Sendas Distribuidora S.A. (ASAI3) Earnings Call Transcript & Summary

Good morning, everyone, and thank you for waiting. Welcome to the Earnings Call for the Fourth Quarter 2021 for Assai Atacadista. If you need simultaneous translation, we have this available in Portuguese or in English. We would like to let you know that this earnings call is being recorded and it will be provided on the company's IR website at ri.assai.com.br, where it's already available, and you can find the earnings release. And the presentation will be available on the link that we'll provide on the chat. [Operator Instructions] We would like to let you know that information in this presentation and future statements during the call about the business perspectives, forecasts and operational financial targets of Assai are beliefs and assumptions from the company's management, as well as information that's currently available. Future considerations are not a guarantee for performance. They involve risks, uncertainties and assumptions because they refer to future events and does rely on circumstances that may or not occur. Investors must understand that general economic conditions and other operational factors could affect the future performance at Assai, and lead to results that differ materially from those expressed in such future statements. Now I'll pass on the word to Gabrielle Helu, the IR director at Assai. Please, Gabrielle.

Well, good morning, everyone. I want to thank you for your participation once again in the earnings call at Assai, about the results of the fourth quarter of 2021. And I want to present the representatives here, Belmiro de Gomes, the CEO; Daniela Sabbag, our CFO; and our VP, Wlamir dos Anjos, for Commercial and Logistics; and Anderson Barres Castilho from operations. Before we begin this presentation, I will pass on the word to Belmiro, for his initial comments.

Thank you, Gabi. Good morning, everyone. Thank you so much for your participation during our earnings call. We hope that the information presented here in this conference can be really useful for investors and analysts and those listening to us. If you can share the presentation page? Any other points? Or can we go straight in?

No, we're good to go. Thank you, Belmiro.

