Good morning everyone, and thank you for waiting. Welcome to the first quarter 2023 Lojas Quero-Quero earnings conference call to discuss the results of the first quarter of 2023. I'm Flavio Abrantes , IR Manager, and joining me today are Peter Furukawa, CEO of Lojas Quero-Quero, and Jean Pablo de Mello , CFO and IR Director. Let's start with our presentation. Our agenda today will address first our pillars, projects and expansion, first quarter 2023 earnings discussion, and finally a Q&A session. Now I'd like to turn the floor over to Peter Furukawa, CEO of Lojas Quero-Quero. Peter, you have the floor.
Good morning, everyone. It's a pleasure to be here with you again. I've been talking to some of you quite frequently, and today I'm going to present the results of the first quarter 2023. As some analysts know, we have many novelties, but we continue on the same journey, prioritizing our cash flow. Let's get started with the first slide that shows you our pillars. This is pretty much the same as we shared with you in previous calls, but our pillars remain the same and they have not changed. We had sales growth of 5.1% in the first quarter of 2023 compared to 2022. Compared to 2019, we had a 74.5% growth. CAGR 14.9% up compared to 2019, and same-store sales up 2.5% compared to last year and up 23.4% compared to 2019. The 2.5% growth was actually negative in Rio Grande do Sul, but it was positive in the states of Paraná and Santa Catarina.
In the first quarter, we had over 350 municipalities affected by droughts, and that impacted the harvest. The northeast of Rio Grande do Sul was hardly hit by the drought, and that pushed the numbers down. The good news that we shared with the market is that in terms of the number of customers, the decrease is no longer seen. We're now being impacted by the deflation rates. Basic materials such as iron had a deflation in the first quarter of 2023. In terms of number of customers, we have already stabilized, although we're still below 2019 numbers when it comes to the same store numbers. There is room for improvement if there are changes in the macroeconomic scenario.
We have seven new stores adding up to 535 stores. We had 14 renovations in the first quarter of the year. As I told you earlier, this year we're focusing more on store reforms or renovations, which gives us a quicker return than newer stores considering the current scenario. This is our pillar of market gain. Good news is that even with a more difficult market, all of the efforts of our credit and collection area is paying off. We were able to keep our overdue of 90 days on the portfolio at 9.8%, which is in line with the same period of 2019, which is really good considering the current market condition. We are conservative and the results that we see today show that our strategy was correct.
We are in line with what we expected for now. The growth of the credit portfolio is going up because our sales with the VerdeCard is going up. We are now recovering the share of VerdeCard in our sales, our credit portfolio is growing accordingly. Our revenue grew by 13.9% in the first quarter, that was pretty much due to the expansion. When you look at the same stores, we are actually below inflation. That's very good work our store managers together with Jean and the team have been doing greatly. The good thing is even in this difficult scenario, opening stores, we have BRL 86 million in net debt compared to first quarter 2022. Net debt always goes up in Q1 compared to Q4. We always consume cash in the first quarter and generate cash in the second quarter.
Once again, we have consumed cash in the first quarter, and it will generate in the second quarter. This is because we have to pay the bills in December. When we compare our numbers to the first quarter 2022, we have BRL 86 million less in net debt. 21% of our sales come from digital initiatives. We don't want to buy customers right now, so the cost of acquisition is low. If we were in a good moment, we would be more willing to spend more to attract customers. The check we've been seeing is usually very high, so we're working only with the efforts of our stores, and attracting customers with those efforts is a bit harder. 21% of our sales come from our digital efforts, which is pretty good.
About our high-performance culture, 23 store managers have been trained, and another 75 managers are being trained right now. We are providing more and more training because we have a large team of employees also in the development program. Another 17 trainees were hired and started working with us on January 2nd, 2023. This trainee program has a reasonable turnover rate, some of these trainees are coming in to replace previous trainees, and others are actually new positions. In total, we have 17 trainees and a total of over 4,000 or even 5,000 applications. These trainees are very high level, and every year we have this group of people who are hired here at Lojas Quero-Quero, bringing us with great analytical power. Next slide, please. This shows the evolution of our stores. 535 stores in June 1.
