Magazine Luiza S.A.

[Call Starts Abruptly] competitive edge that helps us with delivery times, a level of service for sellers and other times. So it is part of a greater component of our strategic positioning and our competitive differential on a sustainable manner.

Magalu Ads a couple of details on monetization. When it comes to take rate, we achieve a maximum pass-through lever for sellers.

Monetization should come now from other means, and they will come, for instance, from Magalu Ads. Here we tripled our revenue at Magalu once we introduced the sponsored search in the previous quarter, like I said, and now we are also expanding Magalu Ads to all the companies in our ecosystem.

This quarter, we had in [indiscernible] Magalu Ads in Netshoes, the same platform for all channels of the company and also content channels, the first step to expand to all company channels. Another way to monetize involves our Fintech.

Mauad is here. He can tell us more about it.

Despite the moment scenario, we increased by 20% TPV at fintech, more than R$10 billion. Now 58 entrepreneurs that are in the digital account, sellers who are getting their sales via digital account for MagaluPay, an account that we created for them by 100 million TPV, and we also work on PIX operations for Magalu and other group companies via the Fintech engine, more than 8 million transaction, PIX transactions in Q3, also showing the importance, our importance, bringing us confidence, lower costs, and also showing the importance of Magalu Payments for the whole ecosystem.

We also launched a partnership with Bitcoin so customers, based on our wallet, could also buy Bitcoin. We have a cyber, a crypto Friday now actually with discounts.

If you want to buy currency or coins, cryptocurrency via Magalu Ads, you have the cash back. So it’s another way to drive this issue.

Now before I turn it over to Beto, I would like to highlight our subsidiaries. They also were very challenged with DIFAL pass-through this year.

Época between 8 and 10 DIFAL downwards and pass-through, Netshoes 7, [indiscernible], and operations were also fine this quarter, particularly when it comes to net income. Think about Netshoes increasing 25% marketplace vis-a-vis last year, R$21 million net income, a leader in the category, very positive job, better than second quarter.

Época Cosméticos has been through a change in the ERP financially, commercially. The process is always very complex and very intricate.

Despite of that, it managed to pose net income, this quarter and Q4 is very positive as well. Very or great efforts by the team and they managed to have a successful pass-through.

And KaBuM! sold R$1 billion amazing R$30 million net income despite all the DIFAL that got in and for the first time in a Reclame Aqui RA1000 and also positive results.

Our subsidiaries, like I said, have met our expectations. Finally, let’s move on to the financial highlights and very briefly I would like to share with you the conclusion of the company deployment this year after the board of directors on this anonymous complaint and this was very stringent, transparent and independent.

Nine months of work led by PwC and Tozzini Freire, which is the leading lawyer firm, analysis concluded that the anonymous complaint is unfounded and they also found and reported failures in the accounting process of some bonuses and the performance requirements were not fully complied with, with the right competence. So these things were already corrected, the company checked, confirmed, acted and let’s move on.

So now I turn it over to Beto, our CFO, to give you more detail on the conclusion of the process and also the measures made by the company to mitigate the failures that were found. So we’re going to dive into this and we’ll also be here for your questions in the Q&A section.

Thank you.

Good morning everyone, thank you for joining our earnings conference call. When it comes to the adjustments mentioned by Freddy, in practice they led to some advanced bonuses, they were resubmitted, so we revised and we corrected the results for 2022 and first quarter 2023.

These results are now already on the right accounting system, on an accrued basis considering all the bonuses that were posted according to the right compliance and the values they refer only to these postings, these entries. So they refer only to this adjustment in bonus and the net impact stemming from this adjustment is about R$830 million on June 30 shareholders stake.

It’s worth mentioning that there was no change in the company’s cash flow, operating cash flow and no difference in cash positions, indebtedness, no change whatsoever, the adjustment was specifically in the bonus account. On the next slide we talk about the measures that we’ve been adopting in order to mitigate and try to eliminate risks.

