Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Via Varejo's conference call to discuss the first quarter of 2018 results. This event is being broadcast via webcast and can be accessed at www.viavarejo.com.br/investorrelations, where you will find the respective presentation, as well the slide selection will be managed by you. There will be a replay facility for this call on the website after it is over. We inform you that the company's press release about the company's result is also available at its IR website. This event is being recorded, and all participants will be in listen-only mode during the company's presentation. Afterwards, we will have a question and answer session when further instructions will be given. Should you need assistance during the call, please press star zero to reach the operator.
We would like to mention that forward-looking statements that might be made during this call in relation to Via Varejo's business perspectives, operating and financial targets and projections, our beliefs and assumptions of the company's management, as well as information currently available. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties, and assumptions as they relate to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions, and other operating factors may also affect the future results of Via Varejo and may cause results to differ materially from those expressed in such forward-looking statements. We would like to turn the floor over to Mr. Peter Estermann, CEO of the company. Please proceed. Good afternoon, everybody, and thank you very much for participating in our call.
Today with us, we have Flavio Dias, who as of tomorrow, will be officially the CEO of Via Varejo, Paulo, our COO, and Venturini, commercial, Marcelo, infrastructure and logistics, Isabel from people and sustainability. Felipe Negrão is temporarily absent due to specialization course that he's taking abroad, and he will be represented by Luiz Berdallola, our IR. Before we get into the results of the company, I would like to say that tomorrow we will be concluding the process of transition in the command of Via Varejo. I would like to thank the executive board and the whole team of Via Varejo for the unconditional support that I have always received in order to implement our strategy and also the results that we achieved in this period that we were working together.
I am confident and I am sure that under the leadership of Flávio, the company will continue in an accelerated and consistent fashion with the implementation of the digital transformation that we are undergoing right now, and the commitment that the whole team with all these strategic projects will be even bigger. Having said that, I would like to make a few remarks about the results of the first quarter of 2018 of Via Varejo. At the beginning of this year, we were able to deliver operating results that were very important, with a net revenue of BRL 6.6 billion, and our same stores growing 10.6%, and GMV built 7.3% increase. The gross income of the company reached BRL 2.1 billion with 14.8% increase. Our gross margin expanded by 121 BPS, 34%, because of the continuity of our growth strategy in a sustainable fashion, mainly on the online business.
In this quarter, we decided to participate with a higher sales volume in a typically promotional period. That is to say, January, with the challenge of expanding our revenues with no impact on our profitability. Our EBITDA, 24.1%, increased BRL 407 million with a margin of 6.1%. I would like to mention that this is the fifth quarter in a row in which we deliver expansion in our EBITDA margin. Our net income in the period was BRL 71 million. I would like to talk about our operating activity. We finished the rollout of the Moviti 3.0 as on schedule in March for our 178 stores. The first results are very encouraging, and we expect a ramp-up of operating efficiency for the second half with the maturation of this model. We are repositioning our brand with a high connection with the Casas Bahia audience or buyers.
This will grow even further, this category that is so important for our company, Venda Direta Furniture. We opened seven new stores in this quarter, six smart stores and one digital. I believe that most of you have had the opportunity of seeing it. We are on schedule to reach a minimum of 80 stores for 2018. I would like to mention that in April, we opened our first kiosk in São Paulo City. This is a disruptive model that will allow Via Varejo to make great strides in higher population areas and test new regions with a lighter operation model.
Just to remind you, this model allows the client to have access not only to the products that are shown there, but also access, by means of a totem, all the inventory that is available with the company and besides, the client can carry out operations involving financing and credit operations. Finalizing, in March, we implemented the fifth unit of the hub stores. The five first units are located in many different regions of the country. This is also a very representative test. We are right now testing the efficiency of this model, which is already delivering very encouraging results. We should reach 70 stores by the end of June, completing 220 by the second half of this year. Our expectation for the second half is to open an additional 150 stores operating in this model.
