[Foreign language] Bom dia, senhoras e senhores. Obrigada por aguardarem. Sejam bem-vindos à teleconferência sobre os resultados do Grupo Natura & Co para o segundo trimestre de 2018. Temos conosco hoje senhor Roberto Marques, Presidente-Executivo do Conselho do Grupo Natura & Co, senhor João Paulo Ferreira, Diretor-Presidente da Natura, senhor José Filippo, Diretor Financeiro de Relações com Investidores da Natura e senhora Viviane Behar, Diretora de Relações com Investidores da Natura & Co. Este evento está sendo gravado e todos os participantes estarão ouvindo a teleconferência. Em seguida, iniciaremos a sessão de perguntas e respostas, quando maiores instruções serão fornecidas. Esta teleconferência possui tradução simultânea para o idioma português e perguntas poderão ser feitas normalmente por participantes conectados do exterior, tanto em inglês quanto em português. Caso algum dos senhores necessite de assistência durante a conferência, queiram, por favor, solicitar a ajuda de um operador digitando o asterisco.
www.natura.net/investor. This live presentation may be downloaded from this website. There will be a replay of this call available on our website as well. Before proceeding, please be informed that forward-looking statements are being made under the Safe Harbor of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on the beliefs and assumptions of Natura management and on information currently available to the company. They involve risks, uncertainties, and assumptions because they relate to future events, and therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of Natura and could cause results to differ materially from those expressed in such forward-looking statements. I will turn the conference over to Mr. Roberto Marques, Executive Chairman of the Board of Natura & Co.
Mr. Marques, the floor is yours.
Thank you, Larissa, and good morning to all of you, and thank you for joining us on this conference call to talk about Natura & Co's second quarter results. I'm joined on this call by José Filippo, who, as you know, joined us in May as our CFO, and to whom I would like to extend a warm welcome. He came to us from Embraer and brings vast experience both in Brazil and international markets. Also with me is João Paulo Ferreira, the CEO of Natura, and Viviane Behar, who recently joined us as Director, Investor Relations and whom I'm also happy to welcome to our team. I will start by presenting the highlights of Natura & Co's second quarter performance. Filippo will present our consolidated financials and performance by brand. I'll make some concluding remarks before the three of us can take your questions.
As usual, I'll be referring during this call to the presentation that is available on our website. Let's begin on slide three with the key highlights of Q2. In a nutshell, this was a very strong quarter for Natura &Co, delivering double-digit revenue and EBITDA growth, demonstrating once again the power of multi-brand, multi-channel group with a global footprint that we are building. As you can all appreciate in a quarter that was pretty challenging for all of us, being able to report double-digit growth in revenue and EBITDA is pretty exciting and something that we are really pleased. This is even more evident in the headline numbers. Reported net revenue increased by 53% in BRL and by 13.6% on a pro forma basis, which, as you know, includes The Body Shop in the base.
Profitability was also up with a solid EBITDA increase of 12% on a reported base and 8.5% on an adjusted base. This quarter, we're also introducing to help all of you the concept of underlying operating income, which excludes non-operating results, financial expenses, income tax, and non-recurring effects, providing a clear view of the health of each business and the group. In this metric, this quarter, underlying operating income rose 9.4% in the quarter and 54.1% in H1. Again, Filippo will provide greater details on the numbers shortly. Which one of our three brands and businesses is contributing to this performance? Natura's relationship selling an increasingly multi-channel model is continuing to deliver a strong result despite the impact of the truckers' strike in Brazil, with solid sales growth both in Brazil and in Latin America, and EBITDA also growing.
The Body Shop transformational plan is underway and delivering its initial results. Underlying profitability, excluding the transformational costs that we are now implementing, was strongly up, in line with the plan to generate EBITDA margin improvement. Sales in the quarter were impacted by the commercial calendar that helped us in Q1, as we disclosed in our last earnings call. H1 sales were up by a healthy 3.6%, something again that we are very pleased to see those sales numbers already coming from The Body Shop. Aesop continues to deliver remarkable growth, with high double-digit growth in sales and EBITDA across all channels and geographies. We have also brought in some new leadership talents for the group, Natura and The Body Shop, that I would like to highlight.
