Magazine Luiza S.A. ($MGLU3)

Good morning, and thank you for holding. Welcome to Magalu's conference call regarding the quarterly earnings. [Operator Instructions] 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 where 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] I would like to give the floor to Fred Trajano, CEO of Magalu. Fred, please, you may take the floor.

Good morning. Thank you very much for attending our earnings conference call on the first quarter of 2026. I'm here again with all of the company's directors, who will be available to take your questions at the end of our call. So let's go to the presentation. This quarter was very much in line with the previous quarters that we've been presenting the third, fourth quarter of last year in the same line as our message and our commitment with profitability and margins and rationale. Noting that interest rates remain high, we had an expectation at the beginning of a more ambitious cycle in terms of interest rate reduction, which did not materialize. So we continue, as interest pressure our financial expenses, we continue to seek to preserve the strong expense control, the operational side and not getting into the price wars, on the online mostly, that continue to happen. We've been seeing in the statements published at the market that there's still an irrational behavior that's a reality that Magalu does not want to be part of. So it's another quarter where we preserve our gross margin at 30.8%, a slight increase compared to the first quarter last year. Beto will detail this a little bit more. There's also a positive impact here of the stores. EBITDA at BRL 720 million, with a healthy margin of 7.8%, at high historical levels. Noting that 3 years ago, this margin was at around 6%. So we continue to increase. And even with all of the market -- online market pressure, we have been able to maintain margin close to 8%. And again, total cash at BRL 6.2 billion, net of BRL 1.2 billion. So the rationale remains the main guideline for our operation. We believe that throughout the next few quarters, the interest rates will continue to decrease, although not as strongly as we expected in the end of the year. But the expectation is that interest rates will continue to go down. And as that happens, I imagine that the market will have to become more rational on the online as well. There will be pressure for that. Things will start to happen, and for us, the second quarter will be the turning point, that's the quarter in terms of growth also on the online, where we will have the FIFA World Cup that, in seasonality terms is always very positive for us. So we have better perspective, the second quarter, more due to the seasonal aspect of the World Cup and the second half of the year more related to the reduction of interest rates that we will start to feel and there'll be more flexibility for our sales, for our promotions. In sales, maintaining this argument point, we made BRL 5 billion in sales in the first quarter of 2026. Again, with extraordinary results, growth of 6.4% in same-store sales and physical stores, I say it's extraordinary because in this first quarter, the market of durable goods went down due to weather aspects. Air conditioning and fans, that's very important for our category, had a significant drop because it was a cooler and rainier summer than last year where it was very hot. And we also had some decrease in categories like popular appliances and telephony and cell phones due to an adaptation of the market to the increase in memory chip costs. That generated a little bit less aggressiveness from the industry on this category, is being less aggressive, there are fewer sales. So the market overall went down. We've been able to gain share in stores, maintaining the company's total share in the category, including online. But on the online, we lost some share in this category because it remains a segment where competitiveness is more acute. And we preferred to focus our efforts and our sales on that channel where the contribution margin is greater. So instead of growing on online, we grow on physical stores, and we've been able to hold our share of durable goods in the quarter. So despite the overall drop in cost of goods sold, we maintained our share of durable goods, and we have a good -- and we will always seek to focus on the channel that presents the best conditions for growth at that moment. I believe in the second half, the situation will turn around. We had -- I don't attribute this durable goods aspect to the macroeconomic scenario. In my view, it's a lot more related to the weather in the first quarter and the memory chips. Memory chips remain, but the market has already absorbed that aspect. So I believe that we are already seeing an improvement in that sense. And of course, we have the World Cup, and we'll talk a lot about that looking forward. So thinking a little bit more about stores, the growth was over 7%. Same-store sales, 6.4%. And I'll talk about this, but we resumed opening of physical stores. Galeria Magalu stood out in the quarter. But irrespective of the opening of new stores, it was only 1 in the fourth quarter of last year. Same-store sales are very sound, and I feel our stores are very well supplied. And we have a market now where we continue to see an opportunity for expressive share gains. The World Cup is always a very positive volume. We improved this growth in April. We're starting May with a lot of strength in physical stores. And the 6.4% is good, but it could be even better. As I said, there has been an impact of the weather and memory chips in the beginning of the quarter. But I believe now in the second quarter with the World Cup and without those impacts that I mentioned that happened in the first quarter, we'll continue to grow. Fabricio can talk a little bit more about the opportunity later. And as I said, at the beginning of the year, it's part of one of our strategic pillars, we intend to resume opening physical stores, and we foresee an opportunity in the short, medium and long term in that sense. Noting that physical retail in Brazil still responds to 85% of the total Brazilian retail. So it's a great opportunity in this context. Next slide, please. Another trend that remains compared to last year, those companies that we acquired in the previous ecosystem cycle continued to perform very well. So business overall brought positive results, profit, KaBuM! at [ 17% ] in profit, Netshoes as well. Netshoes, in addition to the profit, had good growth in the quarter, [ 1B], that's their sales with the [ First Power ] inventory grew 12% in the quarter. So that shows there's still room for specialized stores, the category killers in the online. And Galeria also had good profit results for the quarter, and the remainder is virtual. So all of these businesses will benefit from the multichannel aspect. We are opening physical stores. Galeria Magalu, the second Netshoes physical store, the second for KaBuM, first for Epoca, first for Estante Virtual. We believe that bringing this multichannel aspect to the ecosystem and our purely online companies we acquired the previous year is also a positive [ path ], not only to expand the market share of the category, if we start to fight for market stores, on stores, not only online, but also the multichannels help brand recognition online, so it increases online share as well. I would also like to highlight MagaluAds. We had revenue growth of 20% in the quarter with an increase in the conversion of 39% [indiscernible] of 43% for new advertisers, that's showing that it is worth it to invest on MagaluAds, and we had very good performance of multichannel ads. One of the big points of Galeria Magalu is to get announcers to see that Magalu, in addition to ads online, they also have the opportunity to invest in advertising on physical stores. Galeria Magalu, as I said in the last call, a lot of the return on investment there and the next ones we intend to open also come from the space available for advertising that we made available. And without the stores, we have 20,000 screens and stores in the country. Next one, we also had good performance at MagaLog. MagaLog is the carrier that we have to operate all of the group's deliveries plus the deliveries of our seller partners who use MagaluEntregas. And we also opened MagaLog to provide services to third parties. We continued to gain a lot of customers, in this quarter, our revenue with external customers grew 30% compared to last year. We've been gaining a lot of accounts in this scenario. Brazilian postal service is struggling. A lot of people know that people are seeking other transporting companies like ours, and MagaLog in the second half [indiscernible] shop also offer the delivery of heavy products for third parties. Today it's done more for Magalu companies in the group. But in that sense, for [indiscernible] products, our competitive edge is incredible, 60% to 70% of more affordable delivery costs. So we're excited with this possibility. It's another company in the ecosystem that has been performing well. MagaluPay, Beto will talk about later, that also had a good quarter. And we can give you more details, and Jorg is available to your questions about MagaluPay specifically at the end of our presentation. At MagaluCloud, it's another company at a group that has been moving well. We have more than 1,500 customers. [ Global Poder 360 ] joined our customer base. It remains as a cloud option with great costs for great savings with low latency. We have savings of 50% to people migrating to MagaluCloud when compared to the main international cloud providers. And 55% of the customers are at MagaluCloud. So we had a good first quarter, especially with the participation of our external clients who are a focus. Getting to 55% of the workload we should increase that, but the main focus of MagaluCloud, as MagaLog, is to seek external customers to be able to monetize these investments that we made in the ecosystems cycle. Now I turn to Beto, who will give you the financial highlights, and he'll talk a little bit more about the perspectives for the second quarter and coming quarters.