Firstly considering the implementation of the system that we are deploying and already involves most of our suppliers, we have our own system that works with management of the funds and just to give you an idea in 2022 we issued 16,000 debit notes involving 50,000 campaigns of products over the whole year, full year. So we needed to invest in the system because this system validates each and every campaign checked and approved by suppliers and also validating the campaign performance and also checking total sales for instance, generating the debit note electronically with a digital signature, et cetera.

So the system is very robust, allows us to improve a lot in the management process of our funds and make sure that we are posting as we did already in Q3 with all the bonuses and funds in the right manner on an accurate basis. In addition to systems, we also talk about mechanisms of governance that we deployed in order to segregate different functions and we also implemented a new process, a new policy actually of the commercial purchasing process and we also revealed the risk and the routine of our negotiations, so a number of measures in order to improve governance and controls.

Additionally, there is another launch, another independent action apart from the bonus. This quarter we recognize tax credits related to PIS/COFINS on bonus that were received by suppliers in previous quarters up to 2022.

This bonus, they were taxed, so here we are posting these taxes based on a recent decision by the Supreme Court of Justice with the opinion of legal advisor, so we had a positive impact of R$507 million in the company’s net equity and also the earnings for Q3. On the next slide, we show a little bit of the effects over time.

Bonus adjustments, therefore, in total accounted for R$830 million, like I said, in net equity. They lowered results prior to 2022 and results for 2022, but it’s important to say that they improved recent results in the first quarter with bonus posted over year 2022, taking into account 2021, so improving the results in the first half of the year.

And when we mentioned the effect of tax credits and also the accrued basis prior to 2022, then we see an impact on net equity prior to 2022 of R$189 million, over 2022, R$226 million, and in the first half positive at R$93 million, totally R$322 million. This adjustment, once again, no cash effect, accounts for 1% of the company’s assets and 3% of the shareholders’ equity of the company.

What about the highlights? Fred already mentioned a lot about our growth in sales, highlighting marketplace operations, an increase in gross margin.

Just bear with me for a moment. I am going to change my microphone.

Is it better now? Moving on to the highlights – is it still low?

Is it better now? So, moving on to the highlights, again, we talked about growth in marketplace and gross margin as major highlights.

Adjusted EBITDA 5.7%, also growing vis-à-vis last year. Adjusted net income was still negative 1.7%, but it’s important to highlight again that this result already reflects lower financial expenses going down and also improved compared to previous quarter and better than last year, and even better than the first half of the year.

Total net income was positive at R$331 million, and this includes tax credits. And we also highlight that this quarter we greatly reduced our non-recurring expenses.

You may recall that in the first half of the year we had non-recurring expenses, over R$100 million by quarter, and this quarter it was approximately R$40 million only. So the total results are a lot better than in previous quarters.

On the next slide, we give you a breakdown of the EBITDA margin increasing 5.6% to 5.7%. And also the very important effect of the increased gross margin.

Merchandise margin increased by 1%. Like Fred mentioned, we ended the DIFAL pass-through and the merchandise margin better reflects the balance, particularly in EP between sales and margins.

In addition to the merchandise margin, all the growth in revenue growth or service revenue which exceeded this quarter, R$1 billion, total revenue increased by 35%. Service at marketplace 44% and the service revenue drove our EBITDA or gross margin in 1.9 percentage points.

That’s a trend that we’ve been mentioning in the previous quarters. That marketplace is expected to increase our level of gross margin because it is the fastest growing channel in the company and also the potential to continue with this gross margin in the future as well.

If we consider expenses this quarter, we didn’t have a significant drop, partly over owing to the dynamics in marketplace. It tends to increase gross margin, but put pressure on expenses over net revenue.

It’s important also to consider GMP and GMV. Marketplace tends to dilute expenses for the future.

