Good morning everybody, and thank you for waiting. Welcome to Magalu's conference call about the first quarter of 2022 results. For simultaneous translation, please click on the interpretation button at the globe icon on the lower part of the screen and choose your preferred language, Portuguese or English. We inform that this event is being recorded, and it will be made available at the company's website at ir.magaluluiza.com.br, where you can also find the release and the presentation, both in Portuguese and in English. The English presentation link is also available in the chat. During the presentation, attendees' microphones will be off. Afterwards, we will start the Q&A session. In order to ask a question, please click on the Q&A icon on the lower part of your screen. Please write your name, company, and the language.
When your name is announced, a request to activate your microphone will appear on the screen, and you may unmute it to ask your question. Questions received in writing will be answered later by the IR team. Now, I would like to turn the floor over to Frederico Trajano, CEO of Magalu. Fred, you may begin.
Good morning, everybody. Thank you very much for participating in the call about the first quarter of 2022 of Magalu. We have some highlights during this period, in line with what we have been communicating to the market since the last quarter. The first quarter marked by a recovery of operating margin, a major one if we compare to the fourth quarter of last year. A major growth in marketplace, and we will be talking about that during the presentation.
The drop in normalization of the inventories around BRL 1 billion, which we had already promised to the market. The normalization of sales from physical stores. Although the comparison base of last year was based on the COVID consequences. Well, we'll be talking about that later on. I have all the executive team of the company, and hopefully myself and Roberto will be making the presentation, and everybody will be available for the Q&A. First, about sales. We grew 13% in the first quarter over 63% last year. If we look 84% growth in two years online representing almost 75% of total sales of the company. The highlight continues to be e-commerce, especially marketplace. Although we have been seeing an expressive recovery of our operating margins, we see this growth higher than the market e-commerce. Next slide, please.
150% vis-à-vis 2020, 16% regarding 2021. Quarterly growth, 50% in marketplace over a very high base as well of the first quarter last year. 3P already participating about 40% in the last few months on the online of Magalu, a major growth. Even considering that we priced the take rate at 3P as of the beginning of February. Two to three months with a higher take rate. In spite of that, we were able to grow much more than the market, 50% in the quarter over a high base online. It is important to look at the two-year. The first quarter last year was the best in the market. We had growth over growth. On the next slide, you can see a major recovery of margins.
I would like to talk about the growth of physical stores as well. You can see this is a big highlight of the quarter, 6% vis-à-vis last year, 10% vis-à-vis 2020. In 2020 and 2021, we had stores closed because of the COVID pandemic, but this figure is positive in the sense that April and May continues on a positive trend. Last year, the stores were already open. We have a more positive scenario after a very difficult fourth quarter for physical stores in spite of the economic scenario. I consider this as good news. The highlight was the marketplace because it was a comparable basis, and physical stores, as I said, had many stores closed because of the pandemic. We were on a positive trend mainly as of April and May as well.
It is higher than the market expectation for the period after a very difficult quarter. We continue to gain share in physical stores as well, which is important. With relation to the margins, as I said at the beginning of the presentation, we have been communicating to the market that mainly in 1P, in durables, we have a project of market recovery. When I say 1P, I talk about online and physical stores. We grew our margin from 2.6% adjusted to 5. 2.6% in the fourth quarter of last year and 5% the first quarter this year. Many actions in place to make the sales more profitable and transferring costs to the final prices and resizing of the company as a whole, increasing efficiency in logistics and a lot of investment in marketing intelligence.
ROE very high in marketing and very optimized. A very big job that we have been doing, and we were able to recover. If we look at March only that we published in our release, the margin was already 6 points. Historically, Magalu has always worked with operating margins higher than 8 points, and this number came down during the pandemic because of the two years of the pandemic and the trade-off that we did for growth. When the interest rate was 2%, it was worthwhile to do this trade-off. Now we believe that the margin, historical margins are more appropriate for this moment of high interest rates and the process of margin recovery that we started in the quarter will certainly continue to happen for the next few quarters. This is a very big effect of the gross margins as well.
Working with the margins that are compatible with what the market has been doing, and in spite of the margin increase, I repeat that if we compare to the main players that publish their results, our two-year growth was higher than the market average. We are being able to recover margin, maintaining this growth that we conquered during the pandemic. I said during the quarter that in the years of pandemic, we doubled our size, the company as a whole, and mainly marketplace. We continue with base that is much higher than the market. We always have to look at a longer history because every company has a different quarter, and this has to be taken into account in your analysis. I think this is very positive in this sense. Looking ahead, our bet continues to be the growth of marketplace.
We are very confident in our strategy and post-pandemic, we already have this participation vis-à-vis the total retail. The next growth will be necessarily through a very important process, which is to digitalize retail. If we don't take the analog retailers and make them sell online, we will not be able to exceed 15%-20% online. The next cycle of growth will have to go through marketplaces helping the physical retail to digitalize. We started this with Parceiro Magalu. 154,000 sellers were added to our base, 180,000 sellers overall. Our sellers are formal. That is to say, they have their registration with the federal government, so everything is above board. We have this characteristic, and we have been the marketplace adding the most sellers in the last few years, and it is not concentrated in the very long tail.
We continue with a very strong process of walking the talk. This week we will be having the first major action of the caravan in São José dos Campos. We will be going around the whole of Brazil, and we will be looking for these sellers. The analog sellers need to be convinced, and they need to get proximity and human warmth, so to say. The chairman of our board, Luiza Trajano, will be going together with all the executives of Magalu, all the companies in the ecosystem, fintechs and logistics companies and the partnering companies. They will all be there showing their services to the Brazilian sellers. We will be giving free courses by ComSchool, which we acquired, and we will be starting first in Maceió, and we did the first one in São José dos Campos, still without her presence, Luiza.
