Ladies and gentlemen, thank you for holding, and welcome to Magadimida Second Quarter Earnings Conference Call. We would like to inform you that all participants will be in listen only mode during the company's presentation. After the company's remarks are completed, there will be a Q and A session and further instructions will be provided. Now I would like to turn the floor over to Mr. Federico Tragiano, CEO of Magademia Luisa.
Please, Mr. Traggiano, you may proceed. Good morning, everyone, and thank you very much for participating in our results conference call for the Q2 of 20 16. And we have here Roberto Galizio, Fabrizio Garcia, Eduardo Galantiniki, Marcelo Ferreira and Espen Urohara. And they will all be available to answer your questions after this conference call.
So speaking about figures, it is there is no need to say that the second half of twenty 16 had one of the most turbulent landscapes in our country, and this negatively impacted 2 of the most important indicators related to our country, consumer confidence and unemployment. Our segment is highly influenced by these indicators and posted a drop of 10% according to IBG in the 1st 5 months of 2015. The only thing that we cannot mention in this context is that we were taken by surprise because we knew exactly that we will we would face a very adverse scenario in 2016. Therefore, our team worked very diligently in four fronts of work to put together a major plan to face the crisis of 2016, and that involves gains of market share, without compromising our profitability, transforming our strategy into something digital, reducing admin and sales expenses and also a control and improvement of our cash generation. We'll elaborate more on each item, and then Roberto will give you more details about each information.
In terms of the first item, which is market share gain with the maintenance of profitability, if the whole economic stake is shrinking, we have to try to get a bigger share of their package. And so the focus of the company was to gain market share. The challenge was to get market share without compromising our gross margin, which is not an easy task. So we worked together with McKinsey Consulting Company, and we diligently raised all possible opportunities to gain more market share. We looked at each category and each store location in order to map out where we could have micro or granular opportunities to gain share.
And then we put together an activation plan to be able to capture all of these share gain opportunities by store and by category, by all of our marketing and pricing strategies and move. So in the Q2, we gained market share in all relevant categories in our of our business. We gained market share in the white line, telephone, image, IT. So all relevant categories were very important, and they posted significant gains of market share considering the current scenario. But certainly, the main highlight in terms of revenue in this quarter was e commerce.
We are the only store, the only operation. We've been saying that for the past few years because we are the only multichannel company in the market. All of our market channels share the same operating platform of our brick and mortar stores, the same IT platform, logistics and financial platforms. With that, our e commerce operation has some advantages when compared to other models from other peers. We have some cost advantages and again, great price competitiveness because we can also practice good online prices.
And we offer superior services because we can use the logistics of the brick and mortar stores to deliver at lower costs when compared to other players that do not have such a large grade of stores to use in logistics. And this was aggravated with the crisis because with the crisis and the consequent reduction of irrationality in the market, the market began to practice more a pricing. And with all of that, we were able to get important gains in the first half of twenty sixteen. E commerce posted a growth of 30 with the main focus related to mobile. There was an important migration of people towards mobile.
And to that end, we made important investments together with our business team and Luiza Lab Development Lab. So we deployed many improvements, especially regarding our new application, which is our new sales app. And with that, as this accounts for more than 40% of the total public, we had a growth in terms of conversion rate, consumer traffic and also sales during the period. And this really helped us to increase our e commerce sales in the first and the second quarter of 2016. In addition, I would like to add that we also deployed important projects that will be important to support the sales growth in the second half of the year and in the next few years.
Our marketplace operation is already in place, and it started last June. We are initiating the program with some retailers. They are already using this platform, and we are ready to escalate that platform. And this is something that we can refer to later on during the Q and A. And we also have the project, well, buy online and do the store pickup.
We have many stores already operating with store pickup. And by the end of the year, we will have more than 50% of our stores operating under that buy online and pickup in the store model. These two projects are helping us with sales, to increase sales and also is helping us to reduce expenses, especially logistics because we take advantage of the truck that is going to the store without having an additional cost. But sales growth would not be enough to generate increases in EBITDA because with inflation in 2 digits and an indexed economy whereby all of our costs like rental and working contracts, everything is indexed or attached to the inflation. Therefore, the company had to do a lot of work, very detailed and disciplined work to control expenses.
