Raia Drogasil S.A. (RADLY) Earnings Call Transcript & Summary

To RD Saude Second Quarter 2025 Earnings Conference Call. This presentation will be made available on RD Saude's Investor Relations website, rirdsaude.com.br where the audio file will be made available later on. [Operator Instructions] Before proceeding, I would like to mention that forward-looking statements that are being made under the safe harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of RD Saude management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore, depend on circumstances that may or may not occur in the future. Our investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of RD Saude and could cause results to differ materially from those expressed in such forward-looking statements. Joining us today from RD Saude Studio are Renato Raduan, CEO; and Flavio Correia, our IRO. I'd like to give the floor now to Renato Raduan, the CEO. Please, sir, you may begin.

Good morning. Good morning, everyone, and welcome to our second quarter earnings conference call. It is a pleasure to be here with you to have this opportunity to look at our financial and operating highlights in this quarter. And also, it's a pleasure to be here and to be able to answer your questions as transparently as possible. Good morning, Flavio.

Good morning, Raduan.

Flavio is here with me and will support me answering your questions and giving explanations. We'll try and be straightforward in our presentation so that we can leave more time for the questions. We always start with our operating highlights. And first and foremost, I would like to say that this was a good quarter to our mind. This was a much better quarter than the first quarter. We see that the trends are reverting and we're starting a new moment. We normally begin with our highlight slide. We ended the quarter with 3,371 stores in operations, we opened 70 and we didn't close any pharmacies. There was no need for any store to be closed. Does that mean we will not close any one in the future? Of course, not. But this means that our stores have been performing well. And of course, we have readjusted our pharmacy network in the past. So that leads to a smaller closure rate. Sorry, I'm just fixing my microphone here. But yes, we have 3,371 units. You can hear me well, right, everyone? Yes, perfect. We had 110.8 million tickets in the quarter. But more important than the quantity is the quality, our NPS was 91. That's a very high customer satisfaction and it was almost 111 million tickets. And we finally surpassed the 50 million active customers in the last 12 months. We always say 50 million -- we have been saying 50 million, but it was 49.7 million, 49.3 million, but now it is really a milestone that we have surpassed. Some market highlights. Our gross revenue was BRL 11.7 billion, and 12% consolidated growth. This is a request that you've been making for a while that we'd be clearer, showing what is 4Bio and what is actually RD excluding 4Bio. So we're now breaking it down so that you have more clarity on it. And when we talk about our main retail business, and our sales have grown 13%. So this is a different level in comparison to the previous quarter with a 2.4 percentage points increase. We also had an increase of 70 bps in market share. It was 16.4%. That is a better improvement than we had last quarter. And we have increased our market share in every region in the country. As for the digital business, it continues to be a highlight, and it's almost tiring to mention that again and again, what I highlight digital business are because they continue to grow quarter after quarter, year after year. This quarter, it was BRL 2.6 billion. If we annualize it would be over BRL 10 billion, and it's over -- and it's almost 25% retail penetration. In Health Services, we had 2,600 services provided in health hubs. You know that our share is 16%, 16.4%. We have a good our share in health services. And the financial highlights, we have our adjusted EBITDA at BRL 885 million with a margin of 7.6%, a dip of 0.3 percentage points. Flavio will delve deeper into that. The adjusted net income was BRL 103 million with a margin of 3.5% and a 0.1 percentage point increase. There is an impact on the recurring figures and Flavio will talk about it. And our free cash flow was BRL 36.9 million. Again, this was a whole new sales levels that we have reached. If you look at the previous quarters, we were about BRL 10.8 billion for 3 or 4 quarters, and now we have climbed up to almost BRL 11.7 billion. And this increase stems from retail. 4Bio is something that we say again and again, we would always favor profitability over growth, and we have been keeping our word, 4Bio has hardly grown. So if you look at the top line, it hasn't changed, but the profitability increased. And the increase in total consolidated gross revenues comes from retail. You had been a bit more pessimistic for the second quarter because of the Easter holiday. And we had a small impact from the calendar effect, but we still had an increase. If we deduct the calendar effect it would be close to 14% increase. We have Mounjaro, the GLP-1 molecule being helped by that and Mounjaro performed well. There was an increase in the generic meds and brand name grew 16%, while generics grew 18%. OTC grew 11.3% and HPC was about 5 percent points above average. That is a figure higher than we had been doing in the previous quarters. The previous quarter, we grew 1.7% less than that. Even when we adjusted as per the calendar effects to this quarter and the previous quarter, we can still see a substantial increase in HPC. HPC hasn't yet got to the level we want it to get to, but we see improvement. We see some normalized growth that is close to 14% with a potential upside to continue to improve HPC and to improve top line as well. So sales performance was very good. And when we look at the mature stores, we have 5.5%. We had 3.7% before the increase and the net amount is 3.1%.So if you look at the actual increase in PMC with the mature shops, we see a 2.4% growth and 5.5% growth above inflation. So this is another way to look at it. It would have 6.3% increase in mature store growth if we deduct the calendar effect. So this is definitely a quarter that is standing out from the previous two.

