Good morning and thank you for waiting. Welcome to Magazena Ruizos conference call to discuss the Q1 of 2016 results. We would like to inform you that this event is being recorded and all participants will be in listen only mode during the company's presentation. Afterwards, we will have a question and answer session when further instructions for you to participate will be given. For a week.
We would like to remind you that forward looking statements are quite being made during this call related to Magazino Luisa's business perspectives, operating and financial projections and targets, our beliefs and assumptions of the company's management as well as information currently available. Forward looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the future performance of Magazione Luisa and may lead to results that differ materially from those expressed in these forward looking statements. In order to open this call, we would like to give the floor to Mr.
Frederico Trajanu's CEO, who will make the presentation. Mr. Trajanu, you may proceed. Good morning, everyone. Thank you for participating in our call.
I'm here with all the members of the in our call. I'm here with all the members of the Executive Board in order to talk about the results of the Q1 of 2016. I would like to start by saying that in spite of all the difficulties due to the difficult political economic scenario of our country, McCarthy, Iloise, because of a lot of focus on other part of our team was able to deliver good results practically in all key indicators in the Q1. I was thought with sales, we were able to have a positive growth in sales in spite of the drop in durables for the market. We didn't have the data from March yet.
And we were able in spite of this scenario to gain market in this quarter, thanks to the very detailed work that we did since last year, identify regional opportunities and regions and for each one of the categories of Magazine Luisa and of course an effort made by our commercial people in order to tap into these opportunities. And the major the highlight is e commerce. We grew 27.8% and the market was stagnant during this period according to the data published. And the results had already been very great in the last quarter. And this shows how right our multichannel strategy is to transform our company into a digital company.
As a final result of the company improved with participation in this gain of e commerce, we have good results both at the top line and the top line and bottom line of the company. Our e commerce is the only one that is profitable in the market and we were able to evidence this in the quarter. As I said at the last call that we held about the last quarter of 2015, I said that we were going to gain market share without hindering our profitability. So we thought there was a possibility to do that and this is exactly what we delivered, the gross margin growth of 2.1 visavisame period last year. But the base of last year, if we look at all the quarters, the best margin was in the Q1 in 2015.
So we had a reasonably good basis in the Q1 of 2015. And in spite of that, we show that we are able to increase sales and gain share without necessarily having a rational pricing policy that happens mainly in the e commerce companies, but also in brick and mortar chain. So you don't have to weigh profitability to gain share. In expenses, we were able to reap the fruit that we are still waiting from 2 major projects that we had with the Galiase consultancy with VTB and GMB. And we made a big effort, especially in all the packages of the company administrative and and also expenses with credit cards and freight and a whole series of expenses that we are working on, very much focused on optimizing our processes and our contracts and in spite of an inflation year like we had last year that impacts contracts we had and expense dilution, SG and A dropped 3.2% visavislast year in nominal terms.
And vis a credi, after 2 quarters of more difficulties in terms of results because of some adjustments in products and also credit assignment. We bounced back and we are balanced for a year like this one. We had a good result of Luisa currently in the Q1 still lower than the Q1 last year. This scenario continues to be challenging and we were able to decrease our debt by $191,000,000 this year vis a vis the Q1 of last year. We have net adjusted EBITDA ratio of 1.5 times, which is reasonably comfortable to face the turbulences that we might have in the future.
And to finalize, I would like to give the floor to Roberto Bendisimo, Berence that our view of the political economic scenario continues to be the same for the consumer market. But we believe that operating in a market that is a market of over BRL100 1,000,000,000 with less than 10% share, we believe that there is a lot of room for us to consolidate this market and with the balanced management in all retail fundamentals and continuing our successful implementation of digital strategy, we have room to gain share preserving our profitability. With that, I add my introduction and give the floor to Roberto Delicio. Good morning, everyone. Okay, let's go to our presentation on Page 2, our highlights.
Federico has already talked about our growth in sales about 3% to 2,700,000 dollars improvement in relation to the last few quarters. Growth of e commerce, 22% share, which is a relevant share in the total. Our gross margin that increased by 2 percentage points, highlighting here the better sales mix. And this quarter we sold more smartphones and less of the category that have a lower margin such as air conditioning that in January was not so warm and the sales of air conditioning were not as high as last year. That we started in April last year, we started to charge for that.
We had already told you that. So this is where we were able to increase our margin by charging for assembly and freight for instance and so on and so forth and improvement in the wholesale scenario both online and offline, maybe call us as well, an increase in margin with a more rational price scenario as well. Talking about the EBITDA line, we grew to 144,000,000 adjusted EBITDA 7.2%, one of our best margins and non recurring expenses of $19,000,000 they were just one off expenses non recurring and they were basically in January February only. Net income of 5,000,000 dollars net adjusted net income of $18,000,000 talking about working capital, we had an improvement in our inventory and it was positive even regarding our gross margin. And we were able to increase our suppliers' account.
