Sendas Distribuidora S.A. (ASAI) on Q4 2021 Results - Earnings Call Transcript
Operator: Good morning, everyone, and thank you for waiting. Welcome to the Earnings Call for the Fourth Quarter in 2021 for Assai Atacadista. We would like to let you know that this earnings call is being recorded and it will be provided on the company's IR website, at the ir.asai.com.br where it's already available, and you can find the earnings release and the presentation will be available on links that we'll provide on the chat. During the company's presentation, all of the participants will have their mics turned off and after, we'll start the Q&A session. As are announced, a request to turn on your mic will appear on the screen then you must turn on your mic to submit any questions. We would like to let you know that information in this presentation and future statements during the call about the business perspectives, forecasts and operation and financial targets, Assai are beliefs and assumptions from the company's management as well as information that's currently available. Future considerations are not a guarantee for performance. They involve risks, uncertainties and assumptions because they refer to future events and thus rely on circumstances that may or not occur. Investors must understand that general economic conditions and other operational factors could affect the future performance of Assai and lead to results that differ materially from those expressed in such future statements. Now, I'll pass on the word to Gabrielle Helú, the IR director at Assaí. Please, Gabrielle.
Gabrielle Helú: Well, good morning, everyone. I want to thank you for your participation once again in the earnings call at Assai about the results in the fourth quarter of 2021 and I want to present the representatives here Belmiro Gomes, our CEO; Daniela Sabbag, our CFO; and our VP, Wlamir dos Anjos for Commercial and Logistics; and Anderson Castilho from Operations. Before we begin this presentation, I will pass on the word to Belmiro for his initial comments.
Belmiro Gomes: Thank you, Gabi. Good morning, everyone. Thank you so much for your participation during our earnings call. We hope that the information presented here in this conference can be really useful for investors and analysts and those listening to us. If you can share the presentation, please. Any other points or can we go straight in? No? We're good to go. Thank you, Wlamir . So the fourth quarter of 2021 and closing of the year of 2021, the fourth quarter of 2021, Assai beat its record with many different advances and achievements a year with many atypical situations and impacts from the pandemic, especially considering the comparison basis from the previous year. In 2020, the first year of the pandemic that started very strong in March, and then throughout 2020 and some investments and changes in consumer habits as well as some increases in some categories, especially with domestic cleaning and other products that were reverted into the year of 2021, especially in the fourth quarter when we balance out the two years unsecured and in the pandemic, we have very strong growth. Assai grows 50% in two years, a very significant growth and there's inflation way with an increase in food items. But it's a very relevant growth. In the fourth quarter we were between R$ 12.6 billion in revenue, a gross revenue that went over R$ 46 billion and even with a very bold plan for store openings, altogether, we launched 28 stores in 2021 and when you add these up to the 19 stores we had in 2020, overall, we were able to launch 47 stores in the pandemic expanding the power of the brand and our presence in different municipalities and also adding on almost R$ 17 billion in sales during this period. Within the two years we had in our vision a very precise strategy to preserve margins, even with this amount of store openings and even with the base not reflecting this entirely with some of the differences in the base, our margins, ended up reaching very good stability within the fourth quarter. And especially in regards to the year 2020 with an advance of R$ 0.4. The adjusted EBITDA for the company reached R$ 3.3 billion and it's important to highlight that this is the EBITDA post IFRS. So even though we looked at the pre-IFRS, there is an EBITDA generation close to R$ 3 billion and a cash generation of about R$ 2.9 billion. So we're going to highlight this throughout the presentation with the company's capacity considering the business model with cash generation since Assai had a really big challenge. One of the biggest projects we've ever delivered throughout this journey of growth, which is the conversion of the hypermarket stores that we acquired from Extra, transforming them into the Assai brand. So we closed our cash generation balance and Danny will get into more details about this. But when it comes to cash generation, the year was also very positive. And when we look at growth and the net income as well, within the last quarter of R$ 527 million total base , it grew 76% over last year. So, part of this, as we highlighted within the release is the recognition of bit of tax credit throughout the year, we were able to register and record some tax credits. So we reached the year with R$ 6 billion, excluding this part from fiscal credits and tax credits, where we still have net income about R$ 1.2 billion. But it's important to highlight is that even with this acknowledgment of the credit, the company has monetized taxes. So, if you look our financial statements, you see the balance of taxes recoverable to what we see -- this is a lot more referred to the increase in the inventory that the company had, then any kind of monetization problem, whether we're talking about the direct or indirect one. So, I want to highlight how we were able to monetize this in the ICMS calculation with the tax credits that were recognized, which really make the net income and be truthful, because from the perspective of the results, you also look at the implements that were positive in the cash position. And in the fourth quarter another credit calculation, which are related to investment subsidies, with specific tax regimes and benefits and conditions that we have in certain states in the country in our distribution centers or also with the draw operations based on the complementary law from 2017 and with the trial that we had and that led to the basis for the recognition of these tax credits, the company was able to officially recognize these in the fourth quarter. The value is partially related to 2021 and partially related to prior years. We'll still have an amount. It's difficult to say exactly how much because it depends on the different products and categories in regards to the sale, but we're expecting a proportional part if we were to consider some small variations and share the sales and sales of products that should probably have the same size for the year of 2022. If you want to advance on to the next page, please. So the expansion was historical. We had 28 new units for conversion. Three were from hypermarkets and one shopping mall that was converted into an Assai store. But especially, we were able to reach the record of organic expansion. So, I want to thank the Assai team and all of the departments involved in this X effort for the expansion of each of these stores coming into spirit where you're starting with a project prospecting new opportunities. So we have 24 organic stores, which represent about half a million square meters and about almost 70 kilometers of exhibition areas and 30 kilometers if we were to add on all the parts together. So this was really an important achievement for the Assai team. Due to the pandemic, there is also a lot of impact on the expansion related to the costs of products and inputs for construction materials, but especially in the construction side, during the execution periods where we're able to still have throughout 2021 many times different protocols that were followed through and in positions from the different government agencies that really made the schedule for the construction to be a little more longer than what we expected. So, there was the concentration