We worked with Caliagena, not a consulting company, and with them, we launched 2 projects: ZBB or 0 based budget and also a GMD matrix management of expenses. And we also focus on rental, power or utilities bills like power. We worked on several lines of expenses, and this was a combined effort, including many of the many areas of the company and all of the teams together led us to despite 10% inflation, we had a nominal drop of 3% in our expenses in the quarter. And therefore, we had a dilution of SG and A, which makes us very proud because this was the result of some very diligent work. And finally, we worked hard to improve our cash management.
We look at all of the purchasing or procurement terms, and we are also very conservative in terms of our CapEx. Now I'll give the floor to Roberto to elaborate further on the financial aspects. Good morning, everyone, and thank you very much for joining us this morning in our conference call. So I would like to start on Page 2, where we mentioned the first highlights of the quarter. Starting with sales, we grew almost 5% with an increase in gross margin of 1.2 percentage points, in keeping with our expectation to grow while at the same time keeping our profitable margins.
E Commerce grew almost 34%, reaching more than $580,000,000 in sales approximately 23% of total sales, and this is indeed a very relevant operation for the company. Operating expenses, we were able to reduce them by 2% in nominal terms despite inflation and payroll, etcetera, we were able to lower expenses in percentage and nominal terms. In percentage terms, we were able to post a reduction of 0.8%. And with all of that, we were able to grow EBITDA in almost 29%, reaching BRL163 1,000,000, which gives us a margin of 7.6 percent and a net income of BRL10 1,000,000 or a margin of 0.5%. Now speaking about our capital structure.
One big highlight was a reduction in our adjusted net debt by BRL350 1,000,000 in 12 months, And that indeed is a significant reduction when you look at June of this year and June of 20 15. And with the growth of EBITDA, we were able to lower net debt over adjusted EBITDA ratio to 1.5x. Another important aspect related to the indebtedness reduction was the improvement in working capital. We managed to operate with significant working capital levels since the beginning of last year. When we compare the current working capital performance with the performance of the year before, we also see a significant improvement, which directly reflects is reflected into our indebtedness level.
In cash generation, with EBITDA growth and improvements in working capital, our operating cash flow was almost BRL100 1,000,000 in the quarter, which is much higher than the level of investment. And finally, I would like to highlight Luisa cred. In the quarter, we had BRL 25,000,000 in net income and with ROE of 18%. And all of that also shows improvement in the short- and long term nonperforming loan indicators. On Page 3, we talk about the evolution of the number of stores.
In the last 12 months, we inaugurated 25 new stores. In this half year, we inaugurated 1, but we still have 24 more stores to be inaugurated along the year until the end of the year, most of them in the Northeast. When we look at our investment level, we invested $50,000,000 in the first half of the year. That was lower CapEx when compared to the year before. But our investment was mainly geared towards new stores, which should be emphasized in the second half of the year and also refurbishing.
When we look at technology and logistics, all of the investments were in keeping with our strategic planning. Turning to the next page, Page 4. We talk about our gross revenue evolution. We grew for the Q2 in a row. We grew slightly above the Q1, almost 15%.
And in the whole year, the growth is almost 4% in the first half of the year, which can be compared to the numbers from IBGE, which has anticipated a growth of 4%. So if you look at a growth of 4% compared with a drop in the market of 10% at the IBG figures. They also include e commerce. Therefore, this means that our market share gain was quite significant, and it was more significant in ecommerce where we are able to grow 30% in the quarter when compared to data from EBIT in the quarter of about 5% in the half year. In terms of brick and mortar stores or physical stores, there was a drop of 4% in the same store sales line, but we also gained market share in the physical stores.
Our comparison base was still relatively high when compared to physical stores because despite a drop in 15% in the Q2 of last year, that reduction was based on the growth of 2014, which was over 20%. So in 2014, we took advantage of the World Cup of the game. So we were able to grow same store sales by over 20%. Therefore, the base for the Q2 in terms of physical stores was quite high. And despite this drop of 4%, we were still able to grow our market share in the physical stores.
