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.

There is a video that I would like to show you for those of you that are here with us on the call. And very soon, all of you will be able to see it. Next slide, then. Here we can see Lou and some of the features. that we have available. She talks to the assistant. She's very nice. She's just as nice as she is in the social network. You have the different modes. You can send audios, pictures. She recognizes everything. And based on a survey, which I believe is, this is much greater on the e-commerce searches, which is a standard, you know, the search by keywords, she usually recommends the product. You can make the purchase. You can talk, ask for more context. And finally, you can get to payment and checkout. Currently, you can pay via PIX and credit card. And here, we have launched it for 1 million clients. There is the app. So it already knows your credit card in the app. She also knows your delivery address. And this is frictionless. You don't have to leave this environment. I think we have done a very nice development. If you want more technical details, André Fatale is here and he can talk about the architecture, scalability and economic units from the point of view of business. So all of those can be discussed in the call. But I really wanted to highlight that this is a very relevant launching and it has been recognized by methods and other partners that were us in this development and we have news for next week i'm not going to bring that to you in the call but we'll we'll talk about it later so here are some figures about these first thousands of clients that have participated on this experience the sales conversion i have read 10 higher than app so it's three times higher So conversion is much higher here. The app is engaging in the conversation. NPS of 90. This is very high. It's excellent. We just launched the product and the platform. We are going to have a lot of improvements. Payment mix now is 68% PIX, 32% credit card. And channel mix right now is 54.3 P. So this is especially good for 3B, 46%, 1B, and the long tail categories, which are the ones that we already need to grow if we look ahead. So loose WhatsApp has been great for those categories. sports, housewares, more appliances, natural sales in those WhatsApp has been one of the main highlights in this beginning. So sports, beauty, all categories with a good performance under this negotiation model, which is Great. And we can count on that for future growth. Now, quickly talking about economic units, of course, who starts the conversation here is the client. Then the agent sends a message that this has a much lower CC cost and we believe this is going to have a marginal contribution. This provides a rationale for economic units and also for the long tail categories that are being sacrificed in the market. So I end here. my presentation, then I'll come back to talk about galleries. But I'll turn the floor to Beto Bellissimo, our CFO, for the financial highlights. Thank you very much, Fred. Good morning, everyone. Thank you for being with us for this earnings call for the third quarter of 2025. I'm going to go over the main figures. We have already mentioned that $15.1 billion in total sales, growth of 5.2% in same-store sales. This is on top of a growth of over 15% in the same quarter of last year. So this is a growth on top of a very strong comparison base. We have ground our gross revenue in 1.4%, reaching $11.3 billion in total gross revenue. We also highlight here our gross margin. Once again, one of the highest gross margins of the last few years, 31.5%. Highlight here to the merchandise gross margin that has grown 0.2%. Our EBITDA with a margin of 7.9% adjusted net income. Once again, since the end of 2023, when we have recurring net incomes, And this was another quarter that was positive with 21 million adjusted net income and 85 million of total net income, including here the non-recurring results, which were positive in this quarter. Here also we had the tax gains of 133 million and other non-recurring expenses, which were low in this quarter of 15 million only. operational cash flow generation, 535 million, converting EBITDA and cash generation. This has been one of our focus and a total cash position, including receivables and investments of 7.6 billion, a very robust position. On the next slide, we had the performance of the EBITDA margin in the last quarters. improving the consistency of our EBITDA margin, even in a scenario of higher interest rates, we were able to maintain EBITDA margin in around 8% in all of these quarters, with the same highlights for the same key levers that we have been reporting in the past quarters, the performance of physical stores, the increase in gross merchandise margin, the profitability increase at LuisaCred, also the fulfillment expansion, and once again, our operational efficiency and expense control. In this quarter, just like in the prior quarter, we maintained the growth of operating expenses at a very low rate, at less than 1%. Compared to inflation rate, that is around 5%. We have been able to maintain SG&A at a very stable level. Now, on the next slide, we have our working capital performance. We highlight here the change of 100 million reals in working capital in this quarter. from June to September and this quarter also we should highlight that we are increasing seasonally inventories and with inventories also the suppliers balance. Of course in this quarter we have the seasonality to prepare to the main events that happen at the end of the year such as Black Friday and Christmas. At the end of the year we will go back to reducing inventory levels and improve the turnover for inventories in the last quarter. Also, we should highlight on financial expenses that in this quarter, we were able to sequentially decrease financial expenses, the net financial expenses in the third quarter of 2025 when compared to the prior quarter. Also, in this period, CDI went up basically 45% compared to last year, and we were able to mitigate part of this effect. And our financial expenses have increased 35% vis-a-vis the same quarter of last year. And this proportional reduction has to do with first the increase of PICS. We have been able to increase the PICS instant payment share, we increased the DCC, the buy now, pay later. We increased that in fiscal stores from eight to 10%, two percentage points, also with a better result in the delinquency rates in our DCC. And we were able to sell less in credit cards from third parties. and we reduced expenses for prepayment of receivables and also the balance of prepaid receivables. In the next slide, we explain the dynamics for cash generation in this quarter. Here you can see that our total cash went from 8 billion to 7.6 billion, exactly because we settled debentures that were issued by Kaboom in the amount of 400 million. So today Kaboom has no other debts. And so the settling of these debentures explain all the variation of our cash. Now, looking at the cash flow of operation over 500 million, we generated enough cash to pay off