Grupo Casas Bahia S.A. (BHIA3) Earnings Call Transcript & Summary

Good afternoon, everyone, and thank you for waiting. Welcome to the earnings call for the Fourth Quarter of 2024 Grupo Casas Bahia. We'd like to let you know that if you need translation, we have this too available on our platform. [Operator Instructions] We'd like to let you know that this earnings call is being recorded and will be provided on the IR website of the company, ir.grupocasbahia.com.br, where you'll find the full material with the earnings release. You can download our presentation as well on the chat icon in English. [Operator Instructions] We'd like to highlight that the information in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts and operational targets and financial targets in the company represent beliefs and assumptions of the company's management as well as information that is currently available. Future statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and therefore, rely on circumstances that could or not occur. Investors must comprehend that overall economic conditions, market conditions and other factors can affect the performance in the future of the company and lead to results that differ materially from those in such future statements. Today, we have the presence of the executives of the company. Renato Franklin, the CEO; Elcio and Gabriel Succar. And now we're going to pass on the floor to Mr. Renato Franklin.

Good morning, everyone. Good afternoon, everyone. Welcome to our earnings call here for this Q&A and a quick summary of the results in the fourth quarter. We are here to share results that make us really happy and aware that the transformation plan is a 2-year plan. And after the increase of the interest rates, we extend this till the end of 2025, but the results so far demonstrate that we're on the right path. And I want to start off thanking and highlighting the fact that it's the fifth consecutive quarter that we've been delivering sequential improvements in our margins, not only our gross margins, but also our EBITDA margins and the operational cash flow of the company levered mainly by the growth in the physical stores, the growth of the Buy Now Pay Later and also the penetration of services. This is a fourth quarter, and there's an important milestone, which is also an inflection point where we start capturing operational leverage. We've been talking about this in the first phase where we had a big focus on expenses and costs to improve our operational performance. And now we get into the second quarter with the selective bets as well, where we must bring in additional revenue and especially in the channels that have margin to be able to profitabilize this ecosystem that's here. The results are here, and we have the best free cash flow for 1 quarter in the last 5 years, BRL 1.2 million, and the liquidity increased. We had an EBITDA margin of 8%, the best EBITDA margin in the fourth quarter ever since 2017. Many different indicators we've been looking at, and they've been a record in the last 7 years. But what I'm happy about is not these indicators, it's because I'm sure we'll be able to write new benchmarks for operational efficiency and profitability in the retail industry and the home appliances industry. The gross margin is going to be 30.8% in a quarter where we had Black Friday and Christmas. And these were moments where we were able to really take advantage of this. We had disclosure on the market share gains and in the physical stores, this was even greater in contributing to the GMV growth of the store. And the Buy Now Pay Later is really reaching an all-time high, very significant, over BRL 800 million in growth and the beginning of the FIDC, which was offset by these bilateral facilities that have also supported the growth of the Buy Now Pay Later. And now we also start with the FIDC to disclose something in a different way that can generate even more trust in the capital market about the quality of our Buy Now Pay Later, which will allow us to lower the cost of funding, increasing the profitability of our [ Credit Aio ] business, the Buy Now Pay Later. We can move on to the next slide where we'll talk about the GMV in the company. And here, we're talking about the company's GMV. I wanted to highlight once again that our discipline of investing in growth in different categories and products that are profitable in the channels that have profitability. So our commitment is not towards the growth, but the profitability. We want to make the company be in a profitable scenario even with a high interest scenario, and we need to really capture the operational leverage and tighten up a bit on the efficiency. So this is contributing a lot with 70% growth in same-store sales and 2.1 percentage points of gains in the contribution margin in the store. E-commerce got better with its contribution margin. It's important to mention e-commerce is where we had the most relevance in the revenue of noncore products. On the 10th of August, we presented the transformation plan, we had 14% of the revenue coming from noncore products. So it's less than 10% from what we had seen in our history, but we still have a base of products with other categories and channels that were not profitable that we reduced. So the objective here is to be profitable, have discipline financially. 