Good morning. Thank you for waiting. Welcome to Magazine Luiza's conference call regarding the results for the second quarter 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&A session, when further instructions will be provided. Should you need any assistance during this call, please press star zero to reach the operator. The replay of this event will be available right after it is concluded for a period of one week. Before proceeding, let me mention that any forward-looking statements that may be made during this call related to the business outlook of Magazine Luiza, 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 Magazine Luiza, and so could cause results to differ materially from those expressed in such forward-looking statement. 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. Thank you for participating in this conference call for the results of the second quarter of 2015. I would like to begin, as we always do, referring to the highlights of the second quarter of 2015. As we can see that Magazine is still consistently increasing its market share.
When we look at the most recently surveyed by the Commerce Federation, we then realize 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 BRL 2.1 billion in the second quarter, and certainly, this reduction is mostly impacted once we draw a comparison with the second quarter 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. 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. If we look at the second quarter in terms of nominal value, they're lower than the previous year. We are working hard to reduce our selling expenses and admin expenses. Our EBITDA was up by 3%, reaching 6% in the second quarter, especially due to gains in our gross margin. Roberto will elaborate more on that part. We had gains in our gross margin, and also we experienced an improvement in equity income.
All the companies that we have a stake on, like Luizacred, Itaú Unibanco, and LuizaSeg, we had a very good performance in these areas, and we were able to reach BRL 20 million in equity income in the second quarter. Finally, net income. Our net income is not very significant, but even then, it was a positive figure of BRL 3 million. These are the main highlights. 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 three, we show the evolution of the stores. In the last 12 months, we opened 26 stores. This year, there were six stores, and we are already investing to open more stores in the second half of the year, third and fourth quarters.
When we look at the investment chart, we also see that, in the second quarter, we invested BRL 37 million. In the first half of the year, BRL 37 million. When we compare that to last year, we invested more in new stores and less in remodeling. Our inauguration schedule were mostly concentrated in the second half of the year, but now is more scattered in the third quarter. Now in terms of same-store sales, we are already resuming the levels that we anticipated for the Northeast in particular. The focus of our investments now is more in terms of new stores rather than remodeling. We're still investing heavily in logistics and IT.
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 four, I show you the consolidated gross revenue. In the second quarter, we had a reduction in our gross margin of 11.3%. Excluding the World Cup effect, we were able to grow about 16%. The image category grew a lot. When we look at same stores, it was 10.8% based on 24.5% of last year, where the volume was higher. The same thing applies to internet. It was stable, but the base had already grew 44%. It grew a lot because of the media for the World Cup and all of the campaigns we had last year. 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 five, we show you the gross revenue evolution. 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. The IT category also has a low margin, and sales are coming down. The positive side is that other categories are increasing a lot, and we also had a special increase in the furniture department.
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 were already doing that in the Northeast. We increased our stake in the service revenue in terms of insurance and extended warranties. We were also able to have good negotiations with our suppliers. I think that we already mentioned in the first quarter that we were slightly above the objective for the first quarter, but we wanted to take opportunities to purchase before increases in the foreign exchange, increases in the dollar and the exchange variation. 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 Luizacred and LuizaSeg. Luizacred with returns above 25%, and LuizaSeg still growing significantly with returns above 40%. On 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. 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. The EBITDA margin was able to grow from 5.7% to 6%. On the next page, we refer to our financial results.
Financial expenses went up from BRL 74 million to BRL 98 million, basically due to repayment of receivables from credit cards, and also due to 20% higher CDI when compared to the same period of last year. In terms of working capital, it rose 6.4%. We had that effect in the first quarter. In the second quarter, 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 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 first quarter. 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 we are buying less than last year, so our accounts receivable were down. Once they start increasing, the situation will change. 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 relation. On the next page, we have our net income. Despite the fact that EBITDA was impacted by higher financial expenses, the results are lower when compared to that of last year. Still on the next page, moving to the next page, we talk about the performance of Luizacred. Once again, this has been the highlight of our operation. We are able to grow Luizacred's stake, especially through the credit card.
Well, a lower stake with CDC, 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, and Luizacred 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. I'll give the floor back to Marcelo.
