Magazine Luiza S.A. ($MGLU3)

Magalu's Conference call regarding the quarterly earnings. For those who need simultaneous translation, click on the interpretation button via the globe icon at the bottom of your screen and choose your preferred language, English or Portuguese. We want to inform you that this event is being recorded and will be made available on the company's IR website at ri.magazineluiza.com.br. The earnings release and presentation are already available in Portuguese and English. The link to the presentation in English is also available in the chat. [Operator Instructions] Now I would like to give the floor to Fred Trajano, Magalu's CEO. Fred, please take the floor.

Good morning. Thank you for attending our earnings conference call on the fourth quarter of '25, but also the full year 2025. This call has a very relevant meaning for the company because we work in a model of strategic cycles. I'm completing now 10 years as the company's CEO. And my team here, the directors, almost all of them started the cycle with me. We had some very relevant additions in this period, but this team has been working together in this 10-year cycle. There's 2 cycles. The first was the business digitalization cycle from 2016 to 2020. And the second cycle was building the ecosystem. That's what we're completing now. And I think that since it's the beginning, and we're going to start now in 2026, a new strategic cycle, considering this is a cycle transition period, we want to give a review, an overview. We want to give some perspective to close the cycle. I'd like to close cycles and start new ones. So I'd like to invite all of you to read the message from the directors. Every 5 years, we write a more detailed message from the directors explaining the accomplishment of the cycles, and then I break down the insights we got from the cycles and also detail the strategic pillars of the new cycle that we're beginning. So I really do recommend that all of you to spend some time reading it. I'm sure that all of you will find this important, interesting. And if you want to know more about the company, you will have more details there at our message. But part of this message is here on my presentation. I'd like to reinforce that this strategic cycle's main objective was to build the ecosystem. We digitalized the company from 2016 to 2020. So I consider this first cycle to be concluded in an excellent footnote when we -- in 2020, when we closed 1,300 stores due to the pandemic and still grew 50% because the e-commerce grew 50% and e-commerce has had since then around 70% of our sales. Once that cycle was concluded, we had to build a new cycle being more digitalized omnichannel. So the new cycle then was the cycle of our ecosystem. Ecosystem is a word that's often used incorrectly by many companies. But in Magalu's case, the ecosystem cycle was very clearly focused on diversifying the company's sources of revenue to build a more robust results base that was not as cyclic that could operate with greater autonomy with the country's economic variation. So basically, it was to be able to operate with profitability in cycle of high interest rates. For example, in 2015, I have a slide here that I wanted to show you the differences from 2015 to 2025, where we can see very clearly that it's now a completely different company compared to 2015 before I took over as the company's CEO. In 2015, we had total sales of BRL 10 billion. Now in 2025, 10 years later, we have BRL 65 billion, so very robust growth. E-commerce that held 20% of our share in 2015 now holds 70%, high growth as well. Cycle of digitalization. And even in the ecosystem cycle, many of the companies we acquired were online-only companies, which contributed and continue to contribute to this growth in e-commerce. Marketplace in 2015 was 0% of our business. We were fully 1P, and now it corresponds to 1/3 of the business, 27%. Physical stores, 785 in 2015 and now in 2025, 1,246. And I think that shows something that I've been really stressing that Magalu, when we build a new channel, we do not destroy the previous channel. I never believed in a type of innovation that doesn't leverage your legacy. So when we built the 1P, we proved the first cycle with 1P purely with Magalu e-commerce of our first-party inventory, we did not stop growing physical stores. It was actually a highlight of last year. If we had divested in stores, we wouldn't be making the most of this opportunity we had last year and that we have going forward. We will start opening stores again, and we're going to have a strong pillar to bring stores to the ecosystem as a whole, not only Magalu we'll talk about this later. But I'd like to highlight that when we build a new channel, we do not destroy the previous channel. And it's the same thing with 3P. When we move to 3P, we did not stop investing our working on 1P. Both are there. So we really believe in a balance in the ecosystem between 1P, 3P stores, and that's what makes us different. That's our value proposition. And this is a side of our business that we do not want to change. We do not want to be the same as other companies. We want to have our own business model, and we believe that we have competitive advantages in the way we built it. In 2015, EBITDA was BRL 500 million. Today, it's BRL 3 billion -- BRL 3.1 billion. That's what we closed last year, very significant growth in EBITDA. Even durable goods that was our traditional category, we were the fourth in 2015. And today, Magalu is the leader in durable goods. So by diversifying the ecosystem cycle represent a diversification with new business lines, bringing new businesses to the group, but we never stopped growing in the other places. So we built BRL 20 billion of the GMV of new categories that was 0 in 2015, but we did not stop growing in durable goods either. So again, to build the new, you don't have to break down the past. And the fact is that in this ecosystem cycle, we acquired excellent companies like Netshoes, KaBuM!, Epoca, we acquired a fintech that today is Magalu Pay that contributed greatly to the results. We evolved a lot here in our business without stopping our investments in the traditional categories in our core business that is 1P. And the same thing, when we look at the financial soundness, we came from total cash in 2015 of BRL 1.2 billion to total cash of BRL 8 billion now and net cash negative in BRL 500 million in 2015 to net cash of BRL 3.1 billion positive. So clearly, a very significant evolution. There were 2 strategic cycles of the digitalization and the ecosystem that were very successful which did not make our business completely immune to the high interest rates, the increase of SELIC rate. Of course, that when SELIC rate goes up more than 25%, 30% on average, we feel that in our financial expenses. But when the SELIC rate was 14% in 2015, we were turning a loss with that GMV base of BRL 10 billion, and we were able to deliver a profit -- to turn a profit even in a context of high competitiveness in the online business and high cost of capital in the macroeconomic scenario. So I think this is proof that we have been very successful in these 2 cycles. And I'll break it down a little bit better on how each of the new components that we added to our company and the ecosystem is contributing to the results. But I'd like to highlight that the proof that made us -- made this clear is that, we are able to turn a profit in a moment where in the market, there's a lot of people -- a lot of companies applying for in-quarter or extra judicial recovery and companies who were strong and leaders in the market having to renegotiate their contracts, Magalu was able to increase EBITDA from BRL 3 billion to BRL 3.1 billion, which I think was quite a feat in this context, especially when 70% of our GMV that is online is going through a very competitive scenario. And I think it's even irrational, I would say, with negative contribution margins, and we were able to hold our online GMV increasing overall in the year, our contribution margin because what happened is that last year, we chose to work on businesses, channels, categories, segments with positive contribution margins. We do not believe in gaining share in context where the contribution margin is negative. I've seen it in Brazil. I've been in e-commerce for 25 years. I saw a lot of examples of scale this economy, so to speak, companies that were 10, 15x bigger than us with negative economic indices and believing that, that would eventually become positive contribution margins, and that didn't happen. So Magalu tries to work and operate where we find positive contribution margins. It was a decision that we made when the market became more aggressive. And I think the decision was very much right. And just having market share is not a competitive edge. If the customer comes with a subsidy, they leave us when the subsidy goes down. And I saw that often. So we have to separate those who were growing by buying the market and those were growing sustainably. A place where we're growing by winning over the market, not buying it is physical stores. The main highlight of last year for Magalu were physical stores. We grew 8.5% in same-store sales in the last quarter, very significant growth. We're gaining a lot of share, but I'd like to emphasize that the share we're gaining in physical stores is not by buying out the market. We saw that there was an opportunity to absorb more sales, more volume in physical stores. That's where we invested in because that's where the positive contribution margin was. If it was present on 1P or 3P or a specific