We already reached 5% of the retailers in the region, and we published 6 times more sellers. It has everything to do with multi-channel and Magalu's characteristics. This is Magalu's phase. It is great, and it's going to be a big success, mainly to bring these sellers in a different profile on board. This is our bet for the sustainable long-term growth of our marketplace. The importance of the caravan is to bring different regions on board. Magalu has been bringing on board the most diversified sellers to its base. If you look here, you can see that our characteristic is that 70% of the new ones are long tail, and long tail grows twice. It grows twice than the traditional categories vis-à-vis previous years. We grew twice in long tail cohorts.
It is very important to say that we place our bets on the location, local delivery. We are developing a logistic network using the physical stores, growing a lot, and our first stop of the caravan is going to be Maceió and then Aracaju. We are bringing sellers of different regions of Brazil. I would like to reiterate what we have and no other marketplace has, which is a physical store. I would like to reiterate that our physical stores continue to be a major support to marketplace. Besides being selling points, it's a postal agency. 400 stores already work as postal agencies. Over 15,000 sellers are already using our stores, their agencies, and with drop-off of products. This is very important. 13% participation of the store pick up of 3P.
18 stores in Maceió start to participate in Caravana and 50,000 sellers on board for Magalu. They work as a ranking point of Magalu and a support point to sellers, especially in what regards logistics. In this sense, we are improving a lot our 3P logistics, and I would like to remind you that it is the best in the market, 75% of our deliveries in up to two days, growing significantly and ultra-fast delivery. We launched this in the quarter, but the 3P went from 22% to 31% already. With this regionality that we are having with the Parceiro Magalu and also the launch of our fulfillment service, we intend to further increase the participation of fast deliveries in 3P. It went to 30%, and the idea is to grow this figure in the next two years.
The difference is that our fulfillment continues within our rationale. It is being developed in the same DCs of 1P. We do not have exclusive DCs for 3P because we don't believe in the strategy. The cost is too high. The development that was done by the lab and our logistics team, they use the same docks and the same network of 1P, and the DC operator can work in a similar fashion with 1P and 3P. It is totally scalable. The same way you do with one DC, you can do with all the other DCs. The store pickup is increasing significantly as well with delivery of up to two days. The fulfillment today has a reduction of the inventory of 1P that Roberto will be talking about.
We generated a lot of room in our DCs, and we also have a lot of room in our trucks in order to deliver from 3P with a marginal cost for Magalu. This is still integrated with multi-channel, and it supplements our ultra-fast and ultra-regional delivery. We have the full circle here, and we trust that as well as we have a very efficient 1P, we are having 3P growing very fast with very fast delivery with a marginal cost only. This is very important. When you go to smaller chains, the cost is very high. Our fulfillment also will have higher ticket products that will be benefiting from that. We will have a very successful doing this kind of delivery to our sellers and making all the fulfillment for them.
I would like to reinforce, although we are the leaders in durables, this is a very important category. As I said before, when it comes back, it comes very, very strong, and we want to maintain our leadership and continue to gain share in durables. We're doing outstanding work in new categories. We already have 46% GMV coming from long tail. Here, we are talking about online, very positive. We have the gaming category and computer peripherals for gaming that supplement the core of our categories, electronics and 20 million annualized. The growth is much higher than the average of durables. We are holding this because these are the new categories, and we are very enthusiastic about that with some news in the next slide. We launched perishables this month.
In the Super App, we are integrating all the VipCommerce clients, which is e-commerce platform that we acquired in March last year in our Super App. It is totally developed for the market. It is totally different from the others, electronics and fashion, and it's basket-based. You have to choose a seller to buy a product. We made all these investments in the improvement of UX, and we are integrating all the VipCommerce clients. They are the biggest for supermarket in Brazil. We have a kiosk at APAS, which is very beautiful. We are very super happy with that. We evolved a lot in the integration of iFood in the Super App. iFood is doing a very positive job, BRL 1.4 billion GMV, 3 million orders, and maybe the only food delivery operator that is profitable in Brazil.
We are being able to do that still with the strategy of going to states and small towns. We're thinking about getting to the large cities in grocery and food delivery. We integrated the Super App, and we increased the possibility of growth in new categories.
Now we have BRL 1 billion GMV in the first quarter. Amazing job, more than 10% EBITDA margin at KaBuM!. It's a highly efficient company, BRL 50 million net income already included in our results, showing a right bet.
In the company, already integrated to Magalu's Super App. We have all the products being sold internally in Magalu. We also integrate in Magalu 1P at KaBuM!. The organic customer base is really high, and the audience is very loyal. This category has a very good projection of growth. A super niche that really grows fastest in the world. Finally, we had a very cool launch in our Super App, which is Compra Junto. Just sharing what we said before, Magalu is one of the main companies in social in Brazil. With Lu and the 30 million followers in social networking, we're trying to bring social into our Super App. We just launched Compra Junto, and basically, it is a process to invite customers to invite their friends and unblock offers if all the friends come and buy.
It's the only and the first real social initiative in Brazil, which is very common in China, and 70% come in decoration, home, and groceries. We are certain that Compra Junto is going to bring a lot of people to new categories with a lot of discovery. Mostly driven by social networking, trying to diversify categories and grow without investing in media. These categories have lower ticket, the marketing cost is too high, so the most intelligent way to grow in these categories is via social commerce. Now ads will have BRL 100 million revenue, annualized revenue, growing in the first quarter year-over-year by 78%. A huge differential that we're launching now, ads in search, which is a game changer for ads in general.
As we can see, we have a little GIF in our presentation, and if you're following online, you can see we have the link sponsored for specific search. We believe this is going to boost return to sellers. ads is what really makes a difference in terms of ads growth. Now, I'm going to turn it over to Roberto Bellíssimo, who's going to talk about fintech and the results of the quarter, and then I'll come back for the Q&A section. Thank you.