We closed one store located in a city close to Porto Alegre called Gravataí, a store in the metropolitan region, which is not our typical profile, we already have four stores in that region. We thought it didn't make sense to keep that store opened. We closed that store in Gravataí. It's not common for us to close down stores, but it's part of what we have to do. We opened seven new stores, as I told you earlier, 14 renovations or reforms. 70% of our stores are cities of below 15,000 inhabitants, 85% of our stores are in cities below 100,000 inhabitants. This is our focus. These are the stores we opened in Rio Grande do Sul, Santa Catarina, Paraná, one in Mato Grosso do Sul. Next slide, please.
This is about our Loja Infinita. We are at 18%, 19%, 20%-21% of our sales coming from our phygital efforts. We have been doing a good job. The stores' teams are working really hard in order to increase the penetration of our new products available in our phygital stores with our customers. Next slide, please. This is our new sustainability report. Jeans team, along with Flavio and Paula's team, have been doing a great job in keeping us up to date about everything we're doing. The new 2022 report was just published, increasing our transparency of reporting, including the structure of the Task Force on Climate-related Financial Disclosures. These are not new things we're doing. This is actually things we have already been doing, but it's now all published in a report.
We have further details on the governance of the management bodies and forestry management practices. Based on the consultation, we updated our company's materiality matrix. We had already done that with our board members, we did another round with internal and external stakeholders. We updated our materiality matrix, and we saw that there were not many changes. This is my summary of the first quarter of 2023. The scenario has not changed. It continues quite challenging. While interest rates are at this level, we see some pressure being exerted on the renovation and construction market. Considering the return people have with their fixed income investments.
Whenever we open new stores, we have investors, and investors say, "Well, I leave my money in the bank and I get 14%, and you're paying me 6% over my investment, so I prefer not to do it." We try to give them arguments saying that in the long term it's gonna be worth it, and some of them continue investing with us. When it comes to new constructions, especially considering classes C and D, things continue quite challenging, just as they were last year. We don't have good news when it comes to that. We have not yet reached an inflection point. Our focus continued to be on cash flow. I think that we've been doing a good job when it comes to that.
We were able to close with a net debt of BRL 84 million lower than the same period last year. Once again, our whole company is focused on cash flow, and this is something we've been doing for several years now, and I think that we should congratulate our company for that. That's all. Now I'd like to turn the floor over to Jean, who'll give you further details about our numbers.
Good morning, everyone. It's a pleasure to be here with you again, giving you further details of Lojas Quero-Quero's earnings. Moving on to the next slide. I'm gonna give you further details about the results of our first quarter that Peter just shared with you. We usually like to give you a longer history, in this case since 2019, so that you have a better idea of all the journey we're going through.
In the first quarter of 2023, we had a 7% consolidated revenue growth, considering all the three business lines at the company. A CAGR of 16% a year since 2019, so over 80% growth since 2019. In recent years, this happened due to different factors, as we said in our previous earnings calls. In the first quarter of 2023, we had a 5% growth in our retail revenue. We still have a 2.5% negative same-store sales, and we also had the opening of new stores in the last 12 months that impacted the numbers. With the 2.5%, although this is still negative, -2.5%, this is already an improvement compared to recent quarters. In the first quarter of 2022, we had a -1.5% same-store sales.
In the second quarter, the amounts were higher, like -7.6% in Q3 and -7.2% in Q4. Now we're going back to -2.5%, which, as Peter said, this is still impacted by the scenario and the deflation rate of the products we sell. On the other hand, our financial services continue to grow. When you see our history, you see that financial services usually have an inertia or a delay compared to retail. I'll give you further details also about our credit portfolio later. We had a financial services growth of 12% and a credit card portfolio growth of 7%. The gross profit grew around 2% this quarter, specifically. It's worth mentioning that our margin in Q1 2023 is lower than Q1 2022.
Because of the cost of capital and financial services, basically an increase in the Selic rate. This is very much aligned, as you can see, slightly above Q4 2022. Our gross margin over gross revenue is at 29.4% against 29.3% in Q4 2022. You can see that retail and financial services are showing certain stability since last quarter, which is quite significant considering that we suffered throughout last year with the increase in the cost of capital for financial services and also for some of our retail activities. Moving on to next slide. It's important to mention our operating expenses. We worked really hard since 2021 when we were getting ready for a more challenging macroeconomic scenario.