So with a positive impact on working capital, we reduced our net debt compared to sell practically R200 $1,000,000 reducing our net debt and we increased our cash. The Bruta credit grew inside Bruta stores 5% and outside as well. And this shows the quality of our client base and the activation of our clients. On the last page, Page 3, we show you the evolution of the number of stores, 27 new stores, more than in the Q1 of 2015, we invested 23,000,000 dollars lower than the Q1 of 'fifteen, but it was mostly in technology versus our major focus currently. And 25% of our stores are maturing still.
On the notes page, Page 4, we show the quarterly evolution of gross revenue. It is clear that last year we saw a drop in sales in all quarters. So was the Q1 of growth in sales, dollars 10,700,000,000 in e commerce, a higher growth of all the last quarters, 19%, 28% now from over $600,000,000 and same store sales growth stable with the growth of e commerce and better than we had in the last few quarters as well. On the next page, we show the evolution of gross profit. One important detail here with the end of the tax benefit, we had own assets as a line of taxes.
And now for comparison effect, this is under operating expenses. The gross margin of last year goes out a bit and in the same proportion expenses. And here we show in the gross profit, 30.2 percent of gross margin, better than the Q1 last year, more or less in line with the margin that we had around the middle of last year and growth of gross profit of about 7%. Now the operating expenses side, expenses were selling, went down, G and A also dropped. In spite of the growth in sales, we were able to reduce our SG and A.
And we'll be increasing the LMSO's tax and the end will fall of the tax benefit. In the others line here, we have minus nonrecurrent expenses. And at the end, we saw a dilution of SG and A. Here we show the evolution quarter on quarter also about the equity income. The Q1 was better than the last quarter of last year, recovering the results of Riza Crete.
On the next page, we show EBITDA net of nonrecurring expenses. You can see an evolution to $163,000,000 in the Q1 this year, reaching 7.2% of EBITDA margin, BRL26 million by gross margin and the reduction of SG and A. On the lower part, we have the EBITDA performance vis a vis last year, 2.1 gross margin, 0.4 in selling expenses, 0.2 in G and A. Equity income slightly lower than last year. Loan loss provision, other expenses.
And we have on the next page the financial results, the financial results, slight increase, but lower than the variation of the CDI in the period. Also impacted a little by the growth in sales as the interest went up with a card anticipation. And in the other the other expenses more related to the debt service they dropped because our net debt is lower than last year. Net debt and our leverage of 1.6 as you can see here. On the lower part, the working capital improving as well.
I had already mentioned the supplier's account, but we also improved the receivables account. And going back to the net income quarter on quarter, dollars 5,000,000 this quarter and net of the nonrecurring expenses $18,000,000 on Page 9, Luisa Credit revenues going up 2% on Louisa Card inside and outside the stores, but we reduced the DCC revenues as also personal loans as part of our strategy of lease accretive to be more conservative and focus on the Liza card. Very much because of the reduction of credit and the better quality of the portfolio, more concentrated on Visa card and also reflected here, you can see that Visa Clarge had a performance better than the Q2 last year. Now I would like to give the floor back to Federico. Thank you.
I will go straight to the last slide. Re forcing our expectations for 2016 and the main focus of our work for this year, accelerating the implementation of all the digital projects. We have over 20 digital projects with the objective of transforming a company from traditional retail to a digital company with human in store picking and many other projects that we are about to launch. We already have a pilot continuing participating in the market in a sustainable way, increasing profitability, focus on reducing operating expenses, implementing the projects, being conservative in credit assignment and with the product mix of Liza Clergy as Roberto mentioned, continuing our efforts to improve cash generation and protecting our cash in the year of crisis, something that we implemented in the Q1 and we will continue and lastly maintain the company among the best companies to work for in Brazil. Now I would like to open for questions from analysts.
Thank you very much. Now we will start the Q and A session for investors and analysts only. Questions asked over the Internet will be answered later by e mail and we will be available to clarify any doubts that you still have. Our first question comes from Mr. Marcelo Renais from Deutsche Bank.
Good morning, everyone. Congratulations for the results. My first question has to do with sales performance, both in brick and mortar stores and e commerce. It seems to me that you're gaining additional market share now and the sales performance is very clear vis a vis your competition. Is it because of some specific region?
Is there a region where you are getting more market share because of other stores being closed? And what is your expectation for e commerce more specifically because your performance is very much without outside the curve vis a vis your competitors in this quarter? Thank you for the question. Good morning, Marcelo. The Q1 of this year, as I said during the presentation, the results were due to the work done by our 2 teams in brick and mortar stores and e commerce.
