Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to RD People, Health and Wellbeing conference call to discuss its 1Q22 results. The presentation can be found on RD's investor relations website, ri.rd.com.br, where the audio for this conference will later be made available. We inform that all participants will only be able to listen to the conference during the company's presentation.
After the company's remarks are over, there will be a Q&A period. At that time, further instructions will be given. Before proceeding, let me mention 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 RD management and on information currently available to the company. Forward-looking statements are not guarantees of performance.
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 RD and could cause results to differ materially from those expressed in such forward-looking statements.
Today with us are Mr. Eugênio De Zagottis, IR, Corporate Planning and M&A Vice President, and Flavio Correia, Investor Relations and Business Development Director. Now I'll turn the conference over to Mr. Eugênio De Zagottis. Sir, you may begin your presentation.
Hello, everybody. Welcome to the Raia Drogasil first quarter 2022 conference call. I'd like to start by saying that this was obviously a very challenging quarter for us. The main reason is we have a very material inflationary lag. Actually lag is a better word than pressure because it's a transitory effect.
Our last authorized price increase before this quarter had happened in the beginning of the second quarter 2021. We had four quarters of very strong inflation, which amounted to something like 11.3% CPI over this period versus a last authorized price increase of seven point 5% . We have something like 400 basis points of difference between the last price increase undertaken into this quarter and the current inflation level.
As I mentioned, it's a transitory effect because already in April this year, a new price increase reflecting this high past inflation has been authorized. We have already passed that in the beginning of April to our prices. Obviously we have a very challenging quarter here with significant margin pressure.
We are starting a second quarter that will be completely different. We're very likely we'll have a margin surplus versus last year. Coming to a second semester in which we expect to have normal margins leaving this lag finally behind. Despite of all this margin pressure that becomes self-evident here, the structural performance of the company has been very strong, and I would like to highlight some of these aspects. We ended the quarter with 2,530 pharmacies.
We have opened so far 52 stores, 12 more than we had opened in the same quarter last year. We also closed 12 stores. We have an expansion which is accelerating. We have a guidance of 260 stores a year, for which we are absolutely on track.
The return that we're seeing in recent stores, despite the changing profile in terms of regions, demographics, et cetera, we are seeing very strong returns higher than we saw in the past. And I'll talk more about this during the presentation. We posted BRL 7 billion in gross revenues, an increase of 16.6%.
It's important to mention here that if we take out COVID tests from the base because we had a peak in the first semester of last year, the total growth would have been 17.8%. We have a 1.2 percentage point headwind from the high COVID testing comp base of last year.
The structural growth is higher than the 16.6%. Still, we had 8.9% for mature stores, despite the 1.2 headwind. All in all, we would be around 10% mature stores, which is way higher than the last price increase authorized of 7.5% and pretty close to the current CPI. Digital has been definitely a highlight, BRL 656 million.
On a running rate basis, we're already doing BRL 2.3 billion in digital revenues. RD Digital is on the verge of becoming the number four player in Brazil, if you like, as a separate chain. Despite the fact that digital was already big last year, we are still growing 51% and retail penetration reached 10%, which is really a landmark number for us.
There is real behavior change happening here. The channel mix, this is something I'll talk later in the presentation, is very differentiated with a big prevalence of mobile and especially of the app within mobile. Contribution margin BRL 63 million is BRL 200 million, 9% margin. Obviously there's pressure here, just like in the EBITDA margin, which was 5.6%.
First quarter EBITDA margin is always lower because we have a short month in February. We have vacation in January, but obviously 5.6% is way below what it should have been more than normal. Again, this is credited mainly to the big lag in terms of inflation and also to investments we are undertaking to support the new strategies of the company.
I'll talk more about this as well. Net income 2.1% net margin and negative free cash flow of BRL 320 million. This is. There's a seasonality effect here when you compare to fourth quarter. It is a lower cycle quarter. First quarter is a high care cycle quarter because the forward buying in anticipation for the authorized price increase.
A quarter with margin pressure, but a quarter that also shows a lot of strength by the company in structural terms, and this is what we carry forward. Well, talking about the expansion, we ended the quarter with 2,530 stores, 52 openings, 12 closures. If we look at the last 12 months, we have done a pretty important number.
