Pet Center Comércio e Participações S.A. (PETZ3) Earnings Call Transcript & Summary

Good morning, and welcome to the Petz Results Call for the Second Quarter of 2025. This call is being recorded, and you can access the content in the company's RI (sic) [ IR ] website. The presentation will also be available for download. After the presentation of results, we will have time for Q&A. [Operator Instructions] The presentation will be displayed in Portuguese, but there is an English version available for download in the company's website. Today with us, we have Mr. Sergio Zimerman, Founder and CEO of the company; and Ms. Aline Penna, CFO and Director of Investor Relations. Now I'll hand the floor to Ms. Sergio Zimerman.

Thank you. Thank you, and good morning. Thank you for your time and for joining us today. Before I actually start with the presentation, I have some quick comments to share with you. First of all, this quarter was "already been predicted before", in the sense that -- or at least regarding the operational improvements that we witnessed in the previous quarter. Now what we were missing was having those improvements reflected on the financial results, and this is exactly what we saw in this quarter. On the other hand, perhaps the key message to be conveyed in this call is that without a doubt, we have had one of the best quarters for the company, at least in the last few years. And I can say that we achieved this result despite of the competitive landscape. Despite of the competitive landscape, we achieved these good results. We had a growth in our bricks-and-mortar stores that was greater than our online growth, which, of course, has a positive impact on our margins. We had a growth in our private label products, which also brings a positive impact on margins. We had a maturing in our older stores as we decelerated the opening of new stores, which also impacts our margins. So thinking about gross margin results, it was relatively stable. And that happened because of our need to compete. So we can reduce costs. We must reduce costs, but at the same time, we need to sustain our position in the competitive landscape. And I just would like to remind you or remind those who still haven't heard this before, I will go back to the rationale of the deal with Cobasi. Cost reduction. We need to cut costs so we can improve our competitiveness. There has been a significant advancement on the marketplace landscape. I'm sure you have been following the same trend in other industry, and it's no different in the Pet segment. And there was only one way for us to compete with that, becoming more efficient in costs or in becoming more productive. So with that in mind, we need to permanently make decisions to make that happen. And the Cobasi deal was one of those initiatives that can really change the needle and improve our competitiveness. So -- and of course, with that, improve the scenario for pet owners, opposite to what you might have read in the news. So now starting on the presentation, some highlights for the second quarter. We had 8.6% growth in our gross revenue versus the previous year. And it's important to highlight that this BRL 1.1 billion revenue is the highest level of 23 years of company. So this is a historical quarter in revenue for us. Same-store sales grew 5.5%. Our gross margin was 39.2%, which represented 0.2 percentage points above last year. And again, this means that we achieved a 9.1% growth versus the previous year. Our adjusted EBITDA margin was 7.8%, which represents a significant growth versus the previous year, 1.7 percentage points or almost 40% versus the previous year. And again, the nominal EBITDA of almost BRL 84 million is also a record level for the company. For the past 23 years, we had never delivered a quarter with BRL 84 million in EBITDA. In our net profit, there was a significant growth of 82% in the adjusted net profit totaling BRL 18 million. Of course, this is still a very modest number if you think at the nominal value. But it is important to remember that because we still have a significant number of new stores, we suffer a lot on the EBITDA and profit lines because of the depreciation of stores. And that's the biggest impact on our results because on financial expenses, the company has sustained a debt level that is quite healthy. In terms of operational cash generation, in this quarter, we achieved BRL 56.5 million being generated, which, like I've mentioned before, is an important foundation for our company. In times of extremely high interest rates, unpayable interest rates for retailers almost, we are very disciplined in the way we manage our resources and making investments