Earnings Call: Q1 2021

May 6, 2021

Good morning, and thank you for waiting. Welcome to the presentation for earnings for Q1 2021 for Lodges Car Care. My name is Vinicius Petrod Souze, Investor Relations Manager, and I have with myself Mr. Peter Furukawa, Chairman and Jean Pablo Dimelo, CFO and Investor Relations Director. This webcast is being transmitted by the Internet at you can access atri.kerucare.com.pr. For the Q and A session, questions should be sent through the webcast platform. This webcast is being recorded and will be available on our website. Before continuing, we'd like to clarify that any declarations that may be made during this webcast concerning business perspectives of the company's projections and operational financial goals are based on beliefs and assumptions of the Board of Los Jazquero and information currently available. Considerations about the future are not guarantees of performance. They involve risks and uncertainties. They relate to future events and depend on circumstances that may or may not occur. Investors should understand the general economic conditions, industry conditions and other operational factors may affect the future results of the company Enlitre results that differ materially from those expressed in such considerations about the future. To begin the presentation, Please let us go to Slide number 2. Our Redundia will cover updates on the operation during the pandemic, general results, the progress of expansion projects and also results and earnings of Q1 'twenty one. Then after this, we will have the Q and A session. Now Slide number 3, and I would like to pass the floor to the Chairman, Mr. Peter Furukawa. Peter. You may proceed. Good morning. It's a great pleasure to talk to you again. As Vinicius Preto said, anything that I say about the future our wishes. They are not a guidance of what the company intends to do, but it is what we in the board would like to do. This year was characterized by the 2nd wave of COVID. Unfortunately, as you can see, last year, green represents 100% of stores. RED represents closed stores due to the pandemic. On March 17, we began to close some stores, and we had a period with all the stores closed. This year, at the end of February, we had the beginning of restrictions and the orange GAR is when the sale of construction material is allowed because we are considered as an essential activity. But we need but we cannot sell home appliances inside the store. The area is closed off inside the store, home appliances and furniture. We Can Sell, BuySapp or clients calling the store or salespeople calling clients. And thus, even with these restrictions, we were able to have good sales in Home Appliances Enfurniture in March. Obviously, we have all the we follow all the health protocols, safety protocols. We demand the usage of masks, distance between people, a lot of concern in the stores to avoid health problems with our employees or clients. After the end of March, stores opened once again. And we see April operating normally with all the stores open. Right now, we don't see any concern yet with the 3rd wave of COVID for the time being. We're operating normally, and we're not seeing any strong pressure to close stores again. Sur in the South. We have a good vaccination schedule. Our state. Rio Grande do Sul was number 1 in terms of number of people already whoever already received shots, vaccines. NexChart. Well, as a result of this Q1, we had a growth in same store sales of 40.5 percent. Reminding you that last year, the drop in Q1 was only 6%. So these 40% were very good growth. I believe I can congratulate our team. Congratulations to our team. You can see on the right, our growth in market share continuous much higher than the market. So we have increased more and more our share winning markets. Our aim is to grow more than the market, growing as much as the market will not be enough to support the growth that we want to have, not only as a company, but also as professionals at Keriker. Our gross sales in Retail grew 51% in comparison with 2019, 56% strong growth, which shows our growth in EBITDA and net adjusted EBITDA and also net profit. The interesting thing is that when we began to close the stores, obviously, I thought we would end the quarter without selling home appliances, restrictions on home appliances and furniture. I thought we would close the quarter below our budget. We did very well in January, February. We were above our budget Andy, March was not that bad. So in the end, even with restrictions that we had in March. We were above our budget, which is aggressive. So we closed the quarter above our budget for the year, at least for Q1. And also some questions that may appear. April, I'm talking publicly. I can say this. Otherwise, Puerto can correct me if I can't say this, but April, the performance was very strong in April, even stronger than January, February. So I see a very good situation for Q2 for the time being. Next chart. We have 5 pillars. We had 4 pillars in the company right now. We have 5 pillars. The first is to win markets. During the last 5 years, reminding you that we had the strongest recession in Brazil in this period. The whole team, we always work hard, conscious that we have to grow more than the market because the market dropped and we continued growing. Q2. We want 1st of all, we want to win market