In recent quarters, you were able to see that we were great at controlling expenses. This proves this once again. We had a 13.9% growth in OpEx in Q1 2023 against Q1 2022. Our store base grew by 11.7%. Our same store expenses is actually below inflation. Since our focus is on cash flow and company profitability, we did a preventive work of maintaining this structure at our company. With expenses well controlled due to the hard work we did in recent quarters, we can see now the results of the company in the next slide. The first quarter of the year is a quarter of weaker results, historically speaking. We had BRL 29 million of adjusted EBITDA. This is still a drop compared to the first quarter 2022.
This is mainly due to this negative rate of same-store sales. Although just slightly negative considering the controlled expenses, we still have this operational deleverage impacting us, but still with a positive EBITDA and control of our main business premises, as you'll see in the coming slide. Moving on to slide number 14, you see that just like Peter already mentioned, we had a credit portfolio growth. Our loan portfolio has been growing gradually. There is growth here compared to the first quarter of 2022, as you can see, and this is a gradual growth with controlled delinquency rates, which is even more important. We have an overdue rate of 10.8%, very much aligned to what we had in 2019 and very similar to the same quarter of 2022.
This has always been a goal of ours for last year and this year to keep delinquency rates controlled at the same levels we had in 2019. We were able to deliver that as you can see. Moving on to the next slide, you see that the portfolio growth comes from the use of our credit card. Total payment volume with our VerdeCard grew by 16% in Q1 2023 year-over-year. More than BRL 2.3 billion in total payment value in the last 12 months. Growth using the card within our own stores and also outside our own stores. In Q4, we started the Nosso Card Credit Card partnership with Elo. This has led to a growth in the use of our credit card.
The use of this credit card reflected the growth of our portfolio as I just showed you. Now on our next slide, you can see the history of our company in recent years. In 2020, 2021, and 2022, we invested in several projects that we consider crucial to maintain our continuous growth with new distribution centers, investments in IT, in data center and support to our data center, as well as investments in our digital project. This year, after making these investments in a specific project, we did not have any one-timer in Q1 2023, we were able to reduce our CapEx BRL 12 million in Q1 2023 versus BRL 18 million in Q1 2022, even with an opening of seven new stores and the renovation of 14 stores.
This shows our objectives, which will become even more transparent on the next slide number 17, where you can see our debt control. On slide 17, you can see that we closed the first quarter of the year with controlled debts. As Peter said, we do have cash seasonality throughout the year. We usually have a higher cash consumption in the first quarter and higher cash generation in the second quarter of the year, and that's due to the sales seasonality of our company. It's important to show that last year our goal was to close the year with controlled debts, and we did that. We closed the year with BRL 78 million, very much aligned to the BRL 73 million we had in Q4 2021, and this continues to be a goal of ours.
We closed the first quarter with BRL 73 million in debt, a reduction of BRL 180 million than the first quarter of 2022. Together with delinquency rates that are very well controlled and the results which are quite stable, although we still suffer with the cost of capital in the retail macroeconomic scenario, our capital structure remains stable so that we can continue investing in opening new stores. These were the details we wanted to share with you. Now I'd like to turn the floor back to Flavio, who will lead our Q&A session.
Thank you, Jean. Let's now start our question and answer session. The first question comes from Clara Lustosa with Itaú BBA, and Peter will answer it.
The question is: In your retail arm, can you give us further details about the competition scenario? We know that the dynamics are quite challenging for everyone, for smaller players, the pressure might be even harder. Can you tell us a bit more about the scenario and if you see this as an opportunity to gain market share? Thank you.
Peter, you have the floor.
Thank you for your question, Clara. It's a pleasure to be talking to you today. Before I answer your question, let me just say something. It might seem to you that I'm having a pessimistic view, and I'm not. I'm actually very happy with the company's results in the first quarter. We were able to manage our cash really well, and we continued to make our investments, renovating stores, opening new stores, and keeping our cash levels at the expected level. The company should be congratulated for that. Now, about Clara's question about the market.
