Magazine Luiza U/Adr

Good morning, everyone, and thank you for waiting. Welcome to Magalu's conference call related to the quarterly results. For those of you who need simultaneous translation, just click in the interpretation icon in the bottom of the platform and then choose the language of your choice, English or Portuguese. We would like to inform you that this event is being recorded online. And the recording will be available on the company's IR website at ir.magazineluisa.com.br, where the earnings release and the presentation is also available in both languages. The link for the presentation in English is also available through the chat button. During the presentation, all the participants will have their microphones disabled. And next, we will open the Q&A session. For questions, just click. On the Q&A icon in the bottom of the platform, write down your name and the name of your company and the language of the question. Once your name is announced, the request to activate your microphone will appear on the screen, and then you must activate your microphone to proceed with the question. Questions received in writing will be answered later on by our investor relations team. Now I'll turn the floor to Fred Trajan, Magaluz CEO. You may begin, Fred.

Good morning, everyone.

Good morning, everyone. Thank you very much for joining us today in our conference call to discuss the third quarter results of 2024. This has a very symbolic significance because it rectifies the advance of our current strategic cycle. And with that, I would like to start our earnings release call, giving you a broader concept about our results. And I will refer to our strategic cycles. Next year, 2025, in the current administration, I am the CEO and I work together with the leadership that they have been with me since the beginning of this journey in 2016. So we will celebrate 10 years ahead of Magalu's operations. And my style as such, that I like to have or pluriannual strategies just to make very clear about what our strategic objectives are. And I split these 10 years. I mean, part of that cycle will be concluded at the end of next year. So I would like to divide that in two strategic cycles, and they are depicted on slide three. And the first cycle is Mangalou's digitalization. When I took over as a CEO of the company back in 2016, my mandate involved digitalizing Magalu. We had started back in 2000, and Magalu wanted to promote a very significant digitalization of its operations, already anticipating that digitalization of the retail industry in Brazil would be very impacting and very significant in the years to come, but more particularly in the categories where Magalu was more traditional, like durable goods. And in fact, today, when you look at the market, even though only 15% of Brazil's total retail, more than 3 trillion BRLs of total retail is online, you know, it's 50% penetration in traditional categories. Therefore, that was significant. there came the time for us to take a deeper dive into digitalization. And so we took upon ourselves to initiate that process. And I think in the five years that followed that, we ramped up one of the most successful digitalization process in the world. Magalu, if you fast forward to the current date, we have, I mean, at the end of the year, we will have about 50 million of MV Online, the second online operation in Brazil. We are far ahead when you compare to number three in this category. Worldwide, we are one of the few companies that started analog, and we are leaders in the e-commerce segment in the country. In China, I mean, we have traditional products, not even in China or in India, not even in the U.S., we get companies like that. These are countries dominated by pure play companies. I believe this cycle was concluded in 2020. That's when even with the closing of 1,300 stores because of the pandemic, that year alone we grew 70%. So 100% online was our total growth. So back then we showed concrete numbers to justify and ratify the fact that that cycle of Magalu digitalization was very successful. 2020 was a year where we concluded the digitalization cycle. So Magalu is now totally digital. And so what would come next? That's when very much inspired by the Chinese model. So the first cycle was inspired by Silicon Valley and the second cycle inspired by the Chinese model. That's when we started to consolidate our digital Magalu ecosystem. Now, in economic terms, just to justify that strategic cycle, we focus on the digitalization of the results of the company. In the first cycle, we digitalized Magalu, but we haven't yet diversified the bottom line of the company. So in the second cycle, in my view, had to be a cycle that we had to implement so that our results wouldn't be so cyclical. I knew that in the first cycle, digitalization alone, I mean, we had reduced a little bit of the volatility because, you know, the physical cycle is not as cyclical, but the results were still very much dependent on durable goods and also loans related to durable goods. So there came the time to turn the key and do something different. And back in 2021, we started that cycle, and the cycle is to be concluded in 2025. So next slide. We made several acquisitions, more than 20 acquisitions, in addition to organic growth. And we started to put together our ecosystem. We bought five logistic companies, and I'll talk about some of them. We also acquired some fintechs, and they became now Magalu Bank. We also acquired some tech companies, Today, we are consolidating them within Magaluz Cloud, and we also acquired content companies, content portals to increase our base of advertisers in the monetization of our audience, in addition to all of the other acquisitions to diversify into other categories. Today, we acquired Netshoes, and they are leaders of sporting goods, in the Brazilian online industry, so they are very large in Latin America. And also we have leaders in peripherals, a product that is totally different from our core business, but it is complementary. I mean, and then we have a delivery company. It's not in São Paulo, in Rio, but they are one of the largest players in Brazil, the second largest in terms of food delivery in Brazil. And Época Cosméticos, Época is one of, the leaders in the cosmetic industry in Brazil. All of this helped us to diversify our sources of results or our earning streams. And we were also able to shield the company from collateral effects. We will be less cyclical. And why am I bringing this subject? I'm doing this because the result of this fourth quarter, or this third quarter, I mean, is very relevant because it gives us some very sound financial KPIs, and this really justifies and is a testament to the success of our strategy. The third quarter of 2024 is the fourth consecutive quarter of of profits, despite the fact that the SILIC rate is quite high, maybe five or six years ago, an operation like that of Magalu, I mean, the traditional Magalu operation, would be almost impossible for us to deliver profits at the level that we have today. So the results for the third quarter, I mean, the fourth quarter also will post positive results, regardless of the fact that SILIC rate is high. I mean, our our bottom line, our results are less volatile and more robust. We are reducing our beta, and we are just ratifying that at the end of the strategic cycle that will be over next year, there are still new things that will be incorporated to our results in our P&L next year, and I'm certain that this will show our investors and our stakeholders in general that this cycle is – Equally successful when compared to the first cycle. It's just as successful. And I think now we have to improve our EBITDA margin from 5% to 8%. We want to reduce financial expenses by 20%. We want to grow our operating expenses by 47%. This is how much we grew this quarter. And net income of 70 million BRLs despite all of the bad signs from the central bank. Our financial expenses is not tied to Selic. It's tied to future interest rates. So it already reflects a pessimism in the market. And we are even considering a higher Selic than that of the quarter. Therefore, this is a number that just ratifies that all of the efforts by the company in terms of making that a strategic move, the fact that we are working hard to reap the benefits. makes us certain that next year we will prove that the company is on the right track to execute another strategic cycle. And this will certainly make us less cyclical. Not totally, you know, uncycled, but we will be less volatile. Now, speaking