So the fourth quarter of 2021 and closing of the year of 2021, the fourth quarter of 2021, Assai beat its record with many different advances and achievements in the year with many atypical situations and impacts from the pandemic, especially considering the comparison base of the previous year. In 2020, the first year of the pandemic, that started very strong in March, and then throughout 2020, and some investments and changes in consumer habits as well as some increases in some categories, especially with domestic cleaning and other products that were reverted into the year of 2021, especially in the fourth quarter. When we balance off the 2 years in this period, in the pandemic, you have very strong growth. Assai grows 50% in 2 years, a very significant growth. And there's inflation weigh, with an increase in food items. But it's a very relevant growth. In the fourth quarter, we were able to reach BRL 12.6 billion revenue, gross revenue that went over BRL 46 billion. And even with a very bold plan for store openings. Altogether, we launched 28 stores in 2021. And when you add these up to the 19 stores we had in 2020, overall, we were able to launch 47 stores in the pandemic, expanding the power of the brand and our presence in different municipalities and also adding on almost BRL 17 billion in sales during this period. Within the 2 years, we had in our vision, the very precise strategy to preserve margins. Even with this amount of store openings and even with the base not reflecting this entirely with some of the differences in the base, our margins ended up reaching very good stability within the fourth quarter, and especially in regards to the year 2020, with in advance of 0.4%. The adjusted EBITDA for the company reached BRL 3.3 billion. And it's important to highlight that this is the EBITDA post-IFRS. So even when we look at the pre-IFRS, there is EBITDA generation close to BRL 3 billion and a cash generation of about BRL 2.9 billion. So we're going to highlight this throughout the presentation with the company's capacity considering the business model with cash generation, since Assai had a really big challenge, one of the biggest projects we've ever delivered throughout this journey growth, which is the conversion of the hypermarket stores that we acquired from Extra, transforming them into the Assai brand. So we closed our cash generation balance. And Dani will get into more details about this. But when it comes to cash generation in the year, was also very positive. And when we look at growth in the net income, as well within the last quarter of BRL 527 million, it grew 76% over last year. So part of this, as we highlighted within the release is the recognition of tax credits. Throughout the year, we were able to register and record some tax credits. So we reached the year with BRL 6 billion, excluding this part from fiscal credits and tax credits where we still have net income of about BRL 1.2 billion. But it's important to highlight is that even with this acknowledgment of these credits, the company has monetized taxes. So if you look at our financial statements, you see the balance of taxes recoverable. What we see, this is a lot more referred to the increase in the inventory that the company had than any kind of monetization problem, whether we're talking about the direct or indirect one. So I want to highlight how we were able to monetize this in the ICMS calculation with the tax credits that were recognized, which really makes the net income be truthful because from the perspective of the results, you also look at the implements that were positive in the cash position. And in the fourth quarter, another credit calculation, which are related to investment subsidies with specific tax regimes and benefits and conditions that we have in certain states in the country, in our distribution centers or also the store operations based on the complementary law from 2017 and with the trial that we had at Curt that led to the basis for the recognition of these tax credits. The company was able to officially recognize these in the fourth quarter. The value is partially related to 2021 and partially related to prior year. We'll still have an amount. It's difficult to say exactly how much because. It depends on the different products and categories. In regards to the sales of the -- but we're expecting a proportional part. If we were to consider some small variations in share sales and the sales of products, that should probably have the same size for the year 2022. And if you want to advance on to the next page, please. So the expansion was historical. We had 20 new units for conversion. Three were from hypermarkets and one shopping mall that was converted into an Assai store. But especially, we were able to reach the record of organic expansion. So I want to thank the Assai team and all of the departments involved in this effort for the expansion of each of the stores. Coming into this period where you're starting with the project, prospecting new opportunities. So we have 24 organic stores, which represent about 1 million -- 0.5 million square meters and about almost 70 kilometers of exhibition areas and 30 kilometers if we were to add on all the carts together. So this was really an important achievement for the Assai team. Due to the pandemic, there was also a lot of impact from the expansion related to the cost of products in both for construction materials, but especially in the construction side during the execution periods where we were able to still have, throughout 2021, many different protocols that were followed through -- in positions from the different government agencies that really made the schedule for the contraction to be a little more longer than what we expected. So there was a concentration of store launches in the fourth quarter. 21 stores launched in the fourth quarter and 14 stores in the last 30 days. But we were able to fulfill the guidance that we had presented to the market, and we had the possibility even to have 30 new units. But we decided to postpone 2 for this year, which are 2 units in Porto Velho and the other is going to be launched this week. So within our expansion plan, I'll give you some more information at the end of the presentation, but it demonstrates Assai's capacity to really have an amount of launches and some reinforcements within the project area and within our teams involved, whether it's the internal teams or third parties. So we're going to have a lot of learning processes with this amount of store openings. It's going to be really important right now in this period for the store conversion to Extra Hiper. You can move on Gabi. And now as we talk about the 28 units, maybe this number may not capture the achievements entirely. But when we look at the capillarity of the stores spread around different cities and units of the federation, including stores in the northern region, we had stores in Manaus, we had stores in Belem. We had stores in different states in Brazil. Some of these stores also in new cities, and others in new regions where Assai is operating. And so this store launch in the end of the year had some impact within our base of same-store sales because we do have a bit of cannibalization, especially in small businesses when they -- what we call, when we had the impact of this internal cannibalization. But with this, Assai was able to really beat the record of the construction of cash and carry stores in a single year in Brazil. We can move on, please. Now moving on to the next one. We're going to look at the -- a bit of the net revenue and some comments that would be interesting to work on. We still see movement, especially in the fourth quarter that followed this movement that we had already signaled, which is really the trade-down trend made by the population. And so of course, the increase in prices and food inflation, and this weighs on the income of the Brazilian families with fuel, and this has really pressured consumers. So there are some characteristics that -- so the fourth quarter doesn't seem to be a trend to continue to. There is a base effect from the fourth quarter, actually of 2020, where there was an expectation by the end of 2020 that we would be able to have a strong Christmas period or a strong New Year's period. There was more shopping by the family and also from the small business customers, which was not repeated in 2021. So when you add up the trade-down effect that we've seen in different categories of products, we can see that the population has really adjusted consumption, considering the price of these products in the market, which have been seen in different categories, and even packages that are maybe smaller. And in the fourth quarter, we already have a perception where consumers don't have the need to perform so many, like monthly shopping or bigger shopping to supply their homes. And also the small businesses in the fourth quarter were really, really not trusting that there would be strong purchases in Christmas and New Year's, and with their own supplies in the beginning of 2021. So a lot of people were impacted also because of lower purchase power, cash flow difficulties. So it was a period where we said, "Well, why don't you invest more in the margins, considering that the market was not really flexible to playing a bigger amount of items and offers?" Because small businesses would say, "Look, I have to be careful to set up an inventory and product prices would go up so much." And even if there's a special sale, they still went up a lot more. So we saw that small businesses and consumers really decided to be more careful with how much they'd stock up. And we had some products that had an increase in sale, like more detergent, more cleaning supplies, bleach, clothes, soaps and other personal hygiene items had a very big difference compared to 2019 and other historical periods. The shift in behavior was noticed. And now in the end of 2021, you really noticed that more gelcohol, bleach and other products that when you add them all up together, it really makes the same stores have this kind of combination of 3.1% negative, 15.7% when you add up both years. But there's not a drop in volumes. There's not a drop in flow. But you have an important trade down effect with some categories like beef, for example, that has an increase in prices. And it really made consumers, for their families to substitute items. But even in this period, Assai did advance. There is a share gain and the sales per square meter, which are very important indicators, go up in this period to BRL 4,500 per square meter. And it's a very good performance indicator for our store base, including the stores that are open and the new units that were just opened as well. You can move on. Well, margins, as I already mentioned. I don't want to be very repetitive, but the margins here were extremely stable. So the margin stability here, you can see there are many contributing factors, some are negative as well and expansions always involve some kind of margin investments to open up new units. There's a lot of gains as well that the commercial teams have achieved through some special campaigns along with suppliers and some optimization and costs as well within our logistical network and also searching for more efficiency in the inventory, which was also an important contribution factor. So even when we open 20 new stores, we see that the gross margins are really stable compared to the last 2 years, especially when we compare in 2019, and there was a capacity to really go through the 2 pandemic years, maintaining our margins at very stable levels. So we believe that now in the store conversion period with the Extra stores, we'll be able to have stability in margins. Maybe we'll have more dilution with the amount of stores open, but we believe that we're able to protect margins. And even when we had to adapt to certain pandemic instability period, we're really able to keep the strong stability, which is a characteristic of Assai. Competitive levels as well were also very important. Our business, one of the low-price business. And so price really is important to keep competitive advantages. The indicator per square meter is the best, because it shows how the operation is still very precise, and it continues to deliver its value proposition to businesses, transformation industries and resellers as well. We can move on. Now the adjusted EBITDA, as I've mentioned before, we're going to -- part of the EBITDA captures a lot of operational gains and you had an increase of the EBITDA in the last 3 years. And I think the same is valid for the gross margin. So at the end of the day, the discipline with the expenses and certain adjustments in the expenses that we can highlight later on, to be able to maintain the stability, considering that it's a low-cost business and low expenses have been part of our business model. With this, all of the initiatives in our expense base were really important discipline in product ruptures and also with expenses, hiring people and travels as well, which all contributed to helping us preserve the gross margin but also the percentage of the net income in the year. Of course, in the fourth quarter, while we see the return of margins going back to the level of 2019, but in our vision as a company that grew over 50% in the last 2 years, went through the pandemic period, facing an inflation period with the opening of 47 stores, the stability in the percentage really indicate strong adherence in the business model and management in the team as well to be able to continue helping Assai expand and especially achieve the objectives we have up ahead. Within our process, of course, you have an important chapter here because the Extra acquisition makes the company have important leverage. So I'll pass on the word to Dani, our Financial Director, so that she can highlight this with the main impacts in the cost of capital within the company's business. Thank you very much. And Dani, the floor is yours.

