Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Natura &Co.'s Q3 2019 results. Today with us, we have Mr. Roberto Marques, Executive Chairman of the Board of Natura &Co., Mr. José Filippo, Chief Financial Officer of Natura &Co., Mr. João Paulo Ferreira, CEO of Natura, and Mrs. Viviane Behar, Investor Relations Director of Natura &Co. This event is being recorded and all participants will be in a listen-only mode during the company's presentation. After Natura's remarks are completed, there will be a question and answer session. At that time, further instructions will be given. We have simultaneous translation into Portuguese, and questions may be asked normally by participants connected from abroad, either in English or Portuguese. Should any participant need assistance during this call, please press star zero to reach the operator.
We have a simultaneous webcast that may be accessed through Natura's IR website, https://natu.infoinvest.com.br/en. The slide presentation may be downloaded from this website. There will be a replay facility for this call on the website after the end of the event. This presentation may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura &Co's management. This presentation also includes adjusted information prepared by the company for information and reference purposes only, which have not been audited. Forward-looking statements speak only as of the date that are made, and the company does not undertake any obligation to update them in light of new information or future developments. Now, I will turn the conference over to Mrs. Viviane Behar, Director of Investor Relations of Natura &Co. Mrs. Behar, the floor is yours.
Good morning or good afternoon to everyone. Thank you for joining us today for this call to present our third quarter and nine-month 2019 earnings. I am Viviane Behar, Natura & Co.'s Head of Investor Relations. I am joined today by Roberto Marques, Executive Chairman of Natura & Co., José Filippo, CFO of Natura & Co., and João Paulo Ferreira, CEO of Natura. Our investor relations team of Natura & Co. is also with us. The presentation we will be referring to during this call is available on the Natura & Co. investor relations website. Roberto will now start with an overview of our performance. Filippo will detail our financials on a consolidated basis and by business. After Roberto's concluding remarks, we will open the floor to your questions. Let me now hand over to Roberto. Roberto, please.
Thank you, Viviane, and hello to everyone. Thank you for joining us. Let me begin on slide three with an overview of our performance. Natura &Co posts a remarkable sales performance in this third quarter, with all of our business and brands again contributing to a double-digit growth at constant currency by 10.1%. This is more relevant as we continue to face a weak market in Brazil and a continuous challenges in Hong Kong, which, as you know, is an important market for both The Body Shop and Aesop. Natura posted total growth of 13.2% at constant currency, with significant growth and market share gains in Brazil and continued strong sales in Latin America. The Body Shop also posted healthy sales growth of 3.8% at constant currency and launched in mid-September, its new concept store in Bond Street, London, as part of its transformational plan.
This flagship store features several new elements that build on its heritage, such as return on the company's pioneer refill station and an activist corner. Aesop continues to post double-digit sales growth of 10.2% at constant currency and to grow its store footprint, with 21 new stores over the past 12 months. Our profitability in the quarter was impacted by two effects that are part of our efforts to build a leading multi-brand and multi-channel group. The first is plan-based increase in investments in Natura, notably in digitalization and in brand marketing, which is supporting current and future growth. The second is non-recurring costs associated with the acquisition of Avon Products, which accounted to BRL 36.5 million on a net base in Q3. We are excited by the progress we have made in recent weeks to complete the acquisition of Avon.
We recently received approval without restrictions from CADE, Brazil's antitrust authority, for the transaction. Yesterday, the shareholders of both Natura and Avon gave their green light to the transaction in the general assembly held in São Paulo and New York. These are very significant milestones that we have passed, and we are well on track to close this transaction as planned in Q1 2020. We also continue to improve our leverage ratio to 2.98 times at the end of the quarter, compared to 3.27 times in the year-ago quarter. This also puts us on track to achieve our guidance of returning by 2021 to a leverage ratio of 1.4 times, equivalent to the level prior to the acquisition of The Body Shop. Beyond the numbers, this quarter was also marked by new advances in sustainability. Let me just highlight a couple of them.
