Good morning and thank you for waiting. Welcome to Magazine and Luisa's conference call regarding the results for the Q2 of 2015. 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. After that, we will initiate a Q and A session when further instructions will be provided. After it is concluded for a period of 1 week.
Before proceeding, let me mention that any forward looking statements that may be made during this call related to the business outlook of Magazini Luisa projections and financial and operating projections are based on the beliefs and assumptions of the company's management as well as information currently available to the company. Future considerations are no guarantee of performance as they involve risks, uncertainties and assumptions that may or may not occur because they refer to future events. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Magazimero Luiza and so could result to could cause results to differ materially from those expressed in such forward looking statements. To open this conference call, I would like to give the floor to Mr. Marcelo Silva, CEO.
Mr. Marcelo Silva, you may begin. Good morning, everyone, and thank you for participating in this conference call for the results of the Q2 of 2015. I would like to begin as we always do, Referring to the highlights of the Q2 of 2015, we can see that Magazini is still consistently increasing its market share. When we look at the most recently survey by the Commerce Federation, we then realized that even though there has been a slowdown in the economy, we are still gaining market share.
Net sales were down by 10%. We had a total of RMB2.1 billion in the second half in the second quarter. And certainly, this reduction is mostly impacted once we draw a comparison with the Q2 of 2014 when we had the World Cup and we experienced a sales boom of television sets. This effect coming from the TV set department of about 52% is one of the main factors that impacted our comparison with this current quarter. And certainly, the macroeconomic landscape is very challenging.
And this is also one of the main factors that led to a sales reduction. Even then, e commerce continues to grow. In terms of last year, we had 15.7 share and now we are experiencing 17% market share coming from e commerce without the virtual stores. The other point refers to operating expenses that were down by 0.9%. And this is certainly due to lower sales volume and some variable expenses.
But if we look at the Q2 in terms of nominal value, they are lower than the previous year, but we are working hard to reduce our selling expenses and admin expenses. Our EBITDA was up by 3%, reaching 6% in the Q2, especially due to gains in our gross margin. And Roberto will elaborate more on that part. We had gains in our gross margin and also we experienced an improvement in equity income. All of the companies that we have at stake on like Luiza Cregi, Itau Unibanco and Luiza Sanc, we had a very good performance in these areas and we were able to reach 20,000,000 in equity income in the Q2.
And finally, net income. Our net income is not very significant, but even then, it was a positive figure of BRL3 1,000,000. So these are the main highlights. And now I would like to give the floor to our CFO, Roberto, who will give us more details on the figures for this quarter. Good morning, everyone.
First of all, on Page 3, we show the evolution of the stores. In the last 12 months, we opened 26 stores. This year, there were 6 stores and we are already investing to open more stores in the second half of the year, 3rd and 4th quarters. When we look at the investment chart, we also see that I mean, in the second quarter, we invested $37,000,000 and in the first half of the year $37,000,000 And when we compare that to last year, we invested more in new stores and less in remodeling. And so our And now in terms of same store sales, we are already resuming the levels that we anticipated for the Northeast in particular.
And the focus of our investments now is more in terms of new stores rather than remodeling. But we're still investing heavily in logistics and IT. Now when we look at the average age of the stores, we have more than 40% of our stores still approaching maturity in the process of maturity, but still growing along the lines of same store sales growth. On Page 4, I show you the consolidated gross revenue in the Q2. We had a reduction in our gross margin of 11.3 percent.
And excluding the World Cup effect, we were able to grow about 16%. The image category grew a lot. And when we look at same stores, it was 10.8 based on 24.5 of last year where the volume was higher. And the same thing applies to Internet. It was stable, but the base had already grew 44%.
And it grew a lot because of the media for the World Cup and the all of the campaigns we had last year. So in summary, we were able to gain market share. We grew despite the effect of the World Cup and we had a very strong comparison base. On Page 5, we show you the gross revenue evolution. And in fact, the gross margin was able to grow a lot this quarter when compared to the same period of last year.
The main factor that explains this evolution is the fact that the image category has one of the lowest gross margins of the company and it was down by more than 50%. Therefore, this effect alone would be able to justify increases in the gross margin. And the IT category also has a low margin and sales are coming down. But the positive side is that other categories are increasing a lot and we also had a special increase in the furniture department. So early this year, we can see that this category is performing better than the year before.