Thank you, Fred. Good morning, everyone. First of all, I'd like to talk about fintech. We keep on having this goal of increasing engagement and frequency of our clients and customers and monetize the ecosystem as a whole. Last week, we had two major announcements in our fintech initiative. Firstly, for individuals. We launched personal loan in the digital account.
In March, we had 5 million digital accounts at MagaluPay. This is in our Super App. Very fast growth, nearly doubling for the last 12 months the number of MagaluPay accounts. We also issued more than 3 million cards for the last 12 months, and we highlight the Luiza Card. Magalu Card is sold 100% online, and our credit portfolio total BRL 18.6 billion. In this credit portfolio, we already have a portfolio of nearly BRL 2 billion personal loans for digital accounts, for those who already own a card. Now we launch new with personal loan for those who don't have the card, they have the account, and also for any user of our Super App who can register fast, have an account, and can request a loan, and it goes directly in seconds in our digital account.
You can see the experience on the right-hand side. It's a very fast, intuitive, convenient solution. All our users in our apps, more than 40 million, we already have 10 million customers pre-approved in order to have our personal loan. This is super news to further monetize our area oriented to customers. As for sellers, we recently announced as well a super news, which is the corporate credit card, this time for our sellers. We had a survey, and 97% of companies in Brazil don't have a credit card. There is a huge demand, and also huge demand for a digital account for free. Today, we offer a free digital account to all our sellers. We also offer a POS machine, we offer loans. Now, pre-approved and also the credit card, the corporate credit card for sellers.
That's something unique about it, proprietary technology. This is issued and processed by Magalu using the fintechs that we acquired last year, Bit55. Another important step in our fintech strategy. Next, we show the growth in our total payment volume, growing by 89% year-over-year, reaching nearly BRL 21 billion. Here we highlight all our performance areas. Next, a little bit about financial highlights. Fred already talked a lot about growth, so just to underscore, marketplace growth was 50%. Our e-commerce in total increased 16%, physical store growth 6%, and total sales grew 13% on an already very high base, reaching BRL 14.1 billion.
A super highlight is the moment of our gross margin, 27.8%, and our EBITDA margin going back to 5% in the quarter as a whole, but evolving significantly over the quarter, and also exceeding 6% in March. The net adjust, adjusted net income negative at BRL 99 million, about 1% of our net revenue, pretty much influenced by financial expenses and high interest rates. Next, here we share the evolution of our adjusted EBITDA margin from 2.8% last quarter, fourth quarter of last year, to 5% this year. Here we highlight the increase in gross margin. Fred already mentioned several initiatives which brought gross margin to a higher level. We highlighted the gradual transfer of inflation rates and interest rates to our customers. We reduced non-interest bearing sales and increased interest rates in interest-bearing purchases.
We also made adjustment in commissions to our sellers and the growth in marketplace per se, which was pretty strong and helps a lot the fee income, fee revenue, which is 100% gross income. We highlight the increase in gross margin. As for selling expenses, we saw this quarter a dilution vis-à-vis the last quarter of last year, owing to the initiatives that Fred mentioned. Those were deployed over the quarter, and this March, expenses were already diluted even further. Considering that they were implemented over the month, the effect tends to be more normal in the coming months. About non-recurring expenses, this quarter they were lower, way lower compared to last quarter of last year. Over January and February, they are done.
For the future, we expect to see significant evolution in our operating profitability, which is important to address this moment of higher interest rates in the economy. On the next slide, a couple of words on working capital. As you can see this quarter, we reduced BRL 1 billion in inventory as we promised. We closed with a supplier position much smaller than December last year. There was a variation in working capital vis-à-vis December of nearly BRL 3 billion. As for March last year, nearly BRL 2 billion. It's important to highlight here that this is very seasonal. The first quarter usually has this seasonal effect, and the upside is that we paid all suppliers of the purchases performed by the end of last year, and now we have a very low supplier balance, one of the lowest of recent times.
It means that over the coming quarters, our payments will be much lower, and consequently, a very positive reflection on operating cash flow in the future. Working capital is very seasonal, and we have the chance to improve on a quarterly basis. Inventory turnover, we have a very good goods balance, and chances are, in the last quarter, we can reverse this variation from the first quarter. Also very strong cash generation. As we always delivered for the last five years, we always deliver growth generating cash from working capital. This is our goal, and it was necessary to make this adjustment and reduce inventory BRL 1 billion. Short-term, we have this impact because these were purchases that we had made last year, but now they have already been paid, and for the future they'll have a positive trend.
This is why the net cash, adjusted net cash variation is not a cash burn, but rather it is a variation associated to working capital. Once working capital goes back to normal in seasonality in the future quarters, cash variation tends to follow and be positive. We keep on having a net cash position, one of the greatest capital structures in retail, BRL 1.6 billion net cash. On the next slide, we show more thorough figures about cash flow. For the quarter, we can clearly see the variation of BRL 12.3 billion-BRL 8.5 billion, pretty much concentrated in working capital variation and investment, mostly in logistics and IT, BRL 200 million total. Payment of the acquisition of KaBuM! around BRL 500 million, and lease and interest BRL 200 million.
This variation in cash flow in the quarter, once again, pretty seasonal and associated to working capital. On the next slide, we show in 12 months, we increased the cash position from a level of BRL 6 billion-BRL 8.5 billion. Also, with the impact of working capital variation, we will improve inventory turnover and they will come back to normal levels. also with the capital that we funded last year, both equity capital and long-term debt, we have a very robust cash positions, one of the best for a first quarter, one of the greatest cash positions in our history, broken down into BRL 2 billion cash and BRL 6.5 billion as available receivables. On the next slide, a couple of words on Luizacred. Also a super highlight, 7.3 million cards.
