Sendas Distribuidora S.A. (NYSE:ASAI) Q1 2024 Earnings Call Transcript

Sendas Distribuidora S.A. (NYSE:ASAI) Q1 2024 Earnings Call Transcript April 25, 2024

Sendas Distribuidora S.A. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning everyone and thank you for waiting. Welcome to the Earnings Call for the First Quarter of 2024 Assaí Atacadista. I want to highlight that if you do need simultaneous translation, we have this tool available on our platform. To access, please select the interpretation button through the globe icon on the bottom part of your screen and choose your language of preference, Portuguese or English. This earnings call is being recorded and will be provided on the IR website in the company at ir.assai.com.br where you can already find the earnings release. During the presentation all of the participants will have their mics off. Soon after, we’ll begin the Q&A session. To submit a question, please select the Q&A icon on the bottom part of your screen.

Write your name, company and language to enter the queue. As you’re announced, a request to activate your mic will appear on the screen. Then you must activate your mic to submit questions. All questions should be submitted at once. We want to highlight that the information in this presentation possible statements that could be made during the earnings call related to business perspectives, forecasts, and operational and financial targets at Assaí represent beliefs and assumptions of the company’s management, as well as information that’s currently available. Future statements are not a guarantee of performance. They involve risks, uncertainties and assumptions because they relate to future events and thus rely on circumstances that could or not occur.

Investors must understand that general economic conditions, market conditions and other factors may affect the future performance at Assaí and lead to results that differ materially from those listed in such future statements. Now we’ll pass the floor on to Gabrielle Helú, the Investor Relations Director at Assaí.

Gabrielle Helú: Good morning, ladies and gentlemen, and thank you for participating in our earnings call for the first quarter of 2024. I want to present our executives present today during this discussion. We have our CEO, Belmiro Gomes; and our four VPs, Vitor Fagá, the VP for Finances and Investor Relations; Wlamir dos Anjos, Commercial and Logistics VP; Anderson Castilho, the Operations VP; and Sandra Vicari, VP for People and Sustainability. Before we begin the presentation, I’ll pass the floor on to Belmiro for his initial remarks. Please, Belmiro.

Belmiro Gomes: Okay, thank you Gabi. Thank you ladies and gentlemen, for your participation in one more earnings call at Assaí. Our VPs, I want to thank you for your presence also as they’ll be participating in this presentation and also Vitor. He’s – warm welcome. He just joined our team recently. He is going to talk about our financial aspects and other contributions. So welcome Vitor. And now, as we get into the presentation, I wanted to thank our team from all the different areas. I want to thank our board as well for their support and interaction with the company. And also we want to thank the 76 million customers that have been visiting all of our stores. During the first quarter, we had an increase of 13% in the customer flow.

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Q&A Session

As you can see, we like highlighting this a lot and really looking at this in a nominal way. 76 million means a progressive of over 10 million tickets within the first quarter. More than 3 million customers in these three first months on average per month, due to the conversion work. So, to summarize this, it really demonstrates the resistance, the business model, the precision and the value proposition and the strategies also for plans we worked on with changes in the actual model. We’re going to disclose this more during the presentation. And of course, within this evolution, I think Assaí has been one of the main protagonists in the food market. In the first quarter now, the company reached 293 stores under operation, which means that till the end of the year, Assaí will go over 300 stores in activity in Brazil.

And in the first quarter we had some openings that are very important. Our second unit in Macapá, our first unit that was installed four or five years ago, which is a very productive unit. It’s a market that’s very logistically challenging. And another unit in Vila Maria, which is very significant, where we had our first cash and carry store set up when macro arrived in 1972. And it’s a very important unit also in Cidade Tiradentes, which is another unit in Cuiabá. And we just opened the second store in Espírito Santo. And also moving on with the expansion plan that Assaí has for that market. So we just went through a huge expansion process, 28 openings and 80 openings when we add up the last 24. So there’s still a good amount of the stores that are in expansion that are still in maturity phases.

Considering the numbers in the first quarter, they consolidate the level of expenses. And the changes that take place in our business model did not change the proposal of our business model, which is really to be the best cost option for customers and final consumers, and also for B2B customers, as well as search for ways to conquer new markets and customers, and especially new social levels in different regions. And we’re going to talk about this throughout our presentation. So the conversion project was basically finished. The level of EBITDA that we deliver within this first quarter, as you saw in the earnings release, it really makes the company get back to the levels of pre-IFRS EBITDA margin levels that we had before we began the conversion process.

It was a really important evolution, 38% in the EBITDA margin and the pre-IFRS EBITDA. So we’re really highlighting this because in the last strategic projects we had, they really changed our lease expenses because now we’re operating within the store network with stores that are more central. And as we consider this from a real estate perspective, they’re basically irreplicable in Brazil. So our EBITDA margin progression, as we’re going to look at up ahead, brings the company to consolidation these numbers and within advance, that’s very important in the same stores in the quarter. So this quarter has two important impacts. We have the calendar effect with Easter, which is not that significant in our sector, but we also have the 29 February, which has a significant impact.

So with this, we delivered R$18.8 billion in revenue, 14% growth compared to last year. And considering the combination of the progression of the same stores that I highlighted, but also considering the progression of the 20 new units that were opened in the last 12 months, and if we were to calculate this, we’ll see that from the 28 units, 14 of these are organic and 14 are conversions, then we reach an average sale of R$18.2 million or R$18. million in these units that were recently opened. Of course, they come in to their curve also for maturity and progression, but a level that’s higher than what we noticed in the market. The company also registered an increase in the market share in the same store vision, which we believe really demonstrates this precision, especially with the conversion project.

