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

[Audio Gap] supplying these new stores and finally opening them. So there is an important effort, which generates jobs, but also the amount of resources invested contributes positively to the company's economy. The results, although we're still in the beginning of the opening process, are extremely exciting because they confirm the assumptions and what we had considered when we decided to perform the offer to buy these units from GPA. So when we take a look at the strength of the Assaí brand, the value proposition we have, the low-cost model has really made our performance as planned, be very exciting. So just to give you an idea, from about 239 stores that Assai had, from the 10 main ones, 6 have already been part of this new store network that were opened recently, which confirms the expectation that considering the location of these stores, strong density and presence, not only of the end consumer, but also a very big amount of commerce in the surrounding regions, we will -- we had really a good precision in our expectations for sales of these units, and that they would also reach strong and quick maturity in customer flows. So moving on to sales, as you saw in the release and in the graph's profit, is something that our VP will get into more details about. But even in the third quarter with a scenario of a deflation in some categories of products, we all saw that the level of debt presenting customers reaching a record in the third quarter. So the month of August and September impacted commerce overall. But to offset these effects, we were able to have a strong growth rate. So the combination of performance in same-store sales at a level of about 9% plus the strength of the new units, and that's why I'm talking about the 44 stores that were opened in the past 12 months. Most of these stores have -- is a big amount of organic stores still, and this will allow the company to keep a real high level of growth, overcoming the level of 30% growth, 20% coming from expansion and 9% from our same-store part network. So the -- with this, the network of stores open now leads to an annualized sales volume of BRL 65 billion, which leads -- which keeps up with our guidance of reaching over BRL 100 billion of revenue in 2024. So considering this amount of stores that are underway and the preoperational employees we had to hire to work for the first time, when the -- in our history, we separated the numbers so you can have a better vision, especially when it comes to expenses for the EBITDA effects as well because of the preoperational costs, and this is something Dani will highlight more, which is really the previous costs we have that are mostly related to personnel. Before the store openings, people that are already hired at this moment take on the management of the stores that are going to be opening in the next month. In November, we're going to be opening 18 new units. So this entire team is already under training in other units for quite a while so that they can really perform the store openings and move on in the company. So the segregation really demonstrates in our vision that there's strong stability with a high -- the level of company's expenses. So it's the first time we're separating these numbers. And it also demonstrates that the changes in our business model, especially for the stores that are in locations that are a little more privileged, closer to higher-income populations where we had the addition of many different services, none of this has impacted the SG&A levels or expenses of the company; the main value proposition, which is low cost and expenses, which leads to an improvement of the purchase experience, searching for ways to work with a broader scope of clients. And, of course, the numbers in the third quarter in our vision reinforce this. So I want to highlight that with all of this, we're overcoming the milestone of BRL 1 billion in EBITDA in the quarter, 1.1 when we exclude pre-op expenses, but it's also higher than BRL 1 billion, even when you consider the expenses that we have now preoperationally. So the cash generation is something that Dani will highlight a little more, but I think that's an important message here at the moment, considering all the investments performed for the extra stores and the commercial point with construction work and equipment. The company has already been -- we've been highlighting this. We're really -- at the moment, we expect it for leverage. We have a very strong cash generation, increasing over BRL 1 billion in the last year, going over the milestone of BRL 3.2 billion which is an important cash generation coming from our working capital and our business model. And of course, that sustains all of the company's plans, supported the decision to acquire the Extra point and also have an important leverage level. With this, since most of the investments are in the new units, they have leverage process at the beginning, middle and end. So as we start the strong cycle for the inauguration, you start having the cash generation and also the working capital, which is something that Wlamir highlight a little more. Considering the locations of these units, they also lead to an improvement in working capital of the company. So even with these high levels of leverage and financial expenses, the net income of the company is still over 2%, BRL 281 million. It's not very comparable with the third quarter of last year. We had a series of different recognitions for credit that we had to separate. But if we just consider the preoperational expenses, we would have a net income of about BRL 318 million, which should be a lot more normalized. So of course, this leverage is pressuring this due to the high interest rates we've seen when it comes to deflation and also when it comes to inflationary trends. There's an expectation, just as the whole market has, that by 2023, we'll have interest rates levels that are a little less aggressive. And when you add this up to the cash generation capacity of the, company, will really help with the pressure on results and quick deleveraging of the company. With this, I would like to pass on the floor to Wlamir. He will also mention some of the other impacts that we had in the third quarter. So thank you, Wlamir.