Just an additional comment, Raduan, the 13% increase in retail is due to an increase in volume with over a 7-point increase in volume and additional transactions. And we have to be proud, of course, of this growth, but this is again a sign that the customers approve of our deliveries, and they are very satisfied with our services. We had 1.130 million sales from mature shops, mature stores. And this is the average of over 2,000 mature stores that we have spread out all over the country. So this is solid performance that really shows that the customer is happy and how we are the first choice.

We also had an increase in our market share. The factory price grew 70 bps. Every segment grew at least 70 -- pardon me, 40, no segment grew less than 40 bps. Sao Paulo grew more than that. You see almost 60 bps increase. The rest of Southeast grew 60 bps. The Midwest grew 80 bps and these other group 40 bps. So that's why I said all of them grew at least 40 bps. So the South was 40 bps, North was 40 bps and Northeast was also 40 bps. Of course, this is also related to the strategy, we have our expansion strategy. We've been focusing more on expanding in the state of Sao Paulo. The quality of the openings is disproportionately high in Sao Paulo. So we're taking advantage of this and this increase in share in San Paulo has to do with that. But we see that other states that had a smaller participation in the growth. I mean, you see it was about 35% openings in the past years, and these are already mature shops now, mature stores. And they are now 20% and even with a much smaller share, we continue to increase our share and you have a share of 40 bps -- share increase of 40 bps. And the South was 20% is 10% now, and we're still increasing our market share. And then there is a dip in our gross profit of 80 bps. Before the price increase, we had 28.2% and this year is 27.4%. In inventory, there's a smaller gain because of the lower CMED and that is a 40 bps difference in comparison to last year and also the share of GLP-1 as a whole. Ozempic performed well, all the molecules are performing well. All of the products with this molecule are performing well. But this has also been at 40 bps. So the 80 bps and the smaller result is due to the factors I mentioned. 4Bio had a smaller share. It helps us in the margin mix, but we're confident. We've been investing in competitiveness to increase our sales levels, not only in HPC, but in every category. So we have 80 bps because of these factors. And we have two feats, two achievements here. One was our selling expenses, right, how we managed it this quarter and the decrease. And the biggest achievement for me is SG&A with a 50 bp decrease year-on-year. That's a substantial dip, a substantial decrease. We had already anticipated that in our previous call. We knew there were adjustments that needed to be made so that we would generate funds through this efficiency so that we can make investments for our customers and staff and the operations continue to go really well. So this 50 bps decrease is really important. And the selling expenses were even lower than we expected. The decrease was bigger than we expected. We sold better in the second quarter in spite of the negative calendar effects. We were prepared for them. We were adjusting our expenses for an even worse calendar effect. So we had a higher level of sales and that dilutes it better. And we know that we're gradually fighting these losses or with -- and we were a bit more cautious in adjustments. We did not reduce the number of pharmacies. It's a bit higher than what it was in the first quarter. And there are other -- or rather the staff in pharmacies, not the number of pharmacies. And we knew there would be pressure from other sources as well. But in general, we had a sharp dilution, and that drove the expenses down across the entire company. Now Flavio, over to you.

