Good afternoon, and thank you for waiting. Welcome to C&A's Conference Call to announce the results of quarter two, 2022. Today, we have here with us Mr. Paulo Correa, CEO, Mr. Milton Lucato, CFO, and the company's IR team. This conference is being recorded, and all participants will be in a listen-only mode during the company's presentation. After which, we will open the floor for questions, and at that point, further instructions will be provided. Should you need any assistance during this conference call, please press star zero to reach the operator. This conference call is being simultaneously translated into English for the convenience of the company's international investors. The call is also being simultaneously broadcast online via webcast and can be accessed at ri.cea.com.br, where you can also find the corresponding slide presentation. Feel free to flip through the slides during the company's remarks.
The replay will be available shortly after the end of the call. Before proceeding, let me mention that any forward-looking statements that are made during this conference call relative to C&A's business prospects, projections, operational and financial targets, are based on the company's beliefs and assumptions as well as on information currently available to C&A. These forward-looking statements are no guarantee of performance. They involve risks and uncertainties because they relate to future events and therefore depend on circumstances that may or may not occur. Investors should understand that conditions relative to the general market, the industry, and other operational factors could also affect C&A's future results and lead to results that differ materially from those expressed in such forward-looking statements. Now, I would like to turn the conference over to Mr. Paulo Correa Jr., CEO of C&A, to start his presentation. Mr. Correa, you may proceed.
Good morning. Thank you, all. Today, we're going to talk about the highlights of quarter two. We are actually celebrating because this was the first quarter since 2020, since quarter one, 2020, where we didn't have direct impacts of the COVID pandemic, and all our stores remained open during the entire period. This was also very important because it shows that we are recovering operationally and the operational strength of C&A that we have been building throughout this time. We had a very positive operational result in respect to sales, and this was much driven by the winter sales. We had a colder season than usual, and this really helped in our apparel sales. This was also due to our assertiveness in our items and collections. This really made a difference.
We had a better market situation, people going back to the shopping malls, and we had lower temperatures, which increased the consumption of winter products. We also had the perfect assortment of products and collections being offered during this period. All this led to a higher sales volume and a higher growth than what we were expecting, leading to very positive results. One of the greatest highlights is the gross merchandise margin. Reaching over 50%, and this was much due to the improvement in the apparel margin, the product mix, and our investments in our growth levers, which allowed us to exceed the levels of 2019, which was the comparison basis pre-pandemic. Our objective was to reach the levels of 2019, and we were able to do this in quarter two.
Apparel was certainly the greatest highlight in quarter two because of the lower temperatures, as I said, and because of the perfect timing for renewal of winter items in our consumers' wardrobes. This had a positive impact on our sales and also our margins because of full price sales. We grew compared with quarter two, 2019. 39% for apparel, which was really positive for us. The gross margin for apparel reached 55.9%, nearly 56% with a lot of strength coming from our sales. This is nearly three points higher than 2019 levels, as you can see on this chart on the bottom. We had not only very strong sales with less markdowns and promotions and very healthy sales levels, which led to this three-point increase in our margin. We also see a lot of strength coming from digital.
Our digital developments are very consistent and with a share of 14%-15% in the company's sales, reaching more than BRL 300 million in revenues in quarter two. Last but not least, our adjusted EBITDA was higher than that of pre-pandemic levels. We were able to increase our EBITDA by more than 20% compared with pre-pandemic levels. This really shows the strength of our sales, the strength of our margins, and this also had an effect on the strength of our generation of EBITDA for the period. All in all, we see a clear recovery of our results and the capturing of our performance improvements and the investments that we made. Now on this next slide, looking forward, our position for when we look at quarter two results is what we call cautious optimism.
I say optimism because we are clearly stronger as a company. When we compare with the time of our IPO, we are today a much more robust company. However, we must admit that the macroeconomic scenario right now is very challenging, and we must be very clear about the impacts this may have. Despite the monetary tightening, through the increase in the standard interest rate, of course, this has consequences, also the high inflation rate. This all creates a lot of uncertainty regarding what's to come. If we also add some external dimensions that are very uncertain and also the impact that the World Cup might have in the end of the year, we have many variables that have to be taken into account, that have to be factored in in this equation and makes it very complex to predict the future.