of store launches in the fourth quarter -- 21 stores launched in the fourth quarter and 14 stores in the last 30 days. But, we were able to fulfill the guidance that we had presented to the market and we had the possibility even to have 30 new units, but we decided to postpone two for this year, which are two units important value and they are going to be launched this week. So, within our expansion plan, I'll give you some more information at the end of the of the presentation. But this demonstrates that place's capacity to really have an amount of launches and some reinforcements within the project area and within our teams involved, whether it's the internal teams or third party. So, we're going to have a lot of learning processes with this amount of store openings and it's going to be really important right now in this period for the store conversions, the Extra Hiper. You can move on Gabi and now as we talk about the 28 units, maybe this number may not capture the achievements entirely. But when we look at the popularity of the stores spread around different cities and units to the federation, including stores in the northern region, we had stores in Manaus, we had stores in Belaine , we had stores in different states of Brazil. Some of these stores also in new city than others, and new regions where Assai is operating. And so this store launch in the end of the year had some impact within our base of same store sale. But we do have a bit of cannibalization, especially in small businesses, when we had the impact of this internal cannibalization. But with this, Assai was able to really beat the record of the construction of cash and carry stores in a single year in Brazil. We can move on, please. Now moving on to the next one, we're going to look at the bit of the net revenue and some comments that would be interesting to work on. We still see movement, especially in the fourth quarter that follow this movement that we already signaled which is really the trade down trend made by the population. And, of course, the increase in prices and food inflation and this weighed on the income of the Brazilian families we fuel , and this has really pressured consumers. So there are some characteristics so the fourth quarter doesn't seem to be a trend for 2022. There's a base effect for the fourth quarter actually of 2020 where there was an expectation by the end of 2020 that we would be able to have a strong Christmas period or a strong New Year spirit. There was more shopping by the family and also from the small business customers, which was not repeated in 2021. So when you add up the trade-down effect that we've seen in different categories, the products, we can see that the population has really adjusted consumption, considering the price of this product in the market, which have been seen in different categories. And even packages that may be smaller and in the fourth quarter, we already have a perception where consumers don't have the need to perform so many monthly shopping, their bigger shopping to supply their homes. And also the small businesses in the fourth quarter were really, really not trusting that there would be strong purchases in Christmas and New Years with their own supplies in the beginning of 2021. So, a lot of people were impacted also because of lower purchase power of cash flow difficulties. So as a period where we said, 'Well, why don't you invest more in the margins?' Considering that the market was not really flexible, supplying a bigger amount of items and offers big and small businesses would say look, 'I have to be careful to set up an inventory and product prices would go up so much.' And even if there's a special sale, they still went up a lot more. So we saw that small businesses and consumers really decided to be more careful with how much they'd stocked up and we had some products that had an increase in sales like more detergent, more cleaning supplies, bleach, clothes. So, some other personal hygiene items had very big difference compared to 2019 and other historical periods this shift in behavior was noticed. And now in the end of 2021, we really noticed that more gel, alcohol, bleach and other products, then when you add them all up together, it really makes the same stores have this kind of combination of 3.1, negative 15.7, when you add up both years, but there's not a drop in volume, there's not a drop in flow, but you have an important trade down effect with some categories like beef, for example, that has an increase in prices. And it really made consumers for their families to substitute items. But even in this period, Assai did advance. There is an a share gain and the sales per square meter, which are very important indicators go up in this period to R$ 4,500 per square meter and it's a very good performance indicator for our store base, including the stores that are open and the new units that were just opened as well. You can move on. Well, margins, as I already mentioned, I don't want to be very repetitive. But the margins here were extremely stable. So, the margins ability here, you can see there are many contributing factors, some are negative as well and expansions always involve some kind of margin investments to open up new units. There's a lot of gains as well that the commercial teams have achieved through some special campaigns, along with supplier, then some optimization and costs as well within our logistical network and also searching for more efficiency in the inventory, which was also an important contribution factors. So, even when we open 28 new stores, we see that the gross margins are really stable compared to the last few years, especially when we compare in 2019. And there was a capacity to really go through the two pandemic years maintaining our margins at very stable levels. So we believe that now in the store conversion period, with the extra stores, we'll be able to have stability and margins, they will have more dilution with the amount of stores open. But we believe that we're able to protect margins and even when we had to adapt to certain pandemic instability period, were really able to keep the strong stability, which is a characteristic of Assai. Competitive level of as well were also very important. Our business was a low-price business and so, price really is important to keep competitive advantages. The indicator per square meter is the best because it shows how the operation is still very precise and it continues to deliver its value proposition to businesses, transformational industries and resellers as well. We can move on. Now, the adjusted EBITDA as I've mentioned before, part of the EBITDA captured a lot of operational gains and we had an increase of the EBITDA in the last three years and I think the same is valid for the gross margin. So, at the end of the day, the discipline with the expenses and search and adjustments and expenses that we can highlight later on, to be able to maintain the stability considering that it's a low cost business and low expenses are really part of our business model. With this, all of the initiatives in our expense base were really important, discipline in product ruptures and also with expenses hiring people and travel as well, which all contributed to helping us preserve the gross margin, but also the percentage of the net income in the year. Of course in the fourth quarter, while we see that there's a return of margins going back to the level of 2019, but in our vision as a company that grew over 50% in the last two years and then went through the pandemic period, facing an invasion period with the opening of 47 stores, the stability and the percentage really indicate strong adherence to the business model and management in the team as well to be able to continue helping Assai expand and especially achieve the objectives we have up ahead. Within our process of course you have an important chapter here because the extra acquisition makes the company have important leverage. So I'll pass on the word to Danny, our financial director so that she can highlight this with the main impacts in the cost of capital within the company's business. Thank you very much. And Danny, the floor is yours.