just in their -- considering their ability to generate cash. So like I've mentioned before, these results happened, especially because of our focus on efficiency. In the first quarter, we faced some operational issues that were quite significant, especially regarding loss of productivity in our distribution center, and I'm going to go back to that topic later. But we noticed that several of the initiatives that we deployed in the end of the first quarter as to correct our profitability path really generated results in the second quarter. And it's also important to highlight that, of course, it's easy to cut expenses. All you have to do is cut them, but you have to do that properly because if you cut an expense that is necessary, you might build some value in the short term. But of course, in the long term, that will only destroy more value. And this is the type of discipline we achieve -- aim for. We pay special attention to the type of expenses that are being cut, so we don't have any impact in the customers' journey in our stores. Now thinking of cash generation, it's important to remember that our cash level up until the third quarter of the previous year was close to 0. So we had a net debt that was pretty much 0. And because of the Cobasi deal, we paid BRL 130 million in the announced dividends. And here, it becomes quite clear of -- our ability to generate cash becomes quite clear because our debt level is less than half of the BRL 130 million. So -- and bear in mind that we continue to make investments. And it once again highlights what I said before, how disciplined we are in managing cash levels. Now for logistics and operations, we had a one-off issue in the beginning of the year, but that nevertheless gave us a significant financial impact. But we worked strongly to correct that issue. And because of that, we were able to fix the issue not only for the second quarter, but for the coming quarters as well. Structural changes were made, especially regarding the expansion of our DC that now allows us to better manage our merchandise. Now talking about the macro landscape and the competitive landscape as well, going back to what I said in the beginning, perhaps. We have clearly witnessed an increase in competition, mostly from marketplaces. So we detected significant growth in several marketplace players. And naturally, we need to be disciplined in following the -- what's happening with the competition. And the result of that is a stronger growth in our bricks-and-mortar stores than the growth we experienced online because we're struggling more there now. Another element that contributes to that result was the fact that I had warned in previous quarters that we had a challenge of working with 0 inflation for Pet products. In this quarter, we have some inflation back below the IPCA level, but we have 3, 4 points of inflation for the quarter, which certainly contributes to our financial results. On sales engagement, Petz last year launched a gamification product or a gamification strategy for sales. It's a huge championship between stores. And that initiative was an absolute success in the second quarter of 2024. In the first half of 2025, we started a new championship. And right now, we are doing the second edition of the same competition we had in 2024. And the power of this competition is generating more engagement and motivation among the teams for that healthy competition between stores. And they are always aiming to perform better. And the goals that they must deliver in the gamification always come with a significant increase, which is helping us a lot, not only with sales, but for example, with the [ Petix ] sales, there was a significant increase in the share of [ Petix ] sales in stores, which, of course, brings some relief in the credit card fees and also improves our financial flow. One important thing to share with you is that this year, we signed with Urbia, which is the concessionary managing the Ibirapuera City Park here in Sao Paulo. We signed a 3-year exclusivity contract with them, and it's basically a partnership contract. We are partners in their dog park. It's the biggest dog park in Latin America with more than 9,000 square meters that receives an extremely qualified audience. And we have authorizations to host events in the park, and to do activations, we can offer water during -- in the park. Coming soon, we expect to see vending machines that the park patrons might need while in the park with their pets. We have embraced the Ibirapuera park. And now our goal is to provide tutors with the best experience when they are in the park. And we consider this partnership to be a strategy because we are focusing on creating a brand experience in an area that is extremely relevant for the city of Sao Paulo and for pet owners. Regarding our private label, quarter after quarter, we have been reinforcing the same message, and it was no different in the second quarter of '25. 