Companhia Brasileira de Distribuicao SA

BOVESPA:PCAR3

Earnings Call Transcript

[Operator]

Welcome to the earnings conference call to discuss the results for the first quarter of 2025 of GPA. [Operator Instructions] We inform you that this video conference is being recorded and will be made available on the company's IR website, where the complete material of our earnings release is available. You can also download the presentation using the chat icon. [Operator Instructions]

We point out that the information contained in this presentation and any statements that may be made during the video conference regarding business prospects, projections, operational and financial goals of GPA constitute the beliefs and assumptions of the company's management as well as information currently available.

Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions and, therefore, depend on circumstances that may or may not occur. Investors should understand that general economic conditions, market conditions and other operating factors could affect GPA's future results and could lead to outcomes that differ materially from those expressed in such forward-looking statements.

With us here today are the CEO of GPA, Marcelo Pimentel; and the CFO and Investor Relations Officer, Rafael Russowsky. I will now turn the call to Marcelo Pimentel for him to start the presentation. You may proceed, sir.

[Marcelo Pimentel, executive]

Good morning, everyone. It is a great pleasure to share the results for the first quarter of this year, a period that marks the beginning of a new cycle for 2025 through 2027, during which we've reaffirmed our strategic direction anchored in six core pillars: sales, customers, digital, expansion, profitability, and ESG and culture. Our performance in this quarter is encouraging, especially considering our progress in sales, margin and volume. It reinforces the solid work we've carried out over the 3 initial years of our turnaround journey.

Despite a still volatile and uncertain macroeconomic environment, I can confidently say that our premium-focused business model has been instrumental in protecting and sustaining our operations while supporting our growth trajectory. Let me now walk you through this quarter's highlights. As always, our strategy remains guided by our six strategic building blocks which have driven consistent and progressive results quarter after quarter. From January through March, we posted same-store sales growth of 7.3%, an outstanding result with gains across all banners.

Proximity accelerated its growth to 7.8%, strongly supported by units opened since 2022. Extra Mercado continued its positive recovery trend, growing 6.6% following implementation of the assortment and category management review project launched at the end of Q2 2024. Pão de Açúcar maintained its consistent and resilient growth trajectory, with a 6.5% increase in same-store sales underpinned by our strategic focus on three key pillars: premium assortment, high-quality perishables and top-tier service. Growth was driven by higher sales volumes and increased average ticket size. This sales performance is further validated by our gains in market share.

We've now seen over 2 consecutive years of market share growth in São Paulo with an additional 0.4 percentage points gained in the first quarter of 2025. This consistent growth reflects our strategic focus on the premium segment, bolstered by the strengthened value proposition of the Pão de Açúcar brand as well as the ongoing expansion of Minuto Pão de Açúcar. According to Nielsen, we gained 0.7 percentage points of market share in the premium supermarket segment across all cities where the Pão de Açúcar banner is present.

The Proximity format now commands an impressive 63% market share in São Paulo, up 2.4 percentage points year-over-year. We also continued improving our customer service quality across all brands. Our Net Promoter Score, NPS, increased by 3.2% -- 3.2 points compared to the first quarter of 2024, reaching 79.7 points, with Extra Mercado standing out at 83.8 points, a 5.7 point improvement over the period. These results stem from a set of initiatives focused on delivering an excellent customer experience, including ongoing staff training, store refurbishments and improvements in price perception, product assortment and in-store environment.

Our private label brands also continued to gain relevance, reaching a 24.6% market share nationally, up 2.6 percentage points year-over-year. Private label penetration in total sales also rose to 21.1% in Q1 2025. A particular highlight is Qualitá, which now ranks 20th among the top-selling food brands in the country according to Nielsen.

We also maintained our leadership in Brazil's online food retail market. Digital channel sales reached BRL 588 million during the quarter, a 16.9% increase over the same period last year, accounting for 12.6% of total sales. Efficiency initiatives we implemented helped us achieve a strong pre-IFRS 16 EBITDA margin of 9.9%, a key contributor to our consolidated margin. Our omnichannel strategy remains a strategic differentiator. Multichannel customers shopped 3.3x more frequently and have an average ticket 4.0x higher than single-channel customers.

Organic expansion remains central to our growth strategy and brand presence. The strong profitability of the Proximity model continues to drive expansion, reflecting high customer acceptance in major urban centers. This quarter, we opened 10 new Proximity units and a new Pão de Açúcar store in the Hípica neighborhood of Campinas, launching a new store model focused on delivering a differentiated shopping experience and enhanced services. Since the beginning of our expansion plan in 2022, we opened 169 new Proximity stores and 12 Pão de Açúcar units.