category, that's where we were going to seek it because for us, what's important is to generate value to shareholders and bring or have a long-term business. That's our focus. And I believe we are at a very good point where we do have a weaker competition, which is allowing us to do very good work. It's not only a matter of competition. It's also historical consistency that we have in this channel. But here, we are seeing opportunities, and I'll talk a little bit about Galeria Magalu, but to take this competitive edge, not only to the Magalu brand, but to other channels and other corporate entities in the group, KaBuM!, Netshoes, Epoca. But talking a little bit more about the ecosystem. What contributed to our results was not only this tactical aspect of operating where the contribution margin is positive and not entering into wars that don't make sense in the short, medium or long term in segments with a negative contribution margin in e-commerce. So we also diversified our business with the companies that we acquired in this cycle of the ecosystem. So I have 3 examples, KaBuM!, Netshoes, Epoca. I'll talk about the others later. That's not our retail, but services segment, either financial or logistics or technology services. But talking a little bit about retail, we have KaBuM! contributing with BRL 62 million net income last year. Netshoes with a historical year, maybe their strongest year in terms of sales growth and profitability with almost BRL 100 million income in 2025. The company used to burn a lot of cash and lose money when we acquired it. So we did very strong work. Our team worked very well even in a competitive market like KaBuM! and Netshoes and Epoca Cosmeticos with an income of BRL 11 million in the previous year. So all of these businesses now -- we'll continue to grow in their own channels, something that we learned in the ecosystem cycle. Although 100% of the catalog of those companies are available in Magalu's app, a lot of the customers prefer to buy in the app or in channels that are specialized. So we chose to develop a strategy where we have channels and legal entities that are interdependent, but with exclusive channels that are interdependent and at the same time, share the same infrastructure. Netshoes, KaBuM! and Epoca use Magalog. Netshoes, KaBuM! and Epoca use Magalu Cloud, MagaluPay. So we have a shared infrastructure, but they have their own channel. They have a specific UX for each one, KaBuM! for games, Netshoes for sports, Epoca for beauty products. It's going to be a little while for books. And I think that this contributes to a slightly different value proposition, a one-stop shop that sells everything, but also having specialized channels where our clients are growing a lot. So later, I'll talk about the pillars of the next strategic cycle and how this -- how important this is to take to this business, the omnichannel aspect, the physical stores, that's one of the important pillars I'll mention later. But it's not only in retail that we made this differentiation. We also grew a lot, a contribution in other businesses in the group. And I'd like to point at Magalog. We had logistics that operated as a cost center at Magalu, like a department of Magalu. We acquired about 4 logistics companies where we integrated all of them in a single legal entity, CNPJ number. We spin off the group's logistics, integrate it with the companies that we acquired and created one of the largest logistics operators in Brazil, Magalog. Last year, Magalu's revenue for external customers grew 47%. So it delivers almost everything for the group, Magalu, Epoca, KaBuM!, but it grew 43% of its external revenue, clients like Reserva, the SPF group, Boticario, Samsung that we're closing a partnership now, Shopper, Petlove. So today, with a more delicate situation with the Brazilian Correios, the postal service and logistics operators, most of them did not gain scale in that sense. And Magalog has become a very competitive option with a very high service level. And we -- it has been very easy to win over new contracts and increasing the scale of the group. With Magalog growing externally, also helps its unit economics to operate with Magalu itself. So that's another example of how this ecosystem strategy works in practice. And I'll also talk about this later, what we plan to do with this pillar. The next thing that I'd like to highlight is Magalu Cloud. I think it was a spectacular year for Magalu Cloud. We won over a lot of customers. We connect -- we have Conecta La, Carbigdata, that's one of the most interesting start-up companies in Brazil today, and we started -- we have 1,200 external clients, 55% of Magalu's workloads are on Magalu Cloud. Fatala is here to talk more about this. We made an acquisition. We acquired Movestack that will add more AI services. And we also announced the first major corporate customer that is Globo, a big corp here that joined last year in a new segment of clients. Everyone being very satisfied with Magalu Cloud services, including Magalu that had excellent [ black ] and end of year with costs that are 40% lower than the options in the market. And a very important aspect that I always like to highlight that is to increasingly some services, either public or regulated data. In Brazil, there will be all this discussion about national sovereignty. Magalu Cloud takes 5% or 10% of the market. The cloud market in Brazil, it's 5 million to 10 million opportunities we have in the year. And I see that we're moving very well, and that was turnkey moment for Magalu Cloud last year, especially in terms of the acquisition of external clients. The same thing we saw with Magalog. It was a very relevant year for Magalu Cloud. That is important for us to discuss because it is a potential for huge value generation for shareholders looking at the medium and long term or medium term, actually, not long anymore. It's a medium-term reality. So I'd like to point this out. Jorg is here to talk more about MagaluPay as well. MagaluPay had a spectacular year for our financial operations. I think we had a very significant highlight for Luizacred with a credit portfolio of BRL 21 billion, but the drop of delinquency allowed us to achieve record net income of BRL 525 million in the year with a return of 25% on equity. That was the highest in history. So I think that was very expressive significant results, showing that we are very much in control in terms of delinquency, and Beto will talk about the decrease, drop on delinquency levels. Everybody is worried about indebtedness, but our financial operations are proving to be very healthy. There's another iconic point that we started to operate our own financial company for the buy now, pay later, that's MagaluPay IF. Buy now, pay later has already BRL 1.8 billion in the portfolio. We're migrating this portfolio that was on the retail balance sheet to IF. And this buy now, pay later business is also growing 15%. So I think this is very interesting, and we will have significant tax gains with this transition and that will contribute to our results going forward. Well, we have a lot to talk about IF, and I'll let Jorg answer in the Q&A. I'd also like to give special notice to something we talk a lot about, a lot of people don't know, but Magalu operates one of the largest consortium operators or administrators in Brazil. We sold BRL 6.5 billion in the loan portfolio in 2025 and consortium had an income of BRL 61 million net income last year. Consortium is the only anti-cyclic business we have at Magalu. So the higher the interest rates, the better it goes, and it is doing very well with quality indices that are excellent and customer satisfaction very well as well. So it was a very special year for consortium under Jorg's management, and I'd like to highlight this as well. We also evolved in other aspects of sub acquiring and so on. Another important pillar in this line of results diversification and being able to turn profits at a point where the SELIC rate is high is MagaluAds. We had an increase in revenue last year of 54%, more sellers investing, more brands investing. And now with this repositioning of our view and the repositioning of Magalu's e-commerce to a brand place concept that we'll talk about later, we believe ads will be even more leveraged. And I'd like to point out a big differentiator of MagaluAds. We have a very professional specialized team. And it is that Magalu, in addition to all the opportunities that brands have to invest in the online, we also have the omnichannel aspect of our physical stores. So at Galeria Magalu, that was an iconic concept we launched in December in physical stores that has been very successful. One of the major ways for us to enable the investments we made at that time was through MagaluAds. We signed advertising contracts and numbers that allow us that even with the results of retail that we sell at that point with the advertising contracts, there are more than 150 brands present at Galeria Magalu in 1.5 years, we'll get the return on investment, which will be even more valuable than the return on investment in physical stores. So having ads that monetize not only online but off-line and is an option for brands because a lot of brands are going to that. I think it's a very significant strategic differentiator of our format when compared to the competitors. So closing the previous cycle, I'd like to turn to the specific results, and I'll ask Beto to talk to you about that. And I'll come back later to give you a little bit of details about the guidelines, strategic pillars for the coming strategic cycle starting in 2026.