The net income that Vitor will also highlight a little more we have two points to highlight here. With the layer evolution in the first quarter, the base was really impacted by the conversions we had recently worked on. At the end of 2022, in the first quarter, as we’ll see, we had about 60 new stores that had started their margin curves. And another highlight in the quarter is demonstrating the capacity to generate cash in the company and the business model, which really makes us reduce the level of leverage and related to the fourth quarter [indiscernible] because we know there is a seasonality effect that’s very strong. And all of this allows us to re estimate the net debt-to-EBITDA levels now for the end of 2024. We talked about this in the Investor Day with a net debt-to-EBITDA ratio of 3.5, which will now allow us to re estimate another level that’s lower than 3.2. And we’re going to make sure this can be even lower than this in the next quarters.

We can move on to the next page. So here we can see we have an evolution in the conversion project, as we all know. We highlighted this in other opportunities with the purchase of the Extra Híper points. And this was all part of a strategy at Assaí, with our entrance into the central regions with a more challenging project, where, as I’ve mentioned, we even had 18,000 people, sometimes working simultaneously in civil construction. These stores are in regions where our model was not that present yet. So it really considered an increase of consumers and an increase in capacity for sales and margin generation. We look at the profits in the first quarter. We have a progression in that group of 47, which were 23%, and the pre-IFRS margin doubles from the first quarter to this one now and a progression in the sales of about 20 – about 18%, which leads to an average level of R$26 million.

So the store network, the Extra store networks that are still in the beginning, they still have been around for less than 24 months, but they deliver a pre-IFRS margin level that’s in line with the company overall. And that’s visible when we look at the pre-IFRS EBITDA if not, we wouldn’t have had that progression of 90 bips that you all saw. You can advance on to the next page, please. So the gross profit here we really demonstrate the capacity to generate value because the EBITDA will have a combination, but then you have the gross profit that really demonstrates the strategy adopted. The gross profit in this period went up from 186%. And so in 2019 we were doing R$1 billion; in the first quarter, this went up to R$2.8 billion and with an increase in the gross margin of 15.3% to 16.3%.

And that was all part of this strategic rationale for the evolution. Because this increase in the gross profit was necessary to cover the model where some modifications made in the last few years, which included an increase in the product mix and a search for improving purchase experiences and the deployment of stores in the central regions where the cost of lease and IPTU property tax were greater than what we had already considered. But in our plan, there was already a change in the Cash & Carry format to be able to enter these higher social levels. And also as we include these new services, besides improving the purchase experience, we also consider the increase in replenishment. So when you look at Brazil, we have, when we divide both publics between the 40% B2B and 60% B2C, we’ve been trying to, besides the monthly shopping or bulk shopping, also be a replenishment purchase option.

So we don’t rely that much on inflation periods when this big bulk shopping is the best option for most families. But when we look at the Brazilian market, we see an increase in labor and the amount of informal workers as well, and really small businesses. So we can see it’s a kind of labor that doesn’t receive like a monthly salary, but a daily payment, right? So this went up to about 15.3% of maze, which is like an individual company. They are Uber drivers or they make daily wages. It’s normally more difficult for them to have like one big bulk shopping. So a lot of the operations made in this model [indiscernible] present a better purchase experience. They intend to keep this resilience be an option for prices for businesses, bakeries, grocery stores, that are going to supply themselves in the food service, but also – regardless of the final consumer, the B2C customer wants to have a smaller amount in a replenishment purchase.

We want to be positioned and well in this. And this made the company a lot more resilient to be able to face any scenario or any adverse scenario or external turbulence we may face. You can advance, please. I think this is really visible with all of the changes. So the fourth quarter always has this kind of seasonality effect. And we had a lot of discussions about the changes made in the business models, the stores in downtown areas, including new services and all of this. So it provides this kind of level of disclosure, right. So if you discount the lease and the pre-IFRS, you’ll see that the level of expenses at SAE, that was 9.5, now closed at 9.4. Even with all of these changes, the increase in the mix, the increase in the services that we place in the stores and the rental calculations reflect the company’s position having stores in more central regions.

And I think this demonstrates it was very precise, especially for customers in Brazil, where we have a metropolitan area with major density, logistical challenges and traffic. And having these more downtown stores becomes an important option for consumers as they also become consumers and businesses in the surrounding areas. So in the conversion process, most of the leases should consider a dilution curve. Still, since most of our leases consider fixed values, and as you reach maturity and they continue in this maturity process, this expense continues to be diluted, but more than offset by the increase in the gross profits. Moving on to the next slide, before I move on, all of this combination is visible in the pre-IFRS EBITDA. So the company had levels of investments that are really high to be able to reach this other positioning.

And the company is the second biggest food sector player in the Brazilian market. We’ve been having a constant sales progression, but we’ve also considered balancing out the growth of our sales but also balancing out the results. So we always mentioned the hypermarket project was a project with the beginning, middle and end. And now when we have these stores contributing more generating cash, Vitor will talk about this process in this deleveraging process and this is going to really be visible and return to this new level, right. So we go to R$670 million and this demonstrates the fact that this strategy adopted and with the correct strategy and precise strategy, the company becomes a lot stronger to continue advancing from now on with organic projects and new opportunities as well.