On the financial front, from January through March, we reported a gross profit of BRL 1.3 billion, reflecting a solid 27.6% margin and maintaining a consistent upward trend at a robust level. Adjusted consolidated EBITDA continued on its positive path, growing 9.9% year-over-year with a 0.5 percentage point margin increase to 8.6%, driven by the efficiency gains we implemented across all channels. Rafael will provide more detail on the financial performance in a moment.

Now moving to our sixth strategic pillar: social, environmental, and cultural initiatives. On waste management, we expanded our partnership with Food to Save to include 400 Proximity stores. In just this past quarter, we helped prevent the disposal of 81 tons of food. And since the start of the initiative, we've sold over 148,000 surplus food bags. In our diversity and inclusion agenda, we reinforced our commitment by joining the UN Global Compact's Elas Lideram, They Lead Movement, setting a target of having women occupy 50% of senior leadership roles by 2030. We also joined the Business Forum for Refugees and launched a project focused on hiring refugees and migrants.

Also, this quarter, we launched the fourth edition of our affirmative internship program for Black students, welcoming 20 new interns. I'm also pleased to announce that GPA is now part of the B3 Corporate Sustainability Index, ISE portfolio, reaffirming our strong ESG commitment. Our environmental transparency was also recognized by the Carbon Disclosure Project, CDP, where we scored A- on the Climate Change questionnaire and B on Forests.

Before handing things over to Rafael for the financial deep dive, I'd like to highlight the release of GPA's 2024 Annual and Sustainability Report published last week. The report provides visibility into our value chain initiatives, climate change efforts and broader social engagement, touching on our business activities and sustainability indicators. The full report is available on our corporate website and Investor Relations page.

With that, I'll conclude my initial remarks and turn the conference over to Rafael.

[Rafael Russowsky, executive]

Thank you, Marcelo. Good morning, everyone, who's attending our conference. Starting with Slide 8, we highlight the evolution of our profitability reflected in the growth of gross profit and adjusted EBITDA. We remain focused on operational excellence with increased sales and volume, combined with ongoing efficiency initiatives in costs and expense management. As a result, we delivered yet another quarter of margin improvement with consistent and sustainable performance.

As shown in the chart above, gross profit reached BRL 1.3 billion in the first quarter of 2025, with a margin of 27.6% representing a 0.4 percentage points increase versus the same period in 2024. The chart also highlights the positive trajectory since we've been done our turnaround efforts, demonstrating our long-term strength of this result. In the quarter, we posted advances across all banners and formats. The Proximity format continues to gain profitability driven by improved promotional efficiency. Extra Mercado remains on its recovery path, benefiting from the assortment revision, management improvements and store enhancements that began in the fourth -- second quarter of 2024.

Meanwhile, Pão de Açúcar maintains a solid same-store growth, reinforcing its resilience and margin-generating capacity. We have robust initiatives to consolidate our performance in profitability, including reduction of ruptures, expansion of retail media and store portfolio optimization, all reinforcing our commitment to sustained margin evolution and long-term results. The chart below shows that adjusted EBITDA reached BRL 409 million in the first quarter of 2025, an increase of 9.9% when compared to the previous year and a margin of 8.6% up 0.5 percentage points for Q1 2024.

It's worth noting that even in a less favorable calendar this quarter, with Easter moving Q2 and February having 1 fewer day, we were able to capture 0.1 percentage points in our SG&A efficiency. This improvement reflects our ongoing efforts in workforce efficiency and our disciplined execution of zero-based budgeting approach. We remain committed to pursuing new expense optimization opportunities with a focus on a sustainable efficiency gains.

Now move on to Slide 9. We'll discuss the net income performance. As illustrated in the chart, in the first quarter of 2025, we reported a continued net loss of BRL 93 million a significant 77% reduction compared to the loss of BRL 407 million recorded in Q1 2024. This improvement stems primarily from the positive evolution of our operating results, as previously mentioned, and a BRL 120 million reduction in other operating expenses, mainly due to lower provisions related to tax settlements, particularly the agreement reached with the state of São Paulo in 2024.

Additionally, the quarter was favored from a positive impact of BRL 187 million in income tax and social contribution line primarily due to the partial reversal of interest and fines related to CSLL charges from 2022. The provisions had been booked following a ruling by the Supreme Court, where significant reduced through settlements over the past years. Finally, in the first quarter of 2025, the net loss from discontinued operations was BRL 75 million, a significant reduction of 70% compared to the Q1 2024.

