Magazine Luiza SA

BOVESPA:MGLU3

Earnings Call Transcript

[Operator]

Good morning, ladies and gentlemen, and thank you for waiting. Welcome to the video conference of Magalu about the results of the third quarter of 2020. We would like to inform you that this event is being recorded and simultaneously translated. [Operator Instructions]

Now I would like to turn the floor over to Mr. Frederico Trajano, CEO of Magazine Luiza. You may proceed, Mr. Trajano.

[Frederico Rodrigues, executive]

Good morning. Thank you very much for participating in our call about the results of the third quarter of 2020. Once again, we are doing a video conference. And here, we have all the executive directors gathered in the room, and they will all be available to answer your questions. And we will have quite a lot of time to answer questions. We intend to have a very self-explanatory presentation, but I think you will have questions.

I would like to start by the first slide. It is the toughest moment of the epidemic, this photo, when we closed our stores and at the beginning of the second part of March, and we had to shut down overnight all our stores, 100% of over 1,100 units. So we had to remove all the security equipment, and we sent them out to our DCs. And this is one of our managers, Marianne. She works in this store. She's shutting down her store, and she put the Brazilian flag here, and she's very sad and afraid and very frustrated in the expectation of what might come. And I think this photo is very good.

And for 3 months or even more, almost 5 months, in fact, we had part of our units closed March, April, May, June and July. And we are reopening the stores in the second quarter of 2020. I have been in the company for about 20 years, and we have always placed our bets on the multichannel model. And here, we are a monochannel model here. And we have always believed that the summation of the channels would be our challenge in the path. And over this period, we resumed the opening of stores, and after the second quarter, which was practically monochannel, then we resumed the model and the consecration of this model.

So in the third quarter, we had the reopening of the stores and all the benefits from multichannel, which is basically putting together exponential growth, a digital company. So Magalu was able in this quarter to show the model, the model that is being streamlined and refined over 2 decades. And it consecrates the superior multichannel model, 80% of the overall business. And once again, we have been -- we have never left our physical stores by side. So to say, we have never neglected them. What is important is the whole of the business. And of course, e-commerce, due to consumer behavior and the digitization of countries, is the major vector, but we do not do digitalization to the detriment of the physical stores. So the whole business grew 80%. And we had the comparison base of the whole market in the previous year. Competitors grew 0 or less than 30%, but nobody grew 47%, such as we did in the previous year. So we had a very expressive growth and considering a very high basis of comparison. And even in the first 9 months of the month, we were able to sell exactly what we sold in the 12 months of last year in spite of having almost 5 months with all our physical stores closed, either partially or totally.

And this is a very important point because for the first time ever, we had share gain of GfK, durable goods category, which is a very important category, although we are winning share in other categories as well. We gained 5.4 percentage points of share during this quarter vis-a-vis last year. And we -- all our growth is not based on the corona voucher. Of course, it is helping everybody, not only Magalu. So this helps everybody at the same level. But when you gain share, it is almost -- we're gaining share. And historically, we have always gained share in crisis. So in this context, Magalu always exits the crisis better than the others. So it was even better than the growth of the fourth quarter of last year. And the professionals in the team, they are reinvigorated and they create new competencies in moments of crisis. So the share gain was excellent multi-share online. Many people are leaving physical stores, but we continue to insist on this model, which is a multichannel model because we firmly believe that it is superior. Okay?

Now talking about profitability. A 20.3% operating expenses, and this result shows that we can grow with operating leverage. When you have a result that comes from the increase in gross margin, your competitive position is very fragile because it is based on opportunity. And if you get a lower gross margin and in spite of that, you increase your net income, this means that you are efficient, you are competitive and you are giving the best possible price to your end customers. So our gross margin dropped in the quarter not because we slashed prices because nobody needs a price war. The market is very heated up now. So you can tell with high margin. But simply, we went from 40% to 66% of e-commerce participation. And the margin of e-commerce is lower, but the expenses are lower, and this is driven by the cost platform of the physical stores. So having a low expense places us on a very interesting competitive position. And where necessary, where it was not the case in this quarter, but this -- the efficiency of this model is the highlight of the company. And this is why we celebrate this net expenses over net revenue result. And theoretically, it could even be lower because the GMV is not here in the net revenue. If you include the GMV, it will be even more significant. So this is a very interesting figure for the company.

So BRL 216 million in adjusted net profit, so 70% growth year-on-year. So I do not see e-commerce operations growing as much as we are growing. And this is a figure to be celebrated, and this was achieved because of the consistent work with focus and discipline on the part of our whole team. Once again, this is a quarter -- this is a very positive quarter in terms of cash generation, BRL 884 million. We have a very efficient working capital management. We have the best inventory turnover ever, 60 days, a very high efficiency and which has to do with our physical -- and of course, good negotiation with our suppliers, everything combined previously. So Beto will be showing you how this is consistent over time.

Now I would like to talk about this growth in detail. We had 18% growth, total sales in stores. And in spite of many stores closed in July and part of August, and only in September, all the stores were opened and same-store, 7%, same-store sales increase. And if you look at the same-store sales on the same days, it was even higher. 18% is a lot. So the store is very well supplied, and the inventories are very good. And people are very motivated. And we have learned how to sell without the client being present physically in the stores via mobile. 30% comes from mobile sales. So the salesperson sells by means of a digital platform that allows to sell remotely to the clients, Facebook or Instagram or WhatsApp, whatever. So -- and of course, this revenue comes to the store, that is to say, because they have their efforts rewarded, so to say. We put these revenues from the physical stores. And last year, we had already had a very good performance in physical stores. And I would like to remind you that it is margin and price of the physical stores -- with the margin of physical stores. Thank you for the reminder.

