Magazine Luiza U/Adr

Good morning, everyone, and thank you for waiting.

Welcome to Magalu's conference call regarding the quarterly earnings. For those who need simultaneous translation, click the interpretation button. via the globe icon at the bottom of the screen and choose your preferred language, English or Portuguese. We want to inform you that this event is being recorded and will be made available on the company's IR website at ri.magazineluisa.com.br. The earnings release and presentation are already available in Portuguese and English. The link to the presentation in English is also available on the chat. During the presentation, our participants' microphones will be disabled. Then, we will start the Q&A session. If you have questions, please click on the Q&A icon at the bottom of your screen and enter your name, company and question of language. Upon being announced, a request to activate your microphone will appear on the screen. You must then enable your microphone to follow up with the question. Questions received in writing will be answered later by the Investors Relations team. Now I would like to give the floor to Fred Trajano, Magalu's CEO. Fred, please, you may go ahead. Good morning, everyone. Thank you for attending our conference call on Magalu's earnings of the second quarter of 2025. I'd like to begin by by emphasizing that this was yet another period with consistent execution, with important efficiency gains, growth in strategic front and resilience of our main categories. Without question, the main highlight of our quarter, once again, was our profitability and our financial discipline, we reached the beta of 727 million BRLs in the second quarter of 2025, noting that this is in a context where interest rates, the SELIC rate, reached 15, so a huge increase compared to the interest rates of last quarter. So that implies a series of challenges in terms of P&L for the company, top line, bottom line. So in this context, we maintained our discipline as we had in previous quarters to improve margins and increase our operational profit. So in that sense, the main highlight to reach margins was the control of expenses with SG&A well under control, as well as our capacity to manage them. There are things that are out of our control. The interest rates are not on our hands, but our expenses, our costs are, and we've been working efficiently, even considering an inflation of five, and the costs of any Brazilian company is indexed by inflation, and we've been able to control our expenses and reach this 8% margin. I would also like to point another emphasis that's been important to our results, which is the discipline in cash management. We had a good quarter in terms of cash generation, 497 operating cash. Roberto Bellissimo will detail this further in his presentation. A big highlight, I think two top highlights, is the reduction of $150 million in inventories in this quarter and monetization of taxes. That is another line that we monitor in our cash committees and working capital. It's one of the most important committees in the company, and we have full control Fabricio can also talk a little bit about the inventory formation, and since we're getting into the third quarter now, I'd just like to let you know that we formed the inventory of the second quarter at a higher U.S. dollar. That was at the beginning of the year, so it got close to 6%. at the beginning of the year. So the inventory formation was at a higher dollar value, and we believed it was good to reduce this inventories now. So we had a clearance sale in the middle of the year to reduce inventories, and Fabrizio can detail this. We formed the inventories of the third quarter at a lower US dollar. So when we negotiated, it was lower, and we're confident we have good negotiations to be more competitive, especially in 1P and websites and stores. for the third quarter. So I think this inventory reduction was important in the long run for the negotiation conditions. And that makes us, we will get to the third quarter definitely with better competitive conditions than we had in the second quarter for those channels that we have. Not only Magalu, we did the same for Kabum and other companies in the group.

Next slide, please.