So this quarter, we had the impact of very growth rates in marketplace and also a little bit more investment in marketing also combined to marketplace, which increase a lot. Over the coming quarters, the trend, well, the impact of marketplace on gross margin is expected to be greater than the impact on expenses vis-à-vis net revenue.

In October, for instance, we saw this trend and we have this advisory that October had an EBITDA margin level higher between 6% and 7%. So that’s an important trend driven by marketplace again.

On the next slide, we show that our working capital keeps on improving vis-à-vis last year, we reduced more than R$500 million in our inventories. And on the right hand side, we highlight an important reduction in financial expenses.

The first quarter used to be higher and then there was a downward trend. This quarter, it went down R$100 million vis-à-vis last year and 7% dropped to 6% and 5% and now it tends to go down in Q4 and also in the future.

So this reduction is a result of working capital and also an increase in fixed transactions and also a reduction with expenses with advanced receivables. On the next slide, we showed total cash flow for the quarter, another quarter of operating cash generation, very significant of R$300 million paying investments and expenses with leasing and interest.

So this quarter, we maintain our total cash position of R$8.1 billion. We also highlight an increase in the share in cash and investments, increasing R$2.5 million to R$3.3 billion and also the fact that we concluded Luiza Sack sale, the current quarter and we had the remaining share, according to Cardiff of another $R60 million.

On the next slide, we show we continue to be a net cash company. We can see our gross debt.

We have our cash and investments comparing to a short-term debt of R$3 billion. So we have more cash invested than short-term debt and total cash considering receivables practically three times the short-term debt and the long-term debt is well distributed towards the end of 2025, 2026.

Lastly, speaking a little about Luizacred, we had another quarter of growth with a 6% growth in credit card TPV, reaching more than R$14 billion, 6.8 million active credit cards growing both inside and outside Magalu. And here on the next slide, we highlight.

In the last two slides, we highlight the performance of portfolio overdue, which has been very positive. In June, we said that we had reached an inflection point in our indicators of overdue payments and we had a relevant reduction in both short and long NPL with a positive reflection on Luizacred which practically broke even in this quarter with a trend of increasing income in the short-term already in the next quarters.

And lastly, we showed default rates for CDC and Luizacred dropping a lot, being reduced with the improvement of the quality indicators of the portfolio. These were the highlights.

And now, we would like to start the Q&A session. Thank you very much.

Hello everyone, good morning. Thank you for taking my question.

I would like to speak a little about the outlook for Q4. I’d like to understand your view on inventories to face end of year events.

You mentioned that sales were strong in October, in November, at the physical stores, and we also followed the logistics issues that the drought in Manaus caused. I’d like to understand volume and quality of inventories to face the Black Friday and Christmas sales.

Good morning, Clara. Thank you for the question.

I’ll start answering and then I’ll turn the floor to Fabricio Garcia to compliment. As we say, and we started the year really well.

I’d like to remind you that our focus continues to be the consolidation in Q3, particularly in the case of 1P. We see a very favorable situation here.

We ended the quarter with a very positive inventory level, already anticipating problems that we knew were coming. Given the drought in the Amazonas river that has made logistics of suppliers more difficult.

We worked with an inventory and ended the quarter with a slightly higher inventory than initially planned because the suppliers warned us that we needed to have a buffer. So our inventories are normalized and positive.

We started October really well and November really well. I give you some ideas, a little insight of the first 15 days of November.

So we’re excited. We are positive.

And I have to remind you, we remain super focused on working with high gross margins. And last year, we had the World Cup effect, which from the specific point of the category of TVs, makes the comparison a little harder.

Fabricio?

Good morning, Clara. Thank you for the question.

As Fred mentioned, we are well prepared. We made an adjustment in our inventories in the beginning of last year.

So the quality of our inventory is really good. As Fred mentioned, we brought forward some payments of TV sets and air conditioners given to the drought in the Amazonas river, which is the worst drought in the last 125 years.

