Ladies and gentlemen, good morning. Thank you for waiting. Welcome to Magazine Luiza's second quarter 2017 earnings conference call. At this time, all participants are connected in listen-only mode. Afterwards, there will be a question-and-answer session, when further instructions will be given. Should any of you need assistance during this conference call, please press star zero to reach the operator. Now I turn the conference over to Mr. Frederico Trajano, CEO of Magazine Luiza. Mr. Trajano, you have the floor.
Good morning, everyone. Thank you for joining us for our conference call related to the earnings of the second quarter 2017. Today, I have all the management of the group with me, and we will all be here to take your questions at the end of our presentation. Roberto Bellissimo, our CFO, is here with me.
Like I said in the previous quarter, my expectation about the second quarter of this year was of as good earnings as we had in the first quarter. We ended the first quarter talking about it, but it did even better. We posted figures even more robust in nearly all the lines in which the first quarter was already very positive. At the end of the day, we posted the highest quarterly net income ever since the IPO. The highest in the track record of the company. We're already very confident about the quarter vis-à-vis the moment of the company. Retail relies heavily on a very well-designed strategy, but also a very good team, and our team is going on a very positive performance phase.
A lot of inspiration, hard work, and a lot of balance in the performance and the implementation in our figures, strategies, and the search for operating indicators as well. However, in addition, we also had more robust economy than I expected personally, and we highlight PMC, IBGE, and APU, particularly in May. Our category in May went up 3.8% vis-à-vis May of the previous year. PMC, one of the most robust retail sale indicators we have available in Brazil. Pretty much due to the economy that has already immunized, so to speak, about the Brazilian crisis, the political crisis, and at the same time, also owing it to the capital injection stemming from inactive FGTS accounts. We have to highlight that there is a pent-up demand, and if you inject money in the economy, people want to start buying again.
The penetration of products in Brazil is very low compared to other countries in the world. When Brazilians have extra money in the pocket, they want to buy things, they want to make their dreams come true. In our industry, when there is a crisis, it is the first to be affected, but the first to recover when we have an upturn. This quarter, we also had a recovery effect exceeding our expectation and also with beneficial results. When it comes to microeconomics, the rationale of streamlining both online competitors and also offline was maintained. We see players that are more rational, some still struggling cash-wise, and being forced, therefore, to adopt commercial policies in a sustainable manner.
This was always Magazine Luiza's philosophy. When everybody plays the same rules of the game, the team that has a more robust strategy model, which I believe is what we have, human service platforms. This player, at the end of the day, is above other players under the same conditions in terms of strategy and execution in hand. That's why we benefit. I believe that's a structure characteristic that we expect to see in future quarters, competition-wise. We also like to work and operate under this philosophy and context. The major highlight. Actually, we had several highlights in our bottom line. I'll be mentioning my channel. E-commerce persists driving our growth quite a lot. Growth of 55% vis-à-vis the previous year. Very solid, robust growth already happening for many quarters. I also highlight sales by mobile apps.
We had our app with a lot of share in this growth, over 6 million downloads. More than 50% of our traffic is already mobile, both from apps and also our website, with both of our sales already stem from our apps, mobile apps, and devices. We're going to launch two interesting items in this regard. Free navigation. We are just about to launch. We believe that this has come to stay. We believe the future of e-commerce will be mobile. We're launching now navigation to our customers who are buying 3G, 4G. Eduardo is going to talk more about it later. E-commerce also benefited from store pickup available in 100% of our operations of our stores today. The products that are eligible are very high. We improved in our DC, ensuring that more customers will benefit.
In several stores, we have just one-day delivery time for store pickup and extending to other units as well. The vast majority is focused on 48 hours delivery time to buy online and have store pickup. There is no shipping fee. That's a benefit and a huge advantage to customers. In store pickup, we also have something new. We're launching a partnership with 99 Táxi, which is a cab app for transportation in general. It gives a bonus of BRL 20 coupon for customers to use to store pickup purposes. You can have up to BRL 10 with a cab to go to the store and then go home.
There will be no additional cost to go for the store pickup, which is a very good partnership. Eduardo is going to give more detail on the partnership with Brazil and 99 App, the app. I wanted to announce it right off. In e-commerce, we had an increase in traffic and conversion. I see that as a very sound and healthy strategy. We highlight new channels, particularly Magazine Você. More than 100,000 stores were included with more than 500 stores in total, with very high sales growth. I also highlight something very important. We grew 55% in e-commerce, and we have the best historical levels of customer service at RA1000. Growing 55% with a very balanced operation is really tough.
