Magazine Luiza U/Adr

Good morning, everyone. Thank you for waiting. Welcome to Magalu's conference call regarding the quarterly earnings. For those who need simultaneous translation, click on the interpretation button via the globe icon at the bottom of your 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 in the chat. During the presentation, all participants' microphones will be disabled. Later, 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 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 a question. Questions received in writing will be answered later by the investor relations team. Now I would like to turn the floor to Fred Rajano, CEO of Magalu. Fred, please, you may go ahead.

Good morning.

Thank you very much for attending our earnings conference call for the third quarter of 25. I'm here once again with all of the C-suite of Magalu, as well as the heads and CEOs of our main verticals, Magalu Bay, Kaboom, Netshoes, and Epoca. All of them will be available here to answer the analysts' questions at the end of my presentation. I'd like to begin talking a little bit of putting the third quarter into context based on our strategy cycle. I've been, I'm celebrating 25 years at the company, 10 years as the CEO. In the last 10 years, we divided our strategic initiatives into two major strategy cycles. The first from 2016 to 2020, it was the company's digitalization strategy cycle. In 2015, we had 10 billion of GMV. It was high numbers at that time. to be built online and I took over the mandate of digitalizing the company because we knew especially durable goods would migrate significantly to the online and we had this mandate to digitize the company in this period. We considered that we have concluded this cycle in 2020, that was the last year of the company's digitalization cycle. At that moment in 2020, We closed 1300 stores, 50% of the revenue in 2020, but still we grew 50% and the online started to represent two thirds of our sales. We considered that at that time we were able to digitalize the company and conclude the cycle successfully. The next cycle, that's the one that we're concluding now, that's why I'm giving you all this opening contact, is the results diversification cycle of making our results more resilient to macroeconomic flows, especially more resilient to changes in interest rates, because in Brazil, the SELIC rate is very volatile. It has high and low cycles, and we need it. We had digitalized the company, but we had not yet done this results diversification process, which we did by adopting an ecosystem strategy, where We acquired companies, diversified categories, especially in lines of service, creating Magalog. We evolved the operations of Magalu Pay, our financial company. We'll talk a lot about that today. We launched and evolved Magalu Ads and Magalu Cloud, not to mention the diversification of categories that we mentioned. With that said, even with the interest rates at 15% this quarter, we presented very positive results. reaching another quarter with high profitability, with a beta margin of 7.9, 700 million of a beta results. We resumed the income level of 21 million. To grow income in a company that still has a large share in cyclic sectors, to have 20 million of profit in this scenario is very positive. reinforcing that and I'll detail it later, but the initiatives to build this ecosystem and diversify the results has been making our results more resilient. The companies having financial discipline, that's very good. And cash generation, once again, with a good dynamic of working capital generating 535 million of operating cash in this quarter. with the generation in the last 12 months of 2.5 billion BRL. So the company has been communicating to the market that in this context of high interest rates, the focus is on profitability, preserving margins. And this has been our execution with a lot of discipline since then. In this context, I think the company needs to make some decisions and some trade-offs. It's unavoidable in a context such as what we're experiencing in the macroeconomy. And our trade-off was to slow down our growth. Actually, if we look at our revenue, the net revenue of this quarter grew only 1% year on year. But obviously, due to our decision to work only in sectors, categories, and sales with positive contribution margins. If we find a scenario with negative contribution margins, we decide in this quarter not to address that sale opportunity. And that's generating this impact and the slowdown of our sales, which I think is actually quite resilient considering the scenario. We had physical stores still in a positive context, with the same sales of 5.2 this quarter. Even with a quarter where we didn't have that brief off-season summer that we had last year, that was an important part for the white goods sales last quarter, we still grew 5.2. We remain very resilient online, flat compared to last year, and 3P, considering that we have a lot of share of long-tail merchandises and lower-ticket goods, which today are operated at negative contribution markets, free shipping for very low tickets, we chose not to play that game. Our focus is to increase fulfilment that this quarter achieved a share of 28%, growing compared to the 24% of last year. Our fulfilment is different and Ricardo Garrido can talk more about it later. But we are letting go a little bit on sales with negative contribution margin to focus on the others. And reminding you that our fulfillment is multi-channel with a lower delivery cost with the store pickup on 3P. And with that, I can provide fish shipping without losing money. So this is positive. So this is a decision we're making. Temporarily, it will affect the channel's sales. But definitely, when we get over this period of this from third-party shipping to Magalu entregas and fulfillment by Magalu, we will actually be growing with a lot more sustainability in our results and more competitive resilience. I'd like to highlight now the reason why we are preserving positive margins. in such a harsh scenario in terms of competition. I'd like to highlight here all the investments we made in this strategic cycle and the ecosystem are doing very well. Kaboom with another quarter of 11 million of income. Netshoes also with a record quarter growing 12% in sales compared to last year. with a net income of 24 million in the third quarter, an extraordinary quarter. Magalu has been performing very well in its subsidiaries and Epoca Cosmeticus with another very positive year. I'd like to point that these three businesses will be extremely benefited from the new strategy of the company to apply multi-channel aspects to all channels of the business, all the business of the company. And I'll explain the new store concept, Galeria Magalu, which will have brick and mortar units of all of these business, further boosting this potential of multi-channels, which makes Magalu very resilient and will make this business very resilient because in addition to the online operation, Kaboom, Netshoes and Epoca will have a physical unit with Galleria Magalu. And the idea is to expand that to a lot of the group's other units and further expand these units looking forward. So I think