Now, on sales, I'd like to point to the resilience of our main categories. We've been able to increase 1% net revenue in the context of high interest rates that end up impacting not the market. I want to make it very clear. The market remains heated. It's still in full employment. the employment rate shows that we're at historically, this unemployment is at historically low levels, the population is employed, social benefit levels are increasing, and there's a lot still to come, potentially a reduction of income tax for families with up to 5000 reais income, so it's a but when interest rates are high, the capacity of us to have sales with 24 installments with no interest, the capacity for us to be aggressive and have a positive contribution margin is lower. So it's not that the market is, the consumption market is affected as much as the actual capacity of a retailer with high ticket categories have to have more aggressive sales with prices at the best terms. So I think that's how the market is. In the third quarter, selic rate will remain high, but we have costs that we have been able to get good negotiations for the quarter, and I believe we will have an even better third quarter in terms of sales, continuing with this rationale of efficiency with the second quarter. So the second quarter here, we saw growth in physical stores at 3.5%. It would have been 5% if we excluded Rio Grande do Sul. That was a much smaller value in the south because of the flood. So if we exclude that, that is concluded now in June, same-store sales would have been even better. It also decreased. There was a slightly higher dynamics compared to the first quarter. And 3P... posted a decrease, and that was a tactical decision of not entering, especially into competition in the market dynamics of free shipping and so on. We have very strong discipline of not selling products with negative contribution margins. So that was a tactical decision for the quarter, not long-term strategic decision. But noting that even low-ticket categories, we had great performance in market categories and consumer goods, But effectively, we did not enter into a... We did not enter that discussion. We didn't join the discussion of categories with negative contribution margins. We believe here that this condition, I think this will pass. It's not perennial, and we are fully capable of resuming over the quarters. But what I want to make clear in Marquette's view is that Magalu... is a company that has an economic model with three growth engines. It's different from other markets that only have one engine, like only 3P, only physical stores, or retailers that only have physical stores, or only the 1P engine. We have 3P, we have the growth engine of 1P, and we have the engine for growth in physical stores. That, I believe, we have been able to be resilient even in situations that are at first in the markets, now with the engine of the 1P, finding rough terrain because of a specific economic condition, 1P and same stores, physical stores will make up for it, or when we have a drop in 15% in same store sales, 3P helped the stores at that time. When 1P faced difficulties in 2022, 23, when we were rebuilding inventory, there were some aspects there that we needed to evolve. 3P also helped. So having this balance between 1P, 3P, and stores is a competitive edge that is important for Magalu, and that's how we built our operation. When we put together our 1P, we did not put it together to the detriment of physical stores. It was integrated. And 3P, when we put it up, it's not to the detriment of 1P and physical stores. We want this ecological balance between the three growth engines, the three important channels for the company, and that's how we'll move on. And we have a highlight as well for the categories, especially where we're leaders in the markets. In the Magalu channel, categories with tickets above 1,000, we had 5% growth, 1p and 3p. So combining the categories, these protect our shares and gain share in these categories. That's an important highlight. And what happened on the online was very specific for very low tickets, a lot due to the short-term issue. Another important point, in addition to the important categories for Magalu, it's important to note how well the companies we acquired are doing, which are part of our diversification cycle. And I'll talk a lot about our ecosystem. Ecosystem is not an end. We didn't adopt an ecosystem strategy as a buzzword of ecosystem. The idea is to invest in companies for the acquisitions that we made in this period to diversify our results lines as well. An asset fund manager has to diversify results, not put all the eggs in the same basket. Magalu also wanted to diversify results to complement the core category like electronics with other categories. And this is shedding light into three companies that we acquired that are doing very well, Kaboom, Netshoes, and Epoca. all of them operated with good results kaboom with 12 million net income in the quarter with the gmv growth net shoes as well 24 million was very good for the quarter in terms of results growth as well that was very significant same thing with epoca with income and growth so it's not only a very important position that we have in good durable goods and categories but we also have an important position in and computer accessories gaming and a very important position as well for healthcare products sports items met shoes is at a very good phase now and beauty and cosmetics so magalu has been able to gain a competitive presence in these categories as well with profitability so all of them following these lines and then later i'll talk a little bit about this because for these operations we also want to have the three engines a lot of these operations are only 1p we added 3p for example net shoes 50 of it is 3p now kaboom has also increased 3p and apple is entering with 3p now and for all of them we are adding an engine of physical stores and i'll talk about this towards the end of the call with the launch of our main, our big new format, that's Galeria Magalu. Still on ecosystem, I think one of the situations, if we were to face an interest rate at 15 and high interest rates we would feel this very strongly in our results more than we do now so again the ecosystem is not an ant but it's a means for us to be able to achieve less of a cyclic result which has always been traditional for our categories the standard for traditional categories was that and that's exactly what we're working on i'd like to point some fronts of the evolution of a strategy that i would say is the This was the last big year for the cycle of ecosystem. I'd like to start with logistics. Magalog, that was a department in the company, then we bought three, four logistics companies, and it turned it into an independent company, independent from Magalu. Magalog provides services to 1P and to Magalu stores. also starting to provide services for sellers, but providing more and more services for companies outside Magalu's ecosystem. Now we go to 90 external clients at Magalog, generating significant revenue, so it's no longer a center of expenses, but it becomes a center for revenue for the company. We're gaining a lot of share in segments like fashion. Zara in Brazil operates through Magalog. Renner operates through Magalog. pets, pet love, use Magalog, sports, electronics, so we have an important extension of our network, and that helped us dilute costs and have competitiveness for Magalu as well. So it's going very well. Magalog has been able to achieve this with a level of excellence that it has also provided. Magalu's NPS is 80, 85 for 1p in stores, 75 for 3p, so 80 on average, and Magalog is transporting this service level to its own clients. So we received now recently an award, a seal, RA1000, and a lot of excellence awards with these external clients, awarding Magalog as the best logistics operator in the quarter. So we transformed it into a company. Last year, we already have 90 clients, and we keep on growing. Also, other highlights, going back to 3P a little bit, is the penetration of fulfillment. i'll let fatala and garrido talk about this later but from 21 percent of orders in the first quarter went to 27 in the second so we have a lot better distribution level there's 10 distribution centers at the company that are working for sellers as well so that's an important evolution for us we increase with growth 3p where we have more control and more competitive conditions as well more resilience for the future so we're Replacing partnershipment to sellers who use Magalog. So, dropping with partnershipments, offsetting with that by growing with Magalog. Another highlight that has been a highlight for some time in this quarter, even more so, worth a note, and Beto will talk about it, and Jorg's here as well, Magaloupe. We have all of the companies here in our... credit financing and financial services performed very well. We have records at LuisaCred of 100 million in the second quarter, ROE of 19%. And once again, compared to last year, delinquency indicators going down with high coverage. We will have here, and Jörg will be able to detail this, there's something new that we were able to get authorization from our financial institution with the central bank. who will operate with the buy-now-pay-later lines and direct credit, the consumer credit, will start operating now in the third quarter of this year. And through that, we'll obviously get great opportunities to continue to increase penetration of products. Our penetration is on physical stores slightly over 40%. There are physical retailers in Brazil who operate with a penetration of financial products of 70%, regionals sometimes getting to 70%. So there's a lot of room for growth. And it's one of the situations today, even on physical stores, the opportunity to increase penetration of services. And on online, a huge opportunity to increase. We only have 10%, and there's a series of initiatives to increase penetration of services on the online sales. And he will be able to detail these initiatives. On the third quarter, I believe we will evolve in these aspects. And Magalupe as well, I'd like to... highlight within the Magalupe umbrella the excellent moment for the consortium. Consortium Magalupe has another quarter of significant growth. Consortium at a moment of high interest rates go very well. It's a good alternative both for investments and for savings and for purchases, and it has been growing steadily with a lot of profitability as well. Another pillar of the ecosystem that has been supporting us.