still about the third quarter of the year, I would just like to underscore that even though there was a 5.7% increase to an increase in EBITDA. In the quarter, we were able to grow our total GMV by 7%, and we reached 15 billion BRLs of GMV. When we took over in 2015, we had 10 billion GMV a year, and now it's 15 billion, with a 70% stake coming from online and In online itself, we have 40% penetration of marketplace. Almost half of our online is already in marketplace. We have three very balanced GMV physical stores, 1P and 3P. I often say that my strategy never means creating something new by destroying the past. When we made 1P, we continued to grow our stores when we got the company started. The revenue from physical stores in Magali was 8 billion, and this year we are reaching 20 billion. We grew 1p, not in detriment of the physical stores. In 3p, we are not growing in detriment of 1p or physical stores. It's always one brick after the next, on top of the next, so that all the channels are totally integrating. We are not cannibalizing the channels. One of the highlights of this quarter, once again, please, next slide, was... The growth of physical stores, physical stores or brick-and-mortar stores, are very much related to the macroeconomic activity. When GDP is strong, physical stores have a good performance. When GDP is not going so well, the same thing happens to physical stores or brick-and-mortar stores. So this year, our same-store sales was 15%. I think this is the highest same-store sales growth of any other market. retail company in the country. This is an exceptional number. Even retail stores that do not grant credit, but very few retailers are posting growth of this magnitude. And the macroeconomic situation also has an impact. You know, the GDP, I think, would end the year with 3%, very low unemployment, historically very low. There is a large number of people that can now afford to make their purchases. Magalu is more focused on the lower bracket of the population, but also our operating teams are focused on gaining market share. So not only we have the economic macro scenario, but Magalu, despite all that, is gaining market share in our physical stores as well. Many companies were struggling. They lapped the categories or they even disappeared, you know, both regional players and larger companies. And this gives room for For other operators that have more capital, they're a better structure. I mean, every time during all this period, we kept investing in our stores, our teams, and we managed to capture the good momentum of physical retail. Whenever there is a hiccup in a physical store, I mean, I would like to remind you that physical stores play a very important role because there is, you know, great traffic in the stores, not only that, but there's also opens greater possibilities from omni-channel. So 1p is even shipped from the store and also 20% in 3p. So multi-channel is a competitive differential of our online operation. It's not something isolated. Now, speaking about e-commerce, Magalu, and I like to split the e-commerce market in three different ticket brackets. I'm talking about the on- the e-commerce market as a whole. And Magalu is a leader in tickets above 1,000 BRLs. Magalu is a leader in higher ticket amounts and brand products. We have a very outstanding position in home appliances with a good share of our suppliers going from 25% to even 30%. So Magalu is has great leadership in durable goods. And this is depicted here, both in 3P in our online operation. When consumers want to buy a good product from a good brand that is not fake, they certainly trust Magalu. And Magalu is a firm destination when it comes to purchasing household appliances. We want to grow our revenue of products between you know, 200 to 1,000. That's an intermediary bracket. And one of the strategies that we're using involves the acquisition of networks like Kabun, Netshoes, Epoca Cosmeticos. We grew these operations as well. And today, everything that I say that is not stoves, you know, flat screen TVs, et cetera, they already account for half of our online GMV. We have a very outstanding presence with suppliers like Adidas, L'Oreal, and Dell Computers and Components, and many other important brand operators. In addition to the acquisitions we made early last year, and I would like to insist on that, we launched a different fulfillment. We launched a fulfillment which is multi-channeled. And the main purpose of this fulfillment is was to bring into 3P the same advantages of the multi-channel system that made us so successful with 1P. It took a little bit longer because it's much easier for you to have a 3P fulfillment only than take a system of 1P stores and WPMS or PMS of these systems and adapt it to 3P. Our tech teams put a lot of efforts to... to allow RDCs to operate goods from Magalu, but also from several other third-party sellers. And this requires enormous effort to customize legacy systems, but we were able to do that very successfully. In the first quarter of last year, we launched that, and today 24% of all 3P orders go through our fulfillment. The major advantage of our fulfillment model, and I think this has to be well understood, is that it's much cheaper than the market fulfillment traditionally. So even though we were investing in expanding Magaluz fulfillment, there was, I mean, a lot of operating leverage, but not a lot of increase in operating expenses. And Beto will talk about that. Our SG&A, I mean, is still good, even though we increased the penetration of fulfillment in the community. I mean, the seller, in terms of Magaluz fulfillment, goes through an amazing improvement in terms of performance. The average time falls, drops almost half, and freight is also significantly reduced. There is a reduction of approximately 20% of the total cost because store pickup is much cheaper. So that's why the cost goes down. And this generates a conversion rate that is twice as high. and NPS is also higher. So the focus of the company was not to prioritize some things, especially delivery from partners. It brings a lower NPS for the company, and then we are focusing on our own fulfillment with click and collect. We enable new DCs. Yesterday, I just visited our operation in Pernambuco. It used to be a Netshoes D.C., and now is Magaluz, D.C. We just enabled also our D.C. in Rio, so we will do fulfillment from Rio. There is great idleness in that D.C., but I'm sure we will be able to reduce a lot of delivery time in Rio. We have products from sellers in that location, and we increased fulfillment, and fulfillment has high NPS, 154% in the first nine months of the year vis-à-vis the rest of the year. And the other... In the other modalities, there was a drop in the first initial months of the year. So we are focused on sales with low locking and low NPS. So part of the strategy of the company is focusing on growing this fulfillment. And then when we look at how this impacts the members, and we are disclosing the numbers to you, we see that the company's NPS as a whole, I mean, It grew a lot. It went from 67 to 80. The consolidated NPS, I mean, it is certainly the highest in the industry in the country. Customers that buy at Magalu, they are extremely pleased and satisfied. That was a major improvement that we achieved this year. And a great part of that comes from 3P. Once we migrated the partners to 3P, The NPS from 3P was 52 years ago, and today it's 75. And more than half of the orders come from 3P, and also the NPS surveys come from 3P. The whole average of the company jumped to 80. I mean, the pay in stores operation was 84, but as fulfillment increases, penetration in the group, we will certainly improve that score as well. There are some new things coming this year, like now. Even the client that buys through 3P, they will be able to return the product in our physical stores and also other, you know, share stores. So we already have a high penetration of store pickup, but now there is a new modality because in the past they had to return their products in the post office, but now they can return their products in our physical stores. So this really, you know, increases our multi-channel delivery. So this is something very important. This goes beyond price discounts because our customers trust the brand, the Magalu brand. Our qualitative indicators are quite high, and that's what allows me to trust that we will grow the company even more in the future because our service level with our clients is increasing. Now, speaking about very low tickets, below 