We don't believe the second half of the year will be as strong as quarter two was, but we will be working at lower levels compared with quarter two. However, I always like to show the other side of the coin as well, which is our operations as a whole. These are our true levers. Our operations are much stronger now than they were in 2019. We have another 47 stores, all of them omni-channel stores in different locations where we weren't present before, and they are bringing new consumers, new customers to the company, and we are also exploring new formats. We have the double door store now.
We have our Ace operation, which is showing a lot of success, and is opening to us new possibilities in terms of categories and display and layout for our stores. At the time, we had 2.5% share of digital, and today we are delivering 14% consistently, sometimes even 15% of the total sales. In supply, we know that a push-pull modality is already operating and rolled out for a part of our continuity products. This has been providing us with a very good level of assertiveness in our collections and the right availability of our products at the right time, and we will continue to roll out this operation in the future. Also, I cannot continue without mentioning our card base.
We have reached 1 million new accounts in C&A Pay, and it already accounts for 13% of our sales. This gives us a lot of confidence that we will have a strong second half. Well, of course, not as strong as quarter two this year, but very strong. These are very important elements of the construction of this new C&A Fashion Tech. This is also recognized outside of C&A. We have external recognition. We were the only fashion retail company that figured in the top 20 innovative companies in Brazil. This is a ranking established by MIT Technology, and it shows the strength that we have in this transformation and the construction of C&A Fashion Tech. Also, all our ESG efforts have been recognized in different dimensions. This quarter we were recognized by the Merco Responsabilidade ranking.
We came second in the ranking. This is a journey that is being very consistent to us. As I was talking about the other sides of the coin, which is the macroeconomic dimension, the projected interest rates for this year will remain higher. This caused us to revisit the speed and the level of investments that we were making, and we need to have more discipline when it comes to our expenses. We are reducing our expansion volume compared to what we had planned. We are already expanding at a different speed. We are planning about 15 new openings for 2022. We also revisited some of our digital transformation projects, and we are focusing more on initiatives that could bring a shorter term return to the company. For the longer-term initiatives, we are putting those on hold.
Also the speed of implementation of some supply projects, we decided to adjust considering the new interest rate level and also focusing on improving our capital structure and our cash management. Here on the next slide, on slide number five, we talk about our growth levers this quarter. I want to once again highlight that we are starting to see the results of the investments that we made. Our growth, which is now being supported by C&A Pay, by our more assertive collections in our new stores that are now featuring our portfolio. We also start to see an impact on our margin, not just coming from our distribution lever and also dynamic pricing and the push-pull modality.
All these factors have been helping us improve our margin and also through our collections, we have been able to pass on our costs to our customers with a better assertiveness, and we were able to adjust our prices, and we are delivering products with better fashion perception, better value to our customer base. Now, specifically about our levers, we opened 10 new stores in quarter two and one double door store in the Anália Franco Shopping Mall. This means that we finish quarter two with 329 stores in total. In supply, we can see an evolution in the implementation of our distribution projects. First, in the push-pull project, we see that the items that we have implemented so far are leading to much lower stockout levels of about 25.
A 25 percentage point reduction, and of course, this is translated into sales. In RFID, we already have 264 stores with the RFID technology 100% implemented. As for our omni-channel modality, we already have 70% of our orders being delivered in D plus one in São Paulo. In one day. One day delivery. 70% of our orders have one day delivery today. I think this is the best result we could think of. More than 50% of these orders are delivered in D plus two throughout the country. This is also a very strong parameter and very relevant when we compare ourselves with the competition. As for the digital transformation of the company, now we have a very clear focus on improving the profitability of this vertical, of these channels.
