Magazine Luiza SA

BOVESPA:MGLU3

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Magazine Luiza's conference call to discuss the results for the second quarter of 2021. We would like to inform you that this event is being recorded. [Operator Instructions]

Now I will turn the conference over to Mr. Frederico Trajano, CEO of Magazine Luiza. Mr. Trajano, you may begin the conference.

[Frederico Rodrigues, executive]

Good afternoon, everyone. Thank you for joining our conference call related to the second quarter of 2021. A slightly unusual time for this call, 4:00 p.m., Friday, a very hectic week with several results being published so that's the slot we managed to find. I'll try to be very to the point in this presentation. I'll be speaking myself and then Robson Dantas about fintech and Roberto Bellissimo the financial highlights. And right after that, we are going to start a Q&A session. All the managers of the company, as usual, will be joining us in this call. We'll try to work on different questions so they can also help with the answers.

So the second quarter on the first slide, the second quarter started with a hiccup. In late March, we had some help to go back to last year's picture and shut down all the company stores. We're going through a second wave. It was like a nightmare after everything that we've been through last year. The difference being that actually, we consider to be well prepared this time, better prepared to shut down the stores. Many stores already had a mobile, remote system with 70% of the building, even though all stores were shut. The online operation was very fine-tuned, very robust in order to have additional volumes coming from stores that were closed. So despite this hiccup, even though we didn't want to have Brazil going through the same moment again, we were calmer to go through the second quarter. And luckily, the second wave and social distancing moves by the government became more effective.

It was intense. And on April 20, we opened the stores. So we had 20 days closed. And we had approximately 2/3 of the stores open throughout the quarter. And last year, over year 2020, we had 2/3 of closed stores. So this is more favorable now. And like I said, the more robust, better prepared condition, including physical stores and remote sale model in order to hold our building.

So despite our difficulties in early April, we already went back to normal in our operations over May and June. And for the quarter, I think the highlight to explain, if you think about the sale, now on Slide #3, we managed to have very significant growth at the company, particularly owing to the stores. Like I said before, 2/3 of the stores were closed last year and more than 2/3 of the stores opened this year. So we have an easy base. Like I said in the beginning of the year, the base of the second and third quarters would be easier than last year.

We had a hard time moving to the pandemic. And this year, we were easier, growing 102% in physical stores. But if you compare sales in physical stores in the second quarter of this year, year-over-year or better say in 2019, many analysts are right about considering this base, we increased 16%. So we managed to hold our sales at the stores by increasing the area. But even with same-store sales, we had a positive territory, which is good because Brazil as a whole went digital after the pandemic.

Speaking of digitization on the next slide, the big highlight this quarter this year was e-commerce growth on top of the most challenging base in the market. Last year, we had a second quarter that was brilliant in e-commerce growing 80%. Compared to other companies, we had the highest growth, and the whole market expected early in the year to have a stronger impact even coming closer to levels in 2019. But we managed to increase by 46% e-commerce into this space, and total growth over 2019 of 313%, the highest average for the last 2 years.

With a big emphasis on 3P, if e-commerce as a whole increased by 313% over 2019, 3P increased more than 400% with a very good market share. We had 10 billion online GMV and 3B from -- 3P. So we highlight e-commerce as a whole. And 1P was well above the average of the market. We increased also 40%. But 3P this quarter alone increased 60%. So once again, e-commerce as a whole, 300% vis-à-vis 2019; and 3P, 400%, showing the robustness and resilience of our business.

And at the end of the day, any retailer wants to grow the business at large. So on the next slide, we can see that by managing to support our growth and having good numbers of stores, and having exponential performance in e-commerce, we increased 60% vis-à-vis last year. Total GMV of the company, including 1P, 3P, physical stores, at 50% growth, which was already extraordinary in the previous year. Vis-à-vis 2019, 140% growth. Anyway, the big highlight, no doubt about it, this quarter was our growth and managing to support growth on top of a significant base, particularly for e-commerce as we had last year.

And the highlight here and what really puts ourselves as unique in the market is that we can do that with profitability. Obviously, last year because the stores were closed, the company had an EBITDA margin which was lower, 2.5%. But the stores were closed. We had to pay the rent, employees were there, the stores were closed. And like we said in the second quarter of last year, this result eventually goes down dramatically, but that was temporary. And after the pandemic, now the profitability level, EBITDA percentage is around 5%, like we showed in the last quarter of last year and first quarter of this year, once again in the second quarter of this year. A more normal profitability level with a company that is growing at the rate that we are, with a positive EBITDA territory growing 210% on top of a very bad base last year and BRL 89 million adjusted income. Roberto is going to give you more details later on, but we are heavy capitalized.

So the company consistently delivers with growth and cash generation. That's not something for a couple of years. For the last 5 years, Magalu is the only company in the e-commerce Brazilian market managing to grow. We are the fastest-growing company over 5 years, by far, the biggest in Brazilian e-commerce, but the only company that can do that with profitability and consistent cash generation. It is not being profitable one quarter and not the next one. We have consistent result generation. The only time we were not positive was last year, like I said, because the stores -- nearly all stores were closed. But even in 2020, we generated cash, cash generation with consistent results which is our approach.