I've already talked about Filippo, who joined us as a CFO of the group in Natura, and Viviane Behar as Director of Investor Relations, a role that has become more global. Natura also recently announced the appointment of Paula Andrade as head of its retail operations and Fernando Lemos as head of digital. The Body Shop also announced the appointment of Domenico Trizio to the newly created role of Chief Operating Officer, Amy Liddy as Global Finance Director, and Alan McCaskill as Global Customer Director, as well as Lionel Toureau as Global Brand Director to support the CEO, David Boynton, and the team of The Body Shop in this brand transformation, which has gotten off to a strong start. In line with our triple bottom line approach, we recorded also new initiatives and advances in sustainability this quarter.
Let me mention in particular a new certification by the Union for Ethical BioTrade for Natura's Ekos line, and also The Body Shop global campaign, Forever Against Animal Testing, that has also continued to show momentum and is nearing its aim of collecting 8 million signatures, which is something very exciting. With this strong performance in Q2 and H1, Natura & Co is fully on track to deliver the medium-term targets that we present back in April at our Natura & Co Day. With that, let me hand over to Filippo to go into our financial performance in greater details.
Thank you very much, Roberto, and good morning to everyone. It's a pleasure to have joined Natura and to be with you today, and I'm very much looking forward to our future exchange. Roberto mentioned that Natura & Co posted another quarter of very strong growth. In slide five, you see that pro forma consolidated net revenue, which includes figures for The Body Shop in 2017, was up in double-digit growth both in Q2 and H1. In the second quarter, consolidated net revenue reached BRL 2.1 billion, up 13.6% versus the same quarter of last year on a pro forma basis and up 8.6% at constant foreign exchange rates.
This increase was driven by double-digit growth at constant exchange rates, both at Natura and Aesop, while The Body Shop's Q2 sales were impacted by the commercial calendar and the phasing of purchases by franchisees, which boosted Q1 sales as we reported at the same time. In the first half, sales reached almost BRL 5.8 billion, representing 12.4% growth on a pro forma basis and 8.6% at constant currency. All three brands posted sales growth in the half, with Natura up by the same 8.6% in constant currency, The Body Shop up 3.6%, and Aesop up by a very strong 33.4%. On a reported basis, Q2 sales were up 53% and H1 sales were up by 64.2%. On slide six, we turn to our consolidated adjusted EBITDA, which was up 8.5% to almost BRL 372 million in Q2 and up 27% in H1 to almost BRL 691 million.
Adjusted EBITDA is a metric we are using to provide a clean reading of our operating performance. We exclude all one-off effects linked to The Body Shop acquisition. These include acquisition expenses included in Q2 of 2017 for BRL 36.1 million and transformation costs included in Q2 2018 for BRL 37.5 million. As you see on the slide, all three businesses improved their performance and therefore contributed to our EBITDA growth in the quarter. Reported EBITDA was up by a solid 12% to BRL 334.4 million after taking into account The Body Shop's transformation cost in Q2. In H1, reported EBITDA was down 1.5%. Let's turn on the following slide to our bottom line. As shown in the graph, underlying operating income rose by a solid 9.4% in Q2 and by a very strong 54.1% in H1.
Q2 growth was driven by The Body Shop and Aesop, while Natura was broadly stable on lower gross margin and higher SG&A, as we will see shortly. As Roberto mentioned, here again, to provide comparable numbers, our underlying operating income excludes acquisition-related effects and expenses such as debt servicing and transformation costs. On a reported basis, net income stood at BRL 31.8 million in Q2 versus BRL 163.5 million in Q2 2017, reflecting these acquisition financing transformation costs. In H1, reported net income was BRL 56.2 million versus BRL 352.6 million in H1 2017. On slide eight, let me conclude the rapid overview of our key financial aggregates this quarter with a couple of balance sheet considerations. We recorded a free cash flow of BRL 131.5 million in Q2, with a positive contribution from all three businesses.