Today, we have a channel which is very strong, which is WhatsApp sales, and is bringing us better gross margins because they work with the store inventory, and there's a very high possibility of cross-sell within our stores. This all leads to increased profitability coming from our WhatsApp sales. There were other decisions that we made and are implementing now, and that we implemented throughout the quarter, seeking better efficiency for our CAC. Of course, this means optimization of our media investments in addition to a reduction in the volume of promotions, particularly in shipping, but also promotions on our website. The CAC and the shipping promotions, the reduction in shipping promotions led to much better results. In our digital channels, our digital channels are now much healthier, economically speaking, than what they were during the pandemic.
With the increased credit offer, the C&A Pay offer is already a reality. We reached the mark of 1.5 million cards issued in June 2022, and we're very optimistic and positive about the future of C&A until the end of this year. We have some specific actions regarding credit limits and of course that once we start to get more information about the consumption behavior and the credit behavior of this new customer base, we can already start identifying some opportunities to evolve this credit model that we have today, and we are already seeing some effects on the credit limits. We still have an approval rate of about 75%, which is very healthy and very diligent for this moment that we're going through right now.
Still talking about products, of course, we had very good results when we look at our sales. In the end of the day, the levers make a lot of difference, but they have to boost, they have to drive something. What we are driving here with these levers is our capacity to offer fashion at fair prices to the Brazilian population in a very relevant and agile way. In quarter two, we saw a stronger phase one of this evolution, and we hope to continue to see that looking forward.
These examples that we are sharing with you today, they are only possible thanks to the capacity that we built over time to be more agile, to be faster, to be more assertive in the development of our collections and also our integration and the capacity of our supply chain to deliver in shorter terms and with more assertiveness. We have some examples here. On the top left, we see the collabs that we had during this period. Mindset plus DOD. We had the collab with Surreal and the collab with this CrossFit brand, Caveira. This all increases our agility, our speed, and our relevance in terms of products. Even during the winter, we were able to bring very agile and fast products such as these puffer jackets in more vibrant colors.
They were a hit of the winter, and this was something that was unique to C&A. We have our events. We have our campaigns, Mother's Day, Couples Day in Brazil, and the June festivities in Brazil called São João. We keep working on these special events, and we launched our private brand in beauty, as you can see in the bottom right. These private brand products will help improve the profitability of the beauty category, and they'll also broaden our customer base because the average price is lower than that of mainstream brands. We are bringing all these new options to expand our customer base and improve our profitability by improving the assertiveness of our collections. Now I would like to turn it over to Milton, and he's going to go over the numbers of the quarter. Thank you.
Thank you, Paulo. Good morning. It's a pleasure to be here. On slide number six, we see that the greatest highlight in our revenue was certainly apparel, as you heard from Paulo. We had a lot of abundance in apparel in this quarter, and whereas the growth of the total revenue compared with 2019 or the pre-pandemic period was 29.4%, apparel grew 40%. This is a very important sign of health of our business. It's also important to note that this combination of factors, so the lower temperatures and a very strong winter collection being offered certainly helped boost our sales. It's the ideal combination that we needed to show and that we did indeed show.
We sold well above the plan in terms of the winter sales, and these were full price sales, it's important to note, because this really helped our margin, as we're going to see. As we said, we are cautiously optimistic because this will have an impact on quarter three. The replenishment of the stocks doesn't take place at the same speed as that of the full year or whole year products. We did anticipate our sales for the winter, and we will see some impact of that in quarter three. Now as for Fashiontronics, which includes the beauty category, the growth is driven by the expansion of the beauty category in our stores. I invite you all to come and visit our new beauty kiosks in our stores. This is a very important proposition that is very well accepted by our customers.
Also the launch of our private brand, our private beauty products brand is a very important element that will help improve our margin and access to the products. When it comes to our revenues and margin, this was a very important quarter. Now on slide number seven, we have our same-store sales. You also heard from Paulo that we saw a normalization in quarter two with no impact whatsoever from the COVID pandemic. We saw a stabilization at about 30% in our same-store sales growth, which is also an important highlight of the quarter. On slide number eight, we give more details and we break down by segment. Here we have the numbers of our gross margin. The greatest highlight of the quarter is that the gross merchandise margin showed an important evolution. The mix was also more favorable.