3P offsets the 1P a bit without the need to allocate capital. So our 3P is also growing in core categories, and this is very relevant. We've been reinforcing the strategy, and we're the only national player focused on being a specialist in home appliances and furniture. And this has really strengthened our relationship with suppliers of home appliances and furniture and allowed us to be so competitive and gaining share in our physical stores as well. So where we see that we talk about our ecosystem. And when we talk about our Buy Now Pay Later, it grew significantly, reaching BRL 6.2 billion. And besides this, it's really about our discipline and our approach towards having a dropping delinquency rate. So in the macro scenario will be even tougher in '25 than it was in '24. So we chose to be more restrictive in the ratings. And we've been growing with better ratings that helps lever the quality of our portfolio. So we went from an over 90 of 9% to 8%, and that's a significant improvement. To improve our NPL and loss rates, our NPL is 10.2%. So it demonstrates the health of our portfolio and also the production growing a lot, which is very relevant. I want to highlight that whenever I grow with our Buy Now Pay Later, we have an impact in the free cash flow because that considers long-term receivables and the profitability with the accrued interest happening on the next 14 months on average. So that helps with the consistency, delivering an improvement in the margins every quarter gradually. And we're really happy. It's a client that we really know about well and we know that this is a channel that also leverages the profitability in the company. So when we talk about the FIDC, we really see that the FIDC is already operational, and it will allow the Buy Now Pay Later to continue to grow. When we think about the profitability in the ecosystem, we see the participation of the Buy Now Pay Later growing. You remember that the fourth quarter had the Black Friday that really attracts a higher income kind of public, which is an average that's higher than the average in the year, but it's an evolution upon the fourth quarter of last year. And in digital, we have significant growth, reaching 9% penetration on average, 8.4% in 1P and 9.7% in 3P and really doubling our Buy Now Pay Later, and this will allow us to also have growth in digital, which makes it more profitable. But that's not a priority. So then you have the services growing also, and that's been contributing. So we have the revenue from retail media growing almost more than 200%, consolidating ourselves as an ecosystem. And we've received demands from players that are almost -- that are always out of our industry to have these campaigns with us using the 108 customers that end up accessing our system. We can move on. We can move on one more. And we focused a lot on this first phase of the plan, '24 and it was really focused on the efficiency and the cost and reviewing our operations to make the company lighter. We still have opportunities so we're going to tighten things up a bit more. But ever since the second semester, we got into some selective bets with a bit of growth in the revenue. So the pricing has really contributed to an improvement in profitability and also to the margin, which will bring in important benefits to the additional margin. And we also have an issue with the assortment that would help us optimize our stock a bit. And now we want to capture another evolution throughout '25. And I also want to highlight the CRM, which is the sales force using this tool with AI to make this work. So customers get into a site and look at the product, they haven't bought and they send this lead to a sales rep, and they'll try to convert this where we can add more services and have products placed above what they were expecting and bring in more profitability to the company. So that's what will happen from the end of '25, and then we need to really reinforce our capital structure that will allow us to enter a growth cycle for the company. Can we move on? Then I'm going to talk about Elcio. Elcio will start sharing a bit of the financial highlights.