I think more than 150 stores, 250 stores in the last 12 months. We are fast approaching the pace for the guidance of 260 openings a year. Obviously 29% of the stores they are still undergoing maturation, either in early, mid, or late stage, while only 71% of the stores have been mature.
Here I would like to share how the profile of the current expansion is different from our history. We entered this year alone, more than 80 new cities in Brazil, and we're talking small cities. Small cities where by definition we were not competing before.
So the fact that out of 250 stores, at least 80 stores are in new cities, this is a very bold expansion. We are entering small markets that are smaller than before. We are finding space in places where previously we couldn't go, but now we're going, and we're going with tremendous returns and tremendous assertiveness. The other aspect here is the demographic aspect.
If you look at our store footprint today, 1/3 of the stores are premium stores that serve the A-class, 2/3 are popular and hybrid that serve B and C class. If you look at the expansion, only 14% is A class, 86% is B and C class. A very different expansion from the one we used to do before.
If you look at the returns, and we calculate and we estimate internal rate of returns, net of cannibalization and net of inflation on a real basis, our historic numbers have been around 20%. If we look at the recent numbers for stores open last 12 months, we're talking currently at 24% real internal rate of return, net of cannibalization. This is a completely different expansion from any other in the market.
This is different not only in the sheer scale of the expansion, the fact that we're opening 200+ stores, 260 stores this year, while the fastest growing competitor is opening something like 100 stores. The size is completely different, but the economics of expansion are also completely different.
I mean, our mature stores sell an average BRL 900,000. If you look at our competitors, our main competitors has BRL 700,000. Our third competitor has probably BRL 600,000, and other competitors are even less than that. We are able, give or take, to reproduce this kind of high revenues per store in new stores as well. This is what is driving such a very high marginal return. We factor cannibalization into the analysis.
If the new store is selling BRL 800,000, but BRL 100,000 is coming from another store or another group of stores nearby, we are counting only 700 stores as marginal for the calculation of internal rate of return. Our calculation doesn't include perpetuity. Again, it's net of inflation.
The size of this expansion and the return of expansion are completely unmatched in the market. The reason is we are a true national chain that makes similar profitability all over Brazil. Our lowest state in terms of revenue from mature store, we are selling 750, which is more than the local incumbent in the market. 750, it's an amazing sales in terms of producing very good returns. We have the brand positioned all over Brazil.
We enter new states, new markets where the brand is already established in these markets. We are swimming on the blue ocean. For our competitors, they're swimming on a red ocean. They have some native market where they can grow, but they have huge rivals and they go to other markets. Ours is the only truly national expansion with this kind of scale, with this kind of returns.
This points to a huge opportunity ahead. We are nowhere close to exhausting the organic growth opportunity, as I think the increasing returns have shown. Today, as a consequence of this, we have more than 2,500 stores. Drogasil is the number one pharmacy brand in Brazil in revenues with 1,400 stores.
Raia is the number two pharmacy brand in Brazil, in terms of revenues also with more than 1,000 stores. This shows the strength of the company. In terms of how the expansion has been different, here we can see the mix of markets. São Paulo or native market versus outside markets. São Paulo has accounted for only 18% of our last 12-month expansion.
The results and the returns, they are still growing and not going down, which points to the fact that we are a true national brand. Market share. There's something that I have to say before showing the numbers, which is this is a number that gets distorted in a quarter like this.
The way IQVIA calculates market shares is by capturing demand data directly supplied by middle and large chains. By capturing sell-in data provided by wholesalers for the small players. The problem is that in a quarter like this that happens just before a huge price increase of more than 10%, forward buying has been huge in the market.
If the share of the sell-in right now doesn't reflect demand. We can see here this. According to IQVIA, in terms of factory prices, the market has grown 16%, with 14% for sell-out information, which probably represents demand growth. The sell-in information has grown 18%, which in no way is a correct number.
This distortion means that this normal market share data that we provide every quarter becomes meaningless in a quarter like this. The best proxy that we have, and this is what we're focusing here, is the market share gain or loss within the sell-out information, b ecause here we are comparing demand to demand, apples to apples.
We have grown 60 basis points on a national basis, São Paulo stable, losing 10 basis points and gained significantly all across the other markets. 100 basis points gain in the southeast, 140 in the Midwest, 50 in the south, 80 in the Northeast, and 180 basis points in the northern region of Brazil. We are doing really well here. If you look at the structural data and use it as a, this data as a proxy for the total.