Next slide, please. and the improvement of metrics for the advertiser as well. So, we are seeing a very important evolution of our work here at Aedes and a market recognition in relation to this as well. I think our Aedes differential, as I always say, will also be the application not only in the online world, but also in the physical store panels. The new store, which I will talk about later, will already be born with many spaces so that brands can advertise within their real estate. So, it is like the other channels in the group, a great opportunity to monetize, but it also has this differential of multi-channel. And Magalu Cloud too, I think it's important for us to highlight its evolution, 40% of the workloads in Magalu have already been migrated to Cloud Podcast. We have more than 1,000 clients using Magalu Cloud, we have five zones enabled in two regions, and we are having a growth of 20% in the monthly revenue with external clients. I think it's an important point for us, I think it has a huge opportunity, Fatala can detail it later too, With all these geopolitical issues, all these issues that we have seen in the news, we have been talking about tariffs, but there is a very important aspect of sovereignty, which is data sovereignty. Those who do not control data do not control their future. Countries that do not control their data do not control their future. There is a great concern from the state governments and the federal government regarding the National Data Authority. I think that Magalu Cloud will be very well positioned for future BIDs from the public sector, because this becomes an imperative. Other countries have already moved in this line, France, China. I am sure that Brazil will walk towards the same path. and there is no cloud in Brazil as prepared for this as Mangalow Cloud. We are excited about this possibility, and we already have the capacity to sell and have more growth, not only with private clients, but also with public clients. Remembering that your national library It's not just public, there's also the National Bank of Brazil, because the same risks that the State takes, private companies also take. So, having a local partner subject to the specific Brazilian regulation is also a competitive differential. Can you pass? And now I pass the word to Beto Belíssimo, so he can talk in more detail about the financial results. I'll talk a little bit about our initiative that we're going to launch now in the third TRI, and then we're open to the Q&A.

Thank you, Fred. Good morning to everyone and thank you for participating in our conference call of results. I will quickly go through the main financial highlights, Here are some big numbers. First, total sales of 15 billion in the quarter. The same growth in stores, 3.5%, adjusted by Rio Grande do Sul's effect, 5.2%. And remembering that this growth happened on top of a very strong growth in the second quarter of last year. of more than 15%. Our gross margin, again, was above the 30% level, very consistently, at 30.5%. Our EBITDA, as Fred said, reached R$727 million, with an 8% margin. We had a very high conversation about EBITDA in cash generation, reaching almost 600 billion operational reais per quarter, and 2.6 billion in the last 12 months, one of the highest levels in our history. and a very strong total cash position of R$8 billion. Here, just one more comment. With this result, we had a adjusted liquid profit of R$2 billion. Again, we did not have expenses in the relevant cash concept, non-recurrent expenses. e fizemos uma provisão adicional, sem efeito caixa, de R$ 26 milhões para devedores duvidosos, também não recorrente, uma mudança de metodologia. Next, we show the sequential evolution of our EBITDA, just to reinforce the consistency. Since the second quarter of last year, we have kept the EBITDA margin very close to 8% and with the main levers here on the side, highlighting the performance of the physical stores, the performance of Luiza Credit, the expansion of Fulfillment, and also operational efficiency, expenses control, which Fred also mentioned. In the following slides, we show the variation of the EBITDA margin, which increased from 7.9% to 8% this quarter. We had a slight reduction in the gross margin, which we explained in the release, is very much associated with the reduction of stocks, which we did in Magalu, mainly this quarter, looking only at the Magalu sales channel, we reduced R$350 million of stocks this quarter, and we did a stronger half-year liquidation this quarter, also to help in this reduction of stocks, and this pressed the gross margin of goods a little. If it weren't for this liquidation and this reduction of stocks, we would have kept the gross margin at a level very similar to that of last year. And to compensate for this reduction in gross margin, we managed to keep the operating expenses, again, at a very controlled level. In general, our liquid revenue grew by practically 1.5% and our operating expenses grew by practically 0.5%. So we had here a dilution, an operational leverage. which contributed with a 0.2 percentage point. We had the performance of Luiza Credit, which added another 0.2 percentage point, and a recurring performance of provision for debtors, which was better than last year and contributed with another 0.1 percentage point. So, in general, we increased the margin to 8%. In the next slide, we highlight that the performance of Giro Capital, first, And here we show that in this quarter, sequentially, we improved the turnover in R$200 million from March to June. We reduced the stocks, as we said. In consolidated, we reduced it to R$150 million. We reduced the taxes to recover again. And here's an observation. When we look at the turnover here compared to last year, It seems a little bit worse, but in fact it is because as we are able to accelerate the monetization of stocks, the taxes to be recovered in the short term are higher, but in the long term, more than 700 million less. So, in general, we are reducing here the total tax to be recovered in almost 600 million reais. This has contributed a lot to our cash generation. On the right side, we show the performance of the financial expenses, and here it is worth noting that we kept the financial expense at a level very similar to that of the first quarter, even with Selic rising throughout the semester. When we look at the last year, the financial expense grew between 20% and 25%, compared to another SELIC that grew from 10.5% to 15%, close to 45%. So, we managed to mitigate the effect of SELIC a lot. We reduced the volume of discounted receivables, due to the cash generation and the captations we did as well. For those who look at the balance of discounted receivables, it decreased by over 1 billion in this quarter. e aumentamos em mais de 1 bilhão de saldos recebíveis disponíveis. E vale comentar também que aquela operação de fornecedores convênio, que no nosso modo de ver não é uma dívida, ela é parte do nosso contas a pagar, parte do nosso saldo total de fornecedores, It also decreased in this quarter by more than R$600 million, due to the controversy regarding IOF and the risk taken out. There was a reduction in demand, but without any impact on our average purchase rates and on our performance here in GIL capital. Next, we discuss the cash flow of the quarter, so the cash flow of the operations of R$ 600 million, which was more than enough to cover the investments and rents, generating a cash flow of R$ 200 million. We had capitals of R$ 2 billion, we paid debts of R$ 400 million, we paid interest of R$ 200 million and we also paid dividends of R$ 200 million. In total, we increased the cash flow from R$ 1.3 billion to R$ 8 billion. Quando a gente olha na sequência essa mesma visão em 12 meses, tem a mesma tendência, The cash flow of the operations, again, much higher, at 2.6 billion, cash flow free of 1 billion, and we had interest in the period around 500 million, so we generated cash, even considering the interest payments in the year. We had the capitals and the payments of debt and rebate of debentures that we mentioned. and the capital contribution in the LISACRED and the payment of dividends. In general, again, here we increased the cash in 1.5 billion in the last 12 months. In the next slides, we comment on how we did in the last quarter. We concluded the operation that we had announced with the UFC and also with the BID, with a total of 180 million dollars, practically 1 billion reais for the 5-year term. strengthening our capital structure and also guaranteeing the resources for investments in technology this year and next year. Next, we show our position in cash and debt. We ended up with 8 billion in total cash, Minus 6.2 billion of total gross debt. We have a liquid cash position of 1.8 billion. Very stable in relation to last year and the previous quarter, due to the operational cash generation that we had. Maybe the only difference is in the payment of the dividends, which has a temporary effect here. We show here the profile of our debt, quite elongated, now all winning in the next... This debt here, in 2025, we already paid 400 million in July, which was a debenture issued by Kabum, and we already have all the resources to make the payments of short-term debt, and what remains are very elongated debts, winning in the next five years. It is a very solid and comfortable capital sector as well. And finally, talking about LuisaCred, again, a portfolio of practically R$ 20 billion, with an inflation rate that continues to improve, short- and long-term indicators significantly better than last year, an even higher coverage index, and a very strong quarterly result, more than 100 million in liquid profit in LuisaCred's second quarter, reaching a ROE of 19.5%, one of the highest for the same period in LuisaCred's history. These were the main financial messages. Again, thank you. I'll return to Fred to continue. Thank you.