With our logistics, our team of development also works hard to improve integrations in the platform, and also our order tracking system, information available to customers, and the purchase experience both pre and after sales, the service team. Everybody is fine-tuned. We congratulate them on the business volume driven by the sales area with very positive levels of service. Physical stores. A big highlight is 15% same store sales growth, very robust figures. Double-digit growth in all departments of the company. South, Southeast, Midwest, Virtual, Northeast, many regions, the greater São Paulo as well. Results were really positive. I also highlight the performance in the Northeast region. Double-digit growth, very high growth, and also virtual stores growth in small cities with amazing performance. For many years, performing really great, a very great model. We can see the results of this model for a while now.
At the same time this quarter, smartphones was not the only star. We also had white line, great numbers, smart TVs with very positive growth in our TV line this quarter, and furniture also recovering well. When it comes to different departments and regions, we have a very balanced and well-distributed growth, and we are even more confident for the future. For brick and mortars, we have an expansion since last year. Now we are accelerating our expansion, 27 new stores for the last 12 months in our group of stores. This quarter alone, we opened another 12 stores, really accelerating the expansion pace. We firmly believe the multi-channel model.
The store is a very important point of contact with our consumer, supporting the website growth, giving options like store pickup and a local network to deliver, to have home delivery in the end consumer, last mile delivery. It's very important to match e-commerce with brick and mortar stores. It's important to improve the number of stores. We have 5,000 municipalities in Brazil. We still have a long way to go tapping into new markets. Now that we have an economic upturn, we want to expand with more digitized lean stores. Speaking of digital transformation stores, we keep on implementing IT efforts to digitize stores. It is a pillar of our strategy.
We already completed the mobile sales in all stores. Now we're just about to conclude the implementation of the stock is mobile for the team that works at the store back office, working on inventory, and also the implementation of store pickup. We have the right tool stores available to provide good service. We have stock is mobile in our stores. Now we have a mobile PinPad. The seller can get the order and the credit card data. We can close the sale in less than two minutes compared to 40 minutes in the past, greatly improving productivity in our group of stores and improving consumer experience as well. PinPad is in nearly 200 stores. We are about to have another 800 stores implemented by year-end, which is our goal.
For mobile sales at the store level, we also have several digital inclusion services available to support our customers who are buying IT to better use technology. Fabrício Garcia is going to give you more detail later on. Definitely, LuConecta. It is an installation service. It's very successful, very high acceptance rates at the store. All devices have the setup, the installation, and when customers go home, they can also call our call center for additional support. In addition to the Wi-Fi plan with carriers in many different areas in Brazil. We also launched the after-sales plan in mobile sales with our telephone carriers. If you want to buy a post-paid model at Magazine Luiza, we are very much focused on providing good data plans. Through mobile sales, you can do it in less than two minutes.
We think we are going to have a sales leap, post-paid of all telephone carriers due to a digital sales process at a point of sale. Fabrício is going to share that later on. I think we also evolved a lot when it comes to logistics. I have talked about the level of service and reduction of delivery time at a store. We also have a lot of room and fruit to reap. We also increasing the e-commerce volume, brick-and-mortar logistics space, owing to the right efforts of kaizen and continuous improvement, and also lean manufacturing. We are implementing them for logistics purposes in all our DCs and greatly improving the productivity per square meter and by logistics operators in our DC.
We greatly leverage our results owing to this improvement in management logistics in a very remarkable manner, and also maintaining high level of service and also shorter delivery times. Last but not least, Marketplace. I highlight e-commerce growth, where we don't report GMV yet. GMV, well, we could be reporting, but first we want to focus on our platform. We don't want to give a lot of information, but it's very robust. We have more than 250 sellers and 550,000 SKUs available to our consumers. It took us 60 years to get to 50,000 SKUs, and in less than one year since we launched the marketplace platform, we reached 550,000 SKUs available to our consumers. Now we are very excited with Marketplace implementation. I highlight that we're doing that, well, as we always do in a very consistent manner.
The level of service of Marketplace today is nearly as good as the level of service at e-commerce. Very positive numbers for Marketplace as well. Our NPS seller. When it comes to platforms, we have the best assessment by sellers involved, and this has a lot to do with the acquisition and integration of Integra Commerce startup from Minas Gerais with a lot of usability, easy integration for the seller in Magazine Luiza's platform. Any seller interested in the integrated uses Integra Commerce automatically. We have a hub, if he wants to connect with another marketplace, the option is available. Integra Commerce has really helped us to expedite the implementation of new sellers and also improve the level of service. We still have many things to work on, and we are even above our expectations when it comes to the expansion growth of Marketplace.
Another highlight is our corporate governance. The addition of two members in our board of directors. Betania Tanure is one of the main professionals in personnel management in Brazil, very close to Fundação Dom Cabral. , Inês Corrêa de Souza one of the experts in IT in Brazil, with the innovation center in Ifes, one of the founding members and in charge of Federal Department vocal success, IT engineering. Great members to our board, giving more support. In the compliance area, very successful. In the current world, we are more susceptible to problems of compliance. Every company is more susceptible. Our board wanted to have a compliance area with experienced, seasoned professionals. We welcome it very positively. As to our brand, we launched the second season of the reality show, Missão Digital, partnering with Globo News.