Lastly, our Via Única or Only Path project that we are doing with Accenture is working very well. We have already started to see an improvement in our conversion of sales due to the segmented sending of offerings to our clients. I would like to give the floor to Luiz Dezora, who will be talking about the results of the quarter. Good afternoon, everybody. I would like to start by slide number four, where we talk about the sales performance in the brick-and-mortar stores. Same-store growth, 10.6%, and GMV online, 7.3% increase. We are very pleased with the figures, because we were able to expand our sales in a seasonably more promotional period, as Peter said. According to the survey agencies, we grew market share in both marketplace, an important segment for our platform, with 27.5% of our total GMV.
On the next slide, I will talk about our EBITDA, BRL 407 million, growing by 24.1% year-on-year with a 6.1% margin. I would like to mention that our EBITDA is growing for the fifth consecutive quarter. This expansion has 120 basis points gross margin, 32.4%, from the effort from the company to grow profitably, and also the leverage impacted by the increase in provisions with labor provisions, and also the mix effect of the brick-and-mortar stores growing more than the online stores. On the next slide, we are talking about the financial results, 10 basis points expansion, and also our net income reaching BRL 71 million. I would like to mention our income before tax before the net income. Having said that, EBIT, 31%, 77 basis points. Lastly, we talk about our net cash with non-receivables in line with last year.
I close my remarks here, and I give the floor to the operator to start the Q&A session.
Now, we would like to open our question-and-answer session. Please ask all your questions at once and wait for the answer by the company. In order to ask a question, please press star one. Mr. Thiago Macruz from Itaú BBA would like to ask a question.
Good afternoon. I have a question about working capital. In this quarter, we saw the same stores are offset by net. I would like to know the reason for that, and what we could expect for the next few quarters. Regarding sales, a very healthy sales result with an expansion in the commercial margin, but after a quarter that had the same situation. Do you believe that your market share has been decreasing?
Was it a choice on your part in order to focus more on profitability? Could you give us some more color about that? Thiago, this is Peter. I'm going to answer your first question regarding working capital. In fact, we had some opportunities in this period, in the first quarter, considering that we have very important seasonal events that start in the second quarter. The first is Mother's Day, which is usually very strong in our stores. The second important event is the World Cup. The inventory increase is totally linked to these two seasonal events and with the opportunity that we see in terms of increasing our sales during this period.
In order to talk about market share, we saw differently from what you said, not only did we not have a reduction in market share, but also in the first quarter, we had an increase in market share according to the research institutes, mainly driven by the difference regarding the brick-and-mortar stores, according to information of the GfK. Market share expansion continues. Excellent. Thank you very much. This is Richard Cathcart from Bradesco BBI. I would like to ask a question. Good afternoon. I have two questions. In the first quarter, growth of e-commerce was quite slow. It was around 2%, if I'm not mistaken, and I think it was because of the very competitive market during the first quarter. What is your expectation regarding the growth of this sector in the second quarter? The app that you mentioned in the release. This is my second question.
You said that you would be launching another app, and I would like to know your expectations about this app and ask, what is the percentage of e-commerce sales that you already have through the app? Thank you very much for the question. This is Paulo. Regarding the first quarter, as Peter said in the opening remarks, we try to have a sustainable growth. This was our aim, growing with profitability in the two channels with market share gains. We have been placing our bets on many initiatives that we are developing and really putting to work, many of them accelerating in the next few quarters. They should be helping us maximize our synergy and integration among the channels, generating businesses and growth both of sales and share. No pressure from competitiveness.
Regarding the second quarter, it's very hard to say yet during this first month, especially with two important seasonal events ahead of us, Mother's Day and the World Cup. We cannot give a deadline, but it's very difficult to say how the competitive environment will behave in this current quarter. Regarding the app, we are at full steam developing the new technology and the new structure. That will give us more accessibility and performance. This is a very important channel for us. There are a few things that we are estimating for the end of the second quarter, but we will be experimenting a very sensible advantage or at the beginning of the third quarter. This is when we expect to have this.