Next slide, a very major growth in e-commerce as well. The next slide. 148% increase year-on-year, a slight deceleration vis-a-vis the second quarter. And there is a difference because Netshoes got into our base in the third quarter of last year. So without considering Netshoes, the growth was very similar to the second quarter in spite of the reopening of the stores and e-commerce. The e-commerce team, and Edu will be talking about that later, did a very great job with excellent results for 1P. And I would like to mention our growth. We are growing 148% over 96% growth of e-commerce last year. The growth of e-commerce was major in 2019. In the third quarter of 2019, 150% over 96% is really a big achievement on the part of the team, and they're doing a great, outstanding job. They are very competent.

And next slide, please. I would like to mention here the growth of 1P. It was much higher than what we estimated at the beginning of the year. And we understand that looking ahead for the relative opportunity of growth in marketplace in this moment of pandemic, some have not planned very well for a resumption of growth and after corona voucher. And we have good planning. We had the necessary inventories, and our logistics are much, much better than the other competitors. And because of all that, we were able to gain share in 1P. So we have a very positive sequence here for 1P. I believe that looking for the next 2 years, 3P tends to grow faster than 1P, but we also celebrate the result of 1P. And we are agnostic regarding channels.

Next. 145% growth in Marketplace sales, and we had the strike on the part of the postal service. So 250% increase in Marketplace sellers, and we increased the number of categories, and we are focusing on that. And the average ticket is higher. It is not only going to add GMV but also frequency of purchases. So we focus on 3P to add to Magalu a higher frequency of utilization, a higher recurrence or repurchases. In high average ticket, we are already the leaders in 1P. So this brings about not only GMV but frequency in new categories and higher tickets for our SuperApp. So this is the work being done by Edu, Leandro and the whole team of Marketplace and very much driven in the last 2 quarters by the Parceiro Magalu, the Magalu partner, which is the platform that we launched at the beginning of the pandemic in order to help small analog sellers -- who were analog, and we have been doing quite a lot of work in this regard. And for the next 2 years, we believe that the major driver for growth in the company will be in the 3P, and we are improving our systems and services and platform consistently over time.

I would like to highlight our SuperApp. 75% of the sales were via mobile, mainly via SuperApp, mainly in Magalu, 30 million MAUs. This is a very expressive figure. And in the context of SuperApp, besides 1P, 3Ps, new categories, we are going to talk about categories afterwards in the market. But the consumer looks at our SuperApp as a one-stop shop, and we created a digital account within the SuperApp. And in less than 3 months, we reached 2 million customers who opened accounts, showing our success.

And our big difference here in the MagaluPay is that we do not have another app. It is embedded into the retail app. So it takes advantage of the audience and along the lines of the Chinese payment apps that grew based on apps such as Alibaba, for instance, so they grew within the app. But the beginning was always native. That is to say the payment app embedded in the retail app. So now we have already 2 million, and this creates a virtuous cycle. The client gets into the SuperApp in order to integrate with the app, no friction. And we made the right decision in terms of growth. But tomorrow, we might have another app for MagaluPay, but until we gain this kind of traction, we will keep it this way. So we see a very good evolution in the apps and highlighting the MagaluPay.

I would like to highlight in terms of new categories we had fantastic performance on the part of Zattini, Netshoes and Epoca Cosmeticos. So these were the performances that the company -- of the company that we acquired in the past. And organically, we launched the market line, the mercado line or the grocery line, which we call mercado, so that people don't have to go physically to a supermarket. We have over 5 million items sold in this quarter, and this is the largest category in terms of items sold. And it is being driven by the grocery model. Hundreds and millions -- 1,100 stores, most of them have their inventory. So we know logistics. We know e-commerce. So we are driving this to this model. This is 1P for the time being. And it started organically. It grew very fast, and we are very pleased with the market performance of this category. And I'm sure that it will further develop in the future, and it contributes more than GMV. This is a huge strategic challenge, and this is one of the categories that will contribute a lot.

So now a couple of words on our logistics. Logbee is a start-up company that we acquired 2 years ago. When we acquired Logbee, it was 100% of deliveries in Sao Paulo, 2 years later, 50% of Magalu's orders all over the country, exponential growth. And it shows how we managed to have a start-up company with a very cool technology and make it bloom in our ecosystem. So that's extremely positive, and it helped a lot our customers to increase the share in -- or within 24 hours. In September, 44% of orders placed by Magalu was delivered in 1 day. So the fastest delivery in Brazil, excellent level of service. I'll tell you more about it later on.

So we're truly very happy with this growth. And obviously, this number is due for 1P. We have a huge challenge to have fast delivery for 3P as well. And later on, I'll tell you more about acquisitions and the focus for the future. But truly, in 1P, it's very hard to beat our level of service and the multichannel operation that we have.

What about 3P? We had some progress in the quarter. Nearly 30% of everything we sell on our platform is collected by ourselves, and it goes through the so-called Magalu-run network. And this number is expected to grow. We have more -- 1,200 sellers in cross-stocking and 240 stores enabled with Marketplace products for click and collect. So we are going to change that logistics differential in 1P now with a multichannel approach. We want to replicate it in 3P. So that's the big challenge everywhere in the company in future quarters. There was evolution in the second and third quarter, significant progress vis-a-vis last year, but we're only just beginning. We have a huge potential. And we had 2 acquisitions, and we're going to work on others and also investment in IT in order to allow our partners to have the same benefits that Magalu enjoys with its operation in terms of fast delivery and low delivery price.

So the focus of the company for the future will hugely be on using our logistics and enabling it to 3P. There was a progress and the opportunity is still huge. So these numbers were not even higher in Q3 because 1P growth was so significant that part of the capacity plan for 3P eventually was used in 1P this quarter. So naturally, we're going to have more predictability of demand in the future. Nobody expected e-commerce to be so fast in the curve with the pandemic. And certainly, we have more predictability and invest more accurately in the future in order to evolve with delivery times and delivery costs to our sellers.