It's not a perfect proxy as well, I know that, but it's the best data we have this quarter. Hopefully next quarter, without the selling distortions, it may be easier to figure out where we really are considering the historic metrics that we have always used.
Consolidated revenues. We reached BRL 7 billion in quarterly revenues, 16.6% top line growth. Again, if we just consider COVID tests, which had peaked in the first semester of the year, this growth would have been 17.8%. Which for a company our size, it's an amazing growth. I mean, the absolute revenue addition that we are producing every year is a very high number.
As a result, the gap between us and our competitors increases every day. When we did the merger, we were the same size as our main competitor. Today, we're more than twice their size. We are reaching. Our size is reaching the sum of the sizes of the other top five chains, two, three, four, and five in the market.
We're almost there, and we'll be there not long, given the revenue addition we have every year. We are not only the largest chain, but we're the one which is growing the fastest, which is a paradox that we're very happy to maintain. In terms of mix, we are now seeing a mix normalization following some mix changes happened during the pandemic. The main shift is in OTC.
Because COVID tests count as OTC, we have seen a huge peak in OTC growth in previous quarters. Not only COVID tests, but also things like masks, things like hand sanitizers, these are all classified as OTC. Now with the pandemic receding, we are seeing OTC decelerating because of this huge comp base, but other things that have suffered from the comp base reacting like branded pharma.
I would say this is a more normal mix than the one we've seen before, and I would expect some kind of stability going forward here. Here in terms of comps, we achieved same store sales growth of 10.8%, with 8.9% for our mature stores. Again, that is this 1.2 percentage point tailwind from COVID tests.
We will be talking about something like 10% mature store growth. Considering the fact that the last price increase applied had been 7.5%, and inflation right now is 11.3%, despite this inflationary time lag, our mature stores, adjusted for COVID tests, they're very close to inflation, which is a remarkable number that shows the structural strength of the business.
Digital has been another huge highlight in this quarter. We reached BRL 656 million in the quarter. We're talking BRL 2.6 billion annualized revenues, if you multiply this by four. Digital revenues already account for 10% of our total retail revenues. We have achieved this growth based on the strength of our apps. The number of app downloads has been growing steadily.
We have more than 80 million cumulative app downloads. Mix of our digital is very different from all our competitors. A couple of things I'd like to highlight here. The first thing is that in terms of revenues, super apps account for only 8% of digital sales. This means that 92% of digital sales, 92% of this 10% is proprietary channels. It's the customer relating with us and us alone, and nobody else in the middle.
Obviously, we work together with the super apps. We give our customers choice, but our job is always to do a better job than they do. I think today they do a better job in some aspects, like quick logistics, like app experience, but our app is more specialized running programs like manufacturer partnerships, like partnerships with companies and health insurers, dealing with electronic prescriptions.
This specialization, plus the fact that we allow click and collect that the super apps don't allow, plus the fact that we use all our existing stores for neighborhood deliveries, for example, makes our proprietary platforms, not only the app, very competitive. This is one point.
The other point is call center that shouldn't even be classified as digital, represents for us only 4% of our digital sales. We have other competitors who have published figures similar like this, and we have seen a much higher reliance on super apps and call centers accounting for north of 20% of the digital sales. If you take this 12% out, means that 88% of digital sales are from channels who are not only proprietary, but also modern, and with a very strong emphasis in mobility.
Mobile represents 74% of our sales. 49% alone is the app. The app makes half this revenue here on its own. This shows the robustness that we have. It's not a state-of-the-art app as of yet. There's a lot of things that we have to improve, but the app is evolving and the numbers show that.
Our Net Promoter Score is improving a lot as the cycle of releases, of new releases for the app is accelerating. On top of this, 14% is mobile site, 11% is social. It's ordering through WhatsApp. Basically, we're talking here what we call neighborhood deliveries. On WhatsApp sent directly to the store, and then the store will ship direct to the customer.
This channel mix is very different because of this low reliance on super app because of this almost very minute share of the call center and this huge participation of the app that nobody else has. Well, talking about the financials now. Gross margin 27.7%, 20 basis points higher than same quarter last year, which is the which is the net present value adjustment given higher interest rates.
Cash cycle is higher than last quarter. Last quarter is a seasonal low, this is a seasonal high and because of this, stronger forward buying in anticipation of very high price increases, even higher than first quarter last year. We are at peak here, but this is something that will normalize through the year.
