Falabella S.A. (FALABELLA.SN) Earnings Call Transcript & Summary

Good day, ladies and gentlemen, and welcome to Falabella conference call. My name is Carmen, and I will be your coordinator for today. [Operator Instructions] In the first part, Mr. Juan-Luis Carrasco, Head of Investor Relations, will present a summary of the consolidated results for the second quarter of 2020. Following this, Gaston Bottazzini, CEO, will present a strategic update of the company. And then we'll open a question-and-answer session where Mr. Gaston Bottazzini and Mr. Alejandro González, CFO, will be available to answer your questions. [Operator Instructions] Now we'll start the conference with Mr. Juan-Luis Carrasco.

Thank you, Carmen. Good afternoon, everyone, and welcome to Falabella's  Second Quarter 2020 Earnings Call. Joining me today on the call are Gaston Bottazzini, our Chief Executive Officer; and Alejandro González, Falabella's Chief Financial Officer. I would like to remind you that numbers presented during the call will be stated in U.S. dollars and rounded to millions. Therefore, certain differences may arise with the published financial statements. I will start the call by going over the key financial highlights of the period. And afterwards, Gaston will share some remarks, and we'll open the line for questions. Our results were materially impacted by the pandemic affecting the world and our markets. The main drivers of the adverse impact were a high percentage of physical stores and shopping centers closed as a result of sanitary restrictions imposed by the authorities that reduced store sales and revenue as we did not charge rent fees to the tenants that did not operate their stores in our malls. In the retail business, we also saw a shift in product mix towards categories with lower margin like electronic, as apparel sales decreased in the context of the pandemic. Also, higher operational expenses resulting from higher operational costs in response to the surge in online demand. All in all, we had also lower earnings contribution from our banking operations as a result of increased risk costs. In this challenging context, we saw our online sales growing exponentially. We are pleased with the performance of our online [ channels ] that continue delivering strong growth across the board. Total GMV reached $767 million in the second quarter of 2020, a 124% increase over the previous year. GMV associated with our marketplace operations increased by 225%, boost by high growth in sellers and visits across our portals and [ apps ]. It is worth highlighting the 376% growth we saw in registered users in our falabella.com app. Linio continued delivering attractive performance with 159% growth in terms of GMV. Overall, online penetration reached 37% during the first quarter of 2020, which compares favorably with 13% of last year. Also worth highlighting is the online penetration in department stores that reached 85%. Now I will go over the key financial figures for the period. Consolidated revenue decreased by 24.7%, reaching $2.1 billion this quarter, mainly explained by lower sales in department stores and home improvement in both Chile and Peru. The latter with greater operational restrictions during the quarter along with lower revenue of the shopping centers. The decrease in sales from physical stores was not entirely offset by the increase in online sales. Gross profit decreased 43%, totaling $596 million, mainly explained by the closing of stores and margin deterioration in department stores and home improvement in Chile and Peru, changes in channel and product mix together with lower margins in the banking business due to increased risk costs. EBITDA decreased 108%, down to minus $31 million, explained by lower contributions from the banking businesses in all markets, resulting from increased provisions along with lower contributions from shopping centers and department stores and home improvement formats in Chile and Peru. Net income for the period reached minus $157 million as a consequence of the negative results in department stores and home improvement in Chile and Peru, together with the real estate business and lower profit in the banking operations. I will now turn the call over to Gaston.