October sales show that we are okay. November shows that we are very well prepared.

We are confident in a good Black Friday and a great holiday season sales. The inventory has high quality and high availability, which is very important for our business.

Hello. Good morning.

Thank you for taking my question. Could you elaborate on what would be the current profitability level of 1P categories, both in physical stores and on e-commerce, and how this has been evolving?

And how are you thinking about investments to grow your 3P business? A second question has to do with the term of suppliers.

In prior quarters, you talked about this, I’d like to think about working capital. What do you think would be the term – the payment terms for suppliers looking forward?

Thank you for the question. I’ll speak a little about 1P and Fabricio might want to add and Roberto, regarding the terms and conditions.

Like I said, for our 1P, the focus for the year has been to pass through the taxes, particularly in 1P, although, default also touches the physical stores, not just exclusively online. There was also an impact on the margins of physical stores.

So we handled that pass through, this quarter, consolidated the pass through. It was the best quarter in the year in terms of profitability of 1P operation and physical brick and mortar stores, again, prioritizing more gross margin than growth.

And now that this level is stabilized, it’s easier for us to go back to working to grow and gain operating leverage. We had the best quarter of the year.

In October, the margin – the operating margin was even better than in the first half of the year. And we think that we’ll continue to see this looking forward.

But once we decide to pass through this order of magnitude of taxes, you have to make decisions. And our decision was to first pass through a price increase and then go back to growing.

This is something we’re going to start looking at from now on. Now that we have a consolidated margin, we believe that we have room to gain market share, particularly in stores, but not exclusively in 1P as well.

We have room to gain market share, but always preserving this level of gross margin that we achieved in this Q3. We have to make a decision, execute the plan and then resume growth in healthier levels.

In terms of 3P, we intend to continue to grow. We achieved a very positive profitability level.

The more it grows, the more it adds to EBITDA. And we want to grow without having the crazy subsidies that the marketplace had three years ago.

The market is a lot more rational. We still have lower rates than our main competitors.

So I see room for us to positively grow our 3P.

Thank you, Vinicius, for the question. Regarding the working capital, make a comment about working capital as a whole.

What we saw in this quarter. We reduced inventories over last year by more than R$500 million.

In that sense, compared to last year, we also reduced the suppliers account. But we continue and this is something we are always looking for in achieving a balance in this relationship, a balance of suppliers that will fund our investment in inventory in other words.

In other words, we finance our customer with the consumer finance. We work with our suppliers so that we can achieve this balance, so that our suppliers will be financing their inventories in our distribution centers.

We are achieving that. In this year, we also achieved an increase in the average term of purchases compared to last year.

And now and looking forward, we have an expectation to increase the turnover of our inventories. We’ve been reducing the inventories, but we haven’t improved the inventory turnover yet, given the strategy of better balancing growth versus margin, as Fred mentioned.

But now from now on with greater growth in Q4, sales are already improving. So the turnover of the inventory is already improving significantly and with the expectation of growth in the coming years, we should see an improvement in inventory turnover and maintaining an average term that is healthy, always trying to have the suppliers and our inventory at the same level that we currently have.

Thank you. Good morning, Fred.

Good morning, Beto. Two questions.

My first question, I would like to dive deeper into this opportunity, in terms of EBITDA margin or EBITDA, as you better monetize the marketplace platform. So I would like to inform you friend, what about this trajectory into the future, reflecting this monetization in EBITDA.

The second question, I understand you had a good review of controls. And for the future the operation seems to be well balanced for this type of control or that’s with suppliers.

But I’d just like to understand, just to make it clear, this investigation is already concluded. And if there is any risk of having a restatement going back.

2022 was restated, but if we consider previous balance sheets prior to 2022 any risk in this regard?

Thank you for the question. About 3P more specifically and actually about EBITDA, we already noticed improvement in October vis-à-vis the third quarter, I would say a significant improvement.