43% of growth year-over-year. We are talking about an average growth of 8% of private label. So end up with private label 43%, and with a significant share we have 12.5% of share in sales in the second quarter of '25, which represents 3 percentage points more versus the previous year. And the good news here is that there is absolutely no sign of this growth cooling down. Our private label products continue to perform very satisfactorily in different categories, accessories, pet food, pet beds, leashes and collars. It's a very interesting dynamic that we see here. And of course, when we talk about private label products, we're talking about a set of different brands that are really well accepted by our consumers because of the cost benefit that they bring. Now talking about Clubz, our benefits clubs, which was a major evolution because we only had a loyalty program that we started in 2008, and it was very much focused on our bricks-and-mortar stores only. It was pretty much a cash back program that was highly successful, but that needed to evolve. And the result of that evolution gave us Clubz. We have 3 levels. We have bronze, which is the fourth level, which is the free version of this benefit club. And the interesting thing here is to see the excellent results that we are achieving from our Clubz. We started selling only on digital. After that, we expanded that to our stores. And the moment we started selling Clubz in physical stores, we doubled the number of subscribers in just a month, and we continue to grow at a very interesting pace. We are very happy to see that the paid subscription plans are being really well received by our consumers. Because at the end of the day, it's not the consumers that are paying for this, we are paying for them. And what we get in return is a more frequent shopper. So we sell them at a lower price, but they buy from us more often, leaving us with more cash margin. That is the rationale behind a program like this. Now speaking of Seres Saude, which is our health insurance plan for pets. We launched this product in April 2025, only with 5 hospitals. May and June, we expanded our sales channels. In August, we have planned a digital launch, so we can start selling the health plans digitally as well. And that is complementary to our strategy with this focus on pets' well-being and on preventive and corrective health care. We have options of health plans for both scenarios, which only helps us improve our whole ecosystem. Soon when we have a more substantial rollout, we will be sharing more figures from the results of Seres Saude. So before I hand the floor to our CFO, Aline Penna, so she can introduce you to our financial results. I just have a quick thought to share with you. A lot of investors ask about the status of the deal, many of you following the news in the media. The process has been assessed by the CADE superintendents. We received an approval with no restrictions. We received resources from a third party and that, of course, needed to be judged. And what is the expectation that we have from that decision. We're quite confident in the experience of all the council members. We have a lot of trust in the technical ability of the CADE staff. And because of all the communications we had with the [ Superintendence ] showing them that we are ready and we are willing to work with them and have been doing so, we were able to prove how beneficial this deal can be or will be to consumers and will actually lead to more competition, because we will have a lower cost structure, both for Petz and Cobasi. And with lower costs in a highly competitive market, the only expected result from there that will be an improvement in competition, which, of course, will be beneficial for consumers. And for that reason, we are very confident on their final ruling. In terms of timing expectations, technically, we were expecting a final decision by September, but they might ask for an extension, which is absolutely reasonable if they do need more time to assess the case. And if that happens, of course, the final ruling would be expected by the end of the year. So that's the scenario we have today regarding the deal, and we remain very confident in -- that the decision made by the [ Superintendence ] will be sustained and will be kept. So I'll hand the floor to Aline, and I will come back for the Q&A session. Thank you so much.