20 BRLs, in addition to the fulfillment thing that I mentioned to you, I was trying to find a way to have a more relevant share in certain categories. We had a difficulty to operate in tickets below 20 reais. We were trying to make that operation more feasible, and we went looking around for more strategic partnerships, and then we made a strategic alliance. We discussed several possibilities, but In this past year, we became very closer to one of the largest global e-commerces, which is Alibaba, Alibaba International. They have an international arm, and so they have the brand AliExpress. We made a strategic agreement. It's a win-win deal. The two companies are complementary. We sell what they don't sell and vice versa. Together with other Chinese companies, they are leaders in selling digital. you know, tickets below 200 BRL. So they dominated this category in Brazil. So I said, okay, if we cannot, you know, win them, why don't we become partners? And they also needed, you know, a partner that could sell products with a higher ticket. So this is a win-win deal. We would include their entire catalog. They have more than 600,000 items, and now they are present in our digital channels. in less than four months after the announcement of this partnership at the end of June. And we already listed all of our more than 7,000 items in that 1P in AliExpress platform. So they have our Magalu 1P products in their own platform. And just two weeks ago, we launched the Choice line in our Magalu system. So now we are showing great progress in this partnership. Strategically, this is very good for us because not only we can grow 1P with the audience of AliExpress in Brazil because that's one-third of that of Magalu, but also our 1P will also benefit from this partnership. At the same time, we will be able to sell products, you know, with a ticket below 200 BRLs, and we will definitely be part of this new game in Brazil. And this will also give our clients opportunities you know, a much broader spectrum of products. And so in the fourth quarter, we have high expectations because they are very good signs from the first initial months of this partnership. So certainly, so we're moving in this direction. Now, moving forward and talking about the evolution of our ecosystem, one of the issues is when you put together a strategy to create an ecosystem, Right at the beginning, you encounter some operating difficulties. You buy a lot of companies. You have to integrate the companies. You have to integrate cultures, leadership, and systems. And we made incredible progress in the last few years. And I think one important thing was the introduction of Megalog. We announced that a few weeks ago. We have five different, you know, company, you know, taxpayer – we had five different taxpayer numbers – I mean, and now we put everything into one single company. And this Magalog is serving this entire delivery ecosystem. Magalog delivers net shoes. We also deliver almost everything from the app. And part of the 3P operation is being delivered by Magalog, which is already integrated in our ecosystem. And now it became a company, Magalog. stems from our acquisitions and the spin-off of our logistics department. We created a new company that will generate revenue for the company, and it will generate results with very little competition. I mean, the post office, the postal service, still have some issues, and I think Magalog will be in a very privileged position. Magalog starts with, you know, amazing revenue, things that We're even coming from outside the ecosystem. Renner, Centauro, Petlog, and many other companies in Brazil trust Magalog because Magalog operates logistics with the service level that we have at Magalu and with Magalu's cost control. So I think it already starts being very robust from the beginning. We can access the entire ecosystem and also we can sell to other companies. Not only that, this is a very good opportunity to increase our revenues. We do not anticipate an astronomic profit coming from Magalog, but I think this will help us turn a center of expenses into a center of results or revenue. Magalog is here to simplify this ecosystem. And I think another important pillar of our ecosystem is Magalu Ads. I mean, it's good to remember that whenever we talk about Magalu, we have to consider the entire ecosystem, not only Magalu's audience, which is very high, but we have to consider a very high audience from, you know, footwear in Brazil, net shoes, and then cosmetics, época, a high audience in terms of content, and that's the tech and job in Dutch. And so we also have the flow or traffic from the stores. So all of the audience of Magalu on and offline will be put available to all of our advertisers through Magalu ads. It's almost like a no-brainer here. When we look at the growth of Magalu ads, I mean, media, social media, it's an important reality all over the world. I mean, 5% of GMV in ads, well, we have more than 6%. Even companies that started earlier, like 1% or 2% of GMV in ads, almost all companies that enter in a journey of retail media have seen a significant improvement in their results. I mean, two points of GMV, a great contribution margin. We are When we talk about that, we are talking about one additional EBITDA point. So the company is putting great effort in this new platform. Part of this investment will be of our investments will be earmarked for Magalua ads. In this quarter, we just launched our new ads platform. And this allows advertisers to introduce new campaigns. They can have a much more robust model. They can add a campaign with a keyword. So not only that, but we have to mention usability. We launched this platform two weeks ago, and we already have 3,000 active advertisers. So this is a platform that is generating 48% of revenue in terms of our service revenue. And this will pay an important contribution in the future as well. We have, you know, a state-of-the-art team. We have outstanding commercial team being the underprivileged. being managed by Salia Goldsteiner. So the audience is quite significant. In addition to all of Magalu's audiences, we are leaders in social media, 20 million followers. We are monetizing on Lu. Lu is getting money from advertisers. She was just hired by Burger King to be an influencer through WhatsApp. So whatever we can monetize, out of our GMV, we will do so. And we are also focusing on Magalu ads because with the results from Magalog and Magalu ads, we want to have a less cyclical result. We want to reduce our beta. We are heading towards a full monetization of our GMV, which is the focus of this new strategic cycle. So in this concept of high interest rates, We want to monetize GMV. Not only Magalu is doing that, but everybody else in the industry is doing the same thing. So before I turn the floor to Beto, I would just like to highlight our progress, which has been extremely outstanding in terms of our financial operation. We are making important progress. We are very close to Itaú's ROI. We are growing a lot here. more than 18% ROI in the quarter, with a trend to grow even more towards the fourth quarter, regardless, once again, of the economic landscape that we have at the moment. And we also see an amazing opportunity to grow our penetration of financial products in the digital platform. It's very strong. Offline, it's offline for one-third of our GMV, physical stores, but it's not yet totally penetrated in one-third of our GMV, which is online. So a great focus of our digital operation is towards selling more financial products, loans, and insurance products online, where penetration is still low. The insurance business, for instance, I mean, our revenue is $1.5 billion through physical stores, but penetration in stores is 10 times higher than online penetration. So the focus is to increase penetration of insurance stores. insurance products online. And in terms of credit, we have a large operation of CDC. Everybody likes to talk about that offline. And we are launching what we call Carnezinho Gostoso. It's a digital CDC totally integrated to the app this quarter with personalized rates. You know, you can hire that online and you do all of the management through the Magalu app. And this will help us sell more online. And in addition to that, you We will be leaders in higher tickets because the digital, you know, CDC or DCC will help us increase our online ticket. And we will increase our online contribution margins as well. Contribution margins online are higher than online 1P. So we want to increase penetration of