In terms of our gross margin as well in terms of the mix, we started to charge for freight and assembly in the stores of the South, Southeast and the Midwest. We're already doing that in the Northeast. We increased our stake in the service revenue in terms of insurance and extended warranties. And we were also able to have good negotiations with our suppliers. I think that we already mentioned in the Q1 that we were slightly above the objective for the Q1, but we wanted to take opportunities to purchase before increases in the foreign exchange, the increases in the dollar and the exchange variation.
And therefore, we were able to have better gross margins in that first part of the year. When we look at equity income, things are going quite well, both for Luisa Credit and Luisa Cite. Luisa Credit returns above 25% and Luisa Cite still growing significantly with returns above 40%. In the next page, we talked about EBITDA. Gross margin was 6%, which was very stable when compared to the same quarter of last year, mainly due to gross margin gains.
But Marcelo already said that we were able to reduce expenses in nominal terms, but there was a slight increase in other expenses, but we were able to offset that increase in selling expenses with the increase in the gross margin. So the EBITDA margin was able to grow from 5.7% to 6%. Next page, we refer to our financial results. Financial expenses went up from $74,000,000 to $98,000,000 basically due to repayment of receivables from credit cards and also due to 28% higher CDI when compared to the same period of last year. We in terms of working capital, we had it rose 6.4%.
We had that effect in the Q1. In the Q2, the working capital will still be slightly above our target and higher than last year, mostly concentrated in the relationship with also our suppliers. We were able to make some reductions, some in March and then in June, but we are not yet reaching our target in the second half of the year, the working capital will be better because of the seasonality in the retail industry, which is different when compared to the Q1. And I think we will be able to improve inventory turnover and also improve our relationship with our vendors. We were already able to increase the average purchasing time and our we are buying last in last year.
So our accounts receivable were down. But once they start increasing, the situation will change. And then working capital will then go back to normal levels. Now in terms of net debt, it was up by 0.3 times EBITDA and this was basically due to net debt and working capital fact that EBITDA was impacted by higher financial expenses and the results are lower when compared to that of last year. And still in the next page moving to the next page, we talked about the performance of Luisa Credit.
And once again, this has been the highlight of our operation. We are able to grow Luisa Credit's stake, especially through the credit card. Well, a lower stake with DCC, but a higher participation of credit cards. Our long term outlook is also better. Credit card brings about more loyalty, more loyal customers.
We were able to grow the base. We grew the portfolio. Eloisa credit revenues also grew. The delinquency levels are stable and provision for loan losses over the revenues and the portfolios are also stable. Provisions are stable, even considering a very challenging macroeconomic landscape.
This is a very good example of our conservative position or the conservative position that we've been adopting. And that's why we were able to grow revenues and to maintain our provisions, while at the same time, we maintain good results. Even with increases in CDI, we were able to have a good performance. Now I'll give the floor back to Marcelo. I would like to conclude our presentation.
And then I will be able we will be able to take your questions. But let me look forward in what we expect for the rest of this year. We still anticipate a very challenging landscape. So we think that the situation will remain the same the first and second half of the years. And then we are growing and we are still growing above market average.
In terms of the Northeast stores, we are coming to the final phase of consolidation. And I think that by next year, everything will be fully consolidated and very much in keeping with our Southeast operations. We will continue to maintain our commercial competitiveness and media visibility. We just deliver the award of this condominium is mine, and we will continue to pursue further media visibility. We are also rationalizing costs.
This is a very significant process. The results will not come immediately, but we are experiencing good results month after month. We weren't able to perform better because of the negative growth of sales, but we will still focus on the profitability of our operation. Now referring to the multichannel strategy, if we look back in time, our strategic planning envisioned 5 years in 2010. And by 2010, we talked about growth in the Northeast.
We consolidated stores. We also had a very successful integration of all the stores. And this year, in our strategic planning, we even gave it a name internally, which is Embrace the New. We wanted to go from a company that was seen as a traditional retail company into a digital company. Our website is already 14 years old and we have been experiencing a significant growth in terms of our sales.