Natura's carbon neutral program, which totally offset the company carbon emissions, received the 2019 United Nations Global Climate Action Award, the world's most important recognition of initiatives to fight climate change. The Body Shop joined Natura in becoming a B Corporation, satisfying the demanding criteria in terms of sustainability. As you can see, we continue to take decisive new steps in building our multi-brand, multi-channel, purpose-driven group. Let me now hand over to Filippo to go into our financials in greater detail.
Thank you, Roberto, and hello to everyone. Before going to our financials, I thought it would be helpful to step back for a second and remind you of the various adjustments that impact our numbers. Throughout this presentation, we refer to adjusted revenue and EBITDA, and on slide five, we describe the principle adjustments that we apply to our reported figures to allow better understanding of our underlying performance. Indeed, as in the past quarters, Q3 was marked by several non-operational adjustments. IFRS 16, IFRS 15, hyperinflation in Argentina, non-recurring tax effects in Brazil, continued transformation costs related to The Body Shop, and acquisition costs related to Avon. As of Q1, we decided to present our results excluding the effects of IFRS 16, and we are doing this again this quarter, as we will until the year-end. Let's now look at our Q3 performance.
I will start this overview of our P&L with our consolidated adjusted net revenue on slide six. Our reported sales grew by 7.2%, and in constant currency, adjusted net revenue was up 10.1%. As shown on the graph, the group's adjusted net revenue rose 6.3% in the quarter to BRL 3.5 billion. The solid increase in sales results from growth in all three of our businesses, as we will see shortly. In the nine months, adjusted net revenue grew by 7% and 7.4% at constant currency to reach nearly BRL 9.8 billion. On slide seven, we turn to consolidated adjusted EBITDA, which, as you see on the graph, stood at BRL 459.3 million in Q3.
As Roberto explained, this 3.4% drop in the quarter reflects the combination of higher investments in Natura as planned, Avon acquisition related expenses, and the impact on The Body Shop's profitability of the events in the Hong Kong market. Adjusted EBITDA margin remained solid at 13.2%, down 130 basis points. On a reported basis, Q3 EBITDA was nearly 399 million BRL, including 32 million BRL in Avon acquisition costs and 6.4 million BRL in transformation costs at The Body Shop. In the nine months, adjusted EBITDA was 1.2 billion BRL, up 4.4%, with margin down 30 basis points to 12.6%, while reported EBITDA was up 2.5% to 1.1 billion BRL. Turning to slide eight, we look at Natura &Co.'s net income and underlying operating income in Q3.
Net income stood at nearly BRL 69 million in the quarter, reflecting the previously mentioned effects on EBITDA and non-recurring Avon related expenses. The latter had a net impact after tax of BRL 36.5 million in the quarter. Excluding that impact, net income was BRL 105 million. Underlying operating income, which excludes acquisition related expenses, transformation costs, financial expenses, and income tax, decreased by 15.8% in Q3. This is mainly due to higher SG&A expenses totaling more than BRL 175 million to lay the foundations for sustainable long-term growth at Natura. Slide nine looks at the same aggregates in the nine-month period, in which the effects I just mentioned had a significantly lower impact. Net income in the period at BRL 176.6 million was up by a healthy 6% even after Avon-related costs of BRL 103 million.
Underlying operating income was down by 3.4% in the nine months, as solid growth profit of BRL 508 million helped offset selling and G&A expenses. Let me conclude this quick summary of the key financial highlights with a look at the main aggregates of our balance sheet on slide 10. Cash flow in the quarter was an outflow of BRL 74.3 million in Q3, and over nine months, the outflow was about BRL 405 million. This expected drop versus Q3 of last year reflects lower net income as well as higher CapEx due to phasing of projects, notably digitalization at Natura and The Body Shop. These effects were partially offset by improved working capital at Natura. We continue to leverage the company in line with our expectations. Our net debt to EBITDA ratio stood at 2.98 times at the end of Q3, down from 3.27 times in the year-ago period.