And early in the year, we had this concern, a big concern about this quarter, not only owing to a low comparison but out of competitiveness. And not because we don't have competition in the market, it has always been competitive, but our model once again proved to be resilient and growing in a positive territory, both in results and cash generation regardless of competition, because every year, we have different competitors. Investors always can see we have different competitors, but we keep on delivering and adding new elements and finding new avenues for growth at the company. Roberto is going to tell you more about it.

And speaking of growth, I would like to highlight again our arrival in Rio. A lot of what we did in the quarter is to sow seeds for the future and very intense efforts. Even though we opened real stores only in early July, all the preparation for Rio happened in the second quarter, very intense work. Training thousands of staff, renting, renovating stores, dozens of stores.

So we got into the second largest consumer market, about 15% of the consumer market in Brazil, 11% of Brazilian e-commerce in Rio. And our penetration was only 5% of our e-commerce in Rio and 0% physical stores. So the arrival in Rio is a game changer when it comes to market share of the company. And Rio expresses very well the power of the multichannel. We already opened 33 stores. Later, we can talk about expansion in Rio. And we'll be opening another 50 stores by year-end.

We had a distribution center. The only physical operation in Rio was a DC of 130,000 square meters and in [indiscernible] where [indiscernible] was born. And we'll also open -- we have 3 hubs that are cross-dockings in order to speed up delivery in Rio. And with the 50 stores, 30% of the area is for delivery purposes and will be accelerating more than twice the delivery time and delivering by half -- reducing by half the delivery time, increasing conversion and taking Rio to more significant levels in our revenues and, therefore, have more share.

So Rio is the evidence of multichannel. And we had a very robust entry plan. We got into Rio in a very comprehensive manner, 360 degrees presence in BRT, bikes in Rio. And we also have in sunscreen. So we illuminated the price in blue. So the first impression is very important. And naturally, we delivered an excellent first impression in Rio.

Another highlight for the quarter, like I said before, when it comes to GMV growth in marketplace, more than 60% this quarter, 400% growth vis-à-vis 2 years ago or 3 years ago. 3P is the fastest-growing in Brazil. We posted amazing results and also the entry of sellers. For the last 4 months, we have 34,000 sellers into our platform, active sellers generating revenue. And naturally, we have a criterion to report the number of sellers, which is very robust.

They have to be active and deliver significant sales to be in the platform, and 84,000 sellers is more than what we've had in the 15 prior months. So in 4 months, we were equivalent to 15 months before, speeding up with 10,000 sellers per month into our platform. And the important is to highlight that half of them come from a platform that we designed last year to save physical retailers in the pandemic, Partner Magalu.

Clean water this time. Rather than approaching sellers who already went digital, now we're focusing more than 7,200,000 analog sellers in Brazil. 7,300,000 in total, only 100,000 selling online. And the rest are physical. They are not online. And we created a platform to make these companies digital. It is Partner Magalu, launched in the pandemic. And today, it is a driver for growth in our marketplace, bringing new sellers with a different profile, local inventory, regional inventory. Very important to our ambition to have a hyperlocal marketplace in the process.

And the physical store, that's a very important thing to say. Our point of uniqueness in our approach for marketplace and our marketplace vision, our marketplace will be multichannel. So the physical store is both a hunting and farming and seller point and also, as I will say later on, a logistics point.

So this multichannel approach is a uniqueness at Magalu. And Magalu now for the last 5 years had the fastest growth and the best profitability in the Brazilian e-commerce. And this is what really makes a difference into 3P and certainly make a difference in the future. It's a different model, no longer the same. It's a marketplace model, which is multichannel. And checking the ranking, half of the sellers come from local stores. The stores are helping us bring local commerce in the neighborhood. And it does make a difference for ranking, which is not so obvious.

So this is the year of you blinked it arrived, [Foreign Language] logistics. We've been heavily investing in logistics. 4 billion primary in follow-on, and this funding has several goals. But undoubtedly one of the most important use of proceeds of the fund is to invest in logistics. We have the fastest delivery in Brazil. 50% of our deliveries are in 1 day. In June, we launched 1-hour delivery. The logistics team was just amazing. 140 stores are ready to have their inventory serving customers who want to have 1-hour delivery. We have 30 cities. We want to take 1-hour delivery. They're all big capital cities, including more cities until the end of the year.

And conversion, when we offer 1-hour delivery, which is something new to Brazil, it increases by 60% compared to conversion when we offer 48-hour delivery. It's a very high conversion rate. We believe marketplace operations, which don't have a physical presence, e-commerce operations, which don't have this presence, will never get to 1-hour delivery. So that's an important differential to the company.

And to make it more robust and give more capillarity to our growth, we had another strategic acquisition, another one in logistics after Logbee and others, we have Sode. Now it was already a partner in these ultrafast deliveries. And it's in a fleet model that is more similar to motorbikes and bikes. And it's going to grow. And together, we're going to expand very significantly in this 1-hour delivery process.

The bulk of our revenues will be available there, and we are confident it's going to be a sustainable driver for growth. It is not only that is temporary that you do with high-cost or excess marketing expenses, but by providing a good level of service.