We expect to make our app, besides being much more efficient in terms of the shopping process itself, making it a very important relationship too, also to provide information and services to our clients, also for the clients that are inside our stores. That is to say, bring more information about our inventory, communication based on geolocation, the management of the installments of the credit line, augmented reality, extended reality, interaction with the product that are on the shelves of the stores, bringing added content. That is to say information, videos, so that the client can make the purchasing decision inside the store. This would be a very important center for relationship to improve the experience of the client, whether he's outside the store or inside the store, for a better shopping experience. We do not disclose the figures.
What I can tell you is that we have been increasing very fast overall the number of hits
Our e-commerce already represents 75% or 10% of points increase. I mean the accesses that come from the apps and by our mobile access in the stores. It is top priority for us. We will be guiding our whole team to focus on mobility, and our idea is very ambitious. We expect to be able to present this at the end of the second quarter and beginning of the third, and everybody will benefit a lot from these improvements. Thank you very much.
Our next question comes from Credit Suisse.
Hi, good afternoon, Peter, and everyone. I would just like to take another look at the admin expenses for the quarter.
I know that, in the release, I think you put everything together, but I just want to get a better understanding about what is in that administrative line, because the numbers are above what we expected.
Hi, this is Beriza. In that G&A, more specifically, we've reclassified some of the accounts in the first quarter of 2018, and most of it stemmed from the labor expenses we had because we had it broken down, and now everything is under G&A. That's why the impact is higher due to an allocation factor. Year-on-year, what was the evolution of this line? What was under sales or admin? There was a labor de-leveraging in the first quarter vis-à-vis the year before. The numbers were higher earlier this year, and this impacted our expense line. Last year, it was lighter. We didn't have so many entries.
This year we have more entries. There's a greater inflow. There are more labor suits. Are there more people filing lawsuits? We ended a lot of lawsuits earlier this year, so that refers to payments. Mr. Joseph Giordano from J.P. Morgan has the next question. Good afternoon, everyone. Looking at the expense line, Peter talked about continuous operating leverage. I just want to understand a little bit more what happened in terms of provisions to cover labor suits. I just want to get a better understanding related to changes in the labor laws, whether that has changed somehow. I know that the pressure must be large. When should we expect to see a decrease in this amount of provisions, and when should we start seeing a more normalized situation looking forward? Hi, Joseph. Here is Beriza again.
Referring to the labor suits, we saw a slight reduction as of March, but there is a backlog still very high. That's why we hope that this year the impact should be very much in keeping with what we had last year because of the backlog. We are already noticing a slight drop starting back in March. Could you tell us what would be a normalized level or what is recurring? I think today is 800 basis points in margin, but in a more normal regime where there are not too many dismissals, what would be a normal level that we could work with? Joseph, we don't give any guidance about that. This year, I think we will find ourselves in a situation very similar to that of last year.
In 2016, we went through a restructuring process. This process is now impacting 2017 and 2018. We know that the impact was more relevant in 2017 rather than in 2018. Thank you.
Irma Sgarz from Goldman Sachs has the next question.
Good afternoon. I have two very quick questions about operating leverage that was not materialized. I know you made some comments regarding investment and expenses with labor lawsuits. I just want to understand the evolution of your expense line looking forward, because I know that you are working with a certain dilution. What would be the key drivers, whether it's just a matter of sales or what should we consider for the next coming quarters? The next question relates to e-commerce. I don't know whether you have a goal or an idea of where you would find the best breakeven.
I think now it's slightly over 25% on Q3. It's still growing at high rates. When do you think it would reach a more balanced level between the two?
Irma, this is Paulo. Referring to expenses, we have a series of initiatives that we developed in the past few quarters moving hand in hand with our integration process. As I said before, they will gain momentum in the next coming quarters. This should generate sales growth. Together with that, we will have better gains and efficiency gains, both on the brick-and-mortar stores and also online with new technologies, productivity gains coming from the team. This should be reflected in our figures looking forward. Now, regarding the participation of 1P and 3P, we don't give you any guidelines. In fact, we don't have any goal.