Now I really want to highlight, I was very clear last conference call and during some interviews in the sense that we had slightly lost our excellent service in the second quarter. By the way, I never expected to see this increase of 150% in e-commerce in the second quarter. The pandemic -- well, all Brazilian consumers had to rely fully on e-commerce to buy products, the products we sell. And for some time, we lost the RA1000 seal in the second quarter. But now we're back in the third quarter with the seal, the quality seal, despite the significant growth of e-commerce in Q3. I really celebrated it. And now we are the only company of Reclame Aqui reporting together 1P and 3P, and therefore, the only company that can have the level of service in Brazil, which is so outstanding at Magalu, and we want to continue having the RA1000. We're doing all we can not only to have fast delivery but in time. So I do celebrate it. And I think in Black Friday, we'll be very well prepared. We did massive investments, hiring more than 3,000 people to work in these operations, in call center, DCs. We also invested to increase the fleet, acquisitions, with a goal to have high level of service in Q4. When it comes to billing, it's even higher than Q3. And therefore, we'll have to assure we have a great Black Friday operation with good level of service to our consumers.

Now I would just like to wrap up this cycle on the results of the third quarter by saying that the result celebrates a multichannel model. We made a big digital transformation very successfully at Magalu, and the next step is to share it all with the market. Having a digital ecosystem that enables small and midsized retailer to go digital as well, generating digital inclusion in Brazil. I cannot consider social inclusion without digital inclusion. So we acquired a number of companies that were recently acquired in the third quarter. I said before that we could acquire different kinds of companies. So these companies that have 3 important pillars in our strategy. One of them is valuation. It has to make sense from the financial viewpoint. The company assesses very well the companies and the potential to be added to our ecosystem with very stringent financial discipline. The second pillar, we do technical due diligence, assessing the whole team, the technical skills and also the quality of the IT architecture. If our team doesn't approve, we don't do it either.

And thirdly, people should share our values, people who trust the same values, people who like people, thinking out of the box, simplicity, customer at the top. So we have the privilege to find amazing business people in all these companies we acquired, and many of them spent most of their time now being part of the Magalu team. And they're here with us, joining us to go digital in Brazilian retail. So I'm just going to briefly touch upon each one of them before I turn it over to Roberto.

So I just want to highlight, like I said before, our strength in expanding logistics to our sellers. We have 2 acquisitions with this goal in mind. GFL is a logistics operator that used to work nearly all our collection processes, the 30% seller collection. Amazing job, a very new company, increased a lot the level of service and increasing by 50% of Logbee capacity compared to what we had. So that's a company that will greatly support us to grow even more going forward in the South and Southeast but also growing now in the Northeast. So we truly believe this team is going to power our capacity to increase our network and help with sellers.

And SincLog is an IT platform that used to be used by GFL. And it has another 30 logistics operators that make use of its platform, and it certainly helps logistics operator to work very efficiently in terms of taxes, basic things and routing and even tracking. So it's this amazing team that is joining our efforts in logistics. So I'm very excited with these companies, and I'm very confident they will bear fruit in Q4 already and more significantly next year.

I would like to talk about 2 acquisitions in Magalu as a Service. Stoq may be one of the most interesting companies of POS in the market, 250 million transactions in 2019. The SaaS model, which makes it easier for small and mid-sized retailers to sell both in brick-and-mortar stores and online, integrated with apps, orders, and it addresses retailer options that will add to Magalu partner a very cool team passionate by POS solutions. The idea in Magalu is that Stoq turns out to be our POS solution in the future. Today, we work with third parties, and we want to work with Stoq. We believe their system is very consistent with what we do in our platform. And we also want to convince our sellers to use Stoq because it will be a more natural integration between Magalu partner and our system.

And ComSchool is a business school focused on e-business, e-commerce. And the focus is to sell courses. We only started selling online courses on our digital platforms. And we intend to sell our own courses of ComSchool on our app, which is an interesting segment for SuperApp Education. But ComSchool will also help our sellers to better manage their business and to prosper in Magalu platform and outside. For digital inclusion, we'll need the connection gadget and knowledge, and ComSchool is adding with knowledge. It's an amazing team that will add a lot, thousands of people to go digital in Brazil. So that's a very important step at Magalu.

About the SuperApp concept. We have 1 of the 4 largest food delivery apps in Brazil, AiQFome. Pretty much focused on the countryside, not so well known in metropolitan systems but 350 cities in Brazil, about to get to 600 cities by year-end, BRL 700 million in GMV. And the big secret for us is 3x monthly frequency. So AiQFome was acquired in this context of being integrated to our SuperApp and improve our monthly frequency of purchase. I believe this frequency can increase a lot, and therefore, help our general frequency at Magalu. So that's another amazing team from Maringa City who joined Magalu, and I'm confident we'll grow a lot in the number of cities with aggressive expansion very positively. It's a financially balanced company. I know this is a red ocean in the market. But in this case, we are managing to follow their model, which is also franchise, allowing to grow in a very sustainable manner. Another highlight for us, hardly ever do we buy operations that are not sustainable or cannot generate results for the future. We do like diligent entrepreneurs, and AiQFome is part of that universe.

And finally, all the acquisitions at Tem no Magalu Estante Virtual started this year in a super important category, which is books. Netshoes also growing with balanced results or high balance results. We could have a breakeven point in the operation very fast in less than 1 year, showing that we managed to have positive integrations. And Epoca Cosmeticos' triple-digit growth, a very cool performance, positioning very well in Epoca's channel and also in Magalu. I'm very happy with the results delivered by these companies. They are growing a lot for this year, the year of Tem no Magalu, helping us to be more well known and relevant not only in durables but other categories as well. We have several different moves in these new categories but I consider to have a very important progress.

So now basically, this is the ecosystem. I always say it's a puzzle, and we are choosing different pieces that can match. At first, it sounds or looks complicated, but every piece plays a role, has a function in our ecosystem. So I'm managing to have a very solid model. 1 plus 1 is more than 2 in our arithmetics. These companies benefit from the ecosystem and the other way around. There is a synergy that is so cool, and I believe we will reap a lot of fruit from the past. A lot will come in the future, but it's also important to start seeding right now.