Okay. About the financial information. We finished the quarter with BRL 885 million in EBITDA, 7.6% margin and our EBITDA fell by 0.30 bps year-on-year because of all points mentioned by Raduan. But we had a 1.6 percentage point increase quarter-on-quarter, a stronger growth than last year, especially considering a lower CMED index. And breaking down the EBITDA for sake of transparency, we can see 4Bio had a 2.6 EBITDA growing year-on-year and retail was very solid with an EBITDA margin of 8%. So all information here is very positive when it comes to EBITDA. Now the cash cycle, this quarter it was a very positive one. We had a very good decrease in terms of inventory days, 4.4 days decrease which is closely linked to the management, which is improving. And we also had an improvement of 1 day in the suppliers' delivery time, and all of that adds to our cash cycle. Now net profit. Here, we have good news. We had headwinds, very obvious ones in financial expenses. We finished the quarter at 1.7%, an increase year-on-year of 0.30 percentage points and that is mainly due to the increase of the SELIC rate, which went from 10%, 10.5% to almost 15% this year. That SELIC increase justifies or explains the increase in financial expenses. Now our income tax, you can see that the tax rate was 6.3% at the end of the quarter. But here, we have some one-off events. For example, the tax treatment that our company has been receiving, and we have always been very conservative when it comes to that. We have some positive effects. We reverted some provisions due to positive injunctions that the courts passed in some states. So we were able to bring about BRL 60 million into our net income this quarter. And BRL 15 million out of the BRL 60 million are recurring and BRL 45 million are nonrecurring. So even if we were to consider this effect only on a recurring basis, our standard tax rate would be 17%, more or less, which is a very healthy one that can be compared to what we had in the past. And the nonrecurring effects, as I said earlier are related to subsidies for investments related to income tax, okay? And that takes us to the net income, a great record-breaking net income that we had this quarter of BRL 400 million, 10 bps increase year-on-year, which is very positive. And even if we were to exclude the nonrecurring effects this quarter, we still would have a 3.1% net income margin this quarter. Now let's take a look at our free cash flow. We are generating operational cash of BRL 350 million and a cash burn of BRL 350 million, which is in line with our track record and the growth path that the company has been taking. When it comes to the net debt, our net debt is growing quarter-on-quarter at the same rate with 1.3x leverage rate. It has been growing quarter-on-quarter, but that is very common for second quarters because of the CMED index effects and the fact that we bring forward and advance some purchases. So it is a moment where that happens usually and that goes down gradually over the year.

Now let me give you some more color about what's behind these numbers. I'm going to show you some of our operating highlights. We mention some of them every quarter, and digital is one of those cases. But it is a highlight that you should know more about. You can see the growth on the digital business side. It almost accounts for 25% of the demand that we have. One in every 4 tickets originates in a digital channel. But more importantly, that is supported by the proprietary channels that we have. 80% of those orders come from the app, which is increasing in its NPS. We are reaching 80% and that is the customer telling us how happy they are about the journey and it is a digital operation that is fully supported by our pharmacies. 96% of the orders are delivered or collected in 60 minutes, thanks to the popularity, the reach that we have. We are 5 minutes or less from 70 million customers. In this quarter, we had about 30 million active customers and out of the 30 million, 6 million customers every corner place some order in some digital channel. That is a major strength of ours. And we have been improving the experience more and more, as I told you last quarter, part of the adjustments that we had to conduct in our G&A included adjusting the squads in the business areas, which is speeding up the releases. And we have been improving our performance on the app. The app has a fully customized home page. If I open my app here, we will look completely different than Flavio's, for example, because of my history, the things that I search for, the short cuts are the most relevant ones for me to make my journey easier. And the products that I see right away are completely different from other people's homepage. We have been making significant improvements in the medication journey. If you take a picture of your prescription, the products will appear on your cart automatically. We also improved the journey for prescription drugs, and we are also making improvements to the beauty segment journey as well. That should be underscored because we know that customers want to migrate their purchases, they are shopping through digital channels. There are horizontal players in the market and other retailers will be better prepared to face them if their digital channels, journeys and capabilities are at the same level as theirs. So if we don't have a solid journey, we won't be able to fight against the digital players. And of course, price is just one part of this, the journey, the service of course, make a huge difference. That's why I would like to underscore our evolution on the digital side of the business.