Now moving on to Slide 10, we present the managerial cash flow for the past 12 months during which we generated that BRL 1 billion operating cash flow. The result was driven by a significant improvement in the pre-IFRS 16 adjusted EBITDA which reached BRL 840 million, an increase of BRL 307 million versus 2024, supported by efficiency inventory, working capital management, resulting in BRL 157 million in generation during the second -- [ the period ] a 4-day improvement in the working capital cycle compared to Q1 2024.

It's important to note that this performance was especially impacted by the shift in the Easter seasonality in Q2 2025, which limited stronger gains in EBITDA and working capital. Continuing the cash flow analysis, CapEx totaled BRL 709 million, reflecting an increase versus the prior period, mainly driven by higher disbursement from store opening and refurbishment in late 2024 and early 2025. We expect that this effect should be less significant in the upcoming quarters.

Other operating expenses totaled BRL 749 million, a reduction compared to the previous period. It's worth noting that this figure still reflects the nonrecurring effects which totaled BRL 571 million over the last 12 months, mainly related to the tax settlements and label claims associated with Extra Hiper.

Lastly, we saw a BRL 67 million improvement in financial expenses, mainly due to a reduction in gross debt over the period. In Slide 11, we provide details on the reduction in our financial leverage. As shown in the chart, net debt increased by BRL 681 million over the past 12 months, mainly due to nonrecurring effects, as mentioned in the other operating expenses line. It's important to highlight that a significant portion of this effect is tied to tax settlement, which while representing onetime disbursement, led to a meaningful reduction in the company's contingent liabilities due to discounts on interest and fines.

To conclude, leverage on our finances stood at 2.8% in the quarter, a reduction of 0.2% versus the previous period, driven by a 58% increase in pre-IFRS 16 adjusted EBITDA. That concludes our financial results presentation. We will now open the Q&A session.

[Operator]

[Operator Instructions] Our first question comes from Ruben Couto, sell-side analyst with Santander.

[Ruben Couto, analyst]

I'd like to hear a little bit about your cash generation. We've seen a significant development of your EBITDA for some time, but your cash flow has shown a significant gap when compared to this trend, especially when we look at Q1. Your cash consumption was essentially flat even though your EBITDA has developed significantly. What should we expect when it comes to bridging this gap between cash flow and EBITDA over the course of this year? What should be the levers we should pay attention to, to see this gap close?

[Rafael Russowsky, executive]

I think that, first and foremost, you need to take account of the calendar effect. The Easter holiday had a significant effect on our cash generation during this quarter. This affected, obviously, sales, so therefore, it affected our EBITDA and precisely because of that movement, it also affects our preparation for Easter with greater consumption of our working capital lines. So that's point number one.

Number two, as we mentioned in our earnings release, if you look on Page 10 of our earnings release, a still significant impact can be seen in other expenses at around BRL 649 million. We expect this negative impact to, over the course of the year, decrease a lot more substantially. We've listed the most significant impacts but I'd like to point out two of them, which I find particularly important: one, the fact that last year, we entered a few tech settlements in São Paulo and others such as in the state of Bahia. That, over the last 12 months, consumed about BRL 225 million.

It's also important to mention that the most significant impact we see here comes precisely from the São Paulo tech settlement that took place in the first half of the year but actually took effect in the second half. So we should see a significant mitigation in this line, which is one that eats into our cash significantly, but we should see that starting in the first quarter of this year, especially considering that the settlement was paid in the second quarter of last year, and we're talking about BRL 160 million for this settlement alone.

Another thing I'd like to mention which substantially affects us but which is already being mitigated increasingly more are the expenses in connection with the dismissals because of the Assai acquisition we made in 2021-2022. As I've mentioned before, during the time of that sale, we dismissed 16,000 associates and many of those filed lawsuit against us over the 2 years that followed that sale, meaning throughout 2023 -- rather 2022, '23, and '24. The good news here is that the time for -- the time we had since then has actually concluded. So quarter-after-quarter ever since, we're seeing these figures go down succeedingly.

We saw about BRL 280 million in a 12-month basis. But we also expect, and I've mentioned this before in other calls, that we expect to see expenses closer to BRL 150 million to BRL 160 million this year. So this is another line that will probably contribute to smaller expenses. That's from an operating standpoint.