Thank you, Renato. Thank you, everyone, for your participation. We can advance. The transformation plan we announced in August '23 had very clear objectives. Renato has already mentioned, but it's important to reinforce this because the profitability and the cash flow really focus on core categories, but also the expansion of the Buy Now Pay Later. And after a year of this launch, we have been consistent with the same commitments with all the different initiatives we've been talking about in the 1.5 years, and we have these operational and financial actions aligned towards this vision here. So I'm going to discuss these details a little more on the next slide. We can move on. Well, this page really reflects the evolution of the transformational plan and numbers. So the left upper side graph demonstrates we went back to growing the revenue. We had a growth of 8%. As Renato has already mentioned, this was due to the more precise commercial approach and also the growth and in the last -- in the previous quarters, we also had a retraction of the revenue due to the category adjustments in 1P and also -- and we already expected a short-term impact in the revenue. But now after the third and fourth quarters, we positioned the company to have more sustainable growth from now on and really searching for this operational leverage and growth. So we end the year with a revenue at a positive trend that's very significant. And on the right side, the gross profit reached BRL 2.5 billion, 20% higher than the fourth quarter, a margin of 30.8% and also the same margin in the year of 30.8% compared to 27.9% in the previous year. So the advance was very significant in the gross margin, but '23 had many different impacts in the margins. And so that leads to us having to look at the history a bit more on what we would like to do from now on. To illustrate our commitment to profitability, I think it's very clear that we had a reduction in our revenue from 6% in the year and the gross profit went from -- grew 4%, sustaining more robust margins. And when we move into the bottom left graph on the SG&A, we've been very rigorous in controlling our expenses, ending the quarter with 23.8% of the revenue, a reduction of 2.4 percentage points compared to the previous year. And then in the fourth quarter, when we look at the macro scenario and the interest rates growing, we've already started to operate in a more preventive manner, adjusting the structure and the closure of another 8 stores with a reduction in the positions of almost 700 people. And when we look at the full year, we've reduced 5% nominal. And these are BRL 384 million. And that was a possibility to reduce and offset the inflation, and that's a discipline we have with SG&A with costs and expenses overall. And we're going to keep up with this. It's going to be fundamental for '25 as a pillar to defend and accelerate our operational efficiency as we have a more challenging macro scenario. Then with 3 consecutive -- with 5 consecutive quarters evolving, we have 7.2% in the year compared to 4.3% in the previous year. And of course, we have the issues with the year of '23. So we grew BRL 733 million compared to last year, even with this reduction of BRL 1.6 billion in the revenue. So once again, we demonstrate that our commitment is towards profitability and not only growth despite all of these variations between the revenue, profit. And so let's move on to the next slide. I want to show you this in 2 initiatives that are extremely structural and transformational. So on the left side, you have the labor issue, a major cash detractor with impacts in 2024 that's very relevant. And there's a drop that is significant, BRL 360 million versus last year. And so we have a downward trend -- so since this is a topic that is sensitive that we already had some issues with in the past, this improvement is really just to make it clear, we have a rationale on the dropping amount of labor claims that were legacy claims, and we really want to share the amount of losses in claims and really demonstrate that as they reduce the quantities overall, the cost -- the total cost of the company tends to drop. And besides this, we have really reinforced governance and management of these labor claims. So I think this is something we continue to operate with a lot of focus and efficiency, but we've been monitoring this. We have a positive trend for 2025, which is exactly what we launched in the transformation plan, it starts becoming more concrete effectively. And then the other issue is the tax topic, which we presented on the right side. And there's a net impact of the taxes in the cash flow, which considers all of the different transactions, inflows and outflows. And here, you have the net results that will impact the cash position. And we see the monetization that is significant in '23 and '24 versus the previous years, which is important, and that was an important source of cash for the company. And we continue to have a relevant stock to continue to monetize. And we're just illustrating the ICMS -- recoverable ICMS, and we reduced 50% ever since the peak in the third quarter of '22. And we've been quarter-over-quarter working on this with more complex monetization state by state. You must look at the tax logistics per state. And we just consider that in '23, of course, we had a bigger reduction in monetization due to the fact that we had a reduction in our stock that was very significant. If we remember in '23, we reduced more than BRL 1 billion in the stocks that were aged and that were in the operation. On the next slide, we talk about positive free cash flow generation of BRL 1.2 billion, operational performance and also the different topics we mentioned now with the tax and labor issues. So when we look at the free cash flow annually, it's the best in the past 5 years compared to last year with BRL 648 million. And I just want to remind you that last year, we had this impact. That was a one-off impact in the stocks, BRL 1.1 billion. And in '24, Renato just mentioned, there was a big negative impact in the cash flow, which is the increase of the accounts receivable of BRL 500 million. So when we look at the full evolution of what '22 was, we can really see this evolution in the cash flow and really understanding what's coming up ahead where we expect to continue to advance and improve our position. We ended the quarter with BRL 4 billion in liquidity, very robust. Prepared for lower cash seasonality and -- which is always the first quarter, obviously. And then when we get into -- let's move on to the next one. We have the schedule for maturities. And I just want to remind you that the first interest payments and the -- happen in November '26. So there's a reasonable time frame to start paying for these debt maturities. And there's always going to be like a mismatch between the results and the cash position because we have a lack of payments, but we also want to reinforce we have the 2nd series of BRL 1.5 billion, and you have the conversion price based on the historical average of 90 days prior to the conversion date with 20% discount. So just to make this very clear, the financial leverage according to the methodology established in the 10th issuance of debentures, which was at 0.4x, way below 3x. So just to mention this because there's a lot of space in regards to the leverage of the 10th emission. Getting back to you, Renato.