Everyone is struggling right now. The competitors that work with Classes A and double A or triple A, they are struggling now, although they were not struggling last year. Some competitors are actually closing stores. Many of them have fewer customers, but they're surviving. In Q1, once again, some suppliers came to us to ask us to try and concentrate the volume so that they can serve us better since some locations are having a higher delinquency rate with suppliers. That shows that the macroeconomic scenario is getting harsher for local players. When we can, we're trying to go after this market share, but that's not something easy that can happen overnight. For Classes C and D, I think we're working well, and we've been able to keep our market share or even gain a little bit of market share.
Thank you, Peter.
Our next question is also by Clara Lustosa with Itaú BBA. It will be answered by Jean.
The question is: We've seen growth in the share of the VerdeCard sales in the stores and growth in the joint portfolio. You've been working well in controlling delinquency. Do you plan to keep on increasing the share of the sales with VerdeCard? What can you tell us about delinquency rates from now on?
Good morning, Clara. We expect the dynamics to be maintained. We continue with the same policies for credit. Our goal is to keep delinquency rate under a controlled level, but we see a growth in the demand for credit. As Peter said in his presentation, we also had a drop in the penetration of the VerdeCard sales in the Quero-Quero stores .
In 2019, 60% of our sales were done with our credit card, but that number went down during the pandemic. In recent quarters, you can see that we've been gradually increasing that level, but we still have a lower penetration than that we had before the pandemic. We closed the year with a penetration of 53% of our sales with our own credit card against 60% that we had in 2019. We expect to see a gradual increase of our credit card penetration because of the demand, but we continue to be more restrictive in credit granting. The goal is to keep delinquency rates at controlled levels still as long as the macroeconomic scenario is like that. If we have data showing us that we can grant more credit, things might change in the future.
If not, we expect to see a small but gradual increase in the share of our own credit card. We continue to grow our total sales volume, which is the main focus of our credit portfolio.
Thank you, Jean. Our next question is by Vinicius Pretto from Bank of America. This question will be answered by Peter.
The question is: Are consumers adhering well to the phygital channel? Can you tell us more about what you expect of the marketplace?
Hi, Pretto. It's great to talk to you again. What happened with our phygital? Our sales force is selling all of our cards and our products to our customer base. This base has been growing slightly, but not as much as we would like it to grow because we would have to go after other sources.
We have to start selling to customers who didn't use to buy at largest quero-quero , 'cause we also have products to classes B and classes A minus. These customers from classes B and A minus, they cost a lot. Right now we are not willing to invest a lot in that. We continue to grow as we can with what we have in our stores. We have reached a better level, and we have more and more of our own customers trying out these products. New customers from classes B and classes A minus are still few. We don't have many new customers from those classes, so we have to see if we can use Google and other social media to attract more of those customers.
We have seen some opportunities, this is still very expensive and we consider it a risk to invest in doing so right now. We'll continue at the same pace we're doing right now. How about the marketplace? You probably know more than I do, we haven't started it yet. We're just making systems adjustments right now for this in and out. We ran a few tests, as you probably know, but we haven't seen this as something possible right now for a Quero- Quero . I'm not giving you any guidance, okay? We're making efforts to have this operating in the second half of 2023, but we're not sure yet about how this is going to evolve, so we cannot tell you much more about this for now.
Thank you, Peter.
Our next question is also by Vinicius Pretto from Bank of America. It will be answered by Jean. How do you see the evolution of the Mais Construção phase III? With the expansion of building, do you see an opportunity to expand your stores?
Jean, you have the floor.
Good morning, Pettro. Renovating and enhancing our stores is quite natural considering that we opened seven stores in Q1. We did 14 renovations. This will continue to be a focus for the year, especially renovations, even more than opening new stores. When we do renovations or reforms, we enhance stores that we have in the traditional model, you know, going from phase I to phase II. Those that are in phase II moving to phase III.