Now when thinking about other assets we have, and I've also mentioned this before, a company as old as ours is, even though we've conducted a substantial program for asset sales throughout 2023 and 2024, there are still some significant assets we're working on precisely so that we can help to mitigate this cash burn. And this is not in connection with our operation and is not something that's perennial but it helps to mitigate our cash burn.

Whenever we look at these assets, our assumption is always the possibility of helping to mitigate our financial expenses, which is obviously not exclusive to GPA. There's a 14% to 15% tax rate, which obviously has a major impact on the results of every company.

[Operator]

Our next question comes from Danni Eiger, sell-side analyst with XP.

[Danniela Eiger, analyst]

First of all, I'd like to follow-up on your discussion about the tax settlements. Actually, I'd like to hear from you an update about these discussions. Of course, there's still a substantial balance involved in those settlements, so I just wanted to hear from you how you're working with that and how we can expect these settlements to develop.

Also, I'd like to hear from the potential decrease in expenses via technology, automation and so on and so forth. I just wanted to understand how much of that has already been consolidated. And if I may, a third point. I just wanted to understand how is your retail media penetration doing and what kind of potential do you see moving forward?

[Marcelo Pimentel, executive]

Thank you, Danni. With regard to the settlements, obviously, there are limits to what we can reveal to you at this point. But what I can say is we are actively working especially on settlements at the federal level so that soon, we can communicate something to the market. Obviously, we see a few possibilities, but these are naturally complex issues, which involve a major triangulation involving the company, the revenue service and several state governments.

But we do see a path forward to be able to not only provide a solution but also a way for the market to have some predictability. And what we're seeking is precisely to clear this cloud that's hanging over the company. With regards to what are actually our tax contingent season, what are the amounts that we can negotiate and agree on so that we can ultimately settle. And it's also important to remember that we have a significant amount of tax credit that may be used in any agreement to minimize and to significantly minimize the impact of these agreements.

As to the expenses, as you'll see moving forward, we're always working on two different fronts. First of all, optimizing productivity. And here, I'm speaking directly about individuals. And there's a continued work both in terms of in-store operations and in our distribution centers. In the last quarter of 2024, we worked to optimize our headquarters by substantially reducing the figures that we see in our report, something close to BRL 100 million, and that was over the course of the entire year.

And in parallel to that, we're also talking about the budget to 0, which will also allow us to reduce in excess of BRL 100 million our expenses. So over the next few quarters, we expect to continue to show the optimized efficiency in our company's management. Lastly, retail media has developed positively as we've said before. We are now moving on to a second stage in this project. So far, the project was focused on marketing physical spaces in our brick-and-mortar stores. This allowed us -- the figures that we reported in late 2024, close to BRL 100 million in revenue.

Keeping in mind that this channel's profitability is extremely high, close to 80%. We are now starting a second stage of customization using our customer data platform, which will now help us to customize our offers using data intelligence, meaning we rely on our data from our loyalty service plus sales so we can now customize the offers we show our customers.

And a third value-adding point is we can also sell this data to the industry, meaning the industry has access to the right audience to adjust their marketing strategy for their products, which allows them more accuracy in their marketing campaigns and another channel for revenue for us. We expect this channel to grow at high double digits over the course of 2025, which will include projects that will continue to grow substantially over the course of the next few years, not only in 2025.

[Rafael Russowsky, executive]

Danni, I just wanted to add something and mention the agreements that you mentioned. I'd like to expand this not only to our settlements, but also, I'd like to call your attention to something I mentioned earlier in this conference. We have the opportunity to settle a lawsuit that allowed us to eliminate BRL 900 million in contingency for contributions in the first half of this year.

Again, this was because of a quality vote, and so we have this opportunity to pay something to the tune of BRL 200 million. As Marcelo mentioned, we also have a significant amount of tax credits, and this is what we used to settle this agreement. And I mentioned this because this is another data point in connection with the opportunities that we have both with regards to the amount of our settlements and what was ultimately agreed upon.

Last year, we settled on an agreement with the state of São Paulo, which I believe everyone is aware of, where we were able to eliminate something to the tune of BRL 3.5 million in contingency, thanks to an agreement whereby we'll pay something close to BRL 800 million over the course of 10 years. So this is the type of proportion you should keep in mind.

Another thing you should keep in mind is the situation which is not an agreement, but an opportunity to settle where we eliminate something close to BRL 900 million by paying, this time, a cash payment of about BRL 200 million. These are obviously significant data points. These are specific opportunities. Obviously, this is no guidance for what you should expect to come in the future are just two specific data points that show our ability to seize potentially positive opportunities for the company, whether in cases of settlement, as we had in the case with the state of São Paulo or in cases of agreements that we will seek in other situations that pertain to our opportunities with regards to eliminating or mitigating our expenses.