We had a higher share of apparel and with an importance of the full price sales, particularly for the winter collection. Our pricing strategy is now being able to minimize the impact of the price increases, the cost increases. We are seeing an evolution in our margin despite the headwinds in our cost system, particularly the impact of the high inflation rate. We optimized our promotions. We had fewer promotions during the quarter, both online and offline. We are expanding the topic of dynamic pricing, which allows us to adjust our prices based on demand and based on the acceptance of each item. This happens at the SKU level. This is a very important asset which resulted from the investments that we made. We start to see the benefits of the implementation of the push-pull modality.
The combination of all these factors is showing perceptible changes, perceptible impacts on our results. The gross margin for Fashiontronics and beauty was favored by the improvement in our product mix with a higher share of beauty and the launch of our private label. On slide number nine, here we see our financial services, and here we can already see the importance and relevance of C&A Pay. With less than one year of operation, we have already reached the symbolic mark of 1.5 million cards issued. The evolution of the product is very important. In quarter two, C&A Pay already accounted for 13% of our merchandise sales, and it is actually evolving better than the plan. The indicators are also within expected at this stage of the product, which is still under maturation.
This is also valid for bad debt. Today, we see on the chart that our bad debt rates are closer to 19%, which is a very acceptable level for a private label credit product that is consumed only within C&A stores. In our case, our bad debt range is between 20% and 25%. 19% at this point is well within expected. Our partnership with Bradescard had some important results. It still has our share, relevant share in our results. This product is still desired by our customers, and C&A Pay comes to add according to the customer's profile. They are all harmoniously coexisting. We are still taking care of the product that we have in partnership with Bradesco and C&A Pay is conquering its share. Our level of satisfaction with both products is fairly good.
Exceptionally, in quarter two, we had the benefit of the sale of our receivables portfolio, which also brought some extraordinary results that you're going to see in details when you read our release. You're going to see the impact of the sale of this customer portfolio. On slide number 10, we have our operational expenses. If you look at the chart, I think it's worth noting that here we're excluding those other expenses and other operational revenues which considered non-recurring events and can hinder the interpretation of the numbers here. When you read our release on page 12, they are clearly demonstrated, transparently demonstrated. Here we excluded the other category because we didn't want that to interfere with your reading of the numbers. Regarding our sales expenses, the variation in quarter two was 33%, mainly due to the company's organic growth.
When we compare quarter-over-quarter, we have 25 new stores, 25 additional stores, and this accounts for a 6% advancement in our sales. This is relevant even when we compare within the segment. This means that we are growing at relevant rates, our customer base, our sales, and of course, this adds additional sales but also variable expenses. We cannot go without mentioning the impact of the high inflation rate. Our G&A expenses show the variation in line with the inflation rate variation with increased pressure on the personnel line here, which was mitigated by some efficiency gains in our automated distribution center. This is how we're mitigating. We're mitigating through internal efficiency gains by reducing our expenses, and this is also reaping the benefits of the operation of our automated distribution center, as I said.
We're clearly looking at a lower expense level and this leads us to a very important balance here. Now, when we look at the evolution of our sales and G&A expenses indicator over the total net revenue, we had a decrease of 2.8 percentage points to 35.5. Here we start to show better operational leverage after a very intense period of investments, which ended up increasing our expenses initially, and then over time we see a decrease and a better operational leverage. My interpretation here is that we made the right decision and that we are going the right direction, speeding up the company's growth with the investments, both CapEx and OpEx. On slide number 11, we have our net income. Considering the variation compared with quarter two last year, we had some relevant impacts here.