Well, Elcio let's finish with the main messages so we can get into the Q&A. We can move on to the slides, please. One more. Great. So 2024, I think, was the year with the biggest transformation, as you mentioned, strong adjustments in the company structure and major improvements in the margins if we compare with the history. So we've delivered the indicators and the plan is 120% of what we were talking about. We have 60% of the scheduled plan, and we've been delivering some important milestones. So what we expect for 2025 is that the macro scenario got a little worse, then the plan that was established in August became insufficient for the interest that the company had to pay. So we had to increase the operational targets to be able to supply the increase of the OECD and the spread. So with this, we really need to capture the operational leverage. There's an important leverage with the physical stores that's really levered by the Buy Now Pay Later. There's also an increase in profitability and retail media which is important additional monetization where you have the margins above 80%, and they really help the company here at the bottom line. So then here, besides this, we're going to really tighten up with the operational leverage and gains as you'll see this gradually happen, and we'll be delivering 2025. We're very confident that the company besides having a tougher market will continue to gain share. The share gains in the fourth quarter were very important, and we'll continue to gain share throughout '25. And so then I want to show you how the year started off. Just a quick summary of the market share and with the payments in January, historically, the special sales, Casas Bahia wouldn't really take advantage of the special sales in January. We can see that the stocks -- we prepared the stores for the special sale. in January, now we're able to have a great special sale with important market share gains, especially from physical stores. So the total gains in market share in physical stores were 3.8 percentage points. In all of the core categories, the share gains were very relevant. So the phone 4.7 percentage points, white appliances, 4.4 percentage points, TVs reached 38% market share in some weeks of January. So that's very strong. And we can see the first quarter of the year really gaining share. So the market is not growing at the pace it had in the fourth quarter, but we're going to be able to deliver our business plan with the revenue coming with growth upon the previous year. We're really geared towards the share gains in the company and not just a market gain growth. And so we've been projecting the market with challenges, but we're confident that we'll be able to deliver these consistent market gains at every quarter in a gradual manner to really place the company in a scenario with a sustainable operation and really perform the capital structure initiatives that will reinforce the balance sheet so that in the beginning of '26, we can really discuss what's the growth cycle for the company, where we're going to prioritize the allocation of capital, if we're going to open up stores first or if we're going to reduce the risks, et cetera, to be able to profitize the company. And so we should be allocating our own capital. And there's a lot going on after structuring things here internally. So we're really confident, and we want to thank you all for your trust so far. I want to congratulate the Casas Bahia team. And for the first time, we are in -- we have a new headquarters here in this group. And one thing we really wanted to work on, I think culture is one of the biggest challenges in a retail company and really experiencing the store life every day reinforces our culture. So we were able to change this. And on Monday, we're going to have our flagship store open up right in front of the Bahini station. So we just have this one little video to show you our headquarters, our new headquarter office and show you what's happening before we get into Q&A. Just a second. Let's go. That's it guys, very happy. This is an important achievement. And first, we're reinforcing our culture, experiencing the store every day makes a huge difference, integration with all the departments, and we were able to reduce our rent costs. Now we're more real-life scenario in front of a subway station with a bunch of people going around and we opened up a store that's a flagship in a region that doesn't have a store like this. We're just one corner away from shopping the [ Eat Day ], which is very strong with house items and appliances, et cetera. So it's a shopping mall for house appliances and applications. And you can see tomorrow, we're going to open up the store, and we're going to light up the whole store. It's going to be a really beautiful reference here in the middle of [ Mginalpping' ] a big highway in crossing through the city.