We found very good potential in different regions, I would say every region in all categories. And we worked very strongly in order to tap into these local opportunities that we identified by our project that is called focus on sales. So Magadine Elisa gains share consistently for more than 4 years ever since our IPO. We have been growing practically every year even last year when we saw some reduction in our sales vis a vis the previous year. In 2014, there was the World Cup and we had an extraordinary gain of share.
So the comparison between 2015 2014 was very difficult because the buy was very high. And now comparing to 2015, it is more normal, let's say. But ever since the beginning of this year, since the IPO, we have been gaining share since the Q1 that we published our results. So this year, we are gaining share in brick and mortar stores in practically all regions, highlighting the South and the Northeast. We have been gaining more share in these two regions because of consolidation of the stores and also because of competition, specifically in each one of these regions and also in the interior of Sao Paulo and other regions as well.
More specifically regarding e commerce, this is the 2nd quarter that we have growth higher than the market and the basis from 2014 to 2015, just reminding you, was very difficult. And it has to do with what I have been seeing in the last few calls. We feel that there is a move of rationalization of prices in e commerce in Brazil because many players sold at prices that were below the cost price, which is not sustainable in the long run. And there's we believe that, of course, investors want to have return on their capital invested. And we see now that there is a trend in the market of more rational behavior visavis prices.
And our cost base is shared and we have multi channel operations. And it is also of course due to a lot of hard work done by our e commerce people in pricing management, etcetera. Fred, when you look to the next quarters and you think about your sales mix that you will have, Could we imagine different categories evolving in a different fashion? What category do you believe will be the one delivering the best performance and which categories will not have a very good performance, categories in general, which ones will have a better performance and the opposite as well. Well, a category that shows an interesting growth in spite of the economy is mobile telephony.
We've gained a higher participation in the overall sales, both in e commerce and brick and mortar stores. This is a product that everybody wants to have. You saw all the revolution that the blocking of the WhatsApp caused. So you have all the different age brackets very interested in having a mobile phone, cellular phone. And this product has a short lifespan differently from a refrigerator for instance.
Many people trade up their mobile phones every year And Fabrice will add also Fabrizio's RVP. Good morning. This is Fabrizio. As Fred said, we identified each and every category we studied and smartphones are the category, white line, very stable and we have been working on that and it was practically 0 today regarding growth. TV is another category.
Last year, it felt quite a lot. To TV or image. And another category is furniture. Furniture grew in the Q1 and we will continue to work to increase growth. But I would say smartphones, white line, image and furniture.
In this order, Fabrizio? Yes, in this order. Good morning. Thank you for the questions. Regarding your gross margin, you mentioned 3 reasons that led to this increase, better CME charging for freight, better operating efficiency.
And could you give us more details about the 3 factors? Was it more due to one of the factors? Or was it the same participation of the three factors in this improvement? Regarding e commerce, I would like to go back to the growth piece. Could you please tell us in detail what is the reason for this growth?
Are you being able to convert more sales? What is the specific channel? Is it the mobile phone? Is it traditional sales via desktop? So maybe you could give us more details about how are you converting?
Thank you very much. Good morning. Thank you for the question. About margins that Roberto said during his explanation, we operated at the level of profitability in the Q1 of 2016. That was similar to the one in the 2 last quarter the second and the third quarters of last year.
So the level of margins and profitability that we had last year, the second and the third quarter. And there isn't one single factor. We did a lot of work in all the categories and all the stores and e commerce also improving our margins also because of the fact that the market is more rational. But I can tell you the increase in telephony and the mix is the main reason. We had a very big heat wave last year and this year it was not the case and the drop in white line and the increase in smartphones was very big.
And it was the factor that contributed the most to this increase in margin that we had the same level last year in the second and the third quarters. Now regarding e commerce, I'm going to give the floor to Fabrice. Regarding e commerce, our expectation to continue to grow higher than the market and gaining market share in a sustainable fashion, such as is the policy of the company and getting into more details about sales of the Q1. Our sales are based on a sum of factors, ticket conversions and calls that we have gained in all three variables, increase in calls, conversion and average ticket. Regarding the devices, the app has been contributing to the growth in hits and conversion.
We had already identified that the migration of heat was into conversion was becoming very fast and we have to offer an app that could have a conversion equal or similar to the desktop. So we launched the app at the end of last year with personalization and low friction with a higher conversion, which is what we expected. So this migration from desktop to mobile devices is giving a contribution to our sales in general? Thank you. Mr.
Giladmi Aziz from BrazilPL. Good morning, everyone. Thank you for the question. I would like to go back to gross margin, Fred. You made it clear that the main factor that has been driving your margin And we know that there is the impact of your charging for collection, you're charging for assembly and freight.
Could you quantify because year on year, we saw an increase of BIP210 BIPs. Of these BIP210 BIPs, what came from freight and assembly? How much came from your different mix? And still talking about margin. We know that your main competitor is more aggressive in brick and mortar stores.