consumer credit, digital consumer credit in our markets. will be better and will be more robust. So the last thing I wanted to mention was Magalu Bank. And with that, you know, we just gave you an overview of the progress that we are making in the strategic evolution of our ecosystem. So now I'll turn the floor to Roberto to give you some of our financial highlights. Good morning, everyone. Thank you so much for joining us today in our earnings release presentation. I would like to briefly go over the financial highlights. Again, we reached $15.5 billion in total sales in the quarter. We posted a 4% growth. The highlight is the amazing growth in physical stores, especially we grew 15% same-store sales. And then, We talked about the growth of our gross margin. This quarter, we reached 30.4 percent of gross margin. It's the highest in many years, and this reflects our efforts in terms of product margins and service margins as well. And again, we reached in Ebitda over 700 million with 8 percent growth in the quarter. Year-to-date, we have almost 3 billion EBITDA, 3.9 billion. And year-on-year, about 40% to 50% growth. So this means that we are posting very robust results. And once again, we reach a recurring net income, adjusted net income of 70 million BRLs, considering CDI and a very high SILIC rate. our accounting net income published was $102 million, meaning that the non-recurring results were positive, which also helped us to increase our recurring net income by over $30 million. This quarter, we didn't have any non-recurring expenses. There was no relevant adjustments in EBITDA. we had other positive non-recurring results in the PL line and income. Our operating cash was almost 600 million BRLs, so operating cash generation, total cash was 6.6 billion, total cash, and this cash generation in in fact, reflects a high conversion between EBITDA and the cash flow of the operations, as we will mention in the next slides. This next slide refers to the sequential evolution of EBITDA. EBITDA margin grew quarter on quarter, and the highlight goes to the Gross merchandise margin after default passed through in 1P this quarter, we reduced our operating expenses, especially, you know, fixed sales, fixed costs. We made progress in the service revenue. We talked about fulfillment already. We talked about the growth of physical stores and also high profitability coming from Louisa Credge. In this next slide, we show how the EBITDA margin went from 5.7 to 8, an increase of 2.3 percentage points. In terms of gross margin, there was an increase of 1.1 percentage points, with the highlight going to merchandise margin, which also reached a record level, reaching 24% for product margin, and with a service contribution also increasing. reaching a high level. So the gross margin goes to 31.5%. This quarter, we were able to dilute our SG&A. Not only were we able to reduce sales expenses, but also general and admin expenses. Here, we had a dilution through operating leverage because we grew two digits. This growth came from physical stores. but we also had gains of efficiencies in the physical stores. Today, our operating expenses in the stores is much more efficient and lean. Not only that, SG&A is much lower when compared to last year because that included the review of all contracts, ZBB, zero base budget, and everything else we did last year. So SG&A is nominally lower than last year by almost 20 million BRLs per quarter. Next, we had a very positive contribution. I mean, go back one slide, please. Louisa Cred during some time was reducing our EBITDA margin, but this year is now paying a positive contribution to our EBITDA margin of 0.3 percentage points. And here, You know, ALL, this is associated to our consumer credit portfolio that is growing at a high pace, and this is helping us grow the gross margin for products. Next slide. We show that in terms of working capital, we generated more than $100 million in cash So there was an evolution, a sequential evolution in working capital. When we look at last year, I think it's worth mentioning a reduction of 500 million BRLs in inventory amount, and this improved our inventory turnover. And next we show reductions in financial expenses. This quarter, our financial expenses were 100 million lower than Year on year, we reached a percentage of expenses over net revenue of 4% when compared to EBITDA of around 8%, meaning that, I mean, we've been saying that one of the main leverage indicators that we pursue is this one. So this quarter, our financial expenses over EBITDA reached 50%, and a year ago, this was over 90%. Therefore, this shows an impressive operating deleveraging, and the trend is that we will continue to reduce our financial expenses going forward. All of this reduction has to do with interest rates, but even more than a drop in interest rates, because now it is increasing again. We paid $3 billion in debt this year. We reduced... interest rates over loans, you know, prepayment of receivables. We increased peak sales, you know, interest-bearing sales, et cetera. And we bought back debentures in the secondary market this quarter. We already bought back more than 100 million BRLs of debentures in the secondary market. Next slide. Here we have our cash flow analysis. We went from 6.5 billion to 6.6 billion. I mean, there is some rounding figures here, but we increased our total cash position by 160 million BRLs. And this increase is very much related to the profits in the quarter, plus the evolution in our working capital. So when we break it down into details, the cash generation of the operations of approximately 600 million BRLs is way above our investments in our capex line, and also this refers to payment of interest rates and leasing, and these are recurring things. In the middle of the chart, we show that we had a capital increase for Louisa Cradd of $300 million. We bought back debt of $100 million, and funding was $400 million. These three events were non-recurring, and they changed. One mitigates the other, and what remains is the cash flow of the operations, which generates an exceeding cash flow, which is higher than the cash requirements of the quarter. In this next slide, we show that this cash flow from the operations in the past 12 months stands at 2.4 million, very similar to the accumulated EBITDA. And I would just like to remind you that this is based on an EBITDA, but it is already – deducts all of the costs from prepayment receivables. And one of our focus is to have an operating cash flow that is as close as possible to EBITDA. In this case, we reached one of the highest levels in our history. And with that, we also increased our net cash evolution by more than $1 billion in the last 12 months. In this next slide, we show our capital structure. And it's very clear that we have 6.6 billion BRLs, and of that, 4.8 is receivables, I mean net receivables in net because of prepayment, and 1.8 billion in net cash and investments. And on the liability side, we have 4.8 billion in gross debt. So basically here, if we were to discount all the receivables and if we were to pay all of our debt, we would have 1.8 billion in net cash. I would just like to remind you that this 4.8 billion of gross debt will mature at the end of next year and the end of 2026. Now, speaking a little bit more about Luisa Kredi, we posted yet another quarter of excellent results. We show here that delinquency is dropping, and delinquency over 90 days is better. So we have short-term delinquency at 2.8, the lowest level in our history. There was an increase in the coverage ratio from 140 to 100 percent, and this reflects you know, our conservative position in terms of our provisions. And even being this conservative, Eloisa Kredge, we, I mean, just as Magalu, we posted four consecutive quarters of net income, and our results reached 66 million this quarter. And we show a trend to grow this result further in the fourth quarter, and that's why we see an evolution trend of ROE that has been It has been 18% in the last quarter, and now we will supersede 20% in the coming quarters. I would just like to highlight that LuisaCred also had a very high efficiency rating, below 30%, about 28%. Interest expenses is dropping. The company is well capitalized. Our BIS ratio is high. very comfortable and the company is well prepared to resume growth and to grow the number of clients, you know, the loan portfolio and to post excellent results in the coming quarters. And with that, we conclude the presentation with the main highlights and we will start the Q&A session.

