Good morning. My name is Sophia, I will be your conference operator. All lines have been placed on mute to prevent any background noise. This is El Puerto de Liverpool's second quarter 2023 earnings call. There will be a question and answer session after the speaker's opening remarks, and instructions will be given at that time. Today, we have with us Mr. Enrique Guijosa, Chief Financial Officer, Mr. José Antonio Diego, Treasury and Investor Relations Director, and Mr. Enrique Griñan, Investor Relations Officer. They will be discussing the company's performance as per the earnings release for the second quarter of 2023, issued yesterday. If you did not receive the report, please contact Liverpool's IR department, and they will email it to you, or you can download it from the IR website.
Please note, this call is for investor and analysts only, and questions from the media will not be taken, nor should the call be reported on. Any forward-looking statements made during this earning call are based on information that is currently available. They are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in El Puerto de Liverpool's most recent annual report. Please refer to the disclaimer in the earnings release for guidance on this matter. I will now turn the call over to Mr. Enrique Guijosa.
Thank you very much, Sophia. Good morning to everyone, thanks for joining us. I hope you're all doing well. As usual, I will start the call by quickly covering the highlights of our second quarter results and devote the rest to answer your questions. The second quarter of 2023 was, once again, a period with both strong results in almost all our key performance metrics and continued progress in our strategic initiatives. We were able to achieve robust top-line growth rates in our three business segments, our consolidated revenue increased 11.8% year-over-year. Retail sales grew 9.8%, interest income from our credit portfolio increased 26.7%, revenue from our shopping centers was 46.1% above year ago.
It is important to highlight that the latter includes a one-time effect of MXN 225 million, as we were able to reach a judicial agreement to settle an old insurance claim due to a property damage in one of our shopping centers. Without this effect, real estate revenue growth will have been still a very strong 25.3%. Two-thirds of this increase is explained by higher traffic. This reflects the strong results we achieved in our key promotional events during this period, namely, Venta Nocturna for Mother's Day and the Hot Sale. We continue to see our soft line categories growing above average, particularly women's apparel, footwear and accessories, cosmetics and fragrances.
In the case of Suburbia, same-store sales were 1.3% above a year ago, and the key driver in this case was the average ticket, as we observed a reduction of almost 1% in traffic. General merchandise and hard lines grew above average, while apparel lagged. Importantly, during the second quarter, we finalized the implementation of the new layouts, brand IDs, and signage for all Suburbia stores. For perspective, ANTAD department stores reported a 4.1% increase in same-store sales during the second quarter. Total ANTAD apparel and footwear categories grew comps in 2.9%, while general merchandise increased 4.6%. There were no new store openings in the quarter for both Liverpool and Suburbia. As you already know, in the case of Liverpool, we'll not have any openings during the rest of the year.
As for Suburbia, we are reducing our new store plans for 2023 from 15 new stores to eight, as some of the projects that we have in several shopping centers have faced delays. Our retail gross margin of 32% was 80 basis points below year ago. This reduction was due to the above-mentioned successful promotions and higher logistic expenses, which were partially offset by a more favorable product mix. The top line of our financial services business unit increased 26.7% year-on-year. This reflects a 24.1% increase in our credit portfolio as we continue to pursue a more aggressive growth in our credit card business. For perspective, we achieved a 10.5% increase in the number of cardholders to reach 6.9 million.
Suburbia, in particular, grew its cardholder base in 23% to reach almost 1.5 million. The share of sales with our own credit cards during the first semester was 48.5% in the case of Liverpool. This is 240 basis points above a year ago, while in the case of Suburbia, it was 30.1%, an increase of 340 basis points year-on-year. As mentioned before, normalized revenues from our shopping centers grew 25.3% year-on-year, as we were able to increase occupancy by three percentage points to reach 92.2%. We continue to see very healthy growth rates in the number of visitors to our shopping centers.
Our consolidated gross margin on 39.6% was 40 basis points above year ago, as the business segment mix effect allowed us to more than offset the above mentioned retail gross margin erosion. Operating expenses without bad debt provisions and depreciation grew 10.3% year-on-year. The main factors behind this increase are the same ones I mentioned in our conference call for Q1. They were mainly payroll expenses, the variable expenses tied to our sales volume, and general inflation. We closed Q2 with an NPL ratio of 3.0%. This is 60 basis points above year ago, and 30 basis points higher than what we expected at the beginning of the year, as we were unable to offset the higher entry rates that we faced early in the year through a more efficient collection.
