Magazine Luiza U/Adr

Good morning, everyone. Thank you for waiting. Welcome to Magaluz conference call to discuss first quarter 25. For those of you who need simultaneous interpreting, you just click on the interpretation button Using the globe icon at the bottom of your screen, you can choose the language of your preference, Portuguese or English. We inform that this event is being recorded and will be made available in the company's IR website at ir.magazinaluiza.com, where you can find the earnings released in both Portuguese and English. The link to the presentation in English is available in the website. During the presentation, all participants will be in listen-only mode. Then, we will begin the Q&A session. To ask questions, you can click on the Q&A icon at the bottom of your screen. Write your name, company, and the language in which you will speak. When announced, the prompt to enable your microphone will appear on the screen and you should unmute your microphone. Questions received in writing will be answered later by our Investor Relations team. Now I'd like to turn the floor to Fredy Trajano, CEO of Magalu. Fredy? Good morning, everyone. Again, thank you very much for participating in our earnings conference call, referring to first quarter 2025. I am here again with the whole top management of the company. We have new members, new officers, and I'll be speaking about this during the presentation. And I would like to start. highlighting what we have been talking about for a while now, that the year of 2025 is the last year in the cycle of building the digital ecosystem of Magalu. And the main strategic objective was to make our results more resilient and SILIC rate-proof. I think that this quarter is very symbolic in a way, from the standpoint of clearly showing the evolution of this strategic cycle. very much related to the fact that for yet another quarter, we posted profit, despite a very substantial hike of the SELIC interest rate, particularly future interest rates in the first quarter. Future interest rates determines a good part of our financial expenses in terms of debt service and also in terms of trade account receivables. And Roberto will speak more about this, but we more than offset this with increase in our EBITDA. We hit a historical margin of 8.1%, growing 10% our EBITDA. very much due to the contribution of these result line items that we created in our ecosystem. Not just LouisaCred, but all financial product operations contribute significantly for this. I'll highlight Consortium, MagaluPay and other subsidiaries. MagaluAds has already started to reinforce our margin. We had an increase in revenue of services, not just this, but other line items ended up contributing. In a nutshell, we had an expansion of 70 BPS. 0.7 percentage point increase in adjusted EBITDA margin, showing that all of this we built over the years, part coming from acquired companies, part from organic expansion, all of that has contributed a lot to our profitability, helping us deal with this hike in the interest rates, which gives us a lot of hope regarding when this cycle finally ends. We had another increase in the interest rates two days ago of 50 basis points. Apparently, we're getting to the end of this hiking cycle, which is great news because our business is When interest rates start falling, future interest rates, EBITDA converting into EBITDA rate will be significant. So our business is now more resilient to the worst case scenario, which is a high SELIC rate. But when the SELIC rate falls, our business will be boosted. I'd like to highlight the increase in the gross margin. Like I said, we had an increase in services revenue, but also an increase of the merchandise margin and service margin. And this is because of the price increase and pass it through. And mainly the fact that with higher interest rates, we have higher trade account receivables and have to pass this through. In other words, it's a quarter that comes after we close the balance sheet of 2024 that we published on March 8th, if I'm not mistaken, our last income statement and the speech is consistent. We have a very high GMV annually, above 67 billion BRLs, and I believe it's a GMV which is sufficient for us to be building a more stable operation. As regards to growth more specifically, because we are more focused on monetizing our GMV, and increasing our margin to offset the increase of the cost of a prepayment of receivables, we ended up opting once again to increase profitability. This is an option that we have that we have made, a choice we have made in other quarters. And it is very much fitting the current scenario. It's not going to last forever. We're going to get to the end of this high interest rate cycle. And I see that the moment we get a clearer signaling that the interest rates will drop, obviously, we're going to have a lot more flexibility to re-accelerate our growth. But what matters is this, that even with an increase of 0.7 percentage point increase in adjusted EBITDA margin, we defended our sales. We didn't give up sales. We had a little trade-off in terms of growth, particularly online, where the impact of the trade account receivables discount is higher in abstraction of the credit instruments, which are more interest rate proof. So in the stores, the stores had to be defended because the penetration of financial services is very high. So online, we had to pass through more prices because of this increase in discount of receivables. So online is different from brick and mortar stores, and online we have to pass through more price increases. But still considering all that, we had an EBITDA margin increase, a margin increase. We had a financial expenses increase, but we were able to offset that. And Beto will speak about this increase in financial expenses. And we were able to defend our GMV. We continue to be one of the leaders in products above 1,000 BRLs, both online and offline. We're the leader, actually. And we continue with a very good basis and a very significant scale and room to improve our margin despite growth. So we continue with the same strategy looking forward. I would like to highlight specifically the continuity of our sales. We grew 7%, same story as sales, coming from an almost 10% same story as sales in the prior quarter. And we had had a good performance two years ago. So sales have been increasing and the brick and mortar stores have shown to be very resilient, positive. And in those physical stores, we have the seasonality of the weather. Well, it wasn't so hot as it was last year. And the physical stores tend to sell more durable goods. But still, this market continues very strong. Like I said, we don't have a demand issue. We don't have a consumption issue. I think that. And actually, I'm sure that our retail sales will be strong because even if we have inflation pressure on consumption, this is practically offset by the collective bargaining agreements. Even the government aid to the low-income population is adjusted. But we have to be able to operate in this high tax burden environment and high interest rate environment and convert everything into sales. But I still see the physical stores performing well. And I'd like to stress physical stores. Well, we have multi channels and we are taking the brick and mortar stores to a whole new level with the inclusion of physical stories of companies of our ecosystem. So in the context of the Magalu ecosystem, we had some acquisitions in this cycle. Acquisition of purely online operations. However, our model and what sets us apart We have been growing in home appliances and electronics because we can have inventory at the stores, return at the stores, and store pickup. And this was always a differential for Magaluz, the controller. And we want to take this differential to the companies of the group. So we opened physical stores of Kabum and Netshoes. Both operations are doing very well. These stores were opened successfully. on