Well, thank you, Beto, very beautiful. The last point I wanted to make before going to Q&A, I wanted to reinforce a little the operational model of Magalu. It is a model that does not depend on a single engine. We have three engines that have to work in a very balanced way, generating synergy from one to the other. the motor of the 3P and the motor of the physical store. The 1P guarantees for us to scale, and also a proximity, a very strong relationship with the main manufacturers in Brazil, whether it is electronic, whether it is sports products, whether it is products related to the beauty and health line. 3P guarantees us delivery and relevance. Complement, delivery, relevance to the customer. The more products you have, the more your conversion. 3P has a fundamental role for us in guaranteeing delivery and relevance to the final consumer. And finally, the store guarantees margins, because the store is one of the main vehicles here, gross margin of goods is greater in the store, and also from the point of view of financial products, it is a large channel of sales of financial products that generated this profitability of the credit line that we are seeing, sales of services. a very big vocation to contribute to us in the margin, not only the margin of retail, but also the financial one. In addition to the fact that the store is where the customer has proximity and experience with the brand. So, our store is a great strategic differential in relation to any other operator. There are operators that have a P and 3P, but few have a P, 3P and store. And we have this vision and this vision we want to expand to the entire ecosystem. As I said, when we bought Kabum, Época, Estante Virtual, All these businesses were mostly 1P. We added Layer 3P, and this Layer 3P has been more and more important for these businesses. Not only to allow, for example, that Mangalú sells there, but with other sellers as well. but also to increase delivery and relevance for them. And now we are adding the final layer of the ecosystem, which is the physical store. So we are going to inaugurate, we already have some very successful experiences in opening physical stores in Cabum and Netshoes, one specific here in our Tietê store, which increased the turnover a lot, it not only brought incremental turnover to Netshoes and Cabum, but also increased the turnover of the store in Magazu, which was there, Fabrício can detail some of these numbers. but now we are going to assemble the first physical space with all the brands of the group in the same space, which will be the Magalu Gallery, one of the most iconic points of São Paulo, which was the point of the Livraria Cultura, a reinvention of department store, in which we will have L'Oréal and Chanel finding Apple, we will have Adidas finding NVIDIA, because we sell NDIVA's video boards here in Cabum too. A meeting here of brands, more than 150 brands will be participating in this project together with us. They are actively working on experience issues. It is a store that will be multi-channel, it will be super interesting. We are very excited about this inauguration. We are talking about it now because we will probably inaugurate it before the next call. giving this layer and completing this business model for us is important. I think we are very convinced that we will be successful in this enterprise, that we will be expanding this, both in formats similar to the Magalu Gallery and others, and giving an even more competitive differential to these companies that we acquired, which are, as I said, in a good time, but who will have this moment there, impressed by Loja Física. Remembering that the brands that work with these companies have been asking us for Loja Física for a long time, because for Marco, Loja Física's storytelling, he can't do it in the world exclusively online. So, once again here, guaranteeing the ecological balance of our channels, we have a unique model and I need to emphasize the importance and the strategic differential of this model of three engines, 1P, 3P and Loja Física. So now I open for the questions.

