Ladies and gentlemen, good morning. Thank you for waiting. Welcome to Hyattini Ruiza'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 and further instructions will be given.
Now I will turn the conference over to Mr. Federico Trajernu, CEO of Argentina Luisa. Mr. Trajernu, you have the floor. Good morning, everyone.
Thank you for joining us for our conference call related to the earnings of the Q2 2017. Today, I have all the management of the group with me, and we'll 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 Q2 of this year was of as good earnings as we had in the Q1. We ended the Q1 talking about this, but it was 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, so the highest track record of the company. We're already very confident about the quarter, vis a 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 IBGA in April, particularly in May. Our category in May went up 3.8 percent vis a vis May of the previous year, TMC, one of the most robust retail sale indicators we have available in Brazil. And pretty much due to economies that have already immunized, so to speak, how the Brasilia crisis, the political crisis and at the same time, also owing to the capital injection stemming from inactive FTPS accounts. So 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. And when Brazilians have extra money in their pocket, they want to buy things, they want to make their dreams come true. And 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. So 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.
So we see players that are more rational, some still struggling cash wise and reinforced, therefore, to adopt commercial policies in a sustainable manner. This was always Magazine eluiza's philosophy. And 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. So this player, at the end of the day, is above other players under the same conditions in terms of strategy and execution in house. And that's why we benefit.
I believe that a structure characteristic that we expect to see in future quarters. Competition wise. And we also like to work and operate under this philosophy and context. The major highlight well, actually, we have several highlights in our bottom line. I'll be mentioning by channel.
E Commerce persists driving our growth quite a lot: growth of 55% vis a vis the previous year very solid robust growth already happening for many quarters. And I also highlight sales by mobile apps. We had our app with a lot of share in this growth, over 6,000,000 downloads. More than 50% of our traffic is already mobile, both from apps and also our website. Both of our sales already stem from our apps, mobile apps and devices.
And we're going to launch 2 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.
So we're launching now navigation to our customers who are buying 3 gs, 4 gs. Eduardo is going to talk more about it later. And e commerce also benefited from store pickup available in 100% of our operations of our stores today. And the products that are eligible are very high. We improved in our DC, ensuring that more customers will benefit.
And in several stores, we have just one day delivery time for store pickup and extending to other units as well. But the vast majority is focused on 48 hours delivery time to buy online and have store pickup. There is no shipping fee, so that's a benefit and a huge advantage to customers. And in Storetica, we also have something new. We're launching a partnership with 99 Taxi, which is a tab app for transportation in general.
And it gives a bonus of 20 reals, a 20 real coupon for consumers to use to store pickup purposes. So you can have BRL10 with a cap to go to the store and then go home. So there will be no additional cost to go for the store to pick up the bill. It's a very good partnership, and Eduardo is going to give more detail on the partnership with Brazil and 99 Tap, the app, but I wanted to announce it right off. And in e commerce, we had an increase in traffic and conversion.
So I see that as a very sound and healthy strategy, and we highlight new channels, particularly Magazini Voci. More than 100,000 stores were included with more than 500 stores in total with very high sales growth. And I also highlight something very important. We grew 55% in e commerce, and we have the best historical levels of customer service and customer service at RA1000. So growing 55% with a very balanced operation is really tough.
Our logistics, our team of development also worked 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. So everybody is fine tuned. So we congratulate them on the business volume driven by the sales area with very positive levels of service. Total 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, Virgil, Northeast, many regions, the Greater Sao Paulo as well. Results were really positive. But 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, very a very great model. And we can see the results of this model for a while now. The only star.
We also had white line, great numbers smart TVs, very positive growth in our TV line this quarter And Furniture also recovering well. So 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.
So really accelerating the expansion pace. We firmly believe the multichannel model The store is a very important point of contact with our consumer supporting the website growth given options like store pickup and a local network to deliver to have home delivery in the young consumer, last mile delivery. So it's very important to match e commerce with brick and mortar stores, and it's important to improve the number of stores. We have passed out the municipalities in Brazil about we still have a long way to go happening to new markets. And 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 continued mobile sales in all stores. And now we're just about to conclude the implementation of the StockX mobile for the team that works at the store back office, working on inventory and also the implementation of store pickup. So we have the right pool stores available to provide good service.