Our strategy is having a platform with a good assortment that serves our customers the best possible way. On each category basis, we will then define the best position for the company. That's not a goal. Thank you.
Luis Felipe Guanais from BTG Pactual has the next question.
Good afternoon. My question relates to cash flow. Yesterday, you announced the approval of an advance of up to BRL 400 million. I just want to get a better understanding about your free cash flow for the online channel. I know that in the first quarter you have a relevant seasonal effect. Looking at the entire year, I would like you to share with us, how do you expect to see this dynamic moving forward?
Well, this is Graciela. We don't give any guidance for cash generation.
What I can tell you about that BRL 400 million of Cnova, that was an intercompany loan that we did only for cash effect for Cnova. In the consolidated way, you don't see that intercompany loan. We use that to pay the debt. That's why you see that BRL 400 million. Okay. Just as a follow-up question, in relation to marketplace, could you please tell us a little bit about the strategy? I know that you are growing a lot in 3P. You're growing much faster. I just want to learn a little bit more about your fulfillment initiative and what you expect to see in the next coming quarters.
This is Flávio. We are getting prepared to significantly grow our fulfillment offerings. We already have a new client.
It is not a seller, but it is a manufacturer that began hiring our services, and we are just concluding some last-minute adjustments to our system, and also making adjustments to our internal processes to be able to offer this service in a larger scale, so as to encompass a larger number of sellers. The maturity of the system should occur throughout the second half of the second quarter. In the second half of the year, we will probably be able to bring on board a larger number of sellers. We already started our commercial approach, and we hope that throughout 2019, we will be able to grow this number of sellers significantly, and we will offer a larger range of services.
Offering Via Varejo 's facility or the services to all sellers because we have good capillarity coming from our distribution centers because they are closer to the demand centers located in different geographies in the country. Also in terms of our own stores that can serve as a support point to this logistics network. This will be very beneficial to those who will benefit from this service. This is not something simple to do, that's why it is not yet concluded. This is a design that requires great effort on the part of the company, but we understand that the value proposition that it brings to the market really offsets all the efforts that we are undertaking. I think that this will be more visible in the second half of the year because we will have a larger number of sellers.
Throughout 2019, this system should be more mature and more consolidated so as to bring more revenues to the company. Thank you.
Guilherme Asseff from Brasil Plural has the next question.
Good afternoon, everyone, and thank you for taking my question. I would like to hear more about the gross margin. I know that you already talked a lot about your dynamics, but I just want to highlight a few things. You were saying that you are not letting go of your profitability just for the sake of growth, but we know that you are continuously gaining market share. Also, you said that in this first quarter, unlike previous years, you were more aggressive, commercially speaking.
I just want to understand, with this gain in gross margin, whether this has an impact in the mix of products or mix of channels, I mean, your internal channels, and whether we should consider that this gain will be sustainable looking forward. Looking towards the second quarter, you already said that you are well prepared to face the World Cup. There will be fierce competition from other companies, and companies are already starting promoting their TV sets. Given this competitive scenario. I just want to know whether you will be able to maintain this same pace of growth in your margins. My other question relates to retrofitting of the stores. Correct me if I am wrong, but I think that you started with five retrofitting, and your goal is to reach 220.
With those five stores, did you get already some feedback about how the stores are performing and how the retrofitting has helped you to boost your online sales? Whether you can share with us any results?
Hi, Guilherme. Thank you for your question. This is Marcelo. I will start with the mini hub. These five stores are pilot stores in five different regions of the country, and they have different sizes. All the stores have different sizes, and this is just for the sake of evaluation. We are now initiating the evaluation, and we were able to notice that we were able to reduce the time to serve customers. We can access the information through our logistics platform and also through our brick-and-mortar operation. Just to give you an idea, in some faraway areas, we were able to reduce delivery time by 80%.
Chronometrics is increasing, and this allowed us to expedite the opening of the other 70 stores. We will be able to reap the benefits by the end of the second half of the year, and we will move forward to 220 stores.