Good morning, everyone. It's a great honor to participate in this conference with everyone. Actually, Belmiro has already mentioned a few points. But when we take a look at the commercial dynamics, we see there are many factors that contributed to this result. So we have effects of the inflation that pressure a few categories and the deflation, of course, which also has some perverse effect when you take a look at the sales. But even with the deflation in some categories, especially in commodity categories, we were able to offset this. And our team is very used to handling inflation and deflation moments. So we have a commercial dynamic and a close relationship with suppliers to be able to anticipate some of these trends, whether this is the currency rate or other climate issues or any other event, so that we can really anticipate ourselves as we are really precise with how we're going to define the volumes of purchases, the inventory levels and the price dynamics. So we were able to go through this first quarter -- this third quarter, sorry, and we still have a loss of income purchase power among the population, which is very significant. But there's still a trend that we've been talking about throughout the year, which is trade down continues to happen. It's still very strong. There's a migration of categories that we still notice a lot in our business. But connected to all of this, and even partially related to the deflation, which is helping with the purchase power in these categories, we see an increase, very significant in this third quarter. And we still notice migration of customers, whether they are legal entities and businesses like B2B customers due to proximity with the stores that were open that they didn't really have an option for Cash & Carry stores close by to them, and now they do, or even due to working capital issues. Because sometimes, small entrepreneurs have working capital limitations, and we become a very good option for purchases and stock for these customers. And of course, you still have this migration of the end customers that's still with our stores, the B2C customers. And so all of this connected to our anniversary campaign in the month of September, which is now going to continue until the 31st of October, but this combination of this dynamic plus the anniversary campaign with no effects with restrictions that we had in 2020 and 2021 due to the pandemic, this year, we were able to be more aggressive in our commercial and communication strategies. And even with the negotiations and activities with our suppliers, we could have a more robust campaign. So our birthday campaign or anniversary campaign is the biggest actually now, with the biggest special conditions for customers in the food sector. And so this combination of factors helped us to gain share in the total base and also in the same-store sales base, which is very significant because we have expanded a lot in some markets that we're already present and maybe differently than what we had in previous years where we were occupying areas or states where we're just still -- where we're just starting to operate in. But now we're strengthening our brands with a whole another scenario. But with this shift and this project of historic conversions in the hypermarket, we started to notice this in the beginning of the year also regardless of this issue as we are adapting the assortment of services in the stores. And so we've been trying to adjust our business model to the Brazilian reality. And we've been very fortunate with the inclusion of these additional services and assortments in these stores that really make sense and that has the public for this regardless of it being a converted store, an organic store. So we think that when we take a look at the stores we are converting, now we see the locations I already mentioned quite frequently, but we like reinforcing that the points are irreplicable. They're very good real estate. And this also helped us not need an investment in marketing or margins in line with the brand strength in the business model, that's a low-cost model. Regardless of the addition of these services being still, of course, work with this 9% expense rate. And this all helped us to have substantial gains in this year in our gross margins. So we ended the third quarter with this percentage of gross margins, 16.3%. And -- compared where we have 44 stores that are still ramping up for maturity or that were recently inaugurated, we opened a lot of stores in the third quarter, and then we were able to balance this out considering all of these characteristics. So this makes us very confident for the next period in 2023 and 2024 considering the precision of the strategy that the company have in the conversion of these hypermarkets and in our organic process. So we are very confident, and we'll have some very substantial results up ahead. So when we talk about the working capital, even with the establishment of this network of stores that's very significant, we were also able to have a good alignment with our suppliers and very good improvements in our terms. And also due to the fact that these stores are in regions that are more centralized where the industry is closer, we were able to balance this issue out very well. We had levels of stock that were smaller than when we reach a new market or more remote location in the country or where we maybe don't have distribution centers. So basically, this expansion of the project is very much concentrated in 16 states, spread around all of the regions in Brazil. But the main concentration is in the South and Southeast, and that's where industry is closer. So it allows us to have a lower level of stock favoring the working capital of the company. So I want to take advantage of this moment also before I pass on the floor to Dani to just really thank all of the Assaí team and a special thanks to our suppliers as well. The challenge we have been facing -- and it's a very pleasant, it's a pretty good challenge, and the amount of stores and the volume or intensity. But really being able to deliver these stores, and there, you've had an important involvement with the support of our suppliers, merchants, but also other providers of equipment and services that have really helped us to perform this expansion plan and continue to grow with a solid stance. So I really want to thank everyone, and I'll pass on the floor back to Dani.