Margenal Tete Beltway, we have signed a new location for these units. And this place, this location is going to absorb stores of Epoca and Estante Virtual. And our goal is to take these companies that live purely online to the physical world. The Kaboom and Netshoe stores, not only are they performing really well in the brick-and-mortar stores, but they're also contributing a lot to the Magalu store that is right next to it. So where we used to have Livraria Cultura bookstore, we are going to have the first physical space of the Magalu ecosystem of our whole universe with all of the brands of the group physically present there with full integration. And I am sure that this initial success of these stores, Kaboom and Nature, they both contributed to our net income and increase in EBITDA in Q1. With the expansion of physical stores, we see a very promising market for both brands. These businesses amount to about 4.5 to 5 billion bureaus a year. They are leaders in this segment as well as Epica. And I am sure that this expansion to physical stores, a multi-channel approach in practice to all of the companies of the group, will boost our ecosystem. So for this year, in addition to profitability, which we have been showing very consistently since the beginning of last year, this is the fifth consecutive quarter with a lot of evidence that the cycle was absolutely successful. I believe that for this last year of the cycle 2025, the physical presence of these brands of the group that used to be just online will be fundamental, still in the context of the ecosystem I would like to highlight our ads. We had a 53% of the ads revenue. The whole focus we had, the team of Celia Goldstein, and now Andrea Fatale, and I'll speak more about that, have been focusing a lot on improving the platform. We improved a lot the click-through rate for the advertisers. We had also space for ads in our whole navigation. I'd like to remind you that we have almost 500 million visits to all companies of the group. The Netshoes audience is gigantic. The audience of Kaboom is gigantic. And the same for Eppoka and Magalu. Sometimes we tend to look just at the audience of Magalu app, but we have to look at the audience of the whole ecosystem, Magalu ads and others. The idea is that we'll monetize all channels of the group. Of course, the focus now is Magalu, but we intend to expand. We had unprecedented partnerships with big brands. which are not sellers of Magalu, Uber, Z Delivery, MasterCard, they all invested in our digital assets in the period. And obviously, we have to break in more stores to deliver ads. We have the commercial locations there that are more and more prepared to absorb this. And we have this multi-channel approach. So we had a 53% increase in the revenue of Magalu ads. That was very helpful to increase the 0.7 percentage point increase in EBITDA margin and in our services revenue, which grew above expected. I guess that a big highlight, and this has been so for a while, is our financial services operation. Of course, we have to highlight LouisaCred, which once again had a very good quarter, a very good return on equity. I think that financial operations run really well in a context of high interest rates. All banks are doing well. It's not different here. But I'd like to highlight not just Louisa Tread in this process, but also the other operations of the group. Magalupe Pay had another positive quarter. It's an operation that is not so well known by the market. Our consortium with about 5 billion in the quarter had 5 billion. So we had another positive quarter, 12 million consortium, 14 million Magalupe, 84 million LuisaCred. So a total of 110 million BRLs, total net income. Again, in a very good segment. And I guess that the big opportunity we have here is a very high penetration in the physical world, which accounts for about one third of our sales, but with a very low penetration online, which accounts for two thirds of our sales. So we are far from getting to the limit of our growth. We don't even have to grow GMV to improve our business. We just have to increase the penetration of online sales. And we have some news here, just like our Magalupe IF, which was approved now by the central bank. Some digital products are now under this structure and other businesses. and we intend to increase our penetration in the digital world. I'll speak about the new announcements of our structure, but we have a new CEO for the business, Jörg Friedman, who will be leading these strategic initiatives. He joins us in a very good moment in terms of earnings and at a moment of strategic inflection when we have a huge opportunity to increase the monetization of our client base and our digital channels with financial services. And he will be available during the Q&A session after this presentation. I guess that's still interesting. On that topic, we started reaping the fruit of the first public or global public cloud in Brazil, Magalu Cloud. We had 40% of the workloads of Magalu already migrated to Magalu Cloud and more than 400 SMEs have been using Magalu Cloud. We released now five zones in two regions. Excellent latency. We've had an excellent performance of costs. We had a number of organic posts of clients complementing on the service, saying that they had significant savings. I guess that now with AI, companies, either small, medium or large, will be able or will have to implement AI models to optimize their work. Players not using AI will lose space to those who are using it. And AI will require more and more computing capability in the cloud. More and more need to do this in a cheap way, in an economically viable way, and with low latency. Have all of that. This is what sets Magalu Cloud apart. We are feeling a lot of traction, positive traction. We're very excited. It's not contributing so much yet to our EBITDA, but I'm sure that it's going to be a big cash cow for the group. It will generate a lot of revenue for us in addition to the savings that it brings to Magalu itself. in terms of our expenses, which are hundreds of millions in our business. So it's a very positive moment for us. Andrei Fatala is also here to give us more on that. It's another pillar of the ecosystem, which is evolving really well. Another point that shows consistency in our strategy. And I'd like also to highlight Magalu Log. On the next slide, I think that we're evolving our fulfillment. Almost 25% of 3B orders. In the same period last year, it was 16%. 4,200 sellers. We have just enabled another DC for 3P. We opened this DC in Rio Grande do Sul. And we are covered in the three main e-commerce regions in Brazil, South, Southeast, and the Northeast. We have operations in all three regions. And the idea is to start populating these DCs, particularly those in the South and in the Northeast for our fulfillment operation. We have a very high population. one P e-commerce market share in the Northeast and in the South of Brazil, and with fulfillment, that is, that will increase the market share of three P sales. This is a big differentiator. And our fulfillment is multi-channel. Once the product is there, we have the benefits of multi-channels, store pickup, and other advantages, such as multi-channel reverse logistics. We have just enabled the marketplace so that shoppers buying in the marketplace can return products in all of the Magalu brick and mortar stores. This was limited to 1P products. Almost 100% of the merchandise returns were done via the post office. Most market players need the post office for that, and now all Mangaloo stores are enabled to get merchandise return. And almost 50% of 3P sales and products are being returned in brick and mortar stores of Magalu. We have stores everywhere in Brazil, which is a big differential. This has helped a lot our NPS levels, which continue to evolve a lot. In the fourth quarter, well, we're growing 10 points, our NPS. In Q1, 76 points in our NPS. 1P operations above 80. brick and mortar stores, 