A reality show will have 12 episodes in which we get a family at the store, we turn it into a digital family. We launched in July, we have a great reception of the program, it's part of our purpose to help Brazilian families to better use technology. Ordinary Brazilian citizens, not those who are experts in technology. Now on Sunday, we'll be starting another TV program benefiting from the economic upturn to strengthen our brand, always very much focused on a digital platform with human interface, but also digital channels. Once again, I congratulate Magazine Luiza's team for their performance this quarter. I also thank all the shareholders and partners for the support in the first part of the year. Now I turn the floor over to Roberto.
Good morning, everyone. Let us begin our presentation on slide number two.
Here we have the main highlights, financial highlights. Sales growth 26% this quarter compared to 5% in the market. Very significant market share gain. In e-commerce, 55% growth compared to 12% in the market. Also, even higher market share growth. E-commerce, 28% of our total sales, excluding marketplace. A very high share in our total sales. We grew a lot in our gross profit. The gross margin was slightly down, basically due to the change in the mix owing to faster growth of e-commerce. The gross margin was fully offset by a dilution of expenses, which was very strong of 2.1 percentage points. Our SG&A level is again around 14%, certainly one of the lowest SG&A levels in retail. Our expense level increased 15% versus 26% of net revenue, so the operating leverage was very high. EBITDA increased 45%.
We had our highest EBITDA margin on a quarterly basis of our track record, 8.7%. Net income was the highest of our track record at BRL 72 million ROE of 40%. In addition, we also highlight cash generation this quarter. We greatly improved our working capital, reduced our net debt at 12 months, nearly BRL 600 million. A very low level, only BRL 268 million, the lowest level since our IPO. This net debt over adjusted EBITDA is the lowest of our history, 0.3 times EBITDA. Cash generation this quarter. Operating cash was almost BRL 400 million this quarter, and for the last 12 months, operating cash flow was BRL 950 million. Therefore, improved cash generation that was very robust. Another highlight, Luizacred. Focused on reducing delinquency, growing sales, improving the portfolio, which is very healthy and also improving income compared to last year. Despite lower interest rates for revolving credit.
Since April, we've lowered revolving credit to 990. Despite of that, Luizacred managed to improve income and profit. On the next slide number three, we show the evolution in the number of stores. 27 stores opened last year. We highlight the second quarter and also growth in investment, both on a quarterly basis and the first half of the year, increasing investment in over 50% vis-à-vis last year. We highlight IT, which accounts for nearly half of our investments in line with our strategy. On slide number 4, we show the performance of gross revenue. The sixth time in a row that we grow at a higher rate. 26% on a base that was higher, 5% last year. E-commerce keeps on growing at a very high pace, also over a base that was already very high. On slide number five, we show the performance of gross margin.
There was a slight drop, like I said before, due to the mix effect. An important highlight is the level of operating expenses. We diluted selling expenses and SG&A expenses. SG&A expenses, for instance, increased only 6.5% this quarter. This stems from [V&B] and EMM, Expense Management Matrix. As to some expenses, we greatly diluted personnel expenses. This has to do with digital transformation of brick-and-mortar stores, implementation of mobile sales, which increased, a lot, productivity by seller, and also store pickup, which helped us to reduce shipping expenses. Overall, speaking, we reduced two points in expenses, one of the best reductions we had in our expenses. As to equity income, Luizacred, 8% higher. Luizaseg, 16% higher. Also contributing to the total result. On the next slide, we talk about EBITDA. Evolution of 1.1 point.
Basically, we lost one point in the margin but had two points in expenses. We went up from 7.6 to 8.7, reaching EBITDA of BRL 236 million, 45% growth in EBITDA vis-à-vis last year. On slide seven are some comments on financial results. We also had a very good evolution. Percentage of financial expenses went down from 5.4 to 3.7, a dilution of 1.7, and part of it was in the prepaid interest account, pretty much related to the CDI drop. The other part, which has to do with debt service, went down one point, 1.9 to 0.9 of net revenue. This is very much related to the reduction of our net debt and also CDI. As to net debt, you can see reduction was BRL 587 million in 12 months, or 0.3x EBITDA.
It went down last 12 months and also went down this quarter, BRL 444 million to BRL 268 million. This is after payment of dividends and stock buyback last year. Total cash generation was very strong. A lot influenced by improved working capital as well. Over 12 months, it improved BRL 516 million, including improved inventory turnover. We reduced 11 days of inventory turnover this quarter to 69 days. I also highlight that's a very good turnover, one of the best in retail as well. At the same time, we managed to increase average purchase time in a very sound, sustainable manner. Not only for inventory and in suppliers, we improved nearly all accounts of working capital. We also highlight reduction in tax or recoverable tax account, once again, amounted to BRL 100 million for the last 12 months.