And with these delivery times, we are going to have all-time high here. Just to give an idea, in 1P, our NPS is 85. Generally, the company, we are reaching 77 NPS in e-commerce. It's the highest NPS in the market, and we expect to increase it even further by bringing 3P into the game.

On the next slide, a couple of words on this. Like I said, the whole uniqueness we have from multichannel, which allowed the company for the last 5 years to generate cash, be profitable, grow above the market, this will be used for 3P as well. I already talked about ranking sellers. Now I'll focus on logistics. We have 590 stores ready for online and 3P pickup. By around more than 3,000 stores will be enabled for that. I know it doesn't sound very big, but we launched this modality very recently. And today, more than 10% of all customers who buy 3P at Magalu decide to have a store pickup. They don't want to pay the shipping fees. Sometimes there's nobody at home. There is not a porter. So click and collect, which was very good for 1P, is now uniqueness for 3P and helping us grow above the market average. And certainly, going forward, it's going to be even more significant growth-wise.

And another highlight for physical stores in 3P as well is Magalu Agency. Our stores now have a partnership with a postal service. So some stores are ready to do that, about 600 stores by year-end. And the seller who sells in Magalu's platform, rather than leaving the product at a postal office unit, they can have it at Magalu store. So they can have the drop-off inside Magalu stores and use the truck that was there to deliver a product, like click and collect or supply the stores. The truck goes out empty, and we are going to use this truck to distribute the sellers' goods. We always optimize the chain a lot, and certainly, it's going to be another differential of ours.

We already rely less and less from the postal service. More than 10% of the volume 1P is at the post office. And going forward, in 3P, we're going to use it less and less because we want to have our own structure. And this structure is going to be powered, on the next slide, by investing in area and physical points.

For the first time since our IPO, since we went public since our IPO, for the first time, we have a guidance for our operations. We're going to strongly invest, so we can have the most capillarized, dense and regional distribution and logistics in Brazil, which will equally serve 1P and 3P from 1 million square meters of store coverage area to 2 million by the end of 2023. 185 DCs and hubs, 400 in total, and 1,400 to 1,700 stores.

And this is for storage as well. It's a DC. So more than 2,000 points of storage and delivery and cross-docking in Brazil serving the bulk of the Brazilian market and Brazilian cities. This capillarity, if you don't have a physical store and if you don't have all this investment, hardly ever will this be backed. And this seamless operation for 1P and 3P is quite a differential.

The Chinese, which come with pure marketplace without 1-day delivery, 1-hour delivery, cannot beat our level of service. Including pure market play that have 20 or 30 DCs or 40 DCs, they cannot beat this capillarity of 2,000 points we have. So it's a great point of uniqueness. It was a differential for 1P. Multichannel approach brought us here, and it will also take us forward and help sellers sell more and convert more.

By the way, we have our Expo Magalu. This is for our 90,000 sellers, and this is going to be held next Tuesday. We have Magic Johnson with us who will be a keynote speaker next Tuesday at Expo Magalu. Ricardo Amorim will also be there. I'll be speaking. Luiza Trajano will also be there. Nathalia Arcuri, Rebecca from the Olympics is also going to be there. And all our management will be sharing news of this 3P universe, including news on logistics, like Agency Magalu and 2P. We're going to let you know all about it next Tuesday. We're very excited with the possibility of exchanging information with sellers, mobilizing everyone and showing that e-commerce has come to stay.

And we also had very emblematic acquisitions that I'd like to highlight. Two of them which were recently announced. One of them is KaBuM!. We have a pillar of new categories. We also have a brilliant performance by Netshoes, an amazing performance. It was having losses for many years, but we had a turnaround. And from Q1 this year, it's posting very significant growth, a leader in the Brazilian sports market, ensuring the capacity of the company to deliver via SuperApp and generate results from acquisitions. And also Época Cosméticos is amazing as well.

And we just got into another vertical, actually is a super niche, one of the fastest-growing markets in the world, which is the gaming market. We acquired one of the most amazing e-commerce companies in Brazil, KaBuM!. The consumer base is very loyal, 2 million active users, BRL 3.5 billion as revenue, very profitable. BRL 300 million is very well managed by the founded members, and they will be with us for a couple of years at least. And I'm very happy to see that we just concluded the acquisition. Actually, we're just awaiting for CADE's approval next month. And we're very excited with the arrival.

That's a niche. The gaming niche, that is the fastest-growing in the world, 95 million gamers in Brazil investing more and more in physical and digital products in the gaming environment. And KaBuM! is going to be just amazing for us to grow and explore the super niche just as we did with other players that we acquired. And certainly, they'll be adding value and bringing SuperApp catalogs and bring all this capillarity and logistics. KaBuM! has already delivered these numbers with just 1 DC. So just imagine 2,000 distribution centers. This is what happened to Netshoes, increasing profitability. And certainly, KaBuM! will deliver the same success for the future.

Finally, we acquired some other companies into fintech universe, Hub Fintech. And we had already acquired way back then, but the approval by the central bank only happened at the end of June. And fintech [indiscernible] is obviously one aspect of our business which is not very well known in the market. And our objective from now on is to grow this business. It's predevelopment. It's already big. It's already profitable. But the potential is huge if we look ahead.