[Operator]

Next question, Felipe Rached from sell-side analyst.

[Felipe Rached, analyst]

I would like to talk about the sales trend of Mercado. The performance has been very much better. You have made a review of assortment. Is there anything else to be done in terms of actions? Could you provide more details about the refurbishment of the stores? So have you been able to measure the impact in the sales? Is this likely to continue for all the group of stores that you have for the future? And in relation to the liabilities, tax liabilities, this is a very specific question. I would like to understand if the new composition of the Board may somehow help or accelerate this process.

[Marcelo Pimentel, executive]

Thank you. So here we go. So we are really very happy with the performance of Extra Mercado. It shows the assertiveness of our strategy to maintain this banner format. It's a very important format that allows us to penetrate in markets that Pão de Açúcar banner would not be able to penetrate. What we needed was, as we did with Pão de Açúcar, was to make adjustment to this strategy that needed to have this review of assortment, but not only that in the general meaning.

But we should also include some categories that were relevant to this public: perishables, for example, bakery, hygiene, butcher. But in this context, we review all the assortment and we provided a new layout for the stores so that it could be adapted to the new demands. Another very relevant point that we have been noticing relation to Extra is the change in the spending and purchase of our clients, considering the consumption is materialized ever more with specific purchases and at lower volume.

I believe that the scenario that we saw here is that since Mercado Extra is closer to the local neighborhood, since it's more into the communities where it operates. The client continues to repurchase at a higher frequency. The benefit is very good when compared to any competitor in the market. And what we needed is this new refurbishment of stores. The 69 stores that we remodeled have already been done. And what we saw is that the plan is to conclude the refurbishment plan up to the end of the year. So our plan is that it should be 100% revitalized up to the end of the year.

In relation to the last question you asked about the liabilities, of course, we have the best lawyers providing support to us, all the accounting team and the tax team. And the fact that there's a new Board and we have new Board members makes us confident that we are going to have highly qualified people to provide support in this process. We are going to have the opportunity to discuss this point internally. And for sure, with the experience that they have, you have the opportunity to listen and to understand new ways of looking at the process. So we are very confident that the new Board composition, considering the experience they have will help us out.

[Operator]

Next question comes from Iago Souza, sell-side analyst with Genial Investment.

[Iago Souza, analyst]

I have two questions on my side. The question is related to Danni. I understand that this is going to be important for the margin in 2025. Considering what you can disclose to us in terms of retail media, how many suppliers do you work with nowadays? Are they present in physical stores? Are they present in Pão de Açúcar stores and the other banners? How many other stores have this format? And what is in your to-do list for the next months? And the second question is related to a follow-up in the removal of guarantees in relation to contingency liabilities. Has there been any updates? These are our questions.

[Marcelo Pimentel, executive]

Thank you, Iago. In relation to retail media, we have already exceeded more than 100 agreements with more than 100 suppliers, as I mentioned before. We focus on Pão de Açúcar format, so nearly all Pão de Açúcar stores have some sort of agreement of retail media, either by means of screens or physical presence, external aspects of the stores. This year, we are going to start operating in Mercado Extra, and we also see possibilities to implement actions in retail media, also in Proximity.

Another point that we made progress about is retail media, considering the app and social media as well. So these are new channels that we've been operating and they are adding revenues to this channel. As I mentioned previously, in relation to suppliers, we no longer have the topic of sales of space at the physical or digital level. And now we are selling interactions and provide access to clients with intelligence. In other words, we are linking products with qualified basis with the product. And for sure, this is going to bring us another channel of revenues that may even be more relevant to what we have seen so far.

What we can say about the other question is what we mentioned in the material fact. In casino, we disagree with what they said. And we believe that the guarantees that we've seen so far are likely to be maintained. And as mentioned in a material fact, the company is taking all the necessary actions internally. At the right time, we are going to disclose the outcome to the market. But our way of looking at this is that the agreements have been signed in Brazil, and they remain valid.

[Iago Souza, analyst]

Okay. Congratulations on the results.

[Operator]

Our next question comes from João Pedro Soares, sell-side analyst with Citi.

[Joao Pedro Soares, analyst]

I have some questions, follow-ups in fact. How assets do you still have? Rafael, could you quantify how much we should have as an idea of level of magnitude and thinking of upside because we would like to understand the cash conversion? I saw that your working capital has improved year-over-year, so inventory levels have been reduced as well. So how can we see this cash conversion improving long time? And also considering the assets which are available for sale, how can we look at the working capital? And how can we look at this improvement in the conversion. So how can we see this progression over time?