Luiza and Magalu cards, more than 1 million Magalu cards, increasing our base in more than 30% for the last 12 months. It's important to say we increase our sales in another 50%, showing our customers are using more often and using our cards more often. We increased from BRL 8 billion to BRL 12 billion revenues at Luizacred. We highlight growth both in Magalu, more than 20%, and also outside Magalu with over 50%. This is super important to activate the card and monetize Luizacred. Last but not least, about the quality of Luizacred portfolio, we can see that we have one of the lowest NPL, 90-day NPL levels, which is the lowest in the market, increasing slightly vis-à-vis December and March last year. However, a level of 6.6%, which is way lower than the pre-pandemic level.
That's why we mentioned March 20. This shows the quality of Luizacred's portfolio, despite this scenario of an increase in delinquency in the market at large owing to inflation, interest rates, et cetera. Despite this scenario, I mean, we are growing a lot, adding a lot of new clients, customers, and despite of that, we keep on having a very good quality in this portfolio. The coverage ratio is also very high, 173%. When we show net income, Luizacred had BRL 34 million in BR GAAP and net loss of BRL 27 million in IFRS. Once again, these are the growth pains owing to a provisioning policy which is quite conservative. The difference of BRL 60 million in net results stems from a difference of around BRL 100 million provisions extra in the quarter in IFRS versus provisions in BR GAAP.
Once again, the quality and the level of provisioning is very conservative. We're confident that we are building a very healthy and profitable portfolio, one of the greatest rates of credit card growth in Brazil. This is what we had, and let us open now to the question and answer session. Thank you.
We will start the Q&A session now. In order to ask a question, please click on the Q&A button on the lower part of the screen. Write your name, your company, and the language of the question to join the queue. When you are announced, a request to activate your microphone will appear on the screen. Please unmute it and ask your question. We are waiting for the question because the microphone was mute. JP Morgan.
Good morning, everyone. Good morning, everybody. Thank you very much for the question. Beto has already talked about one of the subjects of my question. On the e-commerce side, we see the company leveraging on the physical assets in order to grow. Thinking about the categories of long tail, the ticket is a little bit lower, the average ticket.
I would like to know how we should think about the 3P reaching 50% participation in the e-commerce. It was 50% online and 50% 3P, and online has already exceeded that. Why do you see 50% in 3P? The second question has to do with the cash burn, looking at the variation of the net debt of the company. What is your best projection regarding this figure later this year? In terms of cash generation, thinking about the second quarter. You have BRL 100 million in annualized revenues here. I would like to know about Magalu Pagamentos and the corporate account. Thank you.
I will answer the first one, and Roberto will answer about the cash dynamic. Based on the growth rate of 3P of the first quarter and even the fourth quarter of last year, we see that they are much higher.
We are adding sellers to our base. We are growing, mainly in new categories. Our 1P is very robust. We are the market leaders in 1P, and we also grew more than the historical average in the last few years, very much because of the pandemic. 2020, 2021, we grew 3P. If it were not for the pandemic, the growth rate would be more normal. People bought a lot of durables during the pandemic, and this category had a very good performance all over the world in the two years of the pandemic. Ultimately, this postponed the higher participation. We continue to grow a lot in 3P and looking ahead, the growth in share. We have never had a target online vis-à-vis physical stores because we want to grow all the channels. Naturally, 3P will be growing more proportionally.
All the work that we have been doing at Parceiro Magalu, and this is a blue ocean. The Caravana Magalu, the Magalu Caravan, and 3P because of all these endeavors, will be a major part of the company's results, and will continue to be a major growth vector such as it was this quarter. It will continue to be that looking ahead in the long run. This is our view. 3P as contribution to the company's margins. It is being operated now and 3P was operated by the market. The take rate was zero free shipping overall, even for products of 10 BRL of every ticket. They were operating very irrationally. Then everybody became more rational recently, and this is something that Magalu likes because we have always operated growth with profitability.
This has to be materialized in practice with competition, with healthy competition, such as is the case now. We will continue to grow more than the average of the market, as well as the marketplace contributed to our margins. We will certainly go back to historical levels. We worked for four years with these rates, very healthy rates. The interest rates are at a very healthy level. We will be seeing contribution on the part of our fintechs, mainly credit to sellers and to consumers. Credit is what really makes money for the fintechs. You activate the credit, but what really brings a result to the bottom line is credit and ads. All over the world, operation of over 50%. BRL 400 million, considering all our channels, KaBuM! and Netshoes, Canaltech and Jovem Nerd, et cetera.
This is a major ecosystem that we have. We can increase monetization quite a lot, I would say, with a lot of focus on credit for corporations and individuals. This will give a major contribution to us to even exceed our historical levels. This will be our future. About capital, Roberto said in the last five years, we generated over BRL 1 billion in cash per year. Last year, we talked a lot with you last quarter about the inventory levels and we had a slight imbalance there, but we have always had a positive cash flow. Our history speaks for itself. BRL 1 billion on average, even if you consider last year and the year before, because the year before, we had over BRL 3 billion. It is generation of working capital higher than our result.
We are right in the middle of a very complicated economic situation, but we will go ahead. Fred said it all. In the second quarter last year, we had a plan. We already had a schedule of orders from three-six months, so it wouldn't be possible to stop buying. We ended up having a higher level of inventory and we had to disburse payment in this quarter. The prepayment was made and the variation of working capital. Besides the natural seasonality, it was associated to this prepayment of these purchases that we made last year. This is no longer going to happen. This is not going to repeat itself. We already have a budget. We already have a schedule for purchases and sales. It is already finely tuned and we continue to improve our inventory turnover.