83% at 3P69. As you know, we work every year with one topic. Not that we don't do other things, but we always have a focus for the year. And the company has a lot of discipline. In this strategic cycle last year, our focus was to resume a level of service that would delight our clients, our customers. Last year as a whole, we increased our level of service. And this year we'll maintain this year with a very high NPS, a very high, the highest NPS in the segment in Brazil, both 1B, Stores and 3P. And for this year's theme, our focus will be conversion. So speaking about what we are prioritizing this year, We're prioritizing resuming growth for the company, but with discipline, i.e. doing this having effective investments. We have almost 500 million monthly visits across our digital channels, desk, app, mobile sites for all of the brands of the group. And we see that there's a big opportunity to increase conversion of the shoppers. So the whole organization, the whole company is focused on optimizing every step of the process. So this is a change after three or four years when we focused exclusively on improving the margin and efficiency. Now we are focusing again on growing sales with a disciplined concept of increasing conversion. Not just having low return on our investments, but getting the most out of them. Selling the same thing with less marketing. And where there's room, we'll sell more with just a little higher investment in marketing. That's the kind of conversion we're looking at. The company now has this new theme starting in Q225. So we are more focused regarding delivery times. We are investing in broadening the routes, more shifts in the DCs, working with more sales in Q1. We have started feeling the effects of that at the DCs. First, we create delivery routes, we reduce delivery time and conversion comes later. We are very much focused on pricing, working with sellers and suppliers alike to have price competitiveness. We were focused on margin. Now we have to deliver margin with the best price for the customers. doing strong work at the company to raise awareness that we have to have the best experience in the market. We have to improve search engines, recommendations, having a more assertive marketing, modeling, and so on and so forth, and payment options. Again, broadening payment options, mixing payment options. The digital CDC is also important to increase checkout conversion. All of the reports of the company now are more focused not just in after sales, but before checkout. In other words, what the shoppers are looking at, what they're searching. And I'm sure that we're going to have a year that will bring us a lot of benefits in terms of increased sales, but with sustainable results. That's what we are focusing this year. Last year was the year of Encanto Mangalú had a brilliant year in terms of these indicators. And in this year of conversion, I'm convinced we're going to have a very positive year. And for this, I think that in such a big and complex operation, and so digital as is the case of Mangalú, we needed some structural reinforcement. And I would like to stress this. I am a leader that has a characteristic of... having a lot of longevity. I don't like changes very much. Many of my officers and VPs started with me when I became the CEO in 2016. I've been the CEO for almost 10 years and I saw now the need to make some changes in our organizational structure. The biggest change since 2016, we had the arrival of new people to executives. We brought in, and we're very happy to have them join us, Jörg Friedman to be CEO of Magalo Bank and Ricardo Garrido to be CEO. marketplace executive officer. Well, these are two extremely strategic units for the company. Garrido comes with nine years experience at Amazon and New York Friedman has experience in the financial sector in the last three years at Nubank. So we're very excited and we made a change, which I think is very significant in terms of the structure. We merged the areas of digital channels and technology. And now we have a single platform VP under the leadership of André Fatala, who's been with us for a long time. He was responsible for Magalu Cloud and others. In my view, in order to have quantum leaps and significant leaps in terms such as conversion and everything I said, pricing, word of mouth, searching, marketing assertiveness, all of these quantum leaps have to be algorithmic and not empirical manual leaps. So it is really important that, well, technological platforms, many of them use sophisticated models of artificial intelligence or automation models in general. And these platforms need huge technological expertise. So in changing the organizational structure, The technology organization and the business organization will be much more integrated. This will add speed, and the management philosophy will be one of automation rather than decisions, which are non-automated decisions. Of course, automation with sophisticated algorithms. So that's where we're going. I believe that we brought in the right people. We made the necessary organizational structure changes that will help us to continue to operate growing margin, gross margin or gross profit and return to our investors and to resume a path of growth, particularly online. I'd like to remind you that the physical stories are doing quite well and we want to do all this in a sustainable fashion. which I believe is very important in the current scenario. I'll turn the floor to Beto, and then I'll come back for the Q&A. Thank you. Thank you, Fred. I will go over the financial highlights very quickly. We spoke about more than $16 billion in total sales, same store sales growth of 7%, gross margin above 30% since the first quarter, which normally is a quarter with more sales, with more promotions. EBITDA growth in adjusted net income of 11.2 million. Accounting net income close to 13 million BRLs. A very small difference. We didn't have any any relevant non-recurring expense or revenue so the numbers are very similar and we ended the quarter with a total cash position and adjusted net cash which are very robust total cash of 6.7 billion on the next slide we show the quarterly evolution to reinforce the consistency of our EBITDA margin. Last year, we started EBITDA margin at 7.4. That evolved during the year. And this year, we started at a higher level. And as Fred said, service revenue growth was a highlight. It grew between 4% and 5% this quarter, driven by the marketplace. Magaluet's and the sale of insurance. We had an increase in merchandise margin, which was also important. And I would highlight also fulfillment expansion, market share gain of physical stores and the profitability of the brick and mortar stores growing. And the big profitability highlight at Louie's Accred. On the next slide, we explain the evolution of EBITDA margin 7.4 to 8.1%, gross margin contributing with 0.7 percentage point. I would highlight the merchandise margin 0.6%. Again, reflecting the pass-through of CDI increase to our end prices and increasing our merchandise margin and service margin contributing also to the consolidated gross margin. Our operational expenses, general and administrative expenses remain kind of flat. as had been the case last year at a very stable level this quarter again these were stable and selling expenses grew a little and as fred mentioned these were investments we made primarily to increase the fulfillment operation, expanding our delivery routes to have a faster delivery time. And all of this tends to translate into sales conversion and more results in the future. Then we highlight the result of LouisaCred. which contributed with a 0.4 percentage point, as well as the reduction of delinquency, loan loss provision, particularly of consumer credit, which contributed with another 0.2 percentage point. So we got to a total of 8.1% EBITDA margin. On the next slide, we'll speak a little about working capital. Here we We have the variation in the first