Thank you, Wlamir. Good morning, everyone. Well, I'm going to move on to the slide about the EBITDA and the SG&A. In this slide, we are bringing in an analysis in a little more details about the expenses. As Belmiro mentioned, this is an important highlight for a quarter. And it's been a quarter that's really been significantly impacted by the expense control, which is our discipline in the company, which is really fundamental in the store conversion process and considering the significance of the preop expenses and what they represent in the quarter. So the main nature of this, as Belmiro mentioned, is personnel. So as soon as you have hired the teams for the stores, it actually has to be done about 3 months before. And here, we're talking about another -- more than 6,000 employees that were hired in the quarter to be able to handle the conversions. So the expenses were pretty much equivalent to 0.4% of the sales, adding up to BRL 56 million. And then we bring in this understanding that's really normalized where you can see the expenses reaching levels of 8.8. So then obviously, this led to an EBITDA of about BRL 1.1 billion, a margin of -- that was also pretty much normalized, excluding these expenses, which is about 7.7. So it is a level that is very much in line with the third quarter of 2021 and also, of course, demonstrating that the performance of our stores is really solid. And in the year, the accumulated results, this EBITDA is about BRL 2.7 billion with margins of 7.1%. So this level of margin, I just want to remind you all, is very much in line with the expectations of the company and, of course, considering the conversion project. So the guidance back there that we had considered for this year, so we're finally already in the accumulated results reaching 7.1%. Now moving on to the financial results, Gabi. We now -- I think the important highlight here is BRL 440 million in the quarter. We have BRL 126 million interest on leasing. So the pre-IFRS expense is about 2.22% of the revenue. And this expense is very much impacted by the strong growth of the CDI, which basically tripled in the quarter. So we went from 1.23 in the third quarter of 2021 to 3.3 in this quarter. So all of this to say that we have the biggest volume of gross debt considering the high investments in the expansion project. And of course, which is completely in line with what was planned and what we've been communicating about this project. So completely expected here. And moving on to cash generation operationally, Belmiro has already mentioned this. We have over 90% of our EBITDA that's converted in cash. We have very strong cash generation with about BRL 1 billion. And we -- at this level of BRL 3.2 billion, this growth that's over 52% will continue to be accelerated, considering the conversions and the new stores opened, which were still not considered in these numbers. So we've already inaugurated 20 stores. We have 45 until the end of the year. Then we follow the -- with the first -- the last of 2023 opening up new stores. And this contribution will lead this number to even more substantial levels with growth that is even stronger than what we're seeing now. So this is a very important point to call your attention to the levels of investments, like 2.9, 1.4, that are all occasional for this moment where the company is investing. It's so relevant, but of course, this -- with all of this higher leverage position and, of course, with all the cash generation, this will get back to lower levels in 2x, as we had also mentioned, at the end of 2023. So this -- thus, with its strong generation and payments and the financial expenses pretty much tripling when compared to last year, we end with a net debt-to-EBITDA ratio that's lower than 2.7. And I just want to remind you that the second quarter had been 2.7, and we're very comfortable with this. It's really in line with what we had planned for the company's leverage and project overall. So moving on to the next slide on the net income. With everything we presented here, we have a net income of BRL 281 million in the quarter and BRL 814 million in the 9 months. And in this calculation for the normalization, to give you a bit of a recurring perspective on our net income, excluding free op expenses and fiscal credits we had or tax credits we had last year, to give you an actual comparable basis of the profits generated by our operation, we would have BRL 318 million of profit and a growth of 4% with margins that are above 2%, 2.3% in the quarter and 2.2% in the first 9 months and a profit of 860 in this normalized perspective. So I think just to end the financial part of our presentation, our results and earnings really make the solidity of our business model quite evident. We had strict control of expenses, important share gains that were even bigger than what we had seen in previous periods and, of course, strongly impacted by all of our high investments in expansion work and the high interest rate context. So I'm completing this part of my presentation. I'll pass the floor on to Belmiro on details about the expansion and ESG advances as well.

