© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, everyone, and thank you for waiting. Welcome to the earnings call for our third quarter in '23 at Assai Atacadista. I want to highlight that if you do need translation, we have this tool available on our platform. In order to do so, please select the interpretation button through the global icon at the bottom part of your screen and choose your language of preference, Portuguese or English.
We'd like to let you know that this earnings call is being recorded and will be available on the IR website at the company, at ir.assai.com. Where you can already find the earnings release. [Operator Instructions] We also want to highlight that the information in this presentation and possible statements that could be made during the earnings call related to business perspectives, forecasts and operational targets and financial targets that I say, represent beliefs and assumptions of the company's management as all information is currently. Future statements are not a guarantee of performance. They involve risks, uncertainties and assumptions as they refer to future events and thus may depend on circumstances that could not occur. Investors must comprehend that general economic conditions, market conditions and other operational factors may affect the future performance of Assai and lead to results that differ materially from those listed in such future statements. Now we'll pass the floor to Gabrielle Helu. Our Investor Relations director at Assai.
Hello, everyone. Good morning. Thank you for participating in our earnings call for the third quarter of '23.
Today, we have Belmiro Gomes, our CEO; Daniela Sabbag, our CFO; Wlamir dos Anjos, our Commercial VP; and Anderson Castilho, our Operations VP.
As normal -- normally, we'll submit the floor to Belmiro for his initial remarks.
Thank you, Gabi. Good morning, everyone. Ladies and gentlemen, I want to thank you all for your participation during our earnings call for the third quarter. The third quarter of '23 had this big highlight, which has been on the news and media, which is the fact that Assai is the company in the food sector that has the greatest presence in Brazilian households. We reached 25% of all Brazilian households. So one in every four households visits an Assai store. This is a result of our value proposition and our expansion plan with a bigger amount of stores, but especially the business model that within our different projects that we're going to discuss up ahead in the conversion, it's allowed us to reach this important milestone. Since above all, the company that's -- in this major expansion project and will attract new customers, providing a guarantee that this was determined in our project, and it can be achieved. Besides this, we also have the acknowledgment and recognition of Cash & Carry brand that's most admired in Brazil with an award that was granted by [ Mastodon ] So before we begin the presentation, I want to thank all of our customers for this acknowledgment and recognition. We can move on to the first page. In the third quarter is still in a market scenario that we all know is very challenging with numbers that are very positive from the perspective of sales evolutions, and we reached a gross sales level of BRL 18.5 billion. We were able to reach in the last 12 months, a total level of over BRL 70 billion in revenue. And as a consequence of strong expansion, 52 stores in the last 12 months, we had over 100 stores that were opened in the last 36 months. Part of this store openings come from the conversion project at the hypermarket which was necessary and required many different adjustments in our business model and even in our value proposition, adding on services, changing the assortment and the mix.
So this proposal, which is something we had already been developing through previous conversions, organic stores deployed in downtown areas are really what we had already been developing. So I want to thank our team from different areas, almost 80,000 people. I wanna thank them all for the results and numbers achieved in the third quarter. And in the third quarter, we also finished as we all know, as I went through some shareholding structural changes with Casino's exit and in the third quarter, we had the last change in our Board with the exit of the last member that represented Casino, Mr. Philippe Alarcon and Anjos coming in.
I want to thank our Board as well for the support in all of the work that has been performed within this new phase of the company as a noncontrolling shareholder company with a true corporation profile. So our performance is very strong. We've been advancing in our expansion plan. We entered the third quarter with another state in Brazil, which is Assai Atacadista with the story you can see on the screen. This is a store that was built and that -- and completing. Santos continuing our expansion plan. Moving on to sales. Besides the BRL 70 billion to BRL 18.5 billion. in revenue in the third quarter. This represents an evolution when it comes to the second quarter of over BRL 1 billion. So we have a very strong base that is a bit complicated compared to last year because we started opening these action stores at around August last year. So you have growth rates that are going to be adjusted over time, but we kind of call your attention to look at the total growth rates and also look at the growth rates in the sequential evolution throughout the quarters in 2023.