share. We have to grow much more than the market, and we have been able to do this. 40% same store sales in Q1 is a good growth. So we have the possibility of growing more in the same stores. We have to focus on this. This comparison must bear in mind that in the last few years, we opened many stores. So we're the maturity of these new stores takes 6 years to get to a good level. It takes 6 years, so we will have we have the growth of the in these new stores of the previous years. But we monitor the growth of mature stores, those that are older than 5 years, and they have been very strong. So we have to increase our market share in the same stores, which is low. In Q1, we opened 9 stores. In Q1, we opened less stores and we revamped more stores. When we revamped or we change the size of the store. The growth is better because those that are the same. For example, when we move from a small store to a larger store, normally, the store structure is very similar. So the gain in share we have goes directly to EBITDA. So to grow in the same stores is always better. We revamped 19 stores. The team worked very hard in revamping, and we have 9 new stores. We have plans. Our desire is to open 70 new stores this year. Currently, we have 76 contracts signed for this year. Probably 10 of these will be open next year and the rest this year. So the situation is very positive in terms of opening 70 stores this year. We have some cases where unfortunately there have been cases of COVID during the construction. So we may have some late, some people have to go to the hospital, so the construction stops in some stores, but in general, we're doing well. We opened 6 stores in April. We have an aggressive calendar for new stores being opened, and we believe we will reach what we have planned for this year. Now in terms of the second pillar, excellence in credit and collection. We have an important focus on this. In Q1, we had a drop in delinquency in past due because in Q1 last year, we put more restrictions on credit. At the end of Q2 and the rest of the year, we went back to normal conditions and this shows the improvement we had in past due amounts in our portfolio. Our so our delinquency was low and now it's even lower. This is because of the effort of stores in renegotiating debts. In the past, we waited for the client to get 180 days to negotiate. And during the beginning of COVID, we changed our posture. We're renegotiating debts earlier, and this gave us very positive results. So our team continued to do this. We are still doing this with good results for our PDD. So we continue with a good situation in credit and collections. Our policy is also to leverage results to grow more our gross profit and expenses. So gross profit grew 38.3% and expenses grew 23%. You know that when we grow rapidly, always operational expenses grow more, but we have been able to do more with less. So we had a growth of 161.9% in adjusted EBITDA in the quarter. So this is our objective. Our adjusted EBITDA, as I said, arrived at 161.9 percent and net profit, dollars 11,600,000,000 a very good result within our expectation, even higher than our internal budget. We created a new pillar that we call Fidgital Sales. In small cities. As you know, we'd like to highlight that 80% of our stores RN Cities with less than 100,000 inhabitants. The average of 80% of the stores are 80,000 inhabitants. So they are relatively small cities, but give us good results. And since we're in these cities 2, 3 times a week with deliveries. We have a very good logistics, and we made a focus group at the end of last year testing the concept of increasing our assortment number of SKUs. My dream would be for someone in a small city, for example, like Camberadosu, when they go into our store to see a store similar to a home center in large cities. Obviously, we can't have all these products, but we have a platform where the person can see these products on a big screen as if they were entering a larger store and being able to buy all the products without having to go to a larger city, even in cities with 20,000 inhabitants. We tested this concept. It was very well accepted. The fact that we can offer another 22,000 SKUs guaranteeing delivery between 2 to 5 workdays or otherwise, the person does not have to pay if we don't deliver on time. If people have a problem, they don't have to call an 800 number, no e mail. They go to the store and they solve everything with their salesperson. And it's a local sale. So this was something that these cities appreciate. So we built a team to take care of this project. We hired a director from another company who knows a larger assortment like HomeCenters have. And we are working to have these 22,000 SKUs, making them available with interesting technology. I can't show this to you now, but people can walk into the showroom that we're building now in our old W. So the client can go in into this store, see the products. Ends. So it's a very interesting technology. We tested, it worked. We believe that this will be a pillar. And now we have a showroom in a distribution center that clients can see on the screen. And we don't know what this will represent yet. We will begin this project in the distribution center with a showroom that people can see on the screen at the stores in Q4. We intend to begin because if it works very well, we may run out of