Well, thank you, Belmiro. Good morning, everyone. I will go through the debt situation now. As Belmiro mentioned, the company was able to perform during the year 2021 and refinancing of those older debentures that we had issued in 2018. So the refinancing work added up to almost BRL 6 billion -- BRL 5.6 billion, and we were able to reduce the cost of our debt with CDI plus 2.38%, moving on to CDI plus 148%. And additionally, we were also able to extend the term of this debt, which was less than 2 years, 1.9 actually, and we were able to extend it to over 4 years. And so additionally, at the end of the year of 2021, we were able to start off with reinforcing the cash position of the company considering the schedule for payments and the transaction involving the Extra Hiper stores. And now we also performed 2 other fundraising initiatives that were also liquidated and they won't affect this result, but we want to highlight this here on the slide, and they add up to BRL 2.75 billion. In this slide, we also want to highlight 2 important points that Belmiro quickly mentioned with you. And our business model has allowed us to register strong cash generation. So this year, we had almost BRL 3 billion in cash generation, and we BRL 1 billion compared to the previous year. So we also have an increase in investments. So we invested BRL 2.9 billion. Here, we have a breakdown between the payment of the Extra stores and also some investments that -- where the new stores have some renovation and restructuring work, but especially with the organic growth in the company. So with this, we end the year with net debt of BRL 5.3 billion, and this leads to an increase compared to last year of BRL 1 billion basically. But if we consider this high level of investment, which were very important to accelerate our expansion, we had 28 stores -- and in 2021 versus 2019 in the previous year, plus the purchase of the commercial point, then we have a net debt at the end of the year that increases only by 0.1% reaching 1.9x EBITDA. So these are some of the main highlights for this slide. And now I want to pass it on to Gabi, so we can get into the financial results, please. And well, when we look at the financial results, we always bring in this breakdown between the interest from the rentals and also what comes from our net debt costs. The liabilities were BRL 204 million in the fourth quarter and the -- equivalent to 1.8% of our net revenue and of course, an increase in the CDI during that period. So we were able to quadruple the CDI from 0.47% to 1.85% in the fourth quarter. And the impact of the cost of this debt is BRL 71 million in the quarter basically. So during the year, all of the refinancing of the debt that I mentioned previously with the payments and prepayments of the debentures was really important to help reduce the cost of the debt and offset part of this context from an economic perspective. So with this, we were able to reduce the spread by about 1 point, as I mentioned in the previous slide. And the results in the year, BRL 730 million, which are very similar to the percentage of sales in line with 2020 was also really important to be in line with what the market expected. We had a consensus of about BRL 770 million, and we were pretty much less at BRL 730 million. So here, we have results that are really in line with the market expectations. And Belmiro highlighted in the beginning of the presentation, also some of the higher levels and grow significantly that we registered in this period with margin gains are very significant, and we were able to grow -- to grow through this in the quarter at 76%. And we had 1.8% margin gain. And we reached this historical milestone of profits of BRL 1.3 billion year-over-year. And well, here, I want to highlight one point here that we registered some credits during the year. So some of the investment -- subsidies during that period. And this credit is made up of recurring values and some occasional values. And even if we exclude the occasional part of this amount with the investment subsidies and ICMS tax credits, we have a growth of 40% over the year in the profit in the company. So in the quarter, we also have growth as well. So these results really ratify and confirm the efficiency and the resilience of our business model. They've been very consistent in favorable scenarios considering this period. So now I'll pass on the word to Belmiro, and he will get back with some additional comments as well on ESG.

Thank you, Dani. Well, when it comes to ESG, I think Assai, as you all know, were referenced in the market. So even before this topic gains more important within some of the discussions and society overall, Assai has been strongly working in each of the segments and areas with the advances in climate change and measures to combat climate change with waste management that the company has throughout 2021. We had a strong reduction also in our carbon emissions. Now over 92% of the energy in the company comes from renewable sources. We have most of our stores connected to the free market for energy, and this avoids the need to generate -- to turn on generators. Our generators in stores is just a backup for a drop in energy supply. But most of the stores also have solar panels, and this is a topic we've been trying to improve with more and more with the use of CO2 in some units as part of the refrigeration tools as well. And Assai has also almost half of -- or 45% of our leadership are made up of brown and black individuals. We know we always need to advance with this topic when it comes to diversity, but this has been ongoing work that has presented important positive results. Over 26% of our leadership positions are women. We had an increase of 3 percentage points. And another important topic we've been working on in the last decade that's very strong, which is people with disability. So it's always very difficult to fulfill the legal requirements and Assai has 5.4% of the total group of employees with people that have disability. Last year, with the opening of the new stores, we generated over 11,000 job positions. And it's really important to consider also all of the indirect jobs, for like civil construction, where we estimate about 6,000 to 7,000 people that worked building equipment and also helping to build some of the new Assai units. Besides other initiative in the society with the donation of food, we also have the Assai gym, as well as an internal corporate university that also promotes courses to help train employees and also help prepare new leadership to occupy the new stores and this expansion process. So we've been working with small businesses also, where we have a program to -- that can be expanded. We had 9,000 certificates also issued last year. And we're also building our new social operation coming from the -- we had the GPA Institute that was like an umbrella for all of the operations. And now we're going to have our own institute, in line with the company's purposes to be able to expand even more of the initiatives that we perform. Within this topic, I would like to go to some of the digital initiatives we've been working on as well. And we had already announced a partnership with Cornershop. Cornershop is currently present, and we have 17 different states with over 100 stores today. We have a project that's very recent. It started off in September. And by December, there's a significant increase in customers that search to buy from Assai in a digital platform, where they find a means to do this through Cornershop. And now we confirmed a partnership with Rappi, and this should be present in more than 20 cities, over 50 stores will be added, and customers have the possibility to perform purchases through digital means and also schedule deliveries. And we should be presenting a new app in the next month with more features and with advancing digital together with the joint of the physical and digital world, which the government has -- what the market has called digital, where you can complement the store with the digital world and complement the digital or physical world as well. But there's an important avenue for growth Assai can explore as well. When we look up ahead, and if you could maybe mention part of the expansion, what we've seen has expanded for 2022, one of the objectives that the company has would be the opening of 15 new stores through our store conversions that we've announced in the Extra Hiper market as well. An update -- we believe that until this first quarter, we can really confirm that we'll have over 40 Extra stores under progress. GPA was really quick to demobilize the Hiper market stores and they've already -- there's a process also with the demobilization. We have to remove some equipment from the stores and perform some adjustments and also obtain some licenses to be able to begin the construction work. Now we already have all of the licenses for the 40 stores, which are renovation work as well. So we believe that between July and August, we'll be able to start an important cycle for units opened and Extra Hiper as well. Some of the main motivators in this project is that we've seen many changes. The pandemic has brought changes to the society. Part of these initiatives, digitally and even some of the issues related to new services such as the pickup from store, the Extra stores will be able to provide. So we also have seen not only in Brazil, but in other countries, that consumers are searching for opportunities to buy with filter. One, this is not only with Assai, but the overall market had really considered that sometimes within some regions, especially in the big metropolitan regions in Brazil or big cities due to the value of the real estate situation. Sometimes we'll have a cash-and-carry store or a wholesaler next to your home or store, so you still have shopping done in retail, which do not migrate to the cash-and-carry model just because it's too far. The stores are very distant. So sometimes you have supplies that are done by distribution wholesaler because there's only a far store available. So we have 16 different capital cities and 63 stores are in a Brazilian capital city or in a metropolitan region and other cities, for example, such as Campinas, Sorocaba, Osasco, Santos, which are not capital cities, but they're cities which have bigger sizes than most of the capitals in Brazil. So just recently, we had a pilot project that we're going to show you up ahead in the store of Barra da Tijuca -- biggest amount of revenue generated among all of the opening in 2021. So there's a search for this kind of store format. Of course, we have some adjustments made in this type of units that are closer to higher-income population. So these are stores where we have an expectation that they're already going to start off as we've seen in other stores that we converted for Extra during this period. On average, they have more supply, above 3x revenue. Even now considering inflation and a reduction as well on trade down, we were able to see that they operate with almost 3.5%. So we were able to keep all of our targets and objectives and the guidances that we presented for the Extra project as well. When we look at the network of stores converted by 2020, they also keep this over 3x revenue and an EBITDA margin on average is higher than 150 bps. So where does this margin come from? First of all, with the product assortment makes it different the mix of customers that buy from these are different. Now that you operate -- it's more expensive to operate, but you also sell products that have more added value to -- add value in the average ticket and you have a greater share from customers than in other units as well in the company. So in our vision, these stores are going to be extremely important to contribute to our results. And all the different factors we've highlighted in the beginning of the project, we would like to reinforce now. We already launched our first organic store in 2022, Porto Velho. This year, we're going to have 10 organic stores. We may add a few more, but we highlighted those 18. We reduced the amount of organic stores. We'd like to be able to preserve our cash, guaranteeing the investments necessary for the store conversions from the Extra stores. Moving on to the last slide now. With this, we keep our forecast and we'll come back to reinforce our forecast of reaching our objectives that the company has been working with to reach this BRL 100 billion in revenue in 2024, having over 300 stores operating, considering the incorporation of the stores that are coming that used to be from the Extra brand and from the organic expansion that Assai has up ahead as well. I think that's what we had to present today. And now I would like to pass on the word once again to the team supporting us, so that we can open up for Q&A. Thank you.