Within the third quarter, I think even with the amount of stores, as we had mentioned, an important achievement of the company reached the highest level of EBITDA margins in the year. And we're bringing this EBITDA margin in both views, although the IFRS standard mentioned that we should highlight this. We also believe that the pre-IFRS vision reflect the company's numbers better and the analysis of the analysts. And so we're also delivering an EBITDA margin of 5.4% in the pre-IFRS vision, which is the same margin that we considered in the previous year, before the beginning of this process. And when we consider the amount of stores opened in the period, the pre-operation costs and a lot of these stores that are still ramping up and other costs we have in until the store is more productive in our view with positive numbers. So the same stores in the quarter have a series of different effects. The main point is that we're experiencing a moment of deflation in food prices. Some categories that are very important in the food market, and some of them have a price progression as well. And so sub products of milk as well as other commodities as beans and other categories. And so these are more connected to agricultural factors and external factors as well. But the moment when you have deflation, that's concentrated into different categories, then normally, these movements consider 1 or 2 categories. But then at this moment, we have at least 5 categories that are really important with deflation, and this kind of changes the dynamic of the business, especially in the individual legal entity public because when there's a drop in prices, they're a little more careful in their volumes and the amount of stock and this, of course, impacts our same stores, which is negative by 0.9%. There's also an impact besides the deflation, which is the group of stores that considers a bit of the cannibalization in this project. With the amount of almost a 100 stores and also the conversions at Extra at a moment where we closed Extra, we had some benefits in the amount of stores in last year. And so there is already a forecast within the beginning of the project we would have some cannibalization compared to the base in 2021 and also throughout '22 at the period where Extra was closed down, and now these stores naturally as they -- as we open these stores at Extra, we also have an impact in same stores, which also leads to an impact when we consider the numbers in 2023 and 2022. So a big highlight is expansion, which allowed the company, even with deflation, negative price points could advance in the BRL 3 billion in revenue. Leading to a growth of 22%. So this growth comes supported by an increase in the amount of tickets and customers. We have 15 million tickets additionally in this third quarter compared to last year. And when we consider the regularity of purchases that customers perform at Cash & Carry. This shows the size of the dimension of the new customers that we've been able to attract into these new stores. And so it's what's going to make us the company that's most present in Brazilian households. And so even with this big amount of stores, this project is still underway, and we were able to keep a gross margin that's very stable. Compared to last year, demonstrating that our business model, whether the food sector and also the value proposition of Assai is extremely resilient and resistant to all of this. And considering the very strong level of stability even with all of the changes and challenging economics now and even going through a very intense cycle of store openings, we were able to reach the highest level of EBITDA margin of 7.1%. And as I mentioned, stability of BRL 5.4 billion. In the pre-IFRS vision compared to the period before the beginning of the IFRS net income, assuming that Danny will highlight up ahead. But of course, there's an impact in the investment levels that the company performed and the cost of the carryover in this debt. And so we're going to end with BRL 185 million in the quarter.
An important highlight in our vision is that cash generation. Historically Assai has grown generating some cash. And we're going to talk about this up ahead as well our cash generation that reaches BRL 4.9 billion in the last 12 months. Most of the biggest investments we performed are in growth and expansion, you can advance now is really supported by the strong cash generation, which is a traditional factor for Assai. When we look at this today, and Danny will give you the overview on the debt in the company. When we look at even our current debt level, most of them -- most of it comes from the split process of GPA.
And what we want to highlight here is that the company is probably performing one of the biggest projects in the food sector, which is the acquisition of the commercial spots at Extra. And so when you add all of this to our organic expansion, this is part of our growth and our expansion that the company has been mentioning in the market. And so when we look at this overall period, we're bringing in a vision from the end of 2020 until the end of the third quarter. The end of 2020, we had a company with revenue of BRL 39 billion and 184 stores under operation. And so at the end of September '23, we have a company and we still consider this is not stabilized because we -- all of the benefits of the store openings and other conversions and also the maturity ramp. And so -- the company was capable of going from BRL 39 billion to BRL 70 billion, which is an add of BRL 31 billion in revenue. And just this additional revenue would already be the third player in the food -- in the Brazilian food sector. So in order to do this, we had to perform investments plus cash generation is really our important lever. We generate BRL 9.4 billion in this period. And this supported our investments in store conversions, organic expansion from BRL 6.8 billion, part of the payments of the acquisition of the commercial spots as well. And our CapEx also for maintenance is relatively stable. So about BRL 800 million that was invested in this period. It's not only the maintenance of the stores but also some other areas and expansion. And so the company distributed BRL 400 million in dividends in this period. But we had a cost of debt, which is above what we mentioned, especially when we had the acquisition project for the hypermarkets. There was another expectation about [ Selic ]. But even so, with this BRL 3.3 billion, we were able to have this variation in the cash flow of BRL 4.6 billion, highlighting the BRL 9.4 billion.
And this was important to support all of the investments the company performed at this -- during this period. So within these processes and the expansion that had been done. Assai was a company that had 14 stores only when GPA purchased this in 2020 or 2010. And the company has been generating cash and growing, but there was also a need to perform a movement that would be stronger. With the acquisition of the hypermarkets, you can advance to the next slide. And this movement is not only related to taking on the same model to a new region, but it's also related to modifying Cash & Carry model, which is the channel with the biggest penetration in Brazilian households. Cash & Carry today is a sector that really has the biggest volume of sales. And within the sector, we have the objective of always standing out and differentiating our operations, innovating. So the conversion project with the hypermarket is not only about taking more of the same. We had already developed some important new projects in new stores in organic stores with a model that could allow us to enter the downtown areas in the cities and also work with a different target audience, at different income level and make B2B customers that are especially in the food service sector could have a quicker option for supplying their operations. Everyone knows about the difficulties and logistic challenges in big metropolitan centers in Brazil and the cost of logistics in Brazil is so high, that makes it difficult for the industry to perform door-to-door deliveries. And so to be able to enter these new opportunities, we bought these spots that increased the level of leverage in the company. But when it comes to execution, it's probably one of the most challenging projects. And we were converting to hypermarkets for the Cash & Carry operations, but I also believe that at this moment, as we perform this project, with all of the different entities participating, we can really see a change and a shift in behavior in how the -- the Brazilian families supply their homes and businesses as well. So we know about the importance of this project, and this project has been on a growing maturity curve. We highlighted this in our shareholding base with presential investors, analysts about the company's expectations to triple the amount of sales. This multiple in sales reached in the third quarter 2.7x, even with the stores still on average, 10 months of operationally. And so we still have a ramp-up and maturity that needs to be captured adjusted according to each market and each store reality, these stores already deliver a gross revenue of 13% above average in the history of the company. And when we look at the 47 stores that were opened in '22, the EBITDA margin in our pre-IFRS vision already delivers a historical level, and a company of 5.4%, which is still strong with this ramp-up to capture. So why is this vision at the pre-IFRS vision? Well, because there's a dynamic of the behavior in the lease, which is different than what we had, where most of this was prospecting the spots, detecting and building the new locations. And so with this margin, we already go over 7%. This demonstrates around the right path and that the customers came in, gave back and before the return on capital, we have to deliver on the project. We have to guarantee that the customers like the value proposition and also come back and give back to one of the Assai's stores, right? So that's the return on invested capital as well. And so here, we have both views on the pre and post IFRS, because you have this dynamic with different aspects, but in our vision, both the EBITDA margins. Even in this phase and the adjusted EBITDA. It's still not what we would imagine in a mature store network because there's many stores that are still in this maintenance phase. And I also want to highlight the discipline with our expense control because at the end of the day, we have a deflation in the top line for the same volumes as negative pricing and a lot of the expense lines follow an inflation level with the payroll and a series of other expenses. There's a lot of discipline among the team to keep these levels of EBITDA and really thank everyone for the efforts in the operational areas that have been very careful with this, keeping the operational cost so that we could deliver the EBITDA level that we had seen in the third quarter. In the pre-and post vision. So this is a bit lower than what we expected, but considering the amount of stores, we consider this to be very positive as an evolution. We can move on.