To note, the NPL ratio for Liverpool was 2.8%, while Suburbia's closed at 5.8%. As you already know, we decided to make an important change to the way we account for our bad debt provision in our current P&L during this year. Accordingly, in Q2 2023, we provisioned MXN 884 million, an increase of almost 70% year-on-year. This allow us to close the first semester with a cumulative provision that represents about 50% of the expected amount for the total year. For perspective, in 2022, the first semester provision was only 14.4% of the total year. As you can see, this is a significant change. Our coverage ratio at the end of the quarter was 10.0%, 40 basis points below a year ago.
Our Q2 EBITDA of MXN 8.7 billion was 11.8% above year-ago, while our EBITDA margin was 18.3%, in line with the same period of 2022. These figures include both the positive one-off in our real estate business unit from the insurance settlement, and on the negative side, the new way to account for our bad debt provision. If we normalize for these two effects, our Q2 EBITDA was 10.4% above year-ago, and our EBITDA margin was 17.9%, 20 basis points below the same period a year ago. As I stated at the beginning of this call, we continue to move forward in all our key strategic initiatives to strengthen our omni-channel ecosystem.
Digital GMV in the second quarter was 28% above year ago, and our digital share was 27.1%, 300 basis points above the same period last year. Monthly active users of Liverpool Pocket increased 38%, and downloads grew 24%. Our marketplace GMV grew 60% year-on-year, and we closed the quarter with 34% more sellers and 19% more SKUs. For perspective, almost half of our digital catalog comes from our marketplace. During the second quarter, the digital orders that were delivered in 48 hours or less grew 32% year-on-year and accounted for 47% of total orders. This is 80 basis points above year ago. The share of click and collect was 40%, 5 percentage points above the same period last year, and direct store deliveries were 32% of total home deliveries.
This was 10 percentage points above year ago. During this quarter, we opened our first fulfillment centers, one in Monterrey and the other one in Villahermosa. In the case of Suburbia, our Q2 digital share doubled to reach 3.7%. We now have a digital kiosk in 1/3 of our stores, and we have implemented fulfillment capabilities in 2/3 of our store base. Finally, the new order management system for big ticket items is now up and running in all Suburbia stores. In the financial services ecosystem, we continue to roll out our personal loans offer to our best Liverpool cardholders. During the first semester, almost 10,000 customers accepted our Liverpool Cash product for a total origination of more than MXN 400 million. This allow us to close the quarter with a Liverpool Cash portfolio of almost half a billion pesos.
Transactions with our wallet in Liverpool increased 3x year-over-year. In the case of Suburbia, we completed the rollout of the Mini Pagos product, which is now available in all Suburbia stores. Turning to our balance sheet, total inventories grew 7.7% year-over-year, which is a meaningful reduction when compared with the 20.7% increase that we registered in the first quarter. Cash flow from operations during the quarter was MXN 2.2 billion. This was MXN 3.2 billion less than 2022, due to higher working capital, namely our credit portfolio, and also higher income taxes. CapEx during the quarter was MXN 2.3 billion, almost 50% over year ago. This brought the first semester investment to MXN 3.4 billion.
Almost half of this amount was invested in our Arco Norte project. Another 40% was allocated to new stores, remodeling, and expansion projects. Importantly, the remodeling of Liverpool Santa Fe, one of our flagship stores, continues as planned. At the end of the quarter, cash on hand was MXN 15.8 billion. Our net debt to EBITDA ratio was only 0.35x . Regarding dividends, the first installment of MXN 1.57 per share was paid on May 26th. The remainder of MXN 1.04 per share will be paid on October 13th. In other news, on April 12th, we opened our first showroom for the BYD electric vehicles brand in Galerias Insurgentes. On June 14th, we opened our first full-service BYD dealership, including a workshop in our Perisur shopping center.
We concluded a limited assurance report by PwC on the ESG section of our annual integrated report, and the updated version is now available at our investor relations site. We also published a list of changes on the metrics covered on the release review. It's important to highlight that this is the first time that we undergo a third-party validation of the ESG metrics. This reflects the portfolio's commitment to ESG on their La Huella, or the footprint, corporate strategy. Thank you very much. That's it in terms of reviewing our performance during Q2 2023. We continue to show strong operating results, as you heard, meaningful progress has been achieved in all strategic initiatives. We can now move to our Q&A. Thank you very much.
We will now conduct a Q&A session. If you would like to ask a question, please press the Raise Your Hand button located at the bottom of the screen. If you are connected via telephone, please dial star nine. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be unmuted. If you have placed yourself on mute, you will need to unmute yourself to ask your question. Our first question comes from the line of Sergio Matsumoto. Please state your company name and ask your question.