Thank you, Juan-Luis, and thank you, everyone, for joining us today. In the first place, I would like to express our thoughts and ongoing concern for everyone affected by COVID-19, both at our company and elsewhere. This COVID-19 sanitary crisis has brought with it substantial challenges and headwind to our operation. We pursued a set of very focused initiatives to navigate through this period. In the first place and as our first priority, we have put the safety and well-being of our team. And as a result of that, devised protocols and processes to make sure people in our stores, in our distribution centers, in our branch -- in our bank branches are as safe as possible and minimize contagion. We had also had to move operations from centers to homes. For example, by now, about 50% of our call center operations are being operated from home when this number was about 0 about 4 months ago. This has been a very difficult time for our team members, both as a result of health and isolation, and I want to express our gratitude for the level of commitment that everyone at all levels in organization has demonstrated during this difficult period. Another priority for us has been to maintain store and distribution infrastructure as operational as possible. Some examples of that is the conversion of some of our stores, or the partial conversion in most cases to dark stores and having devised ship from store. Another example is how we leveraged the digital channels in our banking operation. We have brought online payments to 70% versus 39% about a year ago. Also, we have seen an unprecedented shift to online sales, which has put significant pressure on our logistics infrastructure. We had sales more than doubling and we had more than 9 million orders shipped regionally in the second quarter. With the unavailability of our click & collect at the stores, which represented about 60% of our orders a year ago, this has further added stress to our system. In spite of all our efforts, the daily change in the availability of our human physical and transportation resources has resulted in us falling short of expected service levels. We are committed to our customers and to greatly improve our service. Something that is happening as we speak. And finally, we have made strong efforts to improve our efficiency through our double-digit overhead restructuring as well as by integrating processes and systems, an example of that being the integration of our e-commerce and marketplace platforms at a regional level, now all being managed by our digital factory in Bangalore, India. To summarize, the main drivers of the weak bottom line performance during this quarter have been the relevant percentage of stores that have been closed throughout the quarter, with most operating expenses for those stores being incurred; the low rent revenues from mall operations; the lower margins which have resulted from a sales mix change in our -- mostly in our department stores with lower apparel sales in relation to other categories as well as lower margins resulting from deeper markdowns on low rotation categories. Also, we had several extraordinary COVID-related expenses to maintain the safety of our team, example of that being transportation that we provided for grocery stores in Peru, et cetera. Also, we had an increase, as I mentioned, home delivery volume resulted from the combination of a surge in demand and an availability of in-store pickup. And finally, the increased provision in our banking operations that resulted from the inability of people coming to our branches and in general, people having difficulty paying their accounts. At the same time, we had very good news on the revenue side as well as on our continued shift to digital channels in all of our businesses. I would like to provide 3 very relevant examples, one of them being that our digital channels in all of our retail businesses were selling north of 70% of our total sales, both online and off-line, from a year ago when we had most of our stores closed. Another example is that in this period, more than 30% have come from our mobile app. And finally, I would like to highlight that we were able to open 20,000 credit cards with a purely digital process. And that is about 70% of the cards we were opening a year ago when the digital issuing process had not even been launched. I really would have not put my signature on any of these numbers 6 months ago. As a result of this, we are seeing market share gains both in several retail categories and in our credit card sales. Our marketplace GMV more than tripled from a year ago with a significant growth in active sellers in Linio and in Falabella. Our recently launched [ fulfilled buy ] already represents about 8% of our marketplace shipments. Our Fazil on-demand delivery is rapidly ramping up with a couple of thousand orders per week in Chile and about 5,000 orders per week in Peru. And we are seeing a shift in consumer spending, benefiting our largest retail business, which is home improvement. What are the implications of all these trends for Falabella? First of all, our strategy will continue to be to provide a seamless experience leveraging mobile technology and desktop technology and make that very relevant in our stores, and we will continue to add functionalities that make our app useful in these stores. An example of this is in the middle of the pandemic, we had -- when we had limited capacity in -- and restricted capacity in our stores, we devised a reservation system in the apps so that people didn't have to wait outside the stores. And we will continue to add functionalities that are really useful in the stores, which we think will also drive app usage and online sales. Secondly, we think the logistics and showrooming role of the store will improve -- will continue to increase and will be boosted in all formats. So examples such as developing dark stores in grocery, curbside pickup in all of our formats, lower store inventories as a result of increased showrooming are all trends that we will continue to see. We will integrate all of our formats as well as third parties to our recently launched Fazil app, which currently is dedicated to grocery. We will continue to leverage digital channels to open cards, originate credit and perform transactions as well as provide payments and financing services to the growing number of sellers in Linio and Falabella. We will invest and continue to invest heavily in talent, especially talent dedicated to technology, logistics, data analytics as well as in the overall quality of our team through initiatives such as significantly improving diversity. And finally, we will continue leveraging our resources to simplify the lives of our customers and empower a growing network of sellers and play an active role in the development of our region with environmental stewardship, measuring and reducing our carbon footprint as well as supporting education through our Haciendo Escuela initiative. In all, I am convinced that the most important and lasting impact of the sanitary crisis is the shifts that it is providing to our organizational culture. As a result of this period, we have really boosted innovation and collaboration. It has helped us break hierarchical levels and organizational barriers. It has made us more agile, willing to take risks and open to learning. And most of all, it has given us confidence in the path we set forth when we initiated the development of a digital and physical ecosystem in retail and financial services. Thank you, and we will now open to questions.