So we have stocked this mobile in our stores, and now we have a pin pad, mobile pin pad. So the seller can get the order and the credit card data. So we can close the sale in less than 2 minutes compared to 40 minutes in the past, greatly improving productivity in our group of stores and improving consumer experience as well. So Pinpad is in nearly 200 stores, and 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.
Fabrizio Garcia is going to give you more detail later on. Definitely, LoopConnect, it is an installation service. It's very successful, very high acceptance rate 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.
So in addition to the Wi Fi plan with carriers in many different areas in Brazil. And we also launched the aftersales brand in mobile sales with our carriers, telephone carriers. So if you want to buy a postpaid model, like as in Luiza, we are very much focused on providing good data plan. So through mobile sales, you can do it in less than 2 minutes. So we think we are going to have a sales lead postpaid of all telephone carriers due to a digital sales process at the point of sale.
And Fabricio is going to share that later on. So I think we also evolved a lot when it comes to logistics. I've talked about the level of service and reduction of delivery time at a store. We also have a lot of room and fruit to read. And we also increase in the e commerce volume, brick and mortars, logistics space, owing to the right efforts of Kaixin and continuous improvement.
In auto lean manufacturing, we are implementing these for logistics purposes in all our DCs and greatly improving the productivity per square meter and by logistics operators in our DCs. So 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. And last but not least, Marketplace, a highlight e commerce growth where we don't report GMV yet. GMV where we could be reporting, but we don't want to focus on our platform. We don't want to give too many 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 1 year since we launched the platform, marketplace platform, we raised 550,000 SKUs available to our consumers. So now we are very excited with marketplace implementation. And I highlight that we're doing that, well, as we always do in a very consistent manner.
So the level of service of Marketplace today is nearly as good as the level of service at e Commerce. So very positive numbers for marketplace as well. And our NPL seller, we are one of when it comes to platforms, we have the best assessment by sellers involved. And this has a to do with the acquisition and integration of Integra Commerce Data from ImageNet ICE with a lot of usability, easy integration for the seller in Madrasini Luiza's platform. Any seller interested in the integrated uses Integra Commerce.
And automatically, if because we have a hub, if he wants to connect with another marketplace, the option is available. So Intag e Commerce has really helped us to expedite 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 2 members in our Board of Directors, Borthernia Tamuri is one of the main professionals in personnel management in Brazil, very close to Don Cabral Foundation and Sizzo Mera, one of the experts in IT in Brazil.
We are the Innovation Center in Recife, one of the founding members and in charge of Federal de Pernambuco success, IT Engineering, so great members to our Board giving more support. In the compliance area, very successful. In the current world, well, we are more susceptible to problems. Our compliance, every company is more successful successive. And our Board wanted to have a compliance area with experienced seasoned professionals.
So we welcome it very, very positively. And as to our brand, we launched the 2nd season of the reality show, TECO Mission, partnering with Global News, a reality show. We have 12 episodes in which we get a family at this store and we turn it into a digital family. We launched in July and we have a great description of the program, and it's part of our purpose to help Brazilian families to better use technology, ordinary Brazilian citizens, not those who are experts in technology. And now on Sunday, we'll be starting to be 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 Pagarizhina Luiza's team for their performance this quarter. And I also thank all the shareholders and partners for their support for the 1st part of the year. And now I turn the floor over to Roberto. Good morning, everyone. And I'll just begin our presentation on Slide number 2.
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. Ecommerce, 28% of our total sales excluding marketplace, a very high share in our Tudo sales.
We grew a lot in our gross profit. The gross margins have slightly down basically due to the change in the mix owing to faster growth of e commerce. This margin was fully offset by a dilution of expenses, which was very strong of 2.1 percentage points. And our SG and A level is again around 22%, certainly one of the lowest SG and 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%. And net income was the highest of our track record at ROU72 million ROE or 40%. In addition, we also highlight cash generation this quarter. We greatly improved our working capital, reduced our net debt in 12 months, nearly BRL600 1,000,000, a very low level, only BRL268 BRL 268 1,000,000, the lowest level since our IPO.
And this net debt over adjusted EBITDA is the lowest of our history, 0.3x EBITDA. Cash generation this quarter. Operating cash was almost BRL400,000,000 this quarter. And for the last 12 months, operating cash flow was BRL 950,000,000. Therefore, improved cash generation that was very robust.