Thank you very much, Fred. Good morning, everyone, for being with us in our earnings call. I will start on the main financial highlights. Once again, total sales of over BRL 18 billion in the quarter, a highlight to physical stores, which have grown over 8% and comparison base, that's also very high, which was over 8% in the same quarter of last year. Our gross revenue was up 3%, reaching almost BRL 14 billion. Gross margin stable around 30%. EBITDA, we already mentioned, it is growing at a margin of 7.8%. Recurring net income of this quarter was BRL 125 million, once again, positive net income even with 15% interest rates a year, a very consistent result. And now the accounting net income was a little bit higher, BRL 132 million, including nonrecurring effects, which I'll shortly explain. We had a cash flow generation also strong, BRL 2.2 billion of operating cash flow in the quarter, and we ended the year with BRL 8 billion in total cash position, a liquidity that is very robust. In the next slide, we have the big numbers for the year. Again, total sales around BRL 65 billion, growth in physical stores, adjusted gross margin. EBITDA of BRL 3.1 billion, EBITDA margin close to 8%. Adjusted net income in the year as a whole, BRL 159 million. And once again, the accounting net income a little higher than the recurring one, reaching BRL 205 million and total cash position very close to EBITDA in the last 12 months and BRL 2.7 billion. So now we quickly go over the reconciliation of the recurring net income and accounting net income. As we have mentioned in the prior call, we had a favorable decision from the Supreme Court regarding the default, and we were able to have the reversal of the provision around BRL 550 million. And these are the result -- are posted as other revenue, other operating revenues. So this is not cash. But we shall remind you that we have over BRL 1 billion in [ court ] deposits. Regarding DIFAL, the interstate ICMS rate differential that now can be reimbursed, and we expect to have these funds back to our cash in the next 1 or 2 years. So that's a very positive effect in terms of asset monetization. In addition to that, we had an additional provision for inventories to accelerate the turnover of excess, seasonal, or slow-moving products, considering interest rates very high in Brazil. That's very important that we accelerate the turnover of this inventory. And also, we should say that in this quarter, specifically, we have improved the turnover of inventory in over 10 days. They went from 91 days in the fourth quarter of '24 to 80 days in the fourth quarter of '25. And we do believe we can continue this improvement process and inventory turnover. After that, we had a posting here at Luizacred. We have an accounting write-off of an expectation of receivables for portfolios overdue more than 360 days. This was an estimate according to IFRS that we did not have in the BR GAAP, [ 49666 ]. And so we did have this write-off at Luizacred. It's only accounting -- it has no cash effect, and it resulted in a difference in the equity method result of BRL 136 million, a totally nonrecurring, noncash. This is something that we had the expectation to receive in overdue portfolios. And so our estimates for BR GAAP and IFRS are more aligned and the results are more similar and other revenue and nonrecurring expenses not relevant of BRL 34 million, considering that all the adjustments and income tax and on top of these adjustments. So the accounting net income was higher than the recurring one and BRL 7 million. In the next slide, we have our working capital position. This was also an important highlight in the quarter, improving in the quarter and in the comparison with the last 12 months. Both turnover of inventory over less than 10 days, we increased our term of buying or purchasing in 5 days. We have monetized taxes. We have BRL 150 million in taxes to recover and BRL 350 million of taxes to recover in the year. That is we were able to improve our working capital in all of the main accounts of the retail. Therefore, we were able to mitigate SELIC's effect in our financial expenses. In this quarter, specifically, we reduced expenses with the debt interest. We reduced our gross debt. We had an amortization of almost BRL 1 billion in our gross debt. And Therefore, we anticipated some of the receivables in the quarter, which explains the variation in the accounts of receivables anticipation or prepayment. But sequentially, we decreased our financial expenses. And when we see in the year, the variation of 4% of net income and 2% to 3% of the net revenue, that was a variation of 30%, 30-something percent. That was exactly SELIC's variation that went from 11% to almost 15%. Therefore, we were able to hold back SELIC's movement, and that reflects our cash generation, also the performance of the working capital and the management of means of payment, the growth of our buy now, pay later or direct consumer credit also PIX and reducing the credit card -- third-party credit card share. Now we check the cash generation in the quarter. This was a quarter in which we increased the total cash and we reduced the debt at the same time. We increased the total cash to -- from BRL 7.6 billion to BRL 8 billion and reduced the debt in almost BRL 1 billion with a very strong cash flow generation. We had investments, Luizacred leasing, we paid interest. And also, we increased our cash in BRL 400 million in the quarter. Now over the year, we also increased cash in BRL 100 million, starting in operating cash generation that we already mentioned of BRL 2.7 billion. Free cash flow of almost BRL 1 billion. We paid interest, we paid debt and this net funding here, net borrowing, we have BRL 2 billion BID and IFC that we announced in the beginning of the year, and we paid BRL 1.7 billion in debt and dividends payment in BRL 200 million, and we ended at BRL 8 billion, a very robust result. And this liquidity is distributed in BRL 2 billion in cash and BRL 6 billion of receivables that are available, minus BRL 4.9 billion gross debt. So we have a net cash of BRL 3.1 billion, very stable, very much similar to the same snapshot that we had last year. And a special highlight to our debt profile, which with the last year fundings, we were able to extend our debt that is due in the next 5 years. So it's a very extended schedule. Now talking about Luizacred, I think Luizacred had a great result. Once again, portfolio growth, almost BRL 21 billion in the portfolio, almost BRL 6 million in credit cards that are active. Delinquency that is improving consecutively reaching 7.5% with NPL over 90 days and less than 2.5% NPL under 90 days. The coverage is still robust in 156%. And when we analyze the results, we found an improvement in provision expenses, also an improvement in the funding cost that actually dropped even with increase in the SELIC interest rate, that is thanks to the capitalization that we have done last year and also the improvement in the quality of the portfolio and the reduction in the overdue portfolio and so on. So this was a very robust result. And this result -- and just to give you a little bit more color on the results. And we have here the results in BR GAAP. It was BRL 513 million. This is the result that you see there published at the Central Bank. The adjusted result in IFRS has a difference because there is that write-off of the portfolio that I mentioned of BRL 454 million. It has nothing to do with this year's result, and it's totally noncash. And in this adjusted result in IFRS of BRL 525 million, we had a benefit here, an accounting benefit of BRL 93 million in income tax and social contribution, which was thanks to the increase of the social contribution tax bracket that actually affects the assets of Luizacred, especially the line of income tax and social contribution that are deferred and have a higher future value because of the increase in the tax bracket. And that has improved the line of the income tax. And in this quarter, I also should highlight that we had the benefit of the payment of interest on equity in BRL 43 million. This is recurring. We do that every year, and we usually do it at the end of the year, and that's why it has improved the results of the quarter. Finally, another comment on Luizacred. With this alignment of accounting practices, the net worth of Luizacred in IFRS and BR GAAP are very similar, around BRL 2.1 billion, and it has reached a base rate of over 14% now. So it's very well capitalized. I think this is the highest base level for Luizacred for the past few years. These were the main financial highlights. I turn the floor now back to Fred. Thank you very much.