Now what about other figures? So we are coming back with our stores. We opened another in the Federal District, 65 Marisa kiosks in Q3, 116 for Magalu, and we want to accelerate next year because our multichannel model is a winning recipe. We want to keep on growing in new markets, new states, new cities. We will keep on accelerating this context.

I would also like to highlight that Magalu was just awarded as the best retail company to work at by GPW, Great Place to Work. For 20 years, we are among the top 10, second in Brazil. Despite the pandemic and shutdown of stores, we really have this amazing group. They love to work at the company. They share the same values at Magalu. And despite the crisis, it has proven to be very resilient and anti-fragile. Sometimes consumers don't see it, but I think that's the big secret of our success. I'm very happy about it.

And we also have the greatest grade in Glassdoor, 4.5 in Glassdoor 2020. And that's a very strong number, an anonymous evaluation from our workforce, showing that's a company people like to work at. People want to come to help Brazil to go digital via Magalu. And this brand also had exponential growth. Many research institutes consider us perhaps the major brand of pandemic, a lot of sensitivity, a lot of innovations, Magalu partner, the button to talk about violence against women, don't dismiss your workplace. So it's truly a company that has 360 management, and consumers today really value this. We are the most valuable retail company in Brazil for the first time in the story of BrandZ. And we also had 1 million followers in TikTok in 3 months, the first retail brand, and total followers in social networks, more than 20 million. So we have a very strong brand equity. Our digital presence is very significant and also helping us to build our brand in this new century.

I would just like to close the first part by addressing a program that generated a lot of noise in social networks, which is our trainee program. I simply have to mention it. I mentioned this in our management letter, but we launched a trainee program this current quarter or last month. The focus of the trainee program is to fix and correct a problem we have. Today, 54% of our employees at Magalu are of African descent, and only 16% of our leaders are of African descent. I consider this to be a problem we have.

[Operator]

We ask you to please stand by. We are waiting for the sound to resume. Thank you. Would you please stand by because we're waiting for the sound to resume? The interpreters are not getting any sound.

[Technical Difficulty]

We ask you to please stand by. There was a technical problem here, and we are waiting for the sound to resume. Thank you.

We are back. We apologize. So Beto...

[Roberto Rodrigues, executive]

Good morning, everybody. Thank you very much for participating in our video conference, and I will be talking about the financial highlights. Fred has already talked about the sales growth over BRL 12 billion in total sales, a very strong cash generation; adjusted net income, BRL 216 million. And I would like to mention that before taxes, it grew 115% this year. [ Reinforcing ] our gross margin went down associated to the chain. We diluted our SG&A at the lowest level in our whole history.

[The interpreters apologize because they are getting a very bad sound. So we are doing what we can.]

We diluted depreciation and we more than doubled our gross profit.

On the next slide, our working capital -- from June to September, we improved our working capital in over BRL 200 million. We had an inventory turnover around 60 to 70 days. In September, we reinforced the inventories, preparing ourselves for the year-end sales. 70, 75 days inventory turnover, on average term of 80 days, very healthy for our app purchases. We maintained this coverage of -- we -- taxes recovery and our short-term assets and liabilities were improved. And we evolved in the quarter an adjusted net cash position of BRL 5.9 billion. We generated BRL 100 million in cash net but starting from BRL 900 million [ practically ]. This quarter, we paid BRL 300 million in dividends, almost BRL 200 million in share buyback. We invested over BRL 100 million in the quarter, and we made all these acquisitions. So in the quarter, we generated BRL 100 million in net cash, going from BRL 900 million on operating cash.

On the next slide, we show the history of the last 12 months. In the last 12 months, we had BRL 2.7 billion, the highest cash generation in our history. And we invested. We paid interest, and we invested. We did the follow-on, and we bought back and paid dividends, so BRL 7.6 billion for the quarter. So this means that we are very sound.

On the next slide, we show a consistent evolution in this regard. Over the last 3, 4 years, we have been able to grow with profitability, with cash generation.

Next slide, please, about Luizacred now. This was a major highlight in the quarter as well. In the second quarter, we had decreased the basis because the stores were closed. And in the second quarter, the focus was collection mostly. In the third quarter, we made the transition from this focus of collection going towards sales. It is -- so this quarter, we resumed growth, and we're selling very consistently and with levels that are similar to last year. And the sales of Luizacred had decreased in the second quarter, and it bounced back in the third quarter with the reopening of the market and the sale of new cards. So we resumed growth in our sales as well not only on the evolution of the Luiza Card base. And this is very important for our retail in the medium and the long run.

On the next slide, we have another highlight, which is the result of Luizacred. Receiving is a highlight. So we went to the next level, in fact, and we are receiving today much more than we received at the beginning of this year, and the emergency aid has been healthy. But besides that, we also improved quite extensively our collection process and the credit and collection centers playing a fundamental role. And with that, delinquency dropped, NPL over 90 days past due dropped 1 point practically. And long-term nonperforming loan is provisioned for. And the short-term NPL is what generally requires more provisions. And as we improved our short-term portfolio in terms of NPL to the lowest level ever in our history, as you can see, we needed less provision this year. And with that, it was record in Luizacred's BRL 152 million for the 9 months. And we had more provisions in IFRS than BR GAAP. In last year, BR GAAP had been much higher than IFRS. However, this has been reverted this year.

Now we resume growth. We are growing our sales. We are growing our card base. And delinquency, you can see that has been improving with this very good level. So I would say that these were the highlights of Luizacred.

And now I would like to give the microphone back to Fred.