Yes, that's very important Raduan, because we usually talk about the things that the customers see, the market always ask us about that. And we don't talk too much about what happens on the backstage. Over the past 6 months, we created a Gen AI platform [ RD Flow ] is the name for software development. So it's not just about improving the journey for the customer. It's also about how we improve the journey from within. This platform allows us to be more productive in the creation of codes and solutions for the customers. And at the same time, it saves money. It is faster, it is lighter, more agile. This platform integrates all of our systems to all the existing LLMs, so we can program in any language or within any LLM in any of our platforms. Having a fully integrated system makes that faster. We work, for example, with coding suggestions and we also generate the codes with this platform. We capture and control the results as well using the same system. We are very proud of the improvements that we have made on our digital channels, and we are just as proud about the brick-and-mortar stores, the digital business wouldn't be as strong if it weren't for the stores, right? In the month of June, we had a very important event. We just opened store #2,000 in the Drogasil brand. It is a significant milestone for us. When I joined Drogasil didn't even have 400 stores. We had about 380 at that time. And Marcello and I were there in the city of Recife in the Northeast, and we opened store 2,000 in a shopping mall, the Iguatemi shopping mall. And this is just for the Drogasil brand, okay? And there's a lot of work that went into opening this store #2000. If we got this far, that's because of the performance of our stores and the experience that we deliver, the assortment, the inventory, all of those things are so great. If the mature stores weren't selling 1.130 million we wouldn't be here. So yes, this is a significant milestone for us as a company. And that's why we wanted to share this with you. You can see Paula, the manager there at the bottom. You can see our women professionals that work with us. We are very proud about that as well. Of course, the digital business gives us a lot of pride, but the brick-and-mortar business is no different.

And my last 2 slides, here, I would like to highlight how happy we are to be part of the most valuable Brazilian brands list. Raia went up, one position. It is now ranking 17. And there's one thing that really makes me proud about this picture. The 2 brands that are not national brands are Raia and Drogasil. The other brands have a national presence. So these 2 brands Drogasil, which is present in Sao Paulo, Southeast, North, Northeast and Raia is present in Rio de Janeiro, Sao Paulo and the Southern part of Brazil. Even though those brands are not present nationwide, we are still in the national ranking of most valuable Brazilian brands. And we know that we got here not because we bought a lot of ads or publicity. No, of course, we are very proud about the marketing actions and our marketing team, but these brands are here because of the quality of our deliveries every single day, the experience that we deliver to our customers every single day. And we are not here because we have a huge media exposure. We are here because of the quality of our delivery. And this is my last slide before we take your questions. Here, I would just like to recap everything that we have been saying for a few quarters now. We told you that our main challenge was to reach a more healthy sales performance because it was 200 bps shorter than we would like. And that was our #1 priority. We worked on it and we can see the results now. sales are going back to a healthier level, investing in promotional actions, competitiveness. Price is not everything. We need to offer good prices and good experiences. And now we increased our pharmacy staff. There's more to be done, but we aim at improving the experience at our pharmacists and that has taken us to a new sales level. And also, we told you that we were starting a new era with sharper focus on efficiency. This is a topic that will be very recurring in our culture. This is going to be one of our permanent focuses. We delivered leaner G&A. We were very disciplined in this action. We planned for it. We did it responsibly. We did a very good job on the G&A side. And at the same time, we were able to improve the profitability of the invested companies not only 4Bio, you saw that the profitability increased, but we did the same with other invested companies. And we also made progress in inventory cycles. So you can see that we are delivering on our promises that we made over the past quarters. Of course, there are more challenges ahead of us. We will always pursue more sales and profitability efficiency. We are very confident about the inventory losses. We are now going to start decreasing the losses, and that is going to be a very important lever for us to continue to invest. It is still a bit higher than we liked. And we are also going to invest in sales expenses. There's still room to increase investments in our staff and a number of people, but also benefits to our staff. Our staff is the main asset that we have here. They need to feel that they are being taken care of. So we are going to work on efficiency and allocate resources the best way we can. This is summary, and now we are ready to take your questions and toward the end, I'll deliver my closing remarks as well. Thank you.

[Operator Instructions] We have our first question from Joseph Giordano from JPMorgan.

They are all quite simple questions. The first question I have to do -- has to do with price and revenue. Where are you making investments regarding pricing? And are there bare negotiations with vendors? You had a 20 bp improvement there, right? And what are your expectations for the top line? It would be 6% for mature stores. And when you think about mature same-store sales what are your expectations regarding GLP-1 generic medications as well. Now expenses, you mentioned selling expenses as a highlight. But there's still a lot of integration to take place, right, maybe smaller opportunities in terms of numbers, but with substantial salaries, right wages. And last but not least, we don't really see the subsidies levels historically. So maybe in the coming quarters, we could see what the subsidies were like also regarding taxes and see if we're closer to what we had in 2023, for example, these are my questions.