Thank you very much. Our first question, Luiz Canais from BTG.

Please, Luiz, you may go ahead. Good morning, Fred, Beto, Vanessa as well. I have two questions on my side. Fred, first, I know you talked a little bit about this ecosystem of physical stores and different brands within the same ecosystem and how important this is. to generate value and improve margins. But if you can give us more detail about the drivers that you see for the expansion of margin, I'm looking forward. And the second question would be if you can talk about the evolution of the conversion rate of the sellers and how credit may be important in this indicator.

Thank you. Hello, Luis.

Good morning. Thank you for your question. Well, I think the drivers for monetization and so on and increasing margin in our strategy are very based on things we've been presenting here and part of the channels I described. So I see that the penetration of ads is still very low, even though it has increased significantly in the second quarter. There's still huge room to penetrate ads and what improves the online margin. And it will also improve for physical stores because our ads will be relevant for physical stores as well. I'd also like to point that Magalu, more than the marketplace, Magalu is a brand place. We are the best channel for brands because we don't have and excess of white label products imported from Paraguay. So for brands, there is a place with the best brand safety it is to announce in magalu's ecosystem so this is also very good and also because we are a lot more strict in the type of product that we allow on 3p so i think ads is an important channel and we're having a lot of good development and traction with the brand and announcements and ads with the tools as they evolve and best indicators we have and also as i said the penetration of financial products and physical stores we have 40 percent of penetration of the cards and direct consumer credit but on in digital there's still room to increase penetration without increasing risk york can talk about this later on and on the online there's a huge opportunity the penetration is below 10 so we can and should must improve our penetration of financial products on the online. And we have a series of initiatives and definitely but not exclusively the new financial company and the investments that Jorg has mentioned making in terms of team, improving products, as well as in the purchasing journey. that they may vary. In terms of conversion, this is the year where we're working not only for 3P, but overall for the company to improve conversion rates, so we've been evaluating all different aspects, 360 degrees, including the delivery times, pricing up front and in installments. We're assessing to improve bidding algorithms for market marketing to bring visits with more conversion rates. So there's a series of structural investments for improvement that we're making so that we can see an increase in conversion looking forward. And we had a quarter with expenses. SG&A, there's the S, the selling expenses, and part of the evolution of this quarter was also in the sense of discipline for media investment and what we brought to convert more, but there's still a lot to evolve and to seek in terms of growth. What we're cautious here is that we're not getting into a war that generates conversion at a negative contribution market. margin so like low cost freight or freight or free freight pre-shipping that we don't see that brings negative contribution margins we do not see a reason for our magalu business to get into a war even in the long term at the time where we have interest rates of 15 a year discipline must be good and our features give us the option of seeking conversion as long as it has a positive contribution margin. So there may be a great increase of conversion in other senses. And later, I think, I don't know, maybe Atala, Garrido, do you want to talk a little bit about initiatives and conversion? I think it's important to talk about the market category and what we're having, if you can add.

Thank you, Fred, and thank you for your question.

But as Fred said, I think one of the main features that we had, benefits or edge that we had this quarter that's important to convert sellers is precisely the growth of fulfillment. We grow full as we can make the most of the virtual effects of multi-channel, omni-channel, so we make the most of DCs and collections and deliveries from 1P and physical stores. And with that, we're able to offer a coverage even for free shipping for on-store pickup. We have 97% of deliveries made by Magalog in this store pickup operation that we believe is a differentiator. And with that, Ful can offer customers faster shipping and more coverage of free shipping in a way that fits into this culture of rationality on expenses that Fred mentioned. Faux has a conversion that is three times bigger than deliveries made by the sellers themselves. So as we can increase the share of faux on orders, we got to 27% now, three percentage points more versus the last quarter and six percentage points compared to last year, we are able to bring the sellers to a conversion level faster. The main evolution from now on, we just launched in August. We had a soft launch on products, then we're going to explore more in the Magalu Expo at the end of this month. We have already enabled a feature to attribute pre-shipping as the shopping cart gets to 200 BRLs in supermarket purchases in full, and that's for 1P and full, and that values categories with lower tickets. without hurting margins. So we believe this is a next frontier for growth in the share of full. But I would also say that in our pickup operations, we've been able to move more than 2,000 sellers that were shipping from post offices, move them to the Magalog network, even using external clients that are coming in, as Fred mentioned. And that improved for those 2,000 sellers. Their delivery... times in more than five days, a conversion of more than 20%, and for us, savings in operating costs. So all of these logistic operations and services for sellers are very important to be able to move conversion forward as we protect the business margins.

Excellent.