Thank you very much, Beto, for the financial highlights. So as I said in the beginning of the call, we are going to have a longer call because this is a change in the strategic cycle, and I wanted to spend some extra minutes in this call to talk about the next strategic pillars and the focus of the cycle. Obviously, the details of a [ pluriannual ] strategic cycle would demand by itself a call that would last 2 or 3 hours, just to talk about this topic. But we wanted to bring you the highlights and to go into the details as possible in each one of the pillars. Of course, we can go deeper in these explanations in the Q&A when we look forward. But there are two things that I would like to highlight here. The first one is that we are now seeing a revolution, a tech revolution, in my opinion, the largest of all times, and that's going to affect all businesses in the Brazilian economy, the way we live. And I have been in the e-commerce area for 25 years. And so far, I have seen 2 major revolutions, and this is the third one, and it has a greater transformational power. The first one was when I came to Magalu 25 years ago to put together e-commerce that was the Internet. So we had a digital revolution with the Internet that changed a lot and how specifically in retail, but not only retail and financial services and how people transact, but in retail, how people buy. So before 2000, people only could buy in the stores. And with the Internet, now we then had the opportunity to buy online. And then another revolution, which was a revolution within a revolution, which was the invention of the smartphones and mobility that generate the app economy and potential for the Internet, huge democratization because not everyone could buy a desktop, but with mobile, this became very relevant. So billionaire companies have been created, thanks to the smartphones. And now for me, even stronger revolution, which is the AI revolution. So this is a yellow flag in Formula 1. Those that are ahead are not at the front actually. So everyone has to reinvent themselves because this is going to redefine retail's architecture. And I believe Magalu is ahead of the game because we have already launched our AI commerce channel via WhatsApp, but we were investing on it for a while since we created our digital character Lu when we created her 20 years ago. So we have everything we need, the technical competencies. And Fatala can go over it, how seriously we developed this technology. For me, this is the best agentic e-commerce experience in the world, not only my opinion, but a lot of people that already know the tool, the app and its functionality that is really attracting consumers. So first pillar is to redefine Magalu with AI. I'm going to go over it in a while, but this is a pillar because we do believe that those who do not invest strongly on it, and this evolution is going to be faster than the others, and those will lose market and growth opportunity. And we believe that our digital growth is coming from this area and from an innovation that we have implemented now. And of course, that this revolution is not limited to sales, to the purchasing journey, which is going to change a lot. It also means redefining process, eliminating processes, a huge increase in productivity. So we have been doing G&A, fantastic work in the company. We have grown less than inflation. And last year, we were able to dilute another year our G&A. But with AI, we even have greater opportunity for operating leverage when we look ahead in applying that in areas process, we have an AI officer and the whole team that we hired for AI. But all the company is being trained and skilled in that area so that we can move forward there. So I'll talk more about it later. Second pillar, and I think this is a learning that we had from the past few years is that we had the calling. We had the vocation for e-commerce and physical stores since we started the business way in the past. But now this is even clearer, but we have an unequivocal vocation to sell brand products, not -- let's not mistake a high ticket to high see value. So we are the preferred channel to buy brand products. So this is a concept from marketplace to brand place. We are going to go into details there, and we can do that in the Q&A. But basically, we are positioning ourselves where we have a competitive advantage with a special selection of products, especially brand products and a high level of service with 1P operation or 3P with full assisted sales with Vapt, which is a solution we launched and to avoid the open sea in terms of categories, white label products, unbranded products and the partner freight. So we are better when we work with high perceived value products and when we work with high level of service. Our NPS is 85. It's unbeatable. We can have positive unit economics here. So we will be focusing on where we believe that we can gain share. And we are leaving cautiously the segments that provide no results. So this is a stronger repositioning in Magalu because Netshoes and Epoca are already very well positioned in that area. But in Magalu's app, we are going to go through a repositioning in the app. We are going to integrate more AI, but we will also be working on the repositioning from marketplace to brand place, but we do have a competitive advantage here, and we believe that we can gain share and increase our sales and differentiate ourselves from the market because we do have this calling, this vocation. We have this right to win in this segment. The third one is we have the largest 1P operation in the market. Magalu is the largest seller in the market. We have a huge 1P, very large Magalu, Epoca, KaBuM! and Netshoes. We have large operations with huge capillarity with DCs in all of the businesses. So we have a huge volume of purchases, especially in durable goods and electronics. We are leaders in some categories, reaching 40% in market share, but in average, around 30% of market share in durable goods in 1P. We believe that we can increase this share significantly if we do not sell only in our own platforms, if we open our vision to third-party platforms. I'm talking specifically about our own inventory operations, 1P. And here, we want to work on a conscious effort to increase our channels, both the ones that we already have, AliExpress with 1 year brilliant in sales. We had a huge growth last year. Itau, we have [ Varejo ]. We have a number of options, Nubank, and we want to increase sales in these platforms as well as to sign new partnerships. Always have in mind some rules. We can go into the details, but we have to have reciprocity. This is a platform that is a competitive one. We need to have products listed from Magalu so that we can have this exchange as we had in AliExpress or if this is not a competing platform, if it is bank platform, we again have to have a partnership. We are only going to operate where we have a positive contribution margin. And in the partner platforms, now we have a positive contribution because the partners are paying for it. So in the market, everybody is overspending coupons and marketing. When the partner invests for you, you end up growing also. And the other huge opportunity that we have, the fourth pillar is that we want to potentialize the ecosystem and increase the omnichannel presence. So today, Magalu is omnichannel, but Netshoes is not. Magalu is omnichannel, Epoca is not. So we want the whole ecosystem to be omnichannel, but not only the controlling company. So we have a huge focus in increasing and start opening stores again. We have not opened any stores for 3 years until we opened Galeria Magalu last year, which was hugely successful. We see a potential here for stores -- physical stores opening. The market is very competitive in physical stores. So we see a lot of opportunities here in gaining share in that area. Remember that 85% of the Brazilian retail is still offline. So we have a business of over BRL 2 trillion, which is offline. It has lost some share. It's not 85%. Let's say that it goes to 80% in 5 years. Even then it's going to be 80% of retail will be offline. So we see a huge opportunity in working on this market because it is providing us the opportunity to work with a positive contribution margin. So having this vision and we know how to operate, we can work with the stores very well. Amazon tried stores abroad, it did not work. Not everyone knows how to work stores. Walmart has a market value of BRL 1 trillion. With a very good integration with on and offline, we are more competitive, the more channels that we have. That's why 1P is so resilient because it is omnichannel. That's why full of Magalu is increasing 3P is coming down, but we are -- Magalu's full is multichannel. So when we are omnichannel and we have this difference, this competitive difference, we can operate in such an irrational market such as ours now. And when I talk about potentialize the ecosystem is to grow Magalog sales, Magalu cloud and also to work with the assets that we have developed over this ecosystem cycle and to have them generating more value, more results to the company. And this was only the cycle for construction, and we will have now the potentialization. And also, we want to strength the financial services lever via MagaluPay. This is extremely relevant for the Magalu World offline with a high share and the companies that are under it, Luizacred and also the buy now, pay later insurance consortium, we have a huge opportunity to potentialize this in the digital operation. But for that, we need to have products, credit modeling and a very good connection of this platform with our online channels. We see that we have an exceptional opportunity. Jorg is doing a wonderful homework regarding our tech platforms, credit teams, products so that we can have the same success that we had in the digital channels in the offline channels with the credit operations. So all of those results from MagaluPay do come from offline operations. We have a huge operation in the digital here. But for that, we need a whole platform. We need a framework of products, technology, processing that needed to be developed because the prior one was focused on the physical stores. And this is what he is doing with a number of initiatives that we are taking now and looking ahead. So this is a very important pillar in a way that -- and I'll end here. Maybe I should highlight 2 of these pillars. I would like to talk about AI, not just saying it. I just want to highlight that -- and I want to bring you a number to 60% of Brazilians already use some GenAI tool. It's one of the highest rates in the world of use of GenAI and 57% of Brazilians use it every day. So Brazil, I think, is ranking in second or third in participation in the use of GenAI in the world. Brazil adopts technology very quickly. And there was a survey from Bain & Company of these companies that use GenAI every day, how many of them want to use it to buy products? 60% of them said that they want to use it. So there is a huge potential. So we have to bet on this, of course. And we have agentic e-commerce or AI e-commerce. This is the main growth engine from now on. And I have seen that already in a deceleration that is searches in the market, the traditional search with the keywords and this journey will loose room for the conversational e-commerce. And this is what we have developed with a lot of competence and talent, which is Lu's WhatsApp. We decided to develop a very challenging project, multi-agentic architecture. We have everything, the whole process, the whole sales process, authentication, discovery, understanding, checkout, post sales. We have Lu's WhatsApp. This is a channel with already over 20 million clients. We send information for goods tracking and the clients wanted to talk to Lu, but we didn't have this capacity and Luizalabs team developed a fantastic work, and we launched in December of last year. We have some figures that are very interesting. 3 million clients used it and we've not even launched it. We just communicated the clients that we had it. We have not invested much in marketing other than sending those messages to clients. Look, we have this, we have that. We have promotional actions with coupons, but in a very tepid way, and we already had over 6 million conversations and the conversion, which is the best indicator, 3x higher than the conversion in the app for those that start the conversation and ask Lu to find a product for them. 80% of clients have said that Lu has recommended and found the right product to them. 87% of clients had no problem to conclude the checkout experience. So it was a frictionless experience, the best in the market. I was in the New York retail market. Nobody has that type of experience. ChatGPT tried to add checkout in the experience. It's not working. Perplexity also tried it, it's not working well. And the NPS here is 83 in terms of customer satisfaction. So a very nice experience. And the other experience that was very nice, and it has been the inspiration for this brand place online concept is the Magalu Gallery. We have 35 million active clients, but with few overlaps among the brands. If you bought a Magalu, not buy a Netshoes, if they bought Netshoes, but not in Epoca. A lot of people did not know that Netshoes and KaBuM! were from Magalu. And we wanted to create a concept that would extract more synergy, cross-sell in these brands in the group, and we had this opportunity of creating this concept of Galeria Magalu in the iconic area, which was a famous book store in Brazil. This is the first go after we launched the Galeria, over 150 brands went with us, we even brought Chanel there. The fact that we have the physical space helped us increase what we have available, some ETNs that we could not sell -- some tennis shoes, we could not sell on Netshoes. Now we can sell because we have the physical Netshoes there that helps us expand the type of specific brands that we have there. This is a very specific concept of brand place. And I have here extra information. Galeria Magalu is already our third store in less than 2 months. And at the end of the year, it is going to be the largest store in the group because here, we brought together main brands. So in terms of share of units sold, EPOCA is the main one at Galeria Magalu with half of the units sold or less than half than Magalu, KaBuM!, Estante Virtual to our Netshoes. So we have here a lot of synergy, a huge flow, 90,000 people visiting the store, a lot of interest of the brands to be there, to participate, to launch products. And Galeria Magalu has the YouTube theater. It also has Pinacoteca art exposure or exhibit with someone that is responsible for Pinacoteca. So that has been a very praised area. We are very pleased and showing that in this new strategic cycle, there is the possibility of extracting synergy that is even greater in the group, not only in back office, but also in the front with all of these topics. But once again, the experience that we have at Galeria Magalu with 150 important brands using that as it were just a place for consumers, and we can replicate that for online Magalu as well. And this is the second pillar. The inspiration of Galeria Magalu, we want to bring to our app as well, of course, with the implementation of AI for the cycle. So with this, I will show you a video from Galeria Magalu to end my presentation, and I apologize for taking longer here in our initial remarks, but I believe this deserved more details of new cycle. So this is the short movie, and then we'll go back and start the Q&A. [Presentation]