Considering all that, improving results, EBITDA, working capital, we managed to reduce our financial expenses, net debt, and consequently, we improved our net income. On slide eight, we show the growth of net income, BRL 10 million to BRL 72 million. In the release, we also had a disclosure about the return on invested capital. On a quarterly basis, we show, as of now, the ROE. And we also greatly improved our ROE to a level of 30%. ROI 30% and ROE almost 40%. On page nine, we show Luizacred figures. Once again, a lot of increase, expediting growth, 26% revenue. The portfolio also increased, and NPL had a dramatic drop. Provisions also decreased a lot. Luizacred, despite lower interest rates, managed to save when it comes to provision expending, funding costs, with higher profit compared to last year. These were the main financial highlights.
On slide 11, we have the outlook for the future. Now I give the floor back to Frederico.
Let us move straight ahead to the Q&A, and then we can talk about the outlook for 2017.
Ladies and gentlemen, we're starting now the question-and-answer session. If you want to ask questions, please press star 1. To remove your question from the list, please press star 2. The first question is from Fabio Monteiro from BTG Pactual.
Good morning, everyone. I have two questions. The first question. Fred, you talk about streamlined marketing, online, offline, a more rational approach. I would like you to elaborate a little bit more. In which fronts do you envisage or do you see this rational approach, both online and offline? Do you consider an average price rise or reduction in price concerning market players?
When it comes to shipping and installments, could you give us some flavor? The second question is about marketplace. Fred, you also talked about it already, but I'd like to better understand the level of service part. I know marketplace is relatively small. But in your opinion, what are the major challenges to maintain the level of service? Can marketplace this year reach 5% of GMV online? Basically, these are my questions. Thank you.
Good morning. Thank you for your question. When it comes to the rational approach in the market, streamlining approach, there are two facets. The players that used to operate with very low margins, which were not enough to pay their expenses, their operating expenses. A lot of these players eventually filed for Chapter 11, went out of business, or shut down their stores.
Other players used to run their business at low margins, but are still managing to survive, but having a hard time, and they have to show more robust margins for their shareholders or the financial institutions which support them. In this regard, by and large, we see more rational policies for prices and mostly for installments. An attempt by everyone to charge the price that is necessary to be charged for the operation to be sustainable. Not expensive price, high margin, but just enough to pay G&A or for cash generation purposes. That's what I refer to as sustainable and rational. We feel some rational pricing strategy, balanced strategy, but that's not the reason why average price is going up. I don't see striking differences in terms of commercial practices and policies. It happened in the past. It happened more online rather than offline.
In online, our operations used to charge prices below the cost. Pricing the merchandise below the cost. They would buy from suppliers. We talk about that already, right? I talk to you about this many times. This no longer happens. In online, for many players, there was significant new pricing. Not at high levels, but minimum levels just to balance the operation or zero EBITDA or not so negative result. I don't see this changing. It makes no sense running the business or selling for a lower price than you buy from suppliers. For online, mostly, we saw that happening. Because of our model, the cost structure online, in our case, is shared with brick-and-mortar stores, therefore lower compared to players who are online only, then our model is more superior and sustainable over time.
We greatly benefit many quarters in a row from this model that is simply better. I say that to make money in B2C e-commerce, there are only two ways. There is not a third way. Either you're multichannel or you are marketplace. Ideally, this is what we're doing. We want to have a multichannel marketplace. Answering your second question already, our strategy is to be a digital platform of brick-and-mortar store and human interface, and to provide a good level of service. It is very important that everything that we have as a point of uniqueness available for e-commerce and brick-and-mortar store. For instance, store pickup, the store network. It has to be available for the seller as well. We are investing a lot to enable our network, which supports brick-and-mortar and e-commerce to help the sellers too.
They are all projects that we're focusing very heavily for next year. Even in the short term, when it comes to level of service, because we have a profitable operation, a balanced online operation, we are not desperate for this jump to marketplace. It has to be consistent. Marketplace is just to improve our profit and not to save our operation. We're doing this very consistently. Today, we are the most stringent retailer for inbound selling. We have the default score of the customer. A lot of red tape just to have the right people in. We invest a lot in IT and monitoring, tracking. If something comes in, well, we can disconnect sellers. We sometimes have standby if there is default, and we also have the seller score. If the score is low, we disable to have the right level of service.
Because we don't have a desperate move, but rather a very consistent, solid move, we are very careful in order not to harm our greatest asset, which is customer relations.