I have a full page of my notebook concerning your questions. Let's leave taxes for the end. We ought to be careful because in the net impact in gross margin, there's a number of things. It's not only about price and investment. There's 4Bio, there is some pressure from losses compared to the previous year and some investments in pricing, all merge into that. Pricing investment was more in HCP -- but not only HPC pardon me, but in subcategories and products and regions. So in some states, we invested more in brand name and medication, similar and generic and some more in HPC. We had some investment in digital channels for medication as well, but we invested more in HPC in the same digital channels. So it's not one single investment, in one single category, in one single region. There are investments and divestments and more items. So -- but we can still see that there was more investment in HPC. We see the performance in high-end promotion sales, they have been performing better. So I think we are in control. Maybe we will invest a bit more to accelerate a bit more. It depends on other analyses to manage all of this as responsibly as possible. Vendors have been working very closely with our commercial team, Marcello, [ Juliano ]. They've been discussing matters with us. And we go beyond price discussions. We talk about how we can work together when it comes to the pharmacy experience, the first time shopping at that store. So we have a lot of discussions and frank discussions with vendors. I've been taking part in top-to-top meetings as well. I was looking at my calendar, and I have a top-to-top meeting with one of the vendors this week. And the vendors have been very helpful to support us in our growth, growing together with us. Now GLP-1 generic medications, well, we could see changes next year. There was an MS generic medication that started being sold recently, that's good news. I think this is another piece of good news for this top line. But major patents are going down next year so -- we know that as a substantial part of the population that wants to lose weight but can't afford this medication right now, so they will probably start buying the new molecules. Those who can buy the brand name molecules this year are unlikely to migrate. I mean some of them may migrate, but I think there's going to be a small migration, but I think there will be an increase of new buyers for the generic molecules. As for G&A, I can't give you guidance. I don't expect G&A to be higher than what we saw this quarter. I don't think there's room for a change of 50 bps as we had in such a small period of time. We had 60 bps in 2 quarters from the fourth quarter of 2024 to the second quarter, 2025. So it's quite solid. And while there is an opportunity there to further dilution, you could have more sales in one segment in G&A, so there would be further dilution. G&A staff is 55%, 45% of cybersecurity, software licenses, technology packages, labor contingencies, all of them are under these 45%. So 55% is staff, but 45% is not. But I do not foresee higher G&A figures. That's different to selling expenses. I expect some healthy investment to be made there that would generate value for the company in the future, improving customer experience. And I think, yes, there is more investment to be made there. And again, we're very cautious making investments and choices at the right time and responsibly. And Flavio can you talk about taxes, please?

Starting from the end, the tax bracket is 17% in this quarter. And in 2023, was before all of the tax were reviewed, and it used to be 18%. So we are in line with what we had before the tax changes. Specifically, we've been capturing now is subsidies on PIS and COFINS taxes, and this is in every region. Also the benefit in income tax in regions where we have favorable injunctions. We reclassified that thanks to the council classified loss as remote. In Ceara, we see that this is still developing. We don't have yet the results we aim to have, but we're working on it. Again, our bracket, our tax bracket is at the same level as it was before the tax changes.

And now Ruben Couto from Santander.

On G&A and additional investments if I understand correctly, you see there is room for more efficiency in the future, maybe not in the short term because some of that will be channeled into selling investments, maybe other investments in pricing. I just wanted to make sure I have understood that correctly. If this is to be our expectation around G&A if it's to remain stable. And as for HPC, you mentioned improvement right, Raduan in comparison to other categories. The quarter-on-quarter improvement is due to the changes in investment and changes and the store services or higher footfall in the stores. I'd like to hear from you about the changes you've made. How much of a difference have they caused? Could we expect more changes in the future?