Since our focus is on cash flow as a whole, we prefer to do things that will require less capital. We focus on things that require less capital and that give us quicker results. Yes, I think we'll have transformation to phase III throughout the year as we've been doing gradually, but there won't be a major change in our strategy. We'll basically continue what we have been doing in recent years. Yes, you'll see more reforms and renovations of all formats in the coming quarters.
Thank you, Jean. Our next question is by Joao Paulo Figueiredo from XP Investments, and it will be answered by Peter.
I'd like to know about the performance of your stores in Paraná and your perspectives to growth in the Midwest region of Paraná and in the Assis region of São Paulo.
Peter?
Thank you for your question.
Well, I can tell you that in Paraná, we've been doing well and even better than in Santa Catarina. In the state of Paraná, the performance has been good. The first stores struggled a bit in the beginning because until we have a good volume of stores, we cannot even go to the media because it's not worth it. Once you have at least 25 stores, it becomes easier for you to go to the media. Anyway, the state of Paraná has been doing well. There are no problems, just, you know, about the volume that is struggling just as the whole building materials market. Mato Grosso, I mean, the state of São Paulo, there were many people from Mato Grosso. They already knew our brand. Many people saying that they have purchased our products before.
In São Paulo, we did struggle a bit in the beginning, and now we have a regional manager focused on this, and we see a great recovery in our São Paulo stores. We're not going to invest in a geographical expansion right now. Given the market conditions right now, we're planning to expand where we are already operating. Our priority continues to be Paraná and Santa Catarina, and also some stores in Rio Grande do Sul. We're not planning to expand strongly in the state of São Paulo and Mato Grosso yet. If the market changes, our variables change accordingly.
I would love to be able to have the problem you were talking about in our distribution center in Assis, but we still have idle capacity today in all of our 3 distribution centers because the volume is not there yet, as we expected to see when we opened those distribution centers three years ago. We still have a long way to go before we think about that distribution center in Assis. We do have capacity to serve with the distribution centers we already have installed. Of course, if the volume changes and the market improves, we will focus on that. For now, this is not a priority. The priority is to try and gain market share where we are already operating.
Thank you, Peter. Our next question is by Felipe Casimiro from Bradesco BBI, and it will be answered by Peter.
Thank you very much for updating us on the short-term scenario. Can you tell us more about the retail sales recovery? You talked about stable volumes in the year-over-year comparison. Starting with the second quarter 2023, can we expect even more positive numbers?
Peter?
Hi, Casimiro. It's great talking to you. I'm just laughing because this question, I mean, Flavio shows us the questions, and you cannot see, but he wrote in capital letters,
"Don't talk about numbers. Give us a more general answer."
I'm very transparent as usual, and they try to hold me back. Casimiro, we would like to see growth in our customer base, of course.
About the second quarter, what I can tell you is the following: If we keep the number of customers we have today, if we extrapolate those numbers, we would have growth compared to the previous year because our customer level is now higher than we had in Q2, Q3, and Q4 last year. I would be surprised if we didn't have a small growth there. Small. As Flavio and Jean said, this is in a general way an overview. That's what I can share with you.
Thank you, Peter. Our next question is by Felipe Casimiro as well from Bradesco BBI, and it will be answered by Jean.
How can we combine the stronger sales of services against retail? Do you think that both areas should have a more similar growth in the coming quarters?
How confident are you to keep the overdue payments and delinquency rates controlled throughout the year 2023?
Jean, you have the floor.
Hi, Casimiro. Well, through time, historically speaking, of course, there are some structural changes with what we did in 2018. When we look at the growth of our company through all time, we see that financial services and credit cards work as a leverage for retail. Yes, we would expect them to grow together hand in hand. That's how we consider this at our company. It's important to bear in mind that financial services do have an inertia because the demand for financial services come from the portfolio. First, we have sales with VerdeCard in retail, and then the rest grows as well.
When you look at the history in 2020 and even in the beginning of 2021, we had a strong retail growth while financial services was still growing only slightly. It started in Q3 2022 that things changed. Retail stabilized with a negative same-store sales, the financial services kept on growing, which also led to growth in revenue. You can see that in Q1, the growth of financial services is actually lower than we had in recent quarters. Gradually, yes, we think that both businesses' growth should stabilize. Of course, we can have short-term premises that can impact us, like inflation of retail products or even deflation, which is a risk for the year, interest rates. Yes, there are some things in the short term that can impact us.