Thank you very much. Write your name, company and language of the question to enter the queue. When announced, a request to activate your microphone will appear on the screen, and then you must activate your microphone to continue with the question. Our first question comes from Luiz Guanais, from BTG. Luiz, please, you can continue.

Good morning, Vanessa, Fred, Beto. I think there are two questions here on my side. The first is if you could comment on the initiatives in which you still see room for the expansion of profitability. I think you commented well on the part of EDS, Fred, if you could give a little more detail of the expectation of growth of these initiatives for the coming years. And then a second question, also connected here with the first one, looking at 3P specifically, what do you think are the main drivers for acceleration throughout the next semesters, both from the point of view of initiatives like Fulfillment, but also categories in which you see greater potential? That's it, thank you.

Good morning, Guanais, thank you very much for the question. Well, about margin expansion, as you said, I already commented, I think that from the point of view of the core of the company, the margin of merchandise, the current level of pricing of 3P over merchandise too, take rate, I believe that we have practically reached a ceiling, with the exception of fulfillment that we are not monetizing yet. For now, as the cost for us is marginal, we are not yet charging for fulfillment. I think that here, apart from heavier products, there is a great opportunity here for us to improve in this context, but anyway, we are already getting close to a ceiling here. That said, we have enormous opportunities for an increase in the consolidated margin of Magalu, and I would say that the two main ones I mentioned here, but I will ratify, first is Magalu Edis. The market of ads in Brazil is a market of 75 billion reais. And I consider that the online market is 30 billion reais. Almost all of it, a little more even. Almost all of it is a market based on search. Search is the big fan of the Brazilian market. In the United States, for you to have an idea, search is a business of 300 billion dollars. Google does... praticamente sozinho, 300 bilhões de dólares lá nos Estados Unidos. O que a gente vê como tendência no mundo inteiro é que parte desse mercado de search e de ads está indo para o varejo, porque operações como o Magalu ou outras operações que têm uma base de clientes digital forte têm aproveitado essa base para monetizar. Então, são mais de 50 milhões de pessoas que visitam o nosso app todos os meses, os nossos apps do Google, of the Magalu ecosystem, we have more than 430 million visits in all our digital channels every month. And low single digits conversions. So we can monetize much more all this audience that we build, part of this audience is investment that we make to bring audience. So we can monetize this much better. And as I said, it's very common to see in operations that started their ads platforms for more than a while. You see Amazon, I talked about 6 percentage points. Flipkart, which is a company very similar to Magalu in India, because of the medium ticket, including participation of 1P and high tickets too. Flipkart is really almost with Magalu's page, but it doesn't have our physical store, which is our differential. But it's a similar operation in purchase frequency and medium ticket. It's with 5 percentage points of GMV total in ads, right? And it did that in less than 3 years, right? I think an unsuccessful agenda, that we get two percentage points in our GMV in EDES, is not unsuccessful, but reasonably successful, because it has to be an incremental value and can't cannibalize the rest. So, two absolutely incremental points, I think it's a reasonably successful goal. It can be more, but reasonably successful. With more than 70% contribution, as I told you, this alone, singularly, could increase the EBITDA by 1%. It's not a guidance, it's an account based on what other companies are already doing in the world. So I think this is an important point. Amazon in the United States, already 25% of the search market, more than 50% of the turnover, more than 25% of the search turnover is already hers. So I think it's an agenda that is reasonably successful in ads, I'm very confident that we have a lot of focus here. It's one of the great contributors there. so we can improve our margin. We can decide tomorrow if we're going to take this margin and invest in business or growth or not, but that's another story. I'm going to go back to this question of reinvesting in growth a little bit later, but complementing, I think that in the short term, the increase in the penetration of the CDC and online insurance is also a low-hanging fruit agenda. The penetrations online are around one tenth of the offline, If we can reduce this penetration gap, and we have a very large focus from the Magalu Bank teams to reduce this gap, it's all business of 50% of margin of contribution around D. So, also an increase in penetration here, it has the significant potential of improvement of the consolidated EBITDA in Magalu Bank. I think it's kind of a no-brainer, the two. So, we have this focus. And I'm dedicating, since we increased the capital at the beginning of the year, you can see what we talked about in terms of investment, it would be investments for fintech, to increase the participation of online financial products, investments for the Ads platform, investments in logistics too, in the issue of Magalog. So I think it's very clear. And of course, but there is a longer-term agenda, the Magalu Cloud. We are saying that in Brazil we have here a cloud business that is reaching 90 bi, even bigger than the Ads one. no Brasil, o negócio de cloud, é um negócio hoje para poucos, né? Porque o custo das clouds públicas que estão operando no Brasil é um custo em dólar, né? Então, elas já estão ficando caras, principalmente para as empresas médias e pequenas, né? E até para o Papo Magalu. Então, a nossa ideia aqui era investir para a gente conseguir conter o nosso próprio crescimento de custo em cloud, que está na casa de centenas de milhões de reais. Nós estamos chegando aí a já quase metade aí, né? of our workloads in the cloud itself, and we see here a great opportunity in the future, this is not short-term, but for us to improve here and have a market participation in this business, which tends to have positive margins also looking forward. Always remembering that I say that the Brazilian market will have space for Ferraris, which are the gringas clouds, but it will have its Toyota, its Honda here, also in Brazil, which I think is our Magalu Cloud, a good value for the cost, so I think we will be well positioned, I am also optimistic in the long term here with the contribution of Magalu Cloud to our EBITDA. Speaking of 3P, quickly, I say that 3P today is almost like a child's work, it's a joke that I make internally, because it should be studying, but it's helping to pay the house bill, I think in a context here that we are with a moment in Brazil of high operating costs, that is, the cost of capital, so you have high financial expenses because the interest rate is high, you have high operating costs because the taxes are growing, everyone has to help put money at home. So 3P at this moment, even if it were another macroeconomic context, we would be investing a little more in it, in the sense of operating it with smaller margins, but today it is operating with very high margins. I could make a decision to grow 3P, but today it already contributes significantly to our EBITDA. An important part of the company's EBITDA is generated by 3P, which has a very high contribution margin. Why? To pay the financial expense in this economic context. The company's most responsible decision in this macroeconomic context that we are living is to make all channels contribute as much as possible for the company's margins. The most correct, tactical and strategic decision in the long term for the company, because it is not only short-term, is to monetize its GMV. Whenever I grew a P, it grew with high margins, with contribution. In a few years, we made three doffs now. The 3P is having to learn to operate with high margins too. From the point of view of growth, amplification of fulfillment, the more the fulfillment amplifies, I showed you the conversion rate, the level of service, we grow with GMV with high lock-in, then I'm depriving GMV of partner shipping, we're giving less and less subsidies to GMV of partner shipping, so as the participation of our fulfillment increases, we will increase the amount of ads within our pages that are competitive in relation to the market, and even more competitive, because we have a multi-channel fulfillment, so the client will have the option to withdraw at the store cheaper, so growth, and I believe a lot that the partnership that I already mentioned here with Alibaba will also help in various aspects in this growth for smaller tickets, both in the growth of 1P itself and in the growth of 3P, but I emphasize and emphasize again that at this moment we are focused on monetize GMV and grow in absolute terms our operating profit and our LIRE, and not necessarily in a very accelerated growth of the company's GMV. This is the focus of the company, it has been since the beginning of the year, it has been a consistent strategy, I have absolute conviction that it is the most correct strategy for Magalu and that it will generate more results for shareholders as well.

Excelente Fred, super obrigado pelas duas respostas.

Luiz, obrigado pelas perguntas. A nossa próxima pergunta vem do Itaú, o analista Vitor Rogatis. Rogatis, por favor, pode seguir.

Good morning everyone, good morning Fred and the whole Magazine team. I have two questions. The first one is about the Digital CDC. I just wanted to follow up and understand what your expectations are in relation to the potential that this portfolio could have next year. And my second question is related to credit in physical stores. How can we think about credit concessions in physical stores in the next trimesters vis-à-vis an expectation of double digits for next year? If this idea here is to accelerate this concession, keep it relatively flat. Thank you, guys.