I would like to conclude our presentation. We will be able to take your questions. Let me look forward in what we expect for the rest of this year. We still anticipate a very challenging landscape. We think that the situation will remain the same the first and second half of the years. 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. 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. Referring to the multi-channel strategy, if we look back in time, our strategic planning envisioned five years in 2010. By 2010, we talked about growth in the Northeast. We consolidated stores. We also had a very successful integration of all the stores. 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 significant growth. This transformation of the company from a traditional retail company into a digital company that has over 774 physical stores with a lot of human warmth. It's represented by several initiatives because we constantly focus on the multi-channel approach of our business, and we see that more and more our clients are embracing the multi-channel approach, and they are more loyal. These multi-channel clients buy more. They are more loyal. We have return purchases from these customers. 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.
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 retail company into a digital company. We are present in 16 states of the country, and this is a company where the warmth of the people is very crucial. 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 Luizacred, our controller. Almost all of the officers are here except for those that are out on vacation. We are all here available to answer your questions. Thank you very much.
Now, we will initiate the Q&A session only for analysts and investors. Questions coming over the web will be answered later on by email, but we will be available to clarify further questions. If you have questions, please press star one and please wait while we collect the question. Our first question comes from Fabio Monteiro from BTG Pactual.
Good morning, everyone. I would like to understand two more things. One refers to e-commerce. 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. 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. Indeed, in this half of the year, we decided to pursue a more rational approach. There has been a lot of competition in the web in Brazil on 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, facing a lot of competitiveness. Even 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. We are trying to be more and more competitive, not to the extent.
Every company has its own policy, and our policy now is to be more moderate in the practice of having competitive prices. If we wanted to go deeper into 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 experienced a different effect in the image sector, and this year, we experienced a reverse. 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 think my question is whether this level is sustainable, because maybe I think that in a given moment, that image sector could experience a good recovery. 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. We have to see how the market will perform. We have to try to balance things, balance sales and margin. This is a crucial thing when it comes to retail. Speaking about numbers, 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. As you know, we do not give any guidance of margins or prices for the next coming years, you know that. What I can say is that we always focus on increasing our gross margin.
We focus the maturity of the stores in the Northeast. 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. Now, this year, we are experiencing the reverse effect, and this has impacted our gross margin. 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 also because we are a very well-integrated company, and e-commerce takes advantage of it. As e-commerce grows, this may also affect a gross margin, but it will also affect expenses. One thing will offset the other. We focus on increasing our gross margin. Our commercial policy motivates commercial aggressiveness by region.
We do whatever is possible. Our award or our composition is also tied up to the margins, 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, 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 first quarter, the industry was trying to hold back as much as possible because people had a lot of inventory, this is something that no longer applies now. Most part of the gross margin increase is related to that, the remainder is distributed amongst other factors. Okay.
Very good. Thank you very much.
Our next question comes from Mr. Guilherme Assis from Brasil Plural.
Good morning, everyone, 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, 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, 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. 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 is also being affected, in order to attract higher traffic? Because consumers are reluctant to shop. How can that impact your margins? Whether you believe that from now on, there may be a pressure on margins because the macroeconomic landscape will continue to be challenging. My second question, if I am allowed to do it now, is that we see in terms of the exchange rate, 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. 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 this year or not, or whether this is something for the long run? Guilherme, thank you very much for your questions. Let me start by referring to the vendors. The entire network, 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. They're not performing that well. That is not only the case of Magazine Luiza, but the vendors also have their own share of problems. You just mentioned smartphones and TVs. The situation is tough. Vendors have to run promotions with us.
We know that this will come at a cost to them, 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 a win-lose situation, because that will not amount to anything. 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, this will affect their margins, et cetera. 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 first quarter that the contract with Cardif will expire on December 31st. It's still too soon to start any conversations.
We have from August through December to think about it, we are very pleased with our partner. We are also very pleased with our association with Itaú and Luizacred. This is a win-win partnership. If it's only one side that wins, it's not a partnership. Itaú is pleased with us, and we are very pleased with them. The fact is that we have a contract maturing or expiring on December 31st, 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. 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. Could you please focus again on the margin? I think Beto already said something to Alencar. The most relevant margin gain that Beto said, I think, is that the only non-special factor was the negotiation in the first quarter when there was the unlending of the exchange rate. Is there anything else related to taxes or taxes to be recovered? We saw that happening with one of your 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, Beto.
Our next question comes from Mr. Alencar Costa. Good morning, Marcelo and Roberto.