Good afternoon, everyone. I will go through some financial highlights from Petz. Our gross revenue had an 8.6% growth versus last year. It's important to highlight different channels. We have B2C sales, sales to end consumers with 8.5% growth. Also, it's important to highlight our services with 10.2% growth also with a very good performance, considering the track record that we had with lower growth rates. From our gross profit, we were able to grow 20 basis points, as Sergio mentioned, despite the tougher competitive landscape, especially in our digital channel. But we also have some elements that help our margin, including our channel mix. So the more my physical channel grows, the better my margins will be, because again, we know that digital channel despite of all the improvements, the margins are still a little bit lower. So we had a digital growth of 4.5% versus 11.8% in the bricks-and-mortar stores, which has a positive impact in our gross margin. Besides that, we saw the growth in our private label products and a number of initiatives to make our stores more competitive with this focus on cash margin. So despite the more competitive landscape, we were able to expand 20 basis points because of our measurements. Looking at our adjusted EBITDA margin. Our margin EBITDA was 7.8% with 170 basis points growth. So 150 basis points came from expenses. So of course, we gained operational leverage. We still have a lot of our stores maturing. And every time that happens, we decrease that from our revenue base, including a very strict expense control that I will discuss further on. Looking at our adjusted net profit, we talked about our adjusted net profit here only. No nonrecurring effects here like fiscal credits that we might get or expenses that we might have because of the deal that's still ongoing. Our adjusted net profit, 100% operational with 81.8% growth in this period. Next slide. Now a little bit on store performance. Same-store sales of 5.5%, which is a great result, considering that we are growing above inflation rate. We have a significant recovery, looking at the 6-month period in the chart. In the up-to-date of the year, we have 6.8% versus minus 1.6% last year. And looking at our EBITDA for all that we always disclose to you, we see a very good balance. We have demonstrated consistency again. So new stores are maturing in line with previous openings, showing that we expect an impact in the margin in the future because 46% of our stores are still not mature. It's important to highlight that we didn't open any new stores in this quarter. So every time I open fewer stores or I don't open stores, I don't generate extra pressure on my DRE because once the store is open, it's either more in the negative because -- which is natural, but it still doesn't have the full revenue that we expect. Now more details on our gross margin. As I mentioned before, despite the fierce competitive landscape, especially in the digital channel because of the growth of marketplaces, we had a mix of channels that really helped our gross margin. So in the same quarter last year, we had a digital share of 43.4%. Now the digital share is at 41.8%, which really helps us build our final margin for the company. And of course, we also have the share of private label products, more accessory sales, which is also helpful. And last year, we had a drop in the share of accessories in our mix of products. But now we saw a recovery. And today, we can say that this category is growing in line with other product categories after many quarters in the negative. I'll spend some more time in this slide because I'm talking about operational expenses and our adjusted EBITDA, the highlight of the quarter. I would say that after that initial scare "in the beginning of the year", we made some adjustments in our DC with expansion, and we saw a loss of productivity then. But now we were able to more than offset there. So a lot of that happened in March and starting April, we were way over that moment. We developed a number of action plans focusing on the DC, but much more. We look at storage, marketing, consumption, indirect expenses, power. So it's a wild -- many options that were considered not just to offset what happened in the beginning of the year, but also so we would deliver more than we had anticipated. Of course, when we can -- like Sergio mentioned, when we can have this growth in sales and when we have price increases from our suppliers, of course, that helps dilute our expenses as well. So as demonstrated in this final chart, we have [ 170 basis points ] of EBITDA growth and 150 came from D&A. And when we look only at D&A, it was flourish nominally despite of the almost double-digit growth. Next slide. Looking at our adjusted accounting net profit, like I mentioned before, we make this adjustment for the good and for the bad and our accounting net profit was above the adjusted net profit because we had that deduction of some credits that we had from the PIS tax, which in the end were positive. And we are also deducting the effects of the expenses that we have with attorneys and consulting companies and everything that's related with the Cobasi deal. We also added noncash elements from our results that we always disclose to you. Our stock option plans that have an impact in our profit, interest rates that we accrue from the accounts payable from the companies we acquired like Zee.Dog and the impact in the swap operation of our 4131 debt, which is marked to the market with no type of cash effect. So roughly speaking, we're talking about an adjusted net profit with an 80% growth and an accounting net profit that grew significantly in the period as well. Last but not least, on this slide, I just wanted to highlight our operational cash flow. So we generated BRL 56 million in the period. And looking at this from the semester perspective, we are doing quite well, generating cash to fully cover our investments. Now in the middle chart, we see that we continue to focus on the investments and a way to rationalize them. So we had a 25% reduction in total investments. And again, most of this reduction came from the natural deceleration of our expansion base. So there was a drop in CapEx, not only because we are opening fewer stores, but also because the stores we are opening require less investment. We have a leaner concept for the stores, both in terms of area and investments and also technology. We have been investing a lot in our e-commerce and customer experience and information security, but there has been a significant -- a slight drop over last year. And looking at our leverage, we have a 0.2 leverage, looking at our net debt over the EBITDA. And again, even after paying BRL 130 million of dividends that happened in October last year and another positive result that shows our ability to generate cash is that versus the first quarter, we were able to improve our net debt by BRL 30 million, showing again how our initiatives to cut expenses, reduce stock levels and optimize our investments are allowing us to achieve this reduction in net debt. On my side, this is what I had for you, and now we can start our Q&A session.