[Interpreted] With that, I conclude my presentation, and I would like to -- since we're talking about Galeria, I'd like to invite the sell-side analysts. Not all of you know it, and I would be very honored to see you there. We can schedule a coffee or we can have dinner, lunch at a restaurant there or maybe even a play at the theater. But I really I think it's important for you to cover this to go and see this innovative format that has received a lot of compliments even from foreigners, it's like a reinvention of a physical department store. So it would be really nice to be able to welcome you there at Galeria if you haven't been.

[Interpreted] [Operator Instructions] First question from Luiz Guanais with BTG.

[Interpreted] I have two questions here. Fred, one of the things you mentioned about the strategic pillars with partnerships with other marketplaces. If you can give us more details, I think you mentioned two important points there in terms of the e-commerce and the bank with the partnership. But if you could give us more details on what are you aiming at in terms of returns, take rate negotiations, shared services between the platforms. So that would be my first question. And the second question about Luizacred. How do you see the appetite to grant credit loans this year? And if we could expect any change in the loan provisioning due to maybe a slightly higher credit appetite.

[Interpreted] Luiz. Thank you for your questions. I'll answer the first one, and then I'll turn to Jorg. So as I said concerning the acceleration of sales through partner platforms. There's obviously an aspect of opportunity. So the first thing is it must be profitable. Whatever the cost these platforms charge, they must provide us a positive contribution margin, preferably higher than the contribution margin of the direct channel. So it's always a negotiation. We have a huge scale, we cannot -- we can sell BRL 0.5 billion, BRL 1 billion or even more in partner platforms, considering our size and the capillarity of our 1P operation. And considering that, we must have an economic condition that provides positive contribution margins. That is the first and most important point. Second is that there must be some reciprocity either with the catalog, such as Ali Express. Ali Express, even though we sell up more GMV there than they sell here, in number of customers it's equivalent. So they brought hundreds of thousands of customers to Magalu, and that's exactly the number of clients who bought from Magalu abroad. So that's not so much [ a vision ] of customer base. This catalog swap is an important element in the negotiation. If I sell there, if it's a nonbank platform, they should sell with us as well. So that's an important aspect. And finally, another important point is to use Magalog, Magalu Cloud or even MagaluPay. So to have this, to use companies in our ecosystem that will help us generate scale. That's one of our strategic pillars. So what's important here is the concept, Guanais, of reciprocity, so that it's not a one-way street only. And I'll turn to Jorg to answer the second question.

[Interpreted] Thank you, Guanais, for your question. So about the points and risk appetite and granting credit at Luizacred. First, I would like to reinforce the work that has been and is being done to normalize the quality of our credit portfolio. You've seen the indicators, NPL 90 dropped to 7.5% year-on-year, the indicators of short-term delinquency are also improving. So this is not a matter of luck. There is a lot of work being done in terms of selective risk appetite. So for at least around 3 years, and we are harvesting the effect of this work now, reaping those results. And it's important to point at the vintage effects. The current vintages are performing significantly better than the vintages of the end of '22, beginning '23 until beginning of 2024, and that makes us comfortable maintaining the current appetite without compromising the quality of the balance sheet. Obviously, there's a third element that's the macro versus micro we recognize. We know that interest rates are still high, and we're seeing a scenario with one of the highest interest rates in the world, 15% interest with less than 4% inflation. That's an actual interest rate of more than 11%, and that obviously puts pressure on the family's income capacity. And with that said, it's important to also note that unemployment, it's close to the lowest historical levels around 5.3%, 5.4% if we adjust it for seasonality. And that must be taken into account. In addition, the highlights is the profile of the Luizacred portfolio that became resilient due to the actions we carried out to be able to navigate a more challenging scenario with a very strong focus on long-term relationships with retail. Making the most of the synergy that Fred mentioned during this call with the ecosystem, Magalu's ecosystem. So we are very comfortable with this moment in time where we are despite the challenges we see in the macroeconomic scenario.

[Interpreted] The next question Lucas Esteves from Santander.

[Interpreted] Congratulations on the conclusion of the cycle, good luck on the next cycle. Fred, I'd like to hear from you about a few more strategic points. I'll make a broader question. We've been following you as a big enthusiast of AI, taking a leading position in the Brazilian companies using agentic, e-commerce, Lu's WhatsApp and on our side, we see the potential disruption that agentic and e-commerce can bring to the consumer behavior. And I tend to think that logistics and financial services will be very important competitive differentiators in this scenario. You gave a lot of attention to the relevance of Magalog in 2025. Financial services was also one of the main drivers of the results. Especially Luizacred that expanded the portfolio and maintained delinquency under controlled levels. I'd like to understand how you see going forward, the point of capital allocation and logistics and add this service provision to third parties, you already see this vertical diluting costs enough to get close to breakeven and turn into a generator of consistent positive results. And in financial services, I'd like to understand a little bit about how you plan to leverage this vertical to continue accelerating profitability and whether there are other financial products that you intend to launch in the short term?

[Interpreted] These two pillars that you mentioned, the growth of Magalog and of MagaluPay are part of the two strategic pillars for the company looking forward. So we want to expand the volume at Magalog. Not only West Magalu, but with companies in Magalu's ecosystem and external partners. So we created a strong sales team at Magalog. I have been personally participating in negotiations to close deals with companies with a very strong focus. It's the same thing with Magalu Cloud, which I think is as important as these other two, in terms of the soundness that it brings to our business. But in terms of logistics, without a doubt, this investment in external customers help us gain scale in a profitable way. So the care with logistics, Lucas, that we need to have. And we have to be careful so that we don't build a very high base of fixed cost. If you have a lot of the warehouse, if you invest a lot of that and you don't have the volume to keep up, you end up having a serious fixed cost problem. So we are very cautious, when we install capacity because you need to have a high level of certainty that, that installed capacity will evolve. And Magalog with third-party clients and fulfillment participation, we can do that without running the risk that if anything that happens in the market brings us an issue with the lease cost and installed capacity base, but that's something that Magalog has been doing very well with, and we invest in this differentiator. And the growth with external customers has been helping us maintain the unit cost of logistics at very competitive levels, even with our e-commerce moving sideways. So for us, this is very positive, and it maintains this pillar sound and standing out. As for MagaluPay, I think, Jorg already talked about that. I don't know if you want to add anything, Jorg?

[Interpreted] Just as retail reinvented itself for technology over the last few years. Financial Services have also reinvented themselves. Now I would say that there is room to improve the value proposition a lot without necessarily having to expand the range of products. What we believe is that we already have a very robust offer of financial services that we can enhance a lot to explore the synergy with the ecosystem, focusing on relationship that will foster sales and profitability. We are doing a strong work in the structural base, very strong in terms of data platform, intelligence and credit technology -- credit intelligence and technology. And we are constantly improving the value proposition. You must have noted that even with the decrease in the credit card base at Luizacred in the last few years, we started to grow again in terms of revenue. Looking at January and February of this year, revenue accelerates even further. It's at around 4.2%, indicating that trajectory that we are pursuing. All of that has a lot of work in the improvement, value proposition, focus on activation incentive. And that's what we'll continue to pursue to strengthen the ecosystem through MagaluPay. And I think that going back a little bit, to the first premise of the question, how this ties back to AI. I talked to you about how in e-commerce and agentic e-commerce in the United States didn't take off in ChatGPT, Perplexity. And a lot of the problem that I've been seeing is the checkout and logistics issues. There are other issues as well, for example, the price is conciliated, you have a price there, but the price is not updated. There's a lot of problems with the catalog integration. But without a doubt, the experience of buying at the checkout with ChatGPT in the United States was very bad. They received a lot of criticism. And there's also the logistics side. Not everyone has the last mile logistics. At Magalu, we have these two things very well worked out. So when you buy on Lu's WhatsApp, you are using Magalu based platform to make that purchase. If you buy on Lu's WhatsApp, we do the logistics for you. We deliver to you. So we have or there's a possibility that we're looking at of this platform being open so that it's not only for companies in the Magalu's group. There's a lot of people on [ Fatala's ] team to looking -- reaching out to them to try and develop their own agentic e-commerce. No company in the world has been able to do that at the same level we have and there's a possibility for us to provide the service to them. But including in this service, of course, we would need to include our logistics and our payments.

[Interpreted] Next question is from [ Pedro Peroni ] from UBS.

[Interpreted] We have two questions on our side. The first one to understand consumption trends for the beginning of the year, how this is translating in sales performance, especially in January and February for the company. If we have a category that is better or worse in this period of time. And also, if you can tell us what is the company's outlook for 2026. The second question is about cloud. If you can share a little bit of your strategic road map for this segment is a segment that already have 1,200 external clients, 55% of the workloads of the company, AI aggregation with Movestack. What are the next steps? What can we expect in the next quarters and for 2026 as a whole? A more commercial focus? Are you going to expand the client base, develop products? So if you can give us some color on that, I would appreciate.