[Frederico Rodrigues, executive]

I will be opening for questions, but I would like to talk about the fourth quarter a little bit. Of course, we cannot give you guidance. But in the fourth quarter, we are very well prepared, as I said before, in terms of very solid capacity and most of the contracts that we signed are in implementation the full quarter, the fourth quarter. So we will have a very good service level. Some deceleration vis-a-vis the third quarter will happen not because of our supply. We have very sound planning for products. And for the fourth quarter, as I said before, but because the corona voucher went from BRL 600 to BRL 300. So because of that, a degree of deceleration should happen in the fourth quarter. But we do not believe it will be significant. It will continue to be stronger, higher than the market and the physical stores performing very well. In spite of the drop in the corona voucher aid...

[We are receiving a very bad sound.]

[Technical Difficulty]

[Frederico Rodrigues, executive]

It's a marginal cost. So as companies in states, we don't have -- for instance, I'm not speaking out there, but Rio de Janeiro, Espirito Santo, when I see companies and their truck route, I'll lower the marginal cost of delivery to the market. So we have to do that. Soon, we have to grow a lot in 3P in our business.

If you think about expenses, we cannot only think about the net revenue but GMV because 3P will definitely grow a lot. So we have to check the index for the future. As for Q4, we expect to increase our expenses a little because bulk of the agreements were made for Q4. So we're going to have another 3,000 employees. We expect to have a growth with a very strong operational leverage.

So I do believe in our multi-channel model. As we open more stores, we keep on diluting e-commerce costs in the area where we make deliveries without having to worry about store pickup or delivery with the same truck routes.

[Robert Ford, analyst]

What about new temporary benefits, rents and salaries?

[Frederico Rodrigues, executive]

Bob, I couldn't hear us.

[Robert Ford, analyst]

Did you have any temporary benefit of salaries?

[Frederico Rodrigues, executive]

Not this quarter.

[Robert Ford, analyst]

And what about recent acquisitions, particularly advertising?

[Frederico Rodrigues, executive]

These acquisitions -- these 8 recent acquisitions, the vast majority are start-up companies, asset-light, particularly IT companies. So they add very little fixed cost or variable cost to the organization. They have the potential to generate gain with a platform model. So logistics operators grow as our volume grows or they gain internal share. And advertising is going to add revenue, top line growth to our business with higher margins compared to the market, higher margins. So I don't believe there will be an impact on expenses. And we continue in our acquisitions, Bob, to privilege -- well, I'm not saying that we are only going to do that, but we are keeping an eye on asset-light business. So we are privileging in our strategies, companies that are oriented to the growth of our digital platform not as we did in the past. That was just about buying brick-and-mortar retail.

[Robert Ford, analyst]

Congratulations again.

[Frederico Rodrigues, executive]

Thank you, Bob. Thank you for the question.

[Operator]

The next question is from Luiz Guanais with BTG Pactual.

[Luiz Guanais, analyst]

Fred and Roberto, I have 2 questions. You mentioned at the end about the path for growth in 2021. Could you tell us more about growth in new categories? You've been speaking of cosmetics, apparel, grocery stores. Could you tell us more about it? And what about the growth in services expected for next years owing to the acquisitions that you did in recent months? As for acquisitions, again, what do you consider to add to your ecosystem in terms of acquisitions of services for future quarters?

[Frederico Rodrigues, executive]

Luiz, for next year, undoubtedly -- well, I'm not only speaking of 2021. I'm speaking of future years. I believe we are getting to a level of penetration of developed countries when it comes to durables. We did a great job in Brazil in the penetration of durables. If you look at other categories, penetration rate is lower. If you think about fashion, beauty, foods, so penetration rates are very low in Brazil in these categories. So the big opportunity for growth lies in the other categories. So our efforts in investments are basically related but not exclusively. Well, we'll keep on becoming leaders in our own category and cash call. We have to continue investment in the main categories, but now the major focus is on these new categories.

So I firmly believe that the sporting goods area of Netshoes and fashion, Zattini and Epoca will keep on growing a lot. Recently, we hired to Silvia Machado, who had been CEO of Arezzo, to lead our fashion and beauty sector. She is an Executive Director, a heavyweight, and she is a adding a lot to the team. We already had [ Cris ] and [ Zatt ]. She's going to address both areas. [ Zatt ] was not Netshoes' focus. But we have a big market, and penetration rate of fashion in Brazil is still very low. So we have a good avenue for growth in e-commerce.

Another line that is also in the structure, our structure organic for the moment, is grocery stores. We started very well. Like I said, the MEI category, and we'll keep on investing very heavily. The model was very successful. It's a focus right now, so fashion, beauty, sporting goods. So these new categories, like I said, are going to have a very significant share of future growth both in 1P and 3P going forward.

At Hubsales, we acquired -- well, it is an F2C business but pretty much oriented to fashion. So today, it is in Franca, in the footwear industry, but we are going to work in other hubs. So footwear or clothing manufacturers sell directly to end consumers. So in the strategy of Silvia's team, this is very important.

We see a very important opportunity to grow in 3P. And also a POS for multi-brands, sometimes products to our platform. So I bet heavily on fashion, beauty, and also grocery stores. What about books? It's also a very good category. But in terms of size, it's not so representative as the rest. Estante Virtual is digitizing a lot of old book stores. So the big market certainly are beauty, fashion and consumables and foods. So these are markets that will get even stronger going forward.

Now it's important to say they are not only drivers for GMV growth. We also have to check purchase frequency. Consumers in Brazil don't keep an eye on that. They only keep on GMV top line. And when we are digital, frequency is very important. So to me, even though these categories don't bring such a high GMV, they are going to bring a lot of frequency and stickiness to our operation. So strategically, they are very important to the company.

[Luiz Guanais, analyst]

Perfect, Fred. Now just a follow-up when it comes to services. When it comes to frequency that you mentioned, services is also very important drivers. In payment, logistics, so how do you see the evolution of the portfolio and also considering new [ G&A ] moves?