products. So we don't want this in all the stores. We will begin small in a very well structured way in Q4, and then we will expand this to more and more stores. I'd like to remind you that Wiebbrad's US600 KUs. Also, products in Maestre's will be sold in all the other stores. And today the sales of products that are not physically present at the stores. These products that are not physically in the stores represent 13% of our sales. So this is helping us in our growth. I believe we may have another avenue of growth with this new platform, but for the time being, we don't know how much this will represent. We are implementing, for example, more products in floor tiles, tools and also Home Appliances and Furniture. We're introducing more products for lighting, lighting products, decoration products, and this will enable people in small cities to have a larger assortment available and receiving in 2 to 5 days, and we guarantee that we deliver on time or they don't have to pay. So I am very optimistic. We don't know what will happen, but I'm very positive and optimistic, and the team at Cerro Care is very optimistic with these initiatives. We continue, we will continue always with our culture of high performance. At the beginning of the IPO, I said that we wanted to train quality managers, and we have done this. At the time, we had 230, 240 employees being trained for to be store managers. Today, we have 400 employees being trained to become store managers for the next 3 years. I'd like to I've shown this in some conferences that the performance of our new managers is even better than first because we are at a time when construction is doing very well, selling very well, and you can see this in our numbers. But we had 2 learning points to focus on the quality of new managers and we have improved the performance of our managers. Another point that we saw in the old harvest 5, 7 years ago, we waited more. So we allowed 6 months to work on stores when they were not doing very well. We learned that we cannot do this. We have to make changes during the first If we don't have the right results, we have a swap team that goes to the store to look at everything. And normally, it has to do with the team, new manager who believes there is a hierarchy, but this no longer exists. There is a leader. And when we get this right, the leadership when we get it have a good leadership stores begin to sell Vero. So we're no longer waiting. So we act rapidly, and now the new managers are having even better results. Our old stores had a payback of 28, 30 months. I wouldn't be surprised if we won some months with the new initiatives in correcting problems earlier. Apart from this, we continue with our culture of bringing brilliant people to work at Keru Keru, training them. This year, we had 5,500 applications for our corporate trainee program. So we those who get the best grades, we bring for group dynamics, interviews and then we hire. This year. Of these 5,500, we brought 15 candidates, brilliant people to work at Cercare. So I always say, I believe we have a very good team, very differentiated team, both at Storz and also in the positions at headquarters, exceptional people, brilliant people working here at Kerkau. Outliers. These are outliers like we have Jean and Peyto that are fantastic, and we have many people like this at CarouCare that make me proud of the company. And there's a saying that the way you to have a high performance people, you need to hire high performance people and then you build a good team. We have a fantastic team here. You have visited us and you noticed this. I'm very proud to be part of this group here. The next chart, please. Here we see the 9 stores that we opened in Q1, 4 in Parana, 4 in Santa Catarina and 1 in the state of Rio Grande do Sul. Our at the beginning of 2019, we went from 190,000 square meters to 271 1,000 Square Meters. This includes the revamping. Stores are we expand some stores. The rent goes up, of course, but it has been very good to increase the size of our stores where we have a good team and where we have potential for growth. So we have a growth objective in the same stores and also in new stores. Sir, we continue with 80% of our stores in cities with less than 80,000 inhabitants sorry, less than 100,000 inhabitants. And in these cities, our model works very well. So in part, this protects our business model in comparison with other networks. It's not easy to work in a small city with the profitability we have. Here we show the stores that were revamped, that were improved. You can look at this chart as glass that is half full or half empty. This chart for me shows that we have a lot of market share to win. And we have 9 stores in Phase 3, 80 stores in Phase 2. In other words, we have many stores to improve and reach a Phase 2 or Phase 3 as we call them. The stores we open are Phase 1 and then we expand them to Phase 2, Phase 3. And this helps us to win 20 percentage points in market share every time we increase the size of the stores. But the managers must be ready for this. So even if we didn't open many stores, we would have a good potential to grow in the same stores. This makes me very motivated and is challenging, but we have a good avenue for growth, and we've done this very well. Next chart, please. Here, I was talking about digital sales. So 2 or 3 times a week, we deliver in