And here, I want to move on to Danny. We also mentioned the aspects on the company's obligations, adjustments in the debt, considering this transition as well, where the company stops being just a subsidiary of the controller, but also a true corporation.
And so Danny, the floor is yours.
Thank you, Belmiro. Thank you, everyone. Good morning. And now we're going to talk about the financial results in the quarter. And this is a result that added up to about BRL 737 million. It's an increase very significant, 77% impacting the company's results, and an increment of almost BRL 300 million. So when we talk about this blue part here in this bar and we mentioned the financial expenses coming from the cost of the net debt. We have a level of BRL 506 million, an increase of 61% compared to the previous year and it represents 3% of our net sales. So it's a super important level. And these results in the period were, of course, impacted by the high level of interest, but also considering the higher level of debt. Because we have almost BRL 2 billion additional in the debt. And so this will also mention the -- we even talked about this in the second quarter where we had an issuance of a CRI. We had already announced this in the third quarter. And we completed this fundraising initiative of BRL 1.1 billion with the CDI plus 26% at a cost of the debt which is actually lower than the cost in the company. And so in this quarter, we also have an accounting effect. It's important to mention that we should mention the reduction of the capitalized interest. So at this quarter, the effect is only BRL 53 million. And this is because last year, this impact was BRL 247 million. And so this is, of course, interconnected to the advances in the expansion projects. So now we're already at the final phase, and we have these values dropping more and more. Now moving on to the second part of our slide, as we talk about cash generation, Belmiro has already mentioned a highlight here, but in the last 12 months, the cash generation in the company has reached almost BRL 5 billion. So very relevant growth of BRL 1.7 billion year-over-year. And this comes from greater EBITDA in the company from the pre-IFRS vision and also has been growing over BRL 373 million. And of course, due to better cash -- working capital management. So, this strong cash generation, when you look at this, well, it was essential for this important level of investments. And so we have a total of BRL 4.7 billion. So this is basically paying off the levels of investments. And on the other hand, we have the negative effect considering the level of the interest increased the cost of the net debt. So the variation we see here in this net debt going from BRL 7.3 billion to BRL 8.6 billion is basically due to the effect of the interest rate that negatively affected our debt. And so this is why when we consider this concept, we reached 2.7x the EBITDA. And in this quarter, we bring in this new concept where we add up all of the receivables and the balance payable from this acquisition. And in this concept, we can reach 4.4x EBITDA. So that's where we see this reduction before we move on to the next slide, where we're going to be discussing this concept and an important highlight with the reduction of 4.4x EBITDA, which in the previous year was 0.2x net debt to EBITDA. So we can move on to the next slide. And here we can see this vision of the leverage, as you can all see, and you're used to see us present this BRL 8.6 billion. We also go back to the non-discounted receivables and we can also add up the total receivables and the total balance in this concept, as I mentioned, previously reached 4.4x the EBITDA. And this reduction is already considered in the previous year of 0.2x. We can bring the view in the history of this leverage and so we can also bring these elements. We can also mention the seasonality of the fourth quarter in '22, and we see this level that is very similar ever since the second quarter of '22. So the fourth quarter, of course, has the seasonality and the other quarters as well seem to be very similar. And then in the fourth quarter, sorry, in the third quarter of 2023, these 4.4x are very comparable to the BRL 467 million the third quarter of 2022. So I think here, it's worth mentioning that we are mentioning the closing of the conversion project and here, we see a growing cash generation, which we've highlighted a lot. So the cash generation grew about 54%, BRL 1.7 billion, and this is really what's going to add speed to the deleveraging of the company at a speed at an even greater speed than this drop of 0.2x. That we noticed here in the last 12 months. So of course, along with this, we have a lower cost of debt coming from the interest and all of this leads to greater deleveraging, which we will, of course, notice in the next quarters. So I think these are the main highlights on this slide. And now I'll pass the floor back to Belmiro for his comments on profit and of course, the final slides. Right Belmiro?