This compares with BRL 225.5 million in Q2 2017, mainly attributable to a lower reported net income in the period impacted by acquisition effects and higher working capital due to seasonal inventory at The Body Shop and higher receivables from sales growth at Natura. Our net debt EBITDA ratio stood at 3.3 times at the end of Q2, in line with our expectations. We are on track to reach our target of 1.4 times by 2021. Let's turn to a more detailed look at our performance by business. On slide 10, we begin with Natura with the key highlights of Q2 performance. Overall, Q2 saw further consolidation of Natura's transformation, with sales growth in both Brazil and Latin America and market share gains in Brazil, notwithstanding the impact of the truckers' strike in May. This demonstrates the strong reliance of resilience of Natura's business model.
This performance was driven by excellent Mother's Day and Valentine's Day campaign this year, both which outperformed last year's campaign on the back of stronger sales of key categories. Our relationship selling model continues to progress, with our productivity per consultant up by a very strong 24.1% in Brazil, as shown in the graph, and further improvements in Latin America. Our multi-channel strategy is now advancing, with high double-digit growth in online sales in Brazil and an acceleration in Argentina and Chile. Our innovation index improved again and stood at 64.3% in the quarter, up from 64% in Q1 and 62.1% in the year-ago period. Let's take a closer look at top-line performance on slide 11. Overall, Natura's net sales were up 9.8% in Q2 to a little over BRL 2 billion, and up 8.1% in the first half to BRL 3.7 billion.
At constant currency, growth was 10.3% in Q2 and 8.6% in H1. We grew both in Brazil and Latin America. In Brazil, sales grew by 6.7% in the quarter and 4% in the half, driven by strong performance in key categories. The shift in Mother's Day to Q2 this year helped us offset the impact of the truckers' strike in Brazil, as well as some sales interruptions due to the World Cup. The number of consultants in Brazil stabilized and even increased slightly compared to the Q1, and productivity improved sharply. We continue to wrap the digitalization of our business, with more than 50% of our consultants now using our mobile platform and online sales growing in double digits again this quarter, with significant increase in traffic, a higher average ticket, and a strong conversion rate. E-commerce now accounts for about 3% of the sales.
We are also continuing to roll out our multi-channel strategy with a new wave of store openings beginning this month. Latin America sales were up by a very strong 17.7% in Q2 and 18.8% in H1. At constant currencies, growth was even stronger at 20.6% in the quarter and 21.8% in the half. All geographies grew, with a particularly good performance in Argentina, Chile, and Mexico. The number of consultants grew 10.5% in Latin America, and we are also seeing improvement in productivity, and we're rolling out our relationship selling model in Chile with positive initial results. Let's now look at Natura's profitability on slide 12. Overall, EBITDA was up by 5% in Q2 in BRL, and strong growth in Latin America more than offset a broadly stable performance in Brazil. In Brazil, EBITDA was down by 0.5% in the quarter.
The performance was impacted by lower gross margin, pressured by higher manufacturing costs as a result of the truckers' strike, foreign exchange effects, and promotional investment. G&A expenses were up in the quarter due to a higher investment in technology to support the increasing digital nature of our business and in research and development as we strengthened our product portfolio to keep delivering innovative and desirable products. Conversely, selling, marketing and logistics expenses improved sharply, falling by 260 basis points as a percentage of net sales, even with higher marketing expenses, demonstrating that our relationship selling model is more productive and efficient. Latin America is maintaining its excellent momentum, and its profitability was boosted by productivity and efficiency gains, with EBITDA up 23.1% in the quarter. In H1, EBITDA was down 13.5% overall, with Brazil down 24%.