these small teams. We have a team that knows the city. When we began to sell well the products that are not physically in the store, we said why are we selling so well, and the answer was Mr. Peter. We always ask to have more products to sell because we have the clients, we have potential to sell much more in these cities. So this motivated me. We have the store people that are very aligned with us, wanting to sell more products and the more assortment we place there, the more we sell. So an increase of we increased our inventory by $20,000,000 25,000,000 our inventory is $300,000,000 We're increasing the number of SKUs by $20,000,000 $25,000,000 and we hope it might not work, but if this happens, we will have to sell these products at sales. My expectation as I see things and being very frank with you, everything has been very positive. We're selling well. I'm very happy. We have a good relationship with the communities where we are present. This allows us to expand the number of SKUs in a conscious way with our feet on the ground, but I believe we will grow on this platform 2 in the next few years. We have our initial objective is 22,000 SKUs. We have 2 large challenges in this project. The first, in my opinion, first, internally, we have to solve things. How do you, for example, how do you increase from 8, 10000 SKUs to 22,000 SKUs with the pictures of these products in SAP and also the tax part. The fiscal part is very good. They're doing an excellent job to place these products as being available for sale on our systems. We have a robust SAP and this is being done very carefully. Q2. We believe that today we will be able to have all these new products. We also have the challenge of obtaining the products from the vendors. You know this assortment in industry. Industry capacity is not very well, but we have good perspectives, but it's being a challenge to obtain the products, to buy the products. So we hope in Q4, we hope to begin these sales. We have another great challenge in the project, how to make the client perceive, have the perception that the store in their city has all these new products that we're taking all these new products. So how do we work with the perceptions? Of course, clients will be able to buy using their cell phones. But in the interior, people want to leave their homes and they want to go to the store, talk to people. We still want them they can buy at home, but we want them to go to our store and talk to our salespeople. So my first idea didn't work. We wanted to have an enormous screen, 3 by 3 meters in front of the store the facade showing the storeroom. But the cost, the CapEx is very high. The cost is very high, maybe a smaller screen from now on and with advertising on local radio stations to bring these people to buy these new products in our stores. This is the challenge to bring these people to our stores in the next few years. People must know that they can buy exceptional lighting products, exceptional decoration products in these 22,000 SKUs. I'm very motivated. I believe this is the main challenge in this project. So on my part, this is what I had to say in terms of updates. We are at a very good time for the company. And also, we would like to highlight that some people are surprised with our performance, but what we are reaping is the result of the work done 3 years ago. So a lot of if as I said to you, if we stop opening stores today. We will feel this 3 years from now. In the next 3 years, basically, so this is what we have done. We need a good execution to get results in the next 3 years and maintain Excellence in Execution and this fantastic team we have at Keriker. So I'm very proud to work here with this fantastic team. Now I'd like to pass the floor to Prit. Optimize the chart. Optimize the chart. Optimize the chart. One more chart, sorry. So I said I'm very proud of the people working with me. Last year, we had a program called the Challenge of Doing Good Things. The company donates part of the gross product to buy products and donate to people during the pandemic. But this is not it's not only this. The concept that we have in these campaigns right now and we are still living this pandemic this moment. People are truly having great difficulties in obtaining food. That would be unthinkable in Brazil, but it's happening. People are not being able to buy food. So this, we said it's important to have empathy, understand people's suffering, but we have to do more than this. We have to have compassion. We have to give from us a little of what we have to others, not the company. We individually. We should put our hands in our pockets and do something for others. And with this, we become better human beings. So we have this campaign, everyone believes in this and the accounts, the directors, everyone donated, all the employees donated, the managers, the employees. Many people donated money and the company supplemented this also with more money. We were able to donate more than 38 1,000 Food Baskets. It's little when we think of the needs, but it's what we can do. So I'm very proud of this of this team at Keru Keru. And it was incredible because the second time, every employee, even if they did not donate, every employee received a food basket to donate to someone who needed food, and they had to take the food basket to the people. This is important to understand the