[Frederico Rodrigues, executive]

There are services and financial services. Financial services, the bulk in the short term when it comes to adding result to our group, to our balance sheet, this is Magalu Pagamentos, Magalu payments. That's a business that we launched this year. We moved already BRL 4.5 billion in the first 9 months of the year. So BRL 2 billion in the last quarter, Magalu payments. And last year, as a reminder, this receivable, this move was through a partner, Stone, last year. And this year, we created our own sub acquiring business, Magalu Payments, and we anticipate seller receivables with a very robust revenue, and it will grow a lot. So penetration of Magalu Payments and the use of revenue advance. That's in the short term. And we also talked about Magalu Pay. Tomorrow, there will be some revenue of services provided. So at the end of the day, it will generate advertising in the short term and I firmly believe that.

When it comes to logistics, we will generate revenue doing fulfillment even if it's only cross-docking for the seller, but we are not keeping an eye on profitability. So logistics more than making money or charging or having profit in addition to cost, we want to provide the same level of service that we have in 1P. It's not going to generate gross income in the bottom line in the short term. So the financial component is very important.

As for the future, undoubtedly, we haven't worked on any big acquisition. That's a segment that has opportunities to be explored, new categories in grocery stores, for instance, or even fashion. We acquired Zattini, but that was a smaller operation in Netshoes' focus on sports. So once again, don't be surprised. It also includes traditional categories. Maybe we can do -- make acquisitions in order to continue with our leadership. So once again, I repeat, don't be surprised with the company. It will be in the strategy of being the system of retail in Brazil and the 5 strategic pillar, but that's very broad.

[Operator]

Joseph Giordano from JPMorgan.

[Joseph Giordano, analyst]

I would like to go back to M&A. You mentioned vertical. In consumer goods, you already have a very good presence. You already have a very good service on the platform for that as well as home products. So I would like to know about the retail ecosystem. What is your view from now on, the one that you are building? Would it make any sense to get into brick-and-mortar for food retail or maybe establish a partnership in this regard? Or would it be difficult for you to find a partner for the full country, for the whole country?

And regarding Magalu Pay and the rollout, how should we think about your strategy in the short and the medium run? Because it does not seem to be very sustainable in the long run. So how do you see this as a factor for activation for this platform?

[Frederico Rodrigues, executive]

Well, it's very difficult to talk about acquisitions. I really cannot give you any clues about it because it has to do with our strategy. So we have nothing against bricks-and-mortar or e-commerce. We operate all kinds of channels. And there could be some strategic moves regarding the increase in the presence of some categories, digital or not. Omnichannel, for instance, it could be -- and all the options are open. It has to make sense for one specific asset. So I cannot really give you a general answer. But the possibility does exist, and of course, we look at both. This is part of our array of options, and we are very much focused on 3P in the platform. You can see the recent acquisition. They have characteristic in common because they are digital platforms and they drive this part of our business. So most of the acquisitions will have this kind of connotation. We don't have anything specific to talk about, but they will be more or less along the same lines.

And the other question, Magalu Pay. We have 2 million accounts, 30 million people in MAU. And the focus now is to increase our base. And then we will be making our best endeavor to increase this base, and the acquisition costs will be lower because the account is integrated into the app, so less friction and less investment to activate the account. 2 million in 1 month is a very important number. And we are going to add features to our wallet in order to differentiate our product. And cashback is important. And it is important in our accounts. I don't know what you see in the market. Sometimes you have players that are not being very smart in this regard or not very good planning on their part, but we have always been very rational in terms of our growth.

And I think we need to have discipline always, but it is very strategic for us to have this kind of payment. And we make investments in the short run that are more expensive, but you're going to reap the fruits, having millions and millions of people using the app in the future on a daily basis. So some benefit we are going to derive from this investment.

[Joseph Giordano, analyst]

Talking about competition, Fred, many people are capitalizing your industry and maybe new entrants as well. How do you see the evolution of the competitive environment mainly now? Do you think there will be more steroid in the economy?

[Frederico Rodrigues, executive]

Maybe in terms of 1P. I think we have all the calls -- the previous calls that are available on our website. This is my 20th quarter as a CEO, and we always get this question. Well, competition has more money. They made a follow-on, competitor so and so, this and that. But this is what we get all quarters -- in all quarters. The segment is very competitive. So our DNA come from durable goods, retail, and we have always had hundreds and hundreds of competitors. And we even compete with people who are bigger than ours, sometimes in one specific area. And if we do our job every single day, we do our homework and having a good strategy in place and having discipline in terms of our capital structure and treating very well both our employees and our clients, if we do all that -- because we did all that when people were very aggressive in e-commerce, we were able to gain 5.4%.

In e-commerce, we're very competitive. And when the expenses are as low as ours and the very high cash generation such as we have, it's very difficult for people to compete with us. If we compete against a company that is as efficient as we are, this is different, of course, if you have a very high service level as well. So what I mean is that I respect all our competitors, but our focus is not on competitors. Our focus is on our end customers, and this is what we have on our radar screen all the time.

[Operator]

Irma Sgarz, Goldman Sachs.

[Irma Sgarz, analyst]

I would like to go back to the grocery category. What are the major hurdles that you are seeing in this category? Because it's not very easy to execute. So what do you need in order to attract the companies to sell by means of your platform? And what -- and regarding the assortment as well, you already offer some fresh produce. What about the room that you have or the space that you have for produce, for fresh products in this category, the overall grocery category?

[Frederico Rodrigues, executive]

Irma, thank you for the question. I'm going to try to distribute the answer, and my colleagues will be helping me answer. Rego, for instance, will be helping me. Okay? When I talk about the difficulties, we have been able to sign the contracts with the main suppliers. And we've created this in March, and we are learning every single day, and we have already reached a new level in this regard. And I believe that next year, this category should be playing a much bigger role.