[Operator Instructions] Our first question is from Nicolas Larrain with JPMorgan.

Gaston, I had a couple of questions. But I wanted to understand if you've been able to map all of your new -- I mean the huge volume of online orders. Have you seen new clients that maybe were impressed in the Falabella ecosystem before. And now given the COVID, they have shifted to the -- to your online channels? I mean are you seeing new clients that maybe you weren't seeing before? Also, I wanted to understand how are you seeing trends after second quarter? I know sales, at least on an aggregate level, have been showing some improvement. I wanted to understand better how are you seeing that in your stores, considering that they are reopening. And lastly, if I may, on the logistics front, at first, I had the impression that you guys were mostly focused on shift from DC. But now you're developing this ship from store. Will we see both strategies combined or you will build more towards the shipping from store onwards?

Thank you for your question, Nicolas. So on your first question regarding the customer base and how we have seen it shifting over this quarter, we really have seen both phenomenons: #1, of course, a lot of customers that were store customers have moved online. But as we measure our online customer base from this quarter, we see a significant increase in new customers. And I will give you an overall number just for the Falabella format, which basically is that over the quarter, we had about 3 million purchasing customers throughout the region. Of these, about 1 million customer -- actually over 1 million customers were new customers that had not shopped in our stores. So this has been a tremendous customer acquisition process in that sense. And now the challenge is to provide a good value proposition for these customers to remain with us. Regarding your second question, so as you know, our home improvement operation had different levels of store opening, depending on the countries. There were some countries such as Brazil and Mexico, where we had all of our stores opened most of the time. And there were countries like Chile, Argentina and especially Peru, where we had significant closures. In general, as we reopen all of the stores, what we are seeing is a significant increase in demand. We are actually significantly positive in home improvement sales versus our sales for the same period a year ago right now, but that applies to Q3. In Q2, because of the restrictions in mobility and having some stores opening, this had a lot of variation by country and there were countries like Colombia, in particular, and Brazil that were significantly up from previous years, but the rest of the countries were below previous years. And finally, on your last question around logistics, when I mentioned dark stores, this responds to 2 phenomenons. One has to do with an actual shift from DC shipment to store shipment, which is taking place in grocery. And in grocery, our plan is to emphasize more and more store shipment and particularly dark store shipment, 100% dark store shipment, because we are finding that, that is the most efficient way to distribute groceries in a market that is moving very rapidly to on-demand delivery. Regarding the other formats, the ship for store will have 2 -- from store will have only 2 flavors, if you want. One is when we also do on-demand delivery. So when people want to buy products through on-demand delivery or our Fazil app, in Sodimac or in Falabella, that will be shipped from the store. And the other one is very specific -- is a very specific, I would call it, crisis navigation strategy of getting rid of inventories that we had in stores and therefore, converting part of some of the stores to dark stores so we ship from the stores and get rid of that inventory. For -- particularly for Sodimac and Falabella and for everything that is not immediate delivery, our intention is to continue to work with distribution center delivery, which we find is the most efficient for picking and also allows us to -- by having eventually sorting centers and points of transfer outside of the main cities have the most efficient way to reach all the homes in each of the countries where we operate.

Our next question is from Irma Sgarz with Goldman Sachs.

I have a couple here. When you -- if you could sort of comment a little bit about how we should think about gross margins from here. I appreciate that there are a lot of moving parts across the different divisions and operations. But if you just sort of could go through really the biggest buckets? And how you see that panning out into the back half of the year and maybe early 2021? Again, I appreciate there's a lot of uncertainty in the current environment, but just notionally for us to understand how you're thinking about sort of clearing through excess inventory, cost of risk and the mall operations? And then in e-commerce, as you've laid out earlier very well, you've seen tremendous growth, but also noted that this has put strain on your operations and your logistics expenses. Can you just roughly quantify how much margin pressure came from logistics in this last quarter? And whether you already see this abating into maybe coming quarters maybe as, to some extent, curbside pickup or click & collect can come back? Or do you think this just takes a little bit longer, and we just need to see sort of the scaling of impact of the entire logistics investment play out a little bit more, so more something -- unit shop -- unit shipping cost dilution will be something more further out, sort of understand where we are in that curve?