And another highlight, Luisa Creggi, based on reducing delinquency, growing sales, improving the portfolio, which is very healthy and also improving income compared to last year. Despite lower interest rates or revolving credit. Since April, we've lowered revolving credit to $9.90 And as part of that, Ruizakendi managed to improve income and profit. On the next slide, Slide number 3, we show the evolution in the number of stores, 27 stores opened last year. We highlight the 2nd quarter and also growth in investment, both on a quarterly basis and the first half of the year, increasing investment in over 50% visavislast 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 this 6 times in a row that we grow at a higher rate, 26% on a base that was higher, 5% last year. And e commerce keeps on growing at a very high pace, also over a base that was already very high. On Slide number 5, it shows the performance of gross margin. There was a slight drop, like I said before, due to the mix effect.
And an important highlight is the level of operating expenses we guided selling expenses and SG and A expenses. G and A expenses, for instance, increased only 6.5% this quarter. This stems from ZBB and EMM expense management metrics. 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 2 points in expenses, one of the best reductions we had in our expenses. Asset equity income, LuizaCaregi, 8% higher LuizaSec, 16% higher, also contributing to the total result. Now on the next slide, we talk about EBITDA. Evolution of 1.1. So basically, we lost 1 point in the margin but had 2 points in expenses.
We went up from 7.6 to 8.7, 000000 reaching EBITDA of BRL236000000, 45% growth in EBITDA vis a vis last year. On Slide 7, a couple of 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 increase account, pretty much related to the CDI drop.
But the other part, which has to do with net service, went down 1.9 to 0.9 of net revenue, and this is very much related to the reduction of our net debt and also CPI. First to net debt, you can see reduction was BRL587 1,000,000 in 12 months for 0.3x EBITDA. It went down last 12 months and also went down this quarter, euros 444,000,000 to euros 268,000,000. And this is after payment of dividends and stock buyback last year. So total cash generation was very strong And a lot influenced by improved working capital as well.
Over 12 months, it improved BRL516,000,000. 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. And at the same time, we managed to increase average purchase time in a very sound, sustainable manner. But not only for inventory and in suppliers, we improved nearly all accounts of working capital.
We also highlight reduction in tax recoverable tax account once again amounted to BRL100 1,000,000 for the last 12 months. So considering all that, improving results, EBITDA, working capital, we managed to reduce our financial expenses, net debt and consequently, we improve our net income. On Slide 8, we show the growth of net income, BRL10 1,000,000 to BRL72 1,000,000. 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 9, we show Luisa credi 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. So Libertadir, despite lower interest rates, managed to save when it comes to provision of spending funding costs with higher profit compared to last year.
So these were the main highlights, the main financial highlights. And on Slide 11, we have the outlook for the future. Then I'll give the floor back to Federico. So let us move straight ahead to Q and A, and then we can talk about the outlook for 2017. Ladies and gentlemen, we're starting now the question and answer The first question is from Fabio Monteiro from BTG Pactual.
Good morning, everyone. I have two questions. The first question, well, Ed, you talked about streamlined market in online, off line, a more rational approach. I would like you to elaborate a little bit more. In which France do you envision 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? And when it comes to shipping and installments, could you give us some flavor? And 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? And temp marketplace this year reached 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 2 facets. The players that used to operate with very low margins, which was 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 to the financial institutions which support them.
So in this regard, by and large, we see more rational policies for prices and mostly for installments. So 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 and A or to for cash generation purposes. That's what I refer to as a single and rational. So we feel some rational pricing strategy, balanced strategy, but that's not the reason why average price is going up.
But 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 will buy from suppliers, and we talked about that already, right? I talked to you about this many times. So this no longer happens. And in online, for many players, there was significant new pricing, not at high levels, but minimum levels. Just to balance the operational 0 EBITDA or not so negative result.
But I don't see this changing. It makes no sense. Running the business or selling for a lower price than you buy from suppliers. So for online mostly, we saw that happening. But because our model, the cost structure online, in our case, a shared with 2nd motor store, therefore, lower compared to players who are online only, then our model is more superior and sustainable over time.
And then we greatly benefit many quarters in a row from this model that is simply better. I say that to make money in e commerce, there are only 2 ways. There is not a third way, either your multi channel or your marketplace. Ideally, this is what you're doing. You want to have a multi channel marketplace.
So 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. So we are investing a lot to enable our network, which supports brick and mortar and e commerce to help with sellers too. There are projects that we're focusing very heavily for next year. But 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 even desperate for this jump to marketplace.