Thank you, Dani. Well, as we mentioned in the beginning of our presentation, everyone knows that the company has been able to keep year-over-year a very constant track on results and growth in our sales supported by our cash generation, which is what has made our expansion. Even with the acquisition of Extra, these are stores that require a really intense process for refurbishing a construction to be able to transform a hypermarket store into a cash-and-carry store. . So all of the Assaí team's supported by many different companies. I just want to reinforce our special thanks to many partners that have been working with us, supplying equipment, construction work that have really made an effort together with us in different states around Brazil to be able to have such a huge volume of construction projects open. We had 44 stores in the last 12 months. We already performed 28 organically, 16 conversions with these additional ones now. And we added another 30% in the [ sales ] area. The precision of this business model, as we mentioned, has allowed for the company to, despite it has high levels of growth, really keeping in a very healthy balance when it comes to sales and margins. And now in total, we have 239 stores operating. Moving on to the next slide. From these conversions, as mentioned, we won't go over each one, but these are specific points ever since the beginning. We mentioned this, we're, of course, the most excited with this project. These are points -- real estate points that are very precise, very successful, and they're irreplicable from a real estate perspective. So this has been able to replace our brand and our strength in regions that were very difficult to reach due to the boom in the real estate market. And it was very difficult to find available spot for a store like ours. And now these stores have become, in Brazil, where there's very big logistical difficulties, this became an important distribution point or center for small merchants and businesses. So this all allows us to, when it comes to the pharma and the brand, really place stores in regions that are extremely valuable. And so the conversions have been done, and the first numbers really confirm all of the guidance as we had presented in the beginning of the project. Today, we've already reached 20 converted units. November and December have a strong calendar of new openings. So we should start seeing the first numbers when it comes to stronger sales contributions in the fourth quarter, and of course, a lot more within the first quarter of 2023. So it's an important work that's being done. When you have a conversion of a hypermarket, you have to change the flooring, the electric installations. You have a huge amount of work. To be able to give you an idea of numbers, what we're going to use in this year with steel, that represents about 2 Eiffel Towers. When it comes to concrete, it is equivalent to about 6 [indiscernible] stadiums, over 8,000 kilometers of electric cables that have been installed. So these stores, considering the locations, will allow the company to have extremely valuable spots. And within all of this, we also performed some modifications in our business model. This modification in the model, as Wlamir have already highlighted, and other opportunities. And it's not related to the acquisition of hypermarkets. It's a lot more related to an evolution within the actual wholesale model and the Assaí model. So that in regions with a population that has higher purchase power and [ buyer ] density, can also offer a bunch of services that customers really needed and wanted. There was a demand from our customers, which is being able to really service their full monthly supply shopping. So this has been very important and strong. And along with all of this, we've also advanced with a new Assaí app, which intends to unite at a physical and digital experiences with a digital approach. So this advance in the app is something that we're going to highlight a lot more in the next quarter because the focus of the company is really on the conversion process, and it will all allow a better relationship with customers and opportunities commercially for sales. And of course, will be together with our suppliers. buyers. So I want to thank all of our expansion team that's been on the field led by [indiscernible]. They're all very active in this process, and this will allow us to, in this fourth quarter, really deliver a significant amount of stores in line with what we have presented to the market. The expectations the company has, considering that we're continuing to have the organic stores. We have some stores that are organic, that are going to be open in our land bank. We have another 35 to 40 projects for new units that are going to be organic in the next years. Of course, right now, the priority is to work with the conversions as much as -- as quick as possible, which will allow us to reach those BRL 100 billion in revenue and also have 300 stores under operation by the end of next year. So this is an important growth trend that is extremely strong. And we can move on to the next slide. We always like highlighting ESG. I think that's an important highlight. As you've been monitoring our work and you've been seeing our work daily, you see how Assaí is very fortunate in the market because our company is extremely -- includes a very diverse with all the different topics that require attention. And in this quarter, we want to highlight that we launched the Assaí Institute. Up until the split with GPA, we had the GPA Institute. So -- but now with Assaí considering its social liability and responsibility that we believe the company as big as ours has, the Institute at Assaí allow us to work with different initiatives. We have one that's very focused on entrepreneurs, and Brazil is a country with Continental sizes, and it's made up of small and medium-sized entrepreneurs, and it's spread around all of the national territory. So through the Assaí Academy, we have training, awards. And the institute is going to be an important support for this as well as working with sports, which is another initiative Assaí has always had. Our brand has been very much connected to this and also with food. And we really adhere to the global compound on finding hunger, and we adhere to many different initiatives as companies and citizens. So an important highlight is also the reduction of carbon emissions. We had a significant reduction over 27%. The company is aware of all of the climate change issues. We've made some investments, especially with our new units, considering modern equipment and technologies that allow us to reduce within Scope 1 and 2 some of the environmental emissions and the level of emissions that we were able to put in. So this is important to highlight the company has grown, but we've grown sustainably, not only for cash, as we like highlighting, but also from an environmental impact perspective and also overall social impact. So that is what we had to share today. And expectations for our fourth quarter is that it's been very strong besides the calendar for openings. This is going to be the first end of the year without the pandemic. We saw this in July. There was an increase in volume in the third quarter. Once again, we had some issues that were climate-related that, of course, impacted food service within the third quarter. And in the fourth quarter, we have the World Cup. Of course, after the elections, we also have the end of the year where festivities and parties and family meetings will not have the impact of the pandemic. So in line with this model of offering low prices and low costs, even with a population at this economic moment, we're experiencing this model continue to be extremely strong. So we have strong expectations for growth in the fourth quarter and the third quarter, as you've seen. Even with all of these scenarios, the company was able to keep its stability in its path, which is what we're looking at as well up ahead for the fourth quarter. Having said that, I would like to end and pass on the floor back to Gabi. And thank you all.