investments, which were of almost 300 million, to pay for leasing and also to pay for interest rates in the period. Also, an observation here is that regarding investments, in the last quarter, we were investing around 200 million reais per quarter, which is very similar to our depreciation. In this quarter, we had a major expansion in the capacity and in the amount of servers for Magalu Cloud. This was a one-time-off investment in this quarter, and that expansion of Magalu Cloud is one to prepare for Magalu Cloud's growth and also to migrate workloads from Magalu to Magalu Cloud, which has already reached 50% in this quarter. Now, in the next slide, we have cash variation in the last 12 months. And here we have increased cash in 1 billion from 6.6 billion to 7.6 billion. Also here we can see the cash generation of 2.5 billion, which was enough to cover all investments and capital funding for LuisaCred. Again, leasing expenses. So we had a free cash flow of 700 million that was then enough to cover for dividend payments and interest payments as well. And cash variation is really by the net funding of loans. In the last 12 months, we had $2 billion and paid $1 billion up to September. And in the next slide, we showed that in October, we have paid another $1 billion going back to that level that we have now in October, 4.8 million, which is exactly the one that we had in September of 24, 4.8 billion as well. To the left, we see our total position of 7.6 billion in total cash. Here we had gross debt in September of 5.9 billion, so our net cash then was 1.6 billion. So in terms of capital structure, we maintain a liquidity position that's very robust, a net cash position of 1.6 billion, which has been very much stable in the last quarters. And now our debt schedule, the share of 2025, We have settled in October, so today our debt is all in the long term distributed over the next five years. And our objective here is to keep on bringing down debts and financial expenses. On the next slide, we have Louisa Cred once again. Louisa Cred had a quarter that was very robust, a very strong one. Delinquency rates are at historically lower levels of around 8%. A short-term delinquency of 2.6%. Once again, all-time low. Net profit increasing. Provision and ALL expenses coming down. Coverage ratio here increasing a lot, turning from 154 to 156 and 158% of our NPL. That's a very comfortable level. Finally, talking about our financing branch or financial branch, Now this is a reality. Remember, we had authorization of the central bank in February. We started operations in August with a pilot project in one store. And since October, we expanded the pilot to 50 stores that are now in charge of 10% of our revenue of DCC in brick and mortar stores. The rollout of this operation has been a success. We should say that a number of benefits and advantages with this launching of this new financial branch have been first to the fiscal efficiency. We now provide direct consumer credit in a financial branch that is subject to the supervision and regulation of the central bank. the financial branch has a tax bracket that has come from IOF and retail, we pay ICMS 18%. Here, the tax bracket is of 3%, a significant tax difference. So brackets for PIS and COFINS are also different. in retail and in a financial company. So there is a fiscal efficiency. All taxes are lower here in terms of capital structure. Today, we have a portfolio of 1.6 billion rials for retail, which should progress for the next year. We should be accelerating the rollout and have 100% of the DCC production starting in January. This should be done by our own financial branch. And therefore, this portfolio for receivables will grow and will decrease. and that in retail. Today, we have a structure in which we financed this portfolio of 1.6 billion in retail with long term debentures. And as we dilute this, we will improve the working capital for retail. So we will have a more efficient and asset light retail and therefore we can deleverage retail. And within the financial branch structure, we can then have it being financed with other funding sources. Naturally, we are going to capitalize the financing branch. It's going to have the basic level as well, but it can also issue letters and other funds or other funding options is cheaper than the ventures. So with this structure, we have a number of gains and we've then turned the operation more transparent, more robust with governance and also optimization of the capital structure, which is very good. And in addition to all of that, we have also been investing in new credit proprietary models We believe that we have potential to increase sales in the DCC, both online and offline, and also to reduce the delinquency indicators in the future. simultaneously to the financing branch rollout we launched a new experience both for clients and sellers who has been faster more intuitive and it makes it easy easier to convert sales in the point of sale so we are very excited about this initiative because in fact this is one that can bring us a growth with increased growth in sales and increased profitability. These were my financial highlights, and I turn the floor back to Fred. Thank you. Well, thank you very much, Beto. I started our earnings call. I started our earnings call. talking about our strategic cycles but I also said that I have been here at Magalu for 25 years and if there is something that is constant and I started here at 2000 to put together the e-commerce of the company so we are operating e-commerce for 25 years fighting with the different competitors here over these 25 years everything has changed a lot since I started but if there is a constant thing is that the company really believes in the multi-channel approach. This is the item that turns this story very coherent. And even when we launched 3B, we had that with a very strong multi-channel, omnichannel approach. So everything that we do, we try to create a bond back to the store because we do believe in the potential of the physical stores and the physical retail. Remember, today, 85% of the Brazilian retail is offline. If e-commerce grows a lot, I don't see that number of 75, 80 not being still in physical stores. So we have almost seven decades with experience in the physical retail, but this also needed to be reinvented. We focused a lot in the last decades in building the store as a base of the e-commerce, as like a back office and logistics. So the stores are very important as a distribution hub. 50% of 1p of Magalu goes through the store, whether it's shipped from store or pick up at the store, collect at the store and the ship on the store. what they are asking now from WhatsApp, the lowest pickup at the store. So this is very strong. This is number one of requests of clients that lose WhatsApp. This is a differential and it's very resilient in all the categories of durables that has to do with this aspect of having the integrated brick and mortar stores in the e-commerce and all integrated, even with a lot of focus and margin, we keep on gaining share in these categories of larger tickets.