This puts us well on track to achieve our target of returning by 2021 to our leverage ratio prior to the acquisition of The Body Shop of 1.4 times. After looking at our consolidated numbers, let me now comment on individual performance of our three businesses, starting on slide 12 with the key highlights of Natura. Total net sales were up 8.1% to BRL 2.2 billion in Q3, with growth both in Brazil and Latin America despite challenging market conditions. In the nine months, sales were up 5.8%. In Brazil, sales rose 7.2% in Q3, and the company continued to gain market share. This is particularly strong performance given that we are operating in a weak CFT market and faces tough comparable bases. Growth was driven by all channels, supported by core categories and new disruptive product launches, including Tododia with probiotics and 100% vegan Mamãe e Bebê.
Over the nine months, sales in Brazil were up 4.7%. Natura's solid performance reflects the success of our relationship selling model, which is leading to higher productivity in Brazil. Consultant productivity increased for the 12th consecutive quarter, up by 6.8%. The average number of consultants was stable versus the same period of last year, and it increased by 2.4% versus the previous quarter. Within the consultant base, we continue to see movement towards our top silver, gold, and diamond segments, attesting to the good momentum of our model. Adoption of our digital platform by our consultants continued to increase, as did the range of available digital solutions and services. The number of consultants using our digital platforms, which includes the app and the web, rose by a strong 32.3% versus the same quarter of last year to 860,000.
We are seeing good adoption of the Natura digital account in partnership with Santander Bank . This is an additional exclusive feature embedded in the consultants' mobile platform, which promotes banking and financial inclusion to our network of consultants. Rede Natura, our online platform, which is operating under a new pricing alignment policy, confirming its recovery. We ended Q3 with approximately 600,000 virtual stores in Brazil, a 7% increase versus last year. This contributed to double-digit growth in online sales, and the quarter saw an increase in the number of visits. We also continued our multi-channel expansion with six new stores opening the quarter to reach 49, while the number of our consultants' franchise stores exceeded 300. Latin America is also performing strongly. In Latin America, Q3 adjusted net sales grew 10.2% in BRL and 28.8% at constant currency. Sales in the nine months were up 8.4% in the region.
The number of consultants grew 8.3% versus Q3 2018 to nearly 690,000, and volumes were up in the region by 23.9%. Highlights included Colombia, Mexico, and especially Argentina, where despite the challenging economic environment, we are posting strong growth to local currency, outplacing inflation. We are also pleased to say that Natura celebrated its fifth anniversary and entered the new country, Malaysia, and a new continent, Asia. Capitalizing on The Body Shop's knowledge of the market and in partnership with The Body Shop's head franchisee there, we recently began selling Natura products online in Malaysia. We will progressively roll out a multi-channel offer in the country. I will conclude on Natura with its adjusted EBITDA on slide 13. Overall, adjusted EBITDA was BRL 387.6 million in Q3, down 2.8% and up 0.7% in the nine months. We saw a contrasted performance between Brazil and Latin America.
In Brazil, EBITDA margin remained very resilient at 17.5%, despite the investments mentioned earlier on adjusted EBITDA down 6.6%. Adjusted gross margin rose by a strong 60 basis points, this was offset by higher SG&A expenses linked to the investments in Brazil and further digitalization, marketing investments such as sponsorship on the Rock in Rio Festival that connects the brand with young consumers, new innovative product launches, and costs associated with Natura's 50 anniversary. In the nine months, adjusted EBITDA in Brazil was broadly stable at BRL 728.7 million, with margin of 17.3%, down 80 basis points. SG&A expenses in Q3 reflected the investments and were up 340 basis points as a percentage of sales, whereas in the nine months, SG&A was up by 50 basis points.
We expect SG&A expenses to be full year in Brazil to remain broadly in line as a percentage of sales with the nine-month period. In Latin America, adjusted EBITDA was up by a strong 13.9% in Q3. EBITDA margin was 19%, up 60 basis points, with a significant drop in selling expenses, down 170 basis points, and in G&A, which was reduced by 30 basis points, attesting to strong operational leverage. In the nine months, adjusted EBITDA was up 6.6% and margin was 16%, down 20 basis points. Let's now move to The Body Shop on slide 15. Net revenue in reais increased on a reported basis by 1.1% in Q3. At constant foreign exchange, sales were up by a healthy 3.8%.
