Sendas Distribuidora SA
BOVESPA:ASAI3
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[starts abruptly] during the call regarding business perspectives, forecasts and operational targets at Asai represent assumptions and beliefs of the company as well as information that's currently available.
Future statements are not a guarantee of performance. They involve risks and uncertainties and assumptions because they refer to future events that depend on circumstances that could or not occur. Investors, should understand the economic conditions in the market and other operational factors that affect the performance in the future at Asai and need to results that materially defer from those in such statements in the future.
Now, I'll pass on the floor to Gabrielle Helu, the Investor Relations Director, Asai.
Thank you and good morning, ladies and gentlemen. so much for participating in our earnings call for the first quarter of '23, at Asai.
I'd like to present the executives present here. So, we have Belmiro de Gomes, our CEO; Daniela Sabbag, our CFO; Wlamir dos Anjos, Operational and Logistics VP, and Anderson Castilho, Operational VP.
Before we start the presentation, I'll pass the floor on to Belmiro for his initial remarks. Belmiro?
Thank you, Gabi. Good morning everyone. I wanted to thank you all for your presence in the first quarter of '23. So, of course this is a quarter that is super important considering the last general shareholders meeting where we had a shift in the controller and now the company has no defined control. So, true corporation now.
And on the eighth, now we'll have the new board taking place. The board was elected in the last general shareholders meeting. So we have very skillful professionals that are going to help and support the company, during this transition period. So this of course helps us with the governance issues, but also contributing strongly to the business.
And Asai keeps this history of growth that's so high, over 30% in the first quarter, the total growth of 33% with an important highlight to the same store, the sales space. And so we had important contributions with the expansion in the stores that were converted. And so, so we have some important share gains of almost 2.4% [ph]. It was the biggest share as essay has ever had in all of its historical track record.
And we add a volume of sales of BRL4 billion compared to the first quarter of the previous year. So I also wanted to highlight our special thanks to the store teams that are in the day-to-day operations, working with almost a hundred million people that go by all of our stores in this first quarter in many different operations. And the company had a significant increase in the flow with over 16 million tickets. And overall these added up to BRL16.6 billion, the 33% growth, then the strong contribution in the expansion we had.
So I want to highlight that we've been keeping up a balance point between our growth and sales and the administration or management of the same store sale park. And this is a relevant amount, so it's the biggest amount we've ever had of stores, new stores.
At the same time, we have 60 new openings that took place in 2022 and over 29 openings in 2021. So this balance point in the ramp-up and the operation we believe was very strong. And so the gross margin, even despite this amount of stores, continues to be super stable compared to the previous year, with an increase of 0.1%[ph]. So this represents the fact that the new units are new stores are noting detractors are confiscating margins.
Then other highlight is the discipline for these expenses. So the cash-and-carry operation is a low cost business. So when we look at the variation of expenses that we've had compared to the previous period, it's a lot more related to this bigger amount of stores. So it's natural that a bigger amount of stores would have this during this ramp-up period a level of operational expenses that's higher due to the amount of personnel or the media, that we work on, or all of the different activations that take place in the storm maturity.
But in our perspective, we did have a balance point in these expenses. And with this, the operational aspects of the business has been extremely stable. The 33% growth in sales also brings an important increase in the gross profit and an EBITDA margin that's relatively stabilized with 0.3% drop and a small variation considering that most of our store network about 40% was already open with this recently open stores, in the last two years.
So the net income has an impact, of course due to the cost of the carryover of the deck. We're going through this period where you have a very dangerous combination of interest rates, the highest real interest rate in the world with food inflation at about zero, which generates pressure at a moment where the company's going through this growth and an important growth trend for growth.
And so we open up another three stores. These are three more conversions adding up to a total amount of sales of 266 stores in all of Brazil. And so we have another 28 stores under construction. We have 13 stores from the conversions of the hypermarkets that were acquired, and 15 organics, which were already expected. And so they'll be opened throughout 2023 at bringing in even more contribution or acceleration in this growth process for the company, and of course, completing the hypermarket conversion project as we'll.