Thank you for the answers. Thank you, Luis, for your questions. Our next question, Antonio Cardoso. Jeffrey, please, Antonio, may go ahead. Good morning. I have two questions. One, you talked about Magalu Bank a little bit. If you can evolve this subject a little bit further, now in the second half of the year, where are we going to be able to see difference or a possible result and what are the opportunities either for growth or cost savings that we believe is mentioned maybe get york to talk to us and a second question marketplace How do you see marketplace positioning in the medium and long term? What should we expect from the marketplace? Growth in line with inflation to happen as the market grows. What's the medium to the long term positioning for marketplace? Thank you. Thank you, Antonio, for the question. This is Jorg. I'll start talking about the opportunities for the short and medium terms in Magalu Bank. We have a lot of opportunities related to operating and fiscal efficiency, migrating retail direct to consumer credit, And maybe Fred can talk a little bit more about this, about these impacts. I also see gradual evolution in LuisaCred. Both Beto and Fred talked about this. And I think the second half of the year, we'll be able to capture the benefits of the investments made at LuisaCred, both in terms of improving the product and controlling delinquency rates. And I am very optimistic with consortiums. As we mentioned, Consortium has been becoming a sales powerhouse in the platform, growing more than 30% a year. The second quarter, total sales totaled more than 1.5 billion BIS. in addition and this is something new we have been investing strongly in data and credit expertise so that we can expand our capacity to serve recurring clients in the ecosystem so these clients obviously have a less risky profile but they are not Enjoyed at full capacity in Magalupe today. Next week, we're going to bring a very senior executive as the head of credit with more than a decade of experience in companies such as Nubank and Capital One to help us raise the bar of these disciplines in our ecosystem and start to materialize this potential in the short term. Now, answering the rest of your question, I think I talked a little bit about this already. I think the role of 3P for the company, we don't have a guidance for each of the channels, but I think, without a doubt, we expect to grow above inflation and above the market, not only on 3P, but in 1P and stores as well. We want to grow on all three channels. We don't have one engine. We have three engines. 3P, just as 1P, it gives us strong scale, stores give us margin and closeness and helps us in logistics operations. 3P also guarantees assortment relevance because with the frequency we can include items that have more frequent consumption for us and profitability. Well-managed 3P can help greatly the company's EBITDA margin. The issue here is to have discipline, not to seek growth in 3P at all costs, to be very disciplined and make sure that it falls into the value proposition for the company as a whole, contributing to specific aspects where they have the vocation to contribute. As I said, assortment, relevance, margins, and growth, where the market presents opportunities. So we need to have a technical eye to the market to accelerate. I'm certain that for the long term we will have one of the big options for a lot of sellers and to see brands that will have a huge level of safety to increase their operations here. In addition, for example, a brand that has a D2C, Samsung, they have 3P, but they also have 1P and physical tours. So having this relationship, there's a lot of synergies in the process. And for sellers as well who make the most of the same omnichannel structure that we have, tour pickup that we mentioned, I think all of that, are important not only for 3P, but 1P and physical stores. We want to grow above the market and above inflation. And when this is possible and we have a positive contribution margin, there may be a time or a quarter where we choose margin more than growth, which was the case of this quarter now. And that depends on the dynamics. Now we're in a contact with the retailer that 1P and 3P has high tickets. At a moment of high interest rates, any decision, usually we leverage sales of high tickets in terms of payment terms and so on, but with the SELIC rate at 15%, that becomes too expensive, so that limits our firepower temporarily. But once the SELIC rate goes down, and you look at Magalu's pattern of growth, when SELIC goes down, we grow well above the market. We're at a very specific context of high SELIC rates, We have a little bit less capacity to grow specifically online, and I'm confident that Selic has reached the maximum. And once it starts dropping, once again, we will be one of the main retailers and Brazilian online retailers to capture this growth with profitability. Now we have to be disciplined and focused on our project without getting into a war for growth at any cost. Very clear, thank you.

Thank you for the questions, Antônio. Our next question comes from Rubem Couto, from Banco Santander. Rubem, please, go ahead.

Good morning, everyone, how are you? Thank you for taking my question. I wanted to do a follow-up on Magalog and Fulfillment. Fatara commented some points here about the evolution of the program, the penetration, Fulfillment in 3D has evolved well. I wanted to understand if this increase in the number of requests has been more by the conversion itself, by the sale of the sellers who are already using Full, or if it has already had a good contribution of new sellers entering into the use of services. In this case, they even put a highlight here for the growth of And looking forward, how is this process of onboarding of new sellers? Is it a process that depends a lot on price aggressiveness, the level of service, the access to the ecosystem? Does Magalu end up contributing? I would like to understand if in these last movements that we have seen of the market being more aggressive in freight, if this has affected in any way the growth and addition of new sellers to use your Foo. Thank you.

Hi, Rubem. It's Garrido here. That's what I said, the first answer. No, no problem. Answering your question, Foo has grown more in line with the average ticket, the categories that we have in general in 3T and 1T. So, we have um um We are enabling what we call Closeness, which is the $200 car to make it possible for categories that are characterized by more volume and lower tickets, such as supermarkets, but also other categories. So, this will be a launch and capture tonic throughout the second semester. Thank you very much.

Thank you for the question, Rubem. The next question comes from Larissa, from XP Investimentos. Larissa, please. Go ahead.

Hi, guys. How are you? Thank you for the opportunity to ask a question. Here, on our side, we wanted to explore a little bit the point of demand. You commented there about CUIDA, which was successful, but still, we saw the recipe a little in line, right? And then, in our conception here, this must have had a demand effect. And then, if you could comment a little bit about how this dynamic was during... Also, what are you feeling already at the beginning of the third TRI? Thank you.