That's what we wanted to do.

We bought Kaboom, we bought Netshoes, and they didn't benefit from this multi-channel concept, as I said in the beginning. So we needed to have a physical space that represented this ecosystem in practice. For the end consumer, for many of you investors to see that Magalu is more than Magalu, it's Netshoes, it's Kaboom, Magalu is Época Cosméticos, Magalu has Bezes, Época, Kaboom, Estante Virtual and Netshoes together are operations worth more than billion BRLs, much larger than a lot of listed companies, and all of them doing quite well. But it seems that to the eyes of many, they're still invisible in terms of this connection with the Magalu brand. With the gallery, Galeria, we will solve all of these issues. closed their site with an iconic point, maybe the most relevant point in Brazilian physical retail in the main avenue in Brazil, which is Avenida Paulista. I don't know in other countries, but this is one of the most relevant places for Brazilian trade and a point that had a very significant cultural aspect that we will preserve with the opening of a theater, an art gallery. and the inclusion of all of Magalu's businesses, but especially businesses that combine digital and physical that will be the stage for digital influencers who will be there at the YouTube theater that we had a global launch last week, as well as each of Magalu's sectors, NetShoes, Epoca. Influencers will have a space to build and create streaming content at the stores. We intend to have the Black Friday live from the store next week. This is going to be very different. The store will not be open yet, but we will hold the live streaming from the store. I'm sorry, not next week, on the Black Friday's week. We're very excited. We'll show you a conceptual video that explores this concept of a meeting point, meeting between digital and physical and the different categories and segments that we operate. I'll show you this video and then we'll open for the Q&A. I see the future repeating the past. I see a museum of a lot of novelties. I see time, the transformations, people on screens, connections, windows, galleries, from digital to real life and vice versa. In a world that's stuck on a screen, I see an invitation to leave the search bar, seeking a place to meet. Because meeting or finding yourself is more than a need. It is a revolution. Netshoes, Kaboom, Epoca, Estante Virtual, Magalu. together at conjunto a meeting with no algorithms on the same stage where fashion meets beauty sports meet technology literature games influencers meet their audience where the unlikely meets new passions and goes beyond, tries, feels, discovers, experiences. I see the future meeting the past. I see a gallery bringing a lot of novelty. Galeria Magalu. With that, I thank you. For your attention, now we move to the questions and answers session. To ask a question, please click the Q&A icon at the bottom of your screen. Write your name, company, and language of your question to join the queue. When announced, you will see a request to enable your microphone on your screen. You should do so to be able to ask your question. Our first question is going to be from BTG. Please, please go ahead. Good morning, Vanessa, Fred, Beto. I have two questions here. First, if you could, Fred, talk about the investments for next year, looking at the technology platform with the AI side that you talked about, as well as the physical store model. How can we see the expansion in physical stores looking at 2026? And then a second question, looking at marketplace, If you could, Fred, talk a little bit about the evolution of UNIC economics that you expect for the platform, even in the competition scenario that we see in Brazil that has been becoming more aggressive in recent months. Thank you. Good morning, Guanais. Thank you for your question. I'll answer the first one about investments. And then I'll turn to Garrido to talk a little bit about the dynamics of unit economics on 3P. And I talked a little bit about it, but he'll give you more detail about the investment. I think over the last three years, we've been investing basically similar to depreciation. And I think that was the prudent, cautious decision in a context where we have select rates at an all-time high. with actual real interest rates very high. So we have to be very cautious and we focused our capital allocation pretty much 100% of CapEx over the last three years in investments in technology. So to build cloud, to expand our development teams, we created the AI department with an exclusive AI dedicated team with Gomez's arrival last year. We invested on this team that now we have, we're reaping the results of these investments with the launch of Lu's WhatsApp. So this obviously reflects the investments of the last year, but also the last few years. Even the platform, agentic platform that we're running, our main cloud partner who's Google is there, but part of the agent models are running on Magalu's cloud. open source scalable models that make the scalability of this business very positive. So we intend, obviously, considering the good signs we're getting from the first experiences with Lou's WhatsApp, we intend to reinforce our investments. I think here we have a strategic differentiator that's very important. Nobody has that persona. I was at a Nike lecture recently talking about how difficult it is with AI agents because when they speak to the customers, there's a Nike symbol, there's no persona. that is relevant for the consumer and we have Lu who's been built over the last 20 years and she's a cultural phenomenon in Brazil and customers really do like her, ask her and we build this very carefully over time. So here we have a huge opportunity to accelerate investments with a good perspective of return, especially because the indicators in terms of conversion and NPS are very high and that makes us very confident to accelerate investments in the platform. And it's the same thing still. We have very positive expectations of our store, Galeria Magalu. We've recovered a lot of the investments there in advertisement agreements. So we're already working strongly on retail media and ads to capture with the store. It will be a brand place. So we have 150 brands that will be present at the store. including Chanel, Dior. We've been able to attract those brands, editors, ASICs, including all of the brands who work with Kaboom, including Intel, AMD. We have a lot of major brands. In addition to our usual brands, Apple, Samsung, We will have Apple's official post sales point there. It's going to be the second in Brazil after the store opened in Morumbi Shopping Center in Sao Paulo. That's great. We're very excited with that. And these brands will have space to invest in advertising there. Celia Goldstein's team was able to recover a lot of the return on investment. And we believe validating the view that helped us improve the return on investment at the store with retail media as part of the results to offset part of the capex to accelerate investment in stores i believe this will happen especially once interest rates get back to a reasonable level because when we do the math of roe with interest rates between 15 17 it's very difficult it has to be an impeccable concept we need to validate our thesis but we're very excited and i believe that we will certainly resume investment in the store openings And also Galleria Magalu is important because it doesn't have to be a new point. We have about 40, 50 points at Magalu, and then we can talk more about this, but there's a profile. We have the stores that we can convert with more than 4,000 square meters of area, and we can convert other points to this concept of a gallery that I think is very positive for the brand, for the business. And for the units like Netshoes, Kaboom, all of the heads of these departments and Epoca as well are very excited.

And I'll turn to Garrido.

So thank you, Fred. Thank you, Luis, for your question. I'm Ricardo Garrido. I'm in charge of Marketplace here. So talking about the economics at Marketplace and the reaction, to this aggressiveness of the market. As Fred said, we operate on the assumption of working always with healthy margins and conditions, including the assets and multi-channel aspects to perform well without joining this war of discussing or arguing values. So I'll rank here three main actions that we've been working on to maintain the economics in a very healthy level, not only now at this quarter, but for the future as well. So first, Historically, we've been re-managing take rate of the attracting categories into incentive for the sales of promoting categories. So we have a neutral take rate on average. And with that, we're able to perform better. And as a result, we have an increase on the average tickets higher than 20% year on year. Second, we have a lot of operating actions which have improved significantly our performance, allowing us to continue to offer free shipping and important aspects for the customers. So we have less cancellations, better cash flow with a greater share of sellers in the cash flow, with a greater share of fixed payments, significant growth of ads, as Fred already pointed, with a 44% growth of advertising sellers year on year. And we have the improvements in the ads platform that receive a lot of compliments from our sellers as well. And third, we've been working a lot with the channels that convert more. So logistics modalities that deliver faster and offer more free shipping and convert more. exploring our multi-channel aspect to do that in a profitable way. And with that, we're also able to spend less in marketing because with the higher conversion, we can spend less in searching for clients. Within all that, I would like to highlight Fold that continues to grow in share. We're at 28% share. of units sold on 3P delivered by fold. That's a four percentage points growth compared to the previous year, plus another point compared to the last quarter. And this quarter, we switched on another distribution center in Paraíba in the Northeast with the allocation for heavy products that complements the action of other distribution centers in the Northeast with a light product vocation. And with that, we continue to grow the footprint while we're present in different regions. And we're able to deliver more and more, faster and faster. To give you an idea, we got more than 50% of full deliveries in the Northeast shipped from the distribution centers located there, maintaining 80% coverage of free shipping on full, because that only happens because we're sharing 10 distribution centers with our stores and 1P. We're sharing, the delivery network, and we have almost one third of our deliveries with store pickup for pre of charge when the clients pick up at the store. So I believe that that's another pillar. I would also highlight, in addition to full, in the third quarter, we launched VAPT, which is our first ultra fast channel that's basically a platform in the platform in the marketplace where sellers can contract directly couriers to deliver within 10 kilometers from their store to deliver on the same day. We announced that at the end of August at Expo Magalu, our sellers event. We have more than... 60 sellers in the platform, 283 carriers registered, conversion 30% higher even compared to full. And what's better is that it's a deal between sellers and couriers or carriers that same day delivery that costs nothing to us. So that's a positive effect on the bottom line. So those are the paths that we're going to follow and continue to work in the 3P economics. Excellent. Thank you very much for the answers.