Here we have a transition chart showing that we go from a net income in quarter two of 2021, then we have the most relevant impacts and events until we get to quarter two of 2022. Put this timeline here to avoid any misinterpretations. Looking at the chart, we see that the first impact on quarter two of 2021 was the relevant recognition of tax credits that we had at the time. BRL 112 million last year that we didn't have this year. This renders these comparison bases more difficult. Also, we had the provision for C&A Pay in quarter one, so another BRL 12 million that we didn't have last year.
Finally, we see the undesirable, however relevant negative impact of our financial results, the BRL 114 million of financial expenses, the Selic increase. That's the impact that it caused at this point. These financial impacts will keep pressuring our profits until the end of the year, until we can go back to a reduction in interest rates combined with operational cash generation. Right now it is what it is. On slide number 12, we have our investments. Here of course when we compare with the pre-pandemic period or even the peak of the pandemic, we see a relevant increase in our investments. When compared with the previous year, according to our strategy, we have a decrease of about 20% and our investments are at BRL 114 million right now.
To go back to what Paulo said, we lowered the disbursement levels of the company both in OpEx and in CapEx, and the purpose here is to protect our cash. These are the results or the effects of some actions that we have been taking on. In the second half of the year, we will continue to focus on preserving the company's cash. On slide 13, we have the company's indebtedness. Here you can see the schedule for payment of our debts after the funds we raised in the first half. We closed quarter two with a net debt of BRL 1.2 billion, with a maturation term, an average maturation of three and half years and a cost of CDI plus 2.13%.
This is the profile of our, t he current profile of our debt and we can give you more color in the time we have until the end of the call. Finally, I'll briefly go over this slide because I want to leave time for questions. Here I want to show our cash in the quarter. Here we also built this transition chart to show you where we have landed. The variation you see here was for the second issue of debentures that we had in quarter two, combined with the settlement of some of our debts.
We have a net impact of BRL 554 million. We see our cash going from BRL 660 million and landing in BRL 1.1 billion in the end of quarter two this year. As I said, I want to leave some time for questions. This is the end of our presentation, and now I think we can take questions.
Thank you. We will now start our question and answer session. We will take questions from investors and analysts only. If you have a question, please press star one. If at any point your question is answered, you may remove yourself from the queue by pressing star two. The questions will be answered in the order they are received. We kindly ask that you pick up your handsets to ask your question to provide optimum sound quality. Please wait while we poll for your questions. If your question is not selected during the call, it will be answered at a later stage by the IR team of the company. The first question comes from Danniela Eiger. She's XP Investimentos. Danniela, you may proceed.
Good morning. Actually, good afternoon. I have a few questions. Our first question is about the slowdown in the second half of the year. This is something that was pointed out by your peers as well. I want to know what you're doing. I know that there are many variables, a lot of uncertainties. What is your base scenario in terms of sales dynamics for the second half and also your margin dynamics? Because you did some great work improving your gross margin, but there was a contribution of the operational leverage for this improvement in your EBITDA margin. What do you see as the base scenario for the second half, considering that we have a lot of moving parts that you can't really control, but just some information about your prospects. My second question is, can you explore a little more the topic of financial services?
It's really striking to see this quick advancement of C&A Pay. When do you expect to see some stability? I remember your plan was three or four years. Do you already see room to anticipate that timeframe? Also, how do you see the profitability dynamics considering the increasing bad debt rates and also the investments that you have been making in your structure? I apologize, but I have a third question. I heard a slightly more positive tone about the Fashiontronics category, and this is something we're seeing in the industry because of the launch of the 5G technology. What do you see for this front, and what do you expect for the second half in Fashiontronics? Thank you.
Hello, Danniela. Thank you for your questions. I will answer some of them, and also Milton. First, let me talk about the second half of the year. As I said, we have a huge challenge ahead of us. It's really challenging to do any forecast for the second half of the year. There are many things going on. We expect a lot of things to happen, and we have to factor everything in. I say we are cautiously optimistic because I think that we have the levers and the possibilities as a company to go through this time of uncertainty. I think the numbers will not be as high as those of Q2. They will certainly be lower. We are also seeing that reduction in the traffic in our stores. There was a change in the traffic levels. It's difficult to really give you a range.