As we mentioned last year, we became the company’s most present in the Brazilian households, one in every four buys at an ASAI store in the São Paulo region. So we still see a lot of opportunities in many other states. So then finally, you have the EBITDA issue and we’ll pass this on to Vitor and he’s going to get into more of the financial details.

Vitor Fagá: Thank you, Belmiro. Well guys, now we’re going to talk about the impacts of our financial results because understanding these impacts is fundamental to also look at the layer and the net income and the variations compared to the last period. So in the first quarter this year, the financial results were impacted by four main events and they also bring a pretty big difference and considerations when we consider the same period in the previous year. First of all, the completion of the payment for the acquisition of the hypermarkets, besides this, the MTM of the swap instruments we have for some debt tools we have that are considering IPCA-plus or the pre and we swap that to CDI. So this swap operation also was adjusted.

And the third factor is the non-capitalization of some interest related to stores that were in this conversion process. And finally, the reduction of CDI. In this period, I want to highlight that two of these factors, the MTM as well as the capitalized interest are non-cash effects. And these two effects jointly add up to over R$100 million in the first quarter. When we take a look at the layer, this is mainly impacted layer would be the profits before income tax. And this is mainly due to the maturity of the new stores and the control on expense dilution, as we can see in details. And also when we consider the growth of the financial results that I did provided in details, considering these four factors and this growth is important as it demonstrates the results in the profitability of the company due to the store maturity process and dilution of expenses.

And finally, we reached the net income which had a growth of 19%. As Belmiro mentioned in the beginning of the presentation, as a consequence of this evolution in the financial results and the profits before interest that we just observed, but also considering the comparison with the previous year, it’s impacted by the end of the subvention for investments, which modified our comparison basis and leads to this growth of 19% in the period. Next slide please. Now we’re talking about cash generation. So we had a cash generation that was very significant in the period. We were able to have operational cash generation of R$4.9 billion in the last 12 months. And one important point to highlight is the growth, considering the cash generation we had in the end of the first quarter last year of R$1.7 billion.

So this was a significant cash generation growth when we compared 12 months with the same period. And even when we compare this in a sequence, the cash generation that we had, which ended in December 2023, throughout the year, this cash generation we notice now in the first quarter is R$300 million higher. So this demonstrates that the evolution of the conversion process in the stores and the EBITDA growth was really reflected in the cash generation. And besides this, it’s important to also notice that we had an improvement in the working capital cycle, an improvement of almost five days, 4.6 days, impacted mainly by an improvement in the levels of stock. We described this movement and the details in this process in the release, so that you can get a better feel on this evolution as a consequence of all of this cash generation and the CapEx and the cost of the debt, we have, when we compare the 12 months, we have a net debt that’s pretty much stable, R$13.7 billion to R$13.8 billion.

And the main factor here is the deleveraging process the company is experiencing, as we can see on the right side of the graph. So the reduction of the leverage where at the end of the first quarter was 469 times EBITDA, and now it goes on to 365 times the EBITDA. So it’s almost a reduction of almost one times 0.94. And it’s important to see that this reduction in the leverage was due to the evolution of this EBITDA. So we can see in the bottom part of the graph, there’s an evolution of R$2.9 billion in accumulated EBITDA in the first quarter to R$3.7 billion now. So the deleveraging has been taking place through this strong operational evolution and the growth of the EBITDA. And as we can see, the net debt was kept pretty much stable in this period.

So these were the comments guys about the financial expenses and results and cash generation and leverage. And now, I’ll pass this on to Sandra as she’ll be talking about the ESG initiatives in the company. Sandra, please.

Sandra Vicari: Okay. Thank you, Vitor. Good morning, everyone. Ladies and gentlemen, as Vitor mentioned, I’m bringing the vision of our sustainability initiatives in this period where within our strategy for sustainability. We’ve been trying to evolve more and more with our commitment to the best responsible operational practices, trying to minimize our impact environmentally. Our strategy has also been to leverage the prosperity to everyone. And this is sustained by three pillars. So first, I want to highlight the pillar of official operations where in this quarter, we had an important highlight, considering our reductions of emissions where we were able to reduce 9.5% of the Scope 1 emissions. We continued in line with our target of 38% reduction till the 2030.

We also considered over 40% of waste coming from operation through recycling practices, composting and reduction of food waste. And here I want to highlight our correct disposal program, which avoided that over 370 tons of fruits, vegetables and projects would be sent to landfills. And that also demonstrates our commitment to this. And in this period, we also performed the third edition of the premium this award for the top Log Assaí. And it considers the suppliers that support this process for supplying the stores with excellence and we also consider the sustainability category this year where we’re able to also recognize the best practices of our suppliers in regards to fighting climate change. In the development – people, development and community pillar, we’ve been investing strongly in the training and development of our over 80,000 employees.

And we’ve also been promoting initiatives constantly that contribute to the very diverse labor environment where we can provide the resources so that everyone can be valued and respected. As you can see in our slide, our numbers reflect this. And I wanted to highlight that our over 43% of black people in leadership positions, which is something that makes us very proud, pride. We also have amount of people with disabilities that’s above the legal quota for over eight years and 25% – over 25% women in leadership positions. We were also recognized for the second year consecutively in the ranking diversities, reaffirming our commitment to equality and inclusion. And we are also committed to food safety and food security in the communities where we’re present.