Yes. Thanks for that. Well, the net income, of course, is impacted by the carryover cost of the debt but in our vision, the project was very significant and a determining factor, although there are some impacts now. At this moment, we are building this company when it comes to the value proposition and customers and it's a company that's growing very strongly. So in the quarter, one of the biggest impact is not in the sales of performance but this still, of course, reflects higher level of debt among consumers and interest rates that are higher than what we expected, of course, in the beginning of the project. but it also demonstrates that the resilience of our business model even with all of these factors, even with high interest even deflation and even with the environment for purchases still being a little cautious on behalf of the consumers, the company continues to deliver positive results and in this third quarter, we have the impact of renegotiation that we had to perform with controllers exit. We had 2 topics that are very relevant and the only 2 topics that were pending. We have no other aspects related to Casino, but with Casino stopping to be the shareholder of the company, we had to redo the contracts for a batch of stores since they had a clause that considered the contracts would be canceled if the controller left and there is still an impact marginally in the third quarter with the waivers achieved with the financial institutions that also considered changes in the contracts if the controllers left. So as we noticed, considering that the conversion project is a project that has a beginning, middle and end. So this project is now reaching its final phase, and we still have two payments that are very relevant one now in the fourth quarter and another one to be made. In the first quarter of '24 in regards to the commercial spots, from Extra stores, but we still have a big amount of stores to open. We have opened our another conversion in Rio, which in October -- we also opened up a store in das posições , an organic store and another one in San Luis, Maranga, as well as others in Fortaleza and [ Zerah ] now we're finishing a total of 19 stores opened this year, and we still have a challenge. In the fourth quarter, we have some expenses even from an administrative front that also reflect a bit of the preparation for the opening of another 11 or 12 units we should be opening in the fourth quarter. So that we can complete that conversion project for the hypermarket then from on the company will, of course, have cash generation from the current store network, the growing the amount of new units and along with the expected interest rates should definitely lead to readjustment in the levels of investments, which will help us deleverage and reach the levels of net income that the company had before. Now when it comes from an operational aspect, that's pretty much it. And I want to pass on -- I want to move on to the next slide where we have some important ESG advances. Assai is a big reference for investors and an important benchmark when you look -- if you can talk to our IR team and Sustainability department, you'll see how much we've advanced in this.
And now in the third quarter, the company is the only company in food retail that's within the B3 indicator called the IDiversa with over 25% women in leadership positions and 43% of leadership positions occupied by black people.
So this is a constant initiative, and it's an ongoing effort when it comes to inclusion, but the company is very proud of being -- promoting within our social responsibility pillar, these different aspects and not only consider our employees, but also considering the fact that we're a company with the biggest presence in Brazilian households with diversity in our store with employees and customers, which really helps us achieve the social responsibilities. So we have different highlights in ESG, but we also have two important achievements in the Assai institute where we launched a call for [indiscernible] Subaru our Institute and through our [indiscernible] which is a project we started in [indiscernible] Santana in the Amazon region. Now in the third quarter, that will benefit over 2,000 families within the Amazon region and in other areas as well with major poverty, with financial resources as well that can be used for food -- for buying food. So we have important advances also with waste, achieving the gold seal and certification in the Brazilian program and also a reduction of Scope 1 and 2 emissions. And of course, if you're interested in getting to know more about ESG with greater details, look at our sustainability report and see how many different initiatives the company has been implementing in this role of social responsibility. I would like to end by -- before I move on and pass the floor to Gap, so that we can some Q&A as well.
Okay. Now we can move on to Q&A as we follow on with the queue of questions. Now we'll begin our Q&A session, guys.
[Operator Instructions] As we begin our first question comes from Danni Eiger, our sell-side analyst at XP.
I have two questions actually. The first one is more of a perspective, mixing the short and midterm which is, I would like you guys to give us a little color on how the dynamic with the evolution of same-store indicators and volumes have behaved in October. And we would mention -- this would mention an inflection in the consumer, when it comes to deflation, there has been pressuring results over time. And also when it comes the renegotiation of leases and how we can think about the impact and the profitability of the company as a whole? Because there's only 28 stores and by what I understand, we have 10 to 20 bps of pressure. And so we just want to know if you would imagine a more relevant impact on the company as a whole. And then the second point is, as you mentioned, the issue with the deleveraging and this expectation to accelerate this after the first quarter. You also talked about the readjustments in the level of investments. And I would think it's interesting if you could also mention some discussions on this point. And what this would be when it comes to the adjustment in the store format and you even talked about the stores that are under construction that are expected for 2024. But I wanted to understand what would be this readjustment and possible levers as well that you're looking at, if you consider the scenario with the drop in interest rates, it's a little more gradual and that we could imagine, of course, depending on other dynamics in the macro scenario, I think these are the main points.
So thank you, Danny. As we move on to this a bit. I think September was a very positive month. We started off with a 49-year campaign. And this was very strong adherence. And so what we've seen so the same levels in regards to the third quarter. So we noticed that there's not a big change in the dynamic when it comes to the perspective of stability in pricing, but you have the same concern with -- and consumers also keep their standards of consumption. So what we've seen so far is very similar to what we've seen in the third quarter. Of course, there is an expectation when you are a little more positive. When you consider the impact of pandemic that would affect some of the purchases as well. There is a bit of an expectation for December, but we want to be a little more cautious and conservative. So what we've seen is that consumers are keeping up the levels of purchases B2B customers are also very careful and cautious because they're also pressured when it comes to working capital. So you see pretty much a similar dynamic as third quarter. But the lease with Peninsula Fund was an impact, that in this group of 28 stores. When we look at, of course, these stores, they're very relevant stores. But when you look at the total base in the company, it's a very marginal impact. There is an impact, but the [ 0.10 or 0.20 ] is then we're going to go to [ 0.2 ] or something like that. So it's not that relevant when you look at the overall numbers in the company and when you look at the future. Now when it comes to investments, there is a drop, which is already going to be natural. We're closing the and ending the major project with the conversion of the hypermarkets allows us to get back to the organic projects and some stores for 2024 are already being constructed now. And so throughout the fourth quarter, we should balance this out to understand exactly what the level of investments for '24 will be. But there's a big focus in the company to deleverage as we -- so we can reduce our debt, if interest rates continue to be kept high. But even though interest rates continue to be high, I think the main point is really our cash generation capacity that makes the business solid with the cash generation of the legacy stores and also how the new stores really the pre-IFRS EBITDA vision, you can see that historically, our conversion rate from EBITDA into cash is 100%. So we've always been able to convert the EBITDA into cash. And if you look at our balance of accounts of taxes, to monetize these are dropping as well. So the new stores also come in with strong cash generation, which is above all the strength that will allow us to deleverage the company. I hope that answered your question.