[Interpreted] [ Pedro, ] this is Fabricio. I'm going to talk about one of the categories. The beginning of the year was very similar to the end of last year, we are still performing very well in brick-and-mortar stores and physical stores. And more difficulty on the online. We have a highlight in the categories that you asked in the first quarter, I would say smartphones is the main highlight, along with the white line and screens. And also furniture, there is a growth. The categories that our sideways are portables and also computers. For the second -- for the year, we expect a strong second quarter because of the World Cup, we are prepared for that. Also in terms of inventory, we should have a strong second quarter in sales. And then the second half of the year should be balanced.

[Interpreted] Just adding to that, Fabricio, with the vision of the ecosystem. Netshoes started the year very well and KaBuM! as well. So these two operations continue to have a positive performance even online.

[Interpreted] This is [ Pedro Fatala ]. Now about Magalu Cloud. I think we have an opportunity that is great in terms of monetization in the B2B. The market in Brazil moves dozens of billions of reals a year. And today, companies depend on global providers. But they're always dealing with the FX risk in addition to what Fred mentioned that is regarding sovereignty. So Magalu Cloud has this value proposition to tackle a real pain of CTOs and CFOs in Brazil, which is to offer a global level infrastructure with a very low latency to these local data centers in Brazil. We have five zones already, two regions with five zones in Brazil in the Northeast. And revenue, 100% happening in reals, in BRLs with predictable prices, clients are migrating to Magalu Cloud that have cut down their prices in the half and this migration of the 55% that we have already done, we have an impact of around 30% average reduction of OpEx expenses. And that also includes that barrier that they're not exposed to the volatility of the FX. From now on, we will have investments for the next 5 years in the development of these areas in regions in Magalu, and we will be directing the profitability of these funds that we already have at Magalu Cloud for infrastructure and the structures that are large, already built, and we have that part of the impact of Magalu being able to run Black Friday. Fantastic operations, as Fred mentioned, and this huge operation available now for companies in Brazil. So we will be directing the growth of what has been done in terms of the investments. And we also have a road map of products to come this product. Each year, we have the cloud event where we have a huge date and release of new products. We are developing a number of new products that address a part of development of security maturity. We had that done last year. We are working on the inventory too for this year. And also we are working on SoC. And right now, we want to address another huge market in around 46% of CAGR in the past few years, which is AI. So we have been working and developing an AI offer, very much focused for Brazil's inference. And we expect to have that product for the second half of the year. This is a new line of revenue for Magalu Cloud.

[Interpreted] The next question is Irma Sgarz, Goldman Sachs.

[Interpreted] I would like to quickly ask you about inventory levels. I understand that the health of current inventories is good and well prepared, not only for this first quarter, but also for the second quarter for the World Cup, but I would like you to explain what happened to a provision that you have done in the fourth quarter that allowed you to come to the situation to decide to have this provision. And if these products have already been sold, the products from the fourth quarter and in which channel they have been mainly sold? And what are you doing? What are you -- what are you doing to avoid this in the future? I know that you're considering this as a one-off situation right now, but the market wants to make sure that this is not going to happen again. And the second question, I think, you launched some incentives. For additional cells for fulfillment, gained a lot of highlights in this call, but I would like to understand what is the main competition here for fulfillment. And I think this is a strategy of a number of marketplaces, both local as well as broad platforms. So this is it, any comments on that. I would greatly appreciate to understand your strategy on those topics. And if you see greater competition there?

[Interpreted] This is Beto and I will talk about the inventory provision. Thank you for your question. Well, we consider that this is a provision to accelerate the flow of products, seasonal products and excess products, especially in seasonal and some seasonal products and they became excessive over last year, and I will give you an example, which is air conditioning. Last year, we had a year that was very cold in Sao Paulo. It has never been as cold, so last year, we did not sell air conditioning when compared to prior years. So we had to carry an excess of air conditioning machines. So the heat just started at the end of November, beginning of December. So we started outflowing those goods so that we could sell this category of products specifically. In addition to considering excess products, seasonal products, slow moving products and low-margin ones. We also took into consideration at the end of last year, two factors: First, very high interest rates. So the fastest we sell products that are in excess, it's best for the company, for the margin, for the future margin, for the cash and with the depreciation of the dollar new products could be purchased at a better price. Therefore, we could sell faster the products that we bought at a higher dollar rate, and we could then purchase lower-priced products that could guarantee us better margins in the future. Taking that into consideration, it made sense to accelerate this outflow. We have already started at the end of last year, and part of the provisions have already been reverted last year and they are in line with this outflow, and we'll continue doing that this year. And it's very positive for us because it's going to improve the turnover, the quality of the inventories. And again, it's already much better. Now talking about the process that we are adopting to avoid this to happen, I believe that we have evolved a lot. I think in the last 5 years, we developed a number of processes. And that are part of our financial management, commercial, logistics, supply chain, including the pricing process then provisioning process, depending on the age of the product. All of them are guaranteeing us the assertive -- a very positive assertive level. Not to mention the AI use, which also tends to further improve our supply and purchasing levels. We are very comfortable with all of these processes of replenishing inventories, and this movement now made all the sense to accelerate the inventory turnovers and also the cash generation.

[Interpreted] Irma, this is Garrido, I am in charge of the marketplace, and I will answer your question about fulfillment. Well, fulfillment is in competition with other delivery modes. And there are a lot of deliveries being done by sellers, marketplace, post services, and there's a huge level of service between -- or among all of them. We have a very competitive proposal. The number of sellers in the fulfillment is increasing, such as the volume of products that are and the stock -- and the fulfillment stock, and that's what makes sellers. Still the full conversion of Magalu is 3x higher than own delivery by seller or by postal services. As reported, you have seen that the penetration has increased 6 percentage points year-on-year, reaching 29% in the fourth quarter, but GMV of sellers that are at full has increased 5% year-on-year. Accelerating over the quarter. So in December, it was 11% of growth versus December of 2024. And that is thanks to what Fred talked about. It has to do with the omnichannel process. We built full because we start nine centers of distribution centers for stores and 1P, we offer options of free delivery or store pickup for clients. Therefore, we can have quick delivery, 80% of full deliveries have free freight in a model that is economically sustainable. So we are very excited about our value proposition for the full and with the success the sellers have with it. Therefore, our strategy from now on is to continue to encourage full and all the programs that we have. So that they are going to be exclusive for sellers that adopt our logistics programs, including collective full and Vapt, which is same-day delivery.

[Interpreted] The next question will be asked in English with the answer in Portuguese. The question is from Andrew Ruben from Morgan Stanley.

I'm interested on the physical store side. You mentioned a few times plans to open. And I'm curious how you think about openings between stores like the Galeria Magalu format, stores like you mentioned, omnichannel for some of your other brands? And then any path to expansion for the core Magalu stores, given that you mentioned it a few times. I'm curious how you think about the expansion pace, the mix and any sense for the number of stores we could potentially see opened either this year or over the coming years.

[Interpreted] Thank you for your question. We are going to resume the opening of stores, as Fred said, this year, we don't disclose the number exactly of stores, but we will start opening stores again in the Magalu model, the core business. We believe that in some regions, we need to complement like the interior of the state of Rio de Janeiro, the Federal District, the south of Sao Paulo. That's where we should work and as I said, we opened the Galeria Magalu. We saw the potential of transforming some of our stores into a new model, a format similar to the gallery with all of the brands in the ecosystem. So we probably saw -- run a pilot program in a couple of stores this year, transforming one into a Galeria model, obviously, without the theater, that we have at Paulista Avenue in Sao Paulo and another with a model similar to the store that we have at Marginal Tiete where we have the presence of all of the brands, and it's a huge hit. So that's our plan for the year. And opening stores will probably occur in the second half.

[Interpreted] Next question, Joao Soares with Citi.

[Interpreted] So getting into a little bit. I know you're not disclosing the number of stores you're going to open. But thinking about capital allocation going forward, of course, as a project agentic e-commerce, it's very important to invest there, and you're doing well. But I'd like to understand by considering that the physical store performance has [ pending out ], we see that it's still a very competitive environment in the marketplace, especially considering the evolution of fulfillment. So I would like to hear from you, Fred, how you're thinking about the investment in the coming years? How much you're going to dedicate to stand out even more in physical stores. That's where you're leading very well. So I think that's the question. And then since Jorg is available, Jorg, we are still seeing a divided environment. Retailers are still cautious, considering the current interest rate scenario, and with originations being very much restricted. So in the second half, thinking -- looking on the other hand, as I was going to say, on the other hand, Mercado Pago and the fintechs in general are accelerating the engagement and doing a lot of up market moves. So I'd like to understand how you're going to position yourselves in this environment, thinking about origination for the second half of the year. I know it's difficult to have a forecast of when the interest rates will go down. But thinking about that scenario that may be a little bit more bullish. Just to hear your thoughts a little bit.