We have a very clear objective here with these acquisitions, with everything that we do in the fintech universe. And we have already existing operations, for instance, with Cardif and with Itaú [indiscernible] credit. And we want to take advantage of the scale of the digital world and give this fintech the possibility to grow on top of our scale, on top of our business. And the fintech will be, on the other hand, monetizing our ecosystem.

So we are placing our bets on the fintech to help to monetize and bring more profitability and bring the profit pool. Well, the profit pool is huge with the fintech. And we will certainly see over the next 2 quarters and years a bigger weight of the fintech in the revenues of the company -- but mainly the top line. And I would like to ask Robson to explain our fintech strategy, the product so that you meet Robson because he is the head of our operation, and he's the one who will be leading this business. We already have over 500 people.

[Robson Dantas, executive]

Thank you, Fred. Good afternoon, everybody. I came here today in order to talk about something that within Magalu has becoming a higher and higher priority and in the short time of operation has already shown exponential growth and a huge potential. And we are placing a lot of efforts here in this image of the infinite represents what we have here.

Let's talk about monetizing the ecosystem. And in practice, this is already happening, and we develop products that today connect or promote connection in the Magalu system. And this exponentiality of the company allows us to bring, beside monetization, another important component. So as we are able to gain scale, we lower our operational cost, and this represents a gain for the whole ecosystem.

And there is another point that is very relevant, which is to bring frequency to the chain. So besides monetizing, we also look at frequency. And I will be talking about Magalu Pay. But by means of the fintech, we are able to bring new client onboard, clients that are not necessarily trying to buy something in order to bring frequency to the SuperApp. This is very important.

So this quarter was an extremely relevant quarter for us. Many investments that we started making last year, we put them in practice already within this quarter. And Fred talked about the fintech hub -- well, Hub Fintech. With the regulatory approval, it brings us a regulatory framework which is very important for us to grow and to add scale and gives access to the Brazilian payment system, besides bringing a very robust team and the structure for the processing of prepaid cards. We have already started all the integration. And later on, I will be talking about this in detail.

And the second big acquisition was the Bit55, which is a platform for the processing of the credit cards. And this platform, besides contributing to the strategy of the hub, that is to say it brings another role of services. It contributes for the strategy of Magalu as well. Because in the concept of fintech, credit is one of our top priorities, and this is what we are working on.

On the next slide, I will start by talking about Magalu Pay. I would like to remind you that we launched Magalu Pay last year, and we reached 3.3 million accounts. We started with cashback, and we evolved the product in order to become a digital wallet. So I always say that we have a very close connection between cards and the wallet. And one of the points that we've worked over the quarter was a connection of the new Magalu card, which is a top hit.

We launched this card at the end of the first quarter, beginning of the second. And we have been able to double the volume of monthly issuances of cards. So 6 million cards with a total credit balance of BRL 13.5 billion. And the product that is offered to the cardholders, and they have a personal credit already of BRL 1 billion. And in this quarter, we closed our operations with BRL 10 billion TPV. And we have a road map to make this experience, card wallet, become more -- become better and better. Cashback is already a reality. So declined by -- in the ecosystem, they have cashback. And Magalu Pay has been helping increase loyalty. And we are able to place many benefits for those who have the card so that we may bring in the concept that I mentioned, recurrence and frequency.

Next slide. And here, as Fred, the blue ocean. Our acquiring operation that works with sellers, we have an infinite potential for growth. I would like to remind you that we launched Magalu Pagamentos last year in a vision of capturing electronic transactions for the sellers, and factoring of receivables is really the most important. And we launched the FIDC in order to offer credit to the sellers. And we see that part of these loans that we give our sellers is used in order to drive their operation with us. So we are spending a lot of energy in order to improve the journey and to grow. And we started to scale this. And then we get into the very big news that have to do with the acquisitions that we have made.

If we take the TPV that we had in the last quarter, we are talking about BRL 4 billion. And if we add PIX, we reach BRL 5 billion. All this money basically does not stay in the hands of Magalu. It is sent to the accounts where the sellers have the money. And with the Hub Fintech arrival, we launched the digital accounts. And this money that the sellers have in Magalu, it can be deposited to this account. This is for free, free of charge, starting with a prepaid card. And with the Bit55 acquisition, we will have the functionality of credit card in the platform. And Fred has already told you what is going to happen.

On the fintech side, we will be launching our devices during our event. And these little devices will be divided into 3 audiences, 1 for the entrepreneur, 1 for a stronger establishment and another 1 fully integrated to the Parceiro Magalu, Magalu Partner, where we bring about the digitalization you can sell online and offline.

Well, that's what I had to say. And now I give the floor back to Beto to continue the presentation.

[Roberto Rodrigues, executive]

Thank you very much. Good afternoon. Also thank you very much for participating in our call. I'm going to mention first our main highlights. Let's talk about our financial highlights, which are 6, the main highlights that we have on the slide, just to repeat or reinforce. 60% total sales growth from a very high base; e-commerce, 46% growth; 112% total physical store sales growth; almost BRL 14 billion, of total sales; BRL 455 million adjusted EBITDA, increasing threefold vis-à-vis last year, margin of 5.1%; and net income, 89% (sic) [ BRL 89 million ], net margin of 1%. These are the main financial highlights.