Now going over to the next slide and talking about gross profit, we were able to raise our gross margin once again by 1.2 percentage points. It's worth mentioning that we are comparing oranges with oranges. We reclassified the numbers of last year. I mean, the reduction of the payroll from taxes to expenses in order to facilitate this comparison. So we reclassified from payroll taxes to salary expenses.
So there is this effect when we compare the payroll of last year and we were able to reduce the gross profit. I mean, we were to reduce that expense by 1.2%. We also have a greater market share coming from smartphones. Now we are now charging for shipping and assembly, which was something that was introduced in the midst of last year, and this applies to the white line in furniture. And as Federico said, the environment is less irrational, and this favors the evolution in our e commerce sales.
That's why we see now a consistent growth in margin in all categories in all channels. Now speaking about operating expenses, we were able to post a nominal reduction of SG and A as a whole by approximately 2%, and this accounted for 0.8% of dilution over net income or net revenue. And this was achieved despite the fact that the payroll had increases in terms of social contribution and with inflation around 10% and high inflation when you compare a base of fixed cost in the retail industry. And as you know, this in the retail industry is quite high. So in order to increase sales and reduce expenses, we certainly did a lot.
We worked very hard, and this is probably we probably achieved good numbers because of ZBB and GMD. And now in terms of equity income, Luisa CREBS and Luisa SAIG's net income were a bit lower when compared to the figures of the year before, but they still accounted for 0.7% of our net revenue. So we posted positive results, and we see a positive trend when we compare the numbers with the second half of twenty fifteen. Further on, we will elaborate more on that when we speak about Luisa Creggi. Going to the next page, speaking about EBITDA.
Our recurring EBITDA margin was 7.8%, one of the largest adjusted EBITDA margins posted in the last few years. That means that we grew approximately 27% year on year, and this was once again supported by a small sales growth but also higher gross margins and tight expense controls. Next slide, we refer to our financial results. Here, we still see growth in financial expenses, but totally linked to growth of CDI and sales growth. Share of Luisa Card increased even though we had a reduction in physical stores.
So Luiza card increased, and this means that our customers are becoming more loyal. This also had a slight impact in anticipation costs. And with the growth of e commerce, the growth coming from 3rd party credit cards also increased in our total mix. And that's why the level of receivable discount is a bit better, is a bit higher and also CDI quarter on quarter. The good thing is that this trend towards reducing CDI becomes clearer to the entire market.
And as CDI begins to fall, also these lines should also directly benefit from those reductions. Now speaking about net debt. Here, we have a significant decrease from BRL 1,200,000,000 to BRL 353,000,000. So it's a reduction of BRL 350,000,000 in the last 12 months. We've been reducing it quite a lot, and we've been maintaining that reduction steady since the end of last year.
And the adjusted net debt over EBITDA ratio was down from 2 to 1.5x, and this was mostly related to reductions in working capital. In this quarter, we were able to keep inventory churn in keeping with the numbers of the previous year, and we were able to increase our average procurement term. And this was due to some diligent work where we evaluated risk per category, per vendor. And with that, we were able to increase our income coming from suppliers because they finance our inventory. So working capital and all of these other factors were crucial to lead to this improvement.
And finally, in our next slide, we talk about net income. We see here a growth of $5,000,000 in the first quarter and $10,000,000 in the second quarter, still low considering financial expenses and also considering the current level of interest rates in Brazil. But at least we see a positive trend when compared to the numbers of the year before, and we also anticipate drops in interest rates in the future. Now speaking about Luisa Craig, I would like to mention the growth in our total revenue. Cartel Luiza, Luiza Card grew both in Magazine stores and also in other stores.
There was a larger number of activation of our cards, and we increased our card base. Direct consumer credit came decreased by 58% due to a more conservative credit policy. And a large part of that was also due to the growth of Losango, who is responsible for 5% of the growth in the physical stores. And then we have overdue payments. And usually, in the Q1, we see an upward trend.