quarter, which is very seasonal. We had about 1.5 billion variation in Q1. It is totally related to payment to suppliers. Our suppliers balance reduced practically by the same amount. And as you know, this is very seasonal. This will tend to come back during the year. The balance of suppliers tends to end the year at the same level of last year, slightly above. And the highlight here is that a trend, we improved the inventory turnover. And a big highlight to taxes, we reduced the balance of taxes recoverable both in the quarter, about $200 million, and compared to last year of more than $500 million of recoverable taxes. This is a trend that should continue throughout the year, so the working capital tends to continue to evolve during this year. It will improve a lot. As it improved last year, this year tends to be even better. The consequence of all that would be a reflection on financial expenses. On the right, in Q1, financial expenses grew by 27%. mainly due to payment to suppliers, which was seasonal. And of course, they need to have a prepayment of receivables in this quarter. We increased the volume of prepaid receivables compared to the same quarter last year. We had had an increase in our private capital in the first quarter of last year. With that increase of private capital, the volume of prepayment of receivables it would have increased. And the future interest curves increased from 11% to 14%, also increasing 27%. So the total increase of financial expenses is a consequence of this higher future interest rates. If we look at the expenses of interest loans, there was a drop, even with a higher CDI. And this is because of our debt reduction that we had last year. Last year, we reduced our debt by 3 billion BRLs. In the last 12 months, 2.1 billion debt reduction. So the trend of interest on loans is a downward one. And now I detail a little our total cash flow. We started with about 2.4 billion cash, practically record level for this period of the year. I'd like to remind you that last year we had an operational cash generation that was very strong. We converted a lot of EBITDA into operational cash and the trend this year should be exactly the same. And then after the cash flow of the operations, we had investments of about 700 million. We had the payment of leasing, about 800 million. And that gave us a free cash flow of almost 1 billion BRL, 900 million. deducting interests on loans and borrowings of about 600 million, we get to an adjusted cash flow of 300 million, which is very similar to our last 12 months net income. In other words, we are converting net income into cash generation at a very high proportion. In addition to the cash flow, we have two events They're relatively non-recurring. Well, the first was Louisa Tread capital contribution, almost 600 million, and the debt payment, which explains all the variation in our total cash position. We pay debt, we reduce cash, we reduce the debt. It doesn't change our capital structure. In the last 12 months, we paid 2.1 billion of our debt, including the buyback of our debentures. and we're trading in the secondary market. And the spread of this operation has been dropping a lot and it is converging to the price of our securities. Before talking about capital structure, we communicated this last year. We communicated a very important deal for us. We announced some fundraising with the IFC, about $130 million. about 750 million BRL. This is the first deal we have with the IFC. And it's the first IFC deal with a Brazilian retailer with these characteristics. It is a five-year totally clean deal with two years of grace period. And it is our first transaction with with a focus on financial sustainability and the evolution of sustainability indicators, specifically in our case, collection and recycling of electronics and home appliances. Again, this is a very special operation for Mangaloo, and the funds will be used to invest in technology. With this operation, we practically guarantee all of the investments we will be making in technology in 2025 and 2026, in addition to increasing our liquidity with our capital structure in the short run. And here we show our capital structure. We ended the year with $6.7 billion, considering cash and receivables available with a net debt of $4.6 billion. This gives us a net cash of $2.1 billion BRLs. And here, it's saying that in September, this position of $2.1 billion was $1.8 billion. And in the last quarter, it increased. In the first quarter of the following year, it normally drops, given the seasonality of working capital, as I explained. But it is important to note that from September of last year to March of this year, we increased our net cash position from $1.8 to $2.1 billion.

meaning that now we have 300 million BRLs of net cash. Now, speaking about our debt of 4.6, it was already distributed throughout the period of four years, so it was a very elongated profile. We had done the extension at the end of last year for 20, 27, and 28. So in April, we concluded and we communicated the issuance of the 13th issuance of debentures for a billion BRLs for a three-year period of three years of grace period of rate of 1.7% a year. And this was an exceptional transaction. And together with IFC's transaction, our liquidity increases substantially, ensuring all the necessary funding for us to honor all the payments for this year. And not only that, we can also guarantee investments in technology for next year. So our capital structure is even more robust. And in a moment where we are generating cash, given all of the investments already insured through that IFC transaction, we will have the opportunity to generate more operating cash and by the same token to increase our total liquidity. And finally, here we have Louisa Credit's results. It was a highlight of the period once again. So Louisa Credit has a portfolio of almost 20 billion, more than 6 million active customers. Delinquency is dropping significantly, both in the long and short range. The coverage ratio increased to 162%. So this is a very robust and conservative view. And the levels are much lower than that of last year. And because of that, Louisa Kredge was able to increase its profitability. Well, we were able to reduce the cost of funding, reduce provisions, increase in capital, and also we increased total service revenue this quarter because we increased that revenue. And now we have $84 million of net income and revenue. Once again, this is a very special moment for Luisa Cred. Luisa Cred is now prepared to expedite its growth going forward. And with that, I conclude my remarks. And now I would like to first thank you all for joining us and we'll now start our Q&A session. We will now initiate the Q&A session. For questions, just click in the Q&A icon in the bottom of your screen. Write your name, your company, and state your name to get in the queue. Once your name is called out, you will see a pop-up to activate your microphone and proceed with your question. Our first question comes from Luis from BTG Bank. Luis, you may proceed. Good morning, Vanessa, Fred and Beto. I have two questions. My first question, Fred, you put a lot of focus on the conversion in the platform as one of your indicators and the indicator that you've paid more attention to. What was the evolution of this conversion in the quarter? And what are the main KPIs to leverage that conversion? You mentioned financial services. Can you please elaborate a bit more? And in terms of margins, could you also tell us a bit about margin expansion after you hit 8% of the top margin, both within e-commerce and physical retail? Thank you. Good morning, Louise, and thank you very much for your question. Speaking about conversion, I mean, you and the other analysts, you're very familiar with Magalu because you've been following us for quite some time. So conversion is a very crucial topic for the company, especially at that moment of the strategic cycle. Last year, we chose