Good morning, Vitor. Thank you for the question. I'm going to comment here a little bit. First, about the Digital CDC. We launched the pilot in August, so it's very recent, but so far the results have been very positive. Throughout September and October, we expanded the eligible audience for our Digital CDC. Sales, the amount of contracts, the amount of clients, sales are growing every day. We are very happy with the evolution of the product. For now, we are basically focusing on pre-approved clients only, so we have tens of millions of pre-approved clients for digital CDC. We are aiming, focusing on this public, which is a public with lower risks, The platform is very friendly, as Fred said, the rate of interest is personalized, all the operation, the hiring, the experience is completely digital within our app. And of course there are evolutions to be made, we are making the product evolutions, the communications, the promotions, marketing and everything else. de forma que o potencial é muito grande. A gente sabe no Brasil, a demanda que existe por crédito é gigante. A gente está crescendo, está evoluindo, e na hora certa a gente começa a dividir os números com vocês. Por ora, estamos em um processo de evolução, aprendizado e crescimento muito interessante. E como o Fred falou, esse é um produto de rentabilidade muito alta. Getting to the second part of your question, Victor, regarding the physical stores, in the stores, this product has always had a very high profitability. It is a product with a fairly high EBITDA margin. We practice competitive interest rates here, but it is by nature of the product a relatively higher interest rate, so this allows this profitability is higher. In stores, we have grown the portfolio in the last one or two years to the extent of reducing the approval rate of the credit card operation, which has to have a more conservative approval rate, because many times the interest rates are lower or sales are even without interest. So, unlike the CDC, which you can have a more flexible approval rate because the operation has low costs and is already born with high interest rates, and the client does not leverage outside of Magalu. So, it's a different operation. When LuizaCred reduced the approval rate, clients that before we would give a credit card, we started to give a CDC, so it brought an audience with a low risk profile for the CDC, improving the profitability of our CDC and growing this portfolio, the sales and the portfolio of the CDC in the physical stores. Today, we want to continue growing the two products, each one with its audience. So, we want to accelerate the growth of cards, and we have seen in recent months already a sale of new cards above the level of cancellations, which also decreased due to the inefficiency that decreased. So, in the last few months, we are already seeing a credit card client base evolving, client base, portfolio, sales and everything else, for a public with very low unemployment. We talk about unemployment indicators in the first few months of only 3% delay. And a public with unemployment a little above this level, to our limit in the CDC, we are also growing. and has the goal of continuing to expand this portfolio, both offline and online, always with a very positive contribution margin, contributing to the increase in the profitability of the ecosystem as a whole. I think we have passed through the main doubts, Victor.

Thank you. Thank you, guys.

Thank you for the question, Nougat. Our next question comes from Gustavo Sendei, from AXP.

Hi, good morning, guys. Thank you for the questions. I have two. The first is about the partnership with AliExpress. I know it's a recent partnership, but if you could share some preliminary indicators, volume, maybe traffic, some kind of engagement metrics from your clients, between the platforms, that would be interesting. And the second question is related to turnover, especially when we look at stock. Just to understand if you believe that the current stock level is ahead of the strong season of the fourth quarter, especially that we have seen some suppliers commenting on supply problems with drought in Manaus, a price of China a little more expensive, so just to understand a little the issue of turnover, especially in the stock market.

Thank you, guys. Good morning. Muito obrigado pela pergunta. Eu vou responder a primeira e vou passar para o Fabrício Garcia para falar de working capital, capital de giro. Sobre Aliexpress, como eu comentei, a gente iniciou a primeira operação Marketplace Out, que é a venda do nosso P no Aliexpress. Existe aí uma complexidade enorme de integração e a gente iniciou essa operação at the beginning of September, actually. And this operation took about 30 days for us to be able to upload the catalog, to fix pricing issues, freight issues, catalog issues and adaptations of our catalog to the Ali platform. After these initial 30 days of a lot of learning, already in October, the operation dragged on a lot. Inclusive, já está bem próximo das métricas do nosso business plan. Então, estamos bastante confortáveis aqui com essa evolução e já vendo boas evoluções para o negócio. Acho que tende a ser muito positivo aqui no contexto da Black Friday, considerando que é um tipo de categoria que na Black é muito... So, besides the audience that we have in Magalu itself, now we will count with the audience of AliExpress here for the sale of this product. And it's very good for them too, because it was a strategic movement for AliExpress, important as an exchange currency for Magalu, including. About the Marketplace, I think we focused now on bringing the catalog. So, last week we brought 600,000 items on our platform. It has already contributed to our platform metrics, visits, activation, number of items sold. We are still learning some issues of how to show the tax. We are still embedding freight in the value of the merchandise. And our API and the evolution here of integration, we will remove the freight from the product value and leave it separate. I think there are still a number of evolutions to happen, but I am very satisfied with this moment, I'm sure it should scale a lot here in November and December, and that it will reach the same level of success as Alt, and that we will have a very balanced partnership, win-win. There is a possibility, in both cases, of the integration of Magalog, so of us today in Alt, for you to have an idea, it's like if every sale I made on AliExpress had left the CD in São Paulo, I can't put the other CDs yet that I have in 1P, and even the stores, to put faster freight to the Northeast. The way the platform works, our out had to be centralized in a single operation, but the ideal, as it is in the case of Magalu, when you are in the Northeast, you have a product in the Northeast, you will receive from the Northeast, there is a lower price, lower freight cost, and we are making an average there for the out. So, we tend to improve this. And for the in, there is a series of, which is the sale of AliExpress here, there is a series of improvements there too, of how to show taxes, of how to show... the freight, and I think the most important of them, which is a cycle that we tend to discuss here later, is the Magalog itself doing the last mile of delivery. Today, Aliexpress sales basically count on mail here in Brazil, so I think there is a great possibility of us optimizing this operation with Magalog. So I see it with a lot of optimism and positivity. What I feel is that the teams are motivated, they are working well. We are having a very good interaction with the teams, both here in Brazil, from AliExpress, and from China. I think it's a positive mood. Everyone is happy to have managed to do an operation at this level of complexity in a short time and to happen. And I'm very positive about the future. I think it was a very innovative deal, of worldwide relevance. and that has everything to do very well for the two companies, which is just how it will work out.

Good morning Gustavo, thank you for the question. Fabrício is talking here. About the stocks, really last year we had a problem with the dryness of the Rio de Manaus, it took everyone by surprise, but for this year we knew there would be a problem again, even because the Rio had not returned to the previous level, which I know this year would also be hard. So we programmed ourselves very well with all the suppliers. We've been increasing our stock with these more critical products throughout the quarter. The suppliers themselves brought more stock to São Paulo before the drought. So we are very well programmed, not only in these categories that have the river theme, but with all the other categories. We are very well, very calm to have a super good end of the year and start well o ano que vem, porque a nossa liquidação fantástica é no começo de janeiro. Então, a gente tem dois grandes eventos que a gente nos programa. Então, a gente está bem tranquilo com relação aos investimentos de estoque.

Super claro. Obrigado, pessoal.

Obrigada pelas perguntas, Andai. A nossa próxima pergunta vem da Irma, da Goldman Sachs. Irma, por favor, pode seguir.

Hello, good morning. I just wanted to go back for a moment to the question of the balance, of the balance between profitability in digital, profitability as a whole, and growth in digital. I understand that from next year you will perhaps grow a little more as digital, and I think you covered all the levers of additional monetization that still have to come. But I would like to understand a little your minds about the balance between maybe even accepting that at the moment that the digital voucher grows a little more, that this maybe brings the margin consolidated a little bit down, but obviously in the growth And on the other hand, Thank you.