Our next question comes from Maria Cara Infantas at sell-side analyst at Itau.
On our side here, it, we wanted to understand how your mindset is in regards to the perspectives for growth in the revenue in 2024. On one side, the food deflation should prevail. In the first semester of the year, the competitive environment is a little more complex. But on the other hand, the conversions are doing really well. The ramp-up has been evolving quarter-over-quarter with the uplift in sales. And I wanted to understand how we could consider the buildup of the productivity versus the daily expansion. And I even want to mention the issue with the organic expansion as well. If you guys can mention a bit of the main locations that you're looking at when it comes to opening up this new state in Espirito Santos as well.
Okay. And about the organic expansion you mentioned, we already have some stores that are under construction. We also will have some completion in this expansion pipe for the next year. We already have some regions in certain areas that -- where you see a divided into many different regions. We have construction projects in the north, in the Northeast, in the Southeast as well. We just opened up an initiative in the South in [indiscernible] It's not on a specific region. But even in areas we're already present, there are many different cities where, for example, in Rio, we have one of our biggest market shares. And in [indiscernible], it's a very big city where we don't even have any store yet, in that region and other areas in Sao Paulo, like cities like [indiscernible] we're starting our first store there. So we still intend to enter cities that have 300,000 or 400,000 inhabitants that are very relevant, but don't have a Assai story yet. So when it comes to revenue for '24, of course, it's going to depend on how many of these stores and organic stores, we're going to be able to add to our base in '24, I think in 2024, the deflation scenario and the prices in our perspective, I think Wlamir can even talk about this a little more, right? Do you expect that we're going to have prices dropping more? Are we already at a plateau? I'll ask Wlamir to pop in right now?
Also, I think just about the inflation aspect, our expectation really is we have -- when we take a look at commodities, for example, these variations in prices are really a perfect combination really, as we've seen in the last quarter that we ended. So we had, at the same time, many different commodities dropping in pricing. So we don't expect or imagine that this is going to happen with the price reduction up ahead. But it's really volatile because now we have currency issues. We also have issues with the war, petroleum oil costs and even the impacts in the petroleum costs. So there are many other factors. And sometimes, it's a little difficult to -- or foreseeable what happened. But what we've monitored throughout the quarters and months is the normal realization, the average price. When you see the overall basket and there are pressure, soy going up, going back at 29%, and you have sugar going up a bit as well. And so there's a bit of a balance, but we don't see that much room for big peaks and prices or a bigger reduction in pricing of commodities. But on the other hand, we've seen an impact in all of the rest of the assortment where you leave dairy and you see the basic commodities with a small inflation that comes along. But we see more stability in the average price sales up ahead. So we're not seeing maybe -- well, there could be maybe some factor related to the war that's happening in Ukraine and the Middle East, that could maybe even impact the commodity prices, but this is very uncertain and it's difficult to foresee anything in the sense when it comes to inflation. So it's a topic that's very complex. But we had imagined that at this point in time, we wouldn't have the impact of the deflation and so we were expecting a deflation in the first quarter -- in the first semester, but not happened in the second semester, but we do imagine a price stability from now on.
Okay. Great. Very good. It's clear that we still haven't closed the guidance for the expansion in 2024. But now how many openings are you expecting for this year?
In 2023, it's going to be about 30 stores. And then in 2024, we're going to expect the fourth quarter. We're going to wait on this and see we have like 7 under construction, but we're going to wait for the fourth quarter to close this number. But of course, we have the opening in new organic stores, many different initiatives and work that needs to be done with the approvals and the licenses, the company has big amount of projects in the land bank, but we have to balance deleveraging as well and the amount of stores that are going to be opened, and we're going to have to wait for the fourth quarter to be able to disclose the definite number of new stores.
The next question is from Vinicius Strano, the sell-side analyst at UBS.
Here on the dynamic of working capital. Could you guys talk about what you're seeing when it comes to levers that could improve our working capital ahead? And also if you could talk about what would be more normalized timing for stocks and suppliers, I think that would be great. And another point also would be if you could discuss the mix between individual and legal entity customers, any the converted stores of Extra and how this mix is going to evolve up ahead. And also, when it comes to the converted stores, if you could discuss a bit of the gross margin in this store network of 47 stores you mentioned.