[Interpreted] Thank you for your questions. I will answer the first part, and then I'll turn to Jorg. So, Joao, I think that the vision is to invest in opening stores and gaining -- it will get more proportion -- a bigger proportion of the CapEx in the coming years and the total value of CapEx probably shall increase as the interest rate goes down. We do believe there will be a drop in interest rates. I know that right now with the war in Iran, oil at $100 and all that. The excitement in this downward cycle is not as big, but we will see interest rates going down over the year and in the coming years. It doesn't make sense to maintain the actual interest rates at the level they are today. So we believe we will begin seeing a cycle of a decrease. And the lower the interest rates, the lower the cost of capital and the physical stores demand capital. So we will probably accelerate the company's total CapEx. In the recent years, we've been investing basically depreciation almost exclusively in technology. So looking forward, I see that it makes sense for us to start again in the second half of the year. We'll have a start of the interest rate decrease. The market will start to open a little bit more. Funding options will start to appear. The cost opportunity will go down. So I believe it's a good timing for us to resume opening stores. We have not opened stores in this 3 years of high interest rate cycle, and we will start opening again in those low interest rate cycle. So that's a little bit of that measure. If the interest rate does not go down, we won't -- if the interest rate does not go down as much, will accelerate less. If it drops, we'll accelerate more and we will accelerate, increase the speed. It's a little bit that pace. Of course, in Brazil, you need to have plan A and Plan B because it really does depend on what's going to happen with the macro economy and we're more volatile than any other country. And to have a responsible management, we must have that in mind.

[Interpreted] Joao, now talking about the appetite and growth. Obviously considering the current macroeconomic scenario. I think you said something very interesting. Financial service -- traditional financial service companies versus fintechs and the differences in the way that they are facing the current scenario. I have a view, and it's not by chance, my trajectory was inspired, was following this more digital path is that the more the credit companies can stand out in terms of intelligence and credit technology, the less they will be dependent on the macroeconomic scenario, of course, that is adjusted by scale. We've been doing a lot of work on the base. As I mentioned in Guanais' question about how much we're investing in the data platform and credit intelligence. So that we can partially offset or make up for the macroeconomic challenges that have always existed and will continue to exist in Brazil. I think that the numbers show that so far, we've been dominating the variables that are within our control. Modeling and billing collection, which makes us -- puts us in a position that is above the average of the market so that we can face macro oscillation. But I think the key word will be selective risk appetite. We are focusing more and more in exploring our differentials and potentialities, looking at recurring customers within our ecosystem, where we know, we will have an opportunity to perform better in credit quality.

[Interpreted] Next question is from Rodrigo Gastim, Itau BBA.

[Interpreted] I have two questions, I apologize that I will insist on inventories but I think it's nice to make it clear to everyone because this is something that has been discussed since yesterday. And what people are asking is anything has changed in terms of the company's criteria to have this type of provision? Yes or no. A lot of people are saying, well, maybe this reversal over 2026 can help the gross margin somehow how can we guarantee that in 2026, we are not going to have such a relevant inventory provision as we had in 2025? So I think it's nice to double-click on this topic because a lot of people are saying, "Oh, maybe this is going to affect the EBITDA", some people think that you need to look at 2026 already adjusting that. So to make it 1% a year, I want to hear it again exactly what you expect for this line. Are you going to provision it or not for 2026? Are you going to revert it or not? So I want to go over it again. Second, and your strategy, Fred is very clear for the company from now on. But I would like to focus on the online in this new context that you mentioned over the call, how is your online -- or your strategy for 1P and 3P, these are my questions.

[Interpreted] That's why we are here to make it clear for you. I talked to you a little bit about the rationale and I meant that the main trigger to do this right now, in fact have been the high interest rates and the depreciation of the FX. But the quality of the inventories is still very high. It has improved over the years, and we are in the best turnover in the last 5 years, I'm sure, it's in the market 80 days. Naturally, we want to have an even quicker turnover, but we don't want to lose sales. So we have to find the optimum level of turnover against stock out. Considering high interest rates and the depreciation of the FX, it would make sense to accelerate e-commerce. So how do we do this provision, this math for inventories? We analyze each one of that. SKUs, the average price, sales, taxes, costs, sales expenses, and then we calculate the contribution margin expected for each one of the SKUs. So you provision that margin -- that negative margin that has always existed in our inventory provision, and we have been always conservative and we always carry the provision for inventories for the current inventory levels in around BRL 200 million to BRL 250 million. So our provision balance now is BRL 450 million, very comfortable so that we can accelerate the outflow. So when we bring down prices, as we have done in categories and products at the end of the year, that we had that campaign that we were expecting to have this outflow, we automatically recalculated the provisions need. And as we sell these products, this is then being reverted. So the provision is done by each SKU, this stands to be reverted over the year, and we tend to sell more than this BRL 200 million because the provision is part of the inventory, but we are going to turn it much faster. And then we tend to sell more to improve the inventory levels over the year, to have our inventory even healthier. And the healthier inventory will allow us to have a better margin. So yes, over the year, we should see an increase in the margin. To have healthier inventories, less non healthy inventories. And so working with that, we will have a great possibility of increasing the goods margin, thanks to the quality of inventory. And once again, this has been an event that was encouraged by high interest rates as well as by FX drop. We are acquiring -- we are purchasing more affordable or lower-priced products. So we do not intend to have a new reinforcement of provisions in the future. We do believe that we are on the right path. And also, I should mention that inventories versus suppliers is generating cash for the company. We should highlight that the average purchasing price that also has evolved and, at the same time, improving the turnover of inventory. So for me, working capital was a highlight in last year in the fourth quarter, and it tends to be a highlight this year as well. I hope it was clear. I don't know if you have still any questions.

[Interpreted] No, it's very clear, Beto. Fred, please, if you can talk about the strategy for 1P and 3P?

[Interpreted] The three main strategic pillars of the first cycle are addressing e-commerce. The first one, as I mentioned, is AI. I truly believe that there is going to be a significant change in the behavior for purchase of consumers, and they will be searching for this conversation, and they will be searching for this conversational aspect. This is more than a bet. I believe this is a reality. We are ahead in AI e-commerce. So we have done it in WhatsApp, and WhatsApp is in the 99% of the Brazilian smartphones, and we will bring that to the app. We believe that we should have a high conversion of this conversational model. We believe that we will be harvesting a lot of fruits from this segment. The second one is that we are very well positioned in Netshoes, KaBuM! and EPOCA and we found the need to reposition Magalu's app itself, focusing in the brand place, focusing in products that have a high perceived value and also high service level. We want to gain share where we have that location, we have the calling for gaining share. That doesn't mean high tickets because we have high perceived value products, but tickets are the lower. And we have been Galo' products sellers in Brazil, and also we have Heineken products. They have high perceived value but have low ticket values, but this is not why label products of BRL 10, BRL 15 that have negative unit economics. So there is a period of time to leave that prior base of low tickets, and there is a time to take this out of the base to grow in the next one. Netshoes has done that very well. Four years ago when it left some product lines that were massified and focused in running, training and sports style goods, it was a wonderful work of the team. So in the beginning, they lost a little bit of the sales. They had BRL 1 billion of revenue with Zattini and all these products in Netshoes, but they focused on the categories that they had the vacation for. And last year, they have grown even in a competitive market, and we had historical results. Magalu has this opportunity as well. Having a clear category strategy and especially a focus on those specific products. And finally, talking about 1P we have an opportunity to leverage 1P by using partner platforms. We are the largest seller in Brazil. We have an operation of 1P that is huge. It is very well managed, very well executed. And with the positive unit economics. And we also can grow in third-party platforms with a positive contribution margin. So I think these three pillars address the online and the fourth pillar is to bring the omnichannel to the fiscal world.

[Interpreted] Next question from Gustavo Fratini from Bank of America.

[Interpreted] Fred, we'd like to understand the initiatives of Magalu to recover growth in the marketplace and whether you saw any traction after this reduction of take rate for the sellers?

[Interpreted] I think that in some ways, my answer to the previous question addresses our initiatives to increase -- or to grow the marketplace. That's the focus on those three pillars that I just described. And about your question on the discounts that we gave on the take rate, I think, Garrido can answer.