[Operator Instructions] We'll move on to our first question from Felipe Cassimiro. He's a sell-side analyst from HSBC.

Since I'm the first guy here, I'm going to have a follow-up on what you just mentioned, the fourth quarter is not what we should expect for 2022. So when it comes to sales, what have you seen now in the first quarter when it comes to sales trends? Are you already seeing positive numbers? Or have they suffered too much in the fourth quarter? And then 2 other follow-up questions from digital. I understand that some of the initiatives are very recent still. Could you maybe give us an idea of how significant it's represented in the sales in the fourth quarter? And give us some color on what we could consider from digital contribution in 2022? And the last part is really understanding a bit of the gross margin trend. I wanted to understand which are the main impacts of this gross margin. In our opinion, seems to be very strong. So is there anything regarding services supporting the margins? If you can maybe just talk about the services as well in the store and the gross margins as well, it's impacts as well.

Thank you, Felipe. Moving on to your questions here. What we could expect when it comes to sales. The fourth quarter, as I mentioned, also had an effect that for us in the overall market the effect of 2020 also in the fourth quarter. So you have the closing of the fourth quarter with all the cycles, the first pandemic. So in 2022, now you already have the basis where in 2021, we didn't have that much of share in the supply. So that would make subsequent more positive numbers. In the fourth quarter, in the end of 2021, there was another issue, which is probably a bigger concern in regards to the inventory formation from small businesses. And even from consumers, we've seen more positive numbers now. Of course, it's still premature but basically, you've already gone through more than half of the first quarter. Of course, there's some limit on what we can say or disclose at this moment, since this year we're not going to officially have Carnival. So in the first quarter, we also have the shift from the first quarter to the second quarter of the Easter festivities as well. And we expect that there is an improvement trend as well in the first quarter to not have negative same-store sales. So this is what we've expected and what we should be looking at ahead. When it comes to digital, it's too early to give you a sales percentage. I think that it's still quite irrelevant. There's strong growth, but it's still very recent, and I'd like to wait a little more before we can disclose this. But this initiative from digital with the partnership with Cornershop, Rappi and other new things that are going to be announced now until the end of the first quarter, part has this aspect, like, "Okay, I'm not -- I'm going to add a new customer here." So yes, part of digital that's going to come in to complement a bit of the policies we still have. So we should wait on some of the initiatives that you have in the first quarter. Some of the services of the new Extra stores are going to allow us to implement. So we're going to have more mature information and we can provide more details by the end of the second quarter.

When it comes to gross margin in the fourth quarter, there were high investments. When you look at the -- well, why the same-store sales now are also going to be positive? Would it be worth it to maybe have this investment and to be transit in sales?

Well, that's not what we've seen in the market. Apparently, the markets saw that the part that could add more volume sales was really the one that was very skeptical and with little capital. So you have a lot of people in the service sector that went bankrupt during pandemic, unfortunately. So you still have intense level of caution because there is an increase in prices like soy oil went up absurdly, beef, for example, and other categories as well. So we didn't really notice much flexibility from customers. So we noticed that if we reduce 5% or 10% of the price, it wouldn't make the difference in the overall volume. So this is what only Assai yearly overall market notice, and there was a need to correct the base. There was a year that had a lot of disruption. And this led to -- so in our vision, we were competitive as we needed to be. At a fair level, we were still able to preserve margins. I hope to have answered your question.

Our next question comes from Danniela Eiger. She's a sell-side analyst from XP.