Thank you so much, Renato. And our first question comes from Pedro at Bradesco. Pedro, can you hear us? We'll move on to Danny, please, and ask her to take the first one.

Sure. We have 2 main ones. I'll leave some questions to my colleagues. But the first one is about the working capital dynamic that calls our attention a lot, the gains you guys had in the suppliers line. I remember you guys would always talk about some opportunities and even a distribution model. I don't know if it was connected to the full cross you mentioned in the release, but -- it would be great if you could first explain a bit of this movement in the quarter and how we can consider this looking up ahead, if there's some strategic drivers that could make this change a bit? And then my second question is about profitability. You guys had significant improvements from the gross profits and also the EBITDA. And so first, in the gross line, it would be important to understand if you still see a lot of space for evolution. And then first of all, we wanted to mention also what is more like a natural operational leverage coming from a growth of the revenues above the expense lines.

Great. Denny, thanks for the questions. And first, we'll talk about the working capital. So just to give you some context, when we arrived, the first thing was we wanted to really adjust the variable model and the management of the company, focusing on the net margins, right, the net income. So when we see that it's close to the profits after income taxes, we're already considering the working capital optimization, and that consumes the working capital which is in the account for each of the buyers. So then, of course, the acceleration demonstrates we still have a big opportunity in capital -- working capital management from now on. So retail and the discipline to really calculate how much working capital you're going to consume in each category. At some moments, we were accelerating a certain category and then you have to step on the brakes because maybe the costs are too high, and you think you're going to gain additional margin, but then maybe you sold more. But there's some things you only see after they die out, right? So maybe there's still opportunities for improvement, right, in the management of the working capital. And so yes, there are some improvements that have already been captured in '24. Part of this comes from the new supply -- supplier models that really help us with this growth cycle. So if you're paying after this, it really helps the working capital. And there's also an aspect that's related to the mix change. So when we prioritize this net proxy, the suppliers that have a higher payment term really end up growing more. And in practical terms, the new suppliers that are arriving are also more aggressive with payment terms and they're the ones that most grow. So the market also helps us to extend this, right? So if you see this, there was no major change in the payment terms. And it's just a change in the mix and these products that were allocated in a different supply modality that really ended up contributing to this, which is so important for the company. There's still space during the year of '25. We continue to see the macro scenario and everything has been -- everyone has to take on a very disciplined approach with the growth plan. And so they continue to have a bit more flexibility to accommodate this. And considering our scale, we provide more opportunities to those that can help us also with the working capital. So that also generates important benefits that we should continue to capture in '25. I don't see any changes in the short term that would be that significant. There's a bit of seasonality in the quarter. And since payment terms are higher than 190 days, whatever you buy for Black Friday, you're just going to pay in the first quarter. So that also contributes to making the fourth quarter the best quarter. We have a seasonality adjustment in every quarter, of course. But the second question about profitability, when we first talk about the gross margins in the quarter, they have an impact. But what we joke about here is that we have almost 11 Novembers here within Casas Bahia. So we're bringing in different initiatives every month. And so we want to really differentiate ourselves and attract customers as much as we can. So the entire month trying to bring in new options. And so the margins in the fourth quarter has some impacts. Of course, it can increase the margins. And that also increases the penetration in Buy Now Pay Later and that impacts the service penetration and the commercial margin is kind of difficult to be able to achieve this, right? But then sometimes you have discounts and this penetration of the Buy Now Pay Later and services is really what's going to help us to gradually increase our gross margin in the company. And the retail media, that's also a service that contributes quite a bit in the gross margins of the company. In G&A, we still have opportunities. I think we had a stronger movement in this direction. But when we look at the indirect contracts, logistical efficiency, there's a lot to be done. And the challenge is inflation is higher than what we expected. So there are some lines where we're even delivering what was planned, but they end up kind of making the inflation null. So to optimize the G&A even more, it's going to be a little more incremental, but it needs to happen. And so the biggest gain will come from the dilution of this G&A considering the operational leverage, considering the growth, especially in physical stores, which is where we really capture the operational leverage. And that's what we're looking at throughout 2025.

Just to add on here, Danny, I want to reinforce a point here, which is we didn't have a change in the terms of -- in the payment terms with suppliers. But what happened is all of the purchases of Black Friday, Christmas and the January special sale that Renato mentioned led to -- we had a peak, we bought more, and we're going to pay that off in the first quarter. When you see the amount of days, and we see this is a mathematical issue. We understand when we place the days, it's considering the GMV and the sales in 12 months. So since we grew the sales in the last 6 months, there's an effect of days that becomes a little more distorted. But we'll see that in the amount of days, there wasn't a big modification, but we didn't want to change the methodology in between. So we left it as it was, but just trying to give you a bit of context here since there didn't seem to be a big modification in the terms.

Now Eric from Santander, we can move on.

And I said we have 2 points. First, on the Buy Now Pay Later, we've seen it advance a lot. And I wanted to understand a bit more from the digital perspective, what you see as a potential for penetration. That seems to have been growing quarter-over-quarter. So what do you guys see as potential? And then still in the Buy Now Pay Later, where you guys imagine we'll start seeing a bit of this effect when it comes to diluting the funding cost? So then moving on to the second question here. When you consider the share, you demonstrated the share data in January, and there's relevant gains. And do you guys think that you're having more regional competitors? Is it more generalized? And just to give us a little more color in this sense.