Thank you for your questions, Luis. Our next question is from Irma Scartz from Goldman Sachs. Irma, please. Hello, good morning. I would like to go back quickly to something that Guanay said about the major competition that you have, not only with consumers in marketplaces, but also in the fulfillment. I think you talked a little bit about the built out of the infrastructure, but I would like to understand how you see this potential greater competition among marketplaces. that are trying to bring in sellers. How do you think you can differentiate yourselves from the other marketplaces, whether in sellers conditions or in operating areas? And my other question is, related to a logistics network and where inventories lie. Where are you in this learning curve in terms of the complexity of knowing where inventory should be positioned to effectively avoid inventory duplication or maybe

some inefficiency rate.

And if you have options, whether in the gross margin or in the inventory levels themselves, to explore a better efficiency of positioning inventories in regional levels. Good morning. Thank you for your questions, Irma. I would like to clarify about the second part. Are you talking about fulfillment or 1P inventories? Both. Very well. Thank you for your question. I would like to stress what we have been saying. For us, Magalu has a very balanced approach. When you create a channel, we don't need to destroy the other one. When we developed 1P, brick and mortar stores are still there. They're still an important pillar. And we introduced 3P in the company. We have never done it to destroy 1p we like having a balanced out perspective 1p 3p physical stores we believe this balances out the ecosystem it's very important and that's what maintains our balance so we have one channel sometimes when the other one it has a you know some It's going through a hard time, so they have the same operating infrastructure. This allows our business to have a lot of synergy, we believe, in this balance, 1P, 3P, brick and mortar stores. And within the online, though, 1P and 3P also need to have important balance. And all the channels have to operate with a positive margin contribution. We never operated, and we have never been a player to grow a lot, but having losses. We have not gone into this fight. There was a movement with 1P back in the past with Americanas and e-commerces that were funded by VCs, and we did not go into that fight at the time. We persevered, and today our 1P is the size it is. Even at that time, we let go growth, and we... you know, at the moment that was an irrational 1P. There was an irrational war for 1P and now it's the same on 3P. A lot of subsidies and a lot of bonus. And so each sale ends up having a negative margin contribution and for the platform we did not believe in this model we never believed it it's not part of our rationale and our results here in brazil our capital cost is in brazil so if we have negative results we do not have matrix uh or you know a holding company to send us the money we have to operate on top of our capacity i like being like this and this is my entrepreneur's vision For me, this is positive. And this is what I tell my team. That's how we learn how to be a better executive and to choose to be in a market with a positive margin contribution. Our differential, and there are many, but we have one main one, which is the multi-channel aspect. stock the inventory, the merchandise from the sellers in the same DC that we store the 1P merchandise. These are the same DCs we are using idle space in this working capital management that we have to place, to bring in 3P inventory. and therefore 3p will benefit from the same advantages of 1p and i have already said here and which is a store pickup ship from store these are all the different possibilities that allow us to provide the categories that are in the fulfillment to operate with free freight that's the case we have a free freight for pickup stores and uh we still have profits so we are operating, we send to the partner with free freight, you have to pay additional costs. But if the product is at fulfillment, and you have a store pickup, the delivery cost is much lower, because we are using the logistics of a truck that's already going to the store. Therefore, we have this type of productivity. And because we have the multi channels, we can be very competitive. And we believe that we'll keep on growing sales in this context. I think I still have another question. The inventory allocation? Fabrício can talk about that after, but what I can tell you is that we operate inventories for almost 70 years, so we do have Having the 1P background at this time, it helps a lot, not only because of inventory management, but one of the strong areas of the company is the supply team, the planning team, the items, and maybe Fabricio can better explain that. And obviously, we're going to use a lot of this knowledge to share with sellers as well. So everything that we have learned over the decades with the 1P supply, we can apply in 3P. We can detail how our supply team works. Yes. Well, good morning, Irma. This is Fabricio. Thank you for your question. As Fred said, we have a lot of experience. We have 18 DCs, 21 with the brands in the ecosystem and 1,245 stores, all of them with inventory. And by our working capital, you can see that we have a very well done a cap inventory management, a supply team that is very robust and an algorithm system that is great. It's supported by AI. So this experience that we have for over 60 or 70 years, you know, we can use this experience from 1P to 3P. So we are sure that our inventory management is one of the best that we have in Brazil. It's extremely efficient. I just would like to stress that at the food today, 80% of deliveries are free freight and very good economic units thanks to this multi-channel structure. I understood. Thank you very much. Thank you for your questions, Irma. Our next question is from Antonio from Jefferies. Antonio, please. Good morning, everyone. Thank you for taking my questions. Two questions here. I first would like to hear from you about the partnership of Casas Bahia and Mercado Livre, if there is an impact in the short and especially in the long term. And the second, and maybe I would like a little bit more color on Magalupe perspectives for the fourth quarter for next year, increase DCC. And if we can go over Louisa credit, the capacity of growth, when it's going to happen, if you're going to need extra capital or not. Good morning, Antonio. Thank you very much for your question. The first one, well, I never talk about the competition. That is my habit. So it's very difficult for me to answer the first question. What I can try to say in a broader approach, I'm not going to mention the movement of our competitors, but for us, the worst competitors, even in the traditional categories are the ones that are the informal ones, the small sellers, the ones that do not pay taxes and therefore they have a different pricing or surprising that is difficult to understand and these sellers are all over and they have prices that they make no sense or contraband cell phones that come from paraguay so these are the informal competitors the small ones that they end up uh doing something that a larger listed company does not do because we have to pay costs we have to have margin and we follow the all the right practices and rules and so on so for me in the traditional categories and in the online the main challenge although we can offset that with our purchasing power and with our size and our multi-channel approach so even then our main headache is the informal small multi-seller So now I'll turn to Jorg.