Daniela Sabbag: Well thank you, Belmiro. Good morning, everyone. I will go through the debt situation now as the way to mention the company was able to perform during the year of 2021 and refinancing of those older debentures that we had issued in 2018. So, this refinancing work added up to almost R$ 5.6 billion and we were able to reduce the cost of our debt which CDI + 2.38%, moving on to CDI + 1.48% and additionally, we were also able to extend the term of the set, which was less than two years and 1.9% actually, and we were able to extend it to over four years. And so additionally, in the end of the year 2021, we were able to start off with reinforcing the cash position of the company considering the schedule for payments and the transaction involving the Extra Hiper stores and now we also performed two other fund-raising initiatives that were also liquidated and they don't affect this result. But we want to highlight this here in the slide. And they add up to R$ 2.75 billion. In this slide, we also want to highlight two important points that Belmiro quickly mentioned with you and our business model has allowed us to register strong cash generation. So this year, we had almost R$ 3 billion in cash generation and we grew R$ 1 billion compared to the previous year. So, we also have an increase in investments. So, we invested R$ 2.9 billion. Here we have the breakdown between the payments of the Extra stores and also some investments that were the new stores have some renovation and restructuring work, but especially with the organic growth in the company. So with this, we end the year with a net debt of R$ 5.3 billion and this leads to an increase compared to last year and only R$ 1 billion basically. But if we consider this high level of investment, which were very important to accelerate our expansion, we had 28 stores and in 2021 versus 2019 and the previous year plus the purchase of the commercial points and we have a net debt at the end of the year that increases only by 0.1%, reaching 1.9x EBITDA. So these are some of the main highlights for this slide. And now I want to pass it on to Gabi so we can get into the financial results, please.
Gabrielle Helú: Well, when we look at the financial results, we always bring in this breakdown between the interest from the rentals and also what comes from our net debt costs. The liabilities were R$ 204 million in the fourth quarter and the equivalent to 1.8 of our net revenue, and of course, an increase in CDI during that period. So, we were able to quadruple the CDI from 0.47% to 1.85% in the fourth quarter and the impact of the cost of that is R$ 71 million in the quarter basically. So, during the year, I'll have the refinancing of the debt that I mentioned previously with the payments and prepayments of the debentures, was really important to help reduce the cost of this debt and offset part of this context from an economic perspective. So with this, we were able to reduce the spread by about one point as I mentioned in the previous slide and the results in the year is R$ 730 million, which are very similar to the percentage of sales in-line with 2020. It was also really important to be in-line with what the market expected. We had a consensus of about R$ 770 million and we were pretty much left at R$ 730 million. So here, we have results that are really in-line with the market expectations. To highlight in the beginning of the presentation all fits some of the higher levels and growth significantly that we registered in the spirit with margin gains are very significant and we were able to grow to go through this in the quarter at 76%. We had 1.8 margin gains and we reached this historical milestone of profits of R$ 1.3. billion year-over-year. Well here, I want to highlight one point here that we registered some credits during the year. So some of the investment subsidies during that period, and this credit is made up of recurring values and some occasional values. And even if we exclude the occasional part of this amount with the investment subsidies and ICMS tax credits, we have a growth of 40% over the year and profits in the company. So in the quarter, we also have growth as well. So these results really ratify and confirm the efficiency and the resilience of our business model. They've been very consistent and favorable scenarios considering this period. So, now I'll pass on the word to go Belmiro and he will get back with additional comments as well on ESG.
Belmiro Gomes: Thank you, Danny. Well, when it comes to ESG, I think Assai as you all know, they were referenced in the market. So, even before this topic gained more important within some of the discussions and society overall, Assai has been strongly working and each of the segments and areas with the advances in climate change and measures to combat climate change with waste management that the company has throughout 2021 is a strong reduction also in our carbon emissions. Now over 92% of the energy in the company comes from renewable sources. We have most of our stores connected to the free market for energy and this avoids the need to turn on generators. Our generators in the stores are just a backup for a drop in energy supplied by most of them. The stores also have solar panels and this is a topic we've been trying to improve with more and more with the use also Co2 in some units as part of the refrigeration tools as well. And Assai also almost half 45% of our leadership, are made up of brown and black individuals. We know we always need to advance with this topic when it comes to diversity, but this has been ongoing work that has presented important positive results. Over 26% of our leadership positions are a woman, we had an increase of three percentage points. Then another important topic we've been working on in the last decade that's very strong, which is people with disability. So, it's always very difficult to fulfill the legal requirements and Assai has 5.4% of the total group of employees with people that have disabilities. And last year with the opening of the new stores, we generated over 11,000 job positions and it's really important to consider also all of the indirect jobs like civil construction, where we estimate about 6,000 to 7,000 people that worked, building equipment and also helping to build some of the new Assai units. Besides that are initiatives in society with the donation of food. We also have the Assai gym as well as an internal corporate university that also promote courses to help train employees and also help prepare new leadership to occupy the new stores and this expansion process. So we've been working with small businesses also where you have a program to that can be expanded and we had 9,000 certificates also issued last year. And we're also building our new social operation coming from the -- we had the GPA institute. That was like an umbrella for all of the operations and now we're going to have our own institute in-line with the company's purposes to be able to expand even more of the initiatives that we perform. Within this topic, I would like to go to some of the digital initiatives we've been working on as well and we had already announced a partnership with Cornershop. Cornershop is currently present and we have 17 different dates with over 100 stores today. We have a product that's very recent. It started off in September and by December, there's a significant increase in customers that search to buy from Assai in a digital platform, really find a means to do this through Cornershop and now we confirmed a partnership with Rappi and this should be present in more than 20 cities and over 50 stores will be added and customers have the possibility to perform purchases through digital means that also schedule deliveries. And we should be presenting a new app in the next months with more features and video advancing digital together with the joint of the physical and digital world with the market has called digital where you can complement the store with a digital world and complement the physical world as well. But there's an important avenue for growth Assai can explore as well. When we look up ahead, if you could maybe mention part of the expansion, what we see as expansion for 2022, one of the objective that the company has would be the opening of 15 new stores through our store conversions that we've announced in the Extra Hiper market as well. An update we believe that till this first quarter, we can really confirm that we'll have over 40 extra storage under progress. GPA was really quick to demobilize hypermarket stores and there's a process also with the demobilization. We have to remove some equipment from the stores and perform some