Well, thank you, Belmiro. I think we can move on now with our Q&A.

[Operator Instructions] Our first question is from Luiz Poli Guanais, the sell-side analyst from BTG.

I have 2 questions here on our side. One is, Belmiro, could you maybe talk about what would be the evolution of volumes throughout the third quarter for B2B and B2C? And within this expectation for the fourth quarter, how do you imagine volumes will behave? And the second question is taking advantage of this opportunity with the opening for the fourth quarter and also for the next year, do you believe that there would be some kind of a big difference when it comes to the margin dynamics and sales dynamics considering the locations where you're going to be converting the new stores? Or do you think it's going to be very similar to what we've seen so far with the first 20 openings?

Thank you, Luiz. Actually, the openings for the fourth quarter have an expectation that is keeping up the ones in the third quarter even more because some of them are very strategic locations like the [indiscernible]. These are construction projects that require a little more work, more time and more downtown regions, although we did have the openings of [indiscernible]. The openings in the fourth quarter now have expectations that are even higher than the ones in the third quarter. So the expectations are a lot more focused on opening in the fourth quarter that are a lot more positive than the third quarter or at least stable. So there are some stores that are extremely important like [ Santos ]. It's a very well-located store. And I could mention a whole lot more for the fourth quarter. And we're very anxious about this, as well as the population is, because the level of anxiety in the surrounding population when we closed the Extra stores and the expectations they had towards the new store openings have been really surprising as well. We already had high expectations. But now, this has been renewed with each opening. So we have very positive expectations for the openings in the fourth quarter. So the third quarter had at a moment when we had a trend of a drop in prices in some categories like rice, milk, soy oil and stuff, we noticed that there was a bit of a concern because we had a shift in the last few years. So especially in the month of August, people were very careful. The B2B public was very concerned with setting up stocks so they reduced their volume of purchases. In our vision, this stock in small businesses is probably at the lowest level. And so the expectations for the fourth quarter when it comes to volume is that it'll be a little more positive than the third quarter because the main concern with an abrupt drop in prices or drastic drop that could lead to maybe deflation in some categories or commodities could be harmful if you have a high level of stock. So we also worked on reducing our stock in some categories that we consider could lead to some deflation movement. So you can have a shorter [ duration ] for this adjustment. And the market stock has already happened in the fourth quarter as a base effect could -- well, it's going to be our first year after the pandemic. So we had -- at the end of the year, we also have impacts in the trips to the beach, visits, lunches or Christmas lunches and dinners, et cetera. So with -- even with all of the corona vouchers and incentives and money that was put into the economy, people are going to start prioritizing this more. So we're super optimistic when it comes to the fourth quarter.

The next question is from Thiago. He's the sell-side analyst at [ XP ].

We have 2 questions. One is a follow-up of Guanais' question. Could you maybe talk about how your performance is in the B2B channel when you compare with 2019? This is an important point for us to understand a bit more. And the second point is also a follow-up from the economics in the Extra stores and if you could maybe just give us a little more details on what your vision is when it comes to sales and margin evolution. You had also mentioned that it's been really surprising to see the level of results in these stores, so I just wanted to understand a little more about this surprise if this is coming from a margin perspective and sales perspective, or if there's some important highlights between these 2 points. So on our side, these are the 2 questions, basically.