Thank you for your question.

Now, just stressing some of the observations already made by Fred and Beto during the presentation. We are at a very good moment for Magalupe. with a number of levers that have been triggered before I started. And there were some highlights as well, some adjustments to trigger other levers. DCC, as already has been mentioned, it is at a highest level of penetration in stores and the stores 10.3. If you add the recent penetration of digital, we are already at the all time record of penetration. with at 11.5 now with the financial company and with better perspectives of experiences and adjustments that we have made in credit and incentive we will of course continue increasing this penetration over the next year this associated to other levers that we have um in motion is increasing, is bringing in the penetration of our numbers to all time records. So we have done an analysis of opportunities that we have in stores dispersion and review of pricing policies. And as I said, the increase in DCC, that's going to keep on driving the results. The consortium, we are focusing on the growth of profitable lines. These are lines that ensure that we are going to have a long-term relationship with clients. Residential and auto already address 95% of all of our IOM with focus in quality. And here the payments in the consortium over 80%. In addition to all of that, LuisaCred still has a strong focus in growing with quality. I would say that the three main focus with LuisaCred will continue being resilience, efficiency, and engagement. For resilience, we already talked about this. And we have been improving the delinquency levels. We are at historical figures, 18%. And 2.6 in the short-term delinquency for efficiency. We are running at efficiency levels of 33% and it's coming down in engagement. And despite of the drop of the number of active cards, exactly because we're focusing on quality, we maintain engagement and proof of that is constant revenue. But these will be then the trends for the next quarters. We'll be very much focused in improving our historical vision and going from transactional to more relational to clients. And on top of that, to develop a long-term strategy that may not only leverage financial services but really to create a symbiosis with the retail levering our competitive advantages which are our brand our multi-channel approach and our ability to allocate capital focused in return thank you very much everyone thank you for the questions antonio

Our next question, Pedro from XP. Pedro, please, you may go ahead.

Good morning, Fred and the executive teams.

Maybe on a more strategic dynamics in the presentation, you brought the strategic cycles of the company from 2020 to 2025. Maybe if you could detail a little bit more about the company's mindset. for the coming five years or for the more distant future. And then thinking about all of the businesses, both core business, Magalupe, Magalog, cloud, ads, what's happening in terms of investments, expectations, and overall. So maybe a little bit more on the short term, if you could talk a little bit about the strategy for the Black Friday, maybe. I think it's not, we're talking too much about the competitors, but with this announcement of Casas Bahia and Mercado Livre, there may be a strategy to try and be more aggressive in this Black Friday, understand your mindset a little bit and the possible levers to bring stronger bonuses maybe, or prioritise profitability in this shorter term context for the Black Friday and the end of the year, the holiday months. Thank you.

Pedro, thank you for the question.

I think it's two questions within what you asked. About the Black Friday, I go back to what I mentioned before. I think that the major players play a rational, by-the-book game. They each take their offers to the Black Friday, and for me, that's part of the game. I don't see this Black Friday being that different from the others because whoever the big player is, they will operate within the rationale, pay in taxes and with official legitimate products and the pricing coordinated with the major brands. So I don't see a change in the Black Friday's competitive dynamics. As I said, the competitive dynamics is tighter from those informal sellers who don't pay taxes and they are the ones who kind of hinder us. But on Black Friday, they don't have volume. So for Black Friday, Magalu and a lot of the surveys is the brand that consumers seek the most because it's the moment when they buy high ticket and they want products with guaranteed provenance. And I have no doubt we'll have another beautiful Black Friday with great space. I have a lot of faith in the live that will stream for Black Friday from our store using the YouTube theater there as well as a stage to stream that once we have that moment when Black Friday begins, we have a lot of actions, Black Bush, Now or Never, There's a few campaigns that we've been running for a number of years with Credibility. And I believe we'll have a positive Black Friday. We bought the inventory. We have the inventory. We have good turnover with the suppliers. We also had a good meeting with the sellers. We have good offers, especially for the full modality. And I think we will be competitive. And for the future, I haven't announced the new strategic cycle yet. What I've been telling everyone, and I'd like to emphasize and go back to Lou's WhatsApp is that I see very clearly that AI commerce will be the most significant modality and it will be the prevalent purchasing modality in the future. So there are already some surveys around the world indicating that starting in 2028, A majority of online purchasing journeys will take place mostly or exclusively through AI agents or an AI chatbot. And I believe that this investment, looking at the market for 25 years, I think this is a very good bet. And I see that AI is at the center of all retail companies and non-retail companies. I think we cannot ignore the impacts for you in the financial industry and for us in retail and for pretty much all industries that have a technology component, even the ones who don't. I think AI must be at the center of the next strategic cycle looking forward, but we still need to develop this a little bit further. I certainly see that we have a lot of opportunity to give more relevance to multi-channels in all operations. Galeria Magalu is a milestone, just as Lu's WhatsApp is, but I see this as a concept to be replicated in the future because physical store is what makes Magalu different. Having that experience, that contact, being able to operate in these two worlds. Very few companies in the world, maybe none, can do that. of having a relevant operation in the two worlds and running them in an integrated way. So the multi-channel aspect and AI will definitely be pillars of the new cycle. But beyond that, I don't really have a lot to tell you ahead of time. Excellent, thank you. Thank you, Pedro, for your question. Next question. Ruben Couto from Santander. Good morning. Thank you for this opportunity. I think we talked a lot about the 3P and marketplace, but can you talk a little bit about the situation in the market and the core categories for 1P in terms of growth of your market share during this year? And maybe some color about the difference in the 1P growth between physical and digital areas. What do you expect, not only for the fourth quarter, but 2026, if you can give us more details? About 1P, that'd be interesting. Thank you. Hello, Ruben. Good morning. Thank you for your question. Well, since we've been, from what we've been seeing, I think we have been very resilient in our traditional categories. There's 67 years building them and the multi-channel aspect, especially for 1P, plays a role of competitive edge because the customer makes a purchase and can pick up at the store. The product is physically available at the store so they can also have a ship from store. There's 1300 stores with 1P inventory where we can deliver to the consumer's home and that makes a huge difference for us. So this structural benefit of our multi-channel presence and how we built the 1P and how it is natively integrated to the physical stores make this a resilient sale. So we feel that this is a category that feels a lot from the high interest rates because we are more conservative to grant credit. We are a lot more conservative when we run sales or clearance. When the interest rate was two, we had pretty much all categories in 20 payments with no installments. It's very rare for us to do that, always negotiated. So we don't have products with negative contribution margin considering the cost of money of making 20 installments with no interest for that transaction. So for us, obviously, this moment of high interest rates makes the category, the industry to move sideways or to grow very little. And we've been able to preserve our share in this context. I believe that the interest rates next year should go down and all of the interest rates decrease cycle is very positive for our category, both top line and bottom line. So I see that the future dynamics for the industry will be positive. There's a positive perspective considering it's also the year of a World Cup. And in that context, always historically, you can look at our history We've been listed for 12 years. World Cup years are always good years and years where the interest rates are going down as a good year. So I don't see how it would be different if all the market projections materialize next year. Great, very clear. Thank you, Fred.