Congratulations on the quarter. It was very challenging for the overall sector. I think an initial question will be a follow-up here with Cassimiro's question. Basically, when it comes to the beginning of the year, I wanted to have a little more information of some of the drivers first. How has the behavior of the B2B segment been throughout the quarter? How have you seen this? Have you seen any kind of reaction where Omicron has maybe lightened up a bit? And have you seen any relevant impact from the moment when the Brazilian income support was paid throughout January? And have you noticed there maybe an impact in the absence of Carnival would be reflected in the quarter. So I think it will be interesting to have a little more information from the qualitative perspective. And then my second one is about the performance of the conversions in the 23 stores that we brought in 2020. I wanted to understand how the profile of these stores can be compared to the 71 you're going to be converting during this year and the next? And if you consider this is a good reference or if you can maybe have more room for a potential result that could be above this because there are stores with a profile that's more intended to some higher-income category. So I wanted to understand just a bit how we can compare this. So I think these are the 2 point.

Thanks, Danni. I'm moving on here in a reverse order here on the questions. With 23 stores, we had 24 organic and the 23 actually add up the balance of stores. So this also helps us have a base in the visualization of the performance in the period that's also greater. So these stores are partially referenced, but there's still some stores that were converted last year that were not really well located. And in our vision, this batch of stores is going to be better due to the location because Extra kind of held on to some of the points of the higher profitability and returns when it comes to sales. And so it could be that there's some of a bigger capture for the 170 bps, the analogous stores operate with more than this. But we're trying to be conservative here because you also have many other factors. So if you were to take a look at today, what would be the basis for these, and the comparable is higher than we would like to be a little more conservative here and add the 150 bps. So about sales in the beginning of the year, Omicron, whether you believe it or not, our prices are still going up, so you still have good inflation. And it's not as much as the general EBITDA, but there's still a lot of concern from the small businesses with greater shopping and maybe providing some kind of bigger investments. So we think that now that when Omicron and the pandemic seems to provide some signs of stability and sometimes people are already treating the pandemic as an endemic, but there's still a big part of the population that's very concerned, and our expectation is that we should see a better movement from now on. Even if this didn't happen at this magnitude yet, the basis for the year of 2021 was already a bad basis. So it makes the numbers automatically be better number part, because of its effect and partly because of the base effect. But there's still an expectation for improvement that we see some signs of the pandemic losing a bit of strength. So it's still early to say so. There may be a new strain, but that's not what we believe in. So the current quarter had an increase, but it was pretty discrete and timid. And so this is also what we've seen in regards to the investments that we performed. And we've noticed that overall in the sector, we could see some of the health measures and the overall authorities with the pandemic issues as well. But there was some kind of an expectation that 2022 would maybe not lead to Carnival. And of course, there's this movement of sales and consumption in beverages and other products that are connected to this that didn't come in. So of course, this would also not -- was also not present last year.

Our next question comes from Joao Soares. He's a sell-side analyst from Citibank.

Well, Belmiro, when you look at the guidance for 2020, there seems to be a gap that's quite significant in the gross revenue that you still need to close. And there's a lot of organic stores that you'd have to open to reach this guidance. So my question is, what is the market like at the moment? And how did you look at the different markets? We've seen some comments also on an excessive offer in some smaller regions, the municipalities in the outskirts. So I wanted to know how these opportunities are doing and where you see space for expanding your network of stores to be able to close this gap?

Joao, thank you for the question. Well, the gap, you'd have to annualize with the stores that were opened last year. With the new stores that were opened, 21 were in the fourth quarter. So you have to analyze the base first. And then, of course, you still have a gap. You have to add the Extra stores and the values are nominal. So we also have an inflation that needs to be considered. And we would have about 40 stores perspective, and we just hold on to some products because we have to preserve investments and concentrate then with Extra and also the quest for the execution. So you're right, there's an excessive offer in some smaller city where it's easier to set up a store or the real estate costs are cheaper. And one of the motivators where the Extra project was actually to access these levels. And this also makes us being a little more selective with the organic expansion to avoid placing stores in regions where you already have extensive offer or maybe the city doesn't have the capacity when it comes to the population level of consumption to support this. The numbers we have currently -- we've already seen in the market, we still see in some medium-sized cities, for example, 400,000 inhabitants. And just some states where I'd say, it's still not present in, for example, where we can still look at organic expansion in projects that we currently have and reinforce this number as well.

And just a quick follow-up here about -- there's a comment on the release about the concept store you opened up in Barra. You said that this would be a reference for some of the stores you're going to be converting also for the Extra stores you're going to be converting. So could you maybe give us some numbers or at least an initial idea about the CapEx to this concept of store if it's a little different than the average CapEx we expect for the conversion? And maybe if there's anything related to productivity, that will be interesting.

I'll now pass the word on to Anderson, our VP for Operations, to talk about the level of services and more details on the concept when it comes to CapEx. And it's not that much of a variation because the biggest store conversion cost is in the construction work with the walls, flooring, aircon, water reservoirs and equipment. Those are the ones that most impact the costs are more in these aspects.

Okay, Belmiro. Thank you very much. Well, this is Anderson here. And when we look at the Barra store, the investments are not very different, actually, considering that in some of the store models, we already had some intense work with the battery service, which is really being positive. We're continuing this year with the renovations in the new stores in Extra. We also worked [indiscernible]. Those are small investments, but it adds on to the customer as well, and it brings a very positive flow. So we had -- we also brought in some services when it comes to like roast chicken and maybe more refined categories in beverages, which we've developed, something that's not very different than what we work with the cash and carry format, but it adds a little more value besides the category. So there's -- we mapped out many different stores and we saw the opportunity to add other services and other opportunities. And also when you look at the mix products, the categories that we can work with, whether it's customer A or B, what they make, it's a little more robust, considering that we're also looking at stores that are little greater. So we're going to have stores where we have a sales area of 8,000 to 10,000 square meters, which is actually higher than what we have in our day-to-day activities. So it's a positive increment. It's a new project still, but we're having results that are very, very interesting. And when we look at the battery, it's still something that within Assai has a very positive growing impact. So we continue with the stores this year to have a strong store renovation project and including stores from the Extra, considering their sites allow us to bring something different to customers, and this is being very positive and really well accepted. So I believe that with all of the necessary caution in our business, we need to have low prices and low costs that are part of our DNA, and we have been able to add services and products. I think that's pretty much it, but we're trying to bring something new for each unit.