[Rafael Russowsky, executive]

Sure. In relation to assets, there are many assets in our power. Some are more relevant and some are less relevant. But this is what I can disclose to you at this time around. We cannot provide you with any guidance or we cannot give you any hope of something that may happen in the short term that may take longer. So we are always reviewing our set of stores. Some of them are being sold. There are some regions where we have less focus, and we can think of reducing our presence in some regions.

There are some pieces of lands that were, so as to say, blocked due to legal-related issues and that have been approved. So we are in the process of having a transaction. And we have some relevant assets as well. Even though they are operating assets, they are not assets associated with our core business. So we are also considering the possibility of having some actions related to those assets. What I can say to you is that we are -- if everything goes well, if we are successful in all negotiations, the volumes can be more significant.

We may even be talking about dozens or, depending on the case, hundreds of millions of reals. So once again, this is what we are seeking. This is what we've been working for. And of course, if we have a transaction such as this, it depends on somebody who would like to buy and some other party which would like to sell. So we have to consider timing and pricing. So these are the challenges we face when we have those transactions. But we are very focused on those potential transactions.

Now talking about working capital, this is exactly what you saw. You saw an improvement of 4 days in the working capital levels. And we could have improved this even better considering the changes in the calendar. We've been working hard on this. There is a committee that gathers together frequently where we have the financial team, the commercial team, the supply team, the financial team with the purpose of looking for additional opportunities related to working capital performance.

So we have been working hard in this regard and those 4 days related to the improvement, as I mentioned, is a result of the work that we have been developing. So this is something very relevant. There are opportunities out there, from simple things such as establishing specific dates to pay suppliers in general, defining the date, the month and also different negotiations, things related to supply aspects and other details.

And I believe we have room for improvement in terms of working capital. We have a volume of inventory days that is likely to improve in the coming months. A practical example would be the following: in Minuto Pão de Açúcar stores and Proximity in general. And since this is mostly concentrated in Minuto, we started to have stores with no inventory levels. So those inventories that you see is what you see on the shelves. So we no longer store products. So these are initiatives that are being developed that are likely to add days to this result.

Another point that I would like to point -- to mention is related to CapEx. Of course, this is not a guidance but it's a plan that we'd like to share with you. We plan to maintain our CapEx at 3% of revenue that we consider to be necessary for us to refurbish the group of stores.

We have invested in some opening of stores, especially Proximity banner. And this is why we have gained so much in market share. According to Nielsen, we have 66% of market share in Proximity in São Paulo alone. And Proximity was measured as stores up to 400 square meters, and this is something very relevant.

So we have this CapEx expenditure that provides support to operation. But longer time, we are likely to have a more regulated CapEx. In addition to the opening of stores, which is not what consumes CapEx the most, but we are revitalizing stores in order to provide sustainability and perennial aspects to our stores. So these are the main operating topics we've been working on.

[Joao Pedro Soares, analyst]

What's the expectation of maintenance CapEx?

[Rafael Russowsky, executive]

For the maintenance CapEx, if we consider maintenance alone, CapEx would be at BRL 400 million or BRL 450 million. So this is the CapEx to maintain operation as it is today. However, since in addition to that, we have the refurbishment mentioned by Marcelo as well as expansion. We have spent more money so that we can improve our operations, gain market share and, of course, continue reducing this cash burn that you have seen so far.

So we still have this cash burn, as we mentioned, which is a result of nonoperating items. This is important to mention. But when you look at 2022, 2023, and 2024 and what you started to see in 2025, we see that there is a decline in the cash burn. This is something we can never forget because in the past 3 years, this company has going through a process of turnaround. We have a company which is much healthier, much better, much more efficient in operational terms that we had previously. So we are very confident in what we've been doing so far, and we are likely to see improvements down the road. Thank you.

[Operator]

Our next question comes from Gustavo Fratini, sell-side analyst with Bank of America.

[Gustavo Fratini, analyst]

With regards to sales, when we look at same-store sales adjusted for the calendar effect, that was just over 7%. Even though this is relatively strong, it's still slightly under inflation and we saw some slowdown versus Q4, especially with Extra and Pão de Açúcar stores. Is this maybe a time where competition is slightly worse with a few companies in court protection, especially in São Paulo. How do you see this moving forward?