Hi, good morning. It's Sergio Matsumoto from Citi. I wonder if you could help us understand the Suburbia customers that seem to be somewhat under pressure. Perhaps if you could maybe describe them, how today's shopping behavior for that segment of the population is different from the slowdowns that you've seen in the past. Also, if you could describe your strategy to help stimulate those sales with the new store layout and et cetera. Thanks.
Yes, thank you, Sergio. Well, as you know, the target of Suburbia is basically the lower socioeconomic levels. That's very different than in the case of Liverpool, where the focus is on the middle class. I'm sure that, you know, with the high inflation that we have seen in Mexico in the past several months, which has been improving, but still, you know, well above the Banxico's target. In particular, the inflation for basic staples, that's food and beverages, is still in double digits. That has certainly eroded the purchasing, you know, power of basically all Mexican families.
Particularly, I think that the lower socioeconomic levels have been hit harder, because as you know, they devote the majority of their income to these basic needs. I'm sure that that's one of the things that is, you know, hurting the Suburbia customer. In fact, you know, based on the information that we have, we have seen, and I'm sure that you have seen as well, the numbers that Walmart has reported in the previous two quarters for apparel, basically in the negative figures. Anecdotally, we also heard, you know, from some other retailers that are focused on these lower socioeconomic levels, that they're having a hard time with these, with these customers.
On the other hand, if you see the ANTAD reading for Q2, for apparel, the increase was only 1.9%, which is still low. Overall, I think that this is hurting certainly the Suburbia customer. To complicate things even more, I think that the informal sector, the information that we have, it has been growing, and we see like merchandise coming into Mexico, probably small, without paying any taxes, being sold in these informal markets. That's a strong competition to us in this lower socioeconomic level.
I think that that's what we can, we can tell you in terms of what we see as the factors of of what's going on with the with the Suburbia customer. We are, as I said, we have just achieved, you know, the rollout that we did in order to significantly improve the image of the Suburbia stores. I think that if you go to a Suburbia store today, what you can see is, you know, they are the a better image of of a Suburbia store, with new layouts, with new colors in the in the, you know, the walls. The identification of all brands like, it's clearly, you know, displayed. It's easy to navigate now for our customers.
In that regard, we feel very confident that the customer is, you know, noticing those changes. Unfortunately, the macro headwinds in that socioeconomic levels are not helping us to see the lift that we are expecting in terms of same-store sales. For the second semester, we're still, you know, hopeful that things will improve with the new fall and winter merchandise. It's already arriving to the store. Fortunately, we have, you know, played very well in terms of inventory, so we don't have even though Suburbia has been performing below the expectations that we had at the beginning of the year, we have been able to maintain, you know, our inventories in good shape.
We don't have any excess inventories going into the second semester. That certainly is good news in terms of profitability. Again, we are hopeful that, you know, with the new fashion merchandise that will arrive in the for the second semester, we will see their numbers, in the case of Suburbia, in the second semester, to achieve same-store sales between 7%-8% in the second semester, and total sales close to 10% in the second semester for this format.
Great. Thank you. Look forward to seeing the new Suburbia stores with the new image. Thanks a lot.
Thank you, Sergio.
Our next question comes from the line of Rodrigo Alcantara. Please state your company name and ask your question.
Hi, good morning. Can you hear me?
Yes, loud and clear, Rodrigo.
Yeah, thanks, Enrique, for taking my questions. Very a couple of quick ones, if I may share. On Liverpool Cash, if you can comment on, you know, what's your, how, you know, longer term, I mean, how much of your, or your portfolio you want to, or your gross loans you want to allocate here for consumer credit? Just to get an idea of how big, you know, could be, could get Liverpool Cash in the mid to long term. The second one, if you can comment on same-store sales apparel for Liverpool, would be helpful also. I think, assume that, I mean, private label is much more lower, right, than what is in Suburbia, right? I think that you have a couple of brands there at Liverpool as well.
If you can comment there on the health of the brand of your apparel categories at Liverpool, you know, forgetting about Suburbia. The third one would be if you can just elaborate on your initial comments, Enrique. Did I hear well, that you said that half of your total catalog is marketplace? Is that correct, what you mentioned? That would be all. Thank you, Enrique.
Yes, going to the easy one is the last one. Yes, yes, you heard right. Yeah, almost half of the catalog that you see in our digital platforms comes from the marketplace. We have seen, you know, a significant increase on that, on that business. We saw a 60% increase in terms of the GMV, which is, you know, very strong. As we said in our investor day, we think that marketplace will continue to be one of the key growth, you know, vehicles for years to come. Going to your first question, in terms of Liverpool Cash, I mean, we, I think that we're still, you know, testing the waters.