We can advance, so now moving on to the project with the extra stores. It was the biggest conversion project for stores. And when we talk about these conversions from hypermarkets into cash-and-carry stores, it is a conversion that's really impacting. So it's different than when you convert like a brand to another brand or cash-and-carry to cash-and-carry conversion from a hypermarket to cash-and-carry operation requires structural construction work and refurbishing the model of the acquisition of the commercial spots.
We just bought the commercial spot. We have no liabilities or risks involved in the operation from a labor contingency perspective or personnel perspective. So the stores to make sure we're emptied out and we didn't have any furniture left or anything else, they were completely remade. Others are still under construction in these stores have only like five months of operation basically.
So during the first quarter, we were mainly focused to the stores that were open in '22. They needed to complete this process with the, the ABL and galleries aspects of these stores. Just the extra stores, for example, that came from last year. They had about 727 store shops and an ABL area. That's really big as well.
And so the adhesion of stores in these store of other shops in these stores really big. We have 46% vacancy because we're just finishing the construction work now. But as these others businesses occupy these store areas in our store, this will attract more customers as well. So the stores are performing in line with what we estimate for this extra project at about 70% of this sales percentage.
So even with less of this op -- than five months of operation, these stores have already been delivering a sales level that's above the historical average in the entire Asai network, when they've performed close to about BRL22 million of monthly sales in the first quarter, which is a quarter that, as we all know, is a quarter that's very challenging.
And the positive point was that as we highlighted in the beginning of the project, these stores have a EBIDA margin that we never have in the organic stores. So this was already an important contribution to the five months of life in the first quarter after the opening cycle of 5%, after the IFRS 16 perspective. So that we have in the other store, park or network.
So sales are at 2.2 times compared to what extra had before. And 3.2 when we just compare the food perimeter since the hypermarkets, as we all know, have a real high sales of electronics and home appliances that the cash-and-carry operation normally doesn't work with. So we understand the anxiety towards this project. We understand the anxiety or the immediate approach that this project could maybe bring, but just as any other project for growth, first you need invest, then you can reap.
So, just as all of the growth processes, you always have this investment phase and then the maturity and our stores are recently opened, so they're still going through this curve with a maximum of minimum levels expected. So we've been following this process and we reinforced our credibility and our different points and how these stores are going to contribute strongly to SA and how they're going to be a very important differential in the future considering that they are in regions that are have high density.
So of course, with this kind of magnitude and this amount of stores, when we take a look at the ticket's added in these stores, we have about almost four or 5 million custom tickets more per month. And of course, each store requires this kind of adjustment in its ramp-up curve. So adjustments when it comes to the margin assortments and competitive advantages, depending on the regions where these stores are part of are included.
So the maturity curves follow along, of course, the difficulties in the market. We have a moment in the market that's more challenging with consumers, a lot more focused on basics. And so this of course -- this affects the overall store network in the company.
So we can move on to the next slide, and I'll pass this to Danny as she can highlight the adjusted EBITDA and the net income. And then I'll cover this a little more up ahead.
Thank you, Belmiro. Good Morning everyone. So, moving on here to the presentation. When we see slide four, you can see the EBITDA graph and the analysis of important increases BRL200 million year-over-year. And I wanted to mention three important points on this performance. So first what Belmiro already mentioned that's important to highlight is the expansion. So a margin that we consider to be very resilient considering this strong expansion in the past 12 months, when we opened 59 stores.
So we would expect a pressure that's even more significant but the performance is really unique when it comes to the conversions that reach maturity quickly or even the quality of the organic stores we open. This really helps to keep up this level that we consider to be very sustainable up ahead. So about the pre-Op expenses with this expansion, we always highlight that we have over 10 beeps in this quarter of expenses that are related to the stores that were open.
So when we take a look at the this from a recurring perspective, the EBIDA reported would be a pressure of about 20 beeps and up 30 beeps. And when it comes to this pressure point in the margin, it's important to mention that in the second quarter
We had some margin pressures at about 50 beeps in the third and fourth quarter. So what I want to say here is that the pressure in the margins in the first quarter from a sequential perspective, quarter, quarter is a lot lower than what we noticed in the second semester of ‘22.