It's important to note that H1 last year was boosted by a non-recurring tax reversal of BRL 154.8 million. If you exclude this, comparable EBITDA was up 11.7% overall and 3.5% in Brazil in H1, which constitutes a solid underlying performance. We now turn to The Body Shop on slide 14. In BRL, The Body Shop posted double-digit growth in net revenues both in Q1 and H1. In Q2, net revenues were up by 14.8% to BRL 806.7 million. In H1, they rose 15.6% to a little over BRL 1.6 billion. At constant currency, sales were down 1.1% in Q2 due to The Body Shop's commercial calendar and strong purchase in Q1 by franchisees, in line with our forecasting. Q2 did not benefit from those same effects as expected.
Looking at H1, which eliminates these effects, we saw reported sales rise by a healthy 3.6% with growth in owned stores, sales by franchisees, and online. In terms of geography, Asia Pacific and Europe, Middle East and Africa region drove growth. This H1 growth was achieved despite having fewer stores as The Body Shop continues to optimize its store network. At the end of Q2, it had 1,050 owned stores, 52 fewer than the end of Q2 last year, and 1,928 franchise stores, down six. Most of the store closures were concentrated in the U.K. and the U.S. On slide 15, we take a closer look at The Body Shop's profitability. As mentioned previously, The Body Shop began implementing its transformation plan and booked transformation cost in Q2 of BRL 37.5 million or £7.6 million.
These are part of the estimated transformation cost totaling £30 million to be booked in 2018 and 2019. These costs are in line with our plan and are already factored in the guidance we have provided to the market. The costs are tied to initiatives that will bring about a recurring improvement in the business, with an estimated cumulative margin improvement between £105 million and £135 million over the next five years, in line with our guidance. These initiatives include such actions as organization redesign, stockist optimization, and measures to improve operational efficiency, among others. We are already seeing a strong improvement in The Body Shop's underlying performance, excluding these costs. As you see on the slide, adjusted EBITDA grew in Q2 to BRL 24.7 million from BRL 8 million, with margin of 3.1%.
On a reported basis including the transformation cost, reported EBITDA was negative BRL 12.8 million in Q2. In H1, the improvement was even stronger, with EBITDA increasing to BRL 44.4 million on a reported basis. Adjusted EBITDA, excluding transformation costs, reached BRL 82 million, equivalent to margin of 5.1%. This improvement is largely due to a lower discount in the quarter, as well as lower occupancy costs in owned stores and better franchise sales. These numbers reinforce our confidence that The Body Shop's five-year transformation plan is on track and already delivering results. Let's now turn to Aesop on slide 17. As shown in the graph, Aesop turned in another impressive performance, both in the quarter and in the half, with sales up 36.6% in Q2 to BRL 235.5 million and 33.4% in H1 to BRL 136.6 million at constant currency.
This high double-digit growth was across all channels and geographies. This growth was supported by continued store openings, including 25 new signature stores in the past 12 months as Aesop enter new markets. Like-for-like sales in signature stores were also up by 21.6%, with particularly strong growth in Asia Pacific, demonstrating the brand's increasing appeal. Online sales were also up in double digits. The graphs on Aesop profitability on slide 18 also speak for themselves and show that Aesop goes from strength to strength. EBITDA grew by a remarkable 32.5% at constant currency in Q2 to BRL 25.3 million and 66.6% in H1 to BRL 52.3 million. EBITDA margin reaches 10.7% in Q2 and 12% in H1, a 300 basis points improvement. On slide 19, we conclude this overview with a few sustainability highlights.
First, as Roberto Marques mentioned in his introduction, Natura became the first Brazilian brand and one of the only two worldwide to be awarded by the certification for its Ekos products line by the Union for Ethical BioTrade. This reflects how Natura sources its natural ingredients, respecting fair trade, conservation of biodiversity, and trust-based relations with communities. Second, the United Nations Global Compact nominated Guilherme Leal, one of our founders of Natura and Co-Chairman of the Board of Directors, as a member of its global council in recognition of his commitment to sustainable business practice. Finally, with 7 million signatures in its global Forever Against Animal Testing campaign, The Body Shop is nearly to its target of obtaining 8 million signatures for the petition it intends to submit to the United Nations later this year. Now, let me hand it back to Roberto Marques for his concluding remarks.