This growth was driven by solid sales in the U.K., Asia Pacific and Latin America, as well as higher sales in the at-home direct sales, online and half franchise channels. This more than offset the unfavorable effect of 35 net store closures over the past 12 months as The Body Shop continued to optimize its network, as well as lower sales in Hong Kong, an important market for The Body Shop. Excluding the impact of the events in Hong Kong, net revenues grew 6.4% at constant currency. In the U.K., The Body Shop's home market and its biggest one, own store like-for-like sales were up 3.1% in the quarter. This is a very encouraging performance that confirms the successful first effects of the brand's rejuvenation. At the end of the quarter, The Body Shop had 2,863 stores, 1,006 owned stores, and 1,857 franchise stores.
In the nine months, The Body Shop's net revenue was up 6% in BRL and 1.7% in constant currency. Excluding Hong Kong, constant currency growth was 3.8% in the period. On slide 16, we see that The Body Shop suggested EBITDA in the quarter, which excludes transformation costs, stood at BRL 69 million, down 10.9%. This resulted in an adjusted margin of 7.4%, down by 100 basis points. This drop is mainly attributed to the events in Hong Kong. Excluding that effect, adjusted EBITDA margin was up 30 basis points to 8% in Q3, and up 220 basis points to 7.5% in the nine months. The Body Shop's transformation program is advancing well, with costs and benefits in line with the plan. As Roberto mentioned, we opened a new concept store in London on Bond Street that revives the brand activism and sustainability values.
Transformation costs were BRL 6.4 million or GBP 1.2 million in the quarter. As a reminder, we expect to incur circa GBP 10 million in transformation costs in 2019, of which GBP 6.9 million have already been incurred in the first nine months. On slide 18, we round off this look at the performance of our business with Aesop. We posted solid growth in sales and profitability in Q3. Net revenue grew in BRL by 10.8%. At constant currency, growth was 10.2%. Like-for-like growth in signature stores increased 9% in Q3, and with 21 new openings in the 12 months, of which four in the past quarter, Aesop has now 240 signature stores. Profitability also grew in strong double digits in BRL, with EBITDA up 47.1% in Q3, resulting in an EBITDA margin of 12%, up 300 basis points.
In the first nine months, Aesop revenue increased 20.8% in BRL, and EBITDA was up 34.7%, also in BRL. Margin rose 120 basis points to 12.1%. Let me now hand over to Roberto for his concluding remarks.
Thank you very much, Filippo. Before concluding, let me first thank all of our associates across the globe of both Natura, The Body Shop and Aesop for again posting a very positive and strong quarter, which continues to contribute to building this very special group. Thank you very much to everybody. I'd also like to update you on where we stand on the acquisition of Avon, whose integration planning is ongoing. As I mentioned in my introduction, we have passed two major milestones in the past few days with the approval by the Brazilian antitrust authorities of the transaction and its approval just today by the shareholders of both Natura and Avon. Thank you very much for your confidence. We have also approved the corporate restructuring for the transaction with the creation of Natura &Co Holding Company, which will become our listed entity.
Minority shareholders of Natura Cosméticos will migrate to Natura &Co in mid-December, and trading will begin on B3 Stock Exchange in São Paulo. As you know, a few conditions still remain, including antitrust approval by a handful of remaining jurisdictions. We are fully on track for closing as planned in the first quarter of 2020. Upon closing, Natura &Co will also trade on New York Stock Exchange with ADRs. We are hugely excited by this transaction, which creates the world's fourth-largest pure-play beauty company. It marks another transformation step towards building a global, multi-brand, multi-channel group, reaching over 200 million consumers through our iconic brands. In conclusion, what are the key takeaways? Let me just mention three, as you see on slide 20. First of all, Natura &Co posts a solid performance in Q3.