We already have an average term of purchases that is quite healthy already, but we are seeking an increasingly better inventory turnover. As Fred said, we have always generated cash, and this should go back to normal levels in the second or third quarters, and even more so in the fourth quarter because it is always the best one, and it is going to have the World Cup on top of being the best always. We have Netshoes involved in that. Regardless of the macroeconomic scenario, the seasonality leads us to higher sales with inventories more under control. Ultimately, you end up generating quite a lot of cash. The suppliers are paid in the first quarter of the next year or the following year. This dynamic of the retail sector in terms of working capital is, as I described.
The first quarter has this situation, and after the first one you have cash generation. This is what we can see about cash generation as a whole. I don't know whether I have answered your question totally.
Magalu Pagamentos, is it already contributing?
Magalu Pagamentos has been contributing quite a lot in the last few years. Both in margins and working capital and final profitability. Magalu Pagamentos in this quarter grew practically 75% vis-à-vis the third quarter of last year. GMV of Marketplace growing 50% and 65% Magalu Pagamentos. You can see that our sellers are using our payment means more and more. This has been giving a good contribution to our revenue, our fee revenue, our fee income. As a consequence, it increases our consolidated gross margin and profitability. We had a profitable quarter.
This year, the trend is of very good profit at Magalu Pagamentos. With more and more services being delivered, more products being offered to our sellers, including the corporate credit card that is issued by Magalu Pagamentos and monetizes further our fintech. Thank you.
Thank you, Joseph. The next question, Bob Ford. Bob, can you hear us now?
I think so. We can hear you.
Great. Thank you. Congratulations on the improvement and thank you for taking the questions. Improved operating margins. What about the impact on long-term? Can you talk about the first lessons learned and the challenges and the response and engagement? Magalu ads, where are you in terms of data and functionality? And what do you think about long-term in ads?
Robert, thank you for the question. What is the first question?
Operating margins, long-term and short-term.
Bob, the increase in margins was something that we've been discussing with the market since the third quarter of last year, something absolutely necessary for the reality of higher interest rates.
Short-term is a trigger, so we can focus more strongly, not only growth for 1P durables and also physical stores for durables. What I mean by 1P, I'm talking about these channels. That's the reality now. That's what we need right now. The point is, whenever you gain efficiency, it comes to stay. When interest rates go down, which is our outlook, some people expect for the second half of the year, others think about only next year. Once it goes down, margins stay and bottom line significantly increases. That's efficiency improvement that comes to stay. We also make use of crisis to go for efficiency, and then this efficiency tends to continue. As a reminder, these margins tend to go up not only with efficiency measures, but also with the new products that we're developing, and we want to scale up.
Like I said, Fintech, we talked about Magalu Payments, but the credit operations for individuals and corporates always contributing to Magalu earnings. It's not something new. For more than 40 years, we have consumer credit, so we know how to handle credit. It's nothing new for us. NPL is fully controlled at 6%. We believe we're going to have great news in the future when it comes to margin stemming from the operation, not only for individuals but also corporates. For ads, also a huge potential to contribute to margins in the future. I'm very bullish when it comes to this, and it's also going to be on our radar. I believe the market tends to demand more profitability by IT companies. The whole market is already operating on this base, so I believe everybody's searching for more balanced growth with profitability.
All companies in Brazil and worldwide are keeping an eye on profitability, including startup companies. It's a point of no return. The fundamental will be closer to valuation, and companies in general open or listed companies or not, will be open for that. Companies that were always rational with good balance, like Magalu, will also be in the game. As for ads, André Fatala, maybe you could tell us more about IT, the IT part for ads and Joak and also the search service, just to give a flavor of what we do in IT. Then I'll ask Eduardo to talk about the market. Thank you.
Hi, Bob. Speaking of Magalu ads, we made some changes last year with the acquisition of the InLoco team, and we developed ad server. There was a huge work to adapt it to what we wanted to do in Magalu ads.
We had the launch, and now we started to work in order to have more real estate in Magalu channel. We started first with recommendations, with some window displays, and now we're going to search. We're working with algorithms in order to include geolocation of these products and also prioritize products that are closer to consumers in the ad. That's something we're working on right now. The next step is to explore the existing traffic from other Magalu channels, Época, Netshoes, Canaltech, adding to 450 million sessions per year, so we can use all the traffic and host our sellers' ads. With Gmap, we are working on this. Today, we have this evolution in Magalu channel, and now we will move forward to take ads to other channels in the ecosystem. Edu, would you like to add?
Like Fatala said, if we consider the platform, if we think about self-service, this is what's going to give us scale. We're very confident with this. On the other hand, our content verticals, Canaltech, from the moment we join our commercial forces and have significant growth in the revenue of these channels, developing special products and getting closer to the community of advertisers, the media and other projects in Magalu. Like Freddy said, it is high margin in ads with these two drivers. One is the platform focusing on self-service, particularly for sellers, and on the other hand, a funnel for new advertisers. We're very confident on the team's performance, so we can keep on growing and delivering profitable results.
He also asked about the market, Eduardo. Let me answer, and if you want to add, feel free to do that. As for the market, the market is highly important. In terms of number of orders, something around 40% of the total number of orders. This is for 1P. We're also growing a lot in 3P, including orders from VipCommerce. We should also consider Dyke, Foni, Bob. I think they all have the goal to improve frequency. As a reminder, we are focusing on growth in 3P and the integration that we just announced in perishables. This is in the early stage. We're very optimistic. I think the way to grow is by bringing local commerce and local stores into the platform, not centralized in 3P or traditional marketplace model.
I think we had the right bet by buying VipCommerce and integrating the Super App to make it economically feasible. Because trying to deliver washing powder to the Northeast by plane is not going to foot the bill. The lower the ticket, the more local the delivery should be. That's our goal for lower ticket categories.