So our next question comes from Felipe Rached. He's a sell-side analyst from Goldman Sachs.

I have 2 questions actually. The first one is about the B2B mix and B2C mix, and how have you been looking at this compared to the history pre-pandemic? Do you see a bigger traffic of individuals in stores? And second, it's about the last mile partnerships. What type of customer do you think you're bringing in with this kind of partnership? And what are the economics like? And what are the main lessons learned from the operations so far? Could you give us some details on this, that would be great.

Well, when it comes to the customer flow, what we've observed so far is that the trend we've seen in 2020 with greater participation from the end customer continues. And this year, for example, we'll have a search, actually, of course, with all the economic situation uncertainties and increases in price, will force customers to move on to the cash and carry format. So should force them also to the cash and carry as well, some of the motivators for the Extra project, even with the organic expansion, one which are more central regions. Because they don't obviously have a geographic barrier with the location of the stores. In our vision, this increase should remain because a good part of the general public really buy from the channel. So normally those that don't buy from a channel are normally in regions that are very distant than the distribution wholesalers will be able to service. And even when you consider the distance from stores in central regions, you have a lot of density in big metropolitan regions where you have logistical costs that are very high because the city has a lot of traffic or also some specific markets that are very distant where logistical costs are very high. So in our vision, we've also noted that you have the maintenance of a bigger share that has really been following along in the same direction. So some of the lessons learned, we already had strong expertise with the digital area. Because why did I say maybe not have some of the offers? Well, Extra actually already had. Well, as a group, it would makes sense to have an offer in the [indiscernible] tell you, because actually on the site, the service is very similar. But as you have this split with the group, now we're finally placing this option to the customer. We have some lessons learned from the operational perspective. But part of the knowledge we already had as a group, so there's an important advantage that should take place. Now we expect actually till the end of the first quarter to provide more details on this when it comes to digital packages overall. So going through some of the next things up ahead as well.

Our next question comes from Marcella. She's a sell-side analyst at Credit Suisse.

Well, about some of the questions. The first one is, how are you looking at some of the trade down and traffic trends in different regions in the country? And the second question is considering this context with more fragility in income, how have you seen the behavior of the gross margin over the year? Is there really a space to continue to protect margins year-over-year?

Well, let me pass on the word to Wlamir, our Commercial VP and Logistics VP. He can answer this a little better. He's a specialist in margins. Thank you. Wlamir?

Thank you for the question, Marcella. Now a bit about the trade down and evolution of the different categories. Actually, considering what happened in 2021, strategically, we had already worked on this movement in each of the regions in a unique manner, and we currently work with 11 offices at around Brazil, with this concern of the regionalization and really offering the right product to each store and market. So we shouldn't have that many modifications, in my opinion. And of course, we still may have a trade down, but not stopping consumption, but maybe consuming brands of lower value. I think it's not going to change too much. What could happen, however, with the reopening of the economy and recovery overall is B2B getting little more strength. We have some of the schools that are recovering their activities now. And so we could have a shift in the way or significance of the category by type of customer. But as Belmiro mentioned, consumer participation remains, and we don't see too many changes. But what will change is prerogative with this network of stores at Extra, especially the inclusion of new categories. As Anderson mentioned, we have the possibility of having new services and also new categories that we could explore. So it's going to be a mix that we're going to be adjusting. The Assai commercial area always works, looking at what we can do in each store and in each region. So now about the margins, we -- the first issue that we always need to consider is a competitive advantage and how we can balance ourselves so that we can deliver value with a value proposition that's positive for customers, not only with prices but also with service levels. And this leads to a lot of pressure. So we really believe that this is going to be a year where we have some pressure in the margins in the overall scenario. But with industries and suppliers, we can really work on balancing ourselves. So I think the speed and agility that we can adjust in the assortment and in the commercial policies and even the partnerships and dynamics we have with our suppliers, we've been able to -- if you were to look at this in the last years, our margins -- and so regardless of the scenario with inflation or trade down, we can still balance this out and have the necessary expertise and support from our suppliers.

To be clear though, but just a quick follow-up, if possible. When you talk about competitiveness, we've heard from some players that the commercial scenarios may be a little bit more intense with some players even performing some TV commercials, which is not very common in this segment. Could you maybe talk about how you felt this issue, the competitive advantage, considering the macro context that we believe is a little more difficult?

Well, Marcella, competition actually always existed. Now it's a little more intense maybe just considering the context overall. But in the same way, as we also will adjust, we have markets also that are were just as aggressive as our competitors with some communication strategy. So we have a marketing plan that's really well structured, reaching even the store level to be able to adjust communication and disclosures and margins in that specific store. So there's also the aspects of how we communicate, which vehicles we're going to intensify in certain markets where we don't use television or others that may have television, radio, for example. So we also use these different tools to be just as competitive and balance out the margins and expenses in each store and marketing investments as well to be able to guarantee this competitive advantage. So if this allows us to have more of a national perspective, which would be very different with the purchase power with the economy in the regions that are very different results of continent. And we've been able to go through this. So certainly, the sector overall, even considering the fact that you have more consumers and also being closer to the consumer, it changed a bit of the dynamics in the communication. But within this scenario, we've been able to really have a good value proposition and keeping up with our competitiveness. So I think this is the main point. We also adjust to the market and the overall situation. The market really moves this.

Our next question comes from Ruben Couto, the sell-side analyst from Santander.

Well, we have 2 follow-ups. First, on the point about sales trends now at the beginning of the year. And we consider that there'll probably be a positive same-store sales in the first month. But I believe that there was maybe an interview from you, Belmiro, talking about a level of about 5% in the first month. Does it make sense? Does the number makes sense? I wanted to confirm this. And then going back to the topic of the concept stores. I know that we still -- it's still maybe a little early for this, but the sales pace you've seen so far, is it really in line with that level of contribution about 1.5% on average higher than what you expect for Extra store conversion? And would it make sense to consider that we're heading in this direction?