But last year, we had a change from 10.4 to 11. So it was an increase of 70 basis points. And this year, in our long term indicator, there was a drop of 100 basis points from 11.7% to 12.7%, and this reflects a better mix of the portfolio and in keeping with a more conservative policy. And in terms of short term, we only have 3.9% coverage ratio. And this coverage ratio is also a reflection of the delinquency levels.
Finally, we speak about Luisa Craig net income. We have 2 charts. 1, we show net income and the other chart shows operating income. When we look at the operating income throughout 2015, there was a drop quarter on quarter, especially due to increases in delinquency levels. And now we see a change in that scenario.
The operating profit same level of the Q1 of 2015. In the same level of the Q1 of 2015, which was slightly higher, but we see a positive trend now. And I would also like to mention that there was an increase in the tax burden from 40% to 45% on this operating profit. And even with increases in unemployment and a very difficult economic landscape, Louisa Credit has been very resilient. It went from $170,000,000 profit in 2014 at the peak of its operation to $120,000,000 net income in early this year and now $50,000,000 in profit with a trend or with a positive trend and it was a positive delinquency profile.
ROE was close to 9%. These are my main financial highlights, and now I'd like to give the floor to Luis. Thank you, Roberto. And to conclude, we believe that even though the trend is very, very incipient and we see a slight recovery of the economy, and that's why we see a pickup in consumption. And I would also like to emphasize that lower exchange rate may reflect in higher consumption.
But despite all that, we will maintain our focus in all of the projects mentioned before and also in the continuation of our strategy because we want to become a digital company with physical stores and a lot of human warmth. With that, I conclude, and we go to the Mr. Guillerme Assist from Brazil Plural has the first question. Good morning, Fred. Good morning, Berto, and thank you very much for taking my question.
I have two questions. First, on the excellent e commerce performance of the company, and we've been monitoring the competition as well. But I would like to hear from you what is your opinion in terms of the outlook. There is a competitor which is going through some disruption, and there was a management turnover. They also had fraud problems, and they are trying to stand up again, even making changes in their capital structure.
And there is another competitor that had problems with suppliers. We've heard in the Q1 results, And I think that still affects the company. Therefore, what we see now is an environment where 2 of the main competitors or maybe 2 of your largest competitors had problems this half year. So I would just like to hear from you about what has been your approach considering all of those facts, whether you believe that now there is there is an easing in this pricing policy and whether this growth that you posted can be sustainable in the mid and long range. The market grew 5%, as you said, and you grew 30%.
Do you believe it's possible to maintain this growth? Or you think that competitive environment will become more challenging in the future? So this is my first question. And my second question, you also posted a very high gross margin. You explained some of your gains and that includes charging for shipping and handling and delivery and assembly.
And but you didn't talk much about the MP Doubling of some debt 120 basis points that you gained, what was the impact in the final numbers? Could you say that about 30% of sales comes from smart phones and IT products that were benefited by the program, Amipe du Be, so rounding up to 10% of the revenue. So this would cause an impact of 3 percentage points in your margins. I would just like to know whether this is a fair assumption and whether I'm right. And what is the outlook for this, Enipe doven?
And we look at the results last week, and they say that they expect to get an injunction for that as well. This is is there a trend that everybody will Thank you. I will try to answer your questions. And about your first question, as you know, I don't really like to talk about the competition. Everybody has their own particular situation.
I would rather speak about our own operation and also about something that I keep talking about, and that refers to the rationality of the management of companies. There used to be a situation in the market that persisted for some time that most competitors that operate online, they were operating at very low margins, and these margins were not enough to pay out for capital or to pay out for expenses. So they were growing, but at a cost, and that was a hard cost. And what I keep saying to you is that, that was a situation that in the long run could not be sustainable. Internet can help us a lot, but when shareholders invest in a share, they want to get dividends.
They want to make money. And this cannot happen if the operation is destroying the cash of the company. Therefore, what I see is that there is a trend all over the world and as well in Brazil. Even if you look at like Internet outside, everybody is being pressured to generate profit. People are saying, okay, we didn't have a good result in the last quarter.