[Interpreted] Yes, thank you for the question Gustavo. I think that first, it's important to say that we made some important structural advantage this year to strengthen the basis for the resumption of growth. First, the seller base started to grow again. In December, the number of sellers selling at our platform grew 10% compared to December of the previous year. Driven by a stronger entry of new sellers a growth of close to 50% and using that vintage view that Jorg mentioned for credit, it also goes for the base of sellers. It's vintage of new sellers that in 2025 had an average revenue, 80% higher than the new sellers of the previous year. So that fits with the vision of what Fred said in terms of brand place of having stronger partners. Second, we talked about logistics. It's an important part. So the advance of fulfillment is important in all of that. And we launched same-day delivery program that's called Vapt. It is a platform where the seller can find a courier and hire them to deliver within 10 kilometers of their store on the same day. We launched that in Q4 last year, we have 2,000 sellers. And it's been showing a level of conversion, 5x bigger than the conventional delivery. Looking at 2026, we believe that we start with this space, and we have a set of initiatives to boost the growth of this space within the parameters that Fred has already mentioned. The first one is a reduction of the entry barrier with the take rate in the first 3 months. Of course, it's a period of very low sales for those sellers. It's their entry, registration of ramping up in the platform. But what's more important is that we created the incubation program that focused 100% in the adoption of the growth levers that lead the seller to succeed in our program. So that relates to the catalog, the number of items, quality of the listing and images and videos that meet a minimum criteria. The adoption of logistics program and delivery and the full exclusivity in the use of ads and promotion sales that are important tool. So after those 3 months, all of the acceleration, engagement programs, advisory to sellers who look for us, they come to us for human advisory. They are exclusive for those sellers who meet those levers. So for example, our logistics programs that have had ads and so on. So we intend to grow from those pillars. And we have a good beginning of the year with that already.

[Interpreted] Next question, Danniela from XP.

[Interpreted] I have two on my side, both about the repositioning of the Magalu platform. Fred you mentioned, I think in your opening remarks about that starting to happen, that there will be some effect and that is a deliberate move, focusing more on being a brand place. I'd like to understand from you how to think about that, how that will translate in the P&L. We should imagine that 3P will be increasingly weaker initially as you make the adjustment of assortments and partners and how should we think about margin? I think it'd be good if you can help us think about the development of the adjustment of the repositioning translating into the company's P&L. And my second question to you, Beto. I'd like to understand a little bit better the motivator behind the drop of the Luizacred portfolio because it was relevant amount. If there's a change in strategy or if it was a specific vintage that would be important to understand as well how to think about this going forward.

[Interpreted] So no I think that this repositioning of Magalu has nothing to do with the reduction in 3P. I think they are very different things. It's quite the opposite. I think 3P will be an important lever in this new proposal. And I think we need to look at that on a 1P plus 3P together, we're repositioning Magalu's app. When the client goes to the Magalu's app for them. It doesn't make a difference if they're buying 1P or 3P. They're entering or getting into a channel that's Magalu and they need to understand the value proposition of that channel. The value proposition of that channel is to sell all types of products. All types of items or what is the vocation of that channel. And we believe that the vocation of Magalu's channel is for high-perceived value products. And we shall offer those products with a very good balance between 1P and 3P. As I said in the beginning of my speech, I like the balance of the ecosystem, 1P, 3P, physical floors. So the more balanced the ecosystem is the better if it is, of course, things don't happen 1/3, 1/3, 1/3 each. It's not that well established, but we like to have these ecosystems without having all in a single channel. When we focused on 1P, we didn't go all in on 3P, we didn't go all in. Basically, those channels are balanced and Netshoes isn't. That's why we're going to open stores. When we bought Netshoes, it didn't have 3P and now half of Netshoes is 3P. And that's a position that repositioning that Netshoes had that was very good work done by [ Gra ] did not imply in reducing their 1P, it implied on defining a strategy of more intelligent items being selected or curated. And in the beginning, in the channel, there was a small decrease on sales, but now it's growing a lot more than the rest of our online operation with very good profitability levels. So it's nothing to do with focusing on reducing 3P. I think that's more a matter of repositioning the value proposition of our app.

[Interpreted] Danni, this is Jorg. I'll answer your second question about Luizacred. As you know, and it's on Page 23 of the release, we report IFRS and BR GAAP. But until the publication of Resolution 4966 that was -- that went into force in the beginning of 2025. The Central Bank allowed for difference criteria on the write-off of the portfolio in the period. And on IFRS, historically, Luizacred has done this write-off after the GAAP period that was 360 days. So to correct those two accounting criteria, you had that write-off of BRL 453 million. So that's what led to that write-off and now you're going to see the results in IFRS and BR GAAP, correcting it from what already happened this quarter. So that's why the result you see at the Central Bank was at BRL 513 million was reported.

[Interpreted] Next question is from Nicolas, JPMorgan.

[Interpreted] For my two questions. They're very quick. The first one is to Fred, looking at the strategy. And you talked a lot about the ecosystem and how Galeria Magalu is placing the company at a very special position. And you talk about some particular changes. I would like to understand what type of technology or assortment of the other banners of Magalu, you're going to add at standard Magalu stores, smaller stores, if there are changes that you were planning in general? My second question has to do with inventories, and I apologize if it has been addressed. The inventory for this quarter, what is your perspective for improvement of inventory levels now in 2026.

[Interpreted] About the stores, Nicolas, we have already approved 2, as Fabricio mentioned, we tested two concepts, and both were very well succeeded and both in square meters -- the stores that are very generous in square meters. So we converted the store of 595 Marginal Tiete, our office was there. We converted there. I think the 9,000 square meters. And then we developed an outlet concept there, which was very well succeeded because the revenue from that store went from BRL 5 million to BRL 20 million a month. And we found that there was a lot of synergy of opening Netshoes, KaBuM! with Magalu. So we intend to bring EPOCA to that place as well with that outlet concept because that's the configuration we have there. It was absolutely successful. We had to increase our parking area. And the good thing about this type of product is that it brings in a store traffic that Magalu itself doesn't have. We decided to replicate the format, not necessarily an outlet format, but for Magalu stores at Avenida Paulista, it's a more premium model. More premium than the outlet model and also with differentials in terms of experience. So a model that has experience all over. It's not only price. We are selling experience. Netshoes has customization of products. EPOCA has the facial scanner, KaBuM! has the arena gamer in the cockpit. So you can put together your, you can bring your computer, you can buy the components and put them together there. You will have an Apple authorized store. You have the YouTube theater it was a full conceptual revolution. We reinvented the department store and it was very well succeeded. So now, Nicolas, we have two proven concepts so we should expand them. And as going to be a lot of work. We have other areas that we can convert or we can open a new store like we did with Galeria Magalu. So we should focus on expanding this format. But tomorrow, if we want to have a stand-alone store for Netshoes or if [ Julio ] wants to have a standalone store for KaBuM!, that's fine, but I believe they will be also aboard this mini galleria with a very modern approach. So the priority is for this format right now, we should test others, but we will just roll them out if they are just as well succeeded as these two concepts that I just mentioned and about inventories who wants to answer that?

[Interpreted] I'll answer. Nicolas, thank you for your question. About inventories. In fact, we have improved a lot the turnover of inventories. Last year, as I mentioned, over 10 days when we compare that to the end of 2024. And yes, we believe we are going to increase the turnover this year. I mentioned last year as well. I talked about it. And this year, we intend to reduce and to improve inventory levels. The average -- the monthly average, not necessarily the quarterly positions, but more important than that, is the daily average and the monthly average between 5 and 10 days this year compared to last year. And that has to do with the purchasing, supply process and also the process that I mentioned of pricing and also repricing and outflow. We already talked a lot about inventories today, but also there's an opportunity here in the working capital, and it has to do with this relationship between inventories and suppliers. But we will continue to focus on taxes monetization, reducing the balance of recoverable taxes. We are going to accelerate that also recovery of [ court ] deposits and also that's going to contribute to cash generation in retail this year. So we are confident in the cash generation for the company in retail and consolidated results for this year as well.

[Interpreted] We end now our Q&A session. I would like to turn the floor to Frederico Trajano for his final remarks. Please, Fred, the floor is yours.

[Interpreted] Thank you very much for participating in the Q&A session. I would like to invite all the analysts to go to Galeria Magalu and also to test, Lu's WhatsApp. For me, it's very important that you try it. These are two important pillars of the new strategic cycle. And if you don't try it, you won't be able to understand the potential of this new technology. I will be very happy to see you at the Galeria. Thank you very much, and have a nice Friday.

[Interpreted] Magalu's earnings call has ended. The IR team is available to take any further questions you might have. Thank you very much for your participation, and have a nice day. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]