And I think I'm going to start from backwards forward. And I'm going to talk about -- as I may talk about the working capital level stock, supplier level and what the expectation is from now on. So for the converted stores, they already have a gross margin that's greater than we had already expected this. We highlighted this in the beginning of the project. When you consider the product mix and the purchase power is a little different, but they do work with a margin that's higher than what we expected. So then, of course, you have greater participation from the consumers in these stores, but the stores are still ramping up. So we do expect to continue to advance with them a little longer to see what the level of stability will be in certain stores. And then, of course, you have this aspect with a lot of the stores that are not standard or homogeneous. There are some stores in regions that we already expected that are more downtown or central regions have higher adherence, especially for B2B customers and also utilizes that have stores that are very close to ours and use our store for supplying their own stores. So we know how it's become more complex and expensive to perform to door-to-door distribution. And I think it's valid. You probably saw some of the changes in the laws and rules in Brazil for transportation that will make logistics even more expensive, which is the new driver law. Now we'll make it even more difficult for the distribution door-to-door by industries and delivery wholesalers. And so especially in the downtown areas, which has made this format and this model really be a quick supply format for this B2B customer. They don't have to have like a minimum purchase -- they can buy the quantity they need and they have access to different brands, qualities and types of products, especially for perishable goods, which allows us to have strong adherence. But of course, they do -- we did, of course, expect that there would be a bigger participation from end customers. And there's a ramp-up process, to attract consuming customers and also B2B customers. And I'll pass the floor on to Wlamir so you can talk about the working capital aspects as well.
About the working capital. If you notice this is even on our release in the third and fourth quarter last year, we were operating with 8 or 9 days more in our stock. To the amount of stores and the stock structuring. But as we were able to balance this out a bit more the amount of stores has been a lot smaller than what we've seen last year. And if you look at this historically, we reduced by 8 or 9 days of working capital -- sorry, than our stock, and this has been capped at about 44%, 45%. And so this is the trend from now on. So we want to keep the stock levels at these levels, but also the negotiations for deadlines, which take place monthly and quarterly as well. So we can keep a very healthy relationship with this and also a strong discipline in our working capital. And so when it comes to the expansion, we won't see many variations. And so we should imagine a trend in this sense, and this should be expanded as well now in the fourth quarter with the expansion in the levels of stock. And this is a normalization in the amount of days as well that we should be looking at quarter-over-quarter without too much of a variation. So the team has been able to work on this with the commercial, logistics and operation area. With a lot of discipline and rigorous approach towards stock levels without harming sales with repo levels at normal levels and within what we expect for the company. And so the stock issue is pretty much stable in Assai. I hope that answers your question.
The next question is from Joseph Giordano, the sell-side analyst at JPMorgan.
I want to explore this issue with the CapEx a bit. When it comes to deleveraging the company, what would be a level -- CapEx level for these new 30 stores? I know that -- this is a guidance that's not that strong yet in these 30 stores, but what would be a CapEx level that the company believes is reasonable for 2024. And then going back a bit to the working capital issue, I would like to explore a bit of what is possible to improve even in this initiative.
Thank you, Joseph. I think maybe there was a misinterpretation because when we talked about 30 stores, we're talking about the 30 stores in 2023, which considers conversions and organic stores. For 2024, we have 7 stores that are under construction, and we're still going to define during the fourth quarter, what will be the amount of stores and then, of course, the amount of CapEx we'll consider for 2024, where it wouldn't be 30 stores. We were considering a maximum of 20 units or 25 units at most, but throughout the fourth quarter, we're going to review this.
And when we talked about 30 stores, we're talking about 2023. We have 7 in -- for 2024 that are already under construction that we need to open especially in remote locations, Manaus, Macapa and other regions that are very far that are under construction already. But the total amount for '24 will be defined now throughout the fourth quarter. As we look at expansion and we look at the spots and locations that have the best returns on investments, but of course, also considering the company's level of leverage.
And from a working capital perspective, as we mentioned, we've already performed many improvements. Of course, we're always searching for bigger changes and improvements, working capital improvement of terms with our suppliers. But at this moment, we're just presenting to the market that there will be stability in our working capital at the levels we've seen in the third quarter.
And if I can also contribute, I think it's important to say that we have a big concern, Joseph. Which, of course, you consider and try and increase in the terms with suppliers, but that could interfere in your competition -- competitive advantage, reduced stocks and even harm sales may be depending. So we try to find a balance between a ratio between the stock and terms. And if we can keep this balance point, we're going to be in a very healthy position in the company from now on. So it's more about maintenance and actually gaining any differences. Of course, we always want to improve our conditions and our terms with our ratio of days in stock. But I think we're at a level that's very healthy right now.
Our next question is from [ Eric Huang ], the sell-side analyst at Santander.
So on our side, I think we have two questions that are pretty much in line. One, you mentioned you entered the state of Espírito Santo, so it's more about understanding what the level of receptivity is in the state, the competitive environment and also understand potential expansion for more stores there and how you're looking at this environment. And on the other hand, when you consider organic expansions, we want to understand what we can expect when it comes to the sales levels in these stores, they're going to be more in line with what we had seen in the legacy stores or may be more in line with the expansion stores. I think we want to understand a bit more about the economics and the organic expansion story.
Thank you, Eric. Well, Espírito Santo. We should have already entered this market a long time ago, but we opened our first store in [indiscernible] Pagar, and I'm going to talk about this a bit the receptivity at Santo has been and also what we've been doing in Espirito Santo, then we'll get back on discussing the level of sales. I think in Espirito Santo was very positive. We were very anxious to enter the community, their customers welcomed us very well there. and the value proposition there for our store, whether when it comes to services level of service, the mix of products, which in we're very careful about always talk about this issue with the regionality. To give you an idea, we started a unit there where we added about 1,500 new SKUs registered. As we always want to look at the regional population characteristics. So we want to reach the region, delivering a value proposition that is really unique, working with customers that have a better level of service. but also providing local products, and this is always very positive.