Thank you, Filippo. Let's now conclude on slide 20 with our key takeaways. With another quarter of growth in revenues and EBITDA, Natura is delivering and showing the strength of the group we are building. Hopefully, the story of the group now becoming multi-channel, multi-brand with a more international presence is helping the group and the business delivering solid results, despite some of the challenges that we saw in Brazil, particular in Q2. All brands are contributing to this performance. Natura's good momentum continues both in Brazil and Latin America, and its relationship selling model and multi-channel strategy are advancing quarter after quarter. The Body Shop is making significant strides to deliver its vision of the future. The transformational plan is advancing and already showing early results, as evidenced by a significant improvement in sales and underlying profitability, excluding the transformational costs.
In Aesop, impressive growth story continues, with strong growth in sales and profitability quarter after quarter. With this solid second quarter performance, Natura &Co. is on track to deliver the medium-term targets it presented recently, namely, a high single-digit compound annual growth in net sales and a low double-digit compound annual growth in EBITDA through to 2022. While at the same time reducing our net debt to EBITDA ratio to 1.4 times by 2021, a year faster than we first announced after we did the acquisition of The Body Shop. Thank you very much for your attention. We are now happy to take your questions.
Ladies and gentlemen, we will now begin the question-and-answer session. If you have a question, please press the star key followed by the one key on your touch-tone phone. If at any time you would like to remove yourself from the questioning queue, press star two. Our first question comes from Thiago Macruz with Itaú BBA.
Hello, guys. Good morning. My question is regarding the Brazilian operation. I would like to get more color on the impact this quarter of the truckers' strike. You've mentioned some recurring and non-recurring effects to explain the stronger top line and softer profitability. Just want to make sure I understand what was the impact of the truckers' strike in profitability. When it comes to your strategy moving forward, is it reasonable to assume that you will adopt a more aggressive stance in terms of pricing in Brazil from now on? Should we see this as a new normal? That's my question regarding the Brazilian operation, guys. Thank you very much.
Hi, Thiago. JP speaking. As regards the effect of the truckers' strike, it actually impacted us twofold. One, on top line. Our top line, which was really good, would have been even better if it was not for the strike. Once again, we proved the high quality of the services we provide and the capabilities we built over the years that deliver us ongoing advantage in the business, but proves itself in moments of stress like this. That was the first impact. Indeed, we had impacts on costs because we had some idle assets. We produced as much as we could of what we could. Our distribution centers did their best. However, we did face some idle time with our assets, which reflected in our gross margin.
That's one of the reasons I'm very confident on margin improvements going forward in the second half, both in terms of gross margin, but moreover in EBITDA margin.
As it comes to pricing, as you said, we are seeing a moderate, not to say shy, consumption pattern in the country, which suggests there's not much room for aggressive price increases. Although, we do plan a slight price increase as of next month. The overall promotional activity grew in comparison to last year. We do think this is a temporary level and should normalize as the economy picks up.
That's super clear, JP. Thank you very much for your answer. Is it fair to say that the impact of the trucker strike in profitability this quarter was north of 100 basis points? Is this a good estimate, just for us to really have a ballpark and be more educated in our forecasts for the remaining of the year? Thank you.
Yeah, that's a fair assumption. That's a good ballpark. It will be a higher impact on top line and above that in profitability.
Great. Thank you very much. Thank you.
Our next question comes from Olivia Petronilho with JP Morgan.
Hi, good morning, guys. Thank you for taking my question. I have two questions, actually. The first one is on the gross margin in Brazil. I'd like to understand a little bit more the effects that resulted in the drop in margins. Maybe if you can link that a little bit to the lower average ticket that we saw in the quarter. Is this a matter of mix? Is this a matter of actual investments in prices? Is this impacted by the new commissioning structure? If you could give us a little bit more visibility here. The second question is regarding The Body Shop. Basically, you gave us a little bit more guidance regarding the investments in the revamping process of the banner.