adjustments and also obtain some licenses to be able to begin the construction work. Now we already have all of the licenses for the 40 stores, which are renovation work as well. So we believe that between July and August, we'll be able to start an important cycle for units opened and Extra Hiper as well. Some of the main motivators in this project is that we've seen many changes -- the pandemic has brought changes to the society. Part of these initiatives digitally and even some of the issues related to new services such as the pickup from store, the extra services we will be able to provide. So we also have seen not only in Brazil, but in other countries that consumers are searching for opportunities to buy closer. One, this is not only with Assai, but the overall market had really considered that sometimes within some regions, especially in the big metropolitan regions in Brazil or big cities, due to the values of the real estate situation, sometimes they'll have a cash and carry store, or a wholesaler next to your home or store, so you still have shopping done in retail, which did not migrate to the cash and carry model. Just because it's too far, the stores are very distant. So, sometimes you have supplies that are done by distribution wholesaler because there's only a part of store available. So we have 16 different capital cities and 63 stores there in the Brazilian capital city or in a metropolitan region and in other cities for example, such as which are not capital cities, but they're cities which have bigger sizes than most of the big capitals in Brazil. So just recently, we had a pilot project that we're going to show you up ahead in the store and it was our store with the biggest amount of revenue generated among all of the opening in 2021. So, there's a search for this kind of store format. Of course we have some adjustments made in these type of units that are closer to higher income population. So these are stores where we have an expectation that they're already been started off as we've seen in other stores that we converted and for extra during this period, on average. They have multiplied above three times revenue. Even now considering the inflation and a reduction as well in trade down, we were able to see that they operate with almost 3.5%, so we were able to keep all of our targets and objectives and the guidances that we presented for the extra project as well. When we look at the network that stood converted by 2020, they also keep this over three times revenue and an EBITDA margin on an average that's higher than 150 bps . So where does this margin come from? First of all, with a product assortment, it makes this different, they make the customers that buy from different now that you operate you, it's more expensive to operate but you also sell product to have more added value, to add value in the average ticket and you have a greater share from customers then in other units as well in the company. So in our vision, these stores are going to be extremely important to contribute to our results and all of the different factors we've highlighted in the beginning of the project, we would like to reinforce now. We already launched our first organic store in 2022 , this year we're going to have 10 organic stores, we may add a few more but we had highlighted those 18, reduced the amount of organic stores a bit to be able to preserve our cash budget and guarantee the investments necessary for the store conversions from the actual stores. Moving on to the last slide now. With this so we keep our forecasts and we'll come back to reinforce our forecast of reaching our objectives that the company has been working with to reach those R$ 100 billion in revenue in 2024. Having over 300 stores operating considering the incorporation of these stores that are coming that used to be from the Extra brand and from the organic expansion Assai has up ahead as well. I think that's what we had to present today. And now I would like to pass on the word once again to the team supporting us, so that we can open up for Q&A. Thank you.
Operator: Now, we'll begin the Q&A session. We'll move on to our first question from Felipe Cassimiro. He's a sell-side analyst from HSBC. Please, Felipe, you may proceed.
Felipe Cassimiro: Hi. Good morning, Belmiro, good morning, everyone. Thank you for taking my question . Since I'm the first guy here, I'm going to have a follow-up on what you just mentioned. The fourth quarter is not what we should expect for 2022. So, when it comes to sales, what have you seen now in the first quarter when it comes to sales trends? Are you already seeing positive numbers? Or have they separated too much in the fourth quarter? And then two other follow-up questions from digital. I understand that some of the initiatives are very recent, still. Could you maybe give us an idea of how significant as it's represented in the sales in the fourth quarter and give us some color on what we could consider from digital contribution in 2022. And the last part is really understanding a bit of the gross margin trends. I wanted to understand which are the main impacts of this gross margin. In our opinion, it seems to be very strong. So, is there anything regarding services, supporting the margins? If you can maybe just talk about the services as well in the store and gross margins as well? This impacts a lot. Thanks.
Belmiro Gomes: Thank you for moving on to your questions here. What we could expect when it comes to sales, the fourth quarter, as I mentioned also had an effect for us in the overall market -- the effect of 2020 also in the fourth quarter. So we have the closing of the fourth quarter with all the cycle of the first pandemic. So in 2022, now you already have the betas where in 2021, you didn't have that much of a share in the supply. So, that would make something more positive numbers. And the fourth quarter in the end of 2021, there was another issue, which is probably a bigger concern in regards to the inventory formation of some small businesses and even from consumers. We've seen more positive numbers now, but they're still premature. But basically, you've already gone through more than half of the first quarter. Of course, there's some limits on what we can say or disclose at this moment. Since this year, we're not going to officially have Carnival. So, in the first quarter, we also have the shift from the first quarter to the second quarter of eight of the Easter festivities as well and we expect that there's an improvement trend as well in the first quarter, to not have negative same-store sales. So, this is what we've expected and what we should be looking at up ahead. When it comes to digital, it's still too early to give you a sales percentage. I think that it's still quite irrelevant. There's strong growth, but it's still very recent and I'd like to wait a little more before we can disclose this, but this initiative from digital with the partnership with Cornershop, Rappi and other new things are going to be announced till the end of the first quarter part has this aspect like, 'Okay, I'm going to add a new customer here.' So part of digital that's going to come in to complement a bit of the policies we still have. So we should wait on some of the initiatives you're going to have in the first quarter whilst some other services of the new extra stores are going to allow us to implement. So we're going to have more mature information and can provide more details by the end of the second quarter. When it comes to the gross margin in the fourth quarter, there were high investments. When you look at the ticket say, 'Well, why is the same-store sales now going to be positive? Would it be worth it to maybe have this investment and be translated in sales?' Well, that's not what we've seen and the market apparently. The market saw that the part that could add more volume sales was really the one that was very skeptical and with little capital. So you have a lot of people in the service sector that went bankrupt during the pandemic, unfortunately, so you still have intense level of caution because there is an increase in prices like, oil went up absurdly; B, for example, and other categories as well. So we didn't really notice much flexibility from customers. So if we noticed that if we were just 5% or 10% of the price, it wouldn't make a difference in the overall volume. So, this is only I'd say the overall market notice and there was a need to correct the base . There was a year that had a lot of disruption and this led to, so in our vision, we were as competitive as we needed to be at a fair level and we were still able to preserve margins. I hope to have answered your question.