I'm sorry, I was muted. So I've been talking for a while. So Irma, again, thank you for your question. They're all very good, but because they're good, they're hard to answer. So I was -- I have a second chance now. Anyway. Your first question was about margins. What I was saying is that margins are -- they have very different situations in the different formats. Probably the one that is more complex is Falabella, and there, I would like to divide the margin situation between the hard goods and soft goods, even though that's a very broad separation. I see in hard goods, our margins actually improving going forward. There are -- in general, the demand has been very high and there are not extra inventories either in our operation and in the market in general. The more complex situation is in clothing and apparel. And basically, what we are doing there to minimize the negative impact on margins is in the first place, we are basically for the first time and with basic products, storing products for the next season. But we will continue to see -- and also because of the increased inventories that you see in our balance, we have also increased provisions. So -- but we will continue to see, and it's hard to tell how much pressure we will continue to see on margins in clothing. If we move to home improvement, actually, we're seeing a good situation in terms of inventories in home improvement and also a relatively healthy margin prospect going forward. And in groceries, in general, I see no change in our margins. And given that, particularly our grocery operation in Peru has a lot of non-food, there again, the electronics is going to probably be quite healthy in margins and the clothing part is going to be more challenged. Your second question, sorry, was about e-commerce. Sorry, -- I'm sorry, for margin pressure. Margin pressures on logistics. Yes. So let me split logistics into 2 parts and think about logistics within the distribution centers or the stores and then the distribution logistics. In the picking process, I think we were going to see that -- what we have seen is actually an improved efficiency in our logistics cost. And we will probably see that even more, and that's a result of the investments we have made, but it has been partially offset by the fact that we had limitations in the number of people that could operate in our distribution centers. So at some point, that became a bottleneck. On the transportation part of logistics, we actually became quite inefficient, and we had about a 10% to 20% increase in logistics costs -- in distribution logistics cost during this period. We expect that, that -- and that is driven by 2 factors. One factor is the surge in demand, which we expect will continue going forward. Actually, as we open stores, we are seeing the demand for -- in online sales to remain quite solid. And the other factor has been -- I'm sorry, the unavailability of pickup in-store or click & collect. And if I would have to divide that 10% to 20% impact, it's evenly divided between the impact on -- that we had from volume and having to go out and contract third-party logistics operators and the impact of the click & collect. We think click & collect will come back, probably not at the level where it was before the crisis, but it will come back quite strongly as people start going back to the stores and, therefore, that part, we think is going to -- we're going to recover. And as we increase our capacity, we're also going to become more efficient in the transportation distribution, but that's going to take a little bit more time.

Our next question is from Emilio Acevedo with Santander.

I have some questions. First one, I would like to have more color on SG&A efficiency, mainly the money that you post in your report, could it be translated in the long term or is something just for this online, particularly for personnel expense? The second question is if you all have to be in the relationship with the sellers through the [ TP ] format? And if you can give an example that can share us with those new sellers that are coming into your base accounts. And finally, in the online segment, very congrats on your growth. But regarding e-commerce penetration, how do you see the level of penetration in a normalized level so that the e-commerce penetration should reach a level of above 30%? Of course, in my opinion, it should be normalized. So what is your opinion on that?