Thank you, Ruben. Well, about the levels of performance from the store, they're really within what we expected for this project, 150 bps. Obviously, you see a maturity curve so that you can reach this level, although this is -- you also have the acceleration of the store in Extra. Each one will also have a level -- a curve level comparing -- depending on the region and participation, but it's within the project. Maybe call it a concept store because there's some elements of the visual communication that we're not sure could be scaled up to all of the stores. But some of the services that we have, been testing actually here, some are already used in other stores with higher income profile. So it's like you have a single store that's going to be the basis for the stores as well. So we have a learning curve that's strong. And other points that we mentioned also that could be included within what we see when we consider the Extra store profile. Well, when you consider the same-store sales, what I mentioned yesterday was that it was positive at a level that was very close to what we've seen in the market. But without mentioning the total percentage of about 5%. But yes, we've seen a positive percentage as we've still seen about -- we're still missing about 50% of the gain. So we're entering now in the second period of the quarter. We have to be careful. Of course, we have a shift in the Easter holiday. Of course, we're going to reflect this in the calendar effect, but there's still the month of March up ahead. And so this is highlighted for the overall market.

The next question comes from Bob Ford. He's a sell-side analyst at Bank of America.

I have the general question. How have you thought of the controls of expenses and sustainability and profitability operationally, please?

Expenses, well -- we have most of the expenses -- we have some different initiatives. And Anderson has been helping with some originations.

Thank you for the question, Bob. We are a low-cost business, and I think this is already part of our discipline. And so we're very careful considering that. As was already mentioned, we need to -- our main motivator is having low prices. And so this is some ongoing efforts, part of the team, part of the business DNA. And the management team is really focused on this. And so we've been working strongly with this especially now in the end of the year. Of course, we -- as we mentioned, we had a pantry down in the stores. We still have a very strong movement in this direction. So we can't let our service level drop, but we also have to consider expenses always. So we started the year also with many different movements in operation, and we reinforced this process with the capacity to adjust it. I always say that expenses are just like our nails. We have to really cut them at all times. And so, we have a team that's really focused on this and caring for this. And so we work on this directly. So we don't lose discipline and we can really continue to have low-cost operation and prices that are more aggressive in order to be able to compete with the overall market. So I believe that this is a process that's always on our radar. When we look at it at the end of the year, it's really in line with what we've seen during the year. Of course, you have an impact of what we imagined. That may be a little higher. And considering that we're prepared also for an end of the year that was stronger, we had this movement with small businesses in the trade down of brands and more concern as well. But we continue to follow the same level of discipline, looking at different areas and different points where we can optimize our operations. Of course, without -- even with the services we included, I think this actually brings positive results in the operation. So this is something we're frequently concerned with in all of our sales teams and our store teams. This includes like extra hours, day-to-day operations, security. So we're very careful with all of our expenses. So of course, we don't want this to, in any way, impact our quality. So when we look at cash, generally speaking, we understand that our operation is very productive, and it really makes a difference in the day-to-day of our customers. So we don't want to lose quality and the replacement, and always been very careful with the expenses as part of the company's DNA.

And what are you thinking about the operational leverage, at incremental level from Extra stores?

Sorry.

Well, how have you thought of your operational leverage at an incremental perspective from the Extra units.

Well, we believe that we've been working on this initiative actually, as Belmiro mentioned. And we actually started this work with Barra da Tijuca team, incrementing different services. Some of them we already have in operation, which is the battery, for example. I think this is an impact when the expense is very low. And considering what we can add within its operation and especially from the overall -- so we can bring in greater added value, we can bring in different services. And I think that with our discipline in other lines, we can offset or administrate the operation. I think there's an important mix in category, adds more sales without adding on expenses and then the new services also lead to a little more results in operation, which is also very positive. I'm not concerned about this. And I think this is a differential we're going to be able to add in the cash market. And this is what we consider when we see the batteries model. We started the project at the end of the year. This year, we ended with over 70 stores, and this did not impact our operation. And the rest would just come and add on. Well, we're talking about the operational leverage to add 71 stores in the current base. Well, I think we see that this is impacting all of the areas in the company. So now we have part of our team that is being actually is with us in the store leaders. We also have our community also with our corporate university, training our teams. It's not an easy challenge to incorporate 70 stores. But of course, the lessons learned with the opening of almost 50 new stores in the last year. And with the organic expansion, we just opened -- don't open more because of CapEx, licenses and projects. So we do have a lot more confidence now. Of course, we were able to -- when we started thinking about this transaction to open up the Extra stores when we had some positive signs, we started some initiatives to reinforce the areas and teams to guarantee that we'll be able to really add more stores into our network without leading to major impacts in our overall process and our model as well. We have a level of investments that are really high. So you can see that these direct gains are going to be related to processes that are adjusted within the company. And so, for example, the hub -- in store floor, where we see expired products, products that are going to be switched, this has been helping us a lot with the expansion that we've been working on in the past year. So Assai I went from 14 units in Brazil a decade ago to 213 stores now, and this leads to the necessary confidence that we need to be able to incorporate the actual stores and overcome the difficulties from an operational perspective, so we can reach the levels of performance Assai already operates with today. I hope that clarifies your question, Bob.

Our next question comes from Joseph Giordano, the sell-slide analyst from JPMorgan. He's not present anymore. So we're going to move on to our next question, which is from [ Janders Ruvero ] the buy-side analyst from [ Truist ].

We're going to read his question. He may have some problem with his microphone. So he would like to know if we'll be able to help understand or measure the impact of the cannibalization that the big amount of new stores has caused in the same-store sales. Maybe come by the performance of the group of same stores with the others?

I was also reading the question a little bit before. And I tried to answer this in the chat. But yes, you have a big number of stores and there's an impact, is expected. And as part of an organic expansion, if you look at the last opening that we had in Porto Velho, we had a unit there. And now moving -- well, to have the small businesses that maybe have a bigger distance with an impact. With the sales in December, we estimated that the same-store sales were impacting the quarter as a whole at 3 percentage points, which follows the curve. And then you capture more consumers. So normally, the stores that have some cannibalization from an operational perspective, they're probably going to be at a limit of about BRL 6,000 per square meter, BRL 5,800 per square meter. So this is part of the expansion project and you really have this cannibalization effect. And in this quarter, there should be an impact of about [ 1.15 points ]. Yes, so this is another -- and also in the fourth quarter of last year as well.