If you could give us a bit more visibility on which regions we should be focusing on, if they should be mostly focused on franchisees, on stores, in e-commerce, new launches, et cetera. Thank you.
Hi, Olivia. J.P., I'll take your first question and then Roberto will take the second, okay? As regards gross margin impact in our Brazilian business for Natura, four main drivers for that impact that you noticed. First of all, the strike, as I mentioned before. Some fixed costs that couldn't be diluted. There's already showing some ForEx effect, exchange rate effect in our raw materials. There was a third element of product mix, which explains your second part of the question on a lower average ticket. Actually, there was one of the categories with a lower price outgrew the average. Finally, an increased promotional activity. These are the four elements that explain the gross margin in Brazil.
Olivia, hi, good morning. Roberto here. I'll take The Body Shop on behalf of David, who's not here on the call with us. The transformational program, as I think Filippo mentioned, we now have a very good handle in terms of the cost of the transformation. We're planning to spend about GBP 30 million between 2018 and 2019. Roughly, I would say GBP 20 million will be in 2018, then the other GBP 10 million will be in 2019. Most of that is going to be related to some of the organization designed to improve the efficiency and efficacy of our structure. That's primarily in our company market, Europe, North America, and some parts of Asia. Also in terms of optimizing our store footprint.
As we communicated throughout the track plan over the next five years, we think we're going to net with a reduction between 100-120 stores in some of those key markets for us. Again, company markets. Okay, hopefully that helps.
Okay. Now on The Body Shop, that's great. If I could just have a follow-up on the virtual margins. Strike apart, do you think this should be what we should continue seeing in second half? I mean, a little bit of pressure from ForEx and still promotional activities? Thank you.
Yes. ForEx effects apart, there will be a pressure on those elements, however, partially compensated by a slight price increase. Moreover, a volume increase. Because as you recall, our volumes are skewed to the second half of the year, and we foresee a huge flow through our P&L.
Okay, thank you.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press star one. Our next question comes from Guilherme Assis with Brasil Plural.
Hi, good morning, everyone. Thanks for taking my call. I'd like to get your views, maybe J.P.'s views actually, on the growth of the Brazilian market. We lost some of the information that we used to have about the potential growth. I'd like to understand, market share-wise, how you're seeing the company and how you're seeing the market grow in Brazil, the expectations for this year, maybe for next year, and how do you think the market share-wise Natura will perform. That's one question. Another question is about the consultant base in Brazil. We understand that Natura underwent a cleanup, and it seems like the churn this quarter, like in the last quarter, actually became a net addition again, right?
The question here is, do you think that the cleanup is through, should we expect the base to start growing again in the short term? Those are my questions. Thank you.
Hi, Guilherme. J.P. speaking. Thanks for the questions. Starting with the market. The market growth is very modest currently, as we read it. All information following the GDP growth as smaller GDP growth than forecast originally. Consumption is quite contained. Having said that, we're very, very pleased to say that we continue to gain market share. After achieving or recovering market leadership last year, we continue to see Natura growing its market share. Actually, looking forward, it's also very promising. As you know, this Sunday, we're going to celebrate Father's Day. By the way, for all of you who are listening, enjoy the day with your families. This is a very important date for us, which is outperforming our expectations, which suggests that we will continue to increase our competitiveness in our market. Excellent opportunity for Natura, going forward in spite of a lower market growth.
As it comes to your second question on the consultant base, indeed, it seems it's stabilized. It seems that most of the cleanup is over. The total number of consultants in Q2 is very similar, actually is likely higher than end of Q1. As of now, we should see a sort of stable or perhaps an even slight growth going forward.