Home from Citibank.
Good morning. Could we talk about fulfillment, Fred? What about the penetration of fulfillment, looking at the percentage of the GMV of 3P and the economics of the fulfillment? How are you going to charge for that? Maybe an additional commission charged from the seller. I would like to know about the economics of fulfillment overall, Fred, please. I would like to know if my interpretation is correct. 3P already has an incremental contribution margin to the remainder of the company. Looking at the medium and the long run, we see a more rational environment, as you said yourself, and it might change again in the future. Are you going to sustain the contribution margin by means of monetizing ads, as you said, or maybe monetizing fulfillment as well so that you may offset other investments?
What is your idea for the medium and the long run for this contribution margin of 3P?
Thank you for the question. I'm going to talk about fulfillment, and maybe Fatala would like to add something. The rationale. Well, we designed a solution, and we said that we wanted to have fulfillment be supplementary to 1P, using the same DCs, the same docks, the same logistics operator, the same trucks and the fleet and the network, including all the bases of cross-docking that we invested a lot in. We invested a lot last year, over 1 million sq meters of storage area, and reducing the inventories of 1P. We have room to have sellers and partners using these areas that are already there.
Sometimes we have trucks that have idle capacity of 50%, so we do have room in order to complete these routes and supplement this with 3P sales. We already have Magalu Entregas growing a lot. 30% of deliveries of up to two days, and the focus is to help growing this, bringing this up. The idea is to increase the participation of two days delivery in 3P. I'm not going to give you any guidance about that or any target. We went from 0% to 30%, and we are evolving quite a lot. We started four or five years ago, and zero deliveries in two days going up to 30%. We have been working a lot there.
Our fulfillment is totally accretive, and we believe we will be generating profits and with the cost is really marginal because we already have an installed base of DCs, and we should further increase this area. We have already invested a lot. 30% of the store's areas are storage areas. It's important to reinforce this and the DCs and the cross-docking centers. The rationale is to tap into multi-channel. The store pickup, this figure for store pickup is going to increase a lot, and the cost of store pickup is very low for the company. It's going to be very low for the seller, and this is going to help us. Tapping into the same benefits of 1P in terms of multi-channel. I believe that there's no going back in this rationale track.
I think we had many years of negative interest rates all over the world, so I do not see the possibility of Brazil going back in terms of interest rates. I see that overall investors and executives will be focusing on rational growth. Irrational growth makes no sense whatsoever any longer. Many companies are working with a lot of cash burn, and they cannot go to the market, and they are under pressure. I believe there is no turning back. This is the way Magalu has always operated historically, in a very balanced way, and we will continue to operate as such, mainly in an environment where the capital cost is so high.
Thank you very much. Fred. Just to conclude, the contribution margin of 3P is going up. With the inclusion of ads and some fintech products that we are offering.
Yes, we already have a margin increase, which allows us to work in a more positive fashion. Marketplace is burning BRL 2 billion cash per year in some places, and we are not in this situation. We are keeping this upward trend, but with no hiccups along the way. We are going to be steady in this growth with no exaggeration. We are being tougher in terms of margins in 1P. In 3P, we just wanted to have positive margins and develop initiatives to increase it in the long run. We need to continue to grow 3P over 1P. Thank you.
Thank you for the question, João. The next question is Irma Sgarz with Goldman Sachs. Irma, please go ahead.
Hello, good morning. I have two questions. Firstly, just going back to fulfillment, I would like to better understand what changed your mindset. In the past, you already said fulfillment wouldn't make so much sense. Cross-docking, offering cross-docking to sellers would be the solution that would make more sense to you. I understand the idle capacity has a very important rationale, but I also believe there might have been another feedback or another learning, another lesson that changed your mindset. What about the evolution in logistics for sellers and fulfillment? The second question about Parceiro Magalu and Caravana Magalu co-strategies, they make a lot of sense. Could you tell us more when you expect this to be a driving force to 3P growth? Is that something for the year or maybe for the second half of the year or for the future midterm? Thank you.
Irma, thank you for your questions. Your questions give me the chance to clarify that this is not a strategic change. We never said we wouldn't have fulfillment. We also said our focus was on local delivery and cross-docking, and it remains the same. I don't believe fulfillment is the bulk of our deliveries in the future. It will always be an additional option for sellers who are willing to have product inventory here. We'll keep on growing a lot with cross-docking delivery and focusing pretty heavily on local deliveries. This is only something to add to logistics services, and our fulfillment is not with an exclusive 3P DC, which is the market standard, by using 1P-only strategies and adding to 1P with lower marginal costs compared to 3P-only operations. That was a uniqueness in our 1P.
It's the only 1P that was profitable in the market, and we also apply it to 3P. I don't see as a strategic change, but just something to add to sellers. For the future, I believe the fulfillment is not all. Will never be the bulk of our deliveries, but an important option to provide faster delivery and a better service for sellers who are willing to pay for the service. Just underscoring it's something to add and not a strategic change in the route. I don't remember the second question.
The Caravana.
Well, Caravana visits several Brazilian cities. There's something very important about Caravana. We want to attract very specific seller, the analog seller. We believe it's important to be closer to do the conversion. This is a pluriannual project.
We're going to visit many cities this year, and we'll keep on doing this next year. We're very excited. Remember, this is part of
A higher value proposition is not only legwork. We have IT support for analog sellers. We have a hub for physical stores allowing to prepare. We have logistics with Agência Magalu . We have a lot of handiwork and a number of other initiatives to bring analog sellers. If we put them all together, they're already beginning to show the difference. We have the company, we have more formal sellers into our base for the last two years. We had two important pilot studies in April. I'm very optimistic that if we add all the initiatives to the Caravana, which will be the cherry on the pie, this will help us to deliver sustainable growth in the seller base.