We can see that’s a trend for the future as well. From the moment our projects and our actions evolved in 1P and in 3P as well like I said in the previous question, we see sales expenses in the last quarter, something more temporary owing to investments.

I believe chances are that we improve margins to go back to our historical levels before the pandemic level. So this is the contribution for 3P for the EBITDA margin.

And in the management report, we talked about October, and this is what we notice and we want in the short-term, what I mean by short-term is already in Q4. But in Q4 we also have Black Friday and margin stand to be balanced or go down.

We want to keep on posting growth showing to the market how we evolve in our actions. That we already showed in Q3, but more significantly in the future.

About the second point, we’ve been extensively working so that the numbers reflect exactly the facts with avoiding restatements that we had in market circumstances in the past. I think it brings a lot of stress unnecessarily.

So it’s important to show the right figures, 100% reliable figures, and I’ll give the floor to Beto to tell you more about.

Thank you, João. Actually, the numbers were exhaustively revisited since early 2022 up to September 2023.

All the numbers and figures, the balance sheet, financial statements, income statements, the capital structure, accounts receivable, all these figures were extremely tested and revised. So we are very convinced that they will not be changed.

Auditing processes this quarter were normal. The numbers of the third quarter were extensively reviewed.

So as you know, we have an annual audit and now in Q4 we conclude the annual audit for full year 2023 compared to full year 2022, considering early 2022 just as we showed the effect in net adjustment on that chart starting the first balance sheet in 2022 up to now. There is no obligation or need to go back to previous periods or prior than 2022.

Certainly the audit committee is already working on this and we’ll be auditing on a quarterly basis all results for 2022 and 2023. So we always have two years of data as required by SEC with comparable auditing actions.

So we can be convinced these are the final numbers.

Good morning. Thank you for taking our questions.

One of our question is, we wonder if you could tell us more about the competitive environment, particularly in core segments like home appliances, electronics, and also understand the relationship with the industry. You talked about working capital, but maybe you could give us more color and also the entry or some marketplace companies that are more marketplace now getting to 1P.

And maybe if you could tell us more in the second question about ads. Revenue, service or fee revenue is going up.

So what about the contribution? What are the gains of gross margin this quarter, maybe more specifically coming from ads?

It seems to be an interesting opportunity into the future. Thank you.

Thank you very much for the question. I believe the competitive environment is favorable.

Our main competitor was taxes and interest rates in the coming quarters – in the past quarters. So there’s not a different rationale in the market or marketplaces selling or doing GMV with zero take rates or subsidizing price and shipping.

So in 1P, everybody has to pay taxes, default. It’s the same tax for everybody.

That’s the same reality, both for sellers and big operators. And the physical store, we still have a lot of room for growth.

Our share in physical stores is smaller than 1P and there is plenty of room to improve our share in physical stores. Even if the physical store market goes down, we have a lot of room for growth, gaining share.

But I think it will keep on growing because actually we are moving. We hit rock bottom and now we have a recovery in interest and also an increase in credit, certainly in the coming quarters.

I’m very confident and as now we have better income conditions for low income households. We believe we have a very comfortable position in physical stores and our 1P has a competitive edge, which has been multichannel.

No other operator has the same, delivering 85% of our 1P category within two days. Nobody else can do it.

We use our stores for store pickup, so our model, our 1P model is highly competitive. What happened to 1P has nothing to do with competition, but with macroeconomics, high interest rates, high taxes, and now the tax was given, passed through and interest rates have to go down.

So once the macroeconomics improve, 1P operation will improve into the future. Fabricio anything about suppliers and also the impact on ads?

Good morning. Thank you for the question Fabricio speaking.

I think Magalu has a historical relationship with the industry. We are the second greatest player among the big suppliers in our core business.

Our relationship with them is the best possible. We’ve been doing a great year on a monthly basis, so we have great plans for the end of the year.

