Good morning, ladies and gentlemen, and thank you for holding. Welcome to Syntaur's conference call, where we will discuss the Q1 2020 results. I am here with Jose Salazar, our CFO and IRO and Daniel Ragansteiner, our Treasury and Investor Relations Director. My name is Pedro Zemel, and I'm the CEO. So we will start on Slide 2, which will discuss the COVID-nineteen and crisis management.
It impacted the global economy as well as the Brazilian economy in our business. So we will begin our presentation showing how it affected us and what we did to face the situation. Then we'll talk about the Q1 2020 results. And finally, we'll move on to our questions and answer session. So questions can be sent through the webcast and they will be answered after the presentation.
We will begin on slide 3. In the 2nd week of March, we started feeling the effects of pandemic on our business. So we rapidly went into crisis mode. We created several committees to lead several fronts that would be affected by the crisis. This first stage went until April and the idea was to prepare the company for the next months and the problems that were to come.
We focused on 3 pillars ensuring safety for our employees and partners, reducing expenses and saving and generating cash. Moving on to slide 4, you can see the main measures we took during the first phase. We closed all our brick and mortar stores. We adapted our infrastructure so that all our employees could work from home 100%. And we adapted our distribution centers to ensure that they would work according to the new needs and the new health protocols.
We had our traditional all hands meeting with all of our employees to ensure that everyone was still informed especially during this challenging moment. And we also supported our community, donating 100,000 BRL in tennis shoes to health workers in Sao Paulo and also providing food kits to NGOs and social projects we support. In the expense reduction front, we worked rapidly to reduce the company's main expenses. So we reduced payroll expenses by suspending some employment contracts, reducing staff working hours and payments. With the help of our partners and shopping mall managers, we've managed to readjust our occupancy costs since our stores were closed.
So we were able to reduce our expenses by 40%. On the cash saving and generation front, we suspended most of our projects as well as receiving new products. And we took a working capital loan of BRL130 1,000,000. With that, we closed the quarter with around BRL300 1,000,000 in cash. With these measures, we adapted our operations and prepared our company to support a stressful or to withstand a stressful scenario where we would not have revenues for a while.
Slide 5 shows the next phase of our crisis management program. With the company prepared to face the next challenging months, we focused on different fronts. During the second phase, we still have new activities to support our employees. We're focusing our attention in our digital platform, which was where our growth was coming from. And we accelerated new projects in all parts of the company to step out of the crisis stronger.
Slide 6 please. So as the weeks went by, social isolation became more challenging for everyone. So to ensure that our team could count on our support, we made psychological support available for all of our employees as well as online workouts. Because we are a sports company and we understand that maintaining physical activity as a part of our routine is essential. We created a program to deal with this crisis with our leaders.
And we created a new internal communication strategy so that everyone is aligned and informed even working remotely. So our employee satisfaction rate reached a record level and that's a pleasure to say. During this phase, we also focused on our digital channel, which started growing in sales. On slide 7, you can see the growth that our digital platform had over the last few months. Our online sales growth grew by more than 50% in April and by more than 100% in May June.
Our app already has great performance. It represents 54% of online sales, 29.9 percentage points up from last year. We reached 3,600,000 active users, an increase of 332% in number of downloads versus last year. And to support our accelerated sales, we maintained our ship from store or reactivated our ship from store program and we now have reverse logistics. This was started in March and we sent 93,000 items from our stores to reinforce our distribution centers.
We also created a new sales channel for managers and supervisors to reach their own clients' networks. We included new sellers in our marketplace, which grew 3.5x, and we implemented drive through in 56 brick and mortar stores. This is a very competitive market and along with growth we also were pressured in our margins because the entire market now has excess inventory. So with Phases 12 well defined and following up on the pandemic in Brazil, we started Phase 3 of our crisis management program. On Slide 8, we can see the recapture phase, which includes reopening brick and mortar stores, expanding G5 stores, and follow on on new debts.
Slide 9 shows how we now have 145 stores reopened with a new hygiene protocol for customers and employees for their protection. We are reopening gradually. This is done on a case by case basis respecting city and state authorities. With a stronger cash position than we expected, especially because of our performance in the digital channel, we decided to expand or continue expanding our G5 stores. We concluded 5 refurbishments in June and now we have 11 construction works ongoing.