How do you see that? Because looking at the results, it seems to me that you were not you didn't have to be aggressive in prices because of your competitor, your main competitor. So have you noticed a higher degree of aggressiveness on the part of the other competitors or maybe more specifically your main competitor? And how are you reacting to this maintaining such a strong growth with a major margin gain. So how can you achieve that?
Guilherme, good morning. Thank you for the question. I will divide the answer into 2. The first one regarding the composition of the margin gain. And in fact, there is nothing new to be added here.
All the factors have contributed and I'm not going to talk about all of them. But I will reinforce that last year, the lowest margin last year was in the Q1 because of high participation of white line. Driven by the heat wave that we had last year. So many air conditioning devices and fans, etcetera. But all the others, freight and assembly, rationalization of the e commerce market that as a consequence improved our margin, all of them gave a major contribution, not as big as the mix, but a major contribution to this growth in margin.
And the second part of your question, when we established the purpose of gaining share without losing profitability, You see that the market is not concentrated yet. You have many small and medium sized players, 70% in the main categories. And we feel that these companies felt the crisis more than the companies that are more capitalized and that is structured. And they suffered with shortage of products and many companies are closing stores. We have been reading quite a lot of the news about companies that are closing stores and we are increasing our number of stores.
We opened 27, 28 new stores visavis the Q1 of last year, which means that we have been able to deal very well with this competitive scenario. The crisis is rather big and it affects everybody, of course, but it affects more those who are not so well prepared. So I don't see any need to reduce margin, to gain market share or to protect ourselves because of the scenario that I have just described. Regarding the cost reduction that you achieved in spite of the increase in the tax burden over your payroll, I would like to understand your process of GBB with the Galliardi consultancy. Do you think there is more fat to be trimmed with the 0 based budget process.
We still see weak sales and inflation is still high. So what could we expect regarding your operating leverage that you showed for the Q1? Robert will answer your question. Good morning, Guilherme. Over last year, we showed a very consistent work done in expenses.
In this quarter, we were able to once again reduce expenses. We reduced our marketing expenses even. So it was a lot of work that we did to reduce our expenses without jeopardizing our sales. So you have to plan all this very carefully. And we started last year, GDV we started last year, we started in September, October.
So our whole budget was drafted with this new methodology with 0 based budget. And we have to adjust every single month in order to comply with the budget that we have proposed. We have the potential of further reducing the company's expenses. We are also dealing with all the contracts and freight and rentals, etcetera. So we are on the right track in order to continue to deliver growth in our sales and a very strict control on our expenses, focus on all the opportunities.
Marketing, rentals and freight and all the expense lines of the company, we are addressing all of them consistently. Tobias Stingioni from Credit Suisse. Good morning. Thank you for the question, but my question has already been answered. Congratulations.
Good morning, everyone. Congratulations for the excellent results. I have two questions. And that's your short term debt. Are you comfortable with your debt level?
As you have a multichannel strategy, your margins are different between e commerce and brick and mortar stores, of course. Could you describe this in detail please? Well, the call was very bad and we were not able to understand your questions. The quality of the call was very bad. So we ask you to please repeat your question.
The debt profile, there was an increase in your debt in the short run, how do you see that for the next to raise funds? Yes. Are you going to the market to raise funds? You have synergies between e commerce and brick and mortar stores. The improvement in your margin, was it because of the e commerce or was it because of your brick and mortar stores?
I will answer the first part of your question regarding the debt. So at the end of 2014 beginning of 20 15. We worked very hard to extend our debt profile. Last year, we were able to reduce our net debt in nominal terms. This year, we continue with this reduction in the Q1.
Our net debt was much lower than the Q1 of last year and our cash position is better. On the other hand, in this quarter, we had just a few maturities And we this year, we do not have a major concentration of concentration of maturities because we have rolled over our debt. We have some maturities more toward the end of the year. Our cash position is very comfortable and we have enough time to negotiate and continue to roll over our debt. Of course, the costs in the market are higher now and this is very clear based on the recent issuances of the branches, etcetera, and the cost of money went up for everybody.
As we have a small part that should be refinanced this year, This will not be relevant in the short and medium term of our debt. Because this quarter was even lower than the cost of the same quarter last year with the anticipation of credit cards coming from higher sales on credit cards. So this is the way we will continue to deal with our debt. We will continue to generate cash and working to improve our working capital to generate cash and refinancing debt in the best way possible, having a comfortable position working to maintain this level of comfort for the company regarding margins. Well, the answer is the same that I have already given to other questions.
Once again, the main factor was the mix, but all the other components were important. They played an important role to allow us to deliver these results. So there's nothing to add. Thank you. Thank you, everybody.
We thank all of you who have participated in our conference call. Thank you very much. Magazine Luisa's conference call about results of the Q1 of 2016 is closed. You may disconnect your lines now and we wish you all a very good day.