And on the next slide, we explain the evolution of our EBITDA margin. We doubled from 2.6% to 5.2%. Gross margin was practically stable in this quarter. And the big highlight here was the dilution of expenses. In spite of April, where part of the store is still closed, mainly in April, but even with the situation, we have been able to have a very big operating leverage. And we grew net revenue over 60%. And our expenses grew a little more than 40%.

So in fact, this is a very big leverage of our administrative expenses, lower than 3 percentage points, a very big dilution here. All in all, with a dilution of 2.6 to 2.7 percentage point dilution, which explains the leap in the EBITDA margin. And overall, we have been keeping our SG&A around between 20% and 21%, and it is one of the lowest historical levels ever. Once again, it is because of our multichannel model. It is fully integrated. And it is able to combine growth and income and cash generation.

And talking about cash, we go to the next slide, where we get into details, first, about working capital and showing about the history in March last year when the epidemic really hit. We had the need of BRL 500 million in working capital. Then the e-commerce sales accelerated very quickly, and we grew very fast. And the variation of working capital was of about BRL 2 billion last year when we generated a lot of cash.

And then afterwards, we continue to evolve working capital, reducing our need for working capital over the year, March this year. Because of the seasonality and the closing of stores again, our need for working capital went up to BRL 900 million, better than March last year. And now in June, we have improved this again vis-à-vis March something around BRL 200 million.

We're not yet in the same position of June last year because of a strategic decision of reinforcing our inventories and preparing ourselves for the second half. And we have to look at the coverage of our inventory for the second half. Last year, when sales went up very steeply, we ran with a very low inventory level, and we had some stock-outs. And this year, we have reinforced our inventories and with a lower risk of any kind of interruption.

On the right, we show the adjusted net cash, and it is a consequence of -- a direct consequence of the evolution of the working capital and also of the investments that we have been making and that we will be showing on the next slide. And here, I would like to mention that with a follow-on, we would end June with a cash position -- a net cash position of BRL 7.7 billion, almost BRL 8 billion, our best position ever, and very well prepared to make the investments that we will be making from now on.

On the next slide, we show cash generation for the quarter. Again, another quarter with a very strong cash generation. And if you add the depreciation and variation of working capital, we generated BRL 400 million cash. We invested BRL 300 million. We paid leasing and interest of BRL 200 million. We bought back shares and paid dividend of BRL 400 million. We had a funding of BRL 700 million and a follow-on of BRL 3.9 billion, reaching a cash position adjusted of BRL 10 billion. Once again, our highest ever cash position.

On the next slide, we get into details about cash generation in the last 12 months. We had BRL 800 million net income. Depreciation and the variation of working capital associated to the inventory that I said, all in all, we generated almost BRL 1 billion in cash flow from the operations. We invested BRL 1 billion between investment and acquisitions. We paid leasing, BRL 600 million, and interest. We bought back and paid dividend, BRL 1.4 billion. And once again, the funding and the follow-on in order to reach the BRL 10 billion cash. So you can see that our cash position is very, very sound. And we are very well prepared.

And on the next slide, we'll be talking about the results of consumer credit. Luizacred had another spectacular quarter. We had already talked a lot about the Cartão Magalu, the Magalu Card. And we also talked about it extensively, and we doubled the pace of sale of new cards, reaching 6 million cards in this quarter. And the total volume also grew the TPV to almost BRL 10 billion, over 60%. And in the half year, also very accelerated, a very positive for the result of Luizacred as a whole.

And on the next slide, we show another highlight, which has to do with delinquency. Short-term and long-term delinquency also going down, and the coverage ratio went to over 220% vis-à-vis 160% last year, and provisioning very strong. And even with this very strong provisioning, Luizacred was able to double profit to BRL 48 million, and in the half year, more than doubled to BRL 84 million. And here, just for comparison purposes, NPL, GAAP, which is the way we report, BRL 200 million net income in the half year. So you can see that it is even higher than the net income in IFRS, reflecting the quality of the result and the quality of the portfolio of Luizacred.

And on the last slide, just reinforcing the follow-on. We concluded this in June. We had a primary funding of almost BRL 4 billion. A very strong focus on investments in logistics, technology and acquisition, strategic acquisitions such as the Hub, such as KaBuM!, Sode and all the others.

And with that, we end our presentation. And now we would like to open for questions. Thank you very much.

[Operator]

[Operator Instructions] Mr. Luiz Guanais from BTG Pactual.

[Luiz Guanais, analyst]

I have 2 questions here on our side. And the first point has to do with the service platform. You have been talking about this for quite a long time. And could you talk about the SuperApp Magalu? What about the evolution of that from now on?

And the second question, getting more into the engagement on the part of the seller. Do you see an increase in this engagement with the initiatives that you have been developing mainly on the payment side? So maybe you could talk about that as well.