Before talking about the margins, I'd like to stress again the point about the inflationary lag that we're currently dealing with. The inflation right now is 11.3%. The inflation that based the price increase that was applied early April is 10.5%, while the last price increase, 7.5%.
We're talking between almost 400 basis points of inflation gap, but this is a transitory gap because this high inflation has driven an even higher price increase that was already fully applied in the beginning of April. We're already looking at a second quarter that is completely different from this first quarter that we are reporting. This is amazing news. The second great news is that the focus projection shows declining inflation.
Obviously, if we end the year with a lower, if a decelerating inflation, this means that this price increase will hold better for longer. Obviously, if we see something again that is stable or growing inflation, there may be pains by the end of the cycle of the current price adjustment.
Everything shows the fact that inflation will recede, interest rates are going up, this is a good perspective for the year. This will bring an expected inflationary recomposition. Selling expenses has significantly pressured 18.6% versus 17.7% last year. This is direct effect from the fact that our mature stores are growing something like below 9%, slightly below 9%, while inflation is 11%.
This is providing the pressure in the selling expenses, and this is driving obviously the contribution margin to be transitory lower than it was last year. Now 9.1% instead of 9.7%. G&A is also pressured, 3.5%. It's the same level of the previous quarter, given the fact that there is less sales in the first quarter, which is a relatively good news on a sequential basis, but still it's a big pressure versus the 1Q 2021.
What's happening here is obviously there's inflation, but there's another factor here, which is the investment we are doing to support in our structure to support our strategy. We have a very bold strategy based on digitalization of the relationship with the customer, focused on the new pharmacy, and completely transforming our core execution and how the company operates on top of developing two completely new different businesses, which are the marketplace and which are the Health Platform.
No way we can do that without resources. This is also a timing issue. This is not money that is spent for good and that will forever pressure our margins. Actually, if we look how the margin of the company has performed outside of this quarter that has the significant inflation pressure, despite the fact that we invested 1.2 percentage point in G&A over the last three years, our margin, give or take, has been holding well. The bulk of this investment has been self-financed.
In this quarter that's not the case because of the inflationary gap. As we get back to normalization second quarter and then second semester, it becomes again, it will become again apparent that we are not fully, but substantially self-investing to do this. This investment, obviously it's a short-term pressure for our margins, but the other way to look at this is, this is execution capacity.
Execution capacity is a huge difference for the company. We're talking here top-notch people. We're talking here cutting-edge technologies. This will allow us to drive our execution and to enhance, and to further enhance our competitive gap versus our competitors. We are the largest player in the market investing probably the largest percentage amount right now in G&A.
This is a very strong dry powder that should drive a huge advantage in execution going forward. Again, this is not a number that I think is forever. We are now stabilizing this number. I don't think we'll go beyond 3.5, and at some point, we want to start diluting it back. Obviously, by the time the marketplace starts producing results, and the same with the health insurance, then the Health Platform, then obviously this will support a very strong value creation.
This investment is also a reflection of our long-term mentality. We don't manage the company quarter-by-quarter, month-by-month, but even year-by-year. We do what's needed to do to create value. It shows the long-term mentality as I mentioned, and it shows the conviction on the strategy that we pursue.
The short-term effect, when you couple this with this huge inflation lag, is a big pressure versus last year. Good news, it ends here. Second quarter, we expect margin expansion versus this very high 8% margin here.
Second semester, we expect normalization of our margin. We are already seeing a very different scenario from what we saw in this first quarter. This first quarter is part of the past right now. Medicines, same margin pressure. I'm not going for the details here. Important to comment that we have adjusted BRL 13 million in non-recurring gains out of our adjusted profitability.
Free cash flow has been pressured in the quarter because we're comparing a seasonal quarter with a lot of cash cycle investment versus the best quarter in the year in terms of cash cycle, which is the fourth quarter. This will normalize through the year. Even with this peak in cash consumption, leverage is only 1x EBITDA, so not a problem here.
Finally, by the end of the quarter, our shares were going down by 1.5%, but in an opposite negative alpha as the Bovespa has been growing 16%. Recently, we have seen more pressure in the stock, but what will drive in the end value creation is what we're able to do in the longer term.