I prefer not to do so at this point because I think that we have to consider many variables here. I think what I can say is that we will continue to follow a very productive path, but it's very hard to give you any predictions. Now, regarding our financial services and our expected penetration, we are advancing very quickly, faster than we had planned, certainly. We are still looking at a 35%-40% share in the industry with all our credit services, namely our private label card and also the Bradesco card. We are moving faster than we had imagined with C&A Pay. However, with the Bradescard, the approval level is not so good. We are not seeing the same type of speed that we used to see in the past. Our prospect was three to four years.
We continue with that timeframe. Of course, there's a positive bias. Maybe it will be shorter than that. We're actually very confident that it could be shorter than that. as I said, we have this element, this important element, in this equation. Also, I'd like to go back to the topic of the margin. We're very focused on bringing our gross margin back to the levels of 2019. We were able to make this happen brilliantly in quarter two, I would say. We actually exceeded the levels of 2019. Of course, as you heard from Milton, we had the benefit of a lower promotions rate in quarter two. We had a very special sale, a special period selling our winter collection at full price. A very special situation.
I don't think we'll have the exact same situation in the second half. I think that our objective today and our goal today is to bring our gross margin to the reality of 2019 and make it a constant. If we exceed it, great. Of course, that this will depend on everything that we mentioned before and all those uncertainties. Now, as for our EBITDA, our EBITDA margin, it's a different story. Of course, that the sales and margin dynamics is contributing to these results and also the expenses. With all the pressure from the higher inflation rates and more complex operations, this is all putting additional pressure. Our margin should be a little lower than that of 2019. Finally, before I turn it over to Milton so that he can talk about the bad debt rates and investments.
Regarding Fashiontronics, I think my perception of the smartphone sales is that we are waiting for a positive cycle. It is about to come. I'm not expecting it still in 2022. I think we are at the start of this dissemination. I think that in 2022, we should see that only for the early adopters, and we will start seeing the bulkier impact starting in 2023 when it gets to the mainstream public. I believe that 2023 will be a resumption of smartphone sales, and we should see a peak in 2024. We have a positive outlook looking forward. Now Milton is going to talk about bad debt and investments.
Thank you, Paulo. Danniela, I think that you speak on behalf of a great part of our audience with your question about bad debt.
Thank you for asking it at the beginning of the question and answer session. Regarding bad debt, we have to consider that we are now forming our customer base. During this process, we create cohorts of customers, and we are at our first cohort of customers. We have to make this really clear. The natural default rate of this product is about 20%-23%, and these are the numbers we are working with. When we say that we are better than the plan, it's not just in terms of the opening of new digital accounts and C&A Pay and also bad debt. The 19% that appear there for the first time, they're not a surprise to us. They're actually. They fall within our business case.
I also invite you to take a look at the bad debt rate of this type of product. For other players in other segments, it will definitely be between 25% and 30% for this type of product. They have more mature cohorts of clients. I think that we have the benefit of being just forming our first cohort of customers right now. This means that this is not yet anything concerning. We are very diligent monitoring this closely, and this is how we're going to work looking forward. In the past, we really stressed our focus on controlling bad debt, and we have a lot of very experienced people here working in-house. Our white hair is really helpful when it comes to this point.
Now, in respect to our investments. The beauty of having a digital product now is that we concentrate all our investments in OpEx. Well, maybe the development of one or two products, but this won't really change, it won't cause any major changes. The evolution of our investments will take place as we advance with the product and fully in OpEx and CapEx is for materials.
Excellent. Thank you. Congratulations on your results.
The next question comes from João Soares, Citibank.
Good afternoon, Paulo and Milton and all. I have two questions. First, I know it's difficult to quantify the second half, but can you help us understand, for example, when we look at the prices for apparel, for example, what can we expect for the second half? Do you have additional price adjustments planned for the second half? My second question is about cash generation.