So there is a concern all over the world because online operations have to post profits now. And to get them, they have to play the rules of the game, which is selling at the right price. You cannot provide free delivery or free shipping when that's not possible. So this is a trend that is here to stay. And so I hope that the market does not pursue a path of destroying their cash the way they were doing.
We've always favored rationality, and we are now benefiting from this model. But I would also like to highlight that we have a structural benefit in our e commerce operation because of our multichannel approach. The fact that our operation shares all the fixed costs that I described at the beginning in terms of logistics, IT and even back office. We do not have many CFOs or CEOs. We have just one for everything.
So to have lower margins, it's very favorable. It is a good competitive advantage and also this gives us some strategic leverage. And I am very comfortable and I'm sure that we will continue to grow above market levels. If you look at the past 5 years, we've been growing above market rates. The base of the first half of the year last year, it was low, but the base of the second half of the year for e commerce was higher.
So probably, I don't know whether we will be able to keep that 30% growth going forward, but that's what we will aim at. We are doing quite well. July was a good month as well, and we believe that it will be the same in the coming months. But I must emphasize that the basis of last year was better than this year. Well, physical stores, the basis last year was more favorable.
So we have to balance this growth. But in general, we will continue to grow. Now go ahead. I understand the fact that you don't want to talk about the competition. But I would like to understand how the dynamics of this market works.
You talked a lot about trends and trends abroad. But now if you try to see what's happening in Brazil, I can see a disruption in terms of the competitors in the first half of the year. But after this half year and by looking at your results and also looking at not every competitor with a magnifying lens, but you see that in the market as a whole, there is a trend towards lower pricing. Do you think is this sustainable? How do you see that?
Well, as I said, there is an irreversible trend towards becoming more rational. Competitors will no longer apply the low cost prices. They are not they can't afford to sell below cost. And I think this is a change that is here to stay. Maybe we will see some changes here and there in terms of a policy that the trend in the medium long range is irreversible.
So it's good not only for Magazini to be more rationale, but it's good for everyone. All of our competitors want to have sustainable and profitable companies. Now speaking about your second question, I will give the floor to Beto. We do not disclose information about our mix or market share. Therefore, I'm not going to elaborate further in terms of our share in telephony or the mix in general.
But what I can say to that end is that Brazil is a country that has one of the largest tax burdens in the world. We had last year, and there were still more increases from last year to this year. And I think managers have a fiduciary obligation to advocate in favor of shareholders and clients. And we are tackling that 2 ways, legally and institutionally. Legally, we are questioning increases that are not constitutional.
So we hire top legal offices and we also go to class entities. We have to fight absurd increases. And so we have to demand more balance increases. We had several tax increases this year, the end of peas and coffins from this temporary measure called DOBING. And there were also changes in mobile charges.
And there is no legal basis to support these increases. And that's why we are fighting hard against it. When there is some legal basis or technical basis to justify the increases, then it's okay. But it has to go through a series of approvals. We work with the best legal firms, And that's what we've been doing.
And particularly in that specific case, and we were successful at first. Several other companies were also successful in this first instance. I don't I'm not going to mention companies per se. I can only mention Abbini, which is an association. And for all the members of the association, we're benefited, and they are now applying these benefits to their operations.
I'm not going to disclose the amount. I did not do that before, and I'm not going to do it now. But what I wanted was just to explain the rationale behind that. But I must say that we are now exercising a more stringent control in our company. Guilherme.
I would also like to add that the margins that we published is comparable to the gross margin of 2015. Last year, there was no Peace OR COFINS and not even this year. So then we had to make adjustments in terms of the payroll. This increase of margin of 1.2 percentage points does not have any effect of PIS and COFINS, PIS and COFINS, which are excise taxes. And this is just a result of a better mix, shipping, assembly charges and our multichannel approach.
And as Fred said, we do not comment on the mix and the amounts related to PIS and COFINS. We didn't comment on that last year as well. Well, the outlook is favorable, as I said. And we also said that the opinion from our legal advisers, both in house and external, they are positive. I mean, there is a possibility that we will lose the injunction, but we are looking on the positive side.