It's a strong revenue growth, demonstrate the good momentum of the global multi-brand, multi-channel group we are building. Second, the investments we have made at Natura in its digitalization and its brand, the transformation underway at The Body Shop, and the costs we incurred this quarter for the acquisition of Avon, are all moves to lay the foundation for sustainable long-term growth. Third, we are on track to close the acquisition of Avon in Q1 2020, a transaction that will help accelerate growth. Thank you very much for your attention. Before opening the Q&A, I would just like to tell you that, as you know and you are curious to know more about the Avon transaction, as you can appreciate, we cannot comment further at this stage beyond what was already said until the closing process. We'll, of course, update you in due course.
Let me now hand over to Viviane Behar .
Thank you, Roberto. We are now going to open the Q&A session. Roberto, Filippo, and JP are happy to take your questions. The floor is now yours.
Ladies and gentlemen, we will now begin the question and answer session. If you have a question, please press star key followed by the one key on your touch tone phone now. If you wish to be removed from the queue, please press the pound sign or the hash key. Our first question comes from Helena Dolores from Itaú.
Hi, guys. Thank you for taking my question. Just two quick questions. The first one is about The Body Shop, because we are seeing an acceleration in constant current growth in the top line. I just wanted to ask you if you could give us some more detail or some highlights about this growth. Which channels are growing more? Which regions? Just for us to have some highlights about this and actually about the EBITDA margin, which is growing without the Hong Kong situation. Do you have any impacts on mix or something like this? Can you tell more about this, please? Second, about the Natura going to Malaysia. I just wanted some details, which are the characteristics of this partnership, and if it is scalable to another region. Thank you.
Helena, good morning. Roberto here. I will start answering a little bit of The Body Shop question. Then I will invite JP to comment on Natura entering Malaysia, okay? On The Body Shop, you're right. We are very pleased with the progress on the top-line growth. It's coming actually as a combination. It's coming from some markets and also channels. In terms of markets, we're very pleased to see the growth in U.K. Really very strong growth, as well as Middle East and Latin America. From a channel perspective, we're also pleased to see high growth on our At Home, which is the direct selling part of the business at The Body Shop, especially in U.K.
For the first time also, now that we consolidated some of the tools and the management, we're also seeing some good results on At Home in Australia, which is the other market that we have a presence of The Body Shop At Home. From a margin perspective, again, this is the result of our transformation, and it's on track, which is both a combination of closing non-efficient stores, running the business in a more efficient way, and also our continual effort to reduce some levels of discount. Those are the key contributors for the margin improvement. JP, you want to comment on Malaysia and the entry this quarter of Natura, please?
Yeah, Roberto. Helena, thank you for the question. Our initiative in Malaysia, first of all, is perhaps an excellent example of the power of the Natura &Co group. It is being done in partnership with The Body Shop, especially with The Body Shop's franchisee who has been operating for decades with that brand in Malaysia. That helps us entering a new country, as you would imagine, given the depth of knowledge this group has around that market. That initiative is omni-channel, which means it includes retail, e-commerce, and digital social selling. It is early days so far, but we are very pleased with the first results. Perhaps the last important attribute of this initiative is that it is totally scalable, which means that when we are happy with the setup, that will allow us to grow into new countries.
Okay. That's great. Thank you, guys.
Our following question comes from Bob Ford from Bank of America Merrill Lynch.
Good morning, everybody. Congratulations on the underlying improvements. I was hoping you might be able to give some context for Hong Kong. In the press release, you mentioned some growth numbers with and without Hong Kong. That helps convey its relative size and the impact of the period. It seems as if things have gotten a little bit worse, and I was hoping you might be able to touch on the disruption you're seeing and what we should be prepared for in the current quarter, please.
Hey, Bob. Good morning. Roberto here. You are right. The situation, it's not improving in Hong Kong. Our first and foremost responsibility is the safety of our people and really supporting them through this specific moment. We are doing that, and really making sure that we're supporting them. Hong Kong, as you know, it is an important market for both The Body Shop and Aesop. It represent more or less mid-single digit in terms of sales, and even more from a profitability perspective. We have over 40 stores at The Body Shop in Hong Kong. The fact that also, as you know, we don't have a physical presence in China because of our non-animal testing, makes Hong Kong even more important for us than eventually some of our competitors on a global scale. We think that we continue to remain very committed to our non-animal testing.