I remember that you had the tax credits. I want to know what is the dynamics of your working capital? What should we expect for the second half of 2022, and what is the ideal leverage level for the second half of the year if we imagine a normalization of the market?
Thank you, João. Well, your question about prices, we are now starting to see a slowdown in that cost price increase dynamics. We start to see in the negotiations and transactions of the first half a speed that is different from what we were used to seeing last year and the end of last year. If we think of the second half of 2021 compared with the second half this year, we will certainly be seeing higher rates of growth compared with the official inflation rates. I think it will be at about 15%, the like-for-like inflation.
João, regarding our cash and leverage, we have an operational cash generation which was very important in Q4, and this of course has to do with the seasonality of our business. We will come really strong in this cash generation. As for leverage, this doesn't really worry us because in the last 12 months, having November as a basis, we are meeting our covenants. With this cash generation that we expect in Q4, we are by far meeting the requirements. We are meeting the requirements of our covenants. We have a level of three as a limit, and we will be well below that limit.
As I said, we are working with a lot of diligence and caution, but we are very confident of the choices we made in terms of how we finance our investments. Of course, we have the debt payments that this will decrease because the interest on our debt, because there will be more reduction in the future. The second is the generation that we will have, and we will clearly apply this generation in reducing our indebtedness.
Thank you, Milton Lucato and Paulo Correa.
The next question is from Ruben Couto, Santander.
Good afternoon, everyone. Along the lines of the internal improvements that helped your gross margin and the full price sales of your winter collection. To understand the relevance of the push-pull modality this quarter and looking forward, can you give us an idea of your implementation schedule or your rollout schedule?
You said that 22% of apparel sales are already working in this modality. So what should we expect in the coming quarters in terms of the implementation of the push-pull modality? Should we see a higher share of the total apparel sales already operating in the push-pull modality?
Hello, Ruben. Thank you for your question. As we said in our release, we are getting to 23%. 23% of our sales and our products being distributed through the push-pull modality. The impact of this is actually a combination of push-pull and our RFID. When we get to the SKU level in our distribution, at the same time we need to have the accuracy of the understanding of our inventory by SKU and the level of your safety stock decreasing so that you can have more assertiveness in this process.
So far we have 23%, and our target is to reach 40% of our distribution in this modality. However, the impact that we see in quarter two of this 23% is still small. It's certainly the smallest parts of the margin increase that we had is linked to the push-pull modality. I think we still have a long way to go in 2022, and mostly in 2023, until we can see an improvement in our gross margin. What we want to see is an increasing capture of this gross margin through the push-pull modality over the course of this journey.
Thank you, Paulo.
The next question comes from the English room, from Andrew Ruben, Morgan Stanley.
Hi. Thanks very much for the question. On stores, you mentioned the plans for 15 growth expansions. I'm wondering how you're thinking about the new store opportunity longer term. Is this a tactical slowdown, or are you revisiting how you're thinking about the pace of the footprint over the next few years? Thank you.
Hello, Andrew. Thank you for your question. We are certainly talking of a tactical movement here due to the interest rates that we are seeing now for better protection and a more conservative cash management. The possibility of expanding is still very clear and very strong, and will certainly come back to our agenda with the same relevance that we had established 20-25 stores. This will happen as we start to see a reversion of this increase in the interest rates that we're seeing right now, and of course, with the cash structure that we are advancing and evolving.
Very helpful. Thank you.
This question and answer session is now closed. Now I'd like to turn the conference back over to Mr. Paulo Correa Jr. for his final remarks. Mr. Correa Jr., please.
Thank you all for attending our conference call. I would just like to finish by reinforcing one more time, first, our satisfaction and happiness to be here sharing these results with you. As I said, these results have everything to do with the resumption in the fashion segment. We are going back to more normal levels after the COVID pandemic. This was the first quarter that was not impacted by the COVID pandemic, and we could actually have a glimpse of what is coming in the future. Today, we have a much stronger company, much more capable, and with very important levers that will not just bring us commercial growth, but also profit.