I think that today, we're offering the that product only to, you know, to the very best, the low-risk customers for the Liverpool cardholder base. We have been, you know, like, almost at 40% of what we expected in terms of the install rate. Still very, very early in order to tell you frankly, how big this can be. We'll continue to be very careful in how we roll out this to make sure that we have, you know, the right balance between higher risk that comes from these personal loans and how well accessed is this product. Again, it's too early to tell.
What I can tell you is that we think that there's a big potential, like, when you see the how the % of the total credit lines that we have extended to our cardholder base, how much of that total is today occupied by purchases from our customers or the portfolio. We, I would say probably we only have, like, 25%-30% of the open to buy occupied, we have a significant chunk of the credit line, which the customers are not necessarily willing to occupy for additional purchases, both of the merchandise, but they might be interested in getting a personal loan, like a an quicker, in a quick way, an easy way.
Again, very early to tell, but we are hopeful that this has a very promising outlook. On the, and in terms of the Liverpool private labels, you're right. I mean, in the case of Suburbia, almost 2/3 of what we sell in terms of private, comes from private labels. In the case of Liverpool, it will be in the in the low twenties range, so is significantly below. As you know, in the case of Liverpool, the brands, you know, the international or local brands that we have are very important in merchandise mix.
We have, you know, we use, you know, private labels very selectively in order to complement that very strong international and local external brands offering. They're performing well. I think we're happy. They're also performing well on the hard line section. There, I think that they play a bigger role in all the items that we sell for the home of our customers. We have several brands that are doing very well, so that's what I can tell you overall.
Yeah. Right. Just to make sure I understand, so, you said, private label at Liverpool are performing well, meaning, you know, same-store sales in line or perhaps above what, you know, what, and that or the industry is growing. Is that the correct, read here?
Yes. Well, as you know, I mean, we said that, you know, the same-store sales for Liverpool grew basically at twice what we observed in the department store for the entire. The Liverpool banner performed very well, and the softline categories in general grew ahead of the hardline categories. In the general mix, again, private labels are growing, I would say very much in line what we see in the rest of the softline categories, which is again, well above what we see in the total market.
That's clear. Thank you very much, Enrique.
Thank you.
Our next question comes from the line of Antonio Hernandez. Please state your company name and ask your question.
Hi, good morning. This is Antonio Hernandez from Barclays. Just two quick questions regarding the Suburbia follow from Sergio's question regarding the underperformance and also in terms of the openings, that you're now lowering the amount of openings expected for the year. In terms of CapEx and investment overall, what should we consider? Also the other Suburbia openings that you won't have this year, should we expect those next year then? How are you seeing overall? A quick follow-up would be regarding the rebate that you mentioned had a negative effect this quarter. Thanks.
Yes, Antonio, thank you. Well, yes, we are lowering the store, you know, plans for Suburbia for this year. Frankly, it has more to do with the, you know, delays in terms of the negotiations with the shopping centers, with some delays in the construction of some new shopping centers. It has more to do with, I would say, external factors that we don't control, rather than a willingness or a decision on our side, in order to stop or significantly reduce the number of Suburbia store openings. That's very important to highlight, that it's not, you know, like that our own decision, it has to do more with external factors.
Having said that, yes, we believe that all these 10 stores that we are not gonna open this year will move to next year. We hope that for next year, we will have a very right balance between the store openings between the first and the second semester. For next year, we're probably gonna target to open 15 stores to shooting to get hopefully to 20. The idea is to catch some of the delays that we face this year for next year. In terms of CapEx, frankly, the capital investment for a Suburbia store is around MXN 45 million-MXN 50 million.
The delay of this seven new stores would reduce CapEx more or less, I would say, in around MXN 300 million. That's what you could expect in terms of the CapEx that we announced. Our CapEx would currently be probably, you know, now between MXN 8.5 billion and MXN 9 billion, a little bit below what we announced in the previous call. That's the perspective in terms of the Suburbia store openings. I didn't get the second question. Can you repeat it, please?
Yes. Thanks. Thanks for all the color on Suburbia. The second question is regarding the rebate, the speculative rebate that you had an impact from it this quarter. If you could provide a little bit more light on that, and what should we expect?