people's problems, and we had excellent results at Keroucaro. Once again, I'm very proud of the team we have here. Okay. Okay, now the next part. Thank you, Peter. Now I'd like to pass the floor to Jean to talk about the company's results during Q1. Good morning. It's a great pleasure to be here talking to you and talking about the earnings of Caruquero during Q1. Peter already made a summary. So the objective is to go into more detail how we got to these results that we consider as being very positive. On Slide 10, I'd like to begin with a factor, an indicator that is very important for us. We had growth in the same stores, same store sales of 40.5 percent in this quarter. Yes, we had a weaker period in the Passport. We also had restrictions in Q1 2021. Even with this, we delivered a growth of more than 4 d stores and same store sales. And this shows the growth of sales of more than 51%. So you can see that we are growing very strongly both in comparison with last year and also versus since the time before the pandemic, so versus 2019 also before the impact of the pandemic. So a very interesting result that shows that we're winning market and the growth of the company. The second business activity IS Financial Services. Even last year, as we discussed previously, with an impact on the portfolio due to restrictions on credit. We're seeing a growth of revenue, a growth in the portfolio and more important, with a better quality portfolio also. Later, we will go into more detail about the credit portfolio. We are very happy with the results because delinquency is very low and this shows that the initiatives we used last year allowed us to grow the results and improve the quality of the credit. Financial Services grew 11.6% and also expressive growth in relation Q2 the same quarter in 2019. The 3rd activity is the credit card. So we had a positive growth in revenue with impact from the restrictions for the usage of our cards, especially outside our stores. But the result is positive and also positive versus 2019, a period that did not have the pandemic. These three business activities, going on to the next slide, make us show that we had a growth in the consolidated revenue of 39.1 percent in the quarter, 52.5 percent in comparison with the same period in 2019. So we have a booming market in retail for Construction Material and a market that we consider is being very positive. We have benefits. For example, consumers have more disposable income now because they are spending less with leisure, so they are investing in their homes. And another important point, lower interest rates are allowing us to have a booming market, and this allows people to revamp their homes or build their homes. Lower interest rates than in previous years. The growth in revenue also brings net operational revenue growing with the same performance of 38.3 percent in Q1 2021. Now going on to Slide 12, we will cover a point. So it's not enough to grow revenue. We need to maintain profitability. We had a growth of 38.3 percent in gross profit in Q1. We had margin gains in retail and also margin gains in Financial Services. Even though Financial Services had lower growth, we were able to maintain the gross margin of the company in line with what we did in the previous year. Sohu, a gross margin of 40.2% and also aligned with the previous year. So in the pandemic, we were able to continue growing our gross margin and maintaining the company's profitability. You can see that the profitability is higher than the one we had in the previous years, especially in 2018 2019. This growth of 38% in gross profit. On the next slide, we will see that apart from gross profit, we have also operational leverage. The company's EBITDA adjusted EBITDA more than we can see here a growth of 92% in relation to the same quarter last year. And here, we also had some nonrecurring expenses and this is not only this growth in relation to 2020, but it's also a growth that is consistent with the impact of the pandemic. So this growth in EBITDA is due to the good sales and the conditions that and challenges that we had. Thus the EBITDA margin of the company in Q1 was had an adjusted margin of 4.9% an EBITDA margin, sorry, adjusted EBITDA margin of 9.2%. And we see here a strong growth of profitability and results and this growth in EBITDA can be seen on this slide. Showing here the net profit. We reached a net profit of $11,600,000 in this quarter. You can see that in the previous semesters, we had negative numbers and now $11,600,000 in profit, and it is not totally comparable in relation to previous quarters because since the IPO, we have the options plan. When we exclude some factors, we get to a net profit of $14,200,000 which is a very positive result. Q2. So after talking about net profit, I would like to give some details about the company's operation. Going on to the next slide. Let's begin with the credit portfolio. As we said before, at the beginning of the pandemic, we became more conservative in extending credit. But since Q2 2020, our credit portfolio has been growing constantly. We had a growth of 10.9% versus same quarter in 2020 and which was before the pandemic and also an important growth in relation to Q1 2019. So we continue originating credit and we are growing the credit portfolio. But very important is to see that at the end of Q1 2021, we reached a delay of 