, we have some very ambitious targets. You know, we had almost five points of evolution when compared to last year, at the end of last year. We will make progress, a lot of progress in terms of our penetration. Now, in terms of how that dialogues with profitability, in terms of monetization, Our public table of full monetization only covers heavy products and collection services. We don't have any position whether this will change in the second half. But certainly this pool contributes in other ways. This pool operation, I mean, the operation would be lower if it were not through the pool. And we also work with a better service level, so there are other direct impacts. So in general, that's it.

Of course, the situation is not normalized in Rio Grande do Sul.

We have six stores closed, three were a little more affected. The DCs are operational. They're operating normally. There is some difficulty in receiving goods, but the trend is that this will start normalizing again. And we'll be very careful because there's a demand. So people are starting to rebuild their homes, and we are looking at this with a magnifying glass to analyze things quickly. But as much as possible, we are serving the population as much as possible. Perfect. Thank you very much. And on Sunday, next question by Maria Clara with Itaú. Maria Clara, go ahead. Good morning, Freddie, Beto, Vanessa. Thank you for the opportunity. I'd like you to speak more about the trends for physical stores and the potential operating leverage. The performance, saying store sales performance was positive in the top line dynamic in April, Fred said that the performance continues strong. We know that this is the sales channel with the highest fixed cost structure. We didn't see a greater dilution of expenses as a percentage of revenues. So could you please elaborate on that? Along the next two quarters, should we see a greater expense dilution with the increased performance of the physical stores? Thank you very much. Good morning, Maria Clara. I will start answering the question, and then I will turn the floor to Roberto. As regards to brick-and-mortar stores, what I said is that April is even better than Q1, substantially better. So, We're very pleased with the performance of the stores and our expectation is that they will remain in a favorable moment. Beto, you can speak about the expenses. Cool. Good morning, Maria Aguilera. Indeed, the brick-and-mortar stores is the channel with the highest contribution margin and fixed expenses. It is the channel with the highest operating leverage as sales accelerate. This is already happening. we increase our EBITDA. This quarter, our EBITDA increased by more than 50% year on year. And this comes from all channels. Like I said, physical stories improve the profitability quite a lot. And in physical stores, this is related to higher sales. In 1B, profitability also increased a lot for the pass-through of default. The marketplace performed well, so all channels are evolving and contributing to this EBITDA increase. Specifically regarding operating expenses, we did have a dilution of expenses given the growth of physical stores. But on the other hand, as I mentioned, The marketplace growth puts a little pressure on that line item, but it more than offsets expenses with marketing and logistics at the level of the gross margin, which is growing a lot more than the variation of expenses. So this is the diagnosis of Q1, and in the future, As the stores continue to grow more, their sales, as well as all the other channels, they can all grow and we can have a greater dilution of fixed expenses at the company. That is a focus for us. If you look, normally expenses grow just by 2%. With an inflation that was a little higher than that, plus the growth of the marketplace and so on and so forth. And a reminder, we made a lot of efforts last year to simplify our whole structure and to eliminate non-recurring expenses. which last year were a heavy burden on our result. So we continue to be very focused on improving operating efficiency, optimizing fixed expenses, and the growth of brick-and-mortar stores will be contributing a lot for that. Thank you very much, Maria Clara. Excellent. Thank you very much, Fred and Beto. Thank you, Maria Clara. Next question. From Eric Owang with Santander. Eric, go ahead.

Eric, are you there?

Thanks.

Well, we'll move on and then we'll come back to Eric. Next question from Alexandre Namioka with Morgan Stanley. Good morning. Thank you for taking my question. I'd like you to elaborate on two points. Most of my questions have been answered already, but still, first point, how are you seeing the evolution between the mix of channels?

We should still see stores outperforming the 1P operation on the online side. And the other question is related to... Income tax, we noticed that this quarter, once again, you had some benefits related to deferred taxes, related to transactions from Kaboom and Netshoes. I just want to understand whether we should continue to see these benefits going forward, and I would just like to get a better understanding about what are exactly these things or whether it has to do with zero wealth related. to accumulated losses from net shoes. Thank you.