Now two final slides to sum up where we are before we go to Q&A. I think we have to separate the transitory margin pressure that we're seeing this quarter from the structural performance that will carry forward beyond the next quarter. There's a lot of things here that I think are very distinctive, and this performance is decoupling at a fast pace from our peers.
We opened 52 stores in the first quarter, 252 over the last 12 months. We are very close already to the pace implied by our 260 store opening guidance. Not only this, but the IRR, which again is real, net of cannibalization, does include perpetuity, has stayed consistently above 20%. Right now it's 24%.
Despite the difference in profile of expansion, a lot of small newer cities, very limited focus on São Paulo, strong focus on B and C class. Still we're doing that with the same or higher returns, which points to the huge opportunity that still have ahead. We have grown nearly 9% at mature stores despite the headwind from the COVID testing.
If we take out of the base the COVID testing and looks only at the normal mix, we will be talking more than 10% mature store growth. Still this 8.9 is 1.4 above the recent last price increase. With the 1.2, we're talking 2.6, and we'll be talking close to the current inflation. Market share. We are gaining market share as measured by the sell out, because sell-in right now is garbage.
This is going on and it's a very healthy number. Stable in São Paulo, strong gains everywhere else. Our annualized digital sales have reached BRL 2.6 billion with 88% through modern and proprietary channels versus only 8% of third-party apps and only 4% of phone sales, which is a fossil from the past, and it's a low profitability channel because of the cost of the call center.
Finally, our competitive edge is expanding. If you look at the total revenues of the company, it's approaching the sum of all the other top four chains in the market. Number two, number three, number four, and number five, which shows, I mean, the sheer scale advantage that we have.
If we look at EBITDA, the gap, we are bigger than the EBITDA of the other top five chains. In terms of the margin pressures that we already mentioned, the main issue here is the inflationary time lag that now already got corrected starting the second quarter, and this strong G&A investment to support our structure, to support our execution.
This is the fuel for all the transformation that we are pursuing. Finally, we are expecting normalization of margin, with margin expansion in the second quarter and normal margins in the second semester. Highlighting here some of the elements of our strategy. This is advancing at a very fast pace. The new pharmacy is not about tomorrow, it's about today.
The new pharmacy is what's driving higher loyalty by customers, higher spending by customers, mature store growth for the company. BRL 2.6 billion of digital revenues, 51% increase, 10% retail penetration. 91% of orders fulfilled at our pharmacies. 88% of the channels, we're talking modern and proprietary channels. Including 74% mobile, which includes 49% of the app itself. Our NPS is growing in a very good pace. Our NPS of the digital is still not at par with the NPS of the stores. Our goal is to provide the same experience everywhere.
Obviously, as we implemented a lot of agile teams, now the productivity of the agile teams is going up, the frequency of releases is improving as a result of the conversion to microservices that is going on, but there's a lot of progress already made. Migration to the cloud, all these things is unleashing the power of the squads, and the squads is unleashing the improvement in the app, which is unleashing the improvement in the NPS.
We are starting a virtuous cycle that should result in a couple of maybe sometime in a state-of-the-art app. Today, we have a good, robust app that fulfills 5% of the total sales of a huge company. Our ambition is beyond that, and the quality of the experience has still a lot of room to improve.
Finally, the Health Hub is working really well, driven by the COVID. Obviously, this is number of tests, not revenues. Prices are not necessarily the same year-over-year. Now there's lower testing price than there was in the past, but it shows that the number of services provided at the Health Hub isn't just in COVID tests.
Plus the fact that we have now 230 stores providing general vaccination, and this number is also increasing a lot. The Health Hub is also a strong part of our value offering, and this should be integrated with the Vitat Health Platform going forward. The marketplace is progressing well. We still think it's too early to publish GMV, but the GMV, whatever it is, it's increasing 5.5 x versus first quarter last year.
The marketplace is starting to scale up. For a huge company like Raia Drogasil, anything takes time. Obviously, for the marketplace to become material, it needs some more time. The scaling up is taking place as we speak. Number of SKUs is increasing, sellers is increasing, engagement is improving.
Obviously, there's a lot of homework to do, like implementing new Seller Center. We are developing the logistics blueprint to use our full store network to service 3P items. There's a lot of homework to do, but I believe the marketplace will be transformational. Finally, the health platform. We already have 900,000 unique visitors for Vitat. More than 200 free programs being offered to these customers. 800,000 views of our health podcast.