7.9% in terms of so delinquency is very low due to our conservative position in giving credit during last year. And as Peter said, so so making our operation more efficient and a good collection work, thus giving us low delinquency. So the portfolio is growing and also the quality of the portfolio is better. Now the next slide, I would like to talk about the TPV, volume of transactions in the credit cards. You can see here that we had a growth in Q1, 13.2 percent Growth. With the usage of the cards inside our stores, more than 18% of cards being used inside the stores and a little lower growth of the use of the credit card outside the stores due to restrictions in other places like gas stations that has a stronger impact by the pandemic. But the growth is almost 20% in relation to Q1 2019, which was $18,400,000 Next slide, we'd like to talk about the cash position liquidity of the company. We closed Q1 twenty 2021 with a consolidated cash of $264,000,000 And excluding Fidikov, you can see that we closed the quarter with a net debt over a debt of 0.5 better than in the same quarters of previous years. If we continue with what is happening, we had a 1st semester in 2020, where we took out additional loans due to the uncertainty during the pandemic. In Q3 2020, we had an offer a primary offer, dollars 264,000,000 And in Q1, due to seasonality when we have less sales than in other quarters and we consume cash. Sue. We increased the consumption of cash, but we have a better situation than we had in the 1st semester of previous years. So it's important to show our care, our focus on the cash generation of the company, even while we are investing the proceeds of the IPO in growing the company. I will give you more detail on the next Slide 18. You will see that we invested $15,000,000 in Q1, and this includes opening of new stores in the Q1, but also as Peter mentioned, revamping we revamped another 19 stores, always improving the stores and increasing the performance of these stores. Apart from this, we're investing in 2 new distribution centers, 1 in Saperanga, Witches, the distribution center on the picture here. It was inaugurated in April, in Q2 this year, and we're investing also in the 3rd distribution center of the company in the city of Corbelia in the state of Parana. We're investing, as Peter said. As Peter said, we want Careready to offer Phygital sales. We believe this has great potential, and yes, we can invest and get results in this project. So thus, we'd like to close the presentation on earnings and data about the company. And now I would like to pass the floor to Vinicius to begin the Q and A session. Thank you, Jean. We'd like to begin the Q and A session. The first question is from Bob Ford, Bank of America and will be answered by Peter. The question is, Peter, can you talk about the evolution of the Phygital model. And do you believe you can accelerate the acceptance of this model by salespeople and clients. Bob, it's a great pleasure to talk to you. Thank you for participating in our conference. Well, about digital. I mentioned many points. We're trying to bring these 22,000 SKUs, 22,000 new products and implementing this in Q4. I'm afraid of accelerating this. Why? We have another $20,000,000 in inventory, a little of each product. We don't know what we'll sell. If I accelerate and we begin to sell everything, the distribution center Will Be Empty, and the vendors will take longer, a long time to replenish our stock. So it's I believe it's good to begin to have the Fidgetal in 60 stores to see what sells more, then make a projection for other stores, then we adjust the inventory and then open this to all the stores. Because the team can lose motivation if they sell and we can't deliver. We don't have the products. So we have to be careful. There's another saying at Caru Caru, let's go slowly because we want to go fast. All the implementations we made at Cairncair that were a success. We ran tests, then we expanded, corrected, improved everything we wanted Tudor in these 12 years. Of course, we made some errors. When we want to do things very fast, sometimes it doesn't work. So we want to have this in Q4. We want to begin the project in Q4 with the 1st 60 stores. Then in January, more stores. March, more stores. So I believe this speed is the best understanding the culture of the company and how we work to accelerate this even if we wanted. Everyone wants to accelerate. This is our wish, but I don't believe we would have a good experience. For it to do this. They want very much to do this. They make they earn commissions. So the more they sell, the better for them. They earn commissions. So we won't have to motivate the salespeople. Yes, they we call this project 1PL, but we have one with 600, 700 SKUs, which is 1 PN operation plus the products we have in only in some stores. This allows the salesperson to sell and they represent 13% of our sales. They're very motivated, the salespeople. You mentioned the consumer is the most important person. How will we make the consumer understand? We're discussing this internally. Yesterday, we worked on this, the level of investment and where we have to invest. We're making a survey in all the stores right now. This is good. We have people within the store, our salespeople and the clients who come to the store, but the salespeople are local people. So we're asking