The long-term solution for us is to find a way to potentially increase our presence in China while at the same time, keeping our values and principles, which we are not going to compromise. Short-term, we don't think that that's going to improve. I think we needed to continue to support the business, support our people, and I would say more medium, long-term solution would be to potentially increase our presence, which we're already starting to do with Tmall Global. We already have that presence with Aesop, and we started now with The Body Shop, but of course not at the scale that we need. I think the medium, long-term solution is for us to find a way to increase our presence in China.
Understood. Can you talk a little bit about the relative sales lift you're seeing at the Bond Street Body Shop store in London versus some of the control units? Maybe touch on its cost and the outlook for broader store remodels.
Yeah. We are very pleased with the results on Bond Street in London with the new design of The Body Shop store. I would say that the early results compared to control stores are very positive, I would say, which is encouraging. Our goal is to roll out that, especially in 2020, to probably 10 to a dozen stores. We're not going to disclose the cost of the refurbishing, Bob, but I will tell you that it's pretty much in line to a normal refurbishing, so it's not something significantly more expensive. I think the team has done a tremendous job in being very creative in bringing back some of the elements of the activism, some of the elements of the values of The Body Shop, like with the refill station, that has been a huge success.
We are pretty encouraged, but of course, we still need to get some more learnings.
Understood. Then lastly, JP, what are your estimates of industry growth rates right now in Brazil? As you look into year-end in Brazil, how do you feel about your innovation, your gift assortments, and the ability to take further market share?
Hi, Bob. You know that we keep investing in innovation, we launched an incredible range of new products, relaunched some of our core lines to support growth going forward. Similarly, we keep developing the network of our consultants, especially through digitization, that's been growing significantly. Currently, 1.2 million of our 1.7 million consultants across Latin America are actively utilizing our mobile digital platform. By the way, we keep launching new services and features on almost weekly basis to improve their offering to their clients. Hopefully, that will keep supporting our growth going forward, we continue to aim at not only maintaining leadership in the countries where we are already leading, but gaining market share in all of our operations.
That's helpful. JP, can you touch a little bit on the relative productivity of your digital consultants versus your average offline consultant?
No, I don't feel very comfortable to disclose that number, Bob. Just to remind everyone that when consultants adopt, in addition to their traditional way of selling the digital solution, their productivity goes up. When you look at our 12 consecutive quarters of increased productivity, you can figure out how this is working out a little bit.
Yes. Thank you very much, and again, congrats.
Our following question comes from Ruben Couto from Santander.
Hi, guys. Good morning. I have two questions, actually. First, on the margins in Brazil. I think all of the efforts to foster top-line growth seems to be working, but expenses are also catching up, and we are still at a flat EBITDA in the first nine months of this year. When should we expect these accelerating sales to dilute expenses and generate some margin gains? Can we expect some EBITDA margin expansion in the fourth quarter already? Is there some additional increase in marketing investments projected for this year or even for next year? A second topic, still on this consultants' productivity and overall digital use in Brazil. Can you give a little bit more color on the performance of Rede Natura as a whole?
I think after you made this convergence program in June, you mentioned that around 60% of the channel already have a virtual consultant store. How relevant is the channel for these consultants? On average, how much of these consultant sales are coming from these virtual stores? Any numbers in that sense would actually help. Thank you.
Hi, Ruben. Filippo. Let me start with the margin. JP will go. As we mentioned, we had, in the third quarter, some impacts related to phasing of investments, especially in Brazil. Some related to digitalization, those marketing investments, the product launch that impacted in specific here, which you should not consider as a recurring type of impact. Talking about the fourth quarter, I don't think. That's not our guidance. If you take the nine months, I think will be what we should expect in terms of the recurring impact here. That's basically that. I will also say that there are other positive things that sometimes cannot be captured immediately, which is the working capital improvement, which was something that we achieved this quarter, especially related to inventories, which can also bring some efficiencies and in the combination of this impact going forward.