Thank you, Thiago. We have the issue with Extra stores. And of course, our strongest calendar is in the 20th of August. There are very few days for activities, but of course, in the first days, they're very decisive. And the first month is an important sign of this because when I mentioned the top 10 in Assaí, of course, with Atacadão, the cash and carry even have low prices in the beginning. But the flow, especially with stores where there are high-income customers, is really where you have the strongest performance indicators. So from the 10 ones, we already have 6 that came from this batch. And most probably until the end of the year, we'll have like at least 9 or 10. So when it comes to important highlights, this is going to -- this has been really surprising us at the level of activities in the stores. And this is something that we've really seen as an anxiety of the population surrounding region and how this is important. So when it comes to sales, this is something that is in line or even better than what was planned. We are being a little more careful to not -- of course, you have an initial movement with the inauguration and the fact that we are waiting on some more margin compression, as Belmiro mentioned, with 44 stores opened in the past 12 months. So a lot of them were open in this third quarter. But the fact that we did not have more margin pressure's really due to the strong contribution or the lack of a need to work with very low margins in these units because, as Belmiro mentioned, these are some store units that are in places where the brand is already strong. And you don't have to have such -- you don't so much competition. And the normal price at some level of activity is already extremely strong for that region. And so of course, this is all balanced out store by store, market by market, depending on how we behave and how competition reacts. But as expected, this was, of course, one of the main motivations in this project. The performance will provide a level of EBITDA margin that's above the normalized level. So now considering the -- can see this part delivering at least 50 bps more margin. So this is kept in this other store network with a very positive scenario. When you consider B2B, we can see we haven't got back to the level of activity. We think the food service sector has been suffering quite a bit. And so this is really mentioned this now in July and holidays in the middle of the year as well. So when you see September has the lowest temperature in 30 years, just go by the street with bars, restaurants, and the rainy period is really impacting the sector. But this has been the sector that's been recovering. It still hasn't reached the same level of activity in the prepandemic period, but it has been quickly recovering. And our expectation is that the sector that is so important can also recover a bit now in the fourth quarter and some economic scenarios like available income can really impact this. So another point, which is the B2B, which has not had such an impact, but this is the many markets and merchants that are in neighborhoods, and the impacts are very low. So what we've seen now in the third quarter, as products, when it comes to overall basic products like milk and soya, will have a drop that's very significant. But of course, they're very -- we have this inflation movement where just as us and some small businesses, people that have a small business and have an understanding of the market are really keeping their eyes open to these changes of the inflation period, requires more stock. And then deflation period, you feel the category is going to drop and you have a smaller stock possible. So another point, which considers the utilizers right, churches, schools and other institutions, they still have a lot of room for recovery to get back to the prepandemic level. So in our perspective, we still have an important parcel of sales that we need to capture. With the pandemic, with a very small impact, we'll get back to normality. So I hope to have answered your question.

Moving on. The next question is from Marcella Recchia, the sell-side analyst from Credit Suisse.

Actually, my questions were answered, but I did have a question about the share gains that you had mentioned as the main in the year. Do you have more specificity on how much these gains have already reflected the recovery in the activities of the stores that were reinaugurated? And what are the main channels that have been capturing this share gain?

Well, thank you, Marcella. The share gains, obviously, has been growing week after week very strongly, leveraged by the reopening of the Extra stores. So every week, we receive an annual measurement from Nielsen. And we've seen this curve week over week as these are big stores, [indiscernible] store and others that have a real strong level of performance are going to be opening up especially in the region in São Paulo and leading to an important share gain. So since you still have the impact of the quarter, and in the fourth quarter, we're going to provide more details about this with more granularity. Part of this has been coming from other cash and carry operations as customers are there -- they didn't have a cash and carry that was close, or they would buy from someone else, or maybe they don't have the same level for value delivery. And some went to traditional retail. And when we see this inside the channels, we can notice this, that the hypermarkets have had performance that was very challenging considering the issues with the channel and the supermarket. So of course, there is also a mix between cash and carries and part of retail. So we're waiting on having a bigger amount of stores to be able to have a more precise measurement of this. But if -- just to give you an idea, it considers about 2/3 of the retail and about 1/3 of the other cash and carry stores.