Thank you, Ruben, for your question. Our next question is from Pedro Peroni from UBS. Pedro, please. Good morning, everyone. Thank you for the presentation. I have two questions on our side. The first one is about the 3P performance. If you can explain which categories have contributed most for this underperformance of marketplace in the quarter and also some of the brick and mortar stores. How is the breakdown of the main demands and the physical and how is that broken down by region? The second question is about having more color on the sales performance on a monthly basis in the quarter. And also if you have information or data to share regarding October already. Thank you. Good morning, Pedro. We have several questions. Let me see if I can recall all of them. About 3P. I think we already talked a lot with stress. I do not consider it to be underperformance. I consider that we have performed very well because we have had a positive margin, positive net income, and the marginal contribution of 3P was there. It was positive. And regardless, the GMV, So we made the strategic decision already communicated since the beginning of the year. We told the market that we would not go into sales with negative margin contribution. That's what we have done. It's in our plan. And we trust that this is the right strategy in an environment that has 15% of nominal interest rates a year for a company with our characteristics. And any operator that operates in Brazil thinks that this is the right rationale. It doesn't make sense to operate now with negative margins. I don't think this makes any sense. So now I'll turn the floor to Fabricio. Thank you. About 1p. We have stores, physical stores performance, very good in all categories, but I would like to highlight our performance in smartphones, 1p and 3p, we're growing two digits in the category. We gained a lot of share in this category. And the white lines and TVs, the other two categories, that we have also here in the company. We grew as well, high digits, and we are gaining share in both categories, both in the online as well as in the offline. Our performance in the month were similar months in terms of growth and not better, not worse. At the end of October, we see that there is a demand retraction because I believe consumers are waiting for November for the Black Friday. We have sales all over the month. So we started November very well, although October was not that of a great performance. So it's a characteristic of the market about regions. We also have good performance in all of the regions. The only region that has a lower growth considering the base of last year is the south because last year they had the floods and the performance in the second and fourth quarter was not very high and we had the problem going there. So the main highlight here, I would say, is the north region, the scenario and categories for the different regions. That's it. Perfect. Very clear. Thank you very much. Thank you for your questions, Pedro. Next question is from Victor, Banco Itaú. Please, Victor. Good morning, Fred and Beto and the whole Magalu team. Thank you for taking our question. When we look at the revenue growth of the company, especially for the third quarter, it was flat year on year. Gross margin and EBITDA also basically flat. And what draws our attention is that considering the stop-line growth, we usually see a stronger effect of operating the leverage. And this has not happened. It was very good. And the question is, if growth and revenue continue continues to be shy for a longer period of time, do you think there is a material chance of starting seeing a deleverage, operating the leverage moment that is a little bit higher? Thank you. Thank you for your question, Victor. Good morning. I think we have been showing a lot of consistency quarter on quarter, considering efficient operation. Our context, remember that we are changing our mix For instance, in the partner for fulfillment, fulfillment has a more dynamic approach, subsidies and results. We have a strong expenses control, all of them, leasing costs in general, payroll. So this is a very disciplined company in terms of its operating efficiency. And we have been able, in this small growth of net revenue, to offset that with a lot of efficiency with a better sales mix, a better 1P and 3P and physical stores mix. So you're managing the company as a contribution margin. So whether in the marketplace or in physical stores, we do not manage that with gross profit, but rather with contribution margin, paying for marketing, prepayment of receivables. So we have a strong discipline and fixed expenses are being developed out of this concept. We have a team controlling it, focusing on optimization. The revenue, in my point of view, is that we are seeing the year where we have the perfect storm. We have high interest rates. And we have aggressive competition in some categories of products, especially lower tickets. And high interest rates will affect the higher tickets in the sector. As I said, obviously, this does not allow us to do the very aggressive promotions that we can do when we have low interest rates and still provide positive margin contribution for next year. And going back to what I said in my prior question, I see that we will have in the future more favorable dynamics. When the leak rate comes down, we can be more aggressive in the categories where we have a high weight of GMV and also we will have a World Cup year. That's always good for our sector and it benefits a number of categories because it brings in flow for the online stores and for the physical stores. So this is temporary. This is not structural. This is a tactical decision for the year, which has been communicated for a long time. But it's not that we're not going to grow more. in the future. No, we just want to grow on top of a positive margin contribution. And when the context allows us to do that, and I believe in the next year we'll have a favorable context, we'll keep on growing the revenue as well. But if we don't grow, you know, homework again, we'll review expenses, we will drop costs. Costs can always be cut. This is a disciplined company. and it has a committed team, and it always delivers very significant things in terms of cost management. Thank you very much, Fred.