[Frederico Rodrigues, executive]

Luiz, thank you for the question. The mini apps, well, this is something I didn't tell you about during the presentation, about the launch of some operations within the context that you mentioned in this month. So Fatala, could you please answer this question?

[André Fatala, executive]

Thank you. Well, regarding the mini apps, we launched the first mini app that was built with the [ IT for Me ], and it is already published in the Magalu app. We are operating in 6 cities, taking a lot of feedback about the utilization on the part of users and having some improvement in the experience. It's running very well. We are already developing another one with an external partner.

Regarding the development kit. And we have all this learning curve. And we are getting feedback of third parties using this solution. And we are having an integration with Magalu Pagamentos as well. Doing everything through Magalu Pagamentos. And we should have some news to impart. And when we have a very good structure already up and running, we will be rolling this out for other companies in the group, so that they may connect by means of the SuperApp. And also, we will be publishing the SDK and APIs for third parties involving solutions that will be published also in the SuperApp.

[Frederico Rodrigues, executive]

Thank you, Fatala. About the salary engagement, when we see 400% growth of 3P vis-à-vis '19, we have a very robust growth of GMV sellers. And when I consider in the seller world, you have 2 large groups. In fact, there are more segmentations, but I'm going to simplify. You have the big sellers, the ones that have practically an operation in which they don't even need services like Electrolux and MadeiraMadeira and big sellers. And they don't really need a very big array of services, be them financial or logistics.

And they have been growing, of course. But our focus is the base of the pyramid, the small sellers or the medium-sized sellers, many, as I said during my presentation, coming from a blue ocean, the analog sellers and who are selling for the first time digitally with us. And for these sellers who are the focus of Magalu, they are growing much more than 400%.

And so we are totally focused on these sellers in the sense that we have a very high level of services. We issue their electronic invoices and which is a very big difference because these sellers were not used to sell online. And we do factory of their receivables. And we have the delivery part. And now with the drop-off, it will be much easier for them to use the services so that they may post the product as of our store. And we will always work to be better than the government postal office.

So I don't have a disclosure of their engagement. But you can see that the growth of the active base of sellers is huge and also the GMV growth. These are the sellers that really need Magalu. Magalu has a purpose to digitalize and help Brazil to become digital and digitalize the Brazilian retail in general and bring access to everybody, to the masses. Our focus has always been the masses. Magalu has no vocation for the big sellers, but the small and the medium ones, we are doing work of full service. And Leandro Soares and his team, they are working very hard to guarantee that we may deliver the best level of service.

And the fact that we have the local support of the store, not only bringing the sellers but supporting them in their basic needs helps a lot. Not to mention the education because we have courses for them of all kinds. So we give them training so that they can be totally digital to be able to use the platform. So I'm super, super enthusiastic about it. And we are talking about 7,200,000 analog sellers. And we are going to help them become digital. We are going to grow with their help. And we are going to help them increase the penetration of e-commerce in Brazil and bringing this up to the rates that we have in more mature countries.

[Luiz Guanais, analyst]

And I think there is another effect, which is the growth of the regional e-commerce.

[Frederico Rodrigues, executive]

Yes, undoubtedly. And it has everything to do with our focus that our marketplace will be multichannel. When I talked about that way back then, people said, well, this is not going to be any different. And our 1P today is totally dominant. It dominates. And you can see that it grows much more than the market and very much because of multichannel. And I'm sure that multichannel brought our 1P here, and it is also going to bring our 3P. It will be -- as nobody does that today, many investors do not understand this difference, this competitive advantage. But you can be sure that the 3P is going to be -- make a very big difference.

[Operator]

Joseph Giordano from JPMorgan.

[Joseph Giordano, analyst]

About the ecosystem that you are creating regionally with [ IT for Me ] and others, how are you evolving in this connection of sellers and grocery shops? And what about synergies from the regional logistics' viewpoint.

And another point that I would like to ask has to do with the digital platform that you are setting up. And how much you would be able to leverage credit for nondigitalized consumers. And those who do not have a bank account, for instance, how could you leverage this with third-party platforms maybe?

[Frederico Rodrigues, executive]

The first question is the following. Our top priority now, VipCommerce already has 200 clients, supermarkets, and they have a very good penetration in Brazil. And the focus of VipCommerce is to integrate this catalog to the SuperApp. This is more or less what we did with [ IT for Me ] that Fatala described.

And the idea is to do a little bit differently conceptually, but bring this catalog here. And at the same time, they are growing their client base. And I think the following for products that are domestic products. The products that are easier to plan, buying nonperishable products. And with a very high turnover part of these products, we can have here in-house with the 1P. 40% of the 1P items sold by Magalu were market items.

But most of what is sold today in the market are very regional with very complex logistics involved. And operating a chain nationally with perishable products and products that are too regional because they are not all perishable, but they are sometimes very [ readable ].

And it's difficult to become relevant in this segment without having the marketplace, without having a 3P operation. So the focus of VipCommerce is to integrate and take the catalog of 200 and deliver the services for payment and even logistic for these networks. Once you plug them here, you also plug Magalu Delivery or Magalu Entregas, Magalu Pay, Magalu Pagamentos.