This quarter, we donated over 140 million tons of food. And we also became signatories to the pact against hunger, reinforcing our commitment towards fighting hunger in our country. And finally, in the ethical and transparent pillar, we had the disclosure of our Annual Report for 2023. And it demonstrates our results and how we reach these throughout the year. And it also reflects how our strategy for sustainability, it permeates the entire company, reinforcing our transparency towards all of our stakeholders. Our commitment to sustainability is an ongoing process and we plan to continue to evolve and especially contribute to have a more sustainable future with greater prosperity for everyone. So that’s what I wanted to share and I’ll pass the word on to Belmiro.

Belmiro Gomes: Well, thank you, Sandra. I think that brings in an interesting chapter. When we look up ahead, we can see in my presentation also Vitor’s presentation with a leverage issue in other calls, which is the biggest focus. The company is a big cash generator and Assaí has always – the last time we received resources was in 2010, we were always able to grow and grow a lot becoming one of the biggest companies in its most present in households, with our own cash coordination, and the biggest risk we had for payment to GPA was just done now in January 2024. So we have no more payments. And now the company has a stronger cash generation, considering the maturity, as we can see this together. And also this reduction, of course, now the interest curve is stressing us a bit and we have a reduction in the interest rates as well, which should help reduce our levels of financial expenses.

We have 15 stores expected for this year 2024, and then we’ll go back to a level of expansion of about 20 stores or so for 2025. So this year, as we mentioned, we have a slow – a lower level of investments compared to what we had in previous years and within this period – this process of balancing our ongoing growth, but also the deleveraging. And we also have major opportunities when it comes to digital as well as category adjustments. As I mentioned, we still have about 30% or more than 20% of our store network still in maturity. Most of these stores have some opportunities that the company has been searching for ways to explore in different projects, and we’ve been working on these in certain regions in Brazil. And our size and capillarity allows us to work on different tests, and this model should continue advancing.

So there’s still some category adjustments, and I think there’s still opportunities in some of the commercial galleries as well that continue to have this deployment process, and now an initiative for commercialization as well for advertising, places – spaces. So when we look at 2024, of course, we have all of the uncertainties. We still see consumers quite pressured, although we did see constant drops in unemployment rates. The purchase power of the population is still pressured by debt levels, most of them with high quantities of delinquency. But that makes our model continue to be attractive, because saving money is important regardless of the social level or level of income the person has, which places us in a very good situation compared to the other food formats.

It’s a little bit more favorable within this scenario. And when it comes to inflation, depending – except for some very big external factors, we’re estimating that the food inflation will be about 3% to 4% and a gradual recovery in the traded pandemic, but nothing too strong for 2024. So the numbers in the first quarter already demonstrate this. Once again, the consistency of the company and what we presented within this strategic plan for growth that we were able to demonstrate – but we do hope this year will be less adverse than last year. So now I’ll pass the floor back to Gabi, as we begin the Q&A.

A – Gabrielle Helú: Great. So now we can begin our Q&A session. So we’ll begin our Q&A session now. [Operator Instructions] Now, the first question comes from Maria Clara from the south side at Itaú. Maria will enable your audio, so that you may proceed. Please Maria.

Maria Clara: Hi guys. Thanks for the opportunity to submit a question. Belmiro a topic that always appears in our interactions with investors is the status of the competitive environment, especially in Sao Paulo. So I want to ask you to please talk about your perception on this. The second question is about numbers, specifically. In this quarter, we saw the net income growing a little more than the gross network revenue. So can you talk about the main drivers for this, please? Thank you.

Belmiro Gomes: Well, we have two important points here. First of all, the first quarter, besides everything else, we also had an important point here, which is highlighting the EBITDA. We had a lot of ICMS rates growing in different states, and we had an impact that’s quite relevant. We had 14 states at an expansion in the tax rates, and most of these are related to products that are subject to tax substitution, which makes the correlation of the net revenue versus the gross revenue take place. So they have an increase in the tax load, since the product is within this calculation, where most of the states had this kind of change. This generates a difference in the correlation between the net revenue and the gross revenue, because the product with a substitution considers a higher CMV.

As you increase the rate, so you have an increase in the cost, but you have a difference in the payment parcel which is added to the gross to the – net revenue instead of the gross revenue. But we did have an impact in this ray of 14 states that led to an increase of 2%, 3% and even 4% in some cases. So the competitive market, of course, considers now, we have this market accommodation process with the amount of stores we open and conversions, most of the hyper markets were in the central region. So we did see some changes in the market with macro leaving. But today we have about 105 stores in the state of São Paulo. The company is very strong, the biggest player in the state of São Paulo. And our size and scale and the strength of the brand especially, we’re actually waiting for – Assaí was considered the best cash and carry operation.

So it’s a proposal that’s a lot higher than what we had seen in other market players. But of course, you have a scenario with more competitiveness than what we had seen before. But when you consider the average sale per store that Assaí has been working, you can see how even in this scenario with more players in the market, more competitive advantages, you can see how the company can really stand out when it comes to comparing with other players. So I think then the best path is to look at this average sale with the 28 stores we opened last year.

Maria Clara: Okay. Thank you. That’s perfect.