So the store has been very successful. We have already been working in this process for organic expansion next year, we'll have another store and we thought as well, that's all -- we're already starting to build now. So this is going to strengthen our brand presence a lot more. And when we look at SAHA, this region is to something I think the store opening was fantastic. We got it right. We had a great start market understood Assai's entrance as a very strong differential. And now we're not just the Assai's from the Southeast, but -- and I say from Espirito Santos with the second store we thought that it's going to strengthen our position even more. And also this regionalized perspective, which was very important with the local brand, local culture, local team.
And so this caution, which has really been important. And so this has been a very careful process you've been doing. We also had a complementary point, which is -- of course, we can't mention all of the stores. We have some organic projects as well in downtown regions. That are also connected to the conversion stores as well. So we have a conversion spot from a former macro store in Vila Maria that has high expectations. It's in the northern region of Sao Paulo and some other organic stores. But overall, organic stores should lead to -- we have more revenue expected from the legacy stores, maybe one or another exceptions in the more downtown regions that could have exceptional levels of revenue.
Our next question is from Alexandre Namioka, the sell-side analyst at Morgan Stanley.
When we get back to the point on the openings and when we talk about more of a long term, we want to understand how you're considering expansion when it comes to stores and also when it comes to markets where there are not other Cash & Carry formats that are not necessarily Assai brands, but compared to other locations where you already operate with at least 1 brand, especially when it comes to the city level, I think that would be interesting to look at.
I think at the end of the day, there's nowhere in Brazil where there's no Cash & Carry brand present. So of course, there's always some kind of competition level, it's pretty high, in most cases. And we see a big amount of players operating in the sector in Brazil. So in our expansion project, we have regions that are very significant, such as [indiscernible] or other places where in the state of Sao Paulo and Rio, where we don't even have stores in yet. And another example is faster, we just opened a store in Southern region. We are already have stores in Parana, but our closest store was Maringa that's 400 kilometers away.
The company has been continuing to work with a big amount of stores in cities that are actually big cities with 300,000 inhabitants sometimes we don't even have a store yet where we have a city with 600,000 or 700,000 inhabitants and only have one single store. So within this pipeline of organic stores, we've been looking at cost of deployment, returns on investments, et cetera, and defined which are the priority projects. So it's difficult to balance this out because we can't say, look, it's going to be this region or this city. But just as the store networks, the new stores, we always also -- we consider it's really fragmented and spread around all regions in Brazil. Of course, we have a bigger focus in becoming very established in states we're already in and in big cities where we're not present in yet. Such as São José dos and Angra dos Reis, which would be good examples. I hope I answered your question.
The next question is from Irma Sgarz, sell-side analyst at Goldman Sachs.
I have a question and a follow-up here from Joseph's question about CapEx. Theoretically, I understand it's only 7 stores that you have under construction, and we'll still have maybe a definition more specifically on the plan for organic openings, but what's the CapEx levels that we should expect even if just for those 7 stores. I understand it's a very specific store network. It's a little smaller, maybe there's some points out of the curve. But generally speaking, I think this is one of the main reasons for this question, which is due to the strong inflation in the costs of the stores in the last few years due to many different external factors. And I think it's very important to get some alignment on this and have this kind of clear in the minds of the investors.
And from a logistics perspective, do you think that today, you already have the necessary infrastructure for DCs and logistical network you need to continue to support this new batch of store openings? Or do you have other projects that you're looking at as well up ahead to expand this capacity, not only for '24, but for the next 2 or 3 years.
Well, I'm going to pass the floor on to Wlamir on logistics, and I'll get back to CapEx.
Well, about our logistics. What we did is, if we look at 2021 and '22, considering this movement with the expansion that we had and the acquisition of the commercial spots from hypermarkets. We've already prepared logistics. We performed investments in, Sao Paulo, Rio, Para and in the last 2 years. But what we've been doing with logistics is, according to as we grow our operation and the amount of stores are expanded, then we just our logistical structure. So to give you an idea, we have a model where the stores operate as a many DCs. So we have stores that operate 100% directly from the suppliers and industry. So this is a big advantage in our model because it's different than other operations with other retail operations where in supermarkets or hypermarkets where you rely on logistics to be able to operate in our format, we can open up a store anywhere in the country. We don't depend on logistics.
But as we grow, we'll invest, of course, and we do have some things we're looking at as potential opportunities in the Midwest region, but we're still studying this, nothing defined yet. And as the operation grows, we invest gradually. So the investments are very low. CapEx is normally very low because we don't we normally lease DCs, and we don't have to reform major capital investments in our logistics operation.
But we look at the operation as it grows in each region, and we structure the necessary support. But for 2024, we should have some kind of investment in the Midwest region, where we grew a lot, and we didn't have any major investments there. We have a small DC in Guyana will maybe expanded a bit in that region, but we still don't have anything else. We're still performing the studies just as we haven't defined the amount of stores, we also haven't defined the investments for logistics in 2024 and '25. But we will have this a little more up ahead. And so the logistics grows as the operation grows. So to give you an idea, what makes us very comfortable with all of this is the fact that we can grow and open up stores anywhere in the country without depending on the logistical structure. So this is the biggest strong point in our business. So I would like to have answered your question.