Basically, I would focus more on the nine months. That could be maybe a recurring trend for the future.
If I may add, going back to your questions. The number of consultants with online stores grew more than 70% year-on-year, which shows that this is becoming increasingly more relevant to our consultant network, right? As is, by the way, other formats like the consultants' stores, Aqui Tem Natura, which is also increasing in number, but also in productivity, as we are seeing double-digit like-for-like growth in those stores. Although still not big, this is growing very fast.
Can you share how much of the virtual stores account for these consultants that have the virtual stores on average?
No.
The thing that I kind of want to understand is you change your way on encouraging consultants to adopt these virtual stores, but are they just adding these virtual stores? Are they actually selling a good amount of products, or they are just moving towards your incentives or going just to get a sense if they are actually using or if they are just there?
No, they are using. They are actually using that on an increasing rate. There's also adoption, there's learning, but we track not only the penetration but what is their activity in their online stores, and that continues to grow.
Okay, got it. Thank you.
Our next question comes from Tobias Stingelin from Citi.
Yes, thank you. Good morning. The question is for JP. Last year, we had a very strong fourth quarter, and then at the end of the day, the first quarter was kind of a little weaker just because of some sort of inventory build in the channel. As we look into the fourth quarter right now in Brazil, considering also the economic environment and all of the investments that you have been doing, what should we expect to see given that you're facing kind of these tougher comps as well?
It is. Yes, indeed, we have a hard comp for our fourth quarter. We are positive when we look at Black Friday and Christmas. We are positive despite the very weak consumption environment, which we described already.
Thank you so much. Just as a follow-up, in terms of sales trends, have they been in an upward trend or still volatile, so some weeks better or some cycles better and then worse? Or has it been smoothly gradually moving in the right direction?
You refer to the market or to our own performance to this?
Yeah, both. I think the market, maybe if you're seeing some sort of market more stable and you're benefiting from that or specifically also in your case. If you can just give us a trend, because we usually hear that there was a lot of volatility between the performance between the months, and I just want to get a sense if we are gradually going a gradual recovery mode.
Yeah. We don't see from here spikes in the market. They're moving relatively smoothly in a very contained way so far. When you look at our performance, it's also affected by our phasing the initiatives. Q3 was heavily loaded on innovation, 50th anniversary, Rock in Rio and brand reactivation, et cetera. The market as a whole is relatively steady.
Okay. Maybe if I might just follow up. In regards to all of these digital solutions that you are implementing and the adoption that has been growing significantly, can you just give us some examples about how this has transformed the productivity or the day-to-day operation of the consultant?
First of all, we see already a growing number of consultants acting as micro-influencers. Using digital content to reach more often, more frequently, and with more relevance their own client base, which is supporting recurrence and reach for those consultants. You heard before about our payment solutions, which also enables a growing number of consultants to offer different payment alternatives to their customers, credit card, and stuff like that, which also help improving productivity. I think these are two good examples for now.
Okay, perfect. Thank you so much.
Our next question comes from Irma Sgarz from Goldman Sachs.
Yes. Hi, thank you for taking my question. I have two quick questions. Firstly, on the new channels that you're building out in Brazil for the Natura brand. I think, some years ago or maybe 18, 24 months ago, when you were starting to launch, or starting to see more traction in both own stores and so-called franchise stores, Aqui Tem Natura. You were, I think, at that point, sort of saying that over the years, you'd expect these new channels to achieve something, if I'm not mistaken, like 10%, 15% is probably what I have in my head, in terms of the Natura base. Can you give us an idea of where we are in this journey? How relevant these new channels are already, when you sort of add together direct to consumer e-commerce plus franchise channels plus own stores. How relevant is that already overall?