8.6 million unique visitors in the portal. Vita today, I mean, we bought last year a startup named tech.fit that is the basis of Vitat today. This is a startup that had a lot of these programs focused in healthcare a nd on top of that, what we're doing is we're developing a very strong content platform, which will be important to support everything that we do.
We want to create a 360-degree journey to support chronic patients with high lifetime value, integrating digital solutions with the Health Hub, with dispensing, with adherence to the treatment, and to support the chronic care of these patients. Today, we're not there yet. I mean, these programs are more like lifestyle programs, standalone weight loss programs or nutrition product programs.
We are using these assets that we acquired to serve our core chronic customers. This means low customer acquisition cost, because people are already with us, and very high customer lifetime value, because we'll be focusing on our best clients. These were our prepared remarks. Now let's go to Q&A. Thank you very much.
Thank you, Eugênio. Now we'll start the Q&A session. Joseph Giordano from JP Morgan is here with us. Joseph, please go ahead.
All right, good morning, everyone. Thanks for taking my question. I have a few questions. First, we've been seeing the company diversifying its expansion, so moving away from São Paulo and still like higher IRRs in the range of the low 20s.
My question to you here is, like, when you look at this marginal stores, so the one that, like, is either hybrid or, like, let's say a lower income one, how does the sales per square meter compare to the legacy stores, right? Here just to fine-tune our growth algorithm here. I'm thinking on this digital penetration, right? It says at 10%, how it varies across the entire country, right?
Probably like in São Paulo, it's much higher than in other regions. That would be interesting to understand like what's the potential revenue to be unlocked on top of the existing platform. Moving on like to the marketplace.
We've been seeing like the company adding sellers and more and more SKUs. Back a couple of years ago, you mentioned the TAM for this market was about BRL 100 billion, so basically doubling the addressable market you have at the company. My question is like if you have like any grasp of how relevant 3P sales could be within this marketplace GMV.
Last, when I think about, like, the historical algorithm we had to forecast higher, so it's basically like store maturation and operating leverage, right? Things have been changing. How do you see, like, the dilution of G&A and even selling expenses going forward since you still have, like, about 25% of stores to mature, but you are on the other side investing in this ecosystem platform.
Basically, like, if back in the day, we believed we had an extra like 250 basis points of contracted operating leverage, taking EBITDA margin on a normalized basis close to 10%. How should we frame this going forward? Thank you.
Joseph, thanks for the questions. I'll start. If I forget something along the way, please help me, okay? Obviously, the expansion diversification has been very, very successful. Today, if you look our mature stores, we have an average sales of BRL 900 ,000 per store per month.
Our worst market in terms of sales per store, we do BRL 750 ,000 per store, which is a remarkable number and much higher than the local incumbent. This is a number that provides amazing return. I'm talking about the lowest. Obviously, there are markets selling BRL 1 million, BRL 1.1 million, many markets from BRL 900 ,000, et cetera. If you look the new stores, the number is slightly lower than that. The number today is not BRL 900. The number today is like BRL 700,000- BRL 800 ,000 average.
Obviously, in the end of the day, we're looking at internal rate of returns. The number may be slightly lower, but this number is coming on top of a structure that is already there. It's highly accretive, and it's producing net of cannibalization, 24% internal rate of return. The other aspect is that the mature stores, they have also grown.
In some way, this means that our revenues per store is not going down. We have been maintaining revenue per store, even if the new store has slightly less revenue per store. But we look store by store, so there are stores that with BRL 500 ,000 of marginal sales, we can do the returns we need, and it's fine if we get BRL 500,000.
There are stores that depend on the CapEx margin, et cetera. We may need BRL 800,000 -BRL 900 ,000 to get where we are. The decision store, and obviously there's an average, but it's store by store. For us, as long as the returns are there, we know that we're creating value, and this is what matters. We're very happy with the numbers the way they are, and these numbers are completely inexistent if you look around the market.
As I mentioned before, our main competitor sells BRL 700 ,000 per store. Our number three, after closing a bunch of stores and not opening stores for many years, is selling BRL 600,000 per store. Other guys are even below that, more like BRL 500 ,000-BRL 550 ,000.