Moving on to the next slide, we understand the financial earnings and cash generations of the earnings over BRL630 million, equivalent to 4.2% of the revenue. And then excluding the lease interest at about BRL200 million, we have a net expense of BRL428 million representing this two point 78% of the sales.
So this earning that's affected by the CDI, it went up 34% and we had a CDI in the quarter of 243, to 325. And this is the main impact. But we also have a significant volume of the average debt in the quarter, which is a little bit higher than the debt that we had in the first quarter of '23 in '22, sorry due to the fundraising we had to implement to be able to fund the expansion.
So the debt position was 10.9, but now it's 12.7, besides the interest that's embedded here. So when we look at the net debt, we end the quarter with 8.1 already considering the credit card receivables, and we have a leverage level of 2 78.
And that's when we bring in the graph here at the bottom part. So we can show you that this level is really in line with the levels we've observed in the second and third quarters of '22. And in line with the expectations we have for everything we projected in this huge expansion project we've been delivering.
So even in the next quarters and the second and third quarter of '23, we'll be noticing a level that's very similar to the first quarter of '23. Everything's kind of under control. Everything's within the covenants we have combined with and agreed upon with the banks. We've been reinforcing this with Gabi in the meetings with Palm and myself, but we want to make it very clear that we don't have any risks to of not fulfilling our covenant.
The deleveraging process is really keeping up to date with the calendar of this entire conversion project and expansion of the company, and that we foresee some deleveraging in the fourth quarter really in line with the levels we've reached in the fourth quarter of '22, of 2.2. So it should be a very similar level, and we wanted to transmit this kind of comfort to you. And while we're speaking about the cash generation accumulated in the past 12 months,
We had a cash generation about BRL3 billion, and this made it possible for us to fund all of our investments, including the payments for the commercial real estate. And when it comes to debt and cash generation, it's really in-line with our estimates if we consider all of the maturity of the 59 stores and the stores that are being that are reaching maturity, the organic stores as well. And we see that above all of this, we have to reinforce that we have '22 stores in construction phase.
And finally, to end my part of the presentation, moving on to the next slide with the net income, as we highlighted during the presentation, we have operational results that are very resilient, but of course they still reflect all of these high investments that we've had in the expansion. And with this maturity expected, we want to highlight that the net income is really impacted by all of the maturity process that's in progress.
So as Belmiro mentioned, I want to highlight the issue with the organic conversions and the sales levels, the margin levels. All of this has been translated into greater productivity of sales per square meter, but also profits that in the future will end up reaping the quality of this expansion. So amidst this context, we reached a quarter with BRL72 million of profit or net income, which is really impacted by the scenario with high interest rates that we've been facing in the country. These are my comments.
Now, I'll pass the floor back to BRL so that he can talk about our App and ESG. Belmiro?
Thanks Denny. And we launched our new App.Asai. I think a lot of people ask about our strategy and Asai for all of the online resources. And we really believe in the fidgeted strategy. We are one of the companies as the second biggest retailer in the country with a huge amount of people visiting over a hundred million people coming to our stores. And we believe that there are many opportunities in the app.
You have a CRM base with over 7 million customers registered. It was the fifth app that was most downloaded in when we opened with over 30% of the tickets identified. And this helps us, I identify and the improve the purchase experience in the physical environment of our source.
But we were also able to work with some other issues because since we work with end customers and also B2B customers in different types of sectors, we were able to offer special deals, special sales; customers that are registered can have some specific discounts, that are focused on their kind of profile. We also have our campaigns and other initiatives that are performed together with suppliers. We have a very strong digital resource, and this has been very successful.
This app will help us when it comes to greater customer loyalty and also to help ramp-up the new extra stores where you can also have the a level of information and the behavior of the purchases of our customers and our different target audiences as we've never had before. So I want to thank our team working on this launch. We should be reaping some very positive results in this fidgeted strategy that we've been advancing with.