[Operator Instructions] Our first question comes from Mr. Alexandre Namioka from Morgan Stanley.

I would like to focus on the digital channel. Digital lost some share when we compare it year-over-year and also in this year. I want to hear from you, do you believe you have reached a point of saturation in the e-commerce channel? And on the other hand, I would like to know if you are happy with that level of growth on e-commerce or if we should expect some type of acceleration from now on?

Thank you, Alexandre. Thank you for both questions. Well, we can answer your question in different ways. First, before the pandemic, the digital share of sales was 7%. In the pandemic, that went up to 25%. And we imagine that after the pandemic, we would be at an intermediate level between 7% and 25%. But what happened after the pandemic was a continuous growth, reaching up to 45% or close to 45% of share, if I'm not mistaken. And now we are closer to the low-40s. We are at 41%, leaning added. So now we are at 41%, which is quite a respectful and significant share. So if you think about the ratio or -- we cannot complain. I mean, it is quite relevant still. The digital channel remains quite important. But without a doubt, there is an important aspect to your question, which is, are you happy with this level of growth? And the answer is no. No, we are not. We are not at all happy with that result. Because again, when we were growing a lot more in the digital channel, the bricks-and-mortar stores were not growing like we wanted. Now that we have corrected our physical store growth, the digital is not delivering what we wanted, and that compromises the company as a whole. Of course, we would like to be growing at a double-digit rate for both of them. And what has been impacting our overall growth is the digital channel. And in the scenario with a tougher competition, like I said in the beginning, especially coming from marketplaces. So when you have a tougher competition what is natural to happen. You need to fight on price. You need to be more relevant to consumers. So how can you compete on price without destroying the company? You can become more productive. You can cut expenses and being more rational with your expenses. And the deal is exactly going to help us with that. We can reduce our expenses even more so we can resume a level of growth and a level of competition that is more important and not have low results like this, which without a doubt, if you think about market share for the Pet segment here -- if you look in the past few quarters, when you look at the Pet segment alone and you isolate the digital channel, we are probably losing share because we have platforms or marketplace platforms here that are growing at a substantially higher rate.

If I may add, it's also connected to the comparison base because, again, last year, at the same time of the year, our stores or physical channel were dropping 10% and the digital growing 30%. And at that time, we made a number of initiatives to foster sales in the physical stores like the contest or the competition that we mentioned. So now we are growing 12% over a base that was dropping 10%, but the digital is growing a little bit less, but the comparison is much tougher there.

Our next question comes from Ms. Gabriela Leme from Goldman Sachs.

I'd like to go back to expenses. We saw a lot of control in this quarter, but perhaps you could give us more color on what we can expect from now on. Are there any relevant measurements to be taken to focus on expenses? Or it's more an issue of operational leverage now?

Thank you, Gabriela, for your question. Well, when we manage a retailer, it's always surprising to see how difficult it is to find one big action that we can take, especially when we're talking about expenses. Now what can really help us move that needle is when you do multiple initiatives, even if they are small. So it's about being efficient and focusing on several different topics and focus on all of them. In isolation, no initiative alone can move the needle, but a combination of them can certainly deliver this besides the fact that they help foster the right culture for the company of being more disciplined regarding costs. Well, this movement that was intensified at the end of the first quarter is here to stay, that's what I can say. And it's in line with what we believe and expect for the coming quarters. Without a doubt, well, at least right now, we don't see any major opportunity of a major expense cut. This is not on our radar today. But what is on our radar is to keep the healthy progress we have achieved in the second quarter and of course, being aware of new opportunities, no matter how small they are, to understand how -- what else we can do in the next quarter. But essentially, it's about having a strong culture of cost reduction.

Quite clear.

Well, if I may add, Gabriela, it's what Sergio said, we have no silver bullets. This is not what happened in the second quarter, and it's not going to be the case for the next 6 months. But if there's one thing that was very positive for us to deal with that quick scare we had in the beginning of the year, the issue in the DC that really made the company come together all departments, so we could all contribute and reverse that situation. And certainly, that will be kept for the remaining of the year because it was really a positive impact in the whole company, focusing on everything from the light that is on in the restroom up to more significant measurements that were made, both in stores and in our e-commerce.

Our next question comes from Mr. Vitor Fuziharo from Santander.

Congratulations on the results. Actually, I have 2 questions. The first one is on the B2B channel. You presented a relevant growth for the quarter, and I would like to understand if this is the level to be expected from now on? And my second question has to do with gross margin. There are many moving parts here that contribute to the expansion that you presented. But looking ahead, if you were to list the main or the main drivers for this further expansion, what would they be?