We sell in each of these guys' core market more than these guys sell. Even though we are a relatively newcomer, obviously not in São Paulo, we are here with Raia, but in the other markets, we came after the incumbents. We do better than them in terms of unit economics. This is one thing.
The other is about variation in digital penetration. This is a very good point, and there is a big variation. Let's not forget that our RD is a national chain. We have operations in markets where our presence is very mature, like São Paulo, in urban areas that have a habit of digital utilization much more entrenched than in other markets.
We have small cities in the countryside where the value proposition of digital is diminished, markets in which the potential is there, but our presence is not that dense yet. I would say our top markets, our top urban areas, we're doing more than 20%. We're talking cities like São Paulo, Rio, Porto Alegre, Belo Horizonte.
We do really strongly there. In small cities in the countryside, it's a very low number. Some markets like the Northeast, the number is meaningful, but it's below the average of the company. There is a catch-up opportunity. The way this number goes further up, obviously it can grow more in São Paulo, Rio, et cetera, but markets like the Northeast and Midwest, they have to come up.
Maybe the countrysides, especially the smaller cities, will always be lower, but still has a long way to go. Obviously, this catching up at some point, I think it will happen. In terms of the marketplace, your third question, I mean, frankly speaking, I don't think there's much value now in talking a lot about total addressable market because we're starting from ground zero.
Right now, grabbing volume, scaling up, if you look at total addressable market, I mean, the market share will be so diminished that I don't know if the TAM makes any sense talking about this right now. Obviously, longer term it will make sense. Right now we want to scale up, and we are scaling up.
We believe the marketplace will be relevant in the medium term and will be transformational in the longer term. Things take time in a large company like us to move the needle, but it's. The pace of adoption is important. This is happening. We are happy with the pace of the scaling that we're seeing.
We have assets that are absolutely unique to leverage this new business. We have more than 40 million active customers. If you look at the digital customers, if you look at 80% of our digital sales come from customers who are at the same time digital and loyal customers. These guys have an average frequency of buying with us of 24 x a year. This doesn't exist in Brazil.
I don't know if any other segment vertical that has a frequency like that. Much less so the generalistic marketplaces that try to aggregate a lot of long tail, low frequency categories to try to combine a medium frequency for the customer. I think our frequency is way ahead of all these guys.
The moment that the customer already comes to us this frequently because of the 1P, naturally, he starts bumping into the 3P offering within the core categories. I'm not talking mobile phones, televisions. This is a no-go for us. We're talking about beauty, about nutrition. We're talking about orthopedic products, things like that. We are part of the everyday habit of the customer. The platforms are an eventual transaction th at the customer does.
If the customer finds all he needs in our vertical from us with good service, the customer will naturally buy from us just because he's already there. The other aspect is that we can use our popularity to better serve the customer, to have a much cheaper logistics, much more efficient logistics than anyone else.
The vision is that just as we have click and collect today for 1P, and that click and collect is 50% of our sales, we will have at some point click and collect for 3P. We're developing the blueprint for that. The investments to that, it takes time, but that's where we're going.
Finally, in terms of how we model the company, I think let's forget for the moment the 3P and the digital health player. This is much more open-ended. 3P, the way I would model is one can assume that a certain share of the digital will be 3P, and model. So let's say at some point we get to total digital X% of the company, and 3P will be a share of that.
That way you can model, you can assume take rates, et cetera, and I think you can have a reasonable model like that. The most important is modeling well the 1P business. I think there are new drivers, but I don't think the economics changes that much. Obviously, digital is accelerating, is increasing loyalty, is driving higher spending, is accelerating stock comps.
In the end of that, it's about, okay, how much will mature stock grow? Obviously, the digital will make the mature stock grow, I don't know, 100 basis points ahead of inflation, 150, 50, whatever that is. It will be ahead, and this will generate operating leverage.
G&A is a different story. I think we got to a peak in G&A. I think for the short term, we'll maintain this peak and then probably we'll start diluting. It is about modeling that. There is maturation of stores. We have at least 100 basis points in additional contracted margin expansion because of maturation. The other thing is, we have invested 120 basis points in G&A over the last three years.
I mean, this is not a giveaway money. This is not money in the trash. This is an investment that will have to return through the 1P acceleration, through the 3P, through the health platform. In terms of value creation, at the very least, you have to give the benefit of the doubt that this is 1.2 gets back, if not more. Obviously, we're doing it because we believe it's going to be more. This is how I'll conceptualize about the modeling.