Thank you, Vitor, for your question. Next question. HSBC from Daniela. Daniela, please, you may go ahead. Good morning, everyone. I'd like to congratulate Fred for his first marathon in these 25 years at the company. And the first question is, I would like to understand, Fred, I don't know if it's Fred or Jorge, about Magalupe, when exactly will it be in full operation?

So can you give us

any gain or any estimation of the savings in financial costs, expenses. Maybe Beto can also add about comments on the structure or the dynamics between future fundings. And I mean, I know that considering the payments go through in-house and other services, it will be very positive. But can you tell us or give us an idea of what is the magnitude of this reduction, this potential reduction of financial expenses? That's the first question. Thank you, Daniela. This is Jorg. About the potential gains, it is true. there are not only tax gains plus financial efficiency that are possible, not to mention the gains we're still going to see related to the improvement in our proprietary credit models. As we mentioned last quarter, we brought a new team for credit with prior experience in institutions such as Capital One and Nubank to completely reformulate our vision of proprietary models with more data leverage, internal data from Magalupe and Magalu. And we believe that this will also bring significant benefits. But to try and quantify it a little bit in the line of your question, I would say that in addition to tax gains that are of about 20%, thinking about the DCC at the financial company, used to have approximately, thinking only about origination throughout the year, funded by instruments that may be achieved through a financial company, such as financial title, CGB and the cost of funding versus the cost of funding we have today, which is the company's equity, we can be speaking about something above 20 billion BRLs next year. So there are significant benefits and we'll start to materialize them and there will be a lot more. I think that the topic of this management and the view we want to implement for MagaluPay It's to transform a transactional view that we've always had into a more relational decision, corroborating what was said on Antonio's question earlier. We'll provide more elements to the market for you to understand better how the strategy reflects on Magalupe's day-to-day over the next months and quarters. Jorg, if I may add something here. Good morning, Dani. I didn't mention this, but we have a portfolio of 1.6 billion BRLs of receivables in retail, and the financial company will charge interest rates of 6% to 7% a month. That's the interest rates for installment purchases. And from that, you can estimate, we don't disclose this, but you can estimate the potential revenue of interest in this financial company in running rate. Obviously, this portfolio will be formed throughout next year, progressively. But since it's an average duration of 12, 13 months, next year, this portfolio will be formed. And in running rate, we have an interest revenue that will be quite significant. with expressive tax efficiency, as Jorg mentioned. So we're very excited with this project of the new financial company. Please go ahead. I was just going to take from what Beto was saying, along with José Aparecido, one of the experts in explaining these tax transactions, basically, I would like to understand whether there would be more gains or more actions that we could expect for next year. I don't know if he has an idea of the timeline. Maybe more effects of RAT, FAT, I saw that there was the IRS that was deferred that come from Kaboom. So the idea is whether there are other tax gains that we may expect, that we can expect for next year to make the adjustments or maybe try to simulate in our projections. Thank you. Good morning, Dani. Thank you. So we disclosed gains of about 300 million about RAT. That's the risk of labor accidents. That's a thesis that we've discussed since 2010. That was a trial from this year favorable to Magalu discussing a rate related to the potential risk of labor accidents. Our stores have very, very low risks, and we were discussing that, and that was discussed in court and provisioned. And with the recent favorable decision, the prognosis changed. We reversed the provision. We accounted that as other operating revenues because it's non-recurring and non-cash and initially, but since we had already deposited everything, we will soon recover this in court deposits. How quickly, Beto, do you think you can raise everything at once, or are you going to recover that in installments? Because it's a significant value. It is a significant amount. It is 300 million since it is a federal. contribution, it's a relatively faster process. But we estimate that to be of around 12 months. So we estimate it to be in the short term, within 12 months. In addition, Dani, in all our explanations, the Supreme Court concluded the trial of the topic related to default. We are waiting for the publication of the ruling about the default aspect referring to 2022. And due to the modulation of the effects, the Supreme Court decided decided not to allow the retroactive charging of the companies who had lawsuits discussing the application of default during the fiscal year of 2022, which is not our case. So we still need to wait for the agreement to be published to estimate all of the impacts for Magalu. But I'd just like to mention as well that we already have about this topic. Part of this is related to this default before 2021 and part of it of 2022. We are waiting for the agreement publication to measure the impacts and we expect the next quarters here This default, it's a tax rate over on the ISCMS. So this is a little bit more dispersed and slower. But we do have the expectation that within one or two years, we may also review all of the values that have been already core deposits in this topic. So I think these are the main ones. related to José Aparecido and the tax aspects. Thank you.

Dani, thank you very much for your questions. Our next question is from Andrew, from Morgan Stanley. This question is going to be asked in English and the answer in Portuguese. Andrew, please.

Thanks very much for the question. I'm curious about Galleria Magalu, how we should think about this. Is it more of a one-off concept store or could this be an engine for expanded store growth in the future? And then perhaps more broadly, whether it's a broader format like Galleria or more traditional stores, what would Magalu need to see to get back to store growth again, considering you mentioned that's at the center for Omnichannel? Thank you.