Good morning, Irma. Thank you very much for the question. I think that, regarding this issue, we haven't yet closed the budget for next year. We obviously have discussions, preliminary ones, but I haven't yet officialized it with the Council. I think what I have to say about this is the following. Next year will be the last year of this strategic cycle, And I don't think yet that we have reached our ideal operational margins. I think we still need to evolve. I think that to make our result even more like the Selic test or the armored test, I think we still need to evolve all these agendas that I mentioned to you, some of them like the penetration of financial products online, and the penetration of the EDS itself, still in significant states, already important, but still with the potential for significant evolution. So, I still continue with a focus, my proposition will most likely be to continue evolving our margins, so that we have an even greater conversion of EBITDA in LIRE. I think that in this scenario, high interest rates, Irma, and even potential additional tax increases, I think it's more difficult because, in my opinion, it's coming to an end now. But there's one thing that I'm not going to be anymore, Irma, it's surprised with more taxes and interest rates above the focus. I think now, we've seen this novel before, we saw it in 21, very strong, e nós vamos agora continuar focando em aumentar a monetização do nosso GMV. Acho que agora a decisão mais correta para a companhia é continuar ampliando a monetização do GMV. Eu quero lembrar que a gente está se aproximando aí no nosso online de 50 bi de GMV. Não é que a gente fatura 5 bi de GMV ou 10 bi de GMV. O Magalu é o segundo player em mercado online e a gente está com uma posição em várias das categorias muito... solid, it's hard to be beaten, so it's not that I'm in a position of low scale, small scale, we already have a scale close to 50 billion in the year, to make money with it, I don't need to grow more to make money with it, I already have a very healthy, solid position, Netshoes already have in sport, at the time they already have in beauty, Kabum already has in her products, Magalu already has in several categories, so I think we still need to show that at this level of scale, which is, again, one of the largest online operations in the world, we can make money. So I'm not yet willing to lower the margin to grow more. I think the economic scenario today does not indicate a fall in interest rates or a reduction in taxes, which means doing this in a safe way. So, I think that the shareholder and the demonturist of Magalu depend on a positive cash cycle, a conversion of EBITDA and LIRE. I have to think about all the stakeholders and for me today, the best decision in the long term, I'm not just talking about tactics, we have to conclude our strategic cycle, take our margin levels to even higher levels, work for it, And from that moment on, our next five-year cycle, I haven't closed it yet, we can talk about it later, which will be the 26th, but certainly reaching this strategic cycle with the result of the Selic test is the best decision for us to make now. So that's my answer, I don't think I can put anything beyond that, precisely because we haven't closed the budget for next year.

No, it was super clear, thank you. There's still a question from Edson, maybe if you don't mind I'll comment.

Thank you. Hi, Irma. Regarding the issue of Edson's growth distribution, what I can say is that we already had a brand base from our traditional core that invested in Edson. What we see growing more within the platform are brands that are in demand, and mainly sellers through our self-service platform. This change that Fred mentioned made our platform much easier for sellers to advertise without needing to understand very technical things. So, we already see this transforming into the amount of sellers, the return of these sellers that is increasing, and the average ticket of these sellers. So, in general, our platform is for brands, it is for suppliers, and it is for sellers. And we are managing to scale where we had more gaps, which were in the brands we asked for and mainly in the sellers. Thanks.

Thank you for the question, Irma. Our next question will come from UBS, from analyst Luca Biasi. Luca, please, go ahead.

Good morning, everyone. Thank you for taking our questions. First, there are two rats on our side. First, about 1P. It would be interesting if you could comment a little on how the category performance was. now in 3Q, which were the categories that stood out the most. And the second one about the Cloud, it would also be interesting if you could give an update on how the client base has evolved.

Thank you. Good morning, Luca. This is Fabrício speaking here. In the 1P categories, we had a balanced quarter, we performed well in practically all categories I think the great highlight for me is still the white line, the real estate line also performed very well. We managed to make a good growth in a category that we had difficulty with, which was IT. We managed to recover the IT category, which is quite relevant to us. And in the category that we are having the most difficult year in relation to the market and everything else that the market has fallen, which was smartphones, we had our best quarter of the year. The category performed much better than it had been performing. It performed spectacularly in the physical league, a good online performance. And we hope that we have a better fourth three. So, I think that's it. We performed pretty well in practically all categories. With a highlight for what I said, white line and real estate. And I think the recovery of information and telephony is also a highlight.

About Claudio Fatalo, I was going to say... Good morning, Luca, Fatala, thank you for the question. About the Cloud evolution, just to reinforce again that it's been a year that we've been working a lot on the evolution of Cloud products, where we intend to launch all of them at the end of the year for the general public. But in the second semester, we've already started to do a soft launch of several of these products, there was the opening of the Cloud console so that any company or person can create their account and start experimenting. And from that, we saw a great evolution of the client base. When we look at the PJ accounts part, we talked a lot about those managed by the Magalu Cloud commercial team. It was in the house of 130 in the last quarter, we are already reaching almost 200 of those that are managed by our team. And then, with the opening, we saw this number grow a lot. So, today we have 513 users, PJs, already in the cloud. And we are also in a very big evolution of software engineers, developers building, creating accounts and building some applications. And this number, when we add two PJs with the part of the developers, the physical person, we already exceed 2,500 accounts created in the cloud. So, Even with this focus on product improvement, with this software part, we see the base already growing. Now, it's a big job to get feedback, continue to evolve, and for next year, we're looking for a bigger part of growth of cloud base and revenue, probably when we start to give a little more detail of the business as well.

Perfect, super clear. Thank you.

Thank you, Luca, for the questions. The next question comes from Nicolas, from JP Morgan. Nico, please, you can continue.

Thank you, Vanessa. Good morning, Fred, Beto. Thank you for taking our question. The vast majority of them were already answers, but I wanted to touch a little bit on the capital of Giro. We saw there in the TRI a very interesting improvement in the stock. I wanted to understand if you see space to improve even more the capital of Giro now in the fourth TRI in 2025. Thank you.

Good morning, Nicolas. Thank you for the question too. I'll comment here. Fabrício already talked a little about how well we are prepared in terms of stocks for the end of the year. We have managed to actually evolve the turnover of stocks. I mentioned when we look at the position of stocks, we are prepared. And even so, considering that we reduced the stocks by 500 million compared to last year. So, we have evolved in the turnover of stocks. When we look at it month by month, we have evolved in the average purchase time with our customers, maintaining a healthy stock coverage ratio. Thinking more in the medium and long term, we will continue to pursue this efficiency as we continue to grow and accelerate growth. We have the opportunity to improve the stock turnover even more. Without a doubt, this is one of our main goals in the management of Porto Algeiro. will continue to pursue this operational efficiency. We do believe that stocks will continue to evolve in the next few quarters, keeping a stable average purchase time, because it is already a healthy time. And I think that in addition to this relationship between stocks and suppliers, it is also worth highlighting the monetization of taxes, the compensation of taxes organically, naturally, making this conversion of taxes to recover in cash faster. In this third quarter, we monetized a little, but let's say it was something between 50 and 100 million. In the fourth quarter, our expectation is much higher. It is the best quarter from the point of view of because we sell a lot more, generate a lot more taxes to pay and can take advantage of the credits of taxes already paid. In the third quarter, the stocks increased, so this ends up generating more taxes paid in advance. Already in the fourth quarter, the dynamics tend to be the opposite, so we sell a lot more, compensate a lot more taxes, So, we should have, in this fourth quarter, a very positive cash generation, not only for the evolution of sales, but also for the evolution of capital of money once again. Thank you, Nicolas.