In the medium and long term, we can expect, in spite of the seasonality, one activity growing more in terms of revenue than the others, but in the long term, aligned growth in revenue from all the different businesses. When it comes to delinquency, that's related to Clara's question earlier. The portfolio growth that I've been mentioning comes together with controlled delinquency rates. That also happened last year. Last year, of course, we had to restrict credit a bit. This year we're starting off with controlled delinquency without having to increase our credit restrictions. This is a good indication that our portfolio is healthy and delinquency is controlled. It is one of our goals to keep the portfolio at this delinquency levels for the coming quarters, and that is delinquency levels similar to those of 2019.
Any change, you know, like growth in the portfolio will depend then on us starting to see macroeconomic improvements. For now, we think it should be very similar to what we saw in the first quarter and in recent quarters.
Thank you, Jean. Our last question is by Joao Bosco from [Pastorate] and will be answered by Peter.
The question is: Does it make sense to compete in appliances and furniture with major retailers that already have small margins? Why shouldn't you focus on your core business? Shouldn't you test your model in other cities? Wouldn't it make more sense?
Peter, I think you're on mute.
Okay. Joao Bosco, thank you for your question. About Quero-Quero's mix. 85% of our stores are in cities below 100,000 in population and many more in cities with less than 50,000 in population.
In those cities, having only one category would not be enough. We need more share of wallet. We need to participate in construction, right, building material or furniture, appliances. We're there in the lives of customers, and we grant them with credit, which in smaller towns it's something that it's not easy to get. When we look at our gross margin return on investment, how long it takes for us to recover any Brazilian real invested in a product to keep in stock, all categories are very similar. One can have a higher margin but has no credit. The other one has more credit and lower margins. When you put everything together, one has, you know, a longer payment term, the other category a bit less.
When you put it all together and you analyze the gross margin return on investment, you see that they are all pretty similar. Even with the internet growing a lot and retailers showing that we continue at the same pace of mixed growth at Quero-Quero. I don't see any reason why we should test the model focusing on one single category. If we were in a large city, you know, with a population of over 300,000, the model would probably be a category killer model. One single category, because that's how you compete in smaller or in bigger cities. In smaller towns, it makes sense for us to offer more products for customers to have access to through credit, which is something they don't have easily in those locations. We're not planning to have a single category project for now.
Thank you, Peter. Okay, this concludes our Q&A session. Thank you all for your questions. Now I'd like to turn the floor over to Jean and finally Peter for their final remarks.
Thank you, Flavio. Once again, I'd like to thank you all for joining us this morning. Our IR team and all of Quero-Quero's team are available to you should you have any further questions. You can look at all of our earnings materials and our sustainability report that was published in recent weeks. Thank you again and have a great day.
Peter.
Thank you all for your time today. As a reminder, our focus continued to manage our cash flow well. We cannot increase our net debt considering the scenario we're facing. This has been a very successful strategy, and we continue focusing on our five pillars to gain market share as much as possible.
I see efforts of our teams. Our teams are working really hard for that. The number of visits of salespeople and managers to the construction sites is very high, two to three times higher than it was in the past, so they're working really hard on this. In our second pillar, credit and collection, I think that we've been doing a great job keeping delinquency rates much better than the rest of the market. Now, when it comes to phygital, this is still a great effort within our customer base, not spending to attract new customers in a way that doesn't make sense in the short term. We continue with our efforts to reduce cost whenever we can. We fight for each BRL in our same-store sales. Expenses continue below the inflation rates. We continue with our high-performance culture, which is already part of Quero-Quero's DNA.
We continue to manage our company based on those pillars and focusing on cash flow. In order to, I mean, to gain market share, the macroeconomic scenario needs to change either with a recomposition of the purchasing power classes C and D or lower interest rates. We still don't see that happening in the near future. That's all. I'm very happy with our team. They are very hardworking, and we're very happy with that. Thank you all for your questions. Should you have any further questions, just get in touch. Thank you all.
This completes our earnings conference call. Thank you very much.