The environment is more rational in stores we are very strong and this is very favorable and we feel confident that we’ll be selling with profitability, which is important. So our relationship is fine and the outlook is the best possible.

Hi, Eric Eduardo speaking. Just giving more color about ads.

For services, yes, there is an impact from ads revenue in house. We’re not disclosing the numbers yet, but we understand there is plenty of room to grow the share.

This year was a very important year when it comes to expanding the platform. We increased our sponsor product platform over the year for several areas like surge, our recommendation system, at Magalu, a fully integrated system.

Over the last quarter we had a big step, which was allocation to other stores in the group. Deploying it at nat [ph] shows, giving advertisers the chance to offer this not only at Magalu, but also at nat shows and next quarter in all companies in the group.

So we’re also going to change our display in the platform after Black Friday, bringing other possibilities. So this is only the beginning and there may be an impact on service or fee income, but the best is yet to come.

Good morning. Thank you for taking my question.

Want to understand how you think the capital structure there is a significant part of the debt maturing the short term and last night there was a news the control is with [indiscernible] in your capital increase, would like to understand that the thinking about this? And the second question is the number of progress and monetization maturity in the same-store have contributed a lot, but increase in gross margin and this was not total translated into higher EBITDA margin.

I’d like to understand what components of expenses limited this and how the 3P margin compares with 1P and physical stores and how you see this evolving looking forward? Thank you.

I’ll start speaking about the capital structure. Thank you for the question.

Well, you see, we don’t comment on rumors in the market. These rumors have happened several times along the year.

It’s just rumors. They have no relation about the company whatsoever.

But I’ll take a question to reinforce, like I said, from the standpoint of capital structure, well, you can analyze it in several ways. From the standpoint of liquidity, we have R$8 billion cash, cash equivalents and receivables with daily liquidity.

I think that this is super important and in that regard our liquidity is much higher than our gross debt, even greater than our indebt debt. If we consider just the cash and the investment, the amount more than the short term debt of the company.

And we are now starting a period of growing cash flow from the operations. We spoke about the growth of the marketplace, about the expansion of the operating margins.

You saw our financial expenses dropping marketplace. That is a trend that should become even more pronounced in 2024.

So we have an opportunity to continue to improve inventory turnover and even increase in operating capital as a whole. So the outlook is that we will increase and accelerate increase in operating cash and reducing even further our financial expenses.

And the cash flow of financing significantly improving our leverage over other metrics as well in the coming quarters and years. So our capital structure today is considered by us to be very solid, very liquid and there is no need.

There’s nothing be discussed at the Board of Directors to increase capital. Again, I’d like to stress that these are rumors in the market.

And now speaking about the margins, I think I answered this before. But I’ll stress expectation is that the margins will continue to increase as the marketplace gains share.

The margin tends to increase and as we transform this new level of gross margin. But if we translate that into one big growth, given, the market dynamics we’re observing and declining interest rates.

They will drive the top line of this category with more credit at the stores, more growth in the category of durable goods, which are important for 1P and also with the dilution of expenses, EBITDA should be improving in the future. Like I said, we have already very positive sign from October.

We are running above a level of Q3 and we imagine that this will be the trend to be observed looking forward.

Good morning. Thank you for taking my question.

I have one question. Eventually, let me transfer your question.

We will [indiscernible] about the 3P strategy. And this was being the main growth driver of the company.

But how are you sub positioned in the market? Also relative to other platforms, do you want to have this 3P strong but anywhere of [indiscernible] synergistic with 1P categories.

I just want to get a sense of how you see your main competitor after finishing the work [ph] considering more aggressive competition particularly of international platforms and international players? Thank you.

Good morning, Danni. Thank you for the question.

I’ll be very objective in my answer. I see two pictures for in source of out of value proposition.