Well, thank you for your questions, Emilio. Starting with SG&A efficiencies. We have made very strong efforts, as I mentioned in my statement, to make sustainable SG&A efficiencies in our cost structure rather than just short-term savings. But as a result of the crisis, we had a set of short-term savings. So what are some of the short-term savings that are not recurrent? Well, marketing spend has been significantly lower is one example. And the rent in our stores, which also is partially offset by the decrease in revenue from our mall operations. What are the sustainable initiatives that we have taken is, basically, we had a double-digit restructuring of our overhead. And that is partially offset by some one-timers, right, in particularly the severance cost of this restructuring. So moving forward, we do expect to see a double-digit savings on an equal base, but with a caveat. So if you just take an equal base, we think there's going to be -- we see a double-digit savings in SG&A going forward. On the other hand, we are making our technology investments that were traditionally much more focused on acquisitions of solutions, and now we are developing proprietary solutions. As a result of that, most of our -- some of our technology CapEx is turning into OpEx. So going forward, you're going to see some of the SG&A savings that we're making offset by operating expenses related to technology. That's on logistics. Your second question was on the relationship with sellers. I think today, the main driver of seller relationship growth is the flow of customers that we have in -- particularly in Falabella and Linio, which was -- which have increased significantly, and that has really brought a lot of new sellers to these platforms. And I mentioned some of the percentage growth on both. If I didn't, we had almost a triple -- tripling of sellers in Falabella Chile and about 65% growth of sellers in Linio. What are some examples of that? I think we are happy to see that we have some very more-than-small sellers like Komax or Casaideas in Peru or Huawei participating as sellers. So we have some relevant brands participating as sellers on one hand. Another very important example of what we're doing with sellers is that we offered a free subscription or a free participation in all of our marketplaces to entrepreneurs, so we had a significant number of entrepreneurs through this program that started operating with us. And a third example that I would like to mention is that about a few weeks ago, we signed an agreement with Mallplaza, which is part of the group, but Linio signed an agreement with Mallplaza. So Mallplaza is offering, as part of the value proposition to tenants, to participate in Linio. And I think that's going to be a very important initiative for Mallplaza and actually is going to be part -- one part of a set of initiatives that Mallplaza is going to take with tenants in the shopping centers to improve the value proposition to tenants, which today have to do with the marketplace, but will extend also to loyalty, to data analytics and other parts of our ecosystem. Your third question was around the sustainability of our online penetration moving forward. And this is very hard to predict right now. We're in the middle of the store opening process. What we are seeing today is that as we open stores, the sales of stores go through a curve that go, at this point, from about 50% of what they were selling a year ago to about 100% in a period of 2 months -- 1.5 months or 2 months, which is a very healthy curve in our view, and as we are seeing that and making the analysis locally in the areas where these stores are opening, we are seeing a very sustained level of activity in our online channels. Now that cannot be taken as a prediction because we're still in flux here. So the -- even though the stores opening and they're selling, they're also selling because there are other factors such as the distribution of 10% of savings by the pension funds. So to make a very concrete prediction that this will stay, the positive way we are seeing it right now would be a bit adventurous. But until now, what we are seeing is that the stores are opening, and we're seeing the parallel recovery of the stores with the sustained sales of the online channels.

Yes, that's right. Indeed [indiscernible] indicated that the penetration level at consolidated level should be around 14%. Is that away from your numbers or your expectation? By the end of the year, I mean.

Let me think about before I give you a number, but I can't really give you a number on penetration because it clearly depends on a lot of -- but I think that could be in the ballpark, but...

Yes, I understand. Just the last question, if I can. We have already seen better prospects in [ regional ] sales in Chile due to the 10% withdrawal from pension funds. If you have seen some changes on consumer behavior because of this 10% withdrawal? These are from my side until my turn again.

Yes. Thank you for the question. We have seen very, very strong surge in sales that has coincided with the period of distribution of this 10%. Just to give you a flavor of that, around 65% or 70% of the funds were distributed over this period and another 35% is coming in the next month or so. People have about a year to take their money. But in general, most of the flow of money is taking place in the initial couple of months. What we have seen is a -- of course, very positive growth figures in our sales, particularly in durables. We have seen net positive sales level that are above anything we have seen probably in the last 12 months, both in Sodimac and in Falabella. And also since we are talking about that distribution by the pension funds, another impact we are seeing is a significant improvement in the -- in our loan book. So a lot of the credits becoming current as a result of this.

Our next question comes from Antonio Hernández with Barclays.

Thanks a lot for all the insightful information you provided. Actually, a couple of questions would be -- first one, in terms of the percentage of orders that you have delivered on time, do you have any breakdown maybe of some statistics that you could provide of pre-COVID-19 levels, then like during the lockdowns and what are the current levels post the lockdowns? And a follow-up would be on -- in terms of country performance as the stores having reopening. You've mentioned, for example, home improvement, you have quite a healthy margin outlook on that. But if you could give a little bit more light in terms of how you're seeing the performance from more of a country perspective?