So there was an inflation in the construction work. The peak was probably last year and the beginning of this year, but we did see some materials, especially like steel and cement, keeping up at high levels. But today, when you look at the cost of square meters for an organic store compared to the past, there's already a drop of about 8%. And compared to what this would be in the same period last year. So it's not like the prices are cheap. Of course, they went up just as food items also went up during the anemic period. But from the 7% that are underway, they have a total investment of about BRL 450 million to BRL 500 million. And this, of course, is not coming into the CapEx of 2024, but we have to mention, of course, the maintenance costs, and we have to consider the services we're working on, but there's also a carryover of the stores in this year that's going to drop for drop in 2024. So we'll see the amount of stores, and this will probably mention the amount of investments the company will perform in 2024.
Now moving on to our next question is from Joao Soares, the sell-side analyst at Citi.
Two points on my side. First, Belmiro, I feel like your discourse is a little more cautious on store openings for next year. I could be wrong in my interpretation, but if I'm right, what would be keeping you from having a more clear perspective on the store openings for next year. Is this related to some kind of restriction in their balance sheet or our processes a little more difficult to map out to openings? Anyways, if I'm right here, what could be, in some way, harming or hindering your visibility?
And the second point is really quick. It's just when you look at the G&A, there's a very interesting control level in the last quarter. It dropped 8% year-over-year. This year, it's flat. So can we imagine that this quarter, the BRL 200 million will be -- could be annualized at a stable level, looking at the SG&A up ahead.
Well, when you look at -- I think the SG&A is something we've been able to keep controlled when you look at the operational level, this has, of course, had the impact of the stores and conversions and the administrative front, when you -- there's a drop when you look at the proportional results compared to the sales, of course, with the exit of the controller cost with the board and the cost sharing agreements. But of course, the company always has the need to enter new areas and start new projects. But of course, we do expect a dilution in administrative costs, and this is an important point because as we grow, administrative costs are not going to keep up the same level of growth in the sales. But then for 2024, our caution is just because we're going to define this during the fourth quarter. considering that the company now is at this true corporation phase. We're being a little more cautious with how we present information in a more precise manner. So the fact is really that we haven't made this decision yet. So we have many projects in our land bank, but what we're looking at in 2024 is really finding a balance point between expansion and leverage. So when you have uncertainty in the interest rates and the drops of the interest rates that also generates uncertainties about investments and expansion. So how are we accelerating this? While one of the levers is holding on investments. So within the scenario of interest rates, we see that interest rates, well, we have a very certain interest rate drop, then we could be a little more optimistic. But the investments in the organic expansion are really a decision that depend on us. So the major costs come from when we decide to perform a construction project. Once we start a project, we have to keep it up till the end. So -- and then we just have to define what's going to be the target of the amount of stores for the next year. So about competition, we've seen some markets that became a lot more saturated in some way, and we even saw that some players change their expansion plans.
So this is not in any way influencing your decision? Is it ?
No, I think the biggest decision really is the level of leverage, taking advantage of your pro saturation. If you can imagine that Cash & Carry are all the same and you're going to say, how we're saturated, but that's not the case. We don't have 1/4 of the stores in Brazil. We have about 8% of these stores. And we have 1/4 penetration among the Brazilian population. So there is a big differential when it comes to the proposal advances and of course, in a market with a bigger amount of players. But actually, the main decision point is really the leverage. We also had impact. As Irma mentioned, with the cost of construction that we have been able to also reduce gradually and we do hope to disclose this number now in the fourth quarter as well.
Well, thank you all. We've ended our Q&A session at this point in time. And now we would like to pass the floor back to Belmiro for his final remarks.
Well, thank you. And I think that first of all, I just want to thank you all for your participation. Those of you who have participated on this call, and I want to thank my team as well since 2023, and 2022 due to the amount of stores and the new units created. It's been a big challenge involving different areas and departments. When we look up ahead, we see a scenario that still does not have that much visibility when it comes to changes in purchase powers. But if you separate the effect of the general context and scenario, the company has continued to keep up with a stability level. And I think we would even expect to have higher impacts considering the expansion project or the impact in deflation, but the company continues to be very resilient, very strong and stable, very predictable when it comes to the sequence perspective, and this is how the group and the company as a whole, all of its members and employees are working to keep this up. And so we wanna continue to advance, gain market share and open new stores generate job opportunities and then, of course, completing this process. which was, as I mentioned a few times before, was one of the projects that has been most challenging for execution within the Brazilian food sector. Due to the amount of square meters involved, the galleries in the stores, in the stores, the amount of people we had to have working on this. But of course, now we start seeing the results. And reaping these fruits and contributions from sales, cash generation perspective, and this allows the company to be more solid stronger to face the year of '24, '25 and '26, '27, '28. So we always look at the long-term. Historically, an organic store takes maybe 2, 3, 4, 5 years, even to approve the project. And so, between the point where we make the decision and actually open up the store. So looking at the long term, when you look at the positive numbers, you can see that there is a very positive expectation for the company in the mid or long term. So I think these are the main comments. And I want to thank my team as they were with me in this earnings call, and I want to thank all of the Board members as well. that have really supported and worked hard in this transition phase, with all of these different changes that took place with Casino's exit, but we're really on the right path now to have a company that is a stronger cash generator with a bigger volume sales, conquering more and more households in Brazil. So on my side that's it.
The Assai earnings call for the third quarter of is officially ended. The Investor Relations department is available to clarify any questions. Thank you all so much, participants, and have an excellent day. [Statements in English on this transcript were
spoken by an interpreter present on the live call.]