Thank you.
Thank you very much, Fred. Thank you.
Thank you for the question.
Our next question is from Richard Cathcart, Bradesco.
Good morning. I have two questions. The first question is about improved inventory days and how you managed to achieve that. Mostly stores, DC, or a little bit of both. We wonder if we expect to see improvement in the future quarters. Second question. Frederico, could you elaborate more about Magazine Luiza's strategies for Black Friday? I know we still have three months down the road, but we already have the planning. What are your thoughts about how consumers may react to Black Friday this year? Thank you.
Good morning, Richard.
Thank you for your question. Roberto is going to answer the question about inventory.
Good morning, Richard. Thank you for your question. About inventories, what I can say is that we managed to improve in both channels. Turnover in brick-and-mortar stores improved a lot, e-commerce has an even better turnover compared to brick-and-mortar stores. Naturally, because we don't have inventory in the store display. Everything is centralized in the DC. Our e-commerce turnover is around 50 days, for instance, which is a very efficient inventory turnover level. As e-commerce grows faster than brick-and-mortar stores, it also drives the average down. Despite of that, we improved our turnover in e-commerce and also brick-and-mortar stores. At the store levels, this is also related to sales growth, which also supports.
Inventory turnover at stores improved as sales went up and also owing to internal processes developed for supply purposes with more accuracy. The turnover trend is very positive. Average purchase term for both channels is similar. The time is similar. As e-commerce grows, we tend to drive average turnover downwards and maintain an average purchase time equal. Working capital dynamic trends is very positive for us in inventories versus consumers. Fabrício and Eduardo are going to talk about Black Friday.
Fabrício speaking. Good morning, Richard. We're already working on Black Friday. We expect to have a good last quarter, it is critical to have Black Friday as a good event. We're working a lot with our suppliers. As usual, the categories that may stand out at Black Friday are wine and IT items. We're working on it.
We expect to see an increase in our inventory in October to support the campaign. I believe it will be in late November. E-commerce?
Richard, Eduardo speaking. Thank you for your question. By and large, this is the most challenging time of the year for us. We'll be facing a base of last year of 40% growth, which we had in the last quarter, we're very confident about what we are planning to do. There are three phases that are pretty well set. First, November, before Black Friday. How can we sustain the strong growth exceeding any kind of pent-up action? Then we have Black Friday. Everything related to IT items, our ability to maintain a stable platform. We've been managing to do that over the years, our IT team is working heavily on this as well.
The third phase is right after Black Friday, which is a quick return to our operation. Logistics is fully dedicated as a team, we can go back to delivery times as soon as possible in order to have a great first week period and a great full quarter. We're very confident of planning ahead.
Thank you. If I may ask a follow-up question. You talked about more rational competition. You also talked about the reduction in number of installments and more sound prices. What about free shipping fee? One of your main competitors is increasing the level or the volume of free shipping. What's your opinion on this? Does it make sense? Do you feel any impact?
No, we don't feel any impact. We grew 55% this quarter, it was even better than the first quarter.
I believe the competition started this policy in early May, we didn't feel this effect. We have a policy of free shipping, and it happens in a very clever manner. We have this for everybody who buys via app, which makes sense at the end of the day. If you buy through the app, usually this customer is a recurrent customer, we don't have acquisition costs to sell to him. The shipping cost of that, we give free shipping for those who buy via app. We want to encourage people to buy through app, and it's very considerable. And we also have free shipping for brick-a nd mortar- stores. If you consider app plus store pickup, we have a substantial, sustainable part of our sales online, which have the free shipping. And sometimes also the more profitable categories.
I prefer to have a smart free shipping policy for specific channels, specific cases that prove to be sustainable and not so non-recurring. Sometimes you give on a quarter and have to step back. It makes no sense to do otherwise. We'll keep on having free shipping under this model of store pickup, because we're going to have even better delivery times leveraging our multi-channel and also our app, which is our pet for the year.
Thank you.
Our next question is from [João Soares], Santander.
Hi, everyone. Good morning. I have two questions as well. The first question, Fred, you mentioned in the presentation about mobile PinPad in the stores and the rollout. I think I missed the number of stores that already have mobile PinPad implemented out of the total.
A follow-up question, what about the behavior of stores which already have the bulk of the initiatives you mentioned implemented for digital transformation? Could you tell us some numbers, sales per square meter, for instance, or gross margin, EBITDA margin at the store compared to an old store which doesn't have everything implemented yet, just to give us some flavor about the gain in productivity or any other metrics under this reform. I wouldn't say reform, but once we have these initiatives implemented. Second point, a common topic over the last discussions with you is the very strong cash generation mentioned by Roberto, almost BRL 1 billion of generation of operating cash. The company's balance sheet today is very comfortable, and a common question is what will happen in the future, assuming generation remains strong. Today, the current net debt is nearly zero, almost net cash. Selic is going down a lot, leveraging when Selic is 14%-14.5% might not make a lot of sense. Now that the debt cost is lower, what about the future? What about leverage and optimum capital structure? What to do with so much money, considering your CapEx is so small, you don't spend too much to keep on growing. Thank you.