them the best way what they suggest the best way to take this information to the people, to the consumers. I believe we need to advertise in local radio stations, long commercials in local radio stations because once they come to our stores, once they see a 70 inches screen, our showroom. When they feel that they can walk into this showroom, digital showroom and look from all sides at the product. This will give them the perception that they are in a larger store. Another point. In the last case, if people want, they will be able to talk to a promoter, sales promoter, who is inside the digital storeroom live and try and ask questions or see some different accents. So the sales the promoter will have a GoPro and show the product from different angles. So we want the clients to come to the store and they will understand this concept. So this is our challenge and we will be testing this as of October 1. We want even before that, but for the market, we're announcing October 1. Did I answer your question? Thank you, Peter. Next question also from Bob Ford, Bank of America and will be answered by Peter. The question is, what are you thinking about the consolidation of industry in your markets. Do you think this can trend can accelerate consolidation? In the past, we had local store owners suffering more than today in terms of results. This is my opinion because they are our competitors are selling more, not as much as us, but they are selling more. So there is an improvement in their results, the competition. This so we believe that now every year we have 10, 15 local stores closed, and we go to these cities and we open stores in their place. I don't see this accelerating. Less stores from competitors are closing. In small cities, people don't buy everything from the same store. They buy from various stores. If you're building a home, you don't buy only from one store because others become sad. So we're winning market share little by little. Like I said, there is a lot of space to grow, and this project is not a short term project. We have to look at this during 10 years. We had a fund who came to interview our directors. They did an in-depth work and the feedback they gave us was interesting. They said, it's interesting we talked to the directors and some managers and different from other companies. People are not there only for a certain period. At Caribou, Caribou, people want to stay there for the rest of their lives. And I thought this was very good. Yes, this is a project for our lifetime, for 10 years, many good things to be done. And we're winning market share little by little. So I don't see too many competitors closing. So we have a larger assortment. This helps us definitely. And Thank you, Peter. Next question from Thiago Matus, Itau BBA. Can you give us an update about price increases in the supply chain? Europe and also comment on the competition. Hello. Thank you for participating. 1st, concerning rupture. As we discussed previously, the pandemic affected the logistics chain of the industry. So in Q2 of the previous year, we had a great impact. So at that time between Q2, Q3, it was the we had lack of products, rupture, more difficulty to obtain the necessary products. It has improved in Q4. It was better than Q3 last year. Q1 improved January, February. We had an expectation that at the end of Q2, we would be closer to normal situation. Unfortunately, we had the 2nd wave of the pandemic and this had an impact on the supply chain. We did not see a worsening in Q1. It did not get worse in Q1, but it stopped improving due to the 2nd wave of the pandemic. Now concerning inflation, during the previous year. We had a growth. You can see this in the news. We had inflation in all the products, double digit inflation price increases. During this Q1, we had some products that had an even higher price increase and this also due to the exchange rates. But yes, we have had inflation since the beginning of the pandemic, but we are being able to raise our prices too. We pass these price increases on to our products. And for the time being, we are being able to maintain the profit margin. In terms of competition. Peter commented on this. The market for Construction Material is booming, we're growing, but this doesn't mean that the competitor is losing or closing our local competition in retail. We're winning market, and in the long term, we believe there is a lot of potential to win market share with the same stores and of course, with expansion to win more markets and going through consolidation, yes, in a we believe that construction material in retail in small and medium sized cities has a lot of potential. It is a market where our model is better and has a greater potential for growth during the next few years. Thank you, Jean. The next question is from Richard Katkar, Bradesco BBI and will be answered by Peter. The question is, could you talk about the plans to open stores in Sao Paulo and Mato Grosso do Sul? When can we expect these inaugurations. Thank you. Once again, it's good to talk to you. I will answer your question. But before that, my perception about Mato Grosso do Sul and Sao Paulo. This is a line on the map because the they continue being cities with 50,000 inhabitants, the same culture. Actually, my perception is that it's going to be even better when we get to Sao Paulo, the state of Sao Paulo. You