[Marcelo Pimentel, executive]

Gustavo, I think the important thing to remember is that we don't really have the perspective that you're mentioning. But I think it's important to add a little bit of context to what we've seen over the last few years, meaning we have different basis, especially when compared to what we had in 2022 and 2023. 2024 was a slightly significantly productive year for us. And having achieved a 7.3% increase versus 2024, which was a major year for us, I mean, if you look at the food retail industry, this was one of the most substantial results on a sales basis in the market.

We see this as a significant increase. Now how did that take place? We're seeing a lot of growth. And of course, you mentioned inflation. We're seeing growth not only in prices but our most important focus here is on volume. And we talked about a lot of inflation in a few categories, but other categories such as produce, where we're seeing now a deflation trend, where volumes are going up, but that doesn't necessarily translate into real sales or improved cash flow. So these are trends we are monitoring closely.

But faced with solid results, both coming from Pão de Açúcar, and I think that this is a time where we should see this increase in Extra stores. And here, we're talking about an audience that's more impacted by inflation with lower revenue. But we're seeing -- they're seeing in Extra stores a good option when it comes to prices. So that's where we're seeing growth we hadn't seen before, which is comparable to Pão de Açúcar that comes with higher volumes as well. So this shows the strength of the strategy we chose to develop in this channel and also robust growth not only considering Proximity stores.

And here, we're talking about same-store sales but also via expansion, but also to point out our increase in online sales by 16.9%, very significant increase and combined with profitability. I think that for the first time, we are breaking down our profitability on the digital channel. And we're doing that now because we were waiting for this to stabilize and so that we were confident on this figure. So we can now show you this close to 17% increase with 9.9% profitability.

In the food retail market, I think that's very hard to find. It is a result of choices we made from closing James stores and closing our logistics operation and translate all of that into our retail operation. This was something that our organization embraced and is now a huge success. And it is only because of that, that we can now grow as profitably as we've been able to. So of course, some macroeconomic uncertainty is still involved but being able to deliver on that side has been very significant.

[Operator]

Our next question comes from Nicolas Larrain, sell-side analyst with JPMorgan.

[Nicolas Larrain, analyst]

These are two very quick ones. First of all, on the rental and lease side as a percentage of your revenue has still been very significant. I wanted to understand whether there's any discussion from your side to try to reduce that rate. And my second point, maybe a more specific one. I saw in your notes that you've reassessed your capacity to profit from data. I just wanted to hear from you, Rafael, if we could expect to recognize tax credits later this year or in early 2026.

[Rafael Russowsky, executive]

Well, with regard to our lease revenue, an important thing must be said, unlike our cash-and-carry competitors or other companies operating within the state, we operate in metropolitan areas, especially São Paulo. So it is more the natural, that the cost of our properties be higher. And that's because we are located in areas where it is a lot more expensive to own property. Renting is a lot more expensive than if you are occupying property within the state or in other states. So that context is very important.

Second, when you look at our gross margins on our commercial operations at the levels at which we are keeping, these are usually much higher margins than our competitors operating on the mainstream or even our cash-and-carry competitors. So higher rental costs are precisely what helped us to sustain our operations at wealthier areas and therefore allow us to reach these wider margins. What do I mean by that? Our cost, our current cost with rentals is consistent and in keeping with our current margins. That's the backdrop to this topic, Nicolas.

That being said, obviously, we are constantly seeking to optimize our existing rentals. We discuss with our main partners in a recurrent basis with the purpose of improving these rental rates and these volumes. This is something we do on a regular basis. Our company has a team working on this every day. They're constantly in contact with landlords. And we also hire specialized companies. I'm talking about consulting firms which are -- have access to this pool of stores that we provide to them, and their role is to seek to lower our rental rates, and they're always supporting us on these initiatives.

This, in summary, is our reality. So if you want wider margins and you're located at areas where that's possible, obviously, you'll have to compromise on something. In our case, I don't even consider that we're compromising. We are just playing this game where we have to pay slightly higher rentals precisely so that we can have access to, as I said, wider margins. So that's point one.

Your second point, Nicolas, if I'm not mistaken, you were talking about our tax credit, right? You asked about activating our tax credits again. Well, I think to a large extent, this will depend on our ability to generate operating profits or taxable profits over the next few quarters. That's sort of the mechanics of it. But I just wanted to point out something Marcelo mentioned earlier in relation to agreements that we are trying to work on, especially those with regard to federal taxes.