Thank you for your question, João. With regards to productivity at the store and the model, well, there are many benefits, by the way. One of them, naturally, is the increase in sales, customer satisfaction index. You provide a better experience to the customer at the point of sale, you tend to have customers who come back and improve conversion. Also, the main focus of digital transformation at a store today is to improve profitability.
Our main goal is to improve sales per seller. Remarkably, it is not necessarily to cut down the staff number, but having more sales per person at the store. 40% of the staff is at the back office, and we tend to reduce this ratio, having more people selling at a store. In 2014, our sales, very similar to last year, by the way. In 2014, we had 24,000 employees, and last year, sales were equivalent with 25,000. A lot of this gain of sale per seller came from e-commerce, but also a lot from the increase of sale per total number of people at the store, because we have back office people who did not generate sales and converting into sellers or digital services or credit products, but particularly merchandise sales.
Increasing sales by employing at the store, I cannot disclose this number, but the overall figure you can get from our release. That's a good indicator showing that we are increasing our profitability a lot. Our digital transformation initiatives are not only for a couple of stores, and you call somebody to make it digital, but rather this is for 100% of the stores. PinPad in these 200 stores, but we're going to roll it out for the remaining 600 stores by year-end. We're going to have over 800 stores going digital. We don't give a guidance how it's going to be store-wise, but 100% will be mobile PinPad by year-end. By the way, we already have mobile sales in all stores and mobile stores in not all of them, but many of them. PinPad is particularly the seller taking the payment.
For instance, if the customer goes to the website, navigates in the product, and go to the store and buy the product, if he already is registered at a website, he don't have to do it again at the store. The whole inventory of the website is available at the store. The seller visualize all the inventory at the website. By year-end, you also have a view of marketplace and e-commerce as well. That will improve productivity quite significantly. When it comes to cash generation, even though we are improving quite a lot, our capital structure is not ideal. We don't have access to cash. Our current operations, João, still has financial expense of 3.7 over net expense. I consider this to be high and low net profit.
If we're considering debtness of a company like Magazine, you have to consider bank debt, but you also have to consider receivables discount. In this regard, if we consider a broader debt scenario with these expenses and services from the prepaid cost, I think we still have a long way to go when it comes to reducing indebtedness and receivables discount.
Great. Thank you, Fred.
The next question is from Guilherme Assis, Brazil Plural.
Hi, Fred. Hi, Roberto. Thank you for taking my question. Good morning. I think you talked a lot about the sales performance already, but what about looking forward? We see more uncertainty down the road. I think you already talked about your planning for Black Friday and Christmas, but assuming FGTS, for instance, which supports you, it is just about to finish and end this week.
Do you have any plans for the future and to keep on growing your sales through all channels at a very strong pace? Or should we expect to see a slowdown? What is your budget in this regard? That's one question. Maybe could you also talk about sales in July? July still includes FGTS, but any changes to the pace that was so strong in the second quarter? Another question has to do with expansion. You talked a lot about store opening. The last 12 months, you opened 27 stores. After some time with not so many store openings, but 12 in the last quarter. What about the expansion pace for the future? Where do you believe there is more room to grow? Maybe more virtual stores in smaller cities or any specific region you consider to improve your footprint, for instance.
I'd like to better understand your strategy and your expectation for the expansion plan for brick-and-mortar stores. Thank you.
Thank you for your question, Guilherme. Since the beginning of the year, Guilherme, we already expected the second quarter to be not as challenging, particularly because last year in the second quarter, we did better compared to the first quarter of last year, of 2016. So the comparison base, particularly for the last quarter of the year, is more robust. We had already budgeted smaller growth levels for the quarter, regardless of macroeconomics, because our comparison base is stronger in the third quarter, but particularly in the fourth quarter, both for e-commerce and brick-and-mortar stores. They had great performance in the fourth quarter of last year. In the budget, we expected to see a slowdown, a lower growth, but still robust growth for the coming quarters.
What is difficult to quantify is the impact of FGTS in the economic recovery of the last quarter. Earlier this year, I was more bullish about the economy of the second quarter, and I remain bullish. With interest rate reduction lower than 8% as they speak right now. If you consider very strong pent-up demand that may come back any time with a little bit of stimulus and initiative, I believe we have everything to have better economy, not only in terms of share gain in the second half of the year compared to the first half of the year. So what may offset the comparison base, the tough comparison base that we have, particularly in the last quarter, is a more robust economy, regardless of FGTS. That's mainly due to lower inflation rate, interest rate, which grabs less from consumers, and also better employment rates.