Thank you, Fred. Good morning, everyone. Thank you for being here with us in our earnings call. I'm going to go over the financial highlights. Once again, we have reached over BRL 15 billion in total sales growth in physical stores of almost 7%. We reached a gross margin of 30.8%, which was one of the highest gross margins for a first quarter in our history. Also we have reached EBITDA of BRL 718 million, 7.8% of EBITDA margin. At the bottom line, we had an adjusted net result that was slightly negative, in BRL 34 million, that was affected by financial expenses, which have been, in turn, affected by the increase of the CDI. Maybe this is the last quarter where we are going to have an unfavorable comparison vis-a-vis last year regarding the CDI. The average CDI for last year in the first quarter was at 13%. It started the year at 12% and it ended the quarter at 14%, and the average for the quarter was 13% last year. And this year, it was 15%. So this was a challenging scenario in terms of interest rates in Brazil. Nevertheless, we have been able to deliver a sound total cash position BRL 6.2 billion and adjusted net cash of BRL 1.2 billion. On the next slide, we bring the consistency of our EBITDA margin, in the last 5 quarters, we're able to maintain the EBITDA margin very close to 8% and despite of the CDI been growing over the period. And we highlight here the main levers that explain this EBITDA margin, including the merchandise gross margin. I'll talk more about that, also physical stores performance, our fulfillment and omnichannel, our G&A expenses control. And this quarter, we have been able to reduce operating expenses and basically 3% compared to inflation that was around 4%. So operating expenses have been diluted once again as we have been doing for the past 2 years. And once again, Luizacred posted positive results. On the next slide, we have the EBITDA margin comparison here last year compared to this year. We did have a slight reduction from 8.1% to 7.8%. But we would like to highlight once again the increase of the gross margin, specifically the merchandise gross margin, and I'll be talking more about that shortly. Also the dilution of SG&A, which also has contributed with 0.1%. And we did have robust provisions regarding loan portfolio for retail. Still on retail, I'll be talking about the migration of this portfolio to the financial one. But just to make it clear, over the last year, and I'll have some comments here, over the last year, we increased the share of our CDC portfolio, the consumer finance. This is one of our strategic pillars. We have been increasing the CDC portfolio share and the e-commerce. And that ended up bringing more interest rates, which are accounted for in the retail and the invoices and also in the merchandise gross margin. Therefore, the increase of provisions from 0.5 percentage, it was more than offset in the merchandise gross margin by the interest rate revenue. And I can give you more color on that topic later. But I would like to just start by saying that just in interest rates and the gross revenue for merchandise for the last 12 months, we did have around BRL 1 billion of interest rates revenue. This is a managerial number. You can see it in the accounting approach. But we will start seeing it when we transition that to the financial branch, that's going to be clearer than -- and for that portfolio that went from BRL 1.5 billion and went to BRL 1.8 billion and generated BRL 1 billion of interest rates revenue, you then can see in our result statements that the loan loss provisions, what our results were. So just to making sure we had BRL 500 million in provisions, so a ratio of provisions and interest rates of 50%, which was already happening in retail. And once again, that's going to migrate for the financial branch. About the loan portfolio, which still is mainly located in retail, we had BRL 1.8 billion: BRL 1.7 billion still in retail, BRL 100 million already in the financial branch. We also disclosed that portfolio. We talked about it and the overdue portfolio. The NPL 90 days improved 1 point and NPL over 90 went from 9.3% to 7.8% of the total portfolio. So when you compare March against March, we see that the quality of our consumer credit portfolio has improved a lot. And for this total portfolio of BRL 1.8 billion, we have a total provisions balance of over BRL 500 million, a coverage of around 30% of the portfolio. And we understand that this is very robust, a very high coverage ratio. And finally, on that topic, as we now start the transition to the financial branch. This portfolio in retail will be received. It's going to be turned into cash. And the provision that we just mentioned also is going to be naturally reverted. So it's just to give you more visibility on this topic. So the gross margin for merchandise has increased, it offset, it increased theprovisions, and that explains the variation of the EBITDA margin. Here we had also the share of services, which is in the middle of the chart. It went from 7.3% -- its contribution was 7.3%, now it's contributing with 7.1%. This 0.2% here is explaining the EBITDA variation in the quarter. Now turning to the next slide, talking about working capital. In the quarter, we always have a seasonality. So the working capital came down from BRL 3.9 billion to BRL 2.3 billion. And remember that these are liabilities less assets, so the lowest, the best. But this variation has taken BRL 0.6 billion of cash in the quarter. But this is seasonal that has to do with suppliers' payments from purchases for the last quarters, as it happens every year. What is important here is to analyze March last year. There is a progress in BRL 600 million. This progress is related to the inventory turnover and average term for purchases, which we have been able to improve. And also in terms of average purchase time, we have been able to get better negotiations, term extensions with suppliers. And in this quarter specifically, we had an inventory anticipation, both related to the World Cup as well as to the risk of lack of products, like Fred mentioned, because we are seeing a scarcity of memory chips all over the world. So we anticipated ourselves. We bought more inventory. So our goal this year is to improve inventory turnover. We'll be doing that. This quarter specifically, we did have this specific effect, the World Cup and the lack of chips, but they will go back