It has to be consistent. Marketplace is just to improve our profit and not to save our operation. So we're doing this very consistently. Today, we are the most stringent pay payer for inbound selling. So we have the TIFO score of the customer, a lot of red pay just to have the right people in.
And we invest a lot in IT and monitoring fracking. If something comes in, well, we can disconnect sellers. And we can have standby if there is TIFO. And we also have the status score. If the score is low, we should be able to have the right level of service.
But 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 for the question. Our next question is from Richard Cathcart with BBSCO. Good morning.
I have two questions. The first question is about improved inventory base and how you manage to achieve that, mostly stores, do you see or a little bit of both? And we wonder if we expect to see improvement in the future quarters. 2nd question, Frederico, could you elaborate more about Marazini Luiza's strategies for Black Friday? I know we still have 3 months down the road, but we already have the planning.
So 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. Good morning, Richard. Thank you for your question. About inventories, what I can say is that we managed to improve both channels. Turnover in brick and mortar stores improved a lot, but 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 PC. So our e commerce turnover is around 50 days, for instance, which is a very efficient inventory turnover level. And as e commerce grows faster at brick and mortar stores, it also drives the average down. But despite 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, but also supports.
So inventory turnover at stores improved as sales went up and also owing to internal processes developed for supply purposes with more accuracy. So the turnover trend is very positive. Average purchase term for both channels is similar. Time is similar. So as e commerce grows, we tend to drive average turnover downwards and maintain average purchase time equal.
So working capital dynamic trends is very positive for us in inventories versus consumers. Fabrizio and Eduardo are going to talk about Black Friday. Fabrizio speaking. Good morning, Richard. We are already working on Black Friday.
We expect to have a good last quarter, and it is critical to have Black Friday as a good event. So we're working a lot with our suppliers. As usual, the categories that may stand out at Black Friday are white wine and IT items. So 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.
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, and we're very confident about what we are planning to do. There are 3 phases that are pretty well set.
First, November before Black Friday, how can we sustain the growth the strong growth exceeding any kind of pen talk action? And then we have Black Friday, everything related to item items, our ability to maintain a stable platform. We've been managing to do that over the years, and our IT team is working heavily on this as well. And the 3rd phase is right after Black Friday, which is a quick return to our operation. And logistics is fully dedicated as a team, so we can go back to delivery times as soon as possible in order to have the first of a great 1st 2 week period and a great 4th quarter.
So 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? 1 of your main competitors is increasing the level or the volume of free shipping. Do you have what's your opinion on this? Does it make sense? Do you feel any impact?
[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] No, we don't feel any impact. We grew 55% this quarter. So it was even better than the Q1. And I believe the competition started this policy in early May. So we didn't feel this effect.
How is the 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, so we don't have acquisition costs to sell to him. So the shipping costs are fast.
So 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 and mortar stores. So if you consider app plus store pickup, we have an substantial sustainable part of our sales online, which have the free shipping and sometimes also with more profitable categories.
So I prefer to have a smart free shipping policy for specific channels, specific cases that prove to be sustainable and not so nonrecurring. Sometimes you give on a quarter and have to step back. So it makes no sense to do otherwise. So we'll keep on having free shipping under this model for store pickup because we're going to have even better delivery times, leveraging our multi channel and also our app, which is our path for the year. Our next question is from Zhuangmaneji, Santander.
Hi, everyone. Good morning. I have two questions as well. The first question, Fred mentioned in the presentation about mobile PIN pad in the stores and the rollout. I think I missed the number of stores that already have mobile PIN pad implemented out of the total.
And a follow-up question, what about the behavior of stores, which already have a 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 a store compared to an old store, which doesn't have everything implemented yet? Just give us some flavor about the gaining productivity or any other metrics under this reform. I wouldn't say reform, but once we have these initiatives implemented.
2nd point, a common topic over the last discussions with you, due to the very strong cash generation mentioned by Roberto, almost $1,000,000,000 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 0, almost net cash. Select is going down a lot. So leveraging when Select is 14%, 40.5 percent might not make a lot of sense.
But now that the debt cost is lower, what about the future? What about leverage and optimum capital structure? And 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, Joao.
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. Because you provide a better experience to the customer to the point of sale, you tend to have customers who come back and improve conversion. And also, our main focus of digital transformation at our store today is to improve profitability. Nearly 70% of store cost has to do with payroll.