I think one of the difficulties, one of the hurdles in the market as a whole is the delivery cost because the ticket is low. So you have a high delivery cost. And as we have the products physically present in the stores, we can have the ship from stores, an important difference that we offer. We can be more competitive in this context. And of course, we have to make significant adaptations in our infrastructure in the store. Because we have the inventory in the mezzanine, for instance, and let's say the product is very heavy and then you have a structural point or issue or point of attention. But it fits very well into the model. And also, we are doing this in a balanced fashion. We do not have a huge investment in the category so far. It will be sustainable and strategic for the company. This is what I can tell you.

And about the products that need to be refrigerated and fruit and vegetables, well, so far, we don't have an answer to give you. We are still studying the category. It should be important in the future. But with our current infrastructure, some adaptations would be necessary. So this is the reason why we are focusing on products that are not vegetables and fruit.

[Operator]

Gabriel Simoes from Itaú BBA.

[Gabriel Simoes, analyst]

Sorry, I was muted. You posted significant growth in Magalu Pay this quarter. Since it's integrated to the main asset, you also mentioned your plan for an open platform. And now we have PIX educating consumers in digital payments and QR codes. So despite these moves, do you think we can also get closer to the Chinese super app models? What are the structural changes you expect to see in the format? And if not, what is the decisive driver in China that is absent here in order to replicate the experience here?

[Frederico Rodrigues, executive]

The SuperApp is one of our bets, pretty much inspired by the Chinese model. No doubt about it. We don't have super apps with the same Chinese characteristics in the U.S. It was not a success everywhere, but we believe we can do it well in Brazil. It will be an experiment. We're not so sure yet that we'll make it. Within this context, everything you bring to the app, which brings frequent use, like I said before, AiQFome with food delivery or new categories that we'll bring in and also the market expectation of a more frequent purchase so -- to increase customer loyalty. But there is no doubt that payment is also very important.

Penetration of Luizacred at brick-and-mortar stores is 50%. So we've been an operator for decades with consumer credit payments. So we have robust knowledge for consumer credit. We also have a team that has been doing that for a long time and trying to take this expertise to the digital world. And it makes sense to have very robust penetration rates in the app for our own financial products.

In brick-and-mortar stores, if I have 50% Luizacred -- penetration in Luizacred, why can't I have it for 30,000 monthly users in the app? So we still have a long way to go in this context. There are many decisions. We don't have a silver bullet to answer, but I believe it is possible. And as for PIX, it levels the playing field and it makes it easier for new entrants to join the financial system on equal footing compared to those that have been established for a while. I'm not going to share strategies or details on our strategy, but I am confident we have the right knowledge. We have Robson, Fatala to do the job, Robson Dantas. So I'm confident that we'll become a relevant player.

[Operator]

The next question is from Daniela Bretthauer with Eleven.

[Daniela Bretthauer, analyst]

Congratulations on the earnings results. Many of my questions were already answered. So perhaps I would like to address 2 topics.

Firstly, I would like to talk about the cashback policy. Is it reasonable to assume that now that you're promptly developing and growing and increasing your own financial service platform like Magalu Pay, does it make sense to continue having other partnerships or if everything will be inside your own SuperApp? That's my first question.

And the second question is for Roberto. I would like to know more about Luizacred because the results were really surprising.

[Frederico Rodrigues, executive]

Thank you for the question, Dani. Edu, can you help me answer this question about cashback and partners?

[Eduardo Galanternick, executive]

Dani, thank you for your question. With regards to cashback, undoubtedly, we have this in our platform. Dotz and other partners that we have, we see them as acquisition sources. We try to bring new customers through our channels, and every order is placed and closed in our platform. We don't list our catalogs in any other platform to close orders -- to take orders. So we take these opportunities as media sources equivalent to other media we have and always take into account investment profitability and acquisition cost. So that's how we see it. The cashback strategy, loyalty retention will always take place in our platform.

[Daniela Bretthauer, analyst]

That's very clear. Very clear. So it's more about the ROIC of the investment that you take into account as a long-term strategy.

[Eduardo Galanternick, executive]

That's it.

[Daniela Bretthauer, analyst]

Okay. Thank you. Now Beto -- Roberto, Luizacred's result was really positively surprising. But what really amazed me, Beto, was the revenue went down about 36%, but expenses went down much more, about 78%. So it really boosted the result of Luizacred. So my question is. Okay. I understand what you said about the harvest, the season of provisioning old-timers versus new ones. But what about Q4? And going forward, do you think the result will be more similar to the level of Q3 because there is a structural change in profitability if Q3 is the new reality for Luizacred? It really multiplied the income by 5, though it's challenging to see how to work on projections for Luizacred in the future.

[Frederico Rodrigues, executive]

Beto, I think you're muted.

[Roberto Rodrigues, executive]

Thank you for your question. So let me explain it better. The current quarter is a quarter of change of level. It won't necessarily be the same in future quarters. But to give you a backdrop, the financial revenue was lower because it was a time in which we didn't work so much on loans, funding. We were more conservative in terms of credit. And customers have more cash and were not so much on revolving credit and not so delinquent. So the revenue -- or default revenue went down. Interest revenues were lower, precisely owing to the quality of the portfolio that was greatly improved.

Now when you say that expenses went down dramatically, it did happen. And in net expenses, there is another item that is continue -- is going to continue to increase in our card base and also the growth in sales, et cetera. So the trend for the future is gradually to grow in the base sales leading to fee income and necessarily will generate also more refinancing, financing, loans and bring in more revenue of financial transactions. So these were cycles, and the trend is to start growing again in those lines. And the level of provision will not necessarily be equivalent to this quarter because we had a change in the level this quarter. We greatly improved. So the expected losses that were made last year was changed owing to the new reality. And now we should go back to work on provisions owing to this growth. Growth brings provisions. And we have an increased provision for customers who pay on time limits, but we believe the level of provisions will be lower compared to last year. So it's a new normal, a new circumstance, a new level of profitability.