Okay. I think that's clear, JP. Just a follow-up on my first question, if I may. Regarding the market share gains, when we look at the numbers, the operating data that you provided, you mentioned before, that there was a decline in the average price. I tend to think that as a mix of more promotions, but also an important part in product mix, right? When you think about that and try to reconcile with market share gains, is it fair to say that maybe last year, the main driver for market share gains was fragrances, and this year, you're more diversified in market share gains?
I think it's a fair assumption. We actually gain share in all of our categories, basically, the core ones. More diversified than last year, indeed. Last year, fragrances was perhaps the biggest driver and continues to be, but the other categories are performing as good as, and some of them, at this moment, even better. It is a more spread growth, and that had an effect on the category mix in this particular quarter.
Okay. Thanks. Maybe just one last thing, now that you mentioned that you believe that your consultant base is already stabilizing now. Should we start to see a reduction in the productivity gains we saw, that was a big highlight in this quarter? In the second quarter, should we start to see more modest productivity gains going forward?
Guilherme, that will link to our modernization, digitization strategy. As we start finding new services and new possibilities of improving the shopping experience through the consultants, through digital services, through our end consumer, if that continues to work fine, we're going to continue to see improvement gains. Whether they're going to be as sharp as they were in the last, say, four quarters, that's yet to be seen. We are working to have that indicator continuing to grow.
Okay, that's super helpful. Thank you, J.P.
Our next question comes from Richard Cathcart with Bradesco.
Hi, guys. Good morning. Thanks for taking the question. Just a couple of questions about Natura in Brazil. Firstly, you said that you're going to begin to open more of your own stores by the end of the year. Should we expect to see a new, different, updated store concept, or are you continuing to roll out the stores that we already see in some locations in Brazil? Then the second question is just about the drugstores channel. You've got some specific products for that channel, the Faces makeup, the Sol body care, et cetera. Could you just give us some information about how that business is performing, what your expectations are for the rest of the year and next year? Thanks very much.
Thank you for the question. J.P. speaking again. As it comes to store concept, we are indeed opening stores in the second half of this year. We opened Niterói two weeks ago. Today, this morning, we just opened Goiânia. There's sort of a dozen stores yet to be opened or more in the second half. It's still under the current concept. We are indeed working on a new store concept. That should materialize next year. When it comes to drugstores, we are happy with the performance so far. We are looking at the opportunities to gear it up next year. It's a work in progress, understanding where the opportunities lie, and as soon as we have more news on that, we will inform you accordingly.
Okay, thanks. If I may, just to follow up on The Body Shop in Brazil and Latin America. I think when the acquisition was made, one of the strategies you wanted to implement was direct sales of The Body Shop in Brazil, so leveraging the relationships you already have. Can you just give us an update on that strategy and when we should begin to see that in place? Thanks.
Hi, Richard. Roberto here. Just on The Body Shop LATAM. We still see this as one of the biggest opportunities to drive growth. We have now, under David, but also under Roberto Marques, our Chief Transformation Officer. We're really starting to study what potentially could even help and boost even more the presence of The Body Shop in LATAM. We are looking at our store footprint. We are looking at the franchise model that we currently have, and we are going to be evaluating potentially direct selling as a complement. We don't have the strategy defined yet. It's work in progress as piggyback here on JP's point.
Okay, perfect. Thanks very much. Thanks.
Our next question comes from Gustavo Oliveira with UBS.
Thank you for taking my question. I want to start a little bit in Brazil, if I may. I understand there is a recent price increase being implemented. If you could comment a bit on that and whether you expect with this price increase, a margin improvement, gross margin improvement in the second half of the year or not? That's the first question.
Hi, Gustavo. As I just mentioned, yes, we will increase prices slightly and that should help gross margin increase going forward.
João, what's the magnitude of the price increase? Just to confirm, you usually do a price increase at the beginning of the year. I'd like to understand if this is the second price increase that you didn't do in the first half of the year. If you could give us a sense for what's the magnitude of the price increase now, and also if it's more related to pressures related to the BRL devaluation, or if you are seeing opportunity in the marketplace at the moment, since it seems that you're gaining share and the competitors are a little bit weaker at the moment.