Therefore, we will continue to monitor that very closely and also informing the market about it. Thank you. Bethune, Fred, I think that what I was trying to understand is whether I mean, today, you have an advantage that not all competitors have. So in a way, this helps to boost your margins. I did a quick price survey and you are charging for mobile phone, for a smartphone, the same thing that your competitor charges.
So this is just a very empirical survey that I did. Well, if you're not paying taxes, you get a better margin for that product. What is important for us to understand, I mean, as I see that you are very comfortable with your lawyers and you are certain that you will be able to keep the benefits, I think it would also be correct for me to say that this benefit should be extended to the other companies. And once you lose that advantage, that may be that may have an impact on your numbers in the future. I'm just trying to understand the situation as it is today.
There is a difference when you compare your company to other players in the market, and this may not be sustainable. So I would think that either everyone loses or everyone wins it, and this should have an impact on your margins. I would like to know whether this is the way you see it as well. Guilherme, adding to what I said before, the fact is, and as I said before, Magazines gained market share in all categories, white line, imaging, IT, furniture and also telephony. So we gained market share in all categories.
E commerce performed very well. And as you said it, our pricing policy is not different from the market policy. We still have other things that are currently being evaluated. We can't do anything until we have a final outcome of the process. But as we've been gaining market share in all categories, the performance in the first half of the year is due to the management approach of the company.
Still speaking about the first half of the year, we also posted decreases in expenses, and that's not related to tax benefits. I'm not familiar with all of the tax fees available in the market. There may be other benefits that are not available in other states like Rio, Bahia. There are competitors in the Northeast that have enormous benefit in certain taxes, even more significant than ICMS. It doesn't mean that in the future, we won't be able to have that as well.
Therefore, it's difficult to predict what can happen. Each retailer have their own tax planning and their accounting thesis. They have some advantages when compared to others. And I believe that the entire market will benefit from this benefit. And this is good for the entire market.
It's good to all consumers. And I honestly hope that all the other peers can also benefit from this and once they go through all of the legal proceedings. I cannot predict what will happen tomorrow, and I cannot answer that now. I cannot tell you what will happen to the market, but I honestly hope that everyone is able to legally host good results. Thank you very much.
Mrs. Maria Paola Quintuzzi from BB Investmentos has the next question. Good morning, everyone. Good morning, and thank you for getting my question. I would like to elaborate more on the growth of e commerce.
In your release, you said that you inaugurated a marketplace operation with good results this quarter. What we've seen, and I don't know whether it's just a coincidence, but the operations that already have a more evolved marketplace, they haven't been able to cause such high growth as you were able to do it. And the filtered tools are not maybe so efficient and maybe they still have to be adjusted. And the delivery terms increase as well. And this has been something mentioned by all retailers.
They want to try to reduce shipping time and maybe some products may take up to 60 days to be delivered today and assembly also changed. Do you believe that maybe part of the e commerce growth came from some kind of migration from other websites into Margaziluisa's website because other websites were not so efficient because of marketplace? And how are you dealing with the bottlenecks from that marketplace operation that now so much so that your e commerce operation will not be affected? So basically, this is what I had. Thank you.
Maria, this is Eduardo speaking. Thank you for your question. We believe that the marketplace strategy is just an additional strategy. It's complementary. We do not believe that we will see a deterioration in our sales growth because we are including partners in our sales base.
Once we maintain our competitive conditions and industry conditions, our multichannel strategy will add up, bring up more benefits. Therefore, we believe that we will continue to post a very sound growth in terms of sales of our own goods. Marketplace is just here to be an additional tool to add up to our growth, and it's here to add up to our business. And even it's important because it gives us more pricing options and more assortment. We do not think that marketplace will damage our sales.
I cannot tell you whether there is a migration coming from the competition or whether that is caused by that marketplace strategy, I cannot tell you that. But in our view, we just think that marketplace is just an add on. And how are you registering new players, this should ensure quality and service and delivery time of Magazine Iliza. As part of our strategy, we are always very concerned with our brand. We are very rigorous in choosing partners, both in terms of the documentation and the history of the company.