But this transformation of the company from a traditional retail company into a digital company that has over 7 74 physical stores with a lot of human warmth. It's represented by several initiatives because we constantly focus on the multichannel approach of our business. And we see that more and more our clients are embracing the multichannel approach and they are more loyal. These multichannel clients buy more, they are more loyal. We have returned purchases from these customers.
And we are even reflecting these changes in our marketing campaigns. We are also doing a lot of work in our physical stores, integrating the online business with the brick and mortar stores. We just introduced mobile sales in our stores and also the mobile assembler. The assembly is automated in our customer service as well. And this integration between the website and the stores is performing well.
Therefore, this is our main strategy for the next coming years to promote this integration and this transformation of the company moving from a traditional rail retail company into a digital company. And we are present in 16 states of the country. And this is a company where the warmth of the people is very crucial. So in conclusion, this concludes my presentation. And now we will be available to take questions from investors and analysts.
In addition to Roberto, we have Isabel from Administration and Control. We have our e commerce officer. We have another director from Luisa Credit, our controller. Almost all of the officers are here, except for those that are out on vacation. But we are all here available to answer your questions.
Thank you very much. Now we will initiate the Q and A session only for analysts and investors. Questions coming over the web will be answered later on by e mail, but we will be available to clarify for the questions. Our first question comes from Fabio Monteiro from BTG Pactual. Good morning, everyone.
I would like to understand 2 more things. 1 refers to e commerce. I just want to I mean, I know that you do not release the e commerce margin separately, but I just want to know whether there was any margin deterioration vis a vis what has been presented because I understand that in some quarters, and I think it was ever since the Christmas season, you have been practicing a more rational price strategy and you grew slightly lower than the market in e commerce, even though you had a very good margin. But on the margin side, I just want to know how things are. Fabio, it's always a pleasure to see that you are participating in our conference call.
This is a very good question. Well, indeed, we in this half of the year, we decided to pursue a more rational approach. There has been a lot of competition in the WAP in Brazil, e commerce, and that's why we experienced a lower growth and particularly due to two reasons. First, the very challenging economic environment and that's why websites are in general are facing a lot of competitiveness. But even though though there was a drop of about 24%, that didn't hurt our margins.
And because of that, the overall margins of magazine did not come down substantially. But we are trying to be more and more competitive, but not to the extent I mean, every company has its own policy. And our policy now is to be more moderate in the practice of having competitive prices. So if we wanted to go deeper and do that, we would have losses in our margins, which did not happen. Thank you, Marcelo.
I have a second question. And that question refers to your consolidated margin or retail margin indeed. Last year, we had we experienced a different effect in the image sector. And this year, we experienced a reverse. So what is the level of gross margin that we should take into consideration for the next coming years?
What do you see as a normal level once your mix is more stable? I mean, I think my question is whether this level is sustainable and because I maybe I think that in a given moment, that image sector could experience a good recovery. So I just wanted to understand how the margin will perform. I don't think that it will have the same effect unless Brazilians decided to buy more television sets to watch the Olympic Games and then we will experience an increase in revenue. But we have to see how the market will perform.
We have to try to balance things up until balance sales and margin. This is a crucial thing when it comes to retail. But speaking about numbers, I mean, or to talk about numbers, I think I would like to ask Beto to give us an outlook of our margins. Good morning. I would just like to add one thing.
Well, as you know, we do not give any guidance of margins or prices for the next coming years. You know that. But what I can say is that we always focus on increasing our gross margin. Also, we focus the maturity of the stores in the Northeast. I mean, the margins were lower and then they started to grow.
Last year, this did not reflect a lot in our results because there was a boom in the sales of TV sets. But now this year, we are experiencing the reverse effect, and this has impacted our gross margin. So a lot will depend on the mix, certainly, as Marcelo referred to before. And also, it will depend on the channels. E commerce, for instance, we can work with lower gross margins, lower than our average because also because we are a very well integrated company and e commerce takes advantage of it.
And as e commerce grows, this may also affect the gross margin, but it will also affect expenses. And one thing will offset the other. We focus on increasing our gross margin. Our commercial policy motivates commercial aggressiveness by region. So we do whatever is possible.