Thank you for your questions, Antonio. So I will give you very broad numbers on these on-time delivery, which we measure very closely. And really, the levels that you would see pre-COVID were only around 95% of -- if you take Falabella Chile, in particular, somewhere between 92% and 95% were on time. We have gone all the way down to the low 80s in the middle of the pandemic. We are today with very low levels of orders that go beyond the promise. But the problems -- but we're still facing problems with what we call the long tail of orders that have one or another type of problem because we are working with third parties much more than we did in the past. And therefore, some orders are -- there's lost track of it, and the communication with the third-party is not as seamless. We have problems with returns because returns were mostly done in our stores. And as the stores were closed, returns could not be done at the store. So we had the whole reverse logistics growing significantly. And a lot of the delays and complaints have actually much more to do with returns than with deliveries. And we are very, very consciously managing, particularly the orders that go beyond a certain number of days and have not been delivered. We still have a pending number of orders, something like a 5% or so, that are beyond the tolerable number of days. So we're putting a lot of focus on that. And our objective is to really be at the promised levels, which is usually around 2 days -- except for some of the marketplace items, it's usually 2 days, and get that to the normal levels as fast as possible. In terms of country, how we see reopened stores recovering in different countries, this, again, is really variable because it not only has to do with whether you reopened or not the stores but we have a lot of variability in days of operation, hours of operation and mobility of our customers and mobility of our own team members. So for example, we have reopened stores in Chile that even though the whole store is reopened, it has very limited capacity because we have very limited number of team members operating the stores. So having said -- having put all of those caveats in place, I would say that the home improvement format is the one that has recovered the fastest as we reopened stores. Of course, the grocery format was never closed. So we had very good performance in the grocery format to let -- the strongest grocery format we have is only in Peru. But in home improvement, we are having tremendous growth in sales in Chile, in Colombia, maybe less in Peru and doing extremely well in Brazil and also normal, I would say, in Mexico. The Falabella format is actually doing right now quite well in Peru in the stores that we have been able to open. But we still don't have all of the Santiago city stores opened, partly because they are in parts of the city that are still in quarantine and partly because we have many team members that live in parts of the city that are in quarantine. So as a result of that, the stores that have opened, as I said, are going from about 50% of what they sold a year ago to somewhere about 80%, 90% and then in some cases beyond 100%. So that's the spread in Chile. But in general, in Falabella, it is very variable. Then if you go to Colombia, we have very good performance of the stores, but we only have 6 days of the week open. And the different local governments in Colombia have additional restrictions that they are either announcing or thinking about. And then in the case of Peru, again, the -- our Tottus format is doing extremely well and with very good sales, both in grocery and nonfood. Our Falabella format has basically regained the normal level of sales and our Sodimac format is also at the normal level of sales.

Our next question comes from Nicolas Riva with Bank of America.

Yes. I got 2 questions. The first one, one of the slides in the earnings call, you show the percentage of stores which are open now around 90%, up from 54% back in April. I saw in August, if you look at the August numbers, there is a slight decrease versus the July numbers in terms of percentage of stores open, and I wondered if you have seen any setbacks or any re-closures in any of the countries where you operate or if you see that as a risk going forward? And then the second question was a prior question in terms of margin expectations. And you commented on margins in different businesses. I was wondering following the negative EBITDA in the second quarter and you clearly mentioned all the reasons for this and the store closures, et cetera, how fast do you think you could go back to that 8%, 9% EBITDA margin in the retail business that you had prior to the pandemic?