So our main goal is to improve sales per seller. And 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 back office and we tend to reduce this issue, having more people selling at the store. So in 2014, our sales were very similar to what we expect to see, similar to last year, by the way. So in 2014, we had 24,000 employees, and last year, sales were equivalent with 25,000. A lot of 15 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.
So increasing sales by employing other store, I cannot disclose this number, but the overall figure you can get from our release. So that's a good indicator showing that we are increasing our profitability a lot. And our digital transformation initiatives are not only for a couple of stores, and you'll call somebody to make it digital, but rather, this is for 100% of the stores. Tenpaz in these 200 stores, but we're going to sold it out for the remaining 600 stores by year end. So we're going to have over 800 stores going digital.
We don't give a guidance how we're going to be store wise, 100% to be mobile open by year end. By the way, we already have mobile sales in all stores and mobile speakers in not all of them, but many of them. And PingPad is particularly the cellular taking the payment. For instance, if the customer goes to the website, navigate 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. So the whole inventory of the website is available at the store.
So the seller can see, visualize all the inventory at the website. And by year end, you also have a view of marketplace and e commerce as well. So 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 excess cash.
Our current operations, you will, still have financial expense of 3 0.7 percent over net expense. I consider this to be high and low net profit. So if we're considering indebtedness of a company like Magazines, you have to consider bank debt, but you also have to consider receivables discount. And in this regard, if we consider a broader debt scenario or at least 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. The next question is from Guilherme Assis, Brazil Purao.
I think you talked a lot about Acelo's performance already. 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 FTTS, for instance, 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. And maybe could you also talk about sales in July?
July still includes that CTS, but any changes to the pace that was so strong in the second quarter? And 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?
And 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 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 Q1 of last year of 2016. So the comparison base, particularly for the last quarter of the year, is more robust.
So we had already budgeted smaller growth levels for the quarter, regardless of macroeconomics because our comparison base is stronger in the Q3, particularly in the Q4, both for e commerce and brick and mortar stores. They had great performance in the Q4 of last year. And in the budget, we expected to see a slowdown of lower growth but still robust growth for coming quarters. What is difficult to quantify is the impact of F GTS in the economic recovery of the last quarter. Early this year, I was more bullish about the economy of the 2nd quarter, and I remain bullish with interest rate reduction lower than 8% as they speak right now.
And if you consider very strong pent up demand that may come back anytime 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 SGPS, that's mainly due to lower inflation rate, increase rate, which got less from consumers and also better employment rates. So it's hard to say anything, but I'm confident that the comparison days will be tougher. Thank you, Fred.
Patricio, could you comment more on TV sales? We saw a change in the digital system in Sao Paulo. Do you have any plan for smart TV international rollout for this program? And do you believe it also helped to improve the results of the Q2? Ilia Niifaruto speaking.
Thank you for your question. About digital TV, up to now, this only migrated in the Greater Sao Paulo. And now in July, in Recife, the growth of the category was high countrywide. So we did improve demand due to the conversion in Sao Paulo, but not in Brazil as a whole. Now we had Recife last week.
In September, there will be Salvador and Fortaleza. And in November, Belo Horizonte and the countryside, Sao Paulo. This will generate demand, but there is a pent up demand for digital TV. From 2014 to 2016, there was a drop by half. So 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. So Magaziner Luiza did stand out. If you think about the Northeast and the South, we had a lot of growth in this category. So 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 2 years of crisis, we had historical openings about 50 stores per year. So 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, but I mentioned in previous calls that it tends to be closer to historical levels like the one I just mentioned.
So 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. So one last question, Fred or Roberto. Operating leverage, you already talked about well, you talked about the dilution effect of gross margin and e commerce growth, but this was more than offset with the record EBITDA margin of the company. If you 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. Hope you're speaking. I cannot give you any projection or guidance yet when it comes to an increase of 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. So when we grow 15 percent same store sales in brick and mortar stores and the rental per square meter increases only 4%, that is a very strong dilution. On top of that, for instance, Fed talked about implementation of mobile pinpad, mobile sales.
We managed to decrease the number of cashiers at the stores. 2,500 cashiers 2 years ago to about 1500 cashiers today. So it is gain of productivity with digital transformation and also other expenses that we intend to further reduce. But 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, etcetera.