Hi Larissa, good morning. Fabrício speaking. Well, we actually made Liquida in the second quarter, at the end of the tri. We saw that the performance in June was better than in the other months. We have to remember that we made Liquida with 1p items that we have in stock. So our growth in 1p in June was good, it was a and we started, as Fred said, we entered the third trimester with the stocks more adjusted and I think better negotiated. So, we started the third quarter well, we had a good month of July, so we should present this quarter here in the 1P categories, in Corbis and Mangalu, a growth, both online and offline.

Thank you, Fabrice.

Thank you for the question, Larissa. Our next question is from Andrew Rubin, from Morgan Stanley. The question will be in English and the answer in Portuguese. Andrew, please go ahead.

Hi. Thanks very much for the question. Maybe just to focus on stores a bit, we see the speech in focus, I think, shifting even more towards multi-channel. You mentioned the Galleria Magaluzzo. I'm curious how you're thinking about store growth as part of the more normalized strategy. What would you need to see to begin a more steady pace of core store openings? Is it just about interest rates or anything else you want to see in terms of, say, the store level returns? Thanks very much.

Hi Andrew, good morning, thank you very much for the question. I wouldn't say that the strategy is shifting, or changing to more multi-channel. It has always been like this, we have always had a very large balance from the beginning, especially in the Magalu controller between Lodge 1P and 3P, this balance, as I said, is almost a third, a third, a third. We bought assets such as Net Shoes, Kabum, which didn't have a physical store at the time. And here we put it as a strategic sequence to add a P to the 3P, so we put 3P in Marketplace in these operations. They are all used here by Magalog and Magalu Pay, so they have become integrated into the back-office ecosystem. And it was missing the physical store layer, which I think is why I say that it is the final cycle of the ecosystem that we are opening the stores now. We are testing some formats, and the format that we are testing here is a unique physical point, with all the stores integrated, we have already made one here at Tietê, it was a huge success, we are doing the second. at Avenida Paulista, the idea that we, seeing the economics work, we had a good experience at Tietê, I'm sure we will have an excellent experience at Paulista, and this model working, we intend to open. It is obvious that interest rates, when you talk about physical stores, you put a capex upfront, you have to do, the lower the interest rate, the better the ROIC, the ROI of this operation is lower. We also have dozens of stores in Magalu that have enough space to be transformed into the Magalu Gallery. These are stores that have high meters, between 3,000 and 4,000 square meters, that we can convert and put the Netshoes, Kabum store. Before even opening new points of sale, we have this possibility of making conversions of what we expect. So, that's more or less it. For me, it's super important, having the capital allocation discipline, to see how the results are going to be. I'm very optimistic because the one from TGT was very good, and I'm sure of it. I'm also seeing the enthusiasm of the brands, of the suppliers, because they need a physical point, and the physical points of Brazil in general are less active, so the supplier needs that space. for brand building, for brand construction, for margin control too. For example, I'll give an example, there are some Chinese, like Oppo and Vivo, who opted in Brazil to enter exclusively in physical stores, as well as these Chinese telephony brands that are super online there in China. And then when you ask them why you are entering a physical store, they say, here I guarantee brand building, here I guarantee that I can operate with slightly higher prices, because I can with this experience at the point of sale, with a good job as a promoter, I can sell the product better. So, look, the Chinese, which is ultra-digital, is opting to come here to Brazil, and OPPO is doing very well here in the market, for example, with this work. So, I think this balance, brands that were very much for online, like Nike in the United States, They broke the face, they commoditized the product. You need, as I say, ecological balance. So, a platform like Magalu, which gives the brand the opportunity to operate the three channels, I think it's different. I just wanted to emphasize that this is not a shifting, because this has always been our strategy from the beginning. You can see my interview in 2005, talking about multi-channel, 2015. That's super clear.

Thank you.

Thank you for your question, Andrew.

Next question, Rodrigo Gassim. Please go ahead.

Good morning, Fred.

Thank you for taking my question already with a follow-up and a previous answer. Thinking about the value levers, talking about 1P and physical stores, I'd like to ask you what exactly is the focus on these two channels for the next 12 months? Thank you. I'm sorry. Gassin, could you repeat your question, please? I think I had a problem here with my connection. Sure, Fred, no problem. But following up on your last answer, you'll talk about both 1P and physical stores and 3P, thinking about the value levers. what are exactly the main indicators or the main things you're focusing on on these two channels thinking about the next 12 months? Well, the next 12 months, we have again to consider looking at a Selic rate at 15. I think we need very strong discipline in terms of margin and management of working capital and cash. very strong discipline and without a doubt we're seeking and investing our attention a lot in how to conciliate the margins, the margin levels that we reached with more operational leverage and sales. For the next 12 months, we'll try to conciliate this better, the margin we reached this quarter with the expressive growth on top line. So, for the next 12 months, I would say these are the alternatives we're going to explore, 1p, 3p and physical store margins, with this opportunity for monetization that I described, as well as growth in our acquired companies. So I think it's a lot of conciliation of the margin with greater growth looking forward. That's our challenge. And, of course, if we have to choose, I prefer to bring in a positive result. But the ideal would be to have positive results and top-line growth. Excellent. Thank you. Thank you, Gustin, for your question. Next question, Luca, you'll be asked. Luca, please, you may go ahead. Okay, moving on to the next question then. Next question is from Felipe at Citi. Please, Felipe, you may go ahead. Hello, good morning, everyone. Thank you for taking my question. It's a question more in the sense of expense control that you've been able to be very disciplined and maintaining it stable even in a scenario of high inflation. So I'd like to understand the main drivers for this control and how you look at this going forward. Thank you.