yeah hello andrew thank you for your question i would like to thank danny's remarks because if you take 25 years of retail you can take 42 kilometers of running, that's easy, that piece of cake. So about your question, Andrew, I would like to stress the idea here, which is the great expectation that we have and the huge success of audience and the economic success of this store as well. I would say this is a redefinition of department stores in Brazil. Basically, in Brazil, we don't have department stores. The major department stores in Brazil were in the past, in the 80s, in the 90s, mapping in Mesbla and I believe that with the Galleria we have a possibility to have something updated with this strong approach of having the connection of the stores and social networks. We're going to have a YouTube channel and I see an audience appeal that is huge and all the challenges that All the physical stores have this challenge of bringing in audience. I think we are going to be very well positioned in that space. We are going to have diversified sectors, a very nice concept. We will have experienced coffee, restaurant, art gallery. So I believe we have a strong appeal. And in Brazil, Brazilians, they don't have that type of concept. If it works, we should replicate the concept, of course. both in units that are already existing. I mentioned some of them. There are 40 to 50 units that have over 40,000 square feet or meters that can be converted to this new concept, but new places as well, you know, looking into the future. It will all depend on the success of this formats concept, but we are excited, and remember, We already have, you know, for the gallery, before we had good experiences, and Fabrício also mentioned in prior calls, we have an actual stores for outlet, and also an outlet of Kaboom, also here at TTS unit, and both of them are doing very well. It used to sell 5 million, and we opened a Kaboom unit, an actual unit as well, each one of them, selling 2 million a month. And Magalu's business doubled in size. Today, we have almost 15 million a month of GMV there. So of course, these are outlet stores, different concept, it needs to be validated, but it's very encouraging for the business to work and to be an expansion element for the company, especially for Netshoes, Kaboom and Epoca. the introduction of this multi-channel concept in their format will help a lot and it will help the consumers to connect the Magalu to all of these assets that are very relevant. Thank you, Andrew, for your question. Next question from Gustavo from Bank of America. Gustavo, please. Hello, good morning. Some questions on our side. And I know you won't talk about competition, but how do you think about doing new partnerships to sell your products, whether 3P, 1P or other platforms, especially 1P? And I also noticed that no one commented about KPIs or updates. on your partnership with AliExpress. Can you give us more color on that as well? Thank you. Good morning. Thank you very much for your question, Gustavo. Well, our idea of partnership has to give us reciprocity. So if we bring our 1P to a third-party platform, that third party platform has to place their catalog in Magalu. It's not a one-way street here. That's what we did with AliExpress in the past. We listed our 1P there, but they also brought their cross-border item to Magalu, they listed those, and this is a partnership that has a mutual benefit. It has a good balance in the business. So whenever we have this exchange, there is a possibility of discussing partnerships, just listing 1P in a third-party platform. That's something that we'd rather not do, because if you list your 1P in the third-party platform, you lose the client, you have the sale, but you lose a relationship with a client. If it doesn't come from the other side, something that will give you the possibility of gain new clients over time, you're going to lose your base, net base of clients. So Magalu is well balanced with Aliexpress, the clients that they bring us is equivalent to the number of clients that we bring them. Of course that our GMV because of the tickets is much higher, it's more relevant there. But I would say that we are in general, in line to what we had expected. This is a healthy partnership. And there is a possibility, and we are counting on them in the very short term, which is also them operating with Magalog, so AliExpress Brazil using Magalog. We are in an approval phase and the final contract discussion. I see this is something that we could grow on, and that would be very positive in our partnership now. probably for the fourth quarter and for the beginning of next year. We are very excited about this possibility. We're happy about the partnership. And that's just the way that we would be open to other partnerships. That's very clear. Thank you very much, Fred.

Thank you, Fratini, for your question. Next question, JP Morgan. Nicolas, please, you may go ahead. Thank you, Vanessa. Good morning. Fred, Beto, Magalu, Sim, thank you for your time and for taking my question. A lot of my questions have been answered, but I'd like to hear a little bit about working capital, how you see the opportunities to increase that maybe the inventory, how do you see working capital now for the fourth quarter and for 2026? Any answer would be very helpful. Thank you.

Good morning, Nicolas.

Thank you for your question. I mentioned that in the third quarter, we usually increase inventory. It happened last year, it happened this year. This is very positive. We've been able to plan the end of the year very well with all of our suppliers. So we make this move, this advance in inventories, Along with that, we expand the balance of suppliers. We can also get great negotiations in terms of terms of payments as well. So today we have a very balanced working capital relationship between suppliers and inventories. So we work a lot, Nicolas, so that all suppliers fund their inventories here at Magalu. They finance it just as we finance all of our customers. And with the new financial company, this will be even more clear. It'd be very good for working capital because all of our sales, when we think about accounts receivables, PICs we receive on retail up front, if it's on DCC on retail, we'll also get it up front. And credit cards, we make discounts every now and then. Traditionally, we see accounts receivables as very flexible and light. In inventories versus suppliers, we work a lot with this dynamic based on negotiations and partnerships with our suppliers in the sense that our suppliers finance their own inventory with us, and we've been able to do that in a very healthy manner, and we expect to continue to do so. with the same dynamics next year. And this is also very positive. It's a win-win. Because as we reduce their inventory, it increases our efficiency, the turnover of our inventories. They also gain from that as well. So that's a very positive dynamic, and we can't look too much at the third quarter turnover because we raised it in the last weeks, inventory in the last weeks of September. But when we look at turnover in the fourth quarter, we should see significant evolution. The volume of sales in the fourth quarter is much higher than the third. And the inventories tend to be lower. And we tend to end the year with a working capital position that is very healthy, prepared to enter next year. And we have a lot of room, as I said, as I told you, Nicolas, on the last call, we have room to further improve inventory turnover. That depends a little bit also, as Fred mentioned, on the resumption of growth, the interest rates tends to help and all of the initiatives we're implementing are in the sense of increasing sales in a healthy manner. And we realized that by increasing sales, we don't need to increase inventories. So we should see an evolution of inventory turnover that will be very significant in the coming periods. And just to conclude as well about working capital, Nicolas, this quarter, we did not have a lot of tax monetization. That's seasonal in the third quarter. we usually increase inventories and that brings more tax volume that are paid ahead of time with the tax substitution. But in the fourth quarter, just as last year, we monetized a lot in the fourth quarter, 250 or 300 million inventories monetized. And the trend in the fourth quarter is to monetize not inventory, sorry, taxes, to monetize taxes a lot as well in the fourth quarter and end the year with a balance of taxes to recover smaller with a trend of reduction next year. So overall, we're optimistic with all lines of working capital, and I'm confident that they will contribute greatly to our cash generation at the end of the year and next year as well. Thank you, Nicolas.

Thank you, Beto.

Thank you, Beto. Thank you, Nicolas, for your question. We conclude the Q&A session at this time. I would like to turn the floor back to Frederico Trajano for his closing remarks. Please, Fred, you may go ahead. So I would like to thank all of you again for attending our earnings conference call and make an invitation. If you have not yet used Lou's WhatsApp, please contact our IR department and we will clear your numbers as we did for our more loyal customers so that you can test this innovation that we launched this week. It is worth it. I recommend it. Thank you. Have a great Friday and a great weekend. Magaluz conference call is concluded. The investor relations team remains available to answer any further questions. Thank you for your participation. Have a great day.