down after the World Cup. And also with this negotiation, this purchase anticipation, we also were able to get extended payment terms. Finally, still on working capital, as we purchased more, we also had more tax credits. So we monetize less taxes. And this trend also should be reverted in the next quarters. As inventories come down, we will have less tax credits and we'll be offsetting more. Therefore, we will have a more positive dynamic of cash generation starting on our working capital. Now talking about net financial expenses, here basically we see it growing in 16% year-on-year, in line with the CDI variation, which went from 13% to 15%, once again. And it was a 14%, a variation that was associated to the interest rates in Brazil. And as it starts to come down, we will see the benefit from the drop of interest rates in our financial expenses from now on. On the next slide, we have our total cash position for the last 12 months. Once again, the cash flow from operations, very strong around BRL 2 billion. It should -- it could have been higher as we had last year. And this is the trend because of the improvement of the working capital that we expect to see from now on with the normalization of inventories, taxes and everything else that I have already mentioned. Even then BRL 2 billion already considering an EBITDA of BRL 3 billion and all the expenses of receivables prepayments. And also we invested BRL 1 billion a little bit more than the depreciation considering CapEx, and also funding for Luizacred. And an observation, Luizacred has already reached the base ratio of 14%. And from now on, it tends to go back to paying dividends in the last 3 years. We had fundings in Luizacred and we retained profits, so the situation should change now because it's now capitalized and profitable. In our leasing accounts, it's very stable, around BRL 800 million. Interest related to our debt, also BRL 800 million. Also we did have net borrowings of [ BRL 400 million]. And we paid dividends at the end of last year. regarding 2024, ending with BRL 6.2 billion. So in summary, the explanation for this variation are the investments and the payment of dividends. On the next slide, we have our total cash position. Once again, BRL 6.2 billion minus BRL 5.1 billion of gross debt, BRL 1.2 million of net cash. Our gross debt is distributed once again over the next 5 years. The next maturity that is relevant is the final amortization of our 10 debentures issuance, which should happen in October. So we will be paying BRL 1.1 billion this year. We will end the year with BRL 4 billion of total debt, reducing our total indebtedness. Well, now we go over some highlights for Luizacred. Delinquency is coming down both last year and also considering the end of the year, which is not typical considering the pressure that we have in delinquency in the beginning of the year. Luizacred has an improved portfolio. The short-term indicator is better. Also compared to last year, the portfolio is growing over BRL 20 billion in credit portfolio, high coverage. And again, net profit is very consistent, BRL 75 million in this quarter, showing a very consistent history of profitability and return for Luizacred. Now MagaluPay. With the consolidation of our MagaluPay financial branch, we consolidate our regulatory structure. We do have a full regulatory structure to scale all our financial services according to our strategic pillars. Here we have 4 companies. All of them are regulated by the Central Bank. All of them are very well capitalized and profitable. Luizacred is focusing on credit cards, MagaluPay financial branch is focusing on the CDC portfolio, the consumer finance. MagaluPay IP focus on digital accounts, acquiring and insurance. And our Magalu Consortium also is growing with a record performance actually in this very profitable quarter. Well, we have started the migration of the CDC to the financial branch in October of last year, with 10% of the CDC volume. We maintained that percentage over November, December, January and February. And over March, we started to scale this percentage, reaching 30% at the end of March and going over 90% at the end of April. And this month of May, we will be then concluding the rollout of the migration of retail CDC to the financial branch with all the benefits that we have already discussed and fiscally going from PIS and COFINS, going to IOF. And more than that, with all of the benefits regarding funding costs, diversification of funding and also transparency in the results, once again, all the interest rates and provisions that is going to be on the financial statements of the financial branch consolidated by Magalu. Anyway, they are already available, the financial statements. They are available at the Central Bank regarding the last year. And they will be also available regarding the first quarter of this year. We already have a summary of that and the release of the performance of our financial branch still with only 10% of its production. But it's already there. You will see that the financial branches capitalized BRL 200 million at the financial branch. We have reached BRL 100 million in portfolio for March position, and this portfolio is quickly scaling starting in April. In April, we highlight that we have already raised BRL 145 million CDBs. We started the pilot project for raising funds in March, but we scaled in April. And this funding is already accounting for 80% of the production of the CDC origination in this period. So our idea is to maintain base ratio that is very sound to finance around 20% of the CDC with our own capital and 80% with third-party capital. As CDBs and also financial securities or [ FCDICs], but this has been a very flexible, competitive and efficient instrument. And here we have a screen showing what is the client's view that we are paying 103.75% of the CDI for 2 years and 102.5% of the CDI for 1 year. This is a very flexible instrument, which was very well accepted for individuals. And to conclude very soon, we will be launching the possibility of investment, CDBs in our app. This is already available for our employees. We are testing it. And very soon, this is going to be available for our clients. In our digital account, we will have the possibility of investing in the investment area and then to pay up to 105% of the CDI in our app. Therefore, I now turn the floor back to Fred, and thank you very much.