There are situations that may involve some hybrid products. We have the same products that our partners have and our conditions will not worsen because of that. And in other products where we do not have in house but the partner does, The longer terms sometimes affect the conversion of that sale or they may not be converted into sale, but it does not eliminate our sale. It does not take away sales from us. Therefore, we want to have in the marketplace responsible and reliable partners that can also cater to the needs of our clients.
These partners, we will have terms that will be competitive, maybe not as competitive as ours because of our own structure, but they have to be competitive. Now Eduardo, do you want to grow your marketplace operation? At what pace? Do you have any target? We cannot give you any specific target.
We just concluded our first phase, which is the stabilization of the platform. We're already operating. The site is totally integrated. We already have our e commerce platform. And now, as indicated in our release, we will enter the expansion phase.
We want to do everything in a very consistent and sound way to get to some sellers by the end of the year. Thank you, Eduardo. Ms. Iman Iskar from Goldman Sachs has the next question. Good morning and thank you and congratulations for your results.
I have 3 very quick questions. First, still talking about Marketplace, I would like to understand whether your focus would be more in establishing partnerships with large chains or whether you're also looking at smaller companies that maybe even operate under the simplest regime or the simpler regime that may also have competitive prices as we see. Now some companies are trying to engage in partnerships with just large retailers that do not have their own operations or maybe they have their own operations, but they do not have such large traffic. And we see some other marketplace companies that are trying to capture midsized companies. Therefore, my question is in terms of the focus of the commercial team.
Also, could you please elaborate on the fee structure of the company for those sellers? What is the rate that you will charge and whether you are also thinking about offering additional services that can also be integrated in the sellers' offerings. And my third question is that I want to understand what you think about investment needs, not only this year, but also in the mid range. Once again, we see some different strategies from different companies. Some companies favor an asset light model, whereas others favor a model whereby they are becoming more verticalized and they are investing in IT platforms and in assets in the last mile delivery?
So these are my 2 questions. Thank you very much. Irma, and thank you very much for your questions. I will try to answer all of them. And if need be, my colleague will add up.
In terms of our strategic focus, we do not want to exclude anyone from marketplace, but the focus, in my view, and I think the market of the future comes from the small ones, from the small companies. It's very difficult to convince a competitor to place products in your platform. Several have tried to place products in other existing platforms, and we've never accepted because, obviously, everyone wants to be predominant in this market. In my view, the correct strategic approach is to focus on small companies. There are thousands of retailers that are already selling online in Brazil.
They are becoming digital. And the focus of Magasin Luisa will be directly in this market. I think we will see a large increase in the number of even offline companies that will migrate to the online market in the future. They are now initiating to operate online. And we were offline and we migrated to online.
We know that there is a conversion in this process. So we want to convey our experience and our knowledge to these smaller companies. And we can certainly help these smaller companies to enter marketplace. Even though we do not want to exclude anyone, our focus is on the small companies. And Luisa Tragiano was chosen as our advertising girl.
She for years, she's been talking to micro entrepreneurs. She gives advertiser for Magazine I believe that we are very excited, and she is also very excited with this marketplace project. When you talk about fees, fee is something very complex. That's why it's very difficult for me to give you a very objective answer. It depends on the category, and it also depends on the service level that you expect to get from marketplace.
What we are trying to do is that, first of all, when we put together our marketplace project, we were very careful. We tried to reduce all the costs along the process because we know as a retailer how difficult it is to make money online. We wanted our seller not to pay a very expensive fee. And to that end, we did all we could to be more competitive and very competitive visavis the market offering lower fees without compromising our margins. As with e commerce marketplace has to bear profit because it has a greater potential.
We will try to be more competitive, lower fees when compared to the rest of the market. We are we already have a flexible fee approach. The seller can choose a simpler fee, can be 5%, 6% depending on the category, up to 15% if they choose to include financing in 10 installments, non interest bearing. If he wants media, we can acquire media for him. And in the future, down the line, we may also talk about fulfillment.