service level. So our goals were very robust to increase NPS. because with all of the monetization focus and the focus to simplify the operations, you know, increased efficiency, et cetera, we needed to improve service levels, placing Magalu at a historical level, because we've always had the best NPS in the market, and we were able to resume that position. Once that was achieved, we decided now to, to change the focus and focus on conversion. These annual cycles, they follow the U.S. balance sheet calendar. It was as though we would use the first quarter to do all the planning, to build up the indicators. Now, all of the company's indicators are of visualization. They are not after sales. I'm not looking at the client just at the moment when he made the purchase, but I have a whole journey. So we improve the company's reports regarding all of the potential factors that can help us convert more visits into sales because this will allow us to grow with a good margin. And this is a challenge if you consider the current state of the company. So we are looking at several avenues. Delivery timing is one of the aspects. Fulfillment is another pricing factor. for 1P and 3P. So we have to be assertive in terms of the algorithms. We have pricing automated robots. And the same thing goes for freight costs because we increase freight charges. We are now, you know, looking at freight, where there is conversion. And so you save on marketing if your freight cost is lower. All the bidding algorithms are being used for marketing campaigns, NTA, et cetera. We do incrementality tasks. So the agenda is very complex, involved with the entire organization, not only marketing alone. Even the legal department is involved because it has to do with financial products. You have the conversion of the cart. When you are... already at the checkout, but maybe your credit card is not approved or you're buying with a credit card, but the approval rate is low for maybe some issues related to integration with a credit card company. So for checkout conversion, we are focusing with a lot of improvements, improvement in conversion rate, approval rate, financial instruments. you know, limits. Payment means there are a series of initiatives. They're focusing on converting at checkout. All of that involves payment terms, price. So we're just expanding our digital platforms. And this is one of the goals of the FinTech team to help convert more people because a lot of people do not have enough limit on their credit cards. Some people only have like 300 or 400 BRLs as a limit in their credit cards. And so they cannot buy anything more expensive than that because they have to buy food just to survive. So sometimes with a digital platform, we find ways of helping them to pay for more expensive things without exceeding the limits on their credit cards. So this is a very, very nice agenda. I will then tell you a little bit more about penetration and additional margins and how you see the FinTech possibilities. I mean, he just started working on that soon, but you'll see all the possibilities. Thank you, Fred. Thank you, Gwenaes. I think... We find ourselves in a very privileged and favorable position right now because we can grow and at the same time we can improve profitability. We can leverage our ecosystem and we can also leverage sales both on digital and brick and mortar stores. If you look at the financial service strategy as a whole, Obviously, I mean, we have the challenge to integrate everything into our ecosystem and at the same time, increase service penetration, especially in the digital sphere. When I refer to our favorable position, I was saying that we have a very good banking infrastructure. We have a very robust licensing system that also allows us to grow with efficiency and better scalability of products. And also, we have the necessary raw material that allows us to increase principality in our ecosystem. Let me mention five highlights. I mean, Fred already mentioned that. Well, brand is something that brings more robustness. Scale is another factor. 500 million visits and 35 million customers buy products. consistently in our ecosystem. Service level is record, 67 NPS points. The entire system is very efficient. And multi-channel. Multi-channel is something very unique of Magadou because we can offer financial services in more than 1,500 stores. All of that combined leads to principality. And as we pointed out, We have all it takes to favor or to grow our margins in a timeline. Great. Thank you, Jorg. Thank you, Fred. Now, a follow-up on my second question about margins. Could you please now mention expansion with all of the initiatives that you recently took, both e-commerce and brick-and-mortar stores? Well, again, we do not give any guidance, but I think you've realized that most part of our EBITDA delta come from financial services, not only LuisaCred. Once again, I would like to highlight Magalu Pagamentos, Consortia. So it's very easy when you look at our apps that they have been great contributors. And I think it's still far from our goal. Jorg just talked about penetration. Penetration is still very low. Low on both, on and off. And I'm sure that we will be able to reduce the online penetration gap. Thank you. Thank you very much, Fred. Thank you for the question, Louise. Our next question comes from Luca from UBS. Luca, you may proceed. Good morning, and thank you for taking my questions. First of all, speaking about profitability gains that you've been posted in the last few quarters, could you please comment on how much of that margin gain comes from the mix of channels. I mean, brick and mortar stores gaining more penetration. And how much, indeed, came from better profitability of the channels? And if you could also share something about the margin evolution per channel. I mean, Louise just said that every channel you know, channel is gaining margin, but which is gaining more margin? My second question is about your partnership with AliExpress. Could you please give us an update about that partnership and how is that contributing to your sales? Also, I would like to hear about the expansion of this partnership for logistics and iCloud. Thank you for your question. Speaking about margins, we have gains across the board. All the channels had margin gains. In terms of online 1P, as we said last year, part of that margin gain was done to compensate for last year's default. We had 5% increase. Points in addition, I mean, more in 1P. So that margin gain was used to offset that increase in taxes. But even then, I mean, not only that compensated for Magalu, but Netshoes, Epoca and Kabum, all of them have relevant 1P points. And 3P in all of them is also very, very strong. But all of them had that impact. Therefore, much of that gain, that gain in margin, was used to compensate for that. 1P had margin gains and 3P as well. We had increase in take rate. There were changes in freight bonus. There was a change in that policy policy. And the stores are performing quite well, positive performance. There was a slight increase in the share as a whole, which also contributed. But that margin gain was across the board. All channels, all of the executives of the company were entitled with the objective to increase the margin as a whole. About AliExpress, I would like to call Garrido to comment. talk about that because now this operation is under his wings. Thank you, Fred. Thank you, Fred. And thank you, Luca, for your question. The partnership with AliExpress started in the fourth quarter of last year. So we are very pleased with the results so far and the potential that this partnership can bring us. I think the most important thing is to ensure the excellence of processes, to ensure that all of the time's are complied with and the operation runs smoothly. The first phase was concluded very successfully. We think that this kind of assortment that comes through this partnership with AliExpress also brings a very important