Felipe Cassimiro: Yes, it's very clear. Thank you very much, Belmiro.
Operator: Our next question comes from Danniela Eiger, she's the sales side analyst from XP. Danniela, please, you may proceed. Danniela, can you hear us? Hi, can you hear us?
Danniela Eiger: Yes. All right, sorry we have some problems here. Thank you for taking my question and congratulations on the border, it was very challenging for the overall sector. I think an initial question would be a follow-up here with Cassimiro's question. Basically, when it comes to the beginning of the year, we wanted to have a little more information. Some of the drivers first, how has the behavior of the B2B segment been throughout the quarter? How have you seen this and have you seen any kind of reaction where Omicron has maybe lightened up a bit? And have you seen any relevant impacts from the moment when the Brazilian income support was paid throughout January? And how have you noticed that might be an impact in the absence of travel would be reflected in the quarter. So, I think it will be interesting to have a little more information from a qualitative perspective. And then my second one, this is about the performance of the conversions and the 23 stores that we brought into the training, I wanted to understand how the profile of these stores can be compared to the 71 you're going to be converting during this year and the next? And if you consider this as a good reference, or if you can maybe have more room for potential result that could be above this because they're stores with a profile that's more intended to some higher income category. So, I wanted to understand just a bit how we can compare this. So, I think these are the two points. Thanks.
Belmiro Gomes: Thanks, Danny. And moving on here on reverse-order here on the questions. In the 23 stores, we had 24 organic and the 23 actually add up the balance of stores. So, this also helps us have a face and a visualization of the performance in a period that's also greater. So, these stores are partially a reference, but there's still some stores that were converted last year that were not really well-located. And in our vision, this batch of stores is going to be better due to the location because Extra kind of held on to some of the points of the higher profitability and returns when it comes to sales. And so, it could be that there's some of a bigger capture for the 170 beats . The analogous doors operate with more than this, but we're trying to be conservative here, because you also have many other factors. So if you were to take a look today, what would be the basis for the comparable, entire limits, but we like to be a little more conservative here and add there 150 beats. So, about sales in the beginning of the year, Omicron, whether you believe it or not, prices are still going up. So you still have food inflation and it's not as much as the general APTA , but there are still a lot of concern from the small businesses with greater shopping and maybe performing some kind of bigger investments. So, we think that when Omicron pandemic seems to provide some signs of stability and some countries already treating the pandemic as an endemic, but there's still a big part of the population that's very concerned and our expectation is that we should be see a better movement from now on. Even if this didn't happen at this magnitude, yet, the basis for the year 2021 was already a bad basis. So, it makes the numbers automatically be better numbered part because of its effect and partly because of the base effect. But there's still an expectation for improvements as we see some signs of the pandemic losing a bit of strain. So, it's still early to say so. There may be a new strain, but that's not what we believe in. So, the coronavirus are had an increase, but it was pretty discreet and timid. And so this is also what we've seen in regards to the investments that we performed. And we noticed that overall in the sector, we could see some of the health measures and the overall authorities with the pandemic issues as well. But there was some kind of an expectation that 2022 would maybe not lead to Carnival and of course to this movement of sales and consumption in beverages and other products that are connected to this that didn't come in. So of course, this would also was also not present last year. So anyways.
Danniela Eiger: Yes, he did answer Thank you very much, Belmiro.
Operator: Our next question comes from , he is a sell-side analyst from Citibank. Juan , please, you may proceed.
Unidentified Analyst: Good morning, everyone. Belmiro, when we look at the guidance for 2024, there seems to be a gap that's quite significant and the gross revenue that you still need to close and there's a lot of organic stores that you'd have to open to reach the site. And so my question is, what is the market like at the moment? And how did you look at the different markets? We've seen some comments also on an excessive offer in some smaller regions and municipalities in the outskirts. So, I wanted to know, how these opportunities are doing and where you see space for expanding your network of stores to be able to close this gap as well?
Belmiro Gomes: Thank you for the question. Well, the gap, you'd have to annualize with the stores that were open last year. With the new stores were open in 2021 were in the fourth quarter. So we have to analyze the base first. And then of course, we still have a gap we have to add the extra stores and the values are nominal. So we also have an inflation that we consider and we would have about 40 stores prospected. And we just hold on to some product because of the preserved investments and concentrate them with extra and also the capacity for the execution. So you're right, there's an excessive offer in some smaller cities where it's easier to set up a store, or the real estate costs are cheaper. And one of the motivators for the extra project was actually to access these levels and this also makes us being a little more selective with the organic expansion to avoid placing stores in regions where you already have excessive offer. Or maybe the city doesn't have the capacity when it comes to the population level consumption to support this. The numbers we have currently, we've already seen in the market. We still see in some medium-sized cities for example, with 400,000 inhabitants. There are some where I say it's still not present in for example, where we can still look at organic expansion and projects that we currently have and reinforce this number as well.