Gabrielle Helú: Now, our next question is from Ruben Couto, the sell side at Santander. Ruben, please. We’ll enable your audio so you may proceed. Please, Ruben.

Ruben Couto: Okay, guys, good morning. How’s it going? Well, I have two questions here. In this quarter, we continue to see this gradual improvement in the like for like, but we had a smaller contribution in the volume growth versus last quarter. And I wanted to know how much of this is price per increase and the beginning of the trade-up. This was one of the thesis that could happen, and I wanted to get an update on this topic. And also when it comes to the income tax variations, I think this changed a lot, right, when you consider the reduction of income tax due to the ICMS subvention. So I wanted to understand why it’s there. Is it going to continue throughout this year and what we can consider for 2024? That would be great. Thank you.

Belmiro Gomes: Okay, thank you, Ruben. As you mentioned, we had this provisional measure, 11.5%, which reduced most of the subvention credits we had in other states. Now the ones that are still there should remain unless there’s some change in the legislation because most of them are presumed profit regimes or even products that are exempt, which are in the regimes of the regulations for the state. So within the regulation in the states, what’s valid to Assaí, but also to other companies. So this – unless there’s some big change in the law or in the states, we consider that this topic is a really strong topic. And so maybe this year we hope that there’s a little less surprises in the tax front, but this is a level that we do expect for the next quarters.

So in the first quarter, we searched for ways to be a little more balanced and we also wanted to balance out the margins. We wanted to bring this level of margins in the company to the period before the conversion. We still haven’t seen in the first quarter an effect of the trade up on behalf of the population. You can see that the population, although we did see a drop in unemployment, the level of debt among families is not allowing them to recover the same volumes of purchases. So we had a slight impact. It was more inflationary in the first quarter, but part of this comes from the actual increase in the income rates that also generates, as you reflect this, in the sales price, this increase in the rate also impacts the final prices. But we still have not seen this.

And in our vision, the first quarter was very positive, considering everything we highlighted so far. But we still don’t see like a very favorable external scenario with B2B customers buying big volumes because they don’t see any expectations for inflation at this point in time. We don’t either unless the currency continues to be super high pressure, then maybe we would have some kind of effect in the inputs or commodities that are exported. That would be a worldwide price that could lead to some inflation, depending on the currency. But it’s not what we’re looking at if we just consider the domestic market at this point in time.

Ruben Couto: Okay. Thank you, Belmiro.

Gabrielle Helú: Thank you. Our next question is from Vinícius Strano, sell side at UBS. Vinícius, we’ll enable your mic so that you may proceed. Please Vinícius, you may proceed.

Vinícius Strano: Okay. Good morning, everyone. Thanks for that. Just to explore a bit more about the B2B customers, if you could talk about what you’ve noticed when it comes to contribution among these customer sales and how you’re imagining this customer restocking, considering it’s not so relevant today? How are you thinking about this in the future? And more strategically, how do you plan to explore the offering of services to B2B customers? And do you imagine maybe structuring credit offering here.

Belmiro Gomes: Okay, I’ll pass the first part about B2B customers to Wlamir. He’s monitoring prices a little more and the behavior of these B2B customers. And Vitor will talk about the services issue later on.

Wlamir dos Anjos: Okay. Thank you, guys. Thank you for the question, Vinícius. When you look at the share of B2B customers about 40%, 45% of our revenue, we don’t see like a big stocking movement. So just as the interest rate and the working capital for this type of customer is really important, and they end up using our stores as a supply point and we don’t expect an inflationary movement that’s very different than what we mentioned in the beginning of the year with you inflation be about 3% to 4%, and that wouldn’t motivate anyone to build up stocks. So we don’t expect a stock up movement for B2B customers. We do have factors that could contribute to inflation that are not under control, such as the currency, petroleum, climate effects and external factors that could take place with some changes in the behavior of purchases and supply of these customers.

In the last quarters, we haven’t really seen much of a possibility for this to happen. We use this jargon which says B2B customers are going to continue to buy from mouth to hand without setting up really relevant stocks in-house.

Vitor Fagá: Well, Vinícius, as we talk about the service offering, yes, we are considering to increase this offering because we have this offering of services that are really connected to individuals, and we consider that increasing the supply of services to B2B will bring greater proximity to customers and also increase loyalty and purchase frequency, which is our final objective. So we expect to increase the service offering, especially for B2B customers.

Vinícius Strano: Well, great. Thanks, guys.

Gabrielle Helú: Our next question is from João Pedro Soares, sell side at Citi. João we’ll enable your audio so that you may proceed, please.

João Pedro Soares: Okay, thank you. Well, I want to take advantage of this service point here because we noticed a gross margin that’s a little healthier. And when we consider up ahead a bit more of this commercial dynamic, can we see effects that are more beneficial reflecting the gross profit, the gross margin. Sorry. And when we consider the gross margin, the EBITDA margin has also been a very positive point when it comes to expense discipline, which is something we’ve noticed. It’s very consistent ever since the last quarter. And there’s a magic number of an expansion the full year, about 10 basis points to 20 basis points in the EBITDA margin post-IFRS and I wanted to understand if you guys could maybe give us some perspective on this margin in the full year, are you more constructive?

Is this reduction of the leverage guidance reflect a more constructive vision compared to the full year? And so these two points. And then a final one, is just about the financial revenue of about R$43 million. And if we were to annualize this, it leads to a very low number, considering the average cash of R$5 billion. So why? And what is behind this number? So could you talk about this a bit? Thanks, guys.