Not a big price increase, so low single digits. We didn't increase price earlier. Not much room for price increases in the market.
Okay. The second question is with respect to G&A. I think in the first quarter, you had very good results in G&A in Brazil. Right now, your G&A expenses have been up 25% in this quarter. What we should expect for the rest of the year? Is G&A going to be growing more in line with revenues in your expectations, or there should be some pressures still for the rest of the year?
Okay. Hi, Gustavo. It's Filippo. In terms of the projections for the year, I think we should take this number as a remaining. We don't expect to see increases on this number. They should be keeping this level. Again, that reflects, as we indicated, our investment in innovation is important about our digitalization and IT platform as well, that we're incurring in some OpEx with that.
Also that we took some of the IT assets in terms of the life. We revised the useful life of some of the IT assets that also counted for what you see there. We expect to see this remaining nominal terms for the year. However, with the growth, we definitely will dilute those costs throughout the year in the future.
That's very clear, Filippo. Thank you. Two last questions on The Body Shop, if I may. I would like to understand a bit, I understand you are cutting product discounts. You're reducing the level of product discounts. I want to understand where you stand on that process and whether you would expect any impact on your revenue in the second half of the year, or whether the consumers are actually continuing to buy and therefore the elasticity of this discount is actually very low or not, or whether there would be a potential deceleration on revenues going forward. It's quite difficult still at this stage to forecast your revenue line, although I recognize you have given a good mid to long-term guidance.
In the very short term, perhaps in the second half, it's quite difficult to understand where you stand in terms of the potential impact of the product discounts, reduction of product discounts on your top line.
Roberto here. Let me see if I can help you. Again, I think, yes, we are on the process of reducing levels of discount for The Body Shop, and again, we think that the brand is worth more, and we are seeing some very good results in store in a couple of markets where, in Europe and also in the U.S., where we are experimenting and seeing consumers respond in terms of transaction positively, even though we are reducing levels of discount. We felt, as part of our due diligence, that probably the brand was too much discounted, and we have great products, a great brand, and the team is really starting again to work on the rejuvenation of the brand and how we can add more value. That trend will continue.
In terms of projection from a revenue perspective, again, we are very pleased with the results on the half one, right? If you look at half one, we grew a little bit above 3%, 3.5%, 3.6%, and I would say our expectation is that we'll continue that trend, right? Again, a combination of improving a little bit through the transformation, reducing discounts. Again, you still have a long way to go to implement this brand rejuvenation. That's pretty much the best proxy that we can have at this point, is based on the half one results.
That's very helpful. One last question on the gross margin for The Body Shop. In the fourth quarter of 2017, and I'm asking, I know, a little bit ahead of the factor, but the fourth quarter is your most important quarter. This is a very seasonal business, and you had a margin contraction versus the third quarter 2017 number. You're managing the company differently now. Should we still see a dropping in margins in the fourth quarter because of mixed effects of different campaigns? You think margins could be more stable where they are right now, gross margin?
That's Gustavo. We still expect to see the margin, the level that we saw before, but not a reduction. As you saw, the first two quarters already had a good indication about the capacity and the momentum of this business. The fourth quarter is the strongest. There's a clear seasonality in this business for TBS, and we expect to see stronger fourth quarter as we saw in good years. That's what we expect.
Okay. 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, Larissa. Again, thank you all for joining us. I would like just to wrap up in acknowledge and thank all of our associates at Natura, The Body Shop, and Aesop for driving those tremendous results in the quarter and for the semester. Again, we're in a journey. We're building a group that we're very proud of, and the results, again, hopefully you would agree with us, are pretty encouraging and very positive on the quarter. For the ones in Brazilian, wish you a Happy Father's Day, and just reinforce JP, make sure that you're buying a Natura gift for your fathers. Thank you very much. Have a good weekend. Thanks, everybody.
That concludes the Natura audio conference for today. Thank you very much for your participation, and have a good day.