Number one, the multichannel approach. When we built on 3P, we built it driving our existing – our based on our existing structure, the physical stores, the cities, [indiscernible] high percentage of 3P sales are picked up at the stores and also the fulfillment which will increase the share of store pickup.

So with those stores and multi-channels, we have lower 3P costs and we don’t have to charge so much from the seller relatively. We can charge even less for consumers.

We can grow with profitability without these subsidies. For multi-channels, the way differential for us to become a leader in 1P will be in my opinion will make us be a relevant player in 3P as well.

Second factor, Danni, we working up in [indiscernible] over and over because we tend to work with higher ticket products today Magalu 3P is a leading in products costing more than R$1,000. We have a high penetration there, coincidentally, electronics and household appliances.

But the general categories of electronics and household appliance above R$1,000. I have done really well with the new categories of [indiscernible] and homeowners, et cetera.

We are doing well. So at Magalu, you’re going to buy high quality products with a reliable origin.

When you are buying a product that you’re going to pay R$400, R$500, you want to be shown that this is an original product, a high quality product, you’re not going to have problems, because if you buy a product that costs R$20, that’s fine. If it doesn’t work, you can return it.

It’s not a problem. But in higher priced products, we are focused on that to focus on products above a R$100, good quality products with a proven origin.

So we have a component of logistics and credit that will help us have a beautiful share and repositioning in high quality products in a nutshell, high quality products with a multichannel approach. That’s the differential of our value proposition for the marketplace.

Just some of the advantages that will be coming.

Hello. Good morning.

Thank you for taking my questions. I would like to go back here briefly to salary [ph] expenses, there was a slight increase this quarter investments in new customers.

I wonder if you could tell us more about how you are investing the cost of acquisition of customers in the market? And how should we consider the evaluation of this line in the future?

Considering for [indiscernible] is an important investment area and also accelerating 1P, again, I believe there was a slightly higher into the gold investment this quarter, but what brings you confidence in the sense that each line will be more dilutive in the future despite higher growth? Second question, [indiscernible] briefly going back to [indiscernible].

First, when you talk about the main drivers for growth, higher growth for 1Q, I understand macro is one driver, but what about other levers that you intent to activate to speed the business again?

Irma, thank you very much for question. I’m going to highlight some points that Beto mentioned about expenses.

Market place when you check the balance sheet, you have to consider it with GMV, not revenue. It greatly contributes to margin, but effectively marketing expenses increase once you increase in share.

Because it’s positive and tends to contribute to EBITDA would improve in margin more than proportionate improvement in incremental sales revenue. So we have this that increase a lot for the last two years and continue to contribute.

So in October for this quarter we are convinced that this expense will be diluted. The more market place increase the share of the company, the more the percentage EBITDA of the company we grow, because the take rate more than offsets this increase in expenses down the road.

There is a specific impact about selling expenses. We had a price pass through in 1P.

In Q3 a significant pass through for defile pass through. Whenever you have slightly higher prices we are market leaders and we tend to be the first to do the pass through and then market solitude and CPC goes up.

So the cost per plaque is higher because your price is higher in the search and have to pay more in the marketing auction. It’s a temporary event because later on the market eventually gets stable in that pricing, and returns in ROE continue to increase.

I believe this will this will happen in Q4 again. I already say this is happening.

Conditions improving, so I’m convinced that [indiscernible] and operational leverage and EBITDA margin in the coming quarters. That’s a very important focus by the whole team and is going to be clear in our results for the future.

And the second question, one big road, okay. I think the company was listed for 12 years now and Magalu is in physical store for 64 years.

It’s a cyclic category, that’s a fact every seven years you have two years with low categories and then you believe this is going to come to an end, when I took over in 2015 all analysts asked me, are you going to close the physical stores, the category come to an end? But then you have a virtual cycle whereas interest rates go down from 14 to 8, 7 and then the category started growing, the same in 2008.