Thank you, Beto. To conclude our presentation and open for the Q&A, I would like to quickly talk about the new strategic cycle, as I did in the last call to say that we are facing a cycle of large potential to generate value to the company. And I'm sure that for the last years, we are going to have a tailwind, and not as fast as we wanted, but for the next 5 years, we are going to have a reduction and a macro scenario in that sense that's going to be more favorable. In the cycle now, we have the pillars that we brought to you, and I would like to highlight them. The objective of these pillars is 3 main objectives. One is [indiscernible] core and the extended core. That's what we have, durable goods and sports, finance, beauty, Epoca, gaming and KaBuM!. So here in the cycle. We want to resume growth, and resume growth, especially in the categories where we already have -- or stand out in the market with the inclusion of [ 13P3 ], of course, and I'd like to emphasize a lot about the stores. A lot of these domain of the core business will come from resuming growth of physical stores. So here what we want to seek, an electronics share of durable goods of 20% online and off-line. We want to resume our market share gain process, expanding these number in coming cycles, will have a strong focus on that. Second objective of the ecosystem is to expand and to monetize the assets we've built in recent years, especially the financials and nonfinancial services. MagaLog, MagaluCloud and MagaluPay, I think they have a lot of potential with assets that we've built over the last 5 years with a lot of potential for monetization and to help us increase our operational margins, our results. We built these assets in the ecosystem cycle. Now we want to expand and monetize them. We talked about the growth in customer base at MagaLog, MagaluCloud, and Beto talked a lot about MagaluPay gaining share in our business. MagaluPay, slightly not as much looking out, but with strong potential and increase of penetration, especially on the online. But not exclusively. There's still a lot of opportunity to distribute financial products at the stores and we'll capture and resume opening physical stores certainly. Finally, it will be certainly a strategic cycle with a lot of impact by the evolution of artificial intelligence. In all segments, but especially in retail, this is very [indiscernible] evolution, and we must keep in mind that there will be a very significant change in the way people make purchases. And with this agentic aspect, we'll gain more and more penetration. To give you 2 little examples or details of this new cycle, I'd like to mention 2 things we've launched. Lu's WhatsApp that we launched at the end of last year, we have very good relevant metrics to share with you. It has already generated more than 9 million chats in the first month. Conversion remains 3x higher than other channels, even the app. So the conversion at Lu's WhatsApp is 3x higher than the app. Even with all the scale we've gained in this period, it's not a small channel anymore. It's relevant for the company. Our NPS is 85. We broke the record in number of orders this quarter. So we've been evolving the experience more and more. Customer satisfaction is great. So we are really revolutionizing this. Obviously, we launched in December, there's still a lot to grow, but there's still -- there's already a lot to celebrate. I'd like to highlight 2 things, and I wanted to bring you a little bit more color about Lu's WhatsApp where it's been helping us, for example, in long-tail categories where we're having more challenge growing over the last year. Even if we don't get into price wars in these categories, it has been very helpful as a market category, 18% appliance -- home utility is 14%, small appliances is 8%, beauty 6%, sports 5%. We brought this in last year with the information of the presales, we sold almost 5,000 chrome sticker albums about the World Cup, 1,800 cases of beer, 1,500 diapers. So that's potential of this category, especially on the WhatsApp. The [indiscernible] ads. There's a lot of success cases and situations in a business that promises to grow significantly in this next cycle. No competitor has anything like this in Brazil or in the world. This is a successful experience, and we haven't even made a major launch in terms of advertising Lu's WhatsApp. Basically we're doing it with customer base, which already uses it. It's 20 million customers on WhatsApp and we are sending them releases about this. We didn't run any major advertising campaign and, organically, it has been growing exponentially very positively. And I think that, without a doubt, will be the main online growth. And as it grows, it will gain relevance. Now I'd like to talk about Galeria as well. That's an important part of this new cycle. It is to take the multichannel aspect to the ecosystem as a whole, resuming our strength in physical retail, we have been feeling a lot of room for growth in physical stores. Physical stores are still a large market and it has been -- or has been less of a competition. It's not so much of a fight. There's a huge opportunity. And we know how to operate this world more than anyone. So we're taking all of this experience, not only to Magalu, but to the other group -- companies in the group like Epoca, KaBuM, Netshoes. And I'd like to highlight some numbers about the Galeria Magalu. It was a very innovative concept, combining physical and digital, bringing invention of department store. It's already the third largest store in the company under 4 months. It's even bigger than the store 1 in Franca that's our first store that's been there for almost 70 years. And we have a huge share in the city. We have some interesting numbers to discuss. More than 1,100 articles published in the main newspapers in the country about Galeria Magalu. More than -- or 1,400,000 -- no, rather, 1,400 posts on social media with 227 million views on -- 15 million views in social media. A lot organic of people who are going there, influencers, covering the store with such a different concept. 15 million views of videos at Galeria Magalu. The YouTube Theater is also a big hit, 124 events, people -- 18,000 people in general audience. We had some cases like personalizing the [indiscernible] [ Sylvester ] brand [ medals ] with 2,500 people. The launch of [indiscernible] 300 books sold, he has a lot of followers on YouTube. And we've been having lives at -- Magalu lives, like [ BDay lives ] and based on the stores. So that helps the online as well, combining physical and digital. So these are examples of important pillars in this new cycle that's [indiscernible] for e-commerce. And the other is the multichannel aspect, to bring multi-channels to the ecosystem. These are just a couple of examples. The others are the expansion and monetization of our ecosystem, growing Magalu and MagaLog. So it's a cycle that tends to be very positive. I also think to conclude, I'd like to highlight that we are now facing a very favorable quarter. That's the World Cup quarter, that really helps not only in the more traditional Magalu category that's electronics. We always had excellent performance in this category in World Cup years, both in physical and online retails. But some of the group's companies like Netshoes, for example, that also benefit from this world, this universe, selling soccer jerseys and shoes, boots, everything focused on the World Cup. So we have a quarter that I consider to be very positive, especially in that line where we've been more conservative, that's the GMV growth. Physical stores have already accelerated, and the online tends to have a more favorable quarter than the past few quarters. Fabricio can talk a little bit more about that later. But we believe this quarter in terms of GMV will be a turning point. So now I open to your questions.