Just as a follow-up. We talked about reducing delivery time, and that's something very important. Do you have any other major impact? Was there anything else that you noticed from that pilot project? What else can you tell me about that?
Well, no. There were no surprises or no new things when we deployed the five stores. We were able to reduce time to market, and also we had a significant reduction in cost of freight because we are reducing the gap between the DC and delivery. I am also utilizing the inventory available in the region.
If I'm allowed to add to that answer, we are still running some trials, it's too early to tell. We are still running things in March, and we expect to test other models, other ways of collecting freight. This freight collection, I think we see possibilities of reducing the value even further. One of the stores, for instance, is in the state of Piauí, we were able to reduce delivery time that used to be 12-14 days. We are able now to deliver either on the same day or within two days. This is much more convenient to customers, and the transportation distance is much shorter. Therefore, we have great possibilities in terms of freight collection. There is also the benefit of the sale. We weren't able to measure that yet because this is still very new.
One thing is to offer a value proposition to deliver in 14 days and in two days, we weren't able to measure that yet because it's too soon. There is an expectation to increase sales. What I can tell you is that we were able to promote a very significant reduction in delivery time. There was also a moderate reduction in the cost to serve, we will also have gains in the collection of freight. We don't know yet how this will evolve. We are very excited with the early results. We were able to expedite the expansion of these five hub stores into 70 stores. Certainly, this project will be a very important leverage to our results, particularly online in the next coming months. Thank you. Now, about the gross margin.
Guilherme, this is Brissola.
As for gross margin, throughout the channels, we engage in partnerships with some other companies, and we had some help from suppliers. We have an improvement in the furniture mix, so the segment continues to grow, and this has helped the company. In 2017, there was an important ramp-up. We start now with Move 2.0. This brought about some operating impacts to the company also because of the partnerships.
Brissola, if you could elaborate a bit more, given the competitive environment that you see ahead, namely the World Cup, do you think that you can still maintain this margin gain?
We don't speak about guidance for margins, as I said before. We are constantly looking to improve profitability and mix of products, service, and other initiatives that can help the company improve its performance. This is Peter, Guilherme.
In fact, as I said in my opening remarks, we are very well prepared in terms of our inventory, mix of products, and certainly this strategy also has our suppliers on our side, and this will certainly give us a more adequate competitive position. I reinstate that we are well prepared.
Okay, fine. Thank you, Peter. Thank you, Brissola. Paulo Oliveira from UBS has the next question. Felipe Casimiro from HSBC has the next question.
Good afternoon, everyone. Referring to Marketplace, I would like you to shed some light on the evolution of that on the next quarter, and whether you could also give me an idea of the same-store sales in the first quarter. The second question is about the evolution. I know that you don't give any disclosure about the numbers, but I would just like to have a qualitative idea in terms of what is the direction that you may take throughout the year, or whether you're giving different conditions to your sellers, or whether you're still keeping the status quo.
We did not understand your second point. You talked about the number of sellers, the trade grade, but I couldn't understand your third point. Could you repeat, please?
The sellers that have been in the platform for longer, how are they performing in the platform of Via Varejo?
I won't be able to help you much with the answers, because this information is very strategic, and we cannot share that with you. In terms of the number of sellers, there have been some advances. Today, we have 3,300 sellers, based on a number of 3,100 last year. We still have an important bias related to the quality of serving, and we are performing very strongly with our current partners, even though we are still open to welcoming other good sellers. We are working in our processes to facilitate the onboarding of new sellers and the management of the current sellers, making changes to our technological platform that facilitates the integration and management of sellers. By no means we are removing our focus on quality. We've been reaping good results. We are able to grow sales at a good pace.
At the same time, we are growing sales with quality. We are betting on the assertiveness of this strategy. We are already accelerating the integration speed. We hope that we will be able to expedite the onboarding of new sellers, but by no means we do that in detriment of quality. The sellers are very pleased with us, and we've been doing some very good work with the triple A sellers or sellers from our A curve. We understand that we still have opportunities to improve the performance with sellers in the B curve and C curve. In these two seller groups, we will be able to leverage our work further. I see good value ahead. Our strategy follows each player. Each player has a strategy that is very particular to them.