So the first question, the Buy Now Pay Later in digital, just like the e-commerce penetration of products that were not sold, that tends to grow proportionately. So we can go from 5% to 9% because the base is very small. Of course, it seems more difficult to have the penetration of the physical store in the Buy Now Pay Later, not because of the health. But here, there's an interesting point. When we look at the profitability of our Buy Now Pay Later in digital, delinquency is the same as physical. The anti-fraud tools. There's actually some evolution in the mathematical models we apply and our knowledge about the customer as well, which allowed us to have the same delinquency rates. But in digital, we have a smaller average ticket because we have more products with a lower average ticket and a smaller average term. With this, the profitability with the allocation of the same capital becomes smaller. So today, we don't have capital I just leave this as a more organic approach, and this is growing organically. And so when we organize things and have a healthier operation, we'll be able to accelerate this a bit more. And it could be that this will reach maybe high teens penetration, but that will take a while. I'm not seeing this in the short term because the main allocation for the company is better in physical stores and furniture and white line appliances. So furniture is very strong in physical stores, and that's where we have the most margins. So when you consider the capital allocation, it tends to grow a little slower, but the growth is pretty big and the base is very small. But when you get to the second point about the market share, we don't see share from the others. What we hear from industry is that Casas Bahia is actually recovering the share that they've always had. During a few years, we focused a lot on digital, and we lost a bit of share in the physical stores. But when you consider top of mind, surveys, we see that our brand is very strong and bigger than our share. So that's why it was actually quicker than what we imagined to have this share recovery in the physical stores, and that's been very strong. I believe that from a competitive advantage point, we take more share from regional players than from big players because our competition in the physical store market is really fragmented with a lot of regional players. And there tends to be -- if you look at my thesis in the midterm, we should have probably an organic consolidation with big players merging to have more logistics, credit solutions, and they tend to gain the market gradually just as it occurs in other industries as well.

So thank you, Eric. I want to call from [ Thalis ] from Safra. Thalis, are you in the room?

Yes, I am. Just a quick question about the demand and how you look at the demand for electronics in the beginning of the year. If you could give us some details about the main categories such as white line electronics and cell phones, et cetera.

Well, what we've seen as demand -- thanks, Thalis we brought in this market in the fourth quarter. It's been a little stronger, especially with the white line above what was expected by us and closer to what the industry expected. So in the first quarter, we see the reality went back a bit. We're growing in the white line, but we're growing 1 digit instead of 2 digits. So we've been dropping the growth in the white lines and in the other categories. So the market is a little more tough. So when we look at the plan we had for '25, and we're delivering the revenue and the sales that was listed in the plan, but we have more share than what we expected in the plan. So that demonstrates that the market is smaller than what was in the plan. In the online, we see this that in the -- to be able to see this, we have to wait for the closing of the month. So we see this closer in January and February, where we can see the market being a little tougher. The perspective in the industry is that we'll have a tougher market this year. I think we are more and more convinced about our decision with toughening it up and the reorganization of the company was so important to make things prepared for the scenario we have up ahead.

Now our next question is from Irma at Goldman Sachs.

Sorry, it will be [ Felipe Hashed ] replacing Irma. I think we had some issue with Irma Zoom. I wanted to ask you about the same-store sales and the physical stores. That was very strong. And I want to understand what dynamics. Of course, you have the internal dynamics with the optimization of the store base, et cetera. But I wanted to understand if -- get a bit more of what could be an external factor, competitive elements that may be impacted things in this dynamic. And anything you guys can talk about in regards to the outlook for '25 would be great.

3 things that helped us grow in the physical stores. First is about the structural context of it. The company has always been a very strong brand and the strategy of being the only national player is really considering us as the main lever for the suppliers. So we reinforced the relationship with suppliers of home appliances and electronics. And so we're very close. And so with the product in the store, from a macro perspective, we really see this challenging environment. And when we see the capital market really look at this, most of the population actually impacts the consumption, which is jobs and income, right? Jobs and income really continue to be consistent with incentives for liquidity and with these consolidations, and that's really been levering this growth in the physical store. And so that comes mainly from the Buy Now Pay Later and the Casas Bahia card. So both of these levers really strengthen our growth, and that's why we grow more with the white line appliances and furniture. So for cell phones, we had this issue with fraud because customers sometimes use this to perform a loan. And so we had some challenges with this. With the card, it's easier because you don't have delinquency risks, but we were able to work on some solutions, and we've been able to grow with credit in cell phones and without hindering delinquency. So that helps us to grow. If we were to summarize the alliance with the suppliers and the strategy of being a player that's focused in this category, then the macro environment also despite being bad for consumers, this considers they have jobs and income and the credit solutions as well that we have here. It's important to mention that credit is -- it actually -- we increased the average rate we charge. We're normally charging almost 9.5% a month, but we filtered things even more. We're more selective in the rating, but we're still growing, and there would be room for even more growth. So -- but if we accelerate this too much, there's going to be a major conception in the working capital. So we have to do this gradually. But there is space to have a consistent cycle of a midterm growth in our portfolio for the Buy Now Pay later.