And this is the focus of the logistics team. And the VipCommerce team also has the objective of increasing the number of sellers and extending their 200 chains to others. And half of Brazilian retailers are supermarkets. This is the biggest segment and 1% penetration online only. So our focus is to help these companies increase their online participation.

About credit for sellers, I'm going to give to Beto and to Robson, and then Beto add.

[Robson Dantas, executive]

Sure. Joseph, thank you for the question. I'm going to address your question in 2 parts. First part, when it comes to distribution channels, Fred already told us more about it in the beginning of the presentation. Magalu has a very strong sales force and a lot of experience in off-line and online. Naturally, our strategy is going to be mixed. We cannot just say that we'll be online only. The test we ran in recent months gave us good insights on how the operation model should work. Naturally, in our strategy, we have a whole mix of formats that we're working on. And actually, it will go through digital and physical using our sales force.

Second point, about scalability, funding and operations, which is the main point of your question. Today, we structured our own FIDC, our own capital. We use partners to support in the concession process, and we've been working a lot in experience. We understand the most simple, to the point and timely experience, the better traction we can have.

To what extent is going to be like that in the future or if you're going to a levered using third-party capital or having quotas in the market, it's too early to say anything. There are several possibilities. But right now, the strategy is to work on experience, run tests and then begin to scale it up. Beto, anything to add?

[Roberto Rodrigues, executive]

Perfect. Well, I believe this is it. I think you said it all. It has to do with origination and the ability to generate and manage and also including seller relationship. Funding, Joseph, I think it's the easiest part. We have FIDC, which is our own capital. But easily, we could also resell credit and have the origination fee or share of the risk. There are many ways to lever -- leverage the FIDC and other financial institutions we can use to provide funding. The value lies in origination. That's a fact.

[Operator]

The next question is from Robert Ford with Bank of America.

[Robert Ford, analyst]

Could you tell us more about apparel and personal care? I know the rates are low. But what about the behavior once consumers go back to shop in malls? And how do you expect the 3P proposals to stay or to compete with the integrated rivals like groceries, for instance?

[Frederico Rodrigues, executive]

Bob, thank you for the question. Eduardo is going to answer the first part of your question.

[Eduardo Galanternick, executive]

Thank you. Bob, thank you for the question. These verticals or categories are very constructive, adding sellers, assortment. We have a number of developments taking place, and novelties, particularly for the second half of the year, naturally, owing to the nature of the category. Well, it was not so significant in the past, but it has been growing very significantly now. If we think about the growth rate, it's among the highest.

So I think we're very excited with what we are to build. We know these are drivers for growth in the future. And to some extent, this is it. Unfortunately, we cannot give a teaser of what we're doing, but you'll hear from us soon.

[Frederico Rodrigues, executive]

Thank you. As for the market, I think I spoke a little bit about it, right, Bob? The way how we think about it, we believe local operators and regional operators have a very strong power in the market. This market is not so concentrated yet and it's not by chance. And that's because region and proximity to local consumers is still very important.

So our approach, once again, is to be 1P with categories that are easier to be run, with better economics, good turnover, more predictable and high demand, and the long tail for categories and sellers. So having local networks, regional networks and supporting them with their own e-commerce and plug their capital into our platform via 3P. So it's more 3P rather than 1P, overall speaking. 1P is important, but the focus -- the main focus of the category for the future lies in 3P.

And VipCommerce helps us because at the end of the day, the small and midsize networks or chains, they don't have something for or as a platform. So VipCommerce is a pioneer for grocery stores, being specialized in grocery stores. So the idea is to grow in midsize networks and also in small chains, mom and pops for the future.

So our strategy is the long tail and being regional and absorb with 3P. And as for high inventory products, we can have 1P at Magalu. That's our focus.

[Robert Ford, analyst]

So proximity should exceed integration in terms of cost of delivery and local scale?

[Frederico Rodrigues, executive]

I think it also involves regional knowledge. If you know the industry well, it's very specific. The mix is very different. Sometimes you have different mix by cities, for instance, or by region. Brazil is a continental country. So it's not only that. It's hard to work with a centralized operation. That's what I mean. But obviously, it involves economics and local inventory. No doubt about it. Thank you.

[Operator]

Richard from Bradesco.

[Richard Cathcart, analyst]

Could you talk about the 1-hour delivery from the technological side and the operational side? What are you doing? Or what do you have to do in order to map the product that will have a higher demand for 1-hour delivery? And what is your road map to roll this out for the next few months?

[Frederico Rodrigues, executive]

Richard, I'm going to ask Fabrício to answer your question. And specifically in terms of technology, Fatala will go.

[Fabrício Garcia, executive]

Thank you very much for the question. I think Fatala -- well, the acquisition of Sode was very important for our strategy. And because of this, we will be able to scale and roll out this modality very quickly. We know which are the best sellers. We have our algorithm in the distribution area and replacing the store, the items that have this very high turnover, and that can be delivered locally by bike in the future. And we are very well adjusted.

In July, we launched the ship from seller, another modality. And we will be able to place ultrafast delivery for them. In terms of structure, of course, we have to recruit the couriers and prepare the stores in order to serve this modality. So everything is very well adjusted already. The product, that has to be separated. It's done -- well, this is done in 15 to 20 minutes, and then it is delivered in up to 1 hour. And our goal is less than 1 hour. Today, we already have 184 stores in 40 cities. And by the end of the year, this will be present in all the capitals and 400 stores. This is our rollout road map.