So to keep the company with liquidity to complete the transaction with Nike do Brasil, we captured R900,000,000 BRL with our follow on on June 4th and we'd like to thank the investors who supported us in such a difficult moment. The new offer reinforced our liquidity with an additional BRL460 1,000,000 through debentures and CCB. Now Salazar will speak and we'll talk about the financial highlights for this quarter. Thank you, Pedro. Good morning, everyone.
We can continue on Slide 10. This quarter, we had some non recurring effects which were positive and negative. Our release has a table explaining all of these effects. All the explanations we are going to provide during the next slides refer to the adjusted results for these non recurring effects in our IFRS 16 strategy. So our consolidated net revenue decreased 4.1% impacted by the brick and mortar stores being closed and the deceleration of the digital platform in the beginning of the pandemic.
This trend continued until stores were reestablished as distribution centers even when they were closed. So the next slide will discuss our gross profit. There was a retraction of 6.7% to our gross profit, reaching R246.4 million dollars in the Q1 of 2020 versus R264.2 million dollars in the same period last year. We also saw a reduction of 1.4 percentage points in our gross margin. This is explained by more markdowns in January, which are traditional after Christmas And January sales had a larger share in the quarter because of the sharp drops in sales in March due to the pandemic.
Slide 12 shows our operating expenses. The impacts of the fixed cost reductions presented by Pritto will only be perceived in the Q2. During the Q1, we had operational deleveraging caused by the drop in store revenue due to COVID-nineteen. So there was an increase of 10.9% in operating expenses, which can be explained by the $9,000,000 BRL in expenses with new stores opened during the second half of last year and costs from our FID implementation. Variable expenses also increased in line with the growth of our digital platform.
Now we continue with Slide 13. Our EBITDA was R5.1 million dollars a reduction of 89% versus the Q1 of 2019. Our adjusted EBITDA margin was also impacted, a reduction of 7.8 percentage points versus the last year. As we can see on the graph, the operating expenses related to stores being closed in the 2nd week of March impacted our EBITDA. Slide 14 shows our net income, which was negative BRL4.6 million, a reduction of 0.9 percent in our net margins.
The slide also shows more details on how our net income was reported. Slide 15 shows our operating cash flow, which was negative R106.9 million dollars This is the company's normal seasonality because purchases for the Q4 are mainly paid in the Q1 of the following year. Cash flow was negative 35.9 million dollars higher than the last quarter mainly because of the acceleration of the expansion and renovation plan for G5 stores. The financing cash flow was positive $345,700,000 which was an anticipation of our receivables to strengthen the company's cash position. We would now like to open for questions.
Questions can be sent through the platform or webcast. So we're still waiting for questions. We'll hold on for a couple of minutes. So we haven't gotten any questions yet. So I'm going to close our presentation.
So we're going to conclude our presentation and our Investor Relations team is available if you have any questions. As we said in our last earnings release in March, throughout our 39 year history, we went through several crises and we have the same team as we had in 2015 when we had worrisome financial conditions. So we're proud of the way we dealt with the crisis. We are paying attention to our team and our consumers, and we're adapting our operations to the new circumstances. We are confident that we are able to adapt quickly and we'll step out of this crisis stronger.
We're going to continue building the esports ecosystem in Brazil. The crisis is not over yet. It impacted our results negatively during the time in which our stores were closed, but the next quarters will continue to be challenging. Our guards will remain up. We'd like to thank the Centaur team across Brazil.
And before we conclude, I think there were a couple of questions. So I apologize, but I think probably the questions took some time to appear. So we got a couple of questions and we're going to answer them. One moment please. The first question comes from Maria Nicoleho from Z Quest.
She asks, can you tell us about margin perspectives for the 1st and second quarter? Thank you, Mariana, for your question. We cannot provide a guidance, but what I can say in general about the market is that the impact of the crisis was for the entire industry. So excess inventory, considering the amount of time it takes for purchasing decisions to be made, means that all decisions were made before the crisis. The entire industry has excess inventory.