have less resistance to new networks than in the South. There is less resistance to new networks. Soh. In Santa Catagena, it was good. Parana, we went up even better. And answering your questions. We will open this year 3 stores on the border of Parana with Mato Grosso, even in Guaira, on the border. So we're going with one of them is a store that is closing in the city. That's the best payback less than 12 months because the clients are there. We buy the inventory and we rent the same store that is closing. So we will open these 3. This year, we haven't planned stores in Sao Paulo. We have 3 in Mato Grosso, but no stores in Sao Paulo yet. Daniel, our expansion Director. Working in the company for 42 years is always a little afraid of Sao Paulo. People from the South are a little cautious. He went to visit in the city of Parana Panama. He visited 29 cities. And he came back very motivated. He said, gee, there is more opportunity in Sao Paulo than here. Cities. Cities need our stores. So he came back very motivated. Next year, 2022. We should have some stores in Punta del Parana Panema. There's a store called New Londrina. It's a little above Moringa, 50 kilometers from the border of Sao Paulo. And the results are fantastic, very good results. So next year, we will open in the interior of Sao Paulo. There's a lot of space in Santa Catarina, Parana. Thank you, Peter. The next question is also from Richard and will be answered by Jean. The gains in market share are similar in all cities or do you have more market gains in smaller cities? Hi, Richard. In reality, when we look at the performance of our stores, they are very similar. The performance is well versed, of course, a city with 30,000, 40,000 inhabitants, we will be able to have a better result. But the profile of our stores, they're very similar. When we talk about market share, since sales are similar, yes, the market share, the gains. The growth of these stores are very similar. In cities of 11,400,000 inhabitants is homogeneous, but the market share is greater in smaller cities since the market is more restricted, for example, 15,000 inhabitants in relation to 30,000 inhabitants. Sun. That is why we are able to open stores with 5,000 inhabitants and also in 50,000 inhabitants. In a city of 70,000 inhabitants, we can open 3 stores. No, we in larger cities, we opened 2 stores, maybe 3 stores. So stores with similar performance, we try to win markets, we believe there is a great potential to grow. As Peter said, on average in these cities where we are present, we had only 7% of the market. So there is a lot of local competition we're growing, but there is a great opportunity to grow and win market share. Thank you, Jean. The last question, Eric Huang from 11 Financial and will be answered by Jean. The question, can you give us more color about inventory as Fichtal makes progress? Can we expect greater changes in inventory. Hi, Eric. I believe that in relation to working capital, we always had a great focus on working capital. Yes, as Peter said, we will invest in Phygital, these 22,000 additional SKUs this year with the project in full work in 2022, but we don't expect an impact on inventory. We want to have focus on cash generation. We don't see any changes in the turn of the inventory. It's an investment like an investment in a new distribution center. It should not have an impact on our days of inventory. Of course, when we open the new distribution center for Fidgital, there will be an impact, there will be an increase, but in the long term, this should not impact the plan. It should not be very different from the history of the company. Thank you, Jean. We'd like to close the Q and A session. Thank you very much for the questions. I'd like to pass the L'ordugan and to Peter for their final comments. Yes, participating in our conference call. The Investor Relations team is available. Please visit our website and see the information we have there. And once again, thank you very much. I'd like to thank the team who allowed us to have this webcast. Peter, you have the floor. I'd like to thank you all. I'd like to make 2 comments. First, we didn't mention even increasing our capital with the primary and investing in working capital. Our ROIC for Q1 this year was 30%, which was fantastic, very good. We should continue with this focus in maintaining a high ROIC. Normally, it's 26%. Our vision is 26%. We're a little above 30%, which is a very interesting number. And Eric's question reminded me of the inventory. When we implemented 1P program, the 1P program, 300 SKUs, 400 SKUs, 600 SKUs. We did some bullying with the manager of this project because his DDA was 800 days. And he said it's going to take 3 years for him to get to our DDR, average DDR. But in 8 months, his DDR is the same as the company's. So we have to stop the bullying. So this was a good surprise. So I believe that even increasing there's the increase of the DDR, but as time goes by, we will go back. We will reach the level we have in the other categories. We measure this very carefully. Once again, thank you. Thank you for your time. We're here to answer your questions. And if you need any clarification, we have a very good Investor Relations team, Jean, Paola, giving us support in Investor Relations. And please, I believe we're on the right track at Kevan Kettle. Thank you very much once again.