[Operator Instructions] Our first question is from BTG, Luiz Guanais.

I have 2 questions on my side. You well said it on the presentation about the operating gains of efficiency in the first quarter. I would like to go over -- if you have room for operating efficiency and the fulfillment and the monetization of the system that you mentioned in the past. And the second question, talking about the financial branch. I think we have seen credit indicators and I know that they are healthy. But in a macro scenario that is still challenging, I would like to understand how we can look at it. If we see the future, if we look ahead, how do you see the possibility of credit assignment and also for new products, as you mentioned?

Now about your questions, in regards to the first one, we have a continuous work for aiming at operating efficiency. This year specifically, we are looking for new opportunities to increase efficiency, to reduce costs as we have been well succeeded in this agenda in the past few years, and we still see opportunities to improve. And to improve the expenses control and all of the fronts, logistics, fulfillment, greater efficiency and marketing expenses, and also really productivity, sales per employee. We see room in all of that, and we are working on it. We have exclusive and dedicated teams for that. So this is a large project this year so that we can keep on tapping into gains. And as we have shown in the first quarter, we are able to do it. Of course, there comes a time when we need to bring in operating leverage, the growth of the GMV. And I believe that I am more optimistic for the next quarters that we will be able to continue growing in the stores even more in the first quarter. And with a number of initiatives that we have here in the online world, we will go back to growing as well. Obviously, in this quarter, we will have the support of the World Cup. But in the next quarters, again, already harvesting the fruits of these initiatives that we are already sowing. About MagaluPay, MagaluLog, and of course, here, opportunities are in improving margins. All of these services have higher contribution margins, not only efficiency. But it's more contributing with higher growth in the consolidated -- contribution in the consolidated area. And we have been -- those initiatives as successful, and we will try to accelerate them for the next quarters. Now about the second question, I will turn to Jorg, and he we will answer it.

Thank you, Fred. Luiz, yes, you are right. We share here our level of attention. And we are watchful because at the indebtedness level, according to the last C&C survey, are high, but increasing 3 percentage points year-on-year, reaching all-time high levels. We also see interest rates of 14.5%, which also affects the payment capacity for individuals. And the unemployment rates are at very low levels of 5.5%. These are March numbers. We will we continue adopting a conservative approach, but I do not see why we should change our risk appetite. We'll keep on growing with quality and in a sustainable fashion. I would like to draw your attention to our opportunity to grow in our base. When we have penetration levels that are just as low as the ones that we have, and here we are talking about our CDC portfolio in terms of 10% sales happening in the physical channels and less than 2% of sales in the digital channels. This allows us to use our database and look at the micro and to be selective and even then to be able to grow with quality. And our better clients, the recurring clients, the ones that like Magalu, that prioritize payments in our channels, and despite of the macro challenges scenario. And I can also say that our vintages -- the recent vintages do have that behavior. And as you stressed in your question, they have been in line with our expectations, allowing us to be confident on the strategy we chose to follow.

The next question is from Alexandre Namioka from Morgan Stanley.

I have 2 on our side. First, Fred, you mentioned some initiatives to reaccelerate the e-commerce growth even after the World Cup event in the second quarter. So I would like to have some more color on those initiatives and what we can think about the development of this growth starting in the third quarter and after that? And my second question is regarding Lu's WhatsApp. I found very interesting the metrics that you shared, but I would like to have more color on the percentage of the purchase journey in the online from Lu's WhatsApp. And if you can also compare the level of conversion rate when consumers use Lu's WhatsApp compared to the users that do not use it. That would be interesting.

Alex, well, the conversion rate, and I will start by Lu's WhatsApp, when that's compared to other channels, it's 3x higher. That's a great conversion rate. Because in the purchasing journey, there is a context identification because Lu talks to clients, asks questions about context. And when it brings you the offers, the purchasing suggestions, it is much more assertive than the client on WhatsApp looking for a product with a key word. So this is the idea of the agentic e-commerce that is going to be very relevant from now on. Well, today, we have Lu WhatsApp journey, which is exclusive. So the client checks in WhatsApp and buys it, they don't start on the app, so they are in -- in the app and they're already buying. And there's a lot of recurrence. A person purchased once and will purchase again because they like it. NPS of 85 there is very high. But any way, we intend to bring part of this WhatsApp experience to our app as well. So what we are doing for the online, and this was your first question, is to bring this agentic experience to the company's own channel, which is our app. So everything that we have been able to develop on WhatsApp, we will be bringing to our app, all these capabilities. So we are going to improve the conversion of the app itself, which is very relevant. We are also repositioning the app and focusing on the categories that we have, the right to win. And this is a project that we are calling brand place, and I'm not going to go into the details here. I'd rather show you when the experience is ready, but we are going to have a very positive experience for the categories in which we are strong and have brand recognition. Consumers do not trust in buying products in the competition's -- in the competitor's website because it's not their calling. But we want to have a much better and superior experience here, and we call it a brand-based project. Finally, we have communicated that we intend to expand our online B2B partnerships. We have launched Ali Express 2 years ago. We have all B2B partners, the banks and Itau, new bank. Also we have sales in external marketplaces that are very successful. And we are talking to other platforms to list our 1P in these platforms. And we believe that this will allow us a gain in the short term, already calculating and considering everything that comes from the outside that could cannibalize our inside sales. But we have run robust and deep analysis and we see that we are going to have great opportunities in the short term to have this growth by listening these platforms with a mixed pricing, intelligence also catalog complementary. But anyway, this is a strategy to recover growth, to reposition our B2C with all of these initiatives.