So thank you, Nicolas, for your 2 questions. So you had a specific question about August and what happened. So I was looking at the numbers. And what happened in August is that we had a partial closure of stores in Colombia, in particular. So there was an initial very broad reopening and then we had some parts, particularly in Bogotá, that went back to closure. Now we have all of our stores open again in Colombia. In terms of what we expect going forward, I think, again, it varies by country. But in general, what we are seeing from our discussion with the authorities is that there is a continued intention to maintain the opening of the economies going forward, and there are specific cases that might not play out that way. I think, in particular, in Argentina, probably we may see some setbacks. And the other country where, for example, the local government in Colombia is -- the local city government in Bogotá is announcing a partial not store closing but the inability to work some days of the week. And again, this not only has to do with store opening or not but also with mobility. And again, in Colombia, there are some restrictions to mobility that are related to the ending of the document -- the document number of people depending on the number you have, you can go out shopping and go out of your home on some days and not on some others. In general, we are seeing a trend to continued opening, but that's not going to be without some local setbacks in some cities or countries. In terms of the margin expectations, we don't give guidance on what the margin will be going forward. And that really depends on the -- that path to recovery really depends on the rate at which we are able to open stores because really the most important hits on EBITDA are the fact that we have these stores -- some stores closed and we have continued operation of the stores. And the other important part is our ability to continue to penetrate with digital solutions to our customers to improve collections and to improve financial transactions so that our default rates go down.

Our next question is from Andrés Ortiz with Crédit Suisse.

I would like to ask about your payment initiatives, particularly if you could give us an update on the Fpay wallet adoption? And what sort of [ inferential analogies ] are you planning to launch going forward? And the second question here will be this new credit offerings that you launched that were 100% digital, the CMR OD, the credit card and the self-finance for Linio. During this [indiscernible] process of limiting new loan originations to actually preserve the quality of the portfolio, so what sort of risk controls are you applying during this all new digital process that you are currently offering? And that will be my first question.

Thank you for your question, Andrés. In terms of Fpay, as you know, we launched that about 3 months ago. The way we launched it is as a functionality that mostly operates in our stores today as a QR solution for payments. In Tottus, it became very popular because it's a way to pay without any physical contact directly from your phone. But we really see that the adoption will grow substantially as we make Fpay the wallet or the payment checkout method for all of our e-commerce solutions. And we are in the process of rolling that out so that both in the Falabella mobile app and in the Falabella desktop, e-commerce solution in Sodimac and in Tottus as well as in Fazil, Fpay becomes the wallet. Once that happens, which is happening over the next few months, 100% of the payments in all of those solutions are going to be F payments, either with our own payment method or with a third-party payment method, which we are already taking any payment method as viable in Fpay. And that's probably, in our view, the most important functionality that will take place in the next couple of months because it will greatly increase the number of the adoption rate. Today, the adoption rate is mostly driven by people that actually download the app and use the app, but it's not related to the usage of the other apps. Once it becomes related to the usage of the other apps, it will grow significantly into millions. Today is in the 100,000 or so. Your second question was about what we are doing in credit, both in digital card opening and in Linio sales finance, et cetera. And I -- what I understood is you have a concern around risk because on one hand, we are limiting and being more selective in credit origination, and on the other hand, we're doing these things. So it's a different answer for this sales finance credit or seller finance credit that we're doing than from the digital card opening because for digital card opening, which is the simplest answer, we actually use exactly the same model that we use for a store card opening. So there is no difference at all. There is no difference whatsoever in opening a card in a store or opening a card digitally for us in terms of the risk being taken. Now in terms of seller finance and sales finance in Linio, we are launching those initiatives more as "pilot," the same way we did the ramp-up of our Mexico financial services solutions in a gradual way, and we are still adjusting models there. These new products also will have a process of model adjustment before we feel comfortable with a more massive release, but we have the advantage of a very broad history of transactions, which we are increasingly using and which is increasingly helping the accuracy of our risk models to the point that we are actually feeling quite comfortable with these sales finance credits that we're doing in Linio because they are behaving quite well.

Understood. Very clear. And just a last question from my side. How does -- it relates to the last mile delivery process, particularly the use of third-party providers. In the sense that you are seeing that click & collect will take a while to recover to those levels that you were used to, are you developing specific relationships with these third-party providers going forward? Is this the way to go in terms of last mile delivery or are you planning to bolster your own capabilities?

Well, the answer is both. We think going forward, we're going to have a more hybrid solution in the sense that we think there are certain categories, particularly bulky items and several categories where we think we are more efficient and we can get -- achieve better route densities than third parties. And therefore, we're going to continue to control or to -- yes, almost completely deliver those categories on our own. As we see demand increasing, we are depending more and more on third parties, and we are going to continue to do that. And the main lever we think or the main aspect we need to improve and we're actually investing in that is the traceability and the transparency of information to the customers -- to us and to the customers of the order status so that we can better provide incentives on one hand, we can better inform the customers and manage the relationship with third parties. Because we grew very fast and we incorporated third parties in a very fast way, we really didn't do this initially, and we are in the process of developing those solutions now.