Unidentified Analyst: Thank you, Belmiro, very much. And just a quick follow up here. There's a comment on the release about the concept store you opened up in Baja. You said that this would be a reference for some other stores you're going to be converting also for the Extra stores that you're going to be converting. So, could you maybe give us some numbers, or at least an initial idea about the CapEx or this concept of the store? If it's a little different than the average CapEx we expect for the conversion and maybe if there's any things related to productivity that will be interesting.
Belmiro Gomes: Will now pass the word on to Anderson, our VP for Operations to talk about the level of services and more details on the concept when it comes to CapEx. It's not that much of a range because the biggest store conversion cost is in the construction work with the walls, flooring, aircon, water reservoirs and equipment. Those are the ones that most impact the costs are more in these aspects.
Anderson Castilho: Okay, Belmiro, thank you very much. This is Anderson here. And when we look at the Baja store, the investments are not very different, actually. Considering that in some of the store models, we already had some intense work with the battery service, which is really being positive work in getting this year with the renovations in the new stores. And Extra, we also worked with the Emporium with slight cost cuts and services, especially for this and there's small investments, but it adds on to the customer as well and it brings a very positive flow. We also brought in some services when it comes to like roast chicken and maybe more refined categories and beverages. We're able to develop something that's not very different than what we work with the cash and carry format, but it adds a little more value besides the category. So, there's all we mapped out at many different stores where we saw the opportunity to add other services and opportunities and also when we look at the mix products, the categories that we can work with, whether it's Customer A or B, with a make that's little more robust considering that we're also looking at stores that are a little greater. So, we're going to have stores where we have a sales area of 8,000 or 10,000 square meters, which is actually higher than what we have in our day-to-day activity. So, it's a positive increment. It's a new project still, but we're having results that are very, very interesting. And when we look at the battery, it's still something that within Assai, has very positive growing impact. So, we continue with the stores this year to have a strong store renovation project and including other things, but the stores from the Extra, considering their size allow us to bring something different to customer than which has been very positive and really well-accepted. So, I believe that with all of the necessary caution in our business, we need to have low prices and low costs that are part of our DNA and we have been able to add services and products. I think that's pretty much it, but we're trying to bring something new for each unit.
Operator: So, our next question comes from Felipe . He is a sell-side analyst from Goldman Sachs. We'll open up your audio.
Unidentified Analyst: Good morning, Belmiro, Dani, Gabi and Anderson. Thank you for answering my question. I actually have two questions actually. The first one is about the B2B mix and B2C mix and how have you been looking at this compared to the history pre-pandemic? Do you see a bigger traffic of individuals in stores? Second, it's about the last-mile partnerships. What type of customer do you think you're bringing in with this kind of partnership? And what are the economics like and what are the main lessons learned from the operation so far? Could you give us some details on this? That would be great. Thank you very much.
Belmiro Gomes: Thank you, Felipe. Well, when it comes to the customer flow, what we've observed so far is that the trend we've seen in 2020 with greater participation from the end customer continues. And this year, for example, we'll have a search. Actually, of course follow the economic situation certainties and increases in price will force customers to move on to the cash and carry format. So, it should force them also to like, cash and carry as well with some of the motivators for the Extra project, enables the organic expansion to search more central regions because sometimes you have a geographic barrier with the location of the stores. In our vision, this increase should remain because the good part of the general public really buy from the channel. So normally, those that don't buy from a channel are normally in regions that are very distant, then the distribution wholesalers will be able to serve it. And even when you consider the distance from stores in central regions, you're having a lot of density in big metropolitan regions where you have logistical costs that are very high, because the city has a lot of traffic, or also some specific markets that are very distant where logistical costs are very high. So in our vision, we've also noticed that you have the maintenance of a bigger share that has really been following along in the same direction. So some of the lessons learned, we already had strong expertise with the digital area because why did I say maybe not have some of the offers ? Well, as a group, would it make sense to have an offer in the because actually on Assai, the service is very similar. But as you have this split with the group, now we're finally placing this option to the customer, we have some lessons learned from the operational perspective, part of the knowledge we already had as a group; so there is an important advance that should take place. We expect actually till the end of the first quarter to provide more details on this when it comes to digital packages overall. So going through some of the next things up ahead as well.
Unidentified Analyst: Great. Thank you, Wlamir.
Operator: Our next question comes from Marcela, she is a sell-side analyst at Credit Suisse. Marcela, please. We'll open up your microphone now. Please, Marcella, you may proceed.
Unidentified Analyst: Hi, Belmiro. Hi, Danny. Hi, Gabby . Well, about some of the questions; the first one is, how are you looking at some of the trade down and traffic trends in different regions in the country? And the second question is, considering this context with more fragility in income; how have you seen the behavior of the gross margin over the year? Is there really a space to continue to protect margins year-over-year? Thank you.
Belmiro Gomes: Thank you. Well, let me pass on the word to Wlamir, our VP -- our Commercial VP and Logistics VP; he can answer this a little better, he is a specialist in margin. Thank you. Wlamir?
Wlamir dos Anjos: Well, good morning, everyone. Thank you for the question, Marcella. Now a bit about the trade down and evolution of the different categories. Actually, considering what happened in 2021, strategically, we had already worked on this movement in each of the regions in a unique manner. And we currently work with 11 offices spread around Brazil, with this concern from -- of the regionalization, and really offering the right product each store and market; so we shouldn't have that many modifications in my opinion. And of course, we still may have a trade down but not stopping consumption, but maybe consuming brands with lower value but I think it's not going to change too much. What could happen, however, with the reopening of the economy and recovery around B2B getting a little more strength, we have some of the schools that are recovering their activities now. And so, we could have a shift in the way or significance of the categories by type of customer as Belmiro mentioned, consumer participation remains and we don't see too many changes. But what will change this prerogative with this network of stores that extra , especially as the inclusion of new categories. As Anderson mentioned, we have the possibility of having new services and offer new categories that we could expose; so it's going to be a mix that we're going to be adjusting with -- I'd say, commercially it always works, looking at what we can do in each store and in each region. So now about the margins; we -- the first issue that we always need to consider is the competitive advantage and how we can balance this out so that we can deliver a value proposition that's positive for customers, not only with prices, but also with service levels. And this leads to lot of pressures, so we really believe that this is going to be a year where we have some pressure in the margins and the overall scenario; but with industries and suppliers we can really work on balancing this out. So, I think the speed and agility that we can adjust in the assortment and in the commercial policies, and even the partnerships and dynamics we have with our supplier, we've been able to -- if you were to look at this in the last year's our margins -- and so, regardless of the scenario with the inflation or trade down, we can still balance this out and have the necessary expertise and support from our suppliers.