Thank you, Victor. Well, regarding our B2B channel, of course, there are many components here that have an impact on the result. We have global Zee.Dog sales that -- well, the variation already existed without the tariffs. Now with the tariffs, we might be more exposed to some type of variation. But this is just part of the business. And we also have domestic sales with Petix in our B2B channel. The Petix sales tend to be more constant with fewer variations. The Zee.Dog sales vary a little bit more. But again, overall, I think we can expect a similar behavior as to the one we saw this quarter. We don't have major expectations for a major leap, and we don't anticipate any significant loss there as well. So regarding our B2B sales, I believe we're probably going to sustain this result. Now you've mentioned margins as well. Margins are created by many factors or influenced by many factors, and I'm just trying to be consistent with the message about the competition here. We don't really see a scenario for expanding our margins. What we see is ahead of us is more competition. So we don't want to keep growing our margin and grow 4% on our online channel. That doesn't make any sense. What we need to do is become more competitive. We need to improve our performance and the growth of our revenue. Well, how do we do that? Well, if on the one side, we cannot expect an expansion in margin, we also don't have any room for a reduction because the result is quite tight. So what you do need to do is all the efficiency measures that can contribute to the growth of margin, like the increase of share of our private label products and the maturing of our stores and the growth of our bricks-and-mortar stores, which are all positive factors for the margin that can be then passed to consumers. So we can keep our competitiveness. If we were not doing that, what would eventually happen would be a lower growth. We'll be selling at a slightly more expensive price, and the results could be marginally better only. But that's not what we believe in. For us, it is very important to consider the number of consumers with us during good times, bad times, during moments of inflation, of no inflation, we need to be close to pet owners. And in order to be close to them, we can never lose our ability to compete, and that is our focus for now.

Our next question comes from Ms. Danni Eiger from XP.

I actually have 3 questions. First, on growth. Can you give us more detail on the growth for different categories? You always talk about pet food or non-pet food. but perhaps you could give us more color on specific category that might be recovering more or maybe if it's more focused on the private label products because of the better value proposition? So if you could give us more details on the growth per category. And that leads me to my second question. Considering the recovery of inflation that happened at the end of the quarter and considering the results of July, what do you -- how do you see the acceptance of consumers for the price difference? And now I want to ask also about the gap or margin gap between the online and the physical world. So of course, this gap will always exist, but is there any room for closing this gap a little bit for making initiatives in one channel or the other?

Thank you, Danni, for your questions. Regarding your first question on the categories, I'm not sure if we have this data ready for you.

Well, in this quarter, we didn't disclose that, but it's a little bit of what you said. The growth is quite similar between all categories. Like I mentioned before, Accessories, we were suffering with that category lower -- dropping 10% and flat. Now we're growing in line with other categories. So similar results. And of course, if we separate private label products, we are growing roughly speaking, 43%, which drives the growth of accessories, hygiene products because we have the Petix, hygiene pads. But if the company's average is between 8.6%, more or less 8.6%, there's not much difference between categories in the second quarter.

And regarding your second question about the inflation, if customers are accepting that. Well, let's remember that for more than a year, we have been working with 0 inflation. So some type of price increase due to inflation in our understanding is somewhat expected. So different from what happened during the pandemic, for example, with price adjustments that were way above the IPCA level, now the cap of the adjustment is the IPCA inflation rate. So it's either that or lower. So I think consumers are really accepting that. And regarding the gap that exists between the physical margin and the digital margin. And this requires a constant effort to improve our productivity in the digital indicators to close this gap. But this gap can also be closed when we improve the competitiveness of our bricks-and-mortar stores because it's not just about improving the profitability of our digital channel. We also need to improve our competition in the physical world because, of course, we are talking about the competition from the marketplaces because it's more evident, but we cannot make a mistake here. I'm sure you follow the Pet industry. When we did our IPO, it was a very fragmented industry, and it continues to be so. There are many pet shops closing, yes, but there are many ones opening as well. So the competition that exists, whether online or on the physical world is quite dynamic. We do have this pressure from regional retailers. We don't have one retailer that can compete with us at the national level, but that doesn't mean much because at every city where we are, we do face a very important regional competition in our physical stores. So if you combine this competition from the regional players with the open competition in -- for marketplaces because they are present nationally, the scenario is challenging. And again, I'll say that again, this is the main important -- most important message of this call. There's only one way to face this competition, becoming more productive, cutting costs and lowering prices to consumers so we can keep up with the competition. Because if we don't do that, we will start to hurt our growth level. And being very open with you, of course, we cannot be happy with the growth rates that we have below 10% like we had in this quarter. We know about the growth of the overall Pet segment, and we cannot accept to lose share from that.