Thank you, Beto.

Thank you for the question, Nicolas. The next question comes from Vitor, from Banco Santander. Vitor, please, you can go on.

Good morning, everyone. Thank you for asking our questions. We have two questions. The first one is about the cycle, right? I think that as you are approaching the end of the second cycle, with this focus on, who knows, a greater monetization of GMB and profitability, I would like to understand a little what you are thinking for this next cycle that is coming. I know that it is still in the drawing process, but I heard a little of the idea behind it. And the second is a little more of a 4.30 preparation, a little more short-term. I think it was clear the issue of stocks, but I wanted to understand if there is any concern that you see in relation to this level of concession, a little more conservative, from Luísa Kled.

Thank you. Well, I... Good morning, thank you for the question. I think it's still too early for me I don't want to give too many spoilers about the next cycle, but let me try to explore some points here. Looking forward, Cloud, for example, is our pillar that tends to be more significant in the next cycle. We launched it now. I think it will be an important pillar. Within the technology component, we created an artificial intelligence directory in the Fatala structure. And I see here a huge opportunity. I think I wanted to talk a little bit about it, because I've been in e-commerce for 24 years, maybe one of the oldest in the market. And I've seen several trends and changes with the potential of technological disruption. And what I'm seeing now in AI, I've only seen it twice. And here there was a lot, metaverse, blockchain, but relevant ones that could be transformative, especially for our business. I saw the digital itself in the 2000s, when I decided to leave my job here in São Paulo to set up e-commerce in Magalu, in the year 2000. I saw In 2010, more or less, what was happening with mobility, with the growth of smartphones and the apps, the app economy. So, we were one of the first to invest in mobile, the mobile version, then the app itself. It was a relevant thing. And it also ended up benefiting us because we sell a lot of smartphones. So, a good part of Brazilian smartphones were sold by Amazon. But I saw the transformation and the digital inclusion that the smartphone gave to e-commerce or to several other segments. Several companies were created along the path of the growth of smartphones. Companies like iFood, for example, and other companies, Nubank itself. Several companies were there within this context. Without mobility, yes. And the third one now. only now, which is artificial intelligence. I think we have here the knife and the cheese in hand. We have ALU, I think few people have an agent like ALU, which is followed and loved by millions of Brazilians. So the main focus of our artificial intelligence directorate is to give the brain to ALU. There are thousands of consumers, millions of consumers who talk to ALU on social networks, but also on the own channel, the owner of WhatsApp, Magalu. And I see here a huge disruptive potential of this. And I think Lu will be a sales channel, much more than just a digital assistant, a digital influencer. So I have here a conviction that artificial intelligence will be an important component of our business. And also, about the question of multichannel in 3P, we have now reached the level of fulfillment, but my dream is to see the product of 3P in the store. And I think that in the store of Livraria Cultura, which we will launch next year, we will see the presence of the brands as a whole in the store, so we will have Epoca, Kabum, and the presence not only with P, but my dream is to see the Seller products in the stores as well. I think that this still enhances our offer of the physical store, integrates 3P more, in the multichannel, we have a good level of integration now, but practically logistical, I think we can make a bigger offer and also have the sellers' products in the physical points, I think it will be a big differential. So I'm giving some spoilers here just so I don't have a very evasive answer, but I think a little bit in that line, and I think Beto himself can comment on the second question.

Good morning, Victor. So about credit, especially for the end of the year, So we can say that we are very excited and optimistic. Luisa Kredi became much more conservative back in 2021, at the end of 2021, beginning of 2022 and until 2023. Now, on the margin, the trend is gradual flexibility of the approval class. In recent months, we have seen an increase in the sale of new cards, as I mentioned, above the level of cancellation. So, the base of customers is growing again. So, new cards are contributing more to the turnover in the month-to-month. There is also an increase in the management of the limits of older customers. increase even in products inside the card as a personal loan and everything else. So, the trend of LuizaCred and also of our CDC in stores is of evolution, given that it has become very conservative in the last three months, in the last years. The trend is to go back to normal as also the macroeconomic situation, the rate of use, is also becoming more predictable. A point that is also relevant is that in the physical stores, when we consider this performance of 100% of the sponsors that we have had, double digit, 15% of 100% of the sponsors, it is still with what we say, a level of of sales of financial products, financed by ourselves, much below the history. We, on average, financed practically 50% of sales in physical stores. Today, this level is between 35% and 40%. So, both the card has a participation today, mainly the card has a much lower participation today, than a few years ago. So there is room to gradually recover this terrain and this tends to help in the growth of sales. Now again, keeping the margins, keeping the profitability, the ROE of Luisa Credit, our CDC, quite high too. Thank you, Victor.

Thank you for the answers.

Thank you for the questions, Victor. The next question comes from João Paulo, from Bradesco.

João, please, you can continue. Good morning Fred, good morning Magalu team, thank you for taking my question. My question here is a quick follow-up to Irma's ESS question. I would like you to comment on how you feel about the maturity of the ESS solutions that you have today, and what are the main challenges that you see in the potential adoption expansion of your ESS platform in the coming years? What do you see as your main challenges in the future?

Thank you. Well, Eduardo, regarding the TechStack issue, I think we've given a very important step now in this October change, which was the implementation of a new platform with a lot of high-service quality. So I think this part is over. Now we have a whole opportunity to expand. First, we consolidated this in Magalu. Let's take the value of this in Magalu. The next step is certainly to expand this to all the other properties of the group. We have all the other brands, we have publishers, we have technology companies like VipCommerce, which is a supermarket platform. So the next frontier of this technological evolution is its expansion to the other parts of the group.

Perfeito, muito obrigado.

Obrigada, João Paulo, pela pergunta. A nossa próxima pergunta vem do Andrew Rubem, do Morgan Stanley. A pergunta será feita em inglês, mas a resposta será conduzida em português. Andrew, por favor, pode seguir. Andrew, your microphone is muted.

Andrew?

We will now close the Q&A session. I would like to pass the floor to Frederico Trajano for the final considerations. Please, Fred, you may proceed.

Well, I would like to thank everyone who participated in our results call. I would also like to take this moment to congratulate the entire Magalu team for the evolution of the company's numbers, the results, the hard work in this strategic cycle, o vento contrário dos juros, ainda assim, a gente conseguindo fazer uma evolução muito sólida, concreta e absolutamente irrefutável da nossa operação e um progresso também muito significativo aqui na implementação do nosso ciclo estratégico. Então, parabéns aqui para todo o time e obrigado aí a todos os nossos stakeholders. Bom dia a todos e boa sexta e final de semana.

A teleconferência do Magalu está encerrada. O time de relações com investidores está à disposição para responder as demais dúvidas e questões. Agradecemos a participação de todos e tenham bom dia.