Now, on the next slide, when we get into ESG, obviously due to the size of the company 75, we have a very important role with social responsibility. And SA is always a reference and a benchmark when it comes to our relationship with society and esg. So we have different initiatives.
Now in the first quarter, of course, looking at the amount of store openings, and the company has been very much aware of this, and we were elected as the eighth best cash-and-carry operations in Sao Paulo, performing the assessments of the best in class. And even with such a big amount of stores here in Sao Paulo, you can see that the company's on the right path. I wanted to highlight the GPTW index among the 10 best companies to work at with people with disabilities.
And Asai is one of the very few people that have more than the minimum requirement. We have 5.4, even though the minimum require is only 5%, and a huge amount of employees that are over 50 as well, and other initiatives. So before we move on to Q&A, what we look at up ahead is that we see a challenging environment for all of the companies in Brazil. It's a lot more challenging. Consumers, as I mentioned, are a little more focused on basics and being more careful when they shop. We have a important slowdown in when we look at the earnings in the first quarter.
In our perspective, the operational aspects are very well protected. But of course, as I, since we're in this moment, we have the biggest investment in growth. Kind of pays the cost of this process. With the interest rate that's so high in Brazil, we have the highest interest rate in the world. Basically, when you look at the food perimeter, it's still the highest in the world because our inflation is pretty practically zero, and interest is so high.
So when you have this mismatch and with the interest rate, we're going to continue to be pressured when it comes to leverage. So we keep up with our expansion plan. Most of this needs to be completed with the project, with the extra stores. We did have some difficulties with obtaining licenses, but most of them are already under construction. But of course now we're being more careful with this new project so that it can really reflect the current interest rates versus the inflation that is existing at the moment in the sector.
So this makes the company be more careful. Although we've announced the 40 stores this year, none of the projects were canceled. The, the organic stores, we can decide about when we're going to start building. And of course, we're going to have this new balance work to search for a drop in the, in our leverage position. But of course, we want to balance this out with our growth rates. So the market as a whole has been working on this and high interest rates cost that are very high, this makes it makes us have to be more careful.
So the company is really focused on the ramp-up for the storm maturity, keeping a healthy balance point between margins and the growth in sales. And our expectation is the stability. And we're going to be landing at the end of the year with this net ratio of 2.2 times, just as we highlighted in some other moments. So these are the big challenges we're looking at up ahead.
And having said that, I would like to end and open up to Q&A.
Thank you all. [Operator instructions] So let's move on to the first question from Jean [indiscernible], the sell side analyst at Citi. Jerome will open up your audio so you can proceed.
Thank you guys. And Bob, I wanted to explore two topics. First, you had a clear guidance for 2024 of sales and yeah, the conversion assumptions and also the macro assumptions on price and volumes, but it seems like the conversion is moving in line, but maybe this level of the slowdown in the inflation could harm this guidance, right, for 2024.
So I wanted to hear your opinion on this and also understand the uplift targets, right? If you keep those three times uplifted with the margins above the legacy source. And the second topic is about the trade-off between the opening and the delivering. It's a recurring topic, and it seems like you guys are super confident that you'll have to review the store openings even with this level of leverage. So I wanted to know if we can see some alternatives to reduce the leverage. We understand this and Danny talked about this as well, but are there alternatives maybe that we could consider through like a sales lease back to reduce this leverage and maybe anticipate the deleveraging process? These are the questions. Thanks guys.
The first quarter and extra demonstrates that we're on the right path. Although these points are really strong. We never had for example, the historical period of openings. We never had stores already started the first quarter with level of margin or sales that we had seen. So even with this amount of almost 80 new stores with less than two years, we didn't have a degradation of the gross margins. And there was a big concern also about this, because the stores have an operational model, it's very different, and the expense variation is really in line and actually very low in regards to the amount of stores.
So we see that there's this trend considering the amount and magnitude, and you always have some competitive reactions that end up making you justice. But the guidance for 2024 has a inflation component. We're going to wait on the second quarter to see how this ratio behaves. And actually since we went through this process, the population had a trade down, had a drop in volumes, and there's an expectation for the recovery.