[Frederico Rodrigues, executive]

Fatala, would you like to add something specific?

[André Fatala, executive]

It was very well said. And as we understand the demand on the part of the consumer, by means of the web and other channels, we can -- in which the models of our algorithm, in order to be able to send the products that have the highest demand for ultrafast delivery. And we have doing -- we have been doing a lot of work in software in order to manage these items in the physical stores. As if -- like a mini DC, for instance. And we are working on that. And as Fabrício said, it is simple to do the rollout to all the stores and be able to send the correct products to these stores in order to be able to offer this to our client, that is to say the ultrafast delivery up to 1 hour.

[Operator]

The next question is from Danniela Eiger with XP Investments.

[Danniela Eiger, analyst]

At the end of the day, my question is recurrent in the industry. I'd like to better understand your mind with these competitive dynamics. We have this concern in the industry at large of having the take rate drop or some are more aggressive in marketing. So what is -- what are your thoughts about possible levers or drivers, take rate, cashback, free shipping? So I'd like to better understand the vision of the competitive scenario that you're facing right now?

[Frederico Rodrigues, executive]

Danniela, I think I answered this question a couple of times to you in previous calls. And it's very important. It's a latent point of concern. And ever since we went public, I answer questions about competitors. You have a different cycle of competitors. It's always changing. So for many years, speaking of Amazon and more recently now, the Asian ones. So our industry is competitive. I always say that it's Fortnite game, not FIFA. There are several competitors simultaneously, including banks with their own marketplace.

So I hope it has come to stay. I hope it's always a competitive market. I wouldn't enjoy to be in a monopoly or oligopoly. It's important to be a winner, but once you have good competitors and you start overcoming them, our style remains the same, Danniela. That's a style of working on sustainable, intelligent competition.

If you check our track record, we've always grown without concessions for this growth. So I tend to say that growing by using investors' money and subsidizing sellers and end users without generating a positive long-term effect or a good LTV over CAC ratio, this means to destroy value of those who are betting your business, shareholders. So we don't want to bring shareholders' value to an end. We want to increase the share value over time.

So we want to grow by building a sustainable foundation for growth. So everything that I've said before, Danniela, to some extent, is for that purpose. One-hour delivery, for instance, are making it available, drop off to sellers at the store level or click and collect. These are intelligent solutions, services that we are delivering with a marginal cost to us because we already have brick-and-mortars, we have the truck go in and come in back from the store. And I can benefit from this multichannel approach to provide higher level of service.

So if you have high NPS, as we do, if you have great level of service, if you have ultrafast delivery much faster than our competitors, and you can do it at a very low cost, you don't need to work on irrational concessions. If you check our trade-offs for growth in the past vis-à-vis the margin, they happen. You're right. We might do it in the future but not because of a short-term practice just for the sake of competition. We only do that because we want to grow more and because there was a good LTV over CAC ratio.

So for instance, this quarter, it's worth investing because we managed to find a good equation to monetize this customer in the future. And it will be profitable with cards, with sellers. But if you check our result or EBITDA margin, this quarter was the same as we had in the first quarter of the year, the same of the last quarter of last year. So we've been managing to support it. And we are building new monetization vehicles like fintech and other aspects that we mentioned before.

So competition is an average variable that is going to be here. So our option, by and large, is to be in this competition by showing a unique value proposal, both for end consumers, our clients and our sellers who are also clients of ours. So if you have a unique level of service for the end user and for sellers, at the end of the day, you grow with fewer concessions that are not sustainable or not so intelligent.

[Danniela Eiger, analyst]

Crystal clear. I'm sorry to insist, but that's a point that we always want to know to understand the dynamics, which is very lively. Like you said, you have different competitors coming up and strategies changing their shape. But it's crystal clear now, and congratulations on the results.

[Frederico Rodrigues, executive]

Thank you.

[Operator]

Our Q&A session has come to an end. We would like to turn the floor back to Mr. Frederico Trajano for his closing remarks. Mr. Trajano, you may proceed.

[Frederico Rodrigues, executive]

Once again, I would like to thank you all very much for your presence since it's rather unusual time, Friday afternoon. Thank you very much to all analysts who have asked questions and our team with a brilliant execution and with a very strong comparison base of last year.

And I would like to say that I'm very enthusiastic looking ahead, 10% penetration in e-commerce in Brazil. And you can see that there is a lot of room for growth and for improvement of digitalization of the country. And so that more retailers may experiment the growth potential of their businesses by means of participating in the digitalization of the country. And we are sure that we can help because we have done this here at Magalu. And I am sure that we can help them in transferring all this experience and also our will to help these companies looking ahead.

So we have a huge opportunity ahead of us. We are very enthusiastic about it. And we want to obtain the same success in the future as we have been obtaining so far. Thank you very much. Have a very nice weekend.

[Operator]

Magalu's video conference has come to an end. Thank you very much for participating, and we wish you a very good afternoon. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]