Thank you for taking my questions. I have three questions, 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. How do you want to get there, considering the competitiveness of all of the other players? Thank you, Alencar. 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 nearest store. Everything will be determined by the consumer, and consumers are doing that gradually. We are just monitoring that growth quarter on quarter, and online sales quarter on quarter increase when compared to offline sales. In the U.S., NRF referred to the importance of the brand and the credibility of the company.
All that matters because consumers are talking to Magazine Luiza, be it online or offline. They know that they will find a Magazine 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. Whether online will grow more than the offline, I think our long-term plan is very transparent. A customer, a 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 that client the best way possible. Either online or offline, that personal warmth will be present everywhere. You dial some numbers, and then you have that machine saying, "Dial one, dial two, dial three." You have that automatic answering system, 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 multi-channel company that services the customer the way they prefer. The client rules, and they will determine how they want to buy. We have to be prepared to serve that customer the best possible way.
Well, if we grow more e-commerce and less physical stores, that's fine. Five years from now, I cannot tell you what will be the share of e-commerce and the share of physical stores. Certainly, it will grow, and it will become more and more relevant. 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 Caxias through our DC in that same state. We are multi-channel. Our media is also multi-channel. When we talk about Magazine Luiza, we also talk about magazineluiza.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 multi-channel company.
Thank you very much. This does not change our expansion plan for the physical stores. This year? Last year, we inaugurated 24 stores, and this year there will be 30 more. 30 stores this year, and next year. Why are we inaugurating 30 stores this year? We closed a lot of stores last year, and then we thought we could open 30 to 40 stores. Yeah, we will open 30. When we run our CapEx for next year, and we will revise that in September and October 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 crises 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 crises. We have to look at the situation today. The situation may last longer than expected, we don't know. Just like what happened in 2008 with the world crisis, but it's over. In 2013, we had a very good first half of the year, second half, even better. 2014, everybody got surprised with that year. Now we have to face 2015. Nobody expected this to happen. We are going through a difficult period overall in the Brazilian economy. We firmly believe that this is just a phase, and as any other phases, this will pass. We have to be prepared to face the good days and the bad days.
I only have two 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. I think that after your strategic purchase on the first quarter, 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. I just want to hear something about your current inventory levels. 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, a banking branch or smartphones.
Once we have a clear view, we will decide on that issue. In terms of the inventory, if you take the numbers for 2014, in March BRL 1.398 billion. In June, BRL 1.323 billion. 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 31st, 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 half of the year. By December, our inventory levels will be balanced. This is very common in the retail industry when you experience 10%-12% sales reduction. Gradually, we will strike a balance in our inventory level. We are monitoring and taking care of that, and we are experiencing gradual reductions.
If you look at the quarterly figures or December when the numbers are higher, then March and June. By September, the level should be lower. I understand that there has been a gradual reduction in the inventory, but looking year-on-year is higher. The sales landscape is not as favorable. Okay. In June of 2014, there was BRL 1.1 billion when sales were at its peak. Now we are experiencing low sales. That's what I'm saying. To reduce inventory, you would have liked to burn your inventory. 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. I would like to remind you that if you have a question, please press star one.
Please wait while we collect further questions.
Alencar, let me just say one more thing. We increased our provisions for inventory, and we also had some tax recovery. The gross margin increased because of the factors previously mentioned. Taxes to be recovered increase. 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.
This will be then the last instruction for further questions. In case you have questions, please press star one. Our next question comes from Thiago Cruz from Itaú BBA.
Good morning. I don't even know whether the question has already been asked, I would like to ask about competition. This is a very challenging landscape in your industry. 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, the smaller players were like handymen. History shows that in times like this, unfortunately, some companies do not survive. That's why not everybody can stand 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. 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. 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. We just hope that the crisis is over soon. I hope that most companies will be able to overcome the crisis. We are not thinking about further acquisitions.
It could happen naturally, as it did happen in the past, 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, there are three companies that we consider to be larger, Magazine Luiza, and two others, and some other mid-size companies. We hope that after this tough period, that everybody can come out stronger, because it's not good for anyone when companies in general suffer. We do not want to consider that now.
Thank you. Thank you very much for your answer.
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. 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. 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 crises, this is another one that will end, then we will be able to post good figures and to grow. I hope that soon we will be able to keep on growing two digits. Presenting better numbers in all of our stores and sales channels. I hope we can see better days ahead soon.
Thank you very much, we'll be together again in our next quarterly result call. Thank you. Thank you very much. Magazine Luiza's second quarter results conference call is now concluded. Thank you very much, have a good day.