this multi-channel aspect will, really help these businesses that are already running quite well. Other businesses where we've been making progress in our ecosystem, I would like to highlight the Magalu Bay. And we have the possibility to ask all your questions. We had another record quarter for Luisa Krad with 68 million net profit growth compared to next last year. NPR also going down, very positive, quite stable. Now NPL over 90 is eight compared to last year. And we've been proving that our portfolio is of great quality. And we've been able to have quite positive results in LuisaCred. But not only LuisaCred, we've evolved greatly in consortium. Consortium is already a business of 10 billion of assets under management. We don't talk that much about Consortium Magalu, but it is a great business for the company with net profit of 16 million. So this is a business that goes, consortium goes well with high interest rates. It tends to be competitive, but good option. We're also doing well in the increase of penetration of services, both online and business. We grew in insurance penetration in our business that helped our financial revenue, the service revenue for the period. Even with a slight decrease in the, repeat take rates, this was more than offset by the insurance revenue. And revenues, for the next slide that I'm going to talk about, that are Magalog revenues. Magalog's been growing significantly in our business. We created a company, acquired five logistics companies, spinned off our logistics department at Magalu and combined all of this business under Magalog's umbrella. which is a logistics operator that provides service to all of the groups and ecosystem companies, but has been providing more and more services to external third-party customers, gaining a lot of market share as a logistics operator. We've added 12 customers this quarter alone, with large customers like Arezzo, C&A, a lot of companies using Magalog. The service level of Magalog is more than 25%, extremely competitive costs, and with all that, And these external clients help us in terms of results, but also help us have the volume in logistics to be able to provide good prices to Magalu's own ecosystem. So it's a win-win, and we've been gaining a lot of awards in the segment, and Magalog has had a fantastic year after it was formed as a logistics operator and once we started bringing the results to external customers. Another slide, please. I'd also like to highlight, I talked about fulfillment already, so I'd like to highlight the ads revenue. Mangalú has been growing significantly in this area. We grew 69% this quarter, another revenue that has helped us maintain our total revenue, although the impact that I mentioned. We have a lot of differentiators as everything we do at Magalu. There's always the multi-channel aspect. And one of them is the fact that we are enabling 20,000 displays available at the stores for advertisement. So those who advertise on Magalu Ads platform, in addition to advertising in all digital channels, in all formats, we have video formats, we have top of funnel format, Sponsored posts. And in our case, we have a differentiator in terms of market compared to market tools, which is the out of home, which is advertising at the stores. The new store is entirely conceived to have LED panels throughout the store to be able to close advertising packages for the major brands in the market. This has been widely well accepted. And we had not only an increase in revenue, but also in the base of advertisers as well. Advertiser base grew 103% in major brands, 113% and 44% for sellers. So we're growing both in major advertisers and in our seller base. Next slide. I'd like to highlight Magalu Cloud, reaching 1,000 customers in the last quarter. winning over the first customers who bring a few million BRLs per year. It's packages. So we are no longer in the universe of micro and small companies to large companies. And now we're about to sign major contracts with large corporations. And for that, I would like to highlight here for Magalu Cloud this quarter is that we've been able, we achieved the ISO certification 27001. This is a crucial certification for us to be able to participate in the government's bidding processes, which require local operation because of data or sovereignty nationally. And as well as bids for large corporations, most of them require this ISO certificate. Magalu Cloud has been growing and it is 50% of Magalu's workload is gaining larger customers and now it's also qualified for new leaps for next year with this certification. There are others that we are about to achieve as well, but we're improving and this is a landmark that's been celebrated for Magalu Cloud. So now I'd like to emphasize one of the big launches of this year. We've just launched last week with a lot of repercussions for our customer base and outside of our customer base, we launched the first AI commerce experience that is complete, the first complete experience in the world. Magalu has a huge differentiator. 20 years ago, we created Lu, our digital saleswoman that was created based on the founder of the group, Luisa Trajano, the best director born in Brazil. And since we created Lu in 2004, the dream was for her to take over all of the activities with the same magnetism that my aunt Luisa always had when she founded the group. And finally, we're here. After decades now, thanks to the highly competent work of our development teams and our partners who participated in this project, we launched the first complete AI platform. We decided to do this exclusively on Lou's WhatsApp, Lou in total has almost 40 million followers in Brazil. She's a global phenomenon awarded in Cannes and she advertises for other brands in the group. And she is the best, most well-known AI character in Brazil and the world. And she has a lot of channels. One of them was already WhatsApp. We had 15 million enabled customers who received Lou's messages, especially for the tracking messages. of goods of post sales regularly and that's precisely the customers in our base who we launched this experience to and the first world's AI commerce experience in the world because it's complete from product consideration to purchase payment with cards or picks and all of the post sales process so teaches you throughout the process. We have a very robust architecture. What we launched this experience is not a beta version. It's not a test version. It's not a small AI initiative. It is a multi-agent platform that is very robust with a new architecture that some of our partners saw the architecture like that for the first time. So it's multi-agent architecture that is complete and has been bringing a lot of positive reviews in the first experiences this is already cleared for a lot of analysts who are present here and we can talk about it later journalists as well who wrote articles influencers but mostly we're releasing this to our loyal customers so it's 15 million today and we intend to grow this base going forward noting that this is a hundred percent ai commerce experience, 100% automated. This is a huge global level innovation that makes us very proud, especially considering the first reviews we got.