Having said that, we expect to start growing again. We are very bullish, very confident with Luizacred's results and also its contribution to retail and increasingly more to e-commerce.

[Operator]

The next question will be in English, Morgan Stanley.

[Andrew Ruben, analyst]

Andrew at Morgan Stanley. Two items here. First, on physical stores, can you talk about how you're thinking about the growth pipeline for 2021?

And then second, on the marketplace, what kind of view do you have in terms of the marketplace supply? What kind of visibility do you have for seller inventories heading into the fourth quarter?

[Frederico Rodrigues, executive]

Thank you for the question. I was asked to answer -- the first part of your question will be answered by Fabrício, and then I will come back, and I will talk -- or I'll answer your other question about the pipeline for the opening of stores.

[Fabrício Garcia, executive]

Thank you very much for your question. We should be opening a few additional stores still within this year, ending with about 45 stores opened and 100 and some kiosks at Marisa. Next year, we should keep the same pace and we should be going to the Federal District. And also, the Marisa kiosks, that should be around 250 overall.

[Frederico Rodrigues, executive]

Well, adding to what Fabrício said, answering your question about marketplace, yes, I do believe that the market is undersupplied, and the small and medium players suffer more than the big players because of supply. And we add new sellers and new SKUs, new items in order to offset this, thereby improving the overall process. I do not see anything affecting 3P materially for the fourth one. And in same seller sales, I don't think there will be some additional effect. And maybe you will have some stock out in some small ones, but as we are adding more sellers, there should be no material impact. And I have already mentioned the deceleration from the third quarter to the fourth quarter. I have already explained the reason because of the aid from BRL 600 to BRL 300.

[Operator]

Gabriel Disselli from Santander.

[Gabriel Disseli, analyst]

I have a few doubts. You have already talked about competition, but do you see any different competition? Because some players and including your company, you are bringing forward the Black Friday sales. And this should bring about some lower inventory. So do you believe in any stock outs because of that, of the early Black Friday sales?

[Frederico Rodrigues, executive]

Well, we have already planned for the full year to have an extended Black Friday in order to avoid a very big concentration on Black Friday, although I believe there will be a very good sales during the full month and also on Black Friday. So the market already expected that. So what we are trying to do is deconcentrate the purchases on Black Friday, the shopping on Black Friday. And I see a very positive evolution of demand for the Black Friday products. And the strategy is less aggressive than everybody is thinking. You need to make promotions but not at irrational prices. Black Friday is regulated, mind you. So we have the consumer protection agency that keeps their eyes turned to Black Friday all the time.

And the fourth quarter will have less money from the corona voucher, from the aid from the government, as we have already said. But we are having very good growth, we have very good inventories, and we have -- we do not like to work with a high coverage because the turnover of our inventory is very quick. And we receive all the time the products that we need, and we have very fast inventory turnover. So we are very well supplied, and we made a very good planning with our suppliers. Only a few lines have some kind of stockout because most of the lines are very well prepared to have everything ready for the fourth quarter and also to start the first quarter of 2021. We have an excellent relationship with our suppliers. And if the product is -- there is a shortage of the product in the market, then this is a situation that everybody would face.

[Operator]

Next question, Victor Saragiotto with Crédit Suisse.

[Victor Saragiotto, analyst]

Congratulations. I would like to understand the 1P and 3P dynamics, Fred. Over the last quarters, we saw 3P growth close to 1P growth. So if we consider other players in the market, some competitors didn't have investment in 3P. And now everything is doing the opposite. They're getting to 1P. Those who are no players are getting to 1P. Players who were in 1P are getting to 3P. So maybe they surprised many people. So what happened? What were the pains with marketplace over Q3? I understand it's very hard to predict anything for market growth next year, but what should we consider channel-wise? Should we consider that 1P will remain strong?

[Frederico Rodrigues, executive]

Thank you for your question, Victor. I mentioned that a couple of times. First of all, Magalu is a company with a very strong balance in results. So we don't compromise e-commerce for brick-and-mortars or the other way around, 1P or 3P. So the 3 channels are doing very well, outstanding performance in Q3. 3P did great, 1P as well. So 1P was outstandingly great. I'm not saying 3P was not good. We grew 145% in 3P, a lot more than the major marketplaces in the market, from 11,000 to 40,000 sellers. The operation is getting better and better. The pain of running 3P, I have pains just as I have pains in brick and mortars and pains when we run 1P, so nothing outstanding.

Now the thing is that this year with the pandemic, the market heavily...

[Operator]

Ladies and gentlemen, please remain connected.

[Technical Difficulty]

[Frederico Rodrigues, executive]

So there was a share gain that was not proportional, in my opinion, compared to 1P. So going forward, I believe 3P will keep on growing. That's the big growth lever. But do we have a goal for 1P, 3P, brick-and-mortar? We are channel-agnostic. We want to grow them all. But considering the market trend and opportunities, growth in the future will be stronger in 3P compared to 1P and compared to brick-and-mortars in the sense of gaining scalability, gaining scale. We cannot get one quarter and project it for the future. That's not as simple as that.

[Operator]

This concludes the Q&A session. I would like to leave the floor back to Mr. Frederico Trajano for the closing remarks. Over to you, Mr. Trajano.

[Frederico Rodrigues, executive]

Once again, I would like to thank you all for joining us on our conference call. These are very long calls, a lot of information. We are very confident about our company and for the coming quarters. And if you've been through all we've been through, such a complex and challenging situation, and you'll get out stronger, we increase our confidence. But we're still very humble. We're still -- there is a lot of things to improve, but I'm very confident about the team. I thank everybody for their efforts, the executives, directors, employees at Magalu for such an amazing result despite all the challenges. So thank you very much indeed. Enjoy the rest of the week.

[Operator]

This concludes Magalu's earnings conference call. Thank you all for joining us. Enjoy the day.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]