Thank you very much for your questions, Danniela. Sorry, I said thank you Danniela, but thank you Ruben. The point I'd like to stress here is that more than spot changes, the company is permanently looking for continuous improvement, continues improvement in efficiency. As responsible leaders, we need to make the right investments to yield good results to our customers and to our staff to the company. This is a permanent item in our agenda. So we never looking for improvements only in G&A, but also in cash flow and CapEx. We don't only talk about CapEx here, but we have found some important opportunities to free up some cash to go into debt levels, right. And in G&A, we have already had substantial reorganization allowing us to improve our results. If our margins continue to grow, we will continue to dilute the G&A expenses, right? I believe there are still opportunities out there not only in diluting G&A, but actually reducing it. This is an important agenda, right? In Gen AI, we have been investing in NHN and several other technologies so that we can be more efficient in internal activities and marketing and other operating activities. So we have and agenda for technology seeking or pursuing improvement in efficiency. But again, I wouldn't expect major improvements in the short term. As for HPC, the improvements we see in HPC stem from our investments, our actions. I'm absolutely adamant that didn't just fall from the heavens. And this winter was a cold winter. So there was some pressure in HPC and sunscreen sold less and skin care also sold less than last year. So HPC grew in spite of the colder winter we had, and then leads to a decrease in specific categories. So yes, the improvement stems from our actions. Part of the -- part of investment in the pharmacy teams in the pricing initiatives, and that's for both the digital and offline channels. And yes, we're quite positive, and we're happy, but we're still looking for higher levels in HPC. This may call for more investments, but we are looking for funds in reorganizing our expenses, reducing expenses, being leaner. And this is just try and answer your second question in more detail.

If I may just add some comment. And I know that HPC is always a concern in comparison to digital components, right? When we look at these categories in different channels, we see stability. We see stability in HPC in our pharmacies. But we've been capturing results faster in digital. So when you're comparing apples to apples, we're really improving fast.

Next question comes from Danniela Eiger with XP.

Congratulations on the great results. I'd like to talk about the growth dynamic. Raduan from what you said, I believe that we should consider the current level as the new level that we can expect going forward except for one-off events in the market. I just wanted to confirm, if I am correct in my understanding. Now we have GLP-1 medications, for example, Wegovy, which started in the second quarter. And we thought that we would have advanced revenues coming in and then larger volume. And you also talked about HPC and OTC in the winter. So if you give us a little bit more color so that we can adjust our understanding around this. Is there any negative or positive adjustment that we should consider going forward? That would be very helpful. And I have a second question about the gross margin. It is under pressure you said before and you anticipated many of those movements. But I'd like to have a more structural understanding about this. What are the levers that we can expect going forward? Is the industry helping you more to offset some effects? Or are there any losses that we should take into account? Is there any category that we should consider, the mix may be also a factor. It is difficult for us to anticipate the movements in each category. So if you can add more color to that, that would be great. And Lastly, can you give us an order of magnitude about the pent-up investments that you might make in the future that would be very helpful as well.

Okay. I'm going to try to help you without giving any guidance, starting with the top line. If we adjust for the calendar effect, we would be closer to 14%. We will always try to sell more wherever we are, we are going to do that and any retailer will do the same. We might have some tailwinds. And what you said is true GLP-1 drugs have a better share now, because Mounjaro and Wegovy were not included in the second quarter last year results, and now they are becoming more and more important products. And to give you a simple example. In order for us to grow more, we need to get more stability in the supply of Mounjaro. We and other competitors could have sold more if we had Mounjaro available in stock with availability for new supplies and the new doses as well. That should be normalized and stabilized over the next quarters, we should receive the new doses soon. And of course, we could have sold more had we had more stability in the supply of Mounjaro. So yes, there are a few positive levers that you can expect, such as the one that I just mentioned. And the competitive landscape is also a factor. We are making efforts to take HPC to a higher level of growth, maybe a little bit below the average, but we are now choosing where to invest. We are still in a level that is very appropriate when it comes to growth increases and the short-term events that I just mentioned can make a difference and really move the needle, especially in brand name medications and especially when it comes to availability of products. Now the main pressure that we have in gross margin in comparison to last year is still losses. We gave indications about that to you. Last year, we saw increases in losses in the third and fourth quarters last year in relation to shop lifting, including GLP-1 drugs and also skin care drugs -- skin care products, and we saw some losses in our inventory as well. We invested a lot of effort and energy in that topic because we knew that we had some homework to do on that side. And we actually hired a senior leader from the market to take care of that specific topic. We have a very solid plan for that, and we are very optimistic about it. When it comes to the reduction of losses, and we think we are going to start those reductions kicking in, in the third quarter, we are going to have important significant gross profit gains. And we need to decide where to invest it, maybe in HPC or other factors that will help our top line. So those are the main pressures that we have on our gross margin. Competitiveness is a major factor. And what's taken from our value generation is losses. And also, we need to work on our partnership with the suppliers because they are critical to support us and to help us grow. And the third question was about GLP-1, right? Well, we were positively surprised about the impact coming from prescription medications. We were afraid that prescriptions would hinder access of customers to these drugs, GLP-1 medications. But even after prescriptions started to be required, nothing changed in terms of our sales. So the impact of prescription was a lot smaller than we had anticipated. It's almost like there was no impact as of yet. Of course, before the prescriptions were required if we had full stock, full inventory, we could have sold more, but the impact has been nil so far. Let me ask you guys. You are asking many questions in one, but we don't have much time left, so please focus on one question.