Unidentified Analyst: Okay, thank you very much. Super clear, though but just a quick follow-up, if possible. When you talk about competitiveness, we've heard from some players that the commercial scenarios maybe a little bit more intense, with some players even performing some TV commercials which is not very common in this segment. Could you maybe talk about how you felt this issue, the competitive advantage, considering the macro context that we believe is a little more difficult?
Belmiro Gomes: Well, Marcella, competition actually always existed. Now, it's a little more intense, maybe just considering the context overall. But in the same way, as we also will adjust that we have markets also that are -- were just as aggressive as our competitors with some communication strategies. So we have a marketing plan that's really well structured, reaching even the store level to be able to adjust communication and disclosures and margins in that specific store. So there is also the aspects of how we communicate, which vehicles we're going to intensify in certain markets where we don't use television or others that may have television radio, for example. So we also use these different tools to be just as competitive and balance out the margins and expenses in each store, and marketing investments as well to be able to guarantee this competitive advantage. So, if this allows us to have more of a national perspective which would be very different with a purchase power with the economy and the regions that are very different results are confident and we've been able to go through this. So certainly, the sector overall is even considering the fact that you have more consumers and also being closer to the consumer, you changed a bit of the dynamics and the communication. But we are -- within the scenario, we've been able to really have a good value proposition and keeping up with our competitiveness; so, I think this is the main point. We also adjust to the market and to the overall situation, the market really moves us.
Unidentified Analyst: Okay, perfect. Thank you so much, guys.
Operator: Our next question comes from Huvan , sell-side analyst from Santander. Huvan , please, you may proceed.
Unidentified Analyst: Well, we have to follow-ups. First, on the point about sales trends, now in the beginning of the year; and we consider that there probably be a positive same-store sales in the first month but I believe that there was maybe an interview from you, Belmiro, talking about a level of about 5% in the first month. Does it make sense? Since the number makes sense, I wanted to confirm this. And then going back to the topic of the concept store, I know that we still -- it still may be a little early for this but the sales page you've seen so far, is it really in line with that level of contribution about 1.5% on average higher than what you expect for extra store conversions? And would it make sense to consider that we're heading in this direction? Thank you very much.
Belmiro Gomes: Thank you, Huvan . Well, about the levels of performance in the store, they are really within what we expected for this project by 150 bps . Obviously, you see a maturity curve so that you can reach this level although this is -- you also have the acceleration of the stores annexure . Each one will also have a level -- a curve level comparing depending on the region and participation but it's within the project; we really call it a concept store because there is some elements of the visual communication that we're not sure could be scaled up to all of the stores but some of the services that we have been testing actually here -- some are already used in other stores with higher income profiles. So it's like we did have a single store that's going to be the basis for these stores as well; so we have a learning curve that's strong. And other points that we mentioned also that could be included within what we see when we consider the extra store profile. Well, when you consider the same store sales; what I mentioned yesterday was that it was positive at a level that was very close to what we've seen in the market without mentioning the total percentage of about 5%. But yes, we've seen a positive percentage as we've still seen about -- we're still missing about 30% of the game; so we're entering now in the second period of the quarter. But we have to be careful, of course, we have a shift in the Easter holiday, of course, we're going to reflect this in the calendar effects but there is still the month of March up ahead, and so, this is highlighted video of our market.
Unidentified Analyst: Okay. Thank you very much.
Operator: The next question comes from Bob Ford. He is a sell-side analyst at Bank of America. Bob, please, you may proceed.
Robert Ford: Well, thank you for that question. As the general inflation, how have you thought of the controls of expenses and sustainability and profitability, operationally, please?
Belmiro Gomes: Expenses? Well, we have most of the expenses, we have some different initiatives and others who has been helping with some of these initiatives. Thank you for the question, Bob. We are low cost business and I think that's already part of our discipline. And so we're very careful considering that, as we've already mentioned, our main motivators having low prices and so this is some ongoing efforts, part of the team, part of the business DNA and the management team is really focused on this. And so we've been working strongly with this discussion on the end of the year. Of course as we mentioned, we had a brand trade down. But in the stores, we used to have a very strong movement in this direction. So we can't let our service level drop, but we also have to consider expenses always. So, we started the year also with many different movements in operation and we reinforced this process with the capacity to adjust it. I always say that expenses are just like our nails, you have to cut them at all times. And so you have a team that's really focused on this and caring for this, so we work on this directly so we don't lose discipline and we can really continue to have low cost operation and prices that are more aggressive in order to be able to compete with the overall market. So, I believe that this is a process that's always on our radar. When we look at this in the end of the year, it's really in-line with what we've seen during the year. Of course, you have an impact of what we imagined, though maybe a little higher and never prepared also for an end of the year that was stronger. We had this movement with small businesses and the trade-down of brands and more concern as well. But we continue to follow the same level of discipline, looking at different areas and different points where we can optimize our operation. Of course, even with the services we included, I think this actually brings positive results in the operation. So, this is something we're frequently concerned with and all of our sales teams and our store team, this includes like extra hours, day-to-day operations, security. So we're very careful with all of our expenses. But of course, we don't want this to, in any way, impact their quality. So when we look at cash, generally speaking, we understand that our operation is very productive and it really makes a difference in the day-to-day of our customers. So, we don't want to lose quality and new replacements and always been very careful with the expenses. It's part of the company's DNA.