So it's hard to say anything, but I'm confident that the comparison base will be tougher.
Thank you, Fred. Fabrício, could you comment more on TV sales? We saw a change in the digital system in São Paulo. Do you have any plan for smart TV and a national rollout? For this program. Do you believe it also helped to improve the results of the second quarter?
Guilherme Fabris speaking. Thank you for your question. About digital TV, up to now, there's only migrated in the greater São Paulo, and in July, in Recife. The growth of the category was high country-wide. So we did improve demand due to the conversion in São Paulo, but not in Brazil as a whole. We had Recife last week. In September, there will be Salvador and Fortaleza. In November, Belo Horizonte and the countryside of São Paulo.
This will generate demand. There is a pent-up demand for digital TV. From 2014 to 2016, there was a drop by half. This category has demand, and what stood out on top of our planning were our promotions and our product availability, which was superior to our competitors. Magazine Luiza did stand out. If you think about the Northeast and the South, we had a lot of growth in this category. We do have the demand of the conversion and also in e-commerce.
Thank you. What about store opening?
When it comes to opening stores, like we said in previous calls, we intend to recover our historical levels. If you think about the last 10 years, except for the two years of crisis, we had historical openings, about 50 stores per year. We intend to be closer to this year compared to last year.
I cannot tell precisely the number because this information is not public yet. I mentioned in previous calls that it tends to be closer to historical levels like the one I just mentioned. We'll be opening in all regions, all formats, always under the concept of lean stores, low operating costs, not investing so much in key money, not investing so much in civil construction, low rental fees, and fully digital stores as well.
Okay. Thank you. One last question, Fred or Roberto. The operating leverage, you talked about the dilution effect of the gross margin and e-commerce growth. This was more than offset with the record EBITDA margin of the company. If we consider we expect e-commerce to keep on growing, do you see more room for the operating leverage to remain having a positive performance?
Could you give us an idea, to what extent do you think you can improve the EBITDA margin of the company through this operating leverage?
Good morning, Guilherme. Roberto speaking. I cannot give you any projection or guidance yet when it comes to an increase of the EBITDA margin for the future. What we can say is that there are several initiatives to keep on reducing our operating expenses, both in brick-and-mortar stores and also e-commerce. We have the opportunity to benefit from higher operating leverage in the future as we increase our sales. Just to give an idea, our rental expenses are growing very little. Per square meter, it increased 4% this quarter. When we grow 15% same-store sales in brick-and-mortar stores and the rental per square meter increases only 4%, there is a very strong dilution.
On top of that, for instance, Fred talked about the implementation of mobile Pinpad, mobile sales. We managed to decrease the number of cashiers at the stores, from 2,500 cashiers two years ago to about 1,500 cashiers today. It is gain of productivity with digital transformation and also other expenses that we intend to further reduce. It doesn't necessarily mean that there will be an increase in the margin. It could also be converted into more efficiency, better competitive edge, and more sales growth, et cetera. We do have opportunities to keep on further diluting our operating expenses, for sure.
Great. Thank you, Roberto.
Thank you, Guilherme.
Our next question is from Thiago Macruz, Itaú BBA.
Hi, everyone. Good morning. My question has to do with commercial dynamics. This quarter, the margin was even better year-on-year.
When it comes to stretched levels, to what extent should we invest more into productiveness? What about this trade-off going forward? Thank you.
Hi, Thiago. Thank you for your question. We've been managing to have high growth rates with this level of profitability. We have to work on this equation considering the margin vis-à-vis growth. Actually, we did not have gains, but we maintained the margin per channel. In gross margin, there was a slight drop, but we gained in the operation, like you said, in the EBITDA margin. Today, we have no intention whatsoever. We don't foresee a sudden change in the commercial policy, but we feel very confident to do it any time. If we see growth is going down, that we're willing to have more volume and grow more, then we can make use of this strategy.
It will largely depend, Thiago, on how the economy will be without FGTS and at lower interest rates. We don't have a precise reading, we like to have options, but we don't have a set commercial strategy. It's very important for companies such as ours to have a healthy EBITDA margin, because should we need, then we might have a more aggressive commercial policy to go for volume. We want to keep on growing, high growth rate, gaining market share. We want to keep on increasing our share in the market in all channels.
Super clear, Fred. Thank you for your answer.
Thank you. Thank you for the question.
Our next question is from [Maria Paula Santosi] from Bank of Investments.
Good morning. Congratulations on the earnings. Thank you for taking my question. You said you intend to expand Magazine Luiza's logistics network to sellers.