Okay, Alexandre, thank you for the question. I will start with the second part. And then I'll turn the floor to Fred. More specifically, regarding the second part and tax credits, In the income tax line item, you are correct, Alexandre. In the end of last year, we had recognized credits of income tax and social contribution deferred not accounting for by net shoes and kaboom, especially net shoes, because they had had a long track record of financial losses. So they were not accounting for these deferred credits. But as Netshoes became profitable in the last two years and continues to be profitable, last year we activated a significant part of these past credits. And now, this year, we activated the part proportional to the current quarter, both Netshoes and Kaboom. contribute positively here with tax credits. Because they had not activated that amount in the past, but as they became profitable, now they will be activating these tax credits. So in the future, we should maintain it. Of course, this will vary according to the profitability of these two subsidiaries, which have been profitable and which are growing. So this value tends to be maintained. And another credit that we accounted for is related to the government. In our case, this is totally related to investments made in states with tax incentives, so it's presumed credit for investments. This should remain approximately at the same level this quarter, around 15 million per quarter in the coming quarters as well. I guess that these were the main points about the taxes. And now I turn the floor to Freddy. Regarding trends, I think I spoke about this, but I'll underscore it one more time. 1P e-commerce had the default comparison base. default had not been passed through but as of Q3 we started having almost a full pass through of the pricing like I said 1.5 billion of default that we had to pass through to the operation along the year and so this means increasing 1p prices and of course this has an effect on growth it improves the margin but it kind of inhibits growth And this is a factor exclusively related to the pass-through of the text. The worst comparison base was in Q1. It started improving in Q2. Second half of the year was much easier. So I see here an opportunity of resuming very good levels of growth as of the second half. And we want to continue to have defaults. like we saw in the first quarter. And we see the same thing for 1P, for 3P. 3P didn't have the default pass-through, but take rate pass-through. So the comparisons here, as of the second quarter, as of the second half in particular, the comparisons will be better, and we'll see these channels growing more than they grew in Q1. Exactly. We are quite convinced that this is going to happen. The stores, well, here we have been gaining a lot of market share. There's also the improved macroeconomic scenario, which impacts low-income population. And like I said, default increases competitiveness of stores compared to online. In general, not just for Magalozo, this will make the channel quite strong. What I see, and we are channel agnostic, we always say that, what we see is that all three channels tend to improve, which was the case of April. I think that this is going to be more significant in the second half because my focus, my request to the team is that we increase more the EBITDA margin, that we continue to increase EBITDA growth, always controlling the financial expenses. We're very much focused on increasing our income, our profit as of this quarter. And from what I've seen in April, the comparison is going to be better along the next quarters for all channels, except for physical stores, where the comparison is not that easy. The physical stores are doing well because they are doing well, but for the other channels, the comparison tends to improve.

Thank you for the questions, Alexandre. Our last question is from Eric from Santander. Good morning. I hope you can hear me now. On our side, I have two questions. One has to do with services, especially Magalua ads. If you could tell us a little bit more about your progress, whether things are progressing as expected, and what are the feedbacks you're getting from sellers and others, and some other tools or solutions that you believe could accelerate the adhesion level of ads. And the other question is about remessa conformi. what are the latest news, whether you've seen What do you think will be the results coming from the last debates, the last discussions? Good morning, Eric. This is Eduardo. In terms of ads, yes, we are noticing an evolution, be it through the platform, and this is related to the development of products we did last year. We have also sponsored search and sponsored products. We see an evolution in terms of advertisers and tickets. We also have sponsored ads and video growing 70% in this first quarter. The feedbacks we are getting, I mean, we have like a committee of sellers and advisors, and they give us feedback. At the end of last year and early this year, we... We have a new offering that originates from all of the feedback we got from sellers and advertisers, and that's in the platform for this year, as Fred was saying. We worked in the team development for the ads business. There is a new officer in charge for that business vertical. It's a person that has extensive market experience. She's restructuring the team, and I'm sure in the second half of the year, we will have an enormous effort in that go-to-market initiative. And I think this will be more visible for everyone.

Thank you for the question.

Now, speaking about remessa conformi, we understand that this is now in the legislative bench, and that's where the most relevant decisions will be made from now on. We believe that the subject will move forward because it's Fair and correct. Not only Magalu, but all of the retailers represented by IDV are closely monitoring the evolution of the program, and we hope that... that being a foreigner is not an advantage in Brazil. Foreigners should compete on equal footing rather than having some tax advantages. Therefore, we remain confident that the discussion will advance and it will move forward in the legislative bench. Thank you. Thank you for your answers. Thank you for your questions, Eric. Eric? We now conclude the Q&A session. I would like to turn the floor back to Frederico Trajano for his final remarks. You may proceed, Fred. Thank you so much for joining us today, and I wish you a very good Friday and Happy Mother's Day. Magaluz Confiscall is now concluded. The IR team will be available to answer any further questions. Thank you so much for joining us, and have a good day.