Our next question is from Bob Ford with Bank of America.

Gaston, you started to answer this earlier, but I was hoping you could expand further on how you're thinking about digitalization trends and the impact on your mall assets and how you're thinking about mitigating those impacts by shifting more toward a service-oriented tenant or integrating with your digital capabilities?

Bob, thank you for your question. So the digitalization, obviously, has an impact on the mall operations. And there are several strategies that we're pursuing to make the mall an attractive -- both an attractive place for the retail tenants and also expand the reach of the mall to other types of tenants. So in terms of expanding to other types of tenants, we are investing in all malls in entertainment and food and beverage and that is actually becoming a very -- an increasingly relevant part of the tenant base. Of course, with the COVID crisis, that part of the mall is actually one that is quite challenged. But we do think going forward, these are going to become very important parts of the mall tenant and also -- of the mall tenant base, and also they will secure continued flow of customers in the mall, which will, in turn, help the rest of the tenant base or the retail tenant base. In terms of making the mall more attractive for the retail tenant base, we think more and more the types of initiatives that we are taking in the line of what we are doing with Linio. So for example, making Linio part of the value proposition -- or making the marketplace participation part of the value proposition from the mall is one of the value-added services that the mall will provide. And going forward, looking at the ecosystem from the mall perspective, we think there are more initiatives that the mall can take, like providing data analytics to tenants, providing the ability of tenants to participate in a broader loyalty program, providing the ability of tenants to participate in curbside pickup and other services that will allow them -- if you combine all of these things, they will be participating in the marketplace, participating in the curbside pickup, which basically provides a synergy between those 2. So Mallplaza and Rentas Falabella, both are pursuing all of these strategies with a very focused plan going forward.

Our next question comes from Augusto Uribe with AIG.

I have a couple of questions relating liquidity. You withdrew a few credit lines I think it was in early March or early April. And I just wanted to know when those lines mature and what is your strategy regarding refinancing those in the near term? And the second related to the first is, you didn't provide in the first quarter guidance in terms of cash burn. But I don't know if you can give us any color regarding cash -- how the cash burn has evolved in the second quarter and in July? And I also wonder what you are seeing for the next -- for the rest of the year?

Thank you, Augusto, for your question. This is Alejandro. Let me go back to what we did in, I would say, mid-March until the end of March. We basically -- we didn't took all the credit lines we had. What we did was basically, we took short-term bank loans, not only in Chile, but also in Colombia, Peru and in every other country in which we operate. But that was because we didn't have a clear view of how long this situation was going to last. Once we realized that, that was something that was probably going at least 6 months, we took the strategy to refinance all that. So every single loan that we took on, I would say, during the first quarter, was already refinanced. So we don't -- and that was refinanced with -- following 2 different lines. The first one was we issued bonds, one was, roughly speaking, a little less than $400 million that we issued from Falabella and from Mallplaza. Here in Chile, those loans had a tenure of 7 years and 5 years. And all the bank loans that we had were -- they were refinanced with a tenure of 3 years. So we don't have any, I would say, refinancing risk related to those loans that we took at the beginning of this pandemic. And the second part of your question was related to the cash burn that we've been having during this period. I would say we -- and if you see the numbers, the performance of our online business in general has been way beyond what we could have expected. And even though we had, I would say, some degree of cash burn levels during the month of April, the thing -- the situation is adding the different efficiency that we were able to achieve. The cash burn level during the month of May and June was reduced significantly, and that's precisely why the level of cash that we hold in hand didn't -- was not reduced strongly from what you were able to see as of the end of the first quarter. So point to that is we haven't had that level of cash burn. And moving forward, what we're seeing is we've been monitoring that closely on a weekly basis. And we are not seeing an abnormal level of cash burned that would make us be, I would say, more concerned about the situation. And the main reason for that, as I said before, we've been able to have a stronger-than-expected performance on the online business, not only Falabella. If you see the numbers of Sodimac also having a very good performance and also on the retail business of grocery supermarket.