The next question, [ Pedro Caravina ] from XP.

So I think I have 2 points please I'd like to address. First, the financial company at MagaluPay, I think you've already talked about during the presentation, about the changes in P&L as you roll out all of the origination into MagaluPay with the CDC. But I'd like you to please explain a little bit more of what you expect in terms of direct P&L impact to the change once origination comes entirely 100% from the new financial company. And the expectation is it, right, should we already see that relevantly in the second quarter? And then starting in the third quarter, it's 100%? Or is that going to be some time for us to see improvement? For example, in the change in the taxes included for sale, if there's any change in the revenue, or what's cost of its revenue? If you could explain that a little bit more? And also if you can update us about the strategic cycle. I think there are 2 KPIs that stand out, right? The 2 pillars that stand out. The first I'd like you to comment about is the partner platforms. If you had any progress in that. We saw partnerships with Amazon and MercadoLibre. You also have a partnership being developed. So I'd like to see what you see in that -- to hear what you see in that and what can be done going forward. And on MagaluPay, I think I already included on my first question, but the evolution of that as well, please. The metrics that you could share.

I will start talking about the P&L lines that may be impacted in this transition to the finance company and a little bit of what we are seeking in terms of KPIs for MagaluPay. Also maybe starting with the KPIs, we are seeking, as I had already mentioned in previous calls, doing base groundwork, improving the capture of our information in the ecosystem overall, so that we can build our proprietary credit models. And with that, increase penetration over time of CDC, both in physical channels and digital channels. And I think that is going to be the North Star that we're going to pursue, as well as transforming our relationship with customers. I think today we have a relationship that is very transactional. And we are trying to make it so that we can look at the customer more as in the center of all of their relationships in the ecosystem. So turn that into an actual relationship movement. All of the indicators that may contribute to cross-selling, upselling, recurrence, we are going to look very closely, as well as, obviously, quality indicators of that interaction. Moving to your first question about the economics, it's important to note that you have the tax benefits that are very relevant. Initially, they have -- they were the trigger for us to decide on this transition. We have savings of around 16% into that, because you had PIS, COFINS, [ LTMS ] of merchandise and retail, and that would add up to 26% to 28%. And now we're going to have something below 10% combining IOF, PIS and COFINS taxes in the financial company. So this is an important driver for the improvement in profitability over time. And we'll start to capture that on phase zero as the stores migrate. And we also have an improvement in the funding -- the cost of funding, as we showed in the presentation. After a testing period in March, we launched our CDB in April and we get to BRL 150 million already raised at a cost lower than 104% of the CDI. So that underscores the strength of the market on the investors, but also the rating that we have and put CSFI at an investment grade, despite its recent history. In addition, there's also the effect of the model improvements that I think will be seen more in the long run. But on the other hand, we have a negative effect of the transition at a first moment, which are the increase in provision for loan losses, especially considering the drop in the retail due to the requirement of Resolution 4966 that's expected, that was more competitive than what was historically done on retail as well as the gradual recognition of the revenue accrual. So I would say we can capture benefits on the bottom line that we'll reach double digits once this portfolio is fully under this regimen. But we will have to go through a transition period that's going to last for another 2, 3 quarters, and this regimen will probably be reached within the next 9 to 12 months.

Excellent. And about the partnerships, I'd like to add something in retail. Adding to what Jorg said, I think it's an important effect is that considering payment means and cash since now that we started this migration, we start to receive on retail upon purchase. And for retail, it's an important point. We are more asset-light with this migration. So we sell on [indiscernible] we receive upfront. Everything on CDC is also received upfront, and Luiza cards and third-party cards, we can discount at any moment. So that gives us lighter working capital and retail, more cash generation. This transition has started that balance of accounts receivables that I mentioned, of BRL 1.8 billion. To give you an idea, a big number, as it starts to go down and should get to the end of the year at around BRL 500 million. And by next year, it should be close to 0. So we're going to receive that portfolio of accounts receivables, then we'll reverse that provision for doubtful accounts that we bought in the past of more than BRL 500 million. So this is going to happen in retail, and it's going to grow in the finance company. And then we're going to make this more clear in the coming quarters, in the financial statements as well, we will start to report the credit portfolio in the finance company. And the funding of the finance company, for example, in the capture of CDB, in a very clear way in our balance sheet. I'm sorry, the audio was breaking up. We'll make it very clear. So the equity effect of the credit portfolio and the assets, funding and liabilities, the credit portfolio because it generates so much interest per month and funding, and CDB and financial securities that was going to cost 1%. That's going to be very clear in our statements. And that's also going to be -- we're going to make this very clear. As Jorg mentioned, the finance company, interests are adequate for rata over time during duration of the contract. On retail, we have a similar mechanics, but it's adjusted to present value. And we bring the revenue on term to the present value. And there's another balance, another provision in our balance sheet of BRL 400 million, BRL 500 million, that's the adjustment to present value, that will also be reverted as this portfolio starts to be received. So this difference in the accounting of interest in the finance company versus the present value in retail will be evidentiated and the impact that we'll have is going to be small. And accounting changes are minor. For example, the finance company, there's a provision for interest up to 90 days. In retail, interests are provisioned for differently. But these are relatively small differences that we will evidentiate for the consolidated, especially now starting in the next quarter, the financial company will have more color. And just to add, the number that I mentioned, Pedro, already considers -- the difference in the social contribution to the bottom line, that is bigger in the finance company, but even so in this regimen, with everything in place, we will have a potential capture of low double digits or high single digits and the increase of profitability. About your questions of external partner sales, we have conversations that are ongoing. We are having these conversations for some time. Some are more evolved than others. But I think that soon we will be able to bring an update about that. We'll make some announcements soon.