offering to our customers. And so far, things have been moving quite successfully. We are very competitive in this cross-border operation. And as we gain confidence, we are also adding that to our promotional calendar. We traditionally have promotions every week. We have Mondays and Sundays and pay day that happens every day. And now on the 11th, we have another promotion where we will bring assortment coming through this partnership. It will be a one day focus on that. We are very confident with that partnership and we believe that there is great potential for further growth also involving other services. offered by the company. But so far, the focus is much more on e-commerce. Perfect. Thank you for your answers. Thank you for the question, Luca. Our next question is from Gustavo Sunday from XP. Gustavo, go ahead. Good morning, and thank you for taking my questions. I have two questions. My first question is on fulfillment. I mean, 25% penetration on 3P. I would just like to get a better understanding of how much more penetration could grow and understand your investment need, how much you need to invest in the P&L to gain more scale? This is my first question. Second question is about MAC2 ads. There was a great expansion in the quarter. So what will be the next steps for 2025 and how much it contributed for the expansion of 3P? Thank you. Good morning, and thank you very much for the question. I think I missed your last question. You were talking about fulfillment. Oh, the world map of MAGADS. Okay, I'll start with the first question on fulfillment, and then Fatala can talk about EDDS. About fulfillment, well, you saw that you went from 16% to 24% of total share of MAGALU, and I think... This year, it should convert even more. Conversion of the visits of products that are already in our DCs or sellers that are in the fulfillment operation is significantly higher when you compare to conversion of products and sellers that are not in the fulfillment. But for us, one of the major leverages to increase conversion is the increase of fulfillment in the total scheme of things. So we are working hard to get that done in the first quarter part of these investments are already being done that's an important part of of this increase of sales expenses that we had in the first quarter it was not a marketing increase but it was an increase in the structure so we would have more dc's receiving fulfillment products dc's in the northeast for fulfillment operation we are expanding the area so that we would have more availability of products in regional DCs. We are still investing in these things, and these investments will generate more conversion going forward. Therefore, well, we are not giving any guidance, as you well know, but if you look at that 24% stake today and comparing that with other companies that already talked about their fulfillment, Looking at the curve, we're much ahead of other operations that started from scratch. We started that less than two years ago. This is an operation that will certainly make us very happy going forward, and our sellers will be happy as well. About the ads roadmap, I will then turn the floor to Fatala. And Gahidu, if you want to add, please go ahead. Gustavo, good morning, and thank you for your question about the ads. As Fred was saying, we grew 53% of our revenue. But we still see more room for improvement related to our ads platform. Just to give you an idea, we grew CTR by 47% comparing, I mean, the last quarter of last year. And this was due to improvements in the platform and improvements in terms of the general experience of users. in our channels due to all of the ads integration. Now, we will increase the density of the ads as part of user experience, as long as it's something that is very relevant compared to what we have in terms of organic ads. We are also focusing on partnerships with large brands or advertisers, and this will grow throughout the year, and this will help us build other projects. Not only we have a large number of visits in our digital channels, but we have Lou, and she is a major influencer. She can certainly help us do the collab with other brands because... This is a source of major opportunities in terms of ads investments. Another important activity is that we were working to promote a larger integration in the Magalu ads platform with what happens in the physical stores. From now on, we will we will simplify the ads in the platform and also we should have a more advanced technological process that can help us escalate much quicker so the main points in our roadmap are to leverage the growth of ads in the company and now maybe gahidu can talk about fulfillment gustavo just to To add to Fred's comments, you talked about the need to invest more to grow fulfillment. And there is one thing that is very peculiar to Magalu, which is the multi-channel. And we mentioned that in several fronts, even financial service. And in terms of fulfillment, we started with a big network of distribution centers that are spread throughout the country. And we could go into 3P without necessarily having new distribution centers. This is... This means that the investment is much lower. And as we release our results, and even if you look at other companies that have a fulfillment program, the growth is by expansion zones. We have fulfillment in nine DCs out of the 21 DCs. of one P, I mean 10, because we have one in Rio Grande do Sul as well. There is still a large concentration in Sao Paulo, so we believe that this year's growth will come from the fact that we will grow the inventory to other DCs. And another interesting aspect is store pickup. all of our delivery channels that we manage 29%, almost 30% of deliveries that occurred in March, where done through customer store pickup. It's certainly a much cheaper channel because the customer goes to the store. And with that, we were able to increase our offering of free delivery or free freight. This is just, you know, to show that this potentializes the growth of fulfillment. That's very clear. Thank you very much. Thank you for your questions. Our next question is from Thales from Safra Bank. You may proceed, Thales. Good morning, Vanessa, Fred, and Beto. I would like to hear more about demand. I think Fred said that there is no problem with demand, but I just want to understand it by category. I mean, your white line, how do you see demand? And how is demand in terms of that exchange cycle? I mean, we haven't seen a consumption boom for a while. And how is that related to Louisa Cred? Louisa Cred posted good results, but I think SELIC shouldn't go up any further. But what is your position in terms of granting loans? And what about the new cohorts that you had more recently? Okay, you want to answer it first, right? Go ahead. Well, good morning, Thales. Here is Fabricio. In terms of the performance of the categories, out of the main Magaluz categories, we had very good performance in furniture. Telephones has been flat in the last two years. I mean, sometimes we are gaining share. And the white line, is going through this, you know, exchange process. We had good performance in this category, and this should also go on throughout this year. And this is what we see in terms of the categories. Now, speaking about credit, I'll turn the floor to Jorg. Thank you, Fabricio. And okay, Beto can add. to whatever I'll say. Well, we will remain vigilant looking at the macro scenario and Magalu's track record has been of being very conservative when it comes to loan granting. And in this last quarter, I think it would be fair to say that we haven't seen any changes in the risk appetite. But looking forward, we will continue to be vigilant. But as Fred said during his comments, this is a cycle that seems to be coming to an end. And we continue to see the main KPIs performing in a very sound way. The NPL of Louisa credit remains stable, even though there is a historic negative I mean, there was a significant improvement