Our award or our composition is also tied up to the margins and this helps us to reduce the level of discounts and this is an issue when it comes to the retail industry. We just referred to charges of freight and assembly, and this is something that may grow this year and also next year. Service income is also another important aspect. Therefore, I believe that in terms of the margin in this quarter, the only factor that is more important is the issue related to increases in the exchange rate. In the Q1, the industry was trying to hold back as much as possible because people had a lot of inventory, but this is something that no longer applies now.
Most part of that gross margin increase is related to that and the remainder is distributed amongst other factors. Okay. Very good then. Thank you very much. Our next question comes from Mr.
Guilherme Asses from Brasil Good morning, everyone, and thank you, Marcelo and Beto. I would like to talk about the margins. You just talked about the factors that led you to have margin gains. Can you elaborate more on that? And how are things today in terms of your negotiations with the industry?
I understand that even smartphones that was one of the categories that boosted your growth last year and it helped maintain margins even offsetting the impact coming from TVs. We are now seeing that the growth of sales of smartphones is also decreasing. This is also due to information that we received from Anatel. So the growth is much lower. Are you able to negotiate more promotions or better conditions with your vendors or engaging in partnerships with your vendors, both for cell phones or the white line, which has also been affected in order to attract higher traffic because consumers are reluctant to shop.
And how can that impact your margins? Or whether you believe that from now on, there may be a pressure on margins because the macroeconomic landscape will continue to be challenging? And my second question, if I am allowed to do it now, is that we see in terms of the exchange rate, I mean, we see a renewal in the contracts for extended warranty. You said that maybe this is one of the ways that you will be able to recover your cash generation this year. So how is that process moving along?
Are you already engaged in the process of renewing that contract or to have a new contract and whether we should expect to see that happening, I mean, this year or not or whether this is something for the long run? Guilherme, thank you very much for your questions. So let me start by referring to the vendors. The entire network, I mean, retail, the industry and also consumers are struggling with the current economic landscape today. Retail feels the impact a lot because you look at most companies, their results are not quite good.
I mean, they're not performing that well. I mean, that is not only the case of Mangasino Luisa, but the vendors also have their own share of problems. You just mentioned smartphones and TVs. The situation is tough. And once I mean, vendors have to run promotions with us.
We know that this will come at a cost to them. But what we are trying to do is to sit with our suppliers and try to come up with the best win win situation or maybe losing less for both parties, it's not just reasonable to have win lose situation because that will not amount to anything. Therefore, we have to sit and negotiate with our suppliers and that's what we've been doing. It is something very difficult because you know that once suppliers give further promotions, they this will affect their margins, etcetera, etcetera. But this is the game of the retail market.
And that is the secret of retail. We do the best we can with our suppliers. This is one thing. We announced in the Q1 that the contract with Cardiff will expire on December 31. It's still too soon to start any conversations we have from August through December to think about it.
But we are very pleased with our partner. We are also very pleased with our association with Itau and Luisa Credit. This is a win win partnership. And I mean, it's not a partnership. If it's only one side that wins, it's not a partnership.
Itau is pleased with us and we are very pleased with them. But the fact is that we have a contract maturing or expiring on December 31. And at a given moment, we will certainly have to revisit that subject. We do not have any new fact or any material fact or anything relevant that we could tell you right now. But there is something that we have to look at from now until the end of the year.
We still have some time left. And once we have something more concrete to tell you, we will certainly tell the market about it. Thank you, Marcelo. But could you please focus again on the margin because I think Beto already said something to do then. The most relevant margin gain that Beto said, I think is that the only non special factor was the negotiation in the Q1 when there was the on lending of the exchange rate.
Is there anything else related to taxes or taxes to be recovered? We saw that happening with 1 of the competitors last year. Are you anticipating any effect in your margin related to the tax recovery or not? No, Guilherme. Regarding the gross margin, the effects are only those that we mentioned.
Thank you, Berton. Our next question comes from Mr. Alain Carcosta. Good morning, Marcelo and Roberto. Thank you for taking my questions.