And we are waiting for this to rebalance itself. And while it does, we expect the market to be more competitive. I think when we get new collections and when brands bring out new products, adapting the amounts and having stores open, not only Centaro stores but all stores, the situation will be normalized. I can't really say when that will happen, but we imagine that the market will still be very competitive in the short term. The next question came from Irma from Goldman Sachs.
She asks, one, can you tell us about the productivity and the flow in the stores that have already been opened? 2, what gross margins do you expect in 2020, in the second half of the year? Irma, thank you for your questions. So to answer your first question, so we still have a lot of standard deviation here. We're still in the 1st month of stores being opened again.
Most of them opened in June. In May, we had very few stores as well as in April. So what we're seeing is that the number of people in stores is much lower. In several cities, we can't allow clients to try on any products which means that sales are lower. We see that some stores have been opened for longer amount of time and a better situation, but I'd say that about half we're doing about half of what we did last year.
This is obviously not good for our results. But on the other hand, right now, when we see so much news about health issues, since the entertainment part of shopping malls is closed and since clients cannot try anything on, it really demonstrates the resilience that our brick and mortar stores have. The truth is that despite everything that's going on and despite the additional cost of going to a shopping mall, they continue to go to stores for purchases even when we offer the same products on a digital channel. It seems early, like I said, most stores have just reopened but that's what we're seeing right now. Now let's answer your second question.
Your second question was about gross margins and how we should consider our perspectives for gross margins in the second of the year and the Q2. Like I said, I think on the very short term, gross margins will suffer some pressure. While there's excess inventory and while there's a lack of balance in the entire industry. So on the short term, I think we will be pressured on our gross margins. And this will be normalized as new collections come in.
When that happens, when when the inventory levels are adapted and when the entire market with all of its stores is adapted, then our margins should normalize. We're not expecting that to happen immediately. And I can't really tell you when or what month that's going to happen. But the Q2 will definitely still have some pressure. Just one moment while we get the next questions.
Well, we have one more question from Well, let me answer Maayan's question and then there's another one from Ezequest. What about the EBITDA margin? Did you adjust for SG and A? Yes, we did. We brought our fixed SG and A down to 60% of what it was.
So there was a 40% reduction and we had important adjustments Reducing the number of employees, suspending contracts, renegotiating occupation contracts, which were significant at first because we were getting prepared for a scenario which was in our minds much worse than it actually was. In March, we didn't know how we would react in online sales even. And you can notice that digital sales in March did not perform as well as it did in April, May June. So we managed to use our stores as dark stores, as distribution centers, and that really led to growth in our digital channel. Before that, we were unsure about how it will perform.
So, we adjusted our SG and A so we could go into survival mode. We had several deep adjustments and that did protect our EBITDA margins. Now in a scenario in which stores were closed, this was not enough for the company to have a good performance, right? We Our strength is the fact that 20% of our sales come in through the digital channel. And we're growing more than 100 percent of those 20%.
But it also means that 80% of our sales comes from brick and mortar stores, which were closed for many months. So even with adjustments, it's undeniable that the company's profitability was harmed in the second quarter when most of our stores were closed for most of the time. I'll read the next question here. It comes from Bruno Andrease from BTG. He asks us to comment about online performance in June and the expectations for the future as stores reopen.
Thank you for your question, Bruno. So June will continue in the same level of May April. 120% was the figure we presented for the growth of our digital platform. So from the moment we started using stores as dark stores, Our e commerce model is based on stores. So when we were able to access that infrastructure with ship from store but also having clients accessing the company's entire inventory and not just the distribution center's inventory, that really impacted our e commerce initiative.
So we're going to continue doing that. When we talk about the future, it's quite difficult to predict anything, right? We have to understand, well, there is a second point here. It's also important to say that this growth is also based on margin reductions, right? E commerce has lower gross margins than we did historically because of the competitiveness in the market.
So when we think about the future, obviously growing digital sales is a circular trend. It goes for all industries. In many industries, it was the first time in which clients tried out a digital experience. So, the growth, the leap we see will be much sharper in our industry, which had a relatively high penetration of e commerce in comparison to other industries. I think it's evident that e commerce is going to gain space.
When we look at our figures from 2017 to 2019, we see accumulated growth of 20% and GMV grew by more than 80% in the digital platform. So of course, digital is going to gain some space, which is a great opportunity for growth. And in our understanding, stores are essential for digital to grow. And our sports omni channel strategy, they are suppliers for the digital platform. Stores are much more than just a place to get customers to buy there.