of 130 basis points year on year. And this is what makes us feel confident to move ahead despite this macroeconomic environment, which is a bit more challenging. Okay. Thank you. That's very clear. Thank you, Talis. Our next question is Ima from Goldman Sachs. Ima, you may proceed. Good morning, and thank you. I would like to revisit the fulfillment question. And my question is about logistics unit costs. Would it be fair to think that in the short term, that cost is slightly higher, given the fact that you increase your logistic coverage. And what about the inflection point? Because usually that inflection point also needs scale and needs increase in sales. I would just like to confirm whether you're giving some subsidies to bring sellers to fulfillment or maybe not so much so. And still on fulfillment, I would like to get a better understanding of I mean, when you expanded your geographic coverage, I mean, you just added some support points in the north and northeast, or you just increased the number of routes. That's it. Thank you. Good morning, Irma. Thank you for your, I think there's another microphone open. It says. Unfulfillment. As I said, not only fulfillment, right? But to prepare for that conversion year, one of the major conversion items is the improvement on delivery times, not only in the Sao Paulo region, but throughout the country. Therefore, we expanded some storage areas. We expanded four areas from last year to this year. We have an exclusive DC, which is something that we did for Pernambuco because there is a relevant tax issue. So we added one exclusive DC and four other areas in the first quarter, and we believe and we are certain that these expansions will be fulfilled with different sellers' products. And you will look at the product pages. These are pages that have fulfillment, and in these pages, conversion will increase. So this small investment, which was a very marginal investment in the first quarter, will be converted in sales going forward, and then we will be able to see a very positive dynamics. In addition to fulfillment, we are also working on different DC's schedules, and especially Fridays and weekends, the delivery timing was a bit But we decided to add more people and more schedules. We used to lose a little bit of share on the weekends when compared to weekdays. But we are fixing that this year and we're making, you know, other changes. We do not have seller subsidies for fulfillment operation today for some reasons. operations, we are not charging for the service, but I would like to remind you that the cost is very marginal. We added some errors, but in other DCs, they were running idle. So the area increment, it was very small, very minimum. That's why we decided not to charge it today. But eventually we may charge it in the future, but our operation is much more economical and We have only one exclusive fulfillment DC and all of the others are shared because you can share the DC, you can share the security system, fixed costs to control inventory in the DCs. Therefore, our model has many synergies. We will have another one with a specific operation, even though the same DC in Pernambuco is multichannel. We have the benefits of store pickup. Therefore, I still see an operation that tends to grow, and it will pay a very good contribution to our margin, especially in this year, which is a conversion year. Thank you. That's very clear. Thank you, Irma. Our next question is from Victor from Santander. You may proceed, Victor. Good morning, Fred, Beto, and the team. My first question is about growth. And your focus, I understand, is more towards improving margins. But I would just like to understand whether you feel like you are approaching a stronger growth phase. And my second question is about the competitive environment. I mean, the Topshop is now officially in Brazil. So how do you see the platform and whether you are already thinking about operating in a partnership, be it in payments or logistics? Good morning. Thank you for your question. We usually don't talk much about competitors, but the competitive environment, I think it's stable. The same players that that compete in our industry are still here. But in terms of their specificities and categories, it's important that we understand how TikTok's operation works outside Brazil. I mean, TikTok is present in China and some countries in Asia. So I don't see any short-term impact to our business. It's another player, another option for sellers. They tend to have operations with lower tickets. So I see it more like a future opportunity to engage in partnerships rather than a threat. I don't know whether you guys want to say anything else. I mean, Victor, we've been talking to them, TikTok shops. There is a part where Magalu wants to use the integration of this partnership so that We could use the network of creators in our catalog so that we could have our items within the platform. And we want to imprint a more native experience than the TikTok shop offers. So they could generate the ad and they could also... put a direct payment link, and this could happen inside the platform. We've been talking to them. This is a model that was previously used in the US with Amazon and Walmart, and we could also control the user experience in the checkout. We are looking at both things. We want to facilitate content creation through our products and also help with marketing while at the same token we will facilitate user experience because a conversion will occur within the platform victor thank you for your question our next question comes from rob ford from bank of america Thank you, and good morning, everyone, and welcome, Jörg. What is your long-term positioning on e-commerce? Do you still think about everything in a story, or do you see other opportunities that could come ahead? And when you consider your strategic partners, are you going to give more room to Alibaba or other partners? And if yes, where do you see further opportunities going forward? Hi, Bob. Good morning. Thank you for your question. Now, speaking about the competition and long-term position, obviously, I think also because of all of our efforts in building our ecosystem, we want to be a player not exclusively on e-commerce, but a multi-channel with several categories. We have Nat Shoes, gaming products with Kaboom. Our position is very significant with Epoca in the beauty sector and a good position in the book segment with our virtual bookshelf. We have competitive advantage with electronics, with a presence in our brick-and-mortar stores. Therefore, we do have an omni-channel strategy as well, and I think you're very familiar with the group. An omni-channel has always been our strategic differential, and we want to take that to the entire ecosystem. The idea is to strengthen these operations further, and Magalu has the second, you know, food delivery in Brazil, second to iFood. And this is accelerating local e-commerce, local paper. We are not only delivering food, but we are also focusing on delivering products from local merchants, local retailers through e-commerce. our platform that will be integrated to Magalu's app. We have many initiatives of hyperlocation via e-fonding. And this is a huge opportunity not yet exploited by any other large platform in the market. Therefore, we see great opportunities going forward to, you know, to grow in many categories. And we are very excited with all of the possibilities. The idea, you know, it's good to remember that whenever we look at Magalu, even because, you know, the controlling company is Magalu itself, we have to remember that our... We have many assets and... Netshoes is the largest operation in Latin America, and they have lots of physical stores in Brazil. Kabum also has a very significant presence in its subsegment, and Epoca the same. When we have, I mean, we will have a very competitive advantage in this multi-channel business. operation. And this is something that we can replicate