Belmiro Gomes: Well, we want to do this backwards, forward, and then we’ll get back to the margins.

João Pedro Soares: Okay, thank you, Belmiro.

Belmiro Gomes: Now, the financial revenue of the cash position, it’s important to understand how the dynamic works in between months. So essentially, the company’s main payments take place on the first, the 11th and the 21st of each month. So our cash behaves in the month as if it were like a little mountain, right? So it drops and it goes up and recovers this and then drops again. So the final vision in the end of the month is what the average cash position? The cash position on average, is different than the final vision of each month because of this dynamic, which is why when you have this calculation from backwards forward, considering R$5 billion, you don’t reach the cash profitability. Of course, this is marginally lower or slightly lower than the cost of our debt.

But what explains this difference is the fact that we have this movement in between months that makes the cash on position on average be different than the cash position at the end of the month. Well, as we get into the information about the EBITDA, then afterwards talk about the expectations for the gross margin, but the EBITDA still. What we’re presenting here is a shift in the guidance for the debt. I think we need other quarters because we got back to this level of EBITDA before the conversion project, and we can consider this now as sustainable. But for the full year, we don’t want to take on any other assumptions or indications of the EBITDA margin. We’re going to monitor this in the second quarter, but I think in the first quarter we get a pretty good indication of this, and then I’ll pass this on to Wlamir to talk about the margins a bit.

Wlamir dos Anjos: Well, about the margins, our expectations for the maintenance of the margin. So especially the commercial team and operations that take care of the purchase and sale, we’re always searching for ways to improve the margins, but we understand that there’s also a competitive scenario, and we have to keep some correlation between gross margin and competitiveness within the market. And of course, with our value proposition. So we’ve been very assertive when it comes to this balance point of the gross margin. When we consider our sales dynamic, for example, in this quarter we had 30 bps on the same-store base of share even with this very challenging scenario and competitive scenario, we don’t expect to have an improvement in the margins up ahead, but to have the maintenance of this margin in these levels.

João Pedro Soares: Perfect, guys. Thank you so much.

Gabrielle Helú: Our next question is from Felipe Rached with sell side at Goldman Sachs. Felipe, will enable your audio so you can proceed, please. Felipe, you may proceed.

Felipe Rached: Hi, guys. Good morning. Thanks for taking my question. I wanted to follow up on this. I think it was Ruben asked about this, but you mentioned the ticket and I wanted to explore the issue. I understand that the growth of 0% to 4% [ph] does not consider the adjustments in the calendar fact. So if we exclude this, it would probably two drop in volumes in the first quarter. So I want to understand two points here. First of all, I think Belmiro even talked about this in his final remarks. But I want to understand what you’re looking at, how you’re considering this health of the consumer and if this could impact demand in some way in the next quarters? And then the second point is understanding a bit more of this dynamic with the volume and tickets, of course, with what you can talk about in the converted stores, considering the legacy stores. And anything you guys can talk about in this sense would be really interesting. Thank you so much.

Belmiro Gomes: Thanks, Felipe. Yes, you’re right, we had an increase in volumes with the final consumer, even in the legacy store network. And of course, the stores in under maturity, considering the progression in the sales. But when we look at reduction in the volume, which was also expected where we had this part in the B2B customers, where sometimes we have to have more aggressive pricing. For example, last year we had a lot of customers that were businesses and that take advantage of the prices during the opening periods and some special prices we have in the first quarter. But we look at this very separately. So the recurring customers and the B2B customers that are also considered in the stores and the opportunity purchases as well, where they take advantage of a bigger expansion period.

When you look at the delta for all of us, you reach a legacy that’s slightly negative but very positive for consumers, which is what we consider the recurring public. So when you isolate this effect, which is something that happens in all of the openings, it’s something that’s relatively normal in the sector where you have the elasticity that’s a lot higher. So I hope to have answered your question.

Felipe Rached: So, Belmiro, can you talk about how you’re looking at this dynamic with the consumers being pretty much leveraged, how you’re looking at this demand environment for the next quarters as well? That would be really interesting.

Belmiro Gomes: Well, we’ve been working with a scenario of maintenance. We see consumers at a level that’s the same as what we had seen in the fourth quarter, but maybe slightly a little better. But there’s still a lot of caution on our side. So we need to have another quarter come along. And we do notice that in the research we’ve been doing and even in the vision from our team in the day to day activities of the store, that consumers are still pressured by other expenses with shifts and behaviors, as we’ve already discussed this in other earnings calls, but really pressured by the interest. And most of the improvement we have is related to our efficiency and the store maturities. And also, although our sector is one of the most significant in the food sector in Brazil, you still have a lot of purchases done in other formats.

So as I mentioned, there’s a flow of receipts daily. And we’ve been focusing on this public a lot, which helps us to continue to advance. But we don’t have any trade up movements. They continue to be very cautious, and we can see there’s even a deflation in prices. But this year, the drop in inflation is something that, when you consider the possible gains and we consider the pandemic prices increased more, we can notice that this generates an environment with low consumption. So it’s slightly better in this first quarter, but we’re still very cautious about this. I hope to have answered.

Felipe Rached: Yes. Thank you, Belmiro. That was very clear. Thank you so much.