Well, I guess that, you know, how strong has been the peso has been a surprise to all of us. I think that you have asked us all of us, or the majority of us, that we're gonna see, you know, the peso trading at MXN 16.8 per dollar in July 2023, a year ago. We have all had said there was no way that was gonna happen. Indeed, that's what we're seeing.
When we prepaid the bonds of MXN 250 million or the bonds that are due in 2026, in order to reduce, you know, the concentration that we have for the debt in that year, we decided that, you know, it made sense to leave the derivative, which was tied to that bond open, thinking that the probability that the peso was going to, you know, like, be above the MXN 19 , more or less, a threshold that we have in the slot for that financing.
That the probability that the peso was gonna be above 19, you know, pesos was higher than a stronger peso. We decided to leave that MXN 250 million pesos derivative open. Obviously, that has not happened. I mean, the peso has strengthened more than it's almost like Sorry, MXN 2.50 in the past 6- 7 months.
That, you multiply that times $250 million that we have open the derivative, that's why the total loss related to the derivative is in the neighborhood of MXN 600 million, which is, you know, you add up all the losses that we have seen in the past, basically in the past two quarters, that you arrive precisely to that amount, close to MXN 600 million. We believe that we should be close, you know, to stop there, that the peso will probably stay, I guess, around these levels. If you see, you know, the expectations are that we're gonna be, you know, looking at a weaker peso by the end of the year.
Frankly, I mean, God knows, so we, where we are, we don't have any plans, you know, to get rid of this derivative, because we are, you know, in the worst part of the cycle, I guess, and the maturity is until 2026. We'll, you know, keep the derivative for some time, hoping that the peso, you know, like, will get to, you know, like, a weaker levels in the years to come, and we recover, hopefully, all of the these paper losses that we've have recorded in the past, two quarters. I hope that was, it was a long explanation, but I hope it was, that was clear.
No, yes, thanks a lot. This was very helpful. Thanks. Have a great day.
Thank you.
Our next question comes from the line of Luis Lianes. Please state your company name and ask your question.
Hi, this is Luis Lianes from Santander Asset Management. Thanks, Enrique, for taking my questions. Two questions. One, you know, I guess a related question to the strength of the Mexican peso. Perhaps if you could talk a little bit about, you know, the impact that it may have or it has on, you know, your imported goods. Perhaps if you could remind us, you know, what % of sales at this point are coming from, you know, imported goods, how much flexibility you have to change?
you know, as we look into the next couple of quarters, you've been buying, and given what you said in terms of inventories being lean, I'm guessing you've been buying a much more favorable exchange rates, the new collections, et cetera. What happens, you know, in that sort of scenario? Do you need to pass it, all those benefits, to the consumer? Could you try to keep some of that, and that may be reflected into better retail margins? I guess the impact it could have on the average ticket, which so far, what we saw in both formats, is that it's been growing, you know, below inflation.
Just wondering if we were to see the Mexican peso, I'm not saying sixteen and change, but maybe around the seventeens, is it possible or conceivable to see actually average ticket going down year-over-year, mainly because of that effect? I guess a related question to that is: how could that play into potential, you know, being more aggressive on the promotion side, given that strength of the Mexican peso, especially for Suburbia, as you were saying, you know, the idea is to reactivate sales in the second half. Could that play a role? That'll be my first question. Thanks.
Yes. Thank you, Luis. Yes, I think that, well, I think that the strength of the Mexican peso, first of all, is, you know, very good news, you know, in terms of the mindset of the Mexican consumer. I think that the majority of us associate, you know, the strength of a currency in terms of how well the economy is doing. I think that in terms of just, you know, the confidence of the Mexican consumer, I think that is, that's certainly good news. That's a little bit on the side of your question, but I think that's important to recognize that the general mood of the Mexican consumer, I think that this strong peso certainly helps.
Now, going to your question, I think that in the case of Liverpool, I would say that more or less 25% of the merchandise that we sell in the store is imported directly by us. Another probably 25% is imported merchandise, but that merchandise, even though it's imported, it's sold to us in pesos by a local distributor. Even though around half of what we sell in the store, I would say, is imported merchandise, the merchandise that we manage directly, and we set the price directly, is more or less 25%.
Now, in general terms, what we do with our imported merchandise is that, when the merchandise arrives to our, to Mexico, you know, arrives through customs office in Mexico, the spot rate that we have, at that point in time, in terms of exchange rate, is the one that we use in order to set the price that we're gonna sell the merchandise in the store. I will say then that, you know, the strength of the peso, in the majority of the cases will, we will pass through that, you know, like a lower import cost to our price, and that will indeed be, you know, good news for the Mexican consumer in terms of the purchasing power. There are some exceptions to that.