They also become a hub for digital clients. Let me read one more question. The next question comes from Alex Tanaka. Good morning. Can you tell us about how rent negotiations are going with shopping malls?
How does that work with brick and mortar stores? Thank you for your question. Since this is an atypical situation, we've been renegotiating every month. Since this was not a one off crisis, right? It didn't affect only Centauru, but it affected the world.
Everyone was very constructive. So mall managers were very constructive in these negotiations and they were very sensitive to that moment. So right now we're in the 2nd phase. 1st, we had closed malls. We had to understand what we needed to do to renegotiate and that was done on occupation rates, also renegotiating rent and that was connected to the store's performance.
And we do pay to ship from store. So that is figured in as a sale from that store according to the contract we made with mall operators. Now we're moving on to the 2nd phase in which stores are open but we're not having the same level of sales as we did before. But I think again the market has been very constructive. Everyone has understood that the only way we can withstand this crisis is by working together.
That's the only way in which we can overcome this situation. And mall managers have been considering that in their negotiations, or most of them at least. I'm going to read 2 questions. Well, first, I apologize for the pause, but we're just trying to organize the questions remotely and it takes some time. So thank you for your patience.
We have a couple of questions from 11. I'm going to read them together. One is from Daniella and the other one is from Erika. And I think we can answer both of them at the same time. The first one says, Good morning.
Can you tell us about other omnichannel initiatives you had besides the follow on offer? And could that affect your total sales by the end of the year? And the next question is, as stores reopen, how do you see sales performing? So the first thing I should say here is that from our understanding, excuse me, I got disconnected. Conclude in the other.
And that's very fluid. So clients often start by researching online and then they go to a store to try it out, and often the opposite happens as well. So what we've been doing here in the company to really work as an omnichannel provider is to integrate the entire chain. The numbers we see show where the transaction concluded. That's how they are categorized.
But if we look at all the contact points, many of our sales are already omnichannel. So from our point of view, this is much more mixed than we see, and that's going to continue to grow. Considering what we're doing to accelerate this, we understand the multi channel strategy as a stacking development. What this means is we will of course perform continuous improvement but we've already concluded important parts in how to integrate our inventory and perfecting our process so that each store can work as a distribution center. So a client that goes into centioto.com.br would see the entire company's inventory.
And then there's another phase. Now there's one point here that I should mention. We included FIB, but we didn't get the benefits from it yet. So we haven't started making use of the fact that, we're doing this. The fact that we can reduce our safety margins.
So that's a major step forward and now we're joining a model in which we advance continuously. We are perfecting the digital technologies. We're taking checkout and searches and everything and making it better. So I'd say that right now there is a team thinking about how to improve each step in the journey. It's not just an executive saying well that the initiative should be this or that.
So that's where improvements will come from and once again we need to think about things as a whole to understand how we acquire and retain clients regardless of the channel used by them. We have gotten 2 more questions, both of them about the negotiations with Nike. So the first question comes from Alex Tanaka and he asks, can you give us an update on Nike negotiations? And Mariano Coelho asks, can you tell us about the timeline for the operations with Nike? When will we see these synergies and the numbers?
Well, the process is ongoing. We need to be approved by the Brazilian authorities. So that's an essential step so that we can continue integrating. And I can't really say when the authorities will finish analyzing our request. So we are still depending on that to conclude our negotiations.
Meanwhile, we are continuing doing what we can do that doesn't rely on the authority's approval so that we can move forward with the integration as soon as we get approval. Considering synergies, we've mapped several kinds of synergies and they have different timelines. So there are G and A synergies, which obviously will be captured quickly. There are supply chain synergies, which will depend on some more detailed studies. So I'd say that these would appear in the middle term, and we have some synergies here when we look at the business related to growth.
And I am seeing synergies here because this is only possible because the 2 companies will be a part of the same group. So for example, to expand Nike's digital platform, we can use Centaurto's infrastructure. And that's something that you begin on day 1. And obviously, you have to wait for the effects to take place. So that happens in the middle term.