We can use our stores. They could deliver the goods to our stores and the consumers will go and pick it up in our stores. So we want to be competitive with a lot of flexibility. This is a strategy of marketplace. And to address your last question and speaking about CapEx, what we see now in this quarter is that the strategy is that in the future, great part of our CapEx will be geared to logistics and IT.
When we talk about logistics, we are talking about technology applied to logistics. Basically, the company will invest in platforms, automation and to deploy all of our digital projects. Most of these projects, the bulk of the projects have great focus on technology. The trend in the future is that the business will be more asset light. But we will continue to open stores.
When we continue opening stores, we still have that discipline of opening stores with a very low cost per square meter strategically located. We believe that not only the store is a point of sale, but it's also a distribution. It's a distribution of sight and the store can give us a competitive advantage even when you look at e commerce because we can buy online and have store pickup. 50% of the stores will have store pickup until the end of the by the end of this year. More than 50% of our stores will be operating with store pickup approach.
And it's important that we have the physical stores. But to give you a more objective answer, the answer is yes. So the company tends to be more asset light. Thank you very much. Mr.
Juan Pedro Ribeiro from Banco Vodoro Urgentina has the next question. Good morning. In fact, I'm Louis Centro from Vodorenxin. I would like you to speak a bit more about expenses. We just noticed a very good evolution in those half year with all of the initiatives that you implemented with your partners.
So to that end, what margins can be expected, mostly in terms of additional gains? Do you think we could continue to expect expenses to reach nominal levels close to what you posted in previous quarters until this is annualized or used to see further margin improvements in the future. So could you elaborate more on that? And what could we expect in the future in terms of additional expenses cuts? Luis.
Well, we cannot give you any expectations about expense evolution. But the matrix management of expenses is working quite well. We are very disciplined in monitoring expenses and being accountable. All of package managers and all BU managers in the Southeast, South, in e commerce and everything else, they've been very disciplined. And so this matrix management of expenses has proven to work well.
And every month, we stop to evaluate all of the expenses. We talk about all of our plans of action. We correct all the possible deviations, and we evaluate not only looking at the average, but we look at the stores that are performing above average and stores that are not performing that well, we try to improve productivity in all of our stores and improve our expense approach. But what I can say is that we will continue to focus on that. We are now operating with 0 based budget, and we are very much in keeping with that new plan, with that expectation.
And we will continue to work to have further improvements and improve efficiency. And in the year as a whole, we will decrease expenses. And also, our objective is to have nominal and percentage reductions in expenses. Now out of the total expenses, I think those that were further reduced, I think I can say that we've we had gains in productivity. We increased sales per sales rep.
We deployed VBB. We had adjustments in our administrative expenses and also distribution center. There are several projects in the company to digitalize the physical stores. As we said, more than half in more than half of our stores, our sales reps are serving customers through the mobile phone. In the past, we used to serve customers in 40 minutes.
Now that time will shorten to 5 minutes, while at the same time, we are not compromising our service level. We changed our marketing strategy. Our marketing is now more regionally focused. We are also tackling social media. We are reducing marketing expenses.
Our logistics is quite efficient. It's very much integrated between e commerce and brick and mortar stores, but there are still many projects in our logistics approach to enhance synergies, lowering the cost of logistics. One approach is the store pickup program, right? At first, this new approach has proven to be very successful. We are renegotiating rental contracts, logistics contracts and all of the other expenses that are part of that matrix management of expenses like Federico said, rental, credit card, power bill, turnover, etcetera, etcetera.
So without giving any guidance about our expense expectation in nominal terms, I can say that we are firmly focused on continuing on this process of efficiency gains without compromising sales and service, while at the same time, we are gaining more efficiencies because of the digitalization of physical stores. Thank you, Beto, very much. Thank you, Luis. We now conclude our Q and A session. I would like to give the floor back to Mr.
Federico Dragano for his final remarks. I would just like to thank all of you for participating in this call. Thank you, and have a very good day. Margazini Luiza's conference call is now concluded. I would like to thank you very much for participating and have a good day.