Gabrielle Helú: Okay, thank you. Our next question is from Bob Ford, sell-side at Bank of America. Bob, we’ll enable your audio so you can proceed. Please Bob, you may proceed.

Bob Ford: Thank you very much. And congrats on the quarter, Belmiro. How can we think about the store maturity for 2022 in the long term? And we had a big improvement in the cost structure, also considering a context of greater services in the store. But from now on, how much more do you think you can improve this? And what’s the percentage of sales that are identified? And also, can you talk about the functionalities of the Meu Assaí app and how this has been impacting the frequency and the size of the transactions and how you expect this to evolve, please? Thank you.

Belmiro Gomes: Okay. Thank you, Bob. When it comes to maturity, I think the store network of 2022 and 2023, as I mentioned, the average sales within this store network of 28 stores, we have half that’s organic, with a maturity store that’s a little slower. But despite this, when we look at the average sales per store, we don’t have like a positive sale. And the stores that were opened last year should follow the same route. So nothing from a location perspective. And the sequence of openings – reopenings of the hypermarkets were a lot more connected to licenses than to our actual desire for these openings. So the expectation is very similar to what we had in 2023, compared to the network in 2022. So nothing new in this sense.

And the cost structure is something that’s very important. And so this major transformation, and one of the main, I’ll say, was a protagonist. It was strategic change, monitoring some market trends, because we have a lot of changes. We saw the amount of closings in Brazil. And so there’s also a demand for stores that are closer with better levels of services. We had many scale gains, considering the size and costs. And the scale gains in our vision also kind of offsetted these increases, considering the levels of services. And when we consider this, of course, this brings in greater expenses. The services that were added, like the battery, the coffee shops, and that of course, also represents an increase in the headcounts. But on the other hand, it also brings it revenue and margins.

And that’s why we highlighted this level of expenses. So, as Anderson mentioned, it’s like, expenses are like nails, right? You always have to cut them down. And so we want to hold on to expenses as much and control them. I actually want to pass this on to him. So you can talk about the levels he expects and then we can talk about the app. When it comes to the percentage, identify the expectations we have up ahead.

Anderson Castilho: Thank you, Belmiro. Good morning, everyone. Bob, actually, the expenses are really a big part of highlighting. In the last quarter, we had a big differential. And we’ve already demonstrated this as something that’s very sustainable. So in the first quarter, once again, we’ve been very much in line with what we’ve been doing. And what we can see especially, and this is consistency. So expenses is line by line. There’s no big line. Each store has fundamental role in this. And it’s important to highlight all of our store teams that, of course, we get into major details. And so also the store maturity that helps with the expenses. And on the other hand, we have a team with some initiatives and strategy in our business has also gained greater strength.

The team has more maturity. And we also search for efficiency to be able to reduce our expenses and always balancing this out very well. So balancing out expenses and the purchase experience for our customers. So in the cash segment, we really want to stand out. We want to bring a value proposition that’s very unique. So customers can really feel comfortable with a store that not only has services and a differentiated mix, but also keeping up our costs. So we continue to deploy new services. We have until July this year, another 70 stores are going to be deploying and with CAFE Compound emporium [ph], the battery, but always taking a look at the expenses. So we always have this balance point between working on expenses in the day to day activities and also improve our experience – our purchase experience for customers.

So I think that’s pretty much it. We understand that there’s maintenance requirements that are really in line with this. And of course, considering the consistency in regards to expenses, so I think that’s pretty much.

Belmiro Gomes: Well, Bob, also, if we can talk about the [indiscernible], we have about 28% of our customers identified, and this number has been evolving. Of course, we have a difference between stores. This is an average. We have stores with greater share, with smaller share, but the strategy here is to evolve in this identification process so we can have better knowledge from our customers and that we can also adjust many of our offerings for services and products and the company’s value propositions to what these customers are demanding. So the plan is to increase this volume of purchases identified so that we can work with this better.

Vitor Fagá: Well, if I can contribute, I think an interesting point here is that these customers that identify themselves on the app, we added about 1 million customers in the first quarter and this is a competitive differential. And we’ve been also delivering things that make a difference. And the CRM has also helped us to have these offerings in a more precise manner. And when we measure this from the customers that download the app and use the app, they have a frequency of 50% more than the average recurrence in the month and they spend 33% more. So we are able to increase the ticket and add more items to the customer’s basket. So it’s an app that has really contributed to these advances. Besides the services and federal experience, we’ve been able to really stand out and continue to grow our customer base, which is where we presented here, the 13% increase in the customer base.

Bob Ford: Thank you, Vitar.

Gabrielle Helú: Moving now on, our next question is from Felipe Cassimiro, sell side Bradesco BBI. Felipe we’ll enable your audio, so you may proceed. Please, you may proceed.

Felipe Cassimiro: Good morning, everyone. Thanks for taking my question, just a question here about the stock level. So you talked about the normalization to 41 days. And I want to understand if this stock level is what we should expect up ahead due to the lower volume of openings. So I think we reached a peak in the last two years because of the conversions. So just understanding what the optimal stock level would be that we should expect from now on?