I have three questions and I'll start with my first question related to your strategy. When you say that now you want to become a digital company with human warmth, In the long run, do you see yourselves as a company that will grow your online business? You will have a bigger online business when compared to your physical business. And how do you want to get there considering the competitiveness of all of the other players? Thank you, Alenka.
I mean, consumers determine everything. If consumers want to buy more online and less on the brick and mortar stores or vice versa or if they buy online and want to pick up in the new store, everything will be determined by the consumer and consumers are doing that gradually. And we are just monitoring that growth quarter on quarter and online sales quarter on quarter increase when compared to offline sales. I mean, in the U. S, and I have referred to the importance of the brand and the credibility of the company.
All that matters because consumers are talking to Mangazini Luiza, be it online or offline. They know that they will find a Mangazini Luiza store everywhere. We are present in 774 locations in 16 states. And we will continue to grow in terms of our brick and mortar stores. Now, whether online will grow more than the offline, I think our long term plan is very transparent.
A customer client can walk in our store and he can check things on the mobile system. Our salesperson can work directly with the client and he can see all of the products through the mobile app if they cannot find the product in the store, this is something that will happen naturally and consumers will lead that move. Consumers will determine the way they prefer to buy. What is up to us is just to be prepared to serve their client the best way possible. I mean, either online or offline, that personal warmth will be present everywhere.
I mean, you dial some numbers and then you have that machine saying dial 1, dial 2, dial 3. You have that automatic answering system, but we want to preserve our culture, which is the relationship we have with our clients. When they complain about our service, we get in touch with them and we help solve their problems related to service or delays. And that's what we want to grow and maintain. We want to be a multichannel company that services the customer the way they prefer.
I mean, the client rules and the client and they will determine how they want to buy. And so we have to be prepared to serve that customer the best possible way. Well, if we grow more e commerce when more e commerce and less physical stores, that's fine. But 5 years from now, I cannot tell you what will be the share of e commerce and the share of physical stores. Certainly, you will grow and it will become more and more relevant.
And there will be a time when we will reach a balance. The fact that we have an integrated company is really important. Today, We deliver to the Northeast through our distribution center in the Northeast. We can also deliver in cashiers through our DC in that same state. We are multichannel.
Our media is also multichannel. When we talk about Magasinaduiza, we also talk about magasinaduiza.com. It's the same company. And this is what we have in our strategic plan for the next coming years. And this is the basic point of our strategy, to be a multichannel company.
I mean, this does not change your expansion plan for the physical stores. This year, I mean, we last year, we inaugurated 24 stores. And this year, there will be 30 more. 30 stores this year and next year, I mean, why are we inaugurating 30 stores this year? Because we closed a lot of stores last year.
And then we thought we could open 30 to 40 stores. We will open 30. When we run our CapEx for next year and we will revise that September in September October to look to check the outlook for next year and then we will define where we want to open new stores. Brazil is a very vast country with a lot of room to grow the retail market in Brazil. We understand that this is just a temporary phase, just as so many other crisis that we have experienced in this country.
For those of us who are in the retail industry for many years, we are already very experienced in terms of going over crisis. So we have to look at the situation today. The situation may last longer than expected. We don't know. Just like what happened in 2,008 with oil prices, but it's over.
In 2013, we had a very good first half of the year. 2nd half, even better. 2014, everybody got surprised with that year. Now we have to face 2015. Nobody expected this to happen.
And so we are going through a difficult period overall in the Brazilian economy, But we firmly believe that this is just a phase and as any other phases this will pass. And then we have to be prepared to face the good days and the bad days. I only have 2 more questions. And the first refers to your inventory level, which is relatively high year on year. I think it's about 13% higher than last year and almost 20 days above the numbers for last year.
And I think that after your strategic purchase on the Q1, maybe the inventory levels will come down or at least you still have a lot of things in your inventory that benefit from a more favorable price. So I just want to hear something about your current inventory levels. And the second question is just an update whether you are thinking about doing some write off. Well, we do not disclose our write off plan because we have already recovered part of it. Even yesterday, there were news about it, but this is a national issue.