Next question, Gabriela from Goldman Sachs.

I'd like to explore a little bit of the 1P dynamics on the online that slowed down this quarter. You mentioned the impact of the memory chips and price pass-throughs. But I'd like to understand how much of this drop you attribute to price pass-through versus what's a more competitive online market and how you're seeing the 1P trajectory looking at the second quarter, considering that the World Cup should be an important driver for this category that was impacted by the ships. But the second question is to explore a little bit of the physical store performance that remain above market. So if you can give us more color of how you see the competitive environment in physical stores. If you feel you are being more aggressive compared to the rest of the market. And on the same line, how much of your share do you attribute to the evolution of CDC?

Gabriela, this is Fabricio. I'll answer about online and then I'll talk about stores. So online, in 1P, we had a difficult first quarter. The category that was the biggest offender was computer devices that was affected by memory. And there was also air conditioners. That's a seasonal category, that's climate dependent. Last year was hotter than this year, so it did not perform that well. So there is some aspects of market aggressiveness, but we have these categories affected by pricing, by memory. For this quarter now, we feel that we are evolving. The month of May started much better, and we have synergies between 1P and 3P and the core business that's been quite well explored. We've been able to work the core categories very well in the 2 channels. We are being more aggressive in some areas, we have very good results. We have the media for the top of funnel that the work has been very well done. And this quarter, there's also the World Cup. We came in very well prepared. We received some inventory in the first quarter, precisely to avoid that aspect of the memory chips and TVs. We're well positioned, well priced our share here. We are gaining share in TV sets. We're doing very well in line with our plan, and it should ramp up even more during the month of May. The national team will be released in the 18th, and then the press will only talk about the World Cup. So sales should accelerate further. Our expectation for this quarter online is to try and at least match that lineup and then resume growth. So the idea is to improve performance compared to the first quarter. In physical stores, we are very resilient. It's the third consecutive year where we're presenting growth over growth in all regions. We are gaining a lot of share. And we will have to continue, to maintain growth in this quarter. As Fred said, a lot due to our consistency in the operations. It's a very consistent, efficient operation. We are not working on one channel to the detriment of the other. We want to resume growth in the online without offending physical stores, and that's how we're doing it. We're very optimistic on the World Cup at physical stores tend to be very strong, and we have our World Cup campaign. As Fred mentioned, we have draws of 600 rooms per day -- 100 per day that helps a lot in the conversion of physical stores. And we expect to maintain this growth in physical stores as well. That's it. Adding about CDC and the physical stores, I would say that 1 or 1.5 of same-store sales come from CDC share only. So it's not a major factor for store growth. We're growing at stores, because we are actually gaining market share. And we are with very positive operations, with all the conditions in place. And as I said, the second quarter has already started better than the first in physical stores.

Next question from [ Wellington ] from Bank of America.

Thank you for taking the questions, and I have a few. Now still on the online topic, considering you went over 1P, now let's focus on 3P. I would like to understand how you see the growth dynamic looking ahead. We see a huge competition. I would like to understand your position. You did mention that you are now increasing the promotional actions with coupons, I would like to know if you are going to intensify those. And you also got the commission of new sellers by the half. So I would like to know if you were thinking about similar initiatives for the future. And on the fulfillment, you mentioned that penetration increased 5 percentage points. I would like to understand the breakdown here. What was a greater adoption by the sellers to your fulfillment and what is related to lower sales of categories and sellers that are not in your fulfillment?

Wellington, this is Fabricio. I will address the 3P part of the question and then we'll talk about fulfillment. About 3P's performance, as I said, we have the core world. And I think we are working very well aligned with the 1P industry. So we are bringing in the large sellers back to our base. We are working on freight with them. We have seen a growth in this month, and I'm confident on this work. And on the long tail, high consumption, as we say it, we are working to increase our seller space. We realize that the categories are growing on a monthly base. We should go back to growing next month as we started to grow last month. We are working on assortment and on our sellers base. This reflects on sales. We have been doing strong work on the categories such as home, garage, sports. And this is a consistent work. And we don't have a silver bullet, of course, but this is an interesting work. And especially on special dates here, we already see those reflected in our sales. So the objective is to grow and increase volume. Now as we go to our partner platforms, we expect to have a higher growth. So in terms of performance for 3P, this is what we have. And also on 1P and online, I'll turn to Garrido so that he can talk about fulfillment.