Belmiro Gomes: Okay. Now, as we get into supply overall, I think you guys can expect some stability in the levels of stock. As you mentioned yourself, we reduce the expansion pace and with this, we can also have a lower level of stock and openings. We’re more disciplined in the commercial logistics area, in the controls and product interest levels. And throughout the quarters we should also have maintenance in the levels of stock coverage, and also in the maintenance of the purchase terms. So we should not have major variations in this that are very similar to what you saw in this first quarter. So we’re going to consider the discipline and efficiency in the control of the working capital. So you can have some things that vary from one quarter to another. So for like Christmas or birthday campaigns, there could be some variations, but that won’t lead to much impact on our cash position. I hope that was clear.

Gabrielle Helú: Our next question is from Gustavo Senday, the sell side at XP. Gustavo, will enable your audio, so you may proceed. Please, Gustavo.

Gustavo Senday: Hi, guys. Thanks for the questions. I just have one that’s more occasional, maybe more directed to Vitor. Just taking advantage of the fact that it’s the first call you participated. And I want to hear the opportunities you’ve already identified and that you plan to advance with capital cost, working capital, et cetera, and a bit of your vision for the company throughout this year and up ahead as well?

Vitor Fagá: Okay, perfect. Thank you for the question. I’m going to highlight two initiatives. First of all, we highlighted one point, which is operating with the biggest offering of financial services to our customers, especially for B2B customers, which is something we need to work on in a very integrated way with operations, commercial, and also with FIC, which is a partnership we have with Itaú. So this is one of our priorities, and then we also need to reprofile our debt, so we had a recent issuance, 500 million, considering CDI + 1.25% [ph]. And we saw opportunities to bring in other operations that could improve our debt profile, especially when it comes to costs and timing. So these are the two priorities that we have to be able to work on this in a more intense way.

Gustavo Senday: Okay, perfect. Thank you so much.

Gabrielle Helú: Moving on, our next question is from Nicholas Lahaing [ph], the sell side at JPMorgan. Nicholas will enable your audio so that you may proceed.

Unidentified Analyst: Thank you for taking my question, guys. Here I think most of these questions were already answered, but I wanted to ask you Belmiro about this from the expansion side for this year. How have you considered the plans for 2024? And also considering this, leverage is a little more favorable for this year and some room to accelerate this also from 2024 to 2025. Thank you.

Belmiro Gomes: Okay. Thank you for the question. As I mentioned, this year we’re going to reach 300 stores. We have important units being built at this point in time. The store in Manaus, in Guarujá [ph] the first Assaí store in Guarujá, actually, and we should start with the construction of our first store in San Jose [indiscernible]. I want to highlight this because these are markets that are well known. Everyone knows about the potential and they still don’t have Assaí stores. So if there’s some fear when it comes to market saturation, there are still – important cities. And for this year, we’re keeping the level of 15 stores. We’re already anticipating prospects for 2025. Up until now, we don’t have a decision yet about increasing the amount of stores for this year, considering a lower level of leverage.

But of course, if you have a project come around and if you’re able to get the licenses and stores, especially when you consider the app, which is where the measure we use for each of the new stores and units, it could be anticipated, but maybe the beginning for this year. However, the opening would still be 2025, so we would be keeping up with the target for 500 units. So.

Unidentified Analyst: Okay, perfect. Thank you. Very clear. Thanks.

Gabrielle Helú: Now our last question. Here is a question in English from Andrew Rubin, sell side at Morgan Stanley. Andrew will enable your audio so that you may proceed. Andrew, please. You may proceed.

Andrew Rubin: Hi, thanks very much for the question. I’m curious if you could help update us on the latest for the CapEx per new store. We understand this was fairly inflationary over the past couple of years, but I’m wondering if the inflation and opening CapEx has started, started to stabilize or come down. Any update there would be very helpful. Thank you.

Belmiro Gomes: Thank you, Andrew. Thanks for the question. Yes, we did have inflation and construction materials and equipment, especially cement, steel and the metals, which is also very strong. And this year we’ve already seen a drop in this level, but it’s still a level. And of course, this depends a lot on the type of products. Right. So the unit in Guarujá, the stacking levels, and you have a higher investment as well. And the ROIC is always a determining factor in this decision for the store openings. But today, if you were to consider the average type of stores, we’re considering a total invest about R$70 million for the deployment of a new unit. So we’ve been operating stores that have different variety of sizes. It gives us a lot of flexibility and our own expansion plan to operate different kinds of stores, stores with different levels, but on average, this would be it. Thank you for that and I hope I answered your question.

Andrew Rubin: Very helpful. Thank you.

Gabrielle Helú: The Q&A session has ended. Now I want to pass the floor on to the company for the final remarks.

Belmiro Gomes: And we’ve already presented an expectation for 2024. I want to thank you all for your participation and all of the directors and team responsible for this work in the second quarter will continue. The company intends to keep up with this strategic aspect and evolution of the new store units and expansion. In the morning, we also have an important event, which is the annual general meeting. We have some important topics when it comes to the future of the company, and I want to also thank the board for all of their support. As I mentioned, Assaí has been going through a transition process. And so we stopped being a subsidiary and we started to be a controller. And then we really became a true corporation. And we noticed that the company continues to be stable, trying to meet the needs of our customers more and more, and also working with our people and our understanding our social role within society, considering the challenges in Brazil with a lot of social inequality.

And we hope to once again have your support in the second semester and support us in the general meeting that will happen tomorrow. Thank you all so much.

Gabrielle Helú: The earnings call for the first quarter of 2024 at Assaí is officially ended. The investor relations department will be available to answer other questions. Thank you so much to all participants and have a great day.