Robert Ford: And what are you thinking about the operational leverage, the incremental level from Extra stores?
Anderson Castilho: Sorry?
Robert Ford: Well, how have you thought of your operational leverage at an incremental perspective from the Extra units?
Belmiro Gomes: Well, we believe that we've been working on this initiative actually as Belmiro mentioned, and we actually started this work with the incrementing different services. Some of them we already have an operation which is the battery for example. I think this has an impact when expense is very low and considering what we can add within this operation and especially from the overall so we can bring in greater added value, we can bring in different services and I think that with our discipline in other lines, we can offset or administrate the operation. I think there's an important mix and category, adds more sales without adding on expenses and in the new services also delayed to little more results in operation, which is also very positive. I'm not concerned about this and I think this is a differential we're going to be able to add in the cash market and this is what we consider when we see the batteries model. We started a project in the end of the year. This year, we ended this over 70 stores, and this did not impact our operation. And the rest would just come and add on. Well, we're talking about the operational leverage to add 71 stores in the curb base. Well, I think we see that this is impacting all of yours in the company. So now we have part of our team, that being Extra, that's with us and the store leaders. We also have our community also with our corporate university training our teams. It's not an easy challenge to incorporate 70 new stores. But of course, the lessons learned with the opening of almost 50 new stores in the last years and with the organic expansion, we don't open more because of CapEx licenses and projects. So, we do have a lot more confidence now when we started thinking about this transaction to open up the extra stores, when we had some positive signs, we started some initiatives to reinforce the areas and teams to guarantee that we'd be able to really add more stores into our network without leading to major impact in our overall process. And in our model as well, we have the level of investments that are really high. So you can see that these direct gains are going to be related to process that are very adjusted within the company. And so for example, the hub -- in the store floor, where we see expired products or products that are going to be switched, this has been helping us a lot with the expansion that we've been working on in the past year. So, as I went from 14 units in Brazil a decade ago to 213 stores now and this lead to the necessary competence that we need to be able to incorporate the actual stores and overcome the difficulties from an operational perspective so that we can reach the levels of performance Assai already operates with today. I hope that clarified your question, Bob.
Robert Ford: Thank you very much, Belmiro and Anderson.
Belmiro Gomes: Thank you.
Operator: Our next question comes from Joseph Giordano, sales side analyst from JP Morgan. He must not be present anymore, so we're going to move on to our next question, which is from , the buy-side analyst from Truist . We're going to read his question. He may have some problem with his micro. He would like to know if we were able to help understand or measure the impact of the cannibalization that the big amount of new stores has caused in the same-store sale. Maybe compare the performance of the group of same-store with the others.
Belmiro Gomes: I was also reading the question a little bit before and I tried to answer this in the chat. But yes, you have a big number of stores and there's an impact as expected and as part of an organic expansion, if you look at the last opening that we had in , we had a unit there and now we're moving well, you still have the small businesses that maybe have a bigger distance with an impact. With the sales in December, we estimated that the same-store sales were impacting the quarter as a whole at three percentage points, which follows a curve and then you capture more consumers. So, normally the stores that tackle with some cannibalization from an operational perspective, they're probably going to be at a limit of about R$ 6,000 per square meter, R$ 5,800 per square meter. So this is part of the expansion project and you really have this cannibalization effect. And in this quarter, there should be an impact of about 1.15 points and also in the fourth quarter of last year as well.
Joseph Giordano: And the next question, would you imagine that as you would increase the network of stores in Rio de Janeiro? If yes, how many stores approximate?
Belmiro Gomes: So, within this project, we should complete the definite list. We have only eight stores that are in the final phase and we do have some stores in Rio de Janeiro that have a significant amount actually of Extra stores there that are going to come in. And we also have some organic stores in this project that are under deployment in Rio. So we have yes, new stores that will come through Rio Janeiro.
Joseph Giordano: All right, thank you, Belmiro. Our next question, on digital. Could you maybe talk about how much your typical customer has already used from digital? Or what are the milestones expected for the app when you launch them? Do you expect a certain amount of users monthly? What's the guidance for the development of the app? And if you could give us a confirmation on the guidance of the R$ 100 billion of the 2024. If these are going to be recognized in 2024, do you expect the R$ 100 billion in revenue?
Belmiro Gomes: Well, with the entrance of the store, we are expecting R$ 100 billion is a total of 2024, which is the number. So we have a project with a corporation where we can complete this with all of the store conversion. So the target is for the total revenue in 2024. The cost of development in the app, we can't disclose this yet. It is under development, but it's not relevant considering the size of the investments of a company and the percentage of participation and why it comes in now with more focused digital is that we adapted to the presence of customers that are around our stores and there's some pressure that would come in from a pickup from the store and other opportunity for purchases in digital. Just because they're entering regions with a better target audience, which is the case of these stores coming in through Extra which would end up making us require some kind of movement with direction. So not necessarily due to the demands we have currently from the customers in a certain region would correspond to the demand that we have in stores that are located in regions with higher income populations. So this is very perceivable. Today, believe it or not, you have some research done with customers and digitalization and see, e-commerce appears sometimes in those 12 topics. So, sometimes because there's they have queues in the store, if the products are wanting to search have that's available and be able to offer an alternative brand to them. If you buy a certain product, would you be able to have another product of the same quality? So you have different demands depending on the regions you're operating in. So if there are regions with high demand and regions which is very low demand for digital services and all of them have a common interest, understanding the price of products that there's a queue at the store and other aspects. So we think we'll be able to answer these issues with the new app and also delivering some of the necessary services to that target audience around that store.
Joseph Giordano: All right, thank you Belmiro.
Operator: The next question now comes from Gustavo. He's an individual investor. And his question is, the SG&A reached 9.5% of the net revenue in the fourth quarter 2021. So, would this be a new level of share the expenses upon net revenue for 2022, while this percentage actually would