Well, just to complement that -- complement Fabricio's answer, you have seen in the release that we said that in other categories, as Fred defined the right win, we are prioritizing strategic sellers, categories that fit to [indiscernible] that add to [ work ] core. You see that we are talking to categories related to home, Tupperware, beauty. So we have Dyson I know with appliances, also Tramontina as another seller. We are complementing the assortment. Tramontina is 1P supplier for a long time. So now they will be also there a 3P. Now we signed with [ Heehappy ] with toys. It should start in June. So we are increasing the number of sellers. As the incentive is concerned, as you mentioned, we want to provide incentives as we keep them and the sellers adopt the growth levers, which are full automated promotions, ads, because then we can have a higher margin. That's what we are focusing on. We see that in March, for instance, the GMV of new sellers was higher when compared to last year, 8%. And the sellers that we maintain in the program also grew. So we are talking about optimizing GMV quality, not necessarily the volume of GMV. Because the lower tickets, the categories that are not as strategic, in a way we are letting those go. But we are focusing in growing in this concept. And one of the main levers is [ Full]. And this is the other question that I will explain you. [ Full ] is not only growing in 5 percentage points vis-a-vis last year in 29%. Also it's growing in absolute figures. So GMV of sellers selling by [ Full ] growth in March, which is a growth of 3.5% year-on-year, compared to last year. This is a growth that is gradual and it is enabled as we enable new areas of the distribution centers and also new strategic sellers. And we will keep on growing and accelerating [ Full]. We are, with inventory levels higher than last year, maintaining a higher conversion than others, and privileging these categories, especially home and groceries. And in addition to [ Full ], we have another logistics mode that we started last year that is same-day delivery. This is ship from store that went from 0 to 2% of the delivery. So when we add [ Full ] to [ VAP], we have 32% of deliveries in sales. Therefore, a growth of 7 percentage points in these great channels. So we do have room to grow there, and we are talking about prioritizing Full and VAP, and also adds also allows us to complement the margin and to go to -- and get to this growth in a sustainable fashion.

So adding to what Fabricio and Garrido said, I have a few comments here. We made a decision in the beginning of the year and we have made this change over the first quarter, of having an integration of 3P and 1P areas in the organization structure. So this is the first time in a long time that these channels have grown separately in terms of the main leadership. And starting on March of this year, 1P and 3P are under Fabricio's management, who also manages brick-and-mortar stores. And so we are working on synergies among the areas, planning, promotional, marketing, that's also under Fabricio now, and marketing of Magalu. So I'm very optimistic. They seem to be secondary topics, but bringing together, marketing 3P and 1P under the same management will allow us to get more synergy. And I am very optimistic to see all these channels working in a synergic fashion and also allowing us to grow as a whole. This is a gain that we will be having, and that's why Fabricio is talking more about 3P now. So he is running that in Magalu's channel, just as Julio and Trajano work on KaBuM! and Netshoes, Sabrine on cosmetics. All of them have 3P, 1P and now the stores as well, with a great synergy of the teams and the planning areas. I do have a positive vision. And on a comparison basis, which is also relevant, the war in 3P started in June of last year when we had the news of not charging freight, accelerating investment subsidies. And we started seeing it in July of last year when 3P started decelerating. And in the second half of the year, we already see a base of comparison that is much easier, so to speak. It's never easy, but it's easier than what we had in the first quarter. And in the fourth and third quarters of last year, we believe that, as Fabricio said, that we have everything to have a turnaround in 3P, as Fabricio mentioned.

Next question is from [ Vitor Hogarth ] from Itau BBA.

We have one here. The same-store sales of your physical stores drew our attention in this quarter. When we look at the comparison base of the first quarter of 2026, taking into consideration the last 2 years, you had a comparison base of same-store sales of 16%. And now in the second quarter, the comparison base goes up to 19%. Having said that, is it expected to see a deceleration of same-store sales for physical stores and same-store sales?

This is Fabricio. Good question. We have had 2 good years in physical stores. And everybody asks, if we can still keep on growing. We are gaining share year-on-year in the last 3 years. I can tell you that we still see a great opportunity to have good performance in physical stores. The second quarter, I'm sure that we will be growing. And we also have a World Cup here, we are very well prepared. And the store sales has a good performance during this period of the year. So we should have a good growth in the next quarter. And also in the upcoming ones. Our goal is to maintain physical stores growth, not only now with the World Cup, but also until the end of the year, gaining share once again. So we should be maintaining that performance over the year. I don't see why we should stop growing the stores. And it has already started strong. Yes.

Next question from Nicolas JPMorgan.

I had one as well on the store side, but in terms of expansion. We expect that this should drop over the coming quarters. Physical stores is the channel that's performing better. So I'd like to understand a few things. First, what's your mindset, to resume store opening in the same pace or maybe faster? And the second, Fred, I think you mentioned about last quarter's call, some pilot programs that you were going to test over these months. I would like to know if you have any -- I mean, pilots based on the Galeria model, do you have any conclusion about those pilot programs?

Nicolas, this is Fabricio. I will answer those as well. About opening stores, we should start opening stores again resume opening stores. We're going to open now in June in [ Celander ], that's the largest store in the Federal District. And in the second half, we have mapped some stores to open, always complementing the regions where we're already present. For example, the south of Sao Paulo, stores in [ Mato Grosso ] Federal District. We will not disclose how many stores are going to be opened. We don't provide a guidance. But it should be resumed in the second half. At the same time, we shall run 2 pilots in 2 stores with the Galeria model. One will transform -- probably transform into Galeria as well. It's a large store that we have, with good [ revenue]. And in another store, we're going to run a pilot like the marginal [indiscernible] store where we have all brands but without the Galeria Magalu name. We're going to have open box products and outlet, maybe new products as well. So we're going to run these 2 pilots in these 2 stores. I believe until the end of the year, we should reopen these stores and modeling them. And once they work, we have a lot of stores, as we mentioned, with more than 1,500 square meters that can be transformed into the Galeria Magalu model or multi-brand Magalu stores, with all of our stores in the ecosystem. So these are the ideas for the stores.

We now close the question-and-answer session. I would like to turn the floor to Frederico Trajano for his closing remarks. Please, Fred, you may go ahead.

I would like to thank you all for attending our earnings conference call, and we continue to underscore our good expectations for the second quarter. Thank you.

Magalu's conference call is over. The Investor Relations team remains available to answer any questions you may have. Thank you all for attending. Have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]