Perfect. Thank you very much.
Thanks.
We don't have any more questions at the moment, so the Q&A session is over. Now, Mr. Eugenio De Zagottis will present the final messages.
Okay. Thank you all for attending this conference. Thank you all for your support as long-term shareholders of the company. I think we're a company which feel really privileged to have an amazing shareholder base. Our main shareholders, they come back since the merger, if not since the IPO days of Raia and Drogasil.
This is the trust of this shareholder base that allows us to really walk the talk when you think about long-term value creation, about not focusing the quarter in the year and really doing what it takes to move the needle in long-term value creation. This is how we manage the company, and it has served us well that you're here, and I'm sure it will continue to serve us well.
This is only possible because we have a shareholder base that is stable, that trusts our execution, and that supports this kind of mindset and that can take us away from the everyday quarterly games that the market tries to play. I'm referring obviously to the controlling shareholder, but I'm referring also to our main investors in our cap table.
Obviously, I mean, this is a quarter of transitory but significant margin expansion. The good news is the quarter is already behind. We're already seeing a second quarter of the margin expansion because of the high price increase driving high inflation in investors.
It will also be a peak, but then I think we get to a second semester where we expect to have normal margins, balances without the down effects from the first quarter, without the up effects from the second quarter. I think it gets back to businesses.
Despite the fact of these transitory pains, and we've talked a lot about that, I'm not repeating myself here, what I want to focus on is on the structural shape of the company. I mean, how well the company is doing when you look to the structural performance. Our expansion, it keeps on being amazing. We grow at a pace that nobody else dreams about growing, with returns that nobody has, with a regional diversification that nobody has.
We have an absolutely unique expansion. Nobody has been able to come close to what we have done. When our competitors try to accelerate, it didn't end well. They had to close a ton of stores. They had to start growing stores. They made more harm than good for themselves. Today they don't try to copy what we're doing because they know we have unique competitive advantage in terms of market presence, in terms of operational capacities, in terms of expansion track record, et cetera.
This has driven internal rate of return on real terms, net of cannibalization, which right now is 24%, and which has been consistently above 20% despite the changing expansion profile, despite the fact that we are opening a lot of small cities, we are entering.
We're opening very much lower number of stores in São Paulo than in the past. Focused in everywhere, even in São Paulo has been B and C class, and the returns are there, which show that we have the capacity to keep moving down in the market and keep expanding and creating value for a much longer term.
This is 260 stores is the guidance for this year. We don't have an official guidance coming forward, but I think we still have a very strong expansion for many years to come with unmatched returns. If you look the, how the mature stores are performing, 8.9% of growth, which is way more than 1.4 more of the price of the last price increase before this quarter.
Let's not forget that we have 120 basis points of headwind from the COVID peak last year. We will be talking more than 10% mature store growth taking out the COVID testing. The structural part of the structural performance, so to speak. Market share is doing well. Obviously, the metrics are blurred this quarter because of reporting, but if you look at other metrics like Abrafarma share, like share among sell out performance is doing really well.
We have stable São Paulo, growing everywhere else. The digital has accelerated in a pace nobody dreamt it was possible. It's 9%-10% of total sale. It keeps growing. We have the most modern channel mix in the market. The very low dependence on third-party apps. Only 8% is coming from Rappi, iFood, et cetera.
Only 4% is coming from phone sales. Our competitors who report these numbers, they have more than 20% phone sales in the mix, and much higher reliance on third-party apps than we have. Today, we have BRL 2.6 billion of digital revenues. We are close to become. Our digital alone is close to becoming the fourth player in the market if it was a separate chain.
Finally, the competitive gap keeps moving on, not only in execution, not only in digital, but also in sheer scale. We are close to sell on more than the sum of players two, three, four and five in the industry, which shows the size of the scale and competitive difference we have built up.
This will keep expanding because not only we're the largest chain in Brazil, but we are the one who grows the fastest, which is a paradox. It's not. It would never be expected. I think the smaller players have the obligation to outgrow us, but this is not happening, and I don't know if it could happen anytime soon. Thank you again for your support. We will be in New York next week in the Dow conference, and we are available. Our team is available for any of you. Thank you very much.
This conference call is now over. We thank you all for participating and wish everyone a good day.