Our next question comes from Ms. Bob Forger (sic) [ Mr. Bob Ford ] from Bank of America.

Congratulations on the results. How do you think about services, both in terms of structure and differentiation and traffic generators? And how should we be thinking about the gaps from marketplaces or the price gaps? How are they expected to behave or the price differences after the deal?

Thank you, Bob, for your question. Aline, if you can help me with the answer.

Of course. Well, Bob, I would say that we have been working a lot in services. We have seen a significant recovery in growth. We grew 10.2% in the quarter. And here, there are 2 key elements. We have always said that, well, today, we have a network of health clinics and hospitals that are not being used at full capacity. So the health insurance plan that we developed is a product that was created with that goal in mind. So we can use these assets to their full capacity. So in this quarter, there were a couple of interesting things. First, an increase in sales in our health insurance plan. We started small, only 5 hospitals. Now we are selling them in 40 stores for now only in the physical world. So we have a more of a consultative sales. And now in the end of August, we start sales online. So I will be selling the product in the digital channel as well. So we expect to see a growth in the health insurance plan with a focus in the city of Sao Paulo and the city of Campinas. So this is a big bet for us. We see issues like the aging of the pet population and how much this health insurance plan can add to our ecosystem. So that's one thing. The other thing is that in this quarter, we started a pilot program for our franchisee program. We are starting a franchisee model, not only for services for veterinarian services, which is serious. So turning some units into franchises, but also for grooming services, what happens. Today, the competition in health clinics and grooming services is a very informal type of competition, so to speak. So for us, it is difficult to be profitable and at the same time, keep our structure, paying all the taxes, having our veterinarians and our employees with a formal contract. So this micro franchisee model allows us not only to achieve higher margins, but it also gives a good offer to our franchisees. Just like the health insurance plan, it's still a pilot program. We have, roughly speaking, only 6 units; 3 for grooming services, 3 for health services. And the idea is to tell you more about these initiatives in the next few months.

And perhaps addressing the other part of your question, Bob, I think you want to know about how to improve our competitiveness against marketplaces once the deal is approved. I think there will be a significant improvement actually because when we talk about cost reduction, without a doubt, the deal will really help us move the needle when it comes to cost reduction. And once that happens, you are then ready to compete in a much better position, much better position -- much better position with consumers. So we have high expectations that once the deal is done, the new joint company will resume a growth path at more interesting levels than both companies are presenting separately today, especially because we do need to improve our ability to compete so we can sell at a lower price to consumers.

The Q&A session is now over. Now we'll hand the floor back to Mr. Sergio Zimerman for his final remarks.

First, I would like to thank you for all the questions. Thank you for your time and your attention during our results call today. I just want to reinforce as well, the trust that we have both in our recovery process we went through difficult times, but I would say that the worst of our profitability and operational issues are now behind us. We were very happy to see that in this quarter, we were able to show you good operational and financial indicators, showcasing our recovery. But at the same time, I also would like to say that we are still quite far from the results we wish for this company. We know this company has this incredible ability to grow and to expand its presence in cities from different states. We are present in all the Brazilian states, but not in many of the cities where we would like to be. So we still plan for further expanding the company in the future. And of course, an expansion with the combined company with a lighter cost structure makes much more sense. So we can face everything that is happening both in the bricks-and-mortar world and in the online world, highlighting again the presence of the marketplaces. Thank you very much. I wish you all a great Friday and a great weekend.

The results call from the Petz Group is now over. Our Department for Investor Relations is available to take any further questions. Thank you for joining us, and have a great day.