The next question is from João Soares, the sell-side analyst from Citi.

Belmiro, the first point is I wanted to understand where you talk about this and how the historic conversions have been above the high expectations and how you've already started with this new wave of conversions with adjusted expectations. And naturally, you have the revision of this guidance. So I wanted to mention how we can interact with that initial guidance, which [ records ] BRL 100 million for 2024. So now considering this aspect of the deflation of food in some categories, how can we work on this main message when it comes to the guidance in 2024 with the growth in the midterm? So the second point, I think, is more directed to Dani about the margins. You mentioned about 7% of the guidance this year, but I wanted to hear a bit more about this because since you have a big wave of conversions going on in the fourth quarter, which is so significant, how can we imagine this from a qualitative perspective and see the expenses in the fourth quarter?

Thank you. Well, obviously, we did idealize the project, and we consider this together with GPA considering the major know-how we have for store openings and the potential for these extra units. So of course, we are very much convinced that within our business model and our value proposition, not only this year, but from now on, how important this project will be. It's really fundamental presence. It's an important differential for the company. And of course, we've been monitoring, keeping up with the store openings and within our market knowledge that really allowed us to increase our objectives for amount of stores and also reinforce all the guidance. And so even with the possible deflation risk or uncertainty from an economic perspective for the next year, keeping this level of revenue with the amount of stores, of course, which will bring in a positive perspective and evaluation, confirming our expectations and, of course, reinforcing, especially when you take a look at the base and the customer flow with the levels of margins that we've been operating within the units. But obviously, to be able to provide a whole other level, we would have to have a bigger store network open. And of course, you always have to be very careful about this so that all the numbers we're committed to in the market with our shareholders that whether they're minority shareholders or controllers that we can always deliver and what we established as an expectation in the market. So if we were to provide, if we're in plan, yes, it is in line with the plan and even better than what we expected. But we're still going to wait for a bigger amount of openings in the fourth quarter. November is a fundamental month, and we have a huge amount of stores. And so in the fourth quarter, we should probably have numbers that are a little more optimistic than what we had mentioned now in the third quarter. So I'll move on to Dani now so we can talk about the expense issue.

Well, about the expenses in the fourth quarter, you mentioned that we're going to keep up with this accelerated schedule more than what we had initially considered with the revision of the guidance for openings, 45 openings in the second semester. So this leads to a very important -- very significant, and it will continue to have an important weight in our SG&A. So we will keep up with a level that is above 9% in the expenses as we saw in this quarter. And due to all of these expenses, we will also bring in the opening of these -- we're also going to give you more specificity on this. But it's still quite early to be able to mention any signs towards this. But of course, it will be more than 9. These are our forecasts here.

The next question is from Thiago Macruz from Itau.

I have 2 questions. The first one is, Belmiro, I want to understand if the historic conversions in very different locations which you didn't have access to before, have these stores brought in different opportunities with suppliers, specific campaigns that maybe you were never able to do before? Considering the type of store you had to open before and then now you're being able to work with, has this evolved in some way and surprised you in some way? I think this can be an interesting upside. And on the other hand, I've been asking Dani also about if she could give us an idea of the next period and the levels we should expect for financial expenses capitalized and in the fourth quarter and the first quarter so just we can have an idea.

Well, Thiago, thank you. First, I'm going to pass the floor to Wlamir so you can answer this more when it comes to suppliers, okay?

Thank you, Belmiro. Thank you, everyone. Well, yes, actually, I'll answer you that because these stores allow us to develop new things and new agreements with suppliers. But at the first moment in the first and fourth quarters -- in the third and fourth quarter, sorry, we will probably continue with the conversions in the beginning of the year. But the objective is really to put these stores under operation in the best way possible with the addition of services, the increase of the assortment. And for all of this, after a certain period in time, after the stores have been opened, we'll be able to have more potential to develop new things and new agreements with suppliers. But of course, at this set of initial moment, we decided to open up the stores in a way that we are already used to without wanting to insert new things so we don't get in the way of the process. So we have a lot of people involved. And when you want to start anything new, you meet -- the chances of not having success are big if you're not focused. So we'll probably lead this more to the third or fourth quarter next year. So that's where we would maybe consider these new models. So we still have a lot of -- a lot to explore in these points.