The next question comes from Mauricio Cepeda with Morgan Stanley.

My first question is about growth as well. But from a different perspective, of course, you grew more than the regulatory price increase, which is healthy. And we can see that you are gaining market share across many regions, but that market share increase is also related to the opening of new stores. If you compare your results against the sellout in IQVIA data, are you growing more or less than the rest of the market? The market sell out is already in a double-digit level in the second quarter. The levers that are allowing you to grow, if they are more related to the mix, since you are so strong in GLP-1 medications, I'd like to know how sustainable that is. And if you have time to take a second question, I'd like to know more about the discounts in the pharmaceutical industry. There was a whole debate about that, about the discounts that you would implement on top of the maximum consumer price and also on top of the factory prices. So I'd like to know more about the discount dynamic, especially with the pharmaceutical industry.

Okay. I'm going to answer the first question, Flavio is going to take the second one. Well, yes, we are gaining market share in sell-out as well. When we look at sellout data, we can see that our market share is increasing significantly. And it is a conjunction of many factors. First, expansion with good numbers but also good quality and also the performance of the existing stores is a major factor. Obviously, it is more difficult to grow by 10% on a solid pharmacy network that is already selling 1,130,000 that's very hard because your starting point is so healthy and so high. So it is natural for our growth rate in the mature stores to be lower than other competitors that are starting from a lower starting point. So there are two factors here, first the sellout and the expansion and also the mature stores that are already selling so well at more than 1 million and being able to take them to the level that we are in right now with 1,130,000. GLP-1 was not a gift from the heavens. We had to put a lot of sweat and tears -- blood, sweat and tears into this. We invested in the best locations, the best experience for our customers, the best of pharmacy environments and training our staff as well. We have over 100 pharmacies that pay over BRL 175,000 in rent, excluding shopping malls. So we invested to get Class A and B with us being loyal customers. And of course, we are now going to reap the benefits of that. And the growth that we had that we enjoyed in the second quarter did not come from exclusively GLP-1 medications, there are other levers that took us to this new growth level where we are right now. So those two factors allowed us to do that. And there's another important point about sell-in and sell-out. Indeed, there is a situation that should be mentioned. The sell-in is slower, is lower right now because of the high SELIC interest rate. So the sell-in that smaller players have, we are in a different situation. Their turnover rate is higher as well. Of course, the players that are more prepared to weather the turmoil will be able to do it in a healthier way. When it comes to market share, this was our understanding about our market share gain and other competitors' market share gain from the information that we have available in the market. Each chain is now gaining market share disproportionately in their main place in their main location. And that is related to GLP-1. Since we know that these products are scarce, and there's a high demand, each player decided to make their inventory more robust in their main locations, and that's why we had that increase year-on-year. Now about the discounts, we always mentioned -- we always said that this situation would happen every year where the CMED index is lower than inflation. That trend happens, and we see that. But at the same time, the competitive landscape is more and more intense. So on the one side, there is a reduction in discounts. And on the other side, sales are more and more impacted by promotional actions. So -- it's not that one thing upsets the other, but it's very hard to separate things. But what's important, what really matters is that we are going back to a growth level that is 5 points above the CMED index price.

Next question is from Rodrigo Gastim from Itaú BBA.