Something important about Caravana Magalu is not only adding new sellers, but sell more services of the ecosystem to these sellers like credit, POS machines, cards, and having the seller in all platforms in the group, not only Magalu, but others, and bring in restaurants to iFood. We want to materialize the ecosystem in the city, not only bring in more sellers, but also with cross-selling.
Crystal clear. Thank you.
How were you capable of reducing inventories at the same time improving profitability? What about the margin of 1P, the gross margin? What was the important factor for this improvement? Thank you.
Thank you for the question, Elena. The gross margin grew in 1P in the merchandise revenue and price increases and the collection of charging interest from the final customers, and this affects the gross margin from merchandises. It went up in the last quarters, and then it went back to something similar to the first quarter of last year when we talk about the merchandise one. When you talk about the gross margin of Magalu overall, the parent company, you have the fee income helping a lot, which is associated to the growth of marketplace growing over 50%. When we look at Magalu, we see this. When we look at the consolidated figure where we already have the controlling company, we have the positive effect of Netshoes and cosmetics, Época Cosméticos, very important verticals for the parent company. 40% gross margin.
We see the consolidation of Magalu Pagamentos, Ibit and fintechs with a very positive result, basically from service fees. Because of that, the gross margin of Magalu even well grows even more in the consolidated view. We have many factors coming into play, new categories, service fee, fintech services. We talk about merchandise specifically. You mentioned a relevant point because we were able to increase our margin vis-à-vis the previous quarters, selling BRL 1 billion in inventories that we mentioned. In a quarter that is usually marked by the fantastic sale and promotions, et cetera. We were able to do this because of an excellent operating efficiency with promotions at stores, e-commerce. In the two channels, we were able to reduce the non-interest bearing sales, increasing the interest bearing sales.
This has to do with all the campaigns and the mobilization of our sales force in physical stores and a lot of tests in e-commerce. We were able to do this one year ago. Non-interest bearing is up to 10 months tops, and in a very small proportion, much lower proportion than last year. Most of the sales are interest bearing. Now we charge higher interest rates, and they were lower in the past. You can see that many factors came into play so that our merchandise gross margin could go up in spite of selling over BRL 1 billion in inventory. This is a whole range of factors, and they are all sustainable. We will continue to seek this kind of result. Thank you.
Thank you for the question, Elena. The next question is by Daniela Eiger with XP Investimentos.
Thank you for taking my question. Good morning, everyone. I have a couple of follow-up questions. First point about working capital. First of all, I'd like to explore the strong reduction in suppliers. I understand you said you came from lower purchase rates. Possibly now we have normal inventory levels, but does it also have to do with the dynamics of better cash payment negotiation or something that envisage an opportunity with more challenging terms, maybe having a more adequate gross margin at a lower price range? I'd just like to understand it was purely related to lower purchasing levels or anything related to deals. For the future, you also mentioned a more adequate inventory level.
If we consider China is still in lockdown and a risk of supply disruption, we can see shortage of products in the U.S. What about a possible resumption, possibly in the second half of the year in Brazil, and maybe more focused on Q4? How could we consider this new inventory level? Does it make sense to consider this a possible resumption in the second quarter or second half of the year, or maybe a new composition, a new breakdown for the second half of the year? Now, a second follow-up question, just to make sure I got it correctly. What about the margin, operating margin at 8%? What is the timing you consider that makes sense to consider to go back to the levels? A last question about delinquency. Actually, it is very much under control, but could you tell us more about it, more specifically for sellers?
This is your risk. What about the behavior? Could you tell us more about how you envisage the mortality of these sellers considering this more challenging macro scenario? Thank you for taking my questions.
Hi, Daniela. Good morning. Well, there are several parts to your question. Let me see if I remember them all. Firstly, about the supplier dynamics. Actually, when it comes to deadlines and terms, levels are absolutely healthy. Actually, if we consider the scenario in which you're trading and negotiating to lower inventory levels and then working on them again with purchases, effectively, you always have to check the better option, lower cost or better terms, and what's more profitable to you.
We consider it was good to work on having a clean second quarter with no long payments to suppliers or lower inventory levels compared to the end of last year in order to run the second quarter onwards with a more balanced operating margin. We have clean cash flow for Q3. We have here a good negotiation room, which is positive for the second quarter onwards. I still believe inventory is not fully balanced. If we consider the coverage term, we had better terms, so we still have some homework to do. It's not fully balanced, but the bulk was achieved in Q1. Having said that, I believe the current circumstance, Daniela, is way better compared to last year. Last year, we had inventory in the second and third quarter.
It was 170, and we were at the peak of heated conditions in the US, buying all products in the world. Well, coronavirus in the U.S., well, maybe $3,000 at that time. It was an explosion of consumption there. It was a moment in which you had shortage of products in the world and dollars were rare, and now dollar rate is five, and we see excess products. Not as we expect to see in the second half of the year, because I believe the economy is going down in the U.S., and will continue to go down with this plan to increase interest rates. My conversation with suppliers has to do with more availability in most of the suppliers with better dollar rates, who will have better conditions to buy, better cost.
The exception is white line, which is still price pressured owing to steel. We have products to sell, no problem of availability, but I think we have better conditions and lean working capital for negotiations in the future with higher margins. We believe we'll manage to evolve significantly in our margins and improve working capital in the future. Just to make it clear, Daniela, we are not giving a guidance of 8%. What I said is that we historically operated at margins of 8%, and we can naturally come back to them again. It was our standard, and I'm fully convinced this will be possible again, but I'm not going to give any guidance. This is not a guidance, just a comment that we already operated for four years in a row prior to the pandemic, all stores open with better balanced growth in margins.