Great. Thank you, Felipe. Now we're going to call Gustavo Fratini from Bank of America.

We wanted to approach -- we wanted to discuss the labor provisions, which was something that dropped a lot year-over-year. And I think you guys even expected a bit more details on this. But when you take a look at this, it seems like there's still a big amount that's provisioned and there's a big amount that's even greater that is not provisioned. And we know that this is a topic that not only affects us, but there's many other companies that also have the same topic. And obviously, you guys have the controls about what's not provisioned and what is provisioned. But I wanted to understand what's been the issue, and these are big amounts. So how has this taken place when we consider this recognition between what's going to be provisioned, what's not going to be provisioned?

Well, thanks for the question, Gustavo. For labor claims, we are really confident about our models and the evolution. We've been very careful with this. And with regards to possible surprises that could appear, I don't want to deliver anything beyond what I can deliver, but this really indicates that it's a lot greater. So when we look at the legacy, we see that really influence things a lot. So we're paying BRL 1.5 billion and each process costed us more than BRL 300 million. So we're talking about maybe 2 or 3 years ago, and this process was already coming into a ticket of 35. And so since there was a lot of fragile aspects, we were losing about 80% or 90% of the processes. Now we're gaining almost 90%. We're winning almost 90%. So that's advancing, and that has really allowed us to have the evolution in the numbers you're seeing. So when we look at this, the inflow of lawsuits is a lot lower than what we had expected. So we had a lot of -- we had over 13,000 people in total, but the inflow is still low, but there's timing, right? So that's why we have all the provisions kept. And when we perform the analysis, we call companies to discuss this and consulting firms, and we bring in AI, et cetera. And there's people that even think that there are excessive provisions. And we say, no, there's never been excessive provisions, especially in this country we're in, right? So to be very transparent here, we're comfortable with the numbers we see. And my expectation is to try to anticipate the gains. So we had this plan of bringing in 2024 to one level and reach '26 -- well, at the end of '26, we will be more comparable with what things should be. But there's a possibility even of this may be anticipating itself and being quicker because that will bring in a benefit to the cash flow that will help us start correcting the cost of capital and the structure. When you look at the monetization of tax and credits, basically like one pays off the other. But now we can generate cash. So we paid less labor claims. So there is a gain. When we look at '25, this gain becomes even more relevant. So I will probably have monetization at the same pace, then labor will be lower than '24 if we look at the fourth quarter and annualize that. So there's an important gain in the cash flow that will come from this, but we're very confident. And I'm not sure if Elcio wants to add anything.

But just to mention, this is one of the topics that's fundamental. We didn't change this with any provision methodology. As you can mention, ever since the events with the relevant facts, we've seen rigorous discipline validated by our audits. And during this period, we've seen this actually been reviewed by 3 or 4 other consulting firms. So we really keep a more conservative approach with the same methodology to provision this. And so I think this has been very consolidated, and we continue to work on this. Now what happens is really the legacy issue and a more robust stance we've been placing as well.

Our next question, Gabriel from BTG brought this in writing. We have 2 questions Renato and Elcio. The first one is when you look at the performance that comes from e-commerce and the perspective for normalization of 1P. And the second is when we look at the long term, what's the expectation of the company when you have this breakdown between the GMV and the online channel as well? How do we see this in the long term?