In some cases, we do set the prices, you know, like well before the merchandise arrives to our country. I would say that is that's more an exception that happens, for example, in the case of Sfera. In that case, we certainly are seeing higher gross margins because of the favorable behavior of the exchange rate. Again, in general terms, I would say that we pass through the strength of the peso to our prices.
In that sense, yes, we may see, you know, a lower average ticket for our soft lines, but on the other hand, that would hopefully be offset with higher volumes, you know, given the more competitive price.
Great. Thanks for the color. The other question had to do with, you know, with credit. We saw, you know, nice acceleration on the credit portfolio this quarter, now you're growing faster than, you know, your commercial revenue and everything else. Just wondering, are you more comfortable in general terms as we move forward with, you know, origination or, you know, the slight increase we saw in NPLs, is something that worries you? I understand that it's coming from very low levels, 3% doesn't seem something that would worry you. Just to, for us to get a sense, is there a level where you might be a bit more, you know, concerned or at least rethink, you know, your origination efforts there?
How are you thinking about credit in this kind of environment, where part of your consumers are slowing down, part is not yet, but remains to be seen, rates are high, and you've been accelerating obviously, you know, the issuance of credit cards and also the usage of credit cards, as you pointed out on your prepared remarks, have been on the rise. Just wondering, you know, what are your thoughts there, and then what are you seeing in terms of, you know, veracity and going forward?
Yes, well, as you're saying, I mean, the credit division performed very well in Q2. The credit portfolio was like MXN 3 billion above what we expected, and at this point in time of the year. That has to do with both the fact that the retail sales have been, you know, doing very well, in the case of Liverpool, of course. On the other hand, you know, the share of our cards in our retail sales has been, you know, growing very nicely. As I stated at the beginning, 48% of our sales in the case of Liverpool were made with our own credit card.
That's almost 2.5 percentage points above a year ago. In the case of Suburbia also, the share with our own credit cards grew more than 300 basis points to reach 30%, which is again very encouraging. That has helped us a lot in terms of the growth of the portfolio, which was 24%. In terms of origination, I mean, as I said also in the opening remarks, I mean, we have been able to increase our cardholder base by 10.5%, so we now have almost seven million cardholders, almost 1.5 million in the case of Suburbia. That's certainly good news.
I think that, we have had, as you can imagine, some internal discussions on where it makes sense for us to be more prudent in the terms of, you know, like, more conservative in terms of the origination. On the other hand, frankly, I mean, as you were pointing out in your question, I mean, NPLs are still, you know, on the low side. I mean, before the pandemic, our NPLs were 4.5%, 5%, and even, you know, without having a big portfolio from Soravia at that point in time. I think that we need to strike the right balance, you know, between continue to grow our portfolio-...
obviously taking a look at the at the NPLs, but understanding obviously that we still, you know, like, have a, you know, like, a some some rec room in terms of of the 3% NPLs that we are seeing today, to a more normalized 4.5%-5%. Of course, that, you know, like, difference is gonna put pressure on us in terms of our provisions. That's what we obviously need to strike the right balance with all those variable. We think that there's still room for us to continue, you know, being, relatively aggressive on the remediation front, and while at the same time, you know, like, keeping an eye on, on NPLs to strike the right balance.
Right. Thanks a lot for your answers, Enrique.
Thank you.
Our next question comes from the line of Álvaro García. Please state your company name and ask your question.
Hi, thanks for the space. A couple of questions. One, on transactions at Liverpool, up 6%. I was wondering maybe if you could sort of break that down. We were really impressed with sort of that traffic number being so high. Then two, just you mentioned sort of imports, which, you know, let's say are entering the country, not illegally, but yeah, under specific de minimis that are ultimately sold into the traditional channel. Some competitors are also sort of ramping up that strategy, and you mentioned that sort of competes head-on with Suburbia. I was wondering if maybe you can go a little deeper into that, sort of what could be done, maybe from a regulation standpoint, what do you expect might be done from a regulation standpoint?
We haven't really seen changes on that front, in a while. Just zooming in on that would be helpful as well. Thank you very much.
Yes, thank you, Álvaro. One, in the transactions, I think that what difficult to give additional colors, as I think that what we have seen is certainly, you know, like the 6% looks very nice. I mean, that's almost two-thirds of the increase in same-store sales comes from the traffic or the number of tickets that we're seeing at the stores. I think that it reflects also the strength of the digital channel. The, as I said, the digital channel grew, you know, like in the high twenties, that is also helping a lot.