We're going to go into more details about Nike figures and our perspectives as soon as we get approval from the Brazilian authorities. And then we begin to share with you. So this is a public process of course but we'll provide updates as soon as we have them. One moment please while we get the next question. Well, the next question comes from Thiago from SPX, Thiago Matera.
Good morning. Pedro, can you tell us about what has grown more online? Did you have a difference in mix and in performance for each category of product? Thank you for your question, Thiago. We had a first stage in which, workout at home products went up.
So people were equipping their homes with small accessories, mats and weights and so on, but that's a small part of our sales. Despite having the highest growth, it represented less than 20% of our sales right now. So that was the biggest growth, but it's still a low share. One category that went down was soccer. People are not playing soccer and they're not watching any games.
So these items like balls and shoes are falling short in comparison to the other categories. This is our worst performing category. Most of our sales come from shoes and apparel. And these categories still have the lion's share of our online sales shoes and apparel and they are performing well. Shoes are more competitive now because prices are more competitive and apparel is a bit healthier.
But that was it, that was the change we saw. There was no major difference in lifestyle performance. When we look at the product's perspective, this is an interpretation, but the truth is that many consumers who buy performance products use them in their daily life. So despite this idea of how these performance products are used, many people just use them for their daily activity. So there was no relevant change here.
Let me see if we have any more questions. One moment please. We have one more question from Rubens in Santander Bank. Let me read it. Good morning.
Can you tell us a bit about how stores are performing in June? And what is your expectation for the next quarter? So I think we've already answered that. But let me tell you about our suppliers. The first point to highlight here is that Centauro has a negotiation strategy with its suppliers, which includes an entry markup.
This is negotiated in BRL, meaning that currency exchange variations do not affect our margins. So that's one way of explaining it but we can also look at the figures. Our gross margins are quite stable while the exchange rate in Brazil is quite variable. So as you can see, our gross margins remained stable even despite the exchange variation. When we look at 2019, our margins were growing and we know that the exchange rates varied.
Digital doubled in size but we still had the same margin. So that does not have a direct impact on our results. As we see our exchange rates fluctuating so much, What this can result in is a higher pressure in prices. So consumers might see that our products are coming at a higher cost and that can have an impact. This has happened in the past when the exchange rate varied.
And usually suppliers balance these increases out. They're quite rational in how they deal with that. But now we've turned the page. We had restricted negotiations in the past, but now after the follow on offer, we are up to date with 100% of our suppliers. All of them have been negotiated.
So we are updated and we are receiving products as we were expecting them. So our guards are still up, we're still paying attention, but our inventory is turning over and now we're ordering new products. So very often suppliers are sensitive to the moment and we can discuss and negotiate and see how we're going to split the effort which will be necessary at first. So since sales prices are depreciated because of a specific moment, some suppliers are sensitive to that. And they have been offering discounts.
Again, we understand that this is a short term problem. So as soon as the industry is reestablished and as soon as inventory is reestablished, we can go back to our normal way of working. So prices will go back to their normal levels as well as margins. So let me read again my conclusion. I'm sorry I hadn't received questions yet, but there were several.
So I think we answered most of the questions. I apologize. And I will read my conclusion again, my closing remarks just so we can conclude. So we are concluding the questions and answer session now. We just like to highlight that the Investor Relations team is available to answer any questions you may still have.
And I'd just like to repeat and reinforce that as we said in our last conference call in March, throughout our 39 year history, the company has gone through several crises as well as Brazil. So this team has been here for a long time and we dealt with an important crisis in the recent past. We're very proud of how we dealt with this situation. We paid attention to our team and we adapted to the circumstances quite quickly. So this speed is essential not only in this stage but for everyone in the company.
We adjusted expenses quickly, we saw how we could support digital growth, and we found a new way of working. And all of that was done rapidly. So we're confident that this adaptation capacity will make us step out of the crisis stronger so that we could continue building the sports ecosystem for Brazil. I'd also like to highlight that this crisis is not over yet. It will still impact our results negatively while stores are closed.
The next quarters will continue to be challenging, the Q2 especially. So we'll keep our cards up. I'd like to thank everyone at Centauro across Brazil for their grit, their resilience in a very complicated moment and thank you all for listening in. Have a great day and we'll see you soon.