for other categories in the future. We will certainly look at all of the possibilities and opportunities very closely and with good rationale, but with consistence and persistence in a long run. It's not a sprint, but it's a marathon. When we look at our Looking at our P&L five years ago, 100% of my online sales would come from Netshoes, but today it's just half of it. This is a very significant evolution for a company that at that time only had, I mean, after 60 years of existence, only focused on that platform. But again, I like multi-channel e-commerce. I favor that. And I think that the... Frontiers between physical and digital will shrink in the future. If you look at the Brazilian market, still 90 or 85% of this market is still concentrated in brick and mortar stores. So we see huge opportunities with online businesses. And even online being what it is today, it's still 15% of the business. Therefore, we have to focus on this relationship between channels. And I'm very excited about the first experiences we had with multi-channel and the new categories. And I think these new categories will leverage even more our operations that are already relevant in the online space. Physical stores help Magalu to be leaders in, you know, tangible goods. And online will help us even further to be leaders in different categories. And sorry, I failed to talk about our online integration with Alibaba. We are working with lower tickets, below 100 BRLs. And none of our operations today, Epoca, Kaboom, and Netshoes, may be hyper-local with Ifami that are below 100 reais. I mean, they are important, strategically important in any partnership that can add to our offering in these categories and that can help us increase penetration they will certainly be welcome as the one with AliExpress. Thank you, Bob. Our next question is from Nicholas from JP Morgan. You may proceed, Nicholas. Thank you, Vanessa. Good morning, Fred, Beto, and the team, and thank you for taking my question. I would like to refer to CDC and What, in your view, is the appetite and adoption? And maybe you would have some target that you could share with us in terms of the goals that you have in mind. And also, I would like to understand what was the contribution of CDC in your gross margin this quarter? Thank you, Nicholas, for your question. This is Jorg. I would like to start with the strategy and then I will turn the floor to Beto because he can give you more details about that direct credit to consumer. Speaking about the strategy of the product, I mean, throughout the last few years, DCC has gained momentum in our financial strategy, the financial strategy of the Magalu Group. This is also due to the success of the partnership with Louisa Credd, because this used to occupy the space of direct credit to consumer in the past. So we are looking at distribution of DCC as an additional product. And as I was saying before, this helps with principality. The distribution of the offering as a product is important, and it's an additional option. Certainly, I mean, depending on the ticket, this can also help the conversion of the product. Here we have a product that will benefit from the new financial license, and it will bring more efficiency to the product, allowing for further scalability. Today, the product is backed by securitization, so you have potential gains in scalability without even considering the leverage, as we mentioned during my my first question, we will benefit from the digital side. We believe that this product has an important fit with digital. If you think in terms of sales, it should be less than 2% of our digital sales. Therefore, we still have a lot of room to grow. And with that, you can also improve margins and contribution in general. Then now I'll turn to Batu. Good morning, Nicholas. I would just like to add to York's comments. In fact, DCC's contribution in physical stores was slightly lower this quarter when compared to the first quarter of last year. And even if you look at a total share of all of our means of payments in total sales, they were relatively stable because the share of Louisa card increased a bit and occupied that space, especially repurchases, you know, customers buying more and generating more. more sales with credit cards. I mean, specifically speaking about direct credit to consumers, we reduce our credit approvals a bit. As Jörg was saying, it was marginal. It was nothing very relevant. I mean, we reduce approvals. I mean, we started doing that in the second half of last year. I think you realize that the growth of the DCC portfolio in our balance sheet was a bit lower. DCC is a very profitable product. It was profitable before, and now with this more conservative approval rate, it's even more profitable. This profitability is in retail, and as Jorg said, we will soon start to originate DCC in our financial operation, it will be even more profitable because the tax burden will be lower. The tax burden from retail, you know, we pay peas and coffees on interest. But even then, it's still a very profitable product. The new cohorts are even more profitable because NPL of DCC in this year's vintage is much lower when compared to last year. And this is an ongoing trend. So I think this is it. I don't know if you also asked, but effects on the gross margin. The effect is very minimal because then we work with the present value of all sales. So the interest is appropriated throughout the period. The biggest effect that I'm referring to is more in relation to the sale itself. And the trend is to resume growth, particularly inside our new financial institution. Thank you. Thank you all. Thank you for your question, Nicolas. Our next question comes from Filipe from City. You may proceed, Filipe. Good morning. I think we had many questions, but I would just like to get an update. on your macro landscape i think i mean i i i know you're more optimistic than than most you improve most categories in this first quarter they are more positive i would just like to know whether there has been any change in your view for the remaining of the year thank you philippine thank you for your question I mean, the results you mentioned, they just add to what we've said. I said in previous calls that demand is not an issue. The purchasing power of those who receive social benefits or are employed is their salaries are corrected according to inflation. It's not only the ban, but if you look at banks, their results are okay because delinquency is under control. It's not only Louisa Cred that posted good results. It's just a basic issue. The problem is... that interest rates remain high. You know, the tax burden is high. So you just have to revert sales into results, results with, you know, that brings positive things. That's why the focus of the company remains the same to exploit all possibilities to increase GMV. And we are now focusing on conversion. So either we will sell more with just marginal marketing investments, or we will sell more with higher marketing investments. But in both cases, we will continue to leverage our results. So this is the current scenario. We still have the same view. I don't see anything that could change things substantially. I think it would be correct to say that that Brazil has a problem with income and consumption, but this is not a reality. Many of my colleagues who work in this industry today, I'm vice president of IDV, and therefore I say that I don't see a problem with income that sometimes we read in the press. Thank you. We now conclude the Q&A session. I would like to turn the floor back to. to Fred for his final remarks. You may proceed. Once again, I would like to thank you very much for joining us today. I would like to thank my colleagues and the entire Magalu team for delivering another quarter of excellent results. Magalu's conference call is now concluded. The IR team is available to answer further questions. Thank you very much for joining us, and we wish you a very good day.