We understand that by deploying fulfillment services and other financial services that will be put at the disposal of our sellers, then we understand that this added value will also resonate with our take rate, because this will generate more value to the sellers, and in turn, we will be able to collect more. It's still too soon to tell. We are very much convinced that we are moving in the right direction with our marketplace strategy. What I can tell you, Felipe, is just that.
Thank you. Maria Francisca from BB Investimentos would like to ask a question.
Good afternoon, everybody. Thank you for the question. I have a few questions. I would like to start by talking about sales by means of payment. We saw a reduction in cash sales. An increase in the use of third-party cards. Could you please explain why you think the quarter had this kind of dynamic in terms of payment? Does it have anything to do with the change in the commercial strategy that you put in place and the participation in more promotional events in the first quarter? Do you believe that there is really a change in the behavior of consumers that are going back to buy in installments? In the first quarter, all the stores that you opened were in shopping centers. Could you talk about your plan for the future?
Is this a trend that we will be seeing? Are you mapping the number of shopping centers where you would like to be, and that where you're not yet? Could you talk about the impact that we saw regarding income tax? It comes from the fact that you are not being able to use the deferred tax from Cnova because there is no history of profits still. Are you expecting profits for this year so that you may use your deferred taxes? Thank you. I will start by the taxes. Up to then it is consolidated. When income tax comes, you don't see the benefit of the deferred Cnova tax. It has to do with the profitability of the unit. We expect that this figure will converge so that we may evolve our online business in terms of profitability.
What you see today is basically the deferred tax. This is necessary for the company to disclose the net income for a certain period. After that, you can use these credits. When you go back to profitability, then you can use it. We expect for the profitability of this online operation to come back. This is Paulo. About payment means. We do not see anything relevant in terms of change of behavior of our clients. In the first quarter, we already see the impact of a strategy to incentivize the sale of TV sets due to the World Cup. Of course, we encourage the purchase of higher-ticket products. Because of that, this has a certain impact on this figure. That is to say, the payment in installment. Regarding the opening of stores, we have freestanding stores and shopping center stores.
We do have a plan designed. Of course, we're not going to disclose that strategy. Our choice has nothing to do with being in a shopping center or freestanding or brand. We have to check the convenience in that micro-market, whether there in that specific location, it would be best to have a street store or a shopping center store. There is no preference, that is to say, answer your question. This is a strategy. This week we opened street stores. It's a very well-planned, very well-designed strategy.
Thank you for the answers.
I would like to remind you that in order to ask a question, you should press star one. Now we close the question-and-answer session. We would like to give the floor back to the company for the closing remarks.
Once again, I would like to reiterate that we are very confident with the continuity of the execution of our strategy. We wish Flávio and the whole Via Varejo team a lot of success in this new moment of the company. Now I would like to give the floor to Flávio for his closing remarks.
First, I would like to take the opportunity to thank you, Peter, for your kind words and above all, for everything that you did and that you transferred to us in these last two years. The whole executive team is fully knowledgeable of the big challenge that we have ahead of us. Such as you, we trust that we will continue to implement the projects that will place Via Varejo on another level, and that will be the foundation of our growth from now on.
Also for the implementation of our business model, the platform model. Our trust in execution is very much based on the fact that our team, besides having participated intensively in the drafting of the strategy, has already shown a huge capacity to execute, especially in the last couple of years. I want to assure you, shareholders of Via Varejo, that our commitment and dedication are total to continue this work that we started with Peter. I would like to thank the board of directors for their vote of confidence and for my appointment to succeed Peter in this ambitious task. This is a great honor and a great responsibility. Thank you very much for your attention, for your time, and I wish you all a very good afternoon. Via Varejo's conference call is closed.
The Investor Relations department of Via Varejo will be available to answer any further questions that you might have. We thank you very much for participating and wish you a good afternoon. Thank you.