We're seeing also high incorporation rates, particularly in the case of our Liverpool Pocket, which is by far our most important platform in terms of digital, you know, sales. We're seeing higher conversion rates, which is certainly good news, and that is also, you know, helping these transaction figures. To your other question in terms of, you know, the cross-border and the de minimis, that, you know, thing is, I mean, I'm sure you know that the enforcing of the de minimis in the import process is frankly quite low.
We see a lot of, you know, merchandise get into our customers' homes, you know, without paying any taxes, not even import taxes or value-added taxes, even though the value of the basket is higher than the theoretical or the amounts are in the law. The enforcing is really difficult at the, you know, at the, at the, at the customer, you know, at the border. And frankly, I don't think that has a high probability of changing.
I mean, we as, you know, like, work with the, with the ANTAD, in order, you know, to explain to the government the, that this is unfair, that it's not a level playing field, that, you know, like, a lot of merchandise arriving to the country without paying any taxes, and is not, in many cases, it's informal merchandise, that is smuggling into the country. To tell you the truth, I mean, even though we have been, you know, voicing our concerns for quite some time, I don't think that we have a, you know, like a high likelihood that things are gonna change drastically in the short term, frankly. Obviously, that's putting some pressure.
I mean, in the case of Shein, you know better than me, I mean, you have your own projections of how good or how strong Shein is performing in Mexico, just an example. That, I'm sure, is, it's also, you know, putting pressure in the case of Suburbia, together with the formal merchandise, that it also has to do with this very loose enforcement at the borders.
That's super helpful, Enrique. Thank you.
Thank you, Álvaro.
Our next question comes from the line of Melissa K. Byun. Please state your company name and ask your question. Please press unmute to ask your question.
I'm so sorry. It's Melissa Byun from Bank of America. I was hoping you could provide some additional detail on the economics of the BYD partnership, how big you think the business can be and how much investment might be required, and the financing opportunity behind it? Thanks.
Yes, well, I, we are still in the very early stages of, you know, the BYD experiment, I would say, or the new business that we're trying to set up with the automotive branch. We just opened the very first two dealerships. One is only a showroom, and the other one has a full workshop in order to take care of the cars. We in Q2, we opened these two dealerships very late in Q2, so the sales that we saw in Q2 for BYD were below MXN 40 million, still, you know, very, very small. We sold around 45 cars in basically the last two, three weeks of June.
We're still fine-tuning, you know, all the work processes with BYD, which is also a brand new brand in Mexico. I mean, they're also opening their very first dealerships in Mexico. It's important to highlight that we don't have exclusivity. BYD, you know, as a brand, will have, and already has, in fact, other dealers besides Liverpool. We're not the only ones that are selling that type of cars in Mexico. The focus for us is in electric vehicles and probably hybrids eventually as well.
We believe that the plans that we have for this year are to sell more or less 1,700 cars this year, which might be a total, but anyway, that's more or less what we have in mind. We have a good chunk of ground to cover in the second semester in order to get there. The financing, I mean, more or less today, around half of the vehicles that we have sell through financing, have been done with our own credit card or with our...
It's not a credit card, it's with our own, financing, and the other half is, has been with, financing from a, from a bank that we have as a, as a partner. We will see. I mean, we think that, that business has a, has a big, you know, like a opportunity in terms of the, of the, of the financial, business. Again, still very early to tell, and I'll keep you posted as we, continue to grow the business, in the second semester, that I'm sure will give us a very firm, you know, like, information in terms of how big can this be.
Thank you.
Thank you.
Our next question comes from the line of Luis R. Willard. Please state your company name and ask your question.
Hi, Enrique. Good morning. Thanks for taking my question. A follow-up on Marketplace. I mean, is it fair to assume that the, from the 60% that it grew in GMV, roughly 30%, as you have mentioned in your press release, is more sellers. The rest is what, like, transactions or ticket? That would be the first and I'm sorry if that's so basic. The second is a bit more profound. Marketplace, and I imagine 3P Marketplace, is roughly half of the available assortment right now. How should we think moving forward, let's say, I don't know, next couple of years, as Marketplace continues to grow, how should we think about inventory levels at Liverpool, and of course, working capital? Thank you.
Yes. Well, I don't have, you know, the numbers in terms of transactions on an average ticket for the marketplace, so I'll have to take a look at that. As you pointed out, I mean, in terms of the sales, I mean, the number of sellers grew almost 34%. The other, the other part, so part of the growth has to do with additional, you know, like, sellers and SKUs.