Are we still looking at less than 10%? Is it already more than 10%? Given that you have quite substantial growth at some of these channels, what's the underlying growth that you're seeing if you just look in isolation just at the direct sales channel? Thank you very much.
Irma, direct sales is still the most important of our channels, the traditional selling format, if you want. When you look at our performance and look at the market, it is slightly above the market, the direct selling. Otherwise, we wouldn't protect or even gain share, given its still a big relevance. Having said that, our own stores, plus our consultant stores, plus the online format, we are already, I don't know, probably halfway through the targets that you referred to.
Yep. Cool. Thank you.
Our following question comes from Joseph Giordano from JP Morgan.
Hi, good morning, everyone. Thanks for taking my question. I'd like to explore a little bit, the very good trends we've seen in Latin America. I would like to understand how the competitive environment is shaping up, particularly in Argentina. How the expansion maybe a little bit more aggressive now in Mexico is also playing out. Going back to Brazil, maybe I'd like to understand a little bit, the volume trends. I'm not sure if you have any kind of statistical thing, like bundling, because volumes have not been growing. Second, about any potential changes to the commissioning structure, as you mentioned in the release, that most of the sales reps are trending to the silver level. Thank you.
Hi, Joseph. JP speaking. As regards Latin America, we are so pleased with the performance of all of our operations so far. Really nice to see how that is developing. Argentina, as you know, in a tougher environment, it's difficult to compete there, but the strength of our model, the preference of the brand, the loyalty of the consultants keep pushing our business up, and volumes keep growing, market share keeps growing. Pretty pleased with that. As we are with Mexico, as you said. We continue to see double-digit growth in our Mexican operation in spite of a relatively softer economy. Our operation is doing pretty well. Very happy with our operations across Latin America. When it comes to Brazil, you asked about volume. Well, first of all, the market itself is showing negative volume growth at this point in time.
When you look at our numbers, that is somewhat twisted by the fact that we have a higher proportion of gifts in our mix, which do not count precisely. One gift is not necessarily one item. That distorts a little bit the volume, as well as a much more premium mix. A growing number of fragrances, especially prestige, which is helping our top-line growth, as you could see there, improving our gross margin. It's a more prestige portfolio as well. You also asked about commissioning. There is no change in the commissioning structure. We just see a higher number of more productive consultants developing, which is great. That's the idea of our model. They dedicate more time to our brands, to know more about our launches, and recommend our products to their clients, which makes them more productive. We are very pleased with that.
Perfect. Thank you.
Our next question comes from Gustavo Oliveira from UBS.
Thank you for taking my question. JP, it's also a follow-up on the price mix growth and volumes. Are you also implementing lower discounts in your products? Is this something that you are seeing? Also, if you could comment on the new product launches in very important categories that you implemented this quarter, right? Mamãe e Bebê, and also the Tododia. If you're already seeing, during the phasing process, an acceleration in growth, meaning that you could even see a much faster 4Q number from these launches. If you could comment on that as well.
Gustavo, thank you for the question. You can appreciate our gross margin, our promotional policies keep well in control. Not our intention to make any significant change to our promotional policy. As regards our new launches, they are all performing very well. You mentioned most of them. The new Tododia, our largest brand, Mamãe e Bebê, all of them, 100% vegan formulas. The Lumina new haircare line, which was launched beginning of the quarter, end of previous quarter. Very happy with that. Just now, we launched Una, just starting in Q4. We launched Una with huge success. Not to mention the nail polish, which keeps surprising us. So far, all the new launches are performing above expectation.
Thank you.
This concludes today's question and answer session. I would like to invite Mr. Roberto Marques to proceed with his closing statements. Please go ahead, sir.
Thank you. Again, thank you all for joining the call this morning. As you saw from today's results, we continue with a strong momentum in making further progress toward delivering our targets, even as we work to close the acquisition of Avon. We look forward to talking to you again very soon, and we'll keep you posted on the development of the transaction. Thank you so very much for your attention, and wish you all a good day on behalf of all of us. Thank you very much.
That concludes the Natura &Co. audio conference for today. Thank you very much for your participation, and have a good day.