One possibility with these agreements at the federal level some of which are actually the subject of bills of law and this is public, is being able to use a significant share of the total amount that you need to settle. So you can tap into those tax losses. We have over BRL 2 billion in credits from tax losses, part of which has been activated and part of it we still can't activate, which is -- and that part that's available we can actually tap into for these agreements.

So a substantial part of this possibility of, again, tapping into those credits goes back to the possibility that we can agree on settlements. And once we do, they will reduce our fiscal accounting to 0, and we can once again benefit from those credits in the future. So I think it will take a little bit longer for us to be able to activate these credits on a regular basis again. But if we're successful in some of the agreements we're working on, we could accelerate that in a significant way.

[Operator]

Our next and last question comes from Andrew Ruben, sell-side analyst with Morgan Stanley. The question will be asked in English.

[Andrew Ruben, analyst]

I'm curious on the Proximity stores. You mentioned the 170 openings. Could you talk through what you've seen in terms of the returns on these new stores? Maybe remind us what the CapEx has been. And I'm trying to get a sense how the performance of these openings can inform your plan for openings in the Proximity format going forward.

[Marcelo Pimentel, executive]

Thank you, Andrew. Yes, of course. So what's the value proposition with Proximity? I think it's always important to add some context to why it's been so significant for us. What we've seen, especially in São Paulo, which is the focus of this strategy, is this, ever since São Paulo changed its architecture plan, we've seen this change in these apartments. And most of these top-level apartments are smaller than 170 square meters.

These apartments are serving an audience of one or, at the most two people, people with no personal transportation so they use public transportation. They live closer to their place of work. And therefore, their purchasing behavior is a little bit different. These are individuals that do not have a lot of storage space. Therefore, they visit our stores more often with smaller purchase volumes. Hence, our strategy, which is to add a Proximity store that will rely on their headquarters, offering obviously the same assortment in the sense of value proposition and categories. So it will include all assortments of all brands in smaller quantity.

So this is a client profile or customer profile that's increasingly more common, a customer that will buy in new Pão de Açúcar and only there because there they get their fresh buns being baked in the morning, in the afternoon and at night, and they also have access to produce, hygiene and cleaning products and so on and so forth. There's been huge adherence to this model.

Most recently, Nielsen has published that it's gotten over 60% market share. Our customers have embraced this model more and more. And it also goes back to the profitability aspect. Why is it interest? This is a model that involves a low CapEx rate. We're talking about a store of 200, 250 square miles (sic) [ meters ] with a CapEx between BRL 2.3 million to BRL 3 million with a return coming in, on average, 3 years after opening.

So precisely because of the mix of products we can include with produce and perishables has been very similar to what we have with Pão de Açúcar, meaning close to double digits, in some stores, even above double digits when it comes to the store contribution margin EBITDA. And our prospect is that this -- these figures will continue to improve.

And as I mentioned earlier, we are now beginning to expand the penetration of our online operation to these stores as well. So, so far, penetration has stayed far below what we have with supermarkets. But now purposefully, once this has been established, we'll begin to introduce our online operations via our Proximity stores. Unquestionably, because of their location, this will allow us significant progress.

So to summarize this context that I am outlining, it's low CapEx for significant returns even when compared to the parent brand, Pão de Açúcar. And also including a very interesting overview for the future as we have in the United States and Europe. What happens is supermarkets progressively are no longer the destination store, and we bring these smaller stores closer to where our customers are to prevent the use of personal transportation and customers adapting to that.

Now the last thing I would like to answer is multichannel customers, meaning customers who have purchased and have learned to buy more and more at Proximity stores or at online stores, as we mentioned here, they buy a lot more frequently and they spend a lot more. So the context where we can offer this full-fledged service helps not only these local stores but the environment at large seen as retention with these customers is a lot greater.

[Operator]

This concludes our question-and-answer session. Now we'd like to turn the conference back to Marcelo Pimentel for the company's closing remarks. Marcelo, please go ahead.

[Marcelo Pimentel, executive]

Thank you. I am very pleased and excited about what we've achieved. 2025 is off to a very strong start, and we are well positioned for the cycle ahead. The performance we delivered is not only a source of pride but also a powerful motivator for us to keep moving forward with consistency. The results we presented here are the product of our team's effort and dedication.

I'd like to take this opportunity to express my deep gratitude to everyone whose commitment has allowed us to continue overcoming challenges and strengthening our positioning in the market. We move forward with confidence in our strategy, focus and determination. Thank you all very much, and I wish you a great day.

[Operator]

This concludes this earnings conference. The company's Investor Relations department is available to answer any remaining questions. Thank you all for joining us, and have a great day.

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