Does it also include store pickup? Could you tell us more about the customer profile, customers who buy online and have store pickup? Has this been converted to additional sales to the company? Then I would like to talk later about Luizacred and the sales of the private card improved both in store and out of the store. Outsourced cards lost the percentage. When you think about the card, well, there was a drop of 3%, the financing company. Is this due to revolving credit or any other factor? In the last call, you also mentioned that you're doing a pilot study, a partnership with Santander, similar to what you already have with Losango. Could you give us an update about the ongoing status of the project? If there's any news to share about partnerships and financial services. Thank you.
Paula, thank you for the question. Marcelo is going to answer the question about Luizacred, and then I'll come back to answer your first question.
Good morning, Paula. Thank you for your question. Firstly, like Roberto said, there was a significant reduction in the interest rates of revolving credit. At the end of the day, the financial margin goes down. We're speaking of revolving credit and the exchange for installments. In future quarters, you see the result going up. Basically, we did this before. Every customer that walks into the store, we show the best interest rates for financing purposes. For instance, a product known as sales installments. Well, we did not depend so much on revolving credit. It's smaller compared to competitors. What we're doing, we're continuing the process to support the customer to have financing at a lower interest rate.
Possibly, this is the worst quarter in terms of financial margin, because everything happens here this quarter without creating a higher portfolio for installments. Possibly in future quarters, you are going to have an increase in financial revenue. What was the second question again? Okay. Compared to what we do, the marketplace strategy. Products that we cannot have in the current platform, providing services to customers, then we use other partners to serve our customers. Every customer should go to the stores. We want them to have the better chances of having financial services. We want to have a store for that purpose with many possibilities of our customers. In addition to financial products, for instance, payroll-deductible loans. Santander, for instance, Losango, they provide CDC. We are creating another partnership for those customers who want to have personal loan.
We're choosing another partner specialized in this segment to add another possibility to our customers to finance and to be happy. In other words, to come back to the store and be happy with it. We already have a pilot study, which has proved to be very encouraging, and in future customers, we'll be sharing more detail about it.
Answering your first question, Paula. Once again, we want to be a digital multi-channel platform with brick-and-mortar stores. All those services that we made available through the website, we want to have them available through a seller, including store pickup, including the seller's ability to sell a marketplace product. Actually, we are a multi-channel marketplace. That's how we design our platform. All areas can provide the same areas that the back office provides to e-commerce and brick-and-mortar stores.
All these services will be made available for marketplace sellers as well. We are making massive investments. We had a big change to our structure this year. It was the integration of LuizaLabs with the IT area. André Fatala is now in charge of the whole IT area, because now all the teams that we had in our digital platforms, we also have them in our back office platform as well. Logistics systems that will be made available to sellers, matching payment systems. It is important that the LuizaLabs' philosophy was also added to the corporate area. Financial, PR, payroll, all systems, WMS, PMS, logistics, all these systems should also be there. We are no longer multi-channel only. We are multi-channel, multi-core. Under this structure, all services provided to internal channels should also be made available for outside channels.
The IT area, now under this new setting, should also be available to meet the needs of all these channels. That's something I want to mention. We absorbed this code of our commercial PR, which was Gematec and Django. Now we absorb this code and the whole development team of our commercial area, which is the core of every retail business, is now being designed by LuizaLabs under this new setting. It was a big change after several years outsourcing. Now we have it in-house, the commercial PR. Now we maintain some services, outsourced systems that make no sense being in-house. We are more and more working on our new technology and our own ability to provide services in-house and create innovations to consumers.
Thank you, Fred and Marcelo. Fred, if I may, just another question.
Could you talk more about the customer profile that have the store pickup? I remember you mentioned before a couple of times that usually those who buy in Magazine Luiza e-commerce had a larger share compared to those who went to the stores. I wonder if these customers also use the store pickup service, and how much is converted into additional purchases when these customers go to the store for store pickup.
It's too early to say anything, but most of the customers who have the store pickup never walked into the store before. They are visiting the store for the first time. Of the total number of customers for the store pickup, depending on the store, 20%-30% buy an SKU or a service. Installation service, for instance, or extended warranty or a supplementary purchase. Numbers are very incipient yet.
We cannot say they will remain as such in the future, but these are encouraging figures. We're further improving the conversion of customers who walk into the store to benefit more from the traffic. This is the beauty of multi-channel. I firmly believe the best way to work on e-commerce in Brazil and worldwide is a multi-channel operation, preferably with a platform. That's what we're doing as well.
Thank you. Have a great day.
Thank you.
This concludes the question and answer session. We give the floor back to Mr. Frederico Trajano for the final remarks.
Once again, I thank you all for joining us and congratulate our team for the excellent performance this quarter. Once again, I thank you all. Thank you very much indeed.
This concludes Magazine Luiza's conference call. Thank you all for joining us. Have a great day.