And every day, there is something new, banking branch or smartphones. Once we have a clear view, we will decide on that issue. But terms of the inventory, if you take the numbers for 2014 in March, dollars 1,398,000,000 in June, dollars 1,323,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000, I mean, it will be lower going further even because you know that when there is lower sales, that's when the inventory fluctuates. This is very common in the retail industry. On March 31, something one off happened and we talked about purchases.
Even with lower sales, we were able to reduce our inventory levels and this will be reduced further in the second quarter. So by in the second half of the year, so by December, our inventory levels will be balanced. And this is very common in the retail industry when you experience 10% to 12% sales reduction. But gradually, we will strike a balance in our inventory level. But we are monitoring and taking care of that and we are experiencing gradually reductions.
If you look at the quarterly figures or December when the numbers were higher and then March June, so by September, the level should be lower. I understand that there has been a gradual reduction in the inventory. But looking year on year, it's higher. The sales landscape is not as favorable. Okay.
In June of 2014, there was RMB 1,100,000,000 when sales were at its peak. And now, we are experiencing low sales. And so that's what I'm saying. To reduce inventory, you have you would have like to burn your inventory. And but we try to do that in a more balanced way, so as not to hurt our margins.
That's why I say that by September, it will be lower. And by the end of the year, it will be balanced. Thank you very much. Alain Carr, let me just say one more thing. We increased our provisions for inventory.
And also, we also had some tax recovery. I mean, the gross margin increased because of the factors previously mentioned. But taxes to be recovered increase, but also because of ICMS credit or excise taxes, they were lower. There was a slight tax increase, but this did not affect our gross margin. The gross margin was impacted by the factors previously mentioned.
We had an increase in the provisions for inventory, which is in keeping with what you said. This is just a further comment to what has been said before. Our next question comes from Thiago Macruz from Itau BBA. Good morning. I don't even know whether the question has already been asked, but I would like to ask about competition.
This is a very challenging landscape in your industry. Do you believe I mean, is it right to assume that there will be a consolidation of the markets in the next coming years or even in the short run. Does it make sense to say that because all of the golden years until 2014, I mean, the smaller players were like handyman. Thiago history shows that in times like this, unfortunately, some companies do not survive. That's why not everybody can spin the crisis.
We see that in the supermarket industry, where we saw many mergers and acquisitions. Even in our home appliances, this is something that happened. When something is bad for a lot of people, it's bad for almost everybody. And of course, we wish that everybody can operate in a healthy environment. When we look at a store, we only try to place a new store where we have competitors.
We do not want to take sales from the competitor. We just want to attract traffic. If we go to a place with not enough competitors, that's not a good place to be. When you have several stores in that location, traffic in the stores increase. When the economy is healthy and doing well, it's good for everybody.
The government can collect more taxes. And now you see what is happening with the tax collection from the government, both federal and state, unemployment, industry, retail, everybody feels the impact of the economic slowdown. So we just hope that the crisis is over soon. And then I hope that most companies will be able to overcome We are not thinking about further acquisitions or well, it could happen naturally as it did happen in the past, but it is not in our radar in the short and mid range to make any acquisition. I don't think there is a major concentration, but there are 3 companies that we consider to be larger, Magadine Luiza and 2 others and some other midsized companies.
But we hope that after this tough period that everybody can come out stronger because it's not good for anyone. Wind companies in general suffer. We do not want to consider that now. As there are no further questions, I would like to turn the floor over to Mr. Marcelo Silva for his final remarks.
Again, I would like to thank you all for participating in this conference call. Also, I would like to reinstate that we are very confident first, confident in our country, a vast country with a very large population. This is a given. We are working hard, looking at all of the drivers of our business, working capital sales, marketing. We continue to grow in the on the physical side.
Our strategy is that for the next coming years, we want to benefit from all of the changes that have been implemented, integration between online and offline and all of the other efforts. We are very confident that as we've been through so many other crisis, this is another one that will end and then we will be able to post good figures and to grow. And I hope that soon, we will be able to keep on growing 2 digits. Also presenting better numbers in all of our stores and sales channels. I hope we can see better days ahead soon.
Thank you very much. And we'll be together again in our next quarterly result call. Thank you. Thank you very much. Gazzini Luiza's 2nd quarter results conference call is now concluded.
Thank you very much and have a good day.