SKUs on the other half only grew, quote, unquote, "close to 20%." I would tend to say that, you know, two-thirds of, you know, what we're seeing in terms of the of Marketplace GMV growth is coming from the, from a combination of transactions and ticket, and just a third comes from, you know, the expansion of the catalog, more or less. I'll take a look at the, you know, the transactions and average ticket and in the next conference call will give some color on that.
In terms of inventory levels, I mean, the inventory in the case of Marketplace, at least at this point in time, is, you know, like, is not in our books. I mean, we only, you know, collect, like, a commission in what we sell, but the inventory is carried by the seller. In that sense, we don't have any impact of the Marketplace in our working capital. Today, we don't have any, you know, features. The concern would be more on in the case of, you know, warehousing space, once we roll out the Fulfilled by Liverpool, you know, the feature which we today, quite frankly, don't have or is minimal.
We only do it for for some big, big ticket items that we, you know, like, manage the last mile directly, but it's relatively small. I think that eventually the concern, I would say, regarding marketplace is not gonna be probably the for sure on the working capital side. It's gonna be more on our warehousing capacity and how fast we wanna, you know, offer or roll out the Fulfilled by Liverpool feature by Liverpool. That's still, you know, a couple of years away. We today don't have any capacity to offer that.
We will have to wait until the soft line, you know, warehouse or facility at the Arco Norte project comes, you know, as far as the operation in early 2025. At that point in time, we'll probably start offering this Fulfilled by Liverpool feature gradually. Again, we'll have to take a look at, make sure that we have, you know, like, the right pace in order to make sure that, you know, we don't absorb a lot of our warehousing capacity by that feature.
All right, Enrique, thank you. If I may, a quick follow-up. Is it fair to assume that most of the seller growth in the marketplace is like growth new to the ecosystem? That is, that they weren't 1P, I mean, 1P sellers, and now are 3P sellers. Is that correct? Is that a fair assumption?
I think that we have a combination. I think that, in general terms, I mean, the majority of our sellers in the marketplace are only 3P. We have some which are hybrid. That is, they sell 1P and 3P. On the other hand, what we have seen also is that, you know, things that are selling very well on the marketplace, they clearly become candidates to have a, you know, a 1P offering, so that is to have a merchandise in our stores. I will say that the majority of the sellers in the marketplace are purely 3P. That's more or less.
As you know, and also, to make this very clear, I mean, in our case, the marketplace offer is a closed marketplace. You have to go through a filter in order to make sure that what you're gonna sell in our marketplace really complements our 1P offer and is not, you know, a direct competition in terms of the same SKUs at different price points and even different promotional, you know, offerings. We are very, you know, careful in terms of making sure that the marketplace is a complement and not a direct competition to our 1P.
Awesome. Thank you.
Thank you, Luis.
We have time for one more question today, which comes from Andrew Ruben. Please state your company name and ask your question.
Hi, Andrew Ruben with Morgan Stanley. Thanks for fitting in the question. We have a lot of color around the apparel and softline categories. I'm curious if you could provide a bit more about the trends in hard goods, both what you've been seeing in terms of sales and also any color around promotional intensity. Thank you.
Yes, thank you, Andrew. Well, in terms of, in general, in terms of hardlines or hard goods, I mean, yes, they're growing. I mean, the growth is positive. That's important to highlight. Although they're growing, you know, like slower, like say, or lower growth rates than what we see on the softline. Now, the mix there is, you know, like interesting, because, for example, computers, we're having a hard time, you know, like selling computers. On that, I think it's what's happening in the market overall of computers. A lot of people, you know, bought two, three computers additionally in the pandemic for the kids to take classes and to work from home.
Now, most often than not, they don't have any plans to replace those anytime soon. We're seeing, you know, like, the negative numbers in computers. On the other hand, we're seeing very strong growth in all things related to travel. You know, like, all the, you know, baggage and things that you need to travel are performing very well. In general terms, mobile phones are doing very well. We also are looking at reasonable numbers in terms of the appliances and the consumer electronics, except, you know, computers. On the other hand, furniture is also having a hard time.
I would say that, furniture and computers are the ones that are having, you know, like a harder time, and the rest of the hardlines are doing, okay.
Great. Very interesting to get that breakdown. I appreciate it.
Thank you, Andrew.
Thank you. That concludes your question and answer session. I would now like to hand the call back over to Enrique Güijosa for some closing remarks.
Well, thanks to all for making this a very lively session. Thanks for all your questions. See you for the next quarter. Thank you very much. Bye-bye.
That concludes today's call. You may now disconnect.