Challenges high interest rates, no say as you have high advanced prices, VISA credit paying the costs are high difference, so this is a cyclic [ph] sector. We’ve been working in 1 and 3P in order not to rely a 100%, but that’s a cycle sector like I said, we’ve been audit for a while.

The worst is over. Financial expenses went down 100 million year-over-year, 1 percentage points less already.

And certainly the demand for November is already reflected in the instance [ph] for consumers to buy again. The worse advance during the pandemic, they bought a lot of durables, we had high inventory rates, but now they have to change the fridge, the mobile phone and new TV screens, so chances are we improved [indiscernible] there is a macro impact.

But now this margin and profitability base we cannot do both at the same time. So we believe we can gain Tier particularly with physical stores, but also 1P.

Our share in 1P is very high for traditional categories, but we still have room for growth.

Good morning. My questions were already answered.

Thank you.

Good morning, everyone. Good morning, Beto, Frederico, Vanessa.

Thank you for taking my questions. I would like to go back to 3P.

You are highlighting a lot. How far can you go when it comes to take rate and new services?

I would like to know the shipment impact? We can see this opportunity and how do we see that?

And lastly, when we think about the commercial strategy for 2024, how do you see the targets in the industry considering this market? Maybe do you believe bonuses are going back to normal?

Eduardo speaking. Answering your question about take rate, like Fred said, the bulk of this improvement of market ship, marketplace comes from adjustment, intake rate and also a number of things related to incentives.

We believe there is still a chart about collections. When you consider what is charged and also the subsidies for shipping purposes, this is still competitive.

We also understand that marketplace brings a number of options for profitability growth, like ads, logistics services, financial services offer and credit services as well. So in this context, we had a significant progress, but we believe there’s still room to improve our profitability and better use these options we have.

When it comes to Hemesa Confarma [ph], we complied with the program and once we have the legal framework that gives us confidence, we believe that’s an opportunity for the company to add to our assortment and bring brands and products that are not available in Brazil. Our product portfolio is not only related to these products that come from abroad.

So that’s an opportunity for us. That’s how we look and how we see this option right now.

About your second question. I believe the current level radio reflects the market scenario.

I don’t expect to see any changes in this regard.

Good morning, everyone. Thank you for taking my question.

Can you hear me? Hello?

Hello?

Yes, we hear you.

Can you hear me? Hello?

Yes, we can hear you. Go ahead.

Okay. All right.

Good morning, Fred, Vanessa. I just want to see if you have any refresh and color regarding the expansion of physical stores.

Given that you’ve gone through a purging period, you are now at a level of profitability of the gross margin, which is more adjusted. All the synergies with the other businesses, a lot of things flowing through the brick and mortar stores.

So in the mid to long term, how do you see the potential of expanding physical stores? What would be the triggers to resume the expansion of physical stores in addition to interest rates?

And the second one, what are you thinking about? The expansion of financial products and services at Magalu’s Fintech.

Thank you.

Thank you. João Paulo, this is Fabricio speaking.

Thank you for the question regarding the physical stores. Our focus at this point is having profitability of the current stores.

In the mid run, we don’t have any expansion plan, but we want to have a very profitable channel, as it has always been. We are getting gross margin.

We are focusing on new regions where we open new stores, Mato Grosso or Rio de Janeiro. We have a lot of market share to gain in those regions.

So in the midterm, our focus is to make our current set of stores more profitable.

And this is Carlos Mauad. JP, thank you for the question.

Regarding the roadmap of our fintech is to scale up and increase the profitability of our insurance product in credit at checkout of our digital channels, because today we have a well developed product for the network of stores, but it does not reach the digital layer of our business. We have a number of fronts linked to monetizing this relationship with the seller, which is our growth frontier at repeat.

So it’s all geared to increase scale and profitability. The roadmap is pragmatic, solid, so that we can build a monetization which is adequate and in a short period of time.

I hope I have answered your question.

Well, thank you for participating in this conference call with us. Have a great week.