Thank you for the question.

We had another microphone on. I apologize. So I think the control of expenses, again, is the only thing that we have in our hands. It doesn't depend on the market as much. So G&A is more a matter of discipline in terms of cost control. We have the matrix management of expenses. We had this zero-based budget last year, reducing administrative structures and physical stores last year, reducing the share of salespeople and backup, control of expenses from electricity to leases, negotiation lease. So we have a very strong committee. focused on these items and we already expected this to be a difficult year in terms of increasing interest rates and financial expenses so what we could control the select rate is not but gna control is in terms of selling expense there's a little bit of our management that i've been talking about the conversion the focus on conversion i extended um arise question to that end So there's initiatives to increase conversion. And I'll take the opportunity, Fatala, if you want to add about our more technical initiatives to increase conversion, you can add. I didn't turn the floor to you that time. Maybe now will be good. That's great. Yes, good morning. Talking about the work we've been doing focusing on conversion, we have three main fronts. One focused on competitiveness. One is the service level. for deliveries and then everything that we do working on customer experience in digital channels in digital channels there's great effort being made and we're working very focused on surveys with consumers to raise points of improvement in terms of searches we're removing all types of friction in the checkout process with greater opening in terms of payment methods to make it easier for our customers to make a purchase, so a lot of work being done in the seller space as well, building tools that they can operate better for their sales, and also to simplify how they operate their stores inside Magalu. For the combination of these different fronts, especially including what Garrido mentioned, that we've been focusing on fulfillment that already brings compared to shipment from the partner themselves. With our full delivery, we increase conversion three times, and these are the main fronts focused on how the seller is operating and the customer experience in the channel. In addition, there's also strong work being done for conversion with the investments that we have in traffic. We've been working on changes in the algorithm and building models for investment in media and structural work where we are building a strategy to Get more diverse traffic, drive more diverse traffic through video ads. We're building a community that can build videos, and we're going to work more focused on social channels to drive visits from an experience that also brings a lot more opportunity to demonstrate our products, to showcase our products. We saw a very strong trend built by Asians. We saw the impact, made internal tests, and now we're working structurally to scale this up. And there's also worth mentioning part of a future work that Fred's already mentioned on the last call, and we are working on them and testing, is an AI commerce front. We already have a soft launch for the Cérebro da Lu, it's Lu's brain, in WhatsApp. We have about 1,000 employees at Magalu testing that, and based on their feedbacks, we made improvements. And it's also a channel where we believe the consumer experience will improve and conversion levels through this channel will be or should be a lot higher than what we see in traditional channels, just because how easy it is and how much it reduces friction in the purchasing process through these assistants that may be of great help in the decision-making process of consumers. Thank you.

Thank you for the question, Felipe. The next question comes from Nicolas, from JPMorgan. Nicolas, please, you can go ahead.

Thank you, Vanessa. Good morning, everyone. Thank you for taking our question. I wanted to talk a little bit about capital growth, which Beto talked a lot about in the presentation. I wanted to understand if you have any target, maybe some Good morning, Nicolas. Thank you for the question.

A gente não dá guidance sobre números financeiros, mas a gente tem oportunidades de melhorar o giro dos estoques, a gente tem falado bastante sobre isso, a gente tem uma relação boa entre prazo de compras e giro dos estoques, mas esse é um número que a gente está sempre inconformado, sempre buscando melhorar, trabalha muito forte com... the whole commercial area, the logistics area, the technology area, to always evolve in all processes. We have an opportunity, yes. I think we also have to consider the fact that we have already reduced it. If we think about the last few years, The stock reduction has been brutal. We have gained a lot of efficiency in recent years. We are gaining again this year in relation to last year. And there is a part of the stocks that are the stock market of the stores, the minimum stock of repositioning in CDs and so on. that if we accelerate sales, we certainly don't need to increase this stock availability. So, there is also a potential leverage effect here. Just as we have operational leverage when we increase sales, we also have an extremely better turnover performance when we increase sales. So, we are very close to that. We continue to improve the stocks, we have a very strong relationship with our shareholders, purchase deadlines and everything else, and I think we have an opportunity in this relationship going forward. I can't give you a specific indicator, but we can improve, a goal in itself, but I think we can improve between 5 and 10 days of turnover in the stocks in the next 12 months, for example. In addition, I think that talking about common capital, we have reduced almost 600 million of taxes in the last 12 months, and this is also a trend that should accelerate in the second semester, which is the most favorable period for tax monetization, with more sales, pagamentos de impostos e mais compensação dos impostos acumulados. Então a gente tem uma perspectiva também muito positiva na redução do saldo de impostos nos próximos trimestres também. Então tudo isso tende a contribuir para uma geração de caixa muito forte, mais forte e de novo convertendo bastante o nosso resultado em geração de caixa. Obrigado, Nicolas.

Obrigado, Beto.

Encerramos nesse momento a sessão de perguntas e respostas. Gostaria de passar a palavra para o Frederico Trajano para as considerações finais. Por favor, Fred, pode prosseguir.

Bom, muito obrigado por participar do nosso call de resultados. Boa sexta-feira e bom final de semana a todos.

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