First question, the normalization of 1P, everything is correlated here to the second question. And our commitment in 1P, it's complementary, right? It's important for the commercial scale. It's important for the volume we have with suppliers. But if it's not profitable, we won't have 1P. So I'm being very transparent here. And I see a challenge to have the growth in 1P online and without the evolution of the penetration of the Buy Now Pay Later. So this will help me grow in the 1P online is the Buy Now Pay Later that can help this grow a little more and be stronger. And with this, we can present some growth as well. So with the market as it is, we don't need to have this concern right now. But if we look at this up ahead, obviously, just a point here, the fourth quarter of '23 had more volume from noncore categories. When you get into the first quarter of 2024, the volume is a lot lower, but we start this -- having this comparison that's better to look at. And at the relative perspective, you'll see a base improvement. But when you look up ahead, I see the company having a bit of gains in the e-commerce penetration. The penetration of e-commerce in Brazil is 14%. But when you look at home appliances, it's already 50%. So we actually thought it could be seasonality because it was around 40% some, but it grew definitely. January kept up and February as well. So e-commerce for home appliances reached 50%, which is like what we see in the U.S. and Europe. China has more. It's like 60% or so, but it's also not that different. But when you look at the forecast for the growth of e-commerce in Brazil, it goes from 14% to 20% because of the increase in penetration. in other categories, right? When you look at toys, food, clothing, beauty products, everything grows a lot. So it grew maybe 100%, but maybe it was nothing and it became a little bigger, right? But if you look at the business, you'll see there's e-commerce growth of 20%, 25%, but it's not what we see in home appliances, electronics. So when you look at our company in the midterm, it's about 60 or 40, 60-40. But when you look at the expansion cycle, we'll prioritize physical stores as well, which is where we have more profitability. And so e-commerce is important. It generates scale. We're not giving up on this. But as long as there's profitability. And I think there are still some players exploring our categories maybe in the wrong manner because it's not a consistent thing without profitability, et cetera. But I don't believe in the sustainability of businesses that are not profitable. So this comes and at some moment, it will go back, but we have to be disciplined. If we need to take our feet off the accelerator, we will. But when things are doing well, we can be more present or active. So I think a 60-40 ratio, let's say, is also valid and our priority is the physical sales channel. Any other questions?

Yes, now we have a question from Andrew at Morgan Stanley.

Most have been answered. I guess I'm just curious how you're thinking about the CapEx budget for 2025. There's been a couple of years of reduction. Are there areas this year where you potentially see room to cut more, looking to spend more? And you mentioned with the focus on stores, I'm curious how the potential for new store growth features into the outlook, whether that's '25 or in the out years.

So when we talk about the CapEx, we expect pretty much the same level of CapEx. So, yes, we do have a CapEx that's a little bigger for stores this year, but this is for refurbishing stores, not opening new stores. The opening stores have been taking place with support from industry. So we use retail media, which is what has helped us to open up new stores without consuming our CapEx in the company. So we have the Aricanduva store. We have the flagship here at the headquarters as well. Aricanduva was refurbishing and have 60% growth with just 20% more on the average price. So it's a big gain for the whole ecosystem. We'll have more mega stores, but it's not going to impact our CapEx. We do have CapEx for refurbishing work for projects that are maybe less intense, let's say, than the big mega stores like Aricanduva, but that do bring in improvements in the purchasing experience and revenue and margins for some stores. So we'll have -- these are small refurbishing works that spend not too much cash. But one thing I also noticed is that the more assertive CapEx is more effective because you can guarantee that the priority projects are delivered. When you try to do too much, the efficiency of the invested capital is also lower. So we evolved a lot with this in our technology processes when we really look at the governance and the management of each process, some things that would generate some hiccups or fragilities, we were able to solve. We were able to address a lot gains in logistics also with WMS working well, which is going to optimize a lot of the capital invested in logistics. So maybe BRL 400 million a bit higher or lower is going to be a level that's adequate for this company without going crazy. If interest rates go way down, of course, we'll take advantage to do a little more, but that's not the reality at the moment.

We have no other questions. So before passing the word back to you, I want to thank everyone for their presence. Thank our audience, and I'll pass the floor to you, Renato.

Thank you, Gabriel. Thank you, everyone, for participating today. I think as we mentioned, January demonstrated a market share that was very strong, and there's this new fact with the engagement of everyone really reaching all-time highs. We've been gaining the great places to work, all time employer and engagement is also very high. We created a more efficient model with these tools to facilitate the sales. We are gaining 37% productivity, and we'll have another 20% this year. And we're going to really see a conclusion of this and really rewrite this benchmark profitability. And we want to thank everyone for their trust. We have a lot of work. Let's continue with our financial discipline, a lot of discipline in capital allocation so we can gradually improve and get to the other point with the possibility of discussing a more intense expansion cycle. Thank you so much, everyone. Have a great afternoon.

Thank you. Bye-bye, and come get to know our flagship store. Bye. Take care.