We do have opportunities to keep on further diluting our operating expenses for sure. Our next question is from Thiago Matros, Itau BBA. My question has to do with commercial dynamics. This quarter, the margin was even better year on year. To what extent when it comes to certain levels, to what extent should we invest more into budget business?
What about this trade off going forward? Thiago, thank you for your question. We've been managing to have high growth rates with good level of profitability. We have to work on this equation, considering the margin vis a vis growth. The equity, we did not have gains, but we maintained the margin per channel.
And 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 certain change in the commercial policy, but we feel very confident due to the time. So 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, because we don't have a precise region, we like to have options, but we don't have a set commercial strategy.
But it's very important for companies such as ours to have a healthy adjusted margin because should we meet, then we might have a more aggressive commercial policy to go for bottom. We want to keep on growing, high growth rate, gaining market share. So we want to keep on increasing our share in the market in all channels. Crystal clear, Fred, thank you for your answer. Your next question is from Maria Paolo Santuzzi from Bank of Investments.
Congratulations on the earnings. Thank you for taking my question. You said you intend to expand Magazine Luisa's logistics network to sellers. Does it also include store pickup? And 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? And then I would like to talk later about Luisa Credi and the sales of the private card improved both in store and out of the store. And outsourced cards lost the percentage. But when you think about the card, well, there was a drop of 3%, at the end of the company. Is this due to revolving credit or any other factor?
And 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 Los Angos. Could you give us an update about the ongoing status of the project? And 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 of Louisa Credi, and then I'll come back to answer your first question. Good morning, Paula. Thank you for your question. Firstly, like Robespu said, there was a significant reduction in the interest rates of revolving credit. And at the end of the day, the financial margin goes down.
But we are speaking of revolving credit and the exchange for installments. And in 2, 2 quarters, you see the result going up. Basically, we did this before. Every customer that walks into the store will show the best interest rate for financing purposes. For instance, a project known as sales installments, we already have well, it did not depend so much on revolving credit.
It's smaller compared to competitors. And what we're doing is 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 enrollment. So possibly in future quarters, you are going to have an increase in financial revenue. And what was the second question again?
Okay. Compared to what we do, in marketplace strategy, so products that we cannot have in the current platform, providing services to customers, then we use other partners to serve our customers. As the customers who go to the stores, we want them to have the better chances of having financial services. So we want to have a store for that purpose with many possibilities of our customers. So in addition to financial products, for instance, payroll deductible loans, Santander, for instance, Lozango, they provide TCC, and we are creating another partnership for those customers who want to have personal loan.
So we are 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 will be sharing more detail about it. Asering your first question, Paula, once again, we want to be a digital multichannel platform with brick and mortar stores. So all of the services that we made available through the Web site, we want to have them available through a seller, including store pickup, including the seller's ability to sell a marketplace product.
So actually, we are a multichannel marketplace. That's how we design our platform. So 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 labs with the IT area. So Andres Sotala 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. So logistics, logistics systems that will be made available for sellers, matching payments systems. So it is important that the land philosophy were also added to the corporate area. Financial PR, payroll, call systems, WNS, PMS, logistics, all these systems should also be there.
We are no longer multichannel only. We are multichannel, multi port. So under this structure, all services provided to internal channels should also be made available for outside channels in 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 ZEMATEC A Jango. So now we absorbed this code and the whole development team of our commercial era, which is the core of every Enteo business, is now being designed by Luisa Labs. Under this new setting, it was a big change after several years outsourcing. Now we have it in house, the commercial PR. And now we maintain some services, outsourced systems that make no sense being in house, but 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 one other 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 Medazin Yireza e Commerce had a larger share compared to those who went to the stores. So 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. And of the total number of customers for the store pickup, depending on the store, 20% to 30% by an SKU or a service installation service, for instance, or extended warranty or a supplementary purchase. Numbers are very insubient yet.
We cannot say they will remain as such in the future, but these are encouraged figures encouraging figures. We're further improving the conversion of customers who walk into the store to benefit more from the traffic. But this is the beauty of multichannel. I firmly believe the best way to work on e commerce in Brazil and worldwide is a multichannel operation and preferably for the 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'll give the floor back to Mr.
Federico Traziano for the final remarks. Once again, I thank you all for joining us and congratulate our team for the excellent performance this quarter. And once again, I thank you all. Thank you very much indeed. This concludes Magazino Luiza's conference call.
Thank you all for joining us. Have a great day.