We will have plenty of position to go back. The company has more scale, more bargaining power. It is bigger, more scale to dilute fixed costs. I'm convinced this is possible, but it's not a guidance, and we're not going to give a timeframe for that. I don't recall the other questions. Roberto, if you want to add to the supplier data, feel free to do that.
Good morning, Daniela. About delinquency, you wanted to know about delinquency with sellers. We have a product which is a loan for sellers funded by our FIDC. We already provided loans for more than 1,000 sellers of the 180,000 we have. We focus on small sellers. These are sellers who need loans to invest in inventory and sell more in our marketplace.
These are sellers that we loan on average BRL 150,000 per loan. The portfolio is relatively small. If we do the math, around BRL 50 million only. We are making adjustments to the experience and also in the models. Soon we expect to speed it up and to scale up the product. It will increase in the future, pretty much driven by the growth in our marketplace and our seller base as a whole. Delinquency today is very low. NPL is lower than 5%. These are public numbers. We disclosed this in our FIDC results. This is disclosed to the market. Delinquency is very low, so we're making adjustments. The upside of this product is that firstly, we have all the seller data in a daily basis of transactions and our seller score as well.
That's why delinquency is very low as well. We make use of all this data for pre-approval purposes and to approve the seller based on NPS, experience, quality, growth rate, cancellation rate, all data made available by the seller on a daily basis. What really bring richness to our approval model. We also combine it to external data, naturally. At the end of the day, the approval per se is already highly efficient. On top of that, the seller has a very close relationship with us. They sell in the platform, they are willing to pay, so they can keep on selling as well. It's different from a purely transactional thing. There is a strong relationship, some interdependence as well. Above all, we have receivables as a guarantee. In the future, we might even have inventories as a guarantee.
It's a very relevant operation to our strategy and to the growth of our fintech and marketplace and the monetization potential. Delinquency is very much under control and really low, less than 5% NPL. Excellent. Crystal clear. Thank you.
Thank you, Daniela.
[Audio distortion] from Banco Bradesco.
Thank you. Thank you for the question and the information that you disclosed today. I would like to go back to the level of cross-sell that you are incentivizing among your sellers and the Super App. Also the levels of organic traffic in this category.
We apologize, the sound was very bad. Richard, thank you for the question.
Thank you for the question. About the Super App of Magalu. We understand that each one of the propositions, the value propositions, specialists or generalists, they have a very important role. Our Super App has the objective of doing one-stop shop. This is the objective based on the marketplace, so we are able to drive the diversity of assortment and bringing on board many sellers and bringing this convenience and facility to our consumers. There are many benefits that we are developing.
Within our value proposal, a generalist one, cross benefits and when we do cashback campaigns, et cetera, our consumers benefit from that. We have the Parceiro Magalu, the Magalu partner, who is very relevant for both categories, both fashion and beauty. Bringing on board the small sellers and in Magalu, we do have the purpose of involving the smaller sellers who otherwise would not be able to digitalize all by themselves. So we bring them on board by means of Parceiro Magalu. We give them support and help them digitalize. This is very productive and we are achieving major results. In the fashion category, Magalu has been growing at three-digit for some quarters already. Representing already 40% of our fashion sales. We understand that from now on, this will continue in this direction and in the same speed.
When you talk about cross-sell, you ask about cross-sell. We also see this benefit. Zattini, Netshoes, and Época are major sellers in our Super App, and we are able to drive the specialty of these specialty platforms more focused on the category with higher average tickets. Within Zattini, we can sell higher average tickets, usually a more modal product mix. This is also driven between Magalu and Zattini. Just reinforcing the fact that we understand that each one of the specialist sites play their specific role independently. They do have their own audience. Just to illustrate, 9 million clients, if you take Zattini. This is quite relevant. 2 million active users in Zattini, they are very engaged, and we believe it is very important to continue to invest therefrom. You asked about flow.
We can see that in our specialist side, Época Cosméticos, Zattini, Netshoes, we have an organic flow which is higher. These are platforms that are the destination for these categories, and they have already conquered this position. The organic flow is higher, very much driven by our apps as well. As I said before, Zattini has 2 million apps installed, and they are very much engaged. It is among one of the most installed apps in fashion. We have to invest and engage users via app, and this helps us a lot in terms of increasing organic flow. In Magalu, there is more paid accesses, but we have been following this evolution of the increase in organic traffic. As we create the base and the knowledge, we are able to see this progressive evolution of organic traffic within Magalu as well. Thank you very much.
Ricardo, thank you for the question. The next question is by Andrew Ruben with Morgan Stanley. Andrew, please go ahead.
Hi. Thank you for the question. Most have been answered, but I'd like to understand a bit more about KaBuM!, in particular, what drove a continued strong margin, and if there are any takeaways from KaBuM!'s margin trajectory, that can perhaps apply to the core Magalu business. Thank you.
Andrew, thank you for your question. Well, KaBuM! is a very special company in several aspects. It is in a fastest growing segment with a huge loyal base. Organic traffic is also huge. Cash sale is very great. We don't have a lot of receivables discount. Although it is a high ticket, cash take is very high and very efficient as well. G&A is 10% is very low. Anyway, inventories are centralized in Espírito Santo, so it's a very efficient operation with not so much competition. No major competitors. These are small operators in Brazil who don't take KaBuM!'s name. It's very peculiar and unique. In all companies that we acquire, we also intend to bring know-how. We did it with Netshoes, and certainly with KaBuM!. Smart processes, more efficient operations. We're also going to use it in 1P as a whole.
This is evidence that very well-managed 1P can deliver good results.
I would like to turn the floor over to Frederico Trajano.
The Q&A session has come to an end. I would like to thank you very much for participating in our call and wish you all a very good week. Magalu's conference call has come to an end, and the IR team continues to be available to answer any questions that you might have. Thank you very much. Have a good day.