And the next question, would you imagine that Assai would increase the network of stores in Rio de Janeiro? And if yes, how many stores approximately?

So within this project, we should complete the definite list. We have only 8 stores that are in the final phase. And we do have some stores in Rio de Janeiro that have a significant amount actually of Extra stores that are going to come in. And we also have some organic stores in this project that are under deployment in Rio. So we have, yes, new stores that will come through Rio de Janeiro.

Next question on digital. Could you maybe talk about how much your typical customers already use from digital? And what are the milestones expected for the app? When you launch them, do you expect such an amount of users monthly? What's the guidance for the development of the app? And if you could give us a confirmation on the guidance of the BRL 100 billion of the 2024, if things are going to be recognized in 2024? Do you expect the 100 bps in BRL 100 billion revenue?

Well, with the entries of the stores, we are expecting to be BRL 100 billion in the total of 2024, which is the number. So we have a project with in cooperation, where we can complete this with all of the store conversion. So the target is for the total revenue in 2024. The cost of development in the app, we can't disclose this yet. It's under development, but it's not relevant considering the size of the investments of the company and the percentage of participation and why it comes in now with more focused on digital is that we adapted to the presence of customers that are around our stores, and there's some pressure that would come in from a pickup from store and other opportunity for purchases in digital, just because we're entering regions with a better target audience, which is the case of stores coming in through Extra, which would end up making us require some kind of movement in this direction. So not necessarily to the demands we have currently from the customers in a certain region would correspond to the demand that we have in stores that are located in regions with higher-income populations. So this is very perceivable today. Believe it or not, you have submissions done with customers in digitalization. And the e-commerce appears sometimes with the 12 topics, so sometimes customers don't want to stay in the queue in the, get the products, are going to search if it's available and we maybe able to offer an alternative brand then by searching products, would you be able to have another product same quality? So you have different demands depending on the regions you're operating in. So if there are regions with high demand, then we think there's very low demand for digital services. And all of them have a common interest in understanding the price of products that is secured at the store and other aspects. So we think we'll be able to answer these issues with the new app and also delivering some of the necessary services to that target audience around that store.

The next question now comes from [ Gustavo ]. He's an individual investor. His question is, the SG&A reached 9.5% of the net revenue in the fourth quarter of 2021. So would this be a new level of share on the expenses upon net revenue for 2022?

Well, this percentage actually would be the fixed and administrative and operational expenses. So the fourth quarter is not a basis for the next year, but it's a basis for the fourth quarter because then you have a bigger effect of the trough salary and you have an important dilution. So what you should expect are some levels of expense that we've had in the year 2021 as a basis for 2022, and the levels of expenses in the fourth quarter of 2021 as the basis as well for 2022.

Our next question is from [ Vitaros ]. He is also an individual investor as well. And his question is the following. About the distribution of customers' products like flour or cassava flour, gluten-free or lactose-free products and other items that are trending in specific region to region.

The question is not very clear. I think it's the differentiation of the store assortment, right? And if you've been including these kind of products in all of the units. And then obviously, we have stores in regions that are very, very different all around Brazil with a mixed need. It's very different to give an idea. We have units where you have like, for example, a store in Sao Paulo and a store in Minas have over 1,000 of case that are different from store to store. So depending on the region. You have stores in the North and Northeast. You have some items that are not even really well known. Just as we have products there that are completely unknown of here in the Southeast. So this issue to customize the assortment, to make it regionalized is something that we've already highlighted that our commercial teams work on strongly to guarantee that we can service these customers according to each region.

So the next question from [ Thiago ]. He's asking about information security.

And we've seen, of course, technology. Just expenses, just like nails, you have to cut them all the time. So you're always investing to cut on expenses and IT involves constant investments, especially when it comes to scalability, because the company leads from the amount of stores that they had before. So when I look at the database, we have over BRL 100 million invested. And of course, you don't sometimes have e-commerce, you have a level of security that's greater. But when you talk about segregation of database, cloud-based deployments and other protocols that have been implied, we had strong investments on our side because this topic gained a lot of relevance. We saw there was a lot of difficulties that companies went through with data robbing and segregation. And so, this led us to say, "Look, I can't say am perfect. I have no chances of someone attacking it." Because most of these attacks are even coming in from inside with some communication from employees and that lead to risks. But this year, we're going to perform another process. We have 3 suppliers that are referenced when it comes to cybersecurity and they're helping us in the system as well.

Thank you very much, Belmiro. Our session for Q&A is finished. Now we're going to pass on the word to Belmiro for his final remarks. Belmiro, please?

Well, thank you very much, and thank you, everyone, for asking. As final remarks, I want to thank all of the Assai team for everything that's been done. And it's very challenging scenario we've had with pandemic. Lot of people had to work with home-office conditions and the amount of store openings also affected the geographic footprint in Brazil, which made a lot of people have to travel for quite a while. So I want to thank all of our teams for their dedication in different areas. They're really the ones responsible for these results. We also had strong support from the construction partners and other suppliers. So there's a real group of factors, not only in the company but also suppliers and providers that help us so that we could really deliver the numbers in 2021, and we can see that from our perspective, it really is a very positive result. Assai is in its best phase this year. We have important, challenging project with the changes in positioning in the food market as well. But we believe at this moment with the acquisition of the Extra stores, it's also one of the most important moments in the overall food market in Brazil in the last year. And this will also allow us to have our shareholders and investors in the company and employees really a very positive virtuous cycle, taking advantage of this moment. There may be a little more challenging when it comes to the overall economy. But the company always grew through difficult moments. And a low-cost model, that has belly benefited in these periods where we have a search for lower prices, and this gives us the necessary possibility to provide confidence to customers so that we can search for these challenges and really being convinced about the important steps we'll take ahead to make the Assai brand more well-known and have an important share in different social levels and looking at this within the target that we've set for 2024 when it comes to revenue and results. Thank you very much, everyone.

Our earnings call for the fourth quarter of 2021 of Assai is officially ended. The IR department is as well to answer any other questions that you may have. Thank you very much to all participants and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]