But of course, this is subject to macroeconomic scenarios. Depending on the inflationary rates, if you have a deflation considering the currency issues and other commodities, this could create a climate of uncertainty. But it's still too early to review this.
The second and third quarters actually could indicate this a bit more. So we didn't take our feet off the accelerator when it comes to conversions with the extra, but for the organic stores, we're being a little more careful. So if we had this scenario if we already had some signs from the accounts of the central bank, we would maybe feel more confident.
But overall, we have almost 40 projects besides the ones that are already under construction for their organic stores. And we're waiting for some legal authorizations and approvals. But also due to this concern with the leverage situation, so the, we want to deleverage a little quicker, there's one part that there's no way out of, right?
We need to open up the stores and the stores need to open cash. So the beginning of the punch, we warned people that we would have a higher leverage position eventually, but of course we have an interest rate. And well, in our case, just as in any other company, we're always going to compare the interest rate that we have now and the fundraising costs versus the inflation.
So you can see that we've already noticed that the highest interest rate in the world and the food perimeter, it's almost the biggest, I think. And so this makes you have to have a little more care concern. So we could be affected in the guidance for 2024, but in our vision it's not that significant because even with organics that could be impacted for '23 and '24, they also didn't have such a significant contribution.
And so this will lead to a more clear measurement. And so we don't see an increase of the interest rate at this moment. It's already at its maximum limit. So what we see as a limit at this moment is when you're going to have this trend downwards, right? So considering that the food prices stopped going up reducers have con reduced this volume even more. And so there's always going to be another alternative, right?
Which is being a little more careful as I mentioned that because my last presentation was maybe misunderstood. But any kind of movement with deleveraging can be assessed, right? Either a sales leaseback, exchanging organics, have a BTS, the, so what we don't have at this radar is that we don't have any expectation to have a primary operation in the market. I just want to be very clear and very transparent about this at this point in time.
So super clear, Thank you.
So the next question is from Chima Cruz, the Sell side analyst will open up your mike so that you may proceed. Please check.
Okay, thanks guys. My question is about leads. So we saw that there was a value that was a bit higher than what we expected in the period, and so we also had a sequential growth versus the fourth quarter?
Could you give us a little bit more color on this topic? Was there any temporary impact or one-off impact that justified this kind of sequential increase? That's my question. Thanks guys. Yes, Chuck. Some contracts we pay over the year considering the minimum value. So some of these contracts have like the minimum and variable value. And so what we do normally is you pay the minimum year-over-year, and then you have then you have to pay this compliment.
So although this already affected this the results in this month, the, with the cash exit in the first quarter, you expect if you wait till the end of the year with the arrival of these stores from extra, you have more contracts with this payment modality, which exceptionally makes you have this kind of effect with the lease effect value, it's a little higher. So it's nothing more than just the variable on the amounts that are paid.
Okay, thank you. Very, very clear.
The next question is from Vinicius the sell side analyst at ATG. We will oh, enable your audio, so you may proceed.
So if you could, maybe could maybe just clarify what we could expect as a working capital dynamic in the next quarters. We saw some deterioration in this first quarter. And the second point is just to mention the issue that's we always talk about competition in the food retail, and I wanted to understand what your vision is about this. Do you think this should favor you over the years when it comes to the trade-off between price and margins? And also could you talk about competition in this second question.
So the working capital, there is an effect when you look at the first quarter and then maybe you have to go back to look at 2021 and 2020. Last year we had a shift in our change. It was right at the beginning of the first quarter. So we had this objective of having a payment term that was a little greater, and this brought in beneficial effects. But since we have the same payment system, this was Noe[ph]. And then you also have this factor with such a big amount of stores.
So the new stores for the first time, we are opening up with such a relevant amount of stores. And so they have a stock above the average store network. So when you got this initial store maturity, you have to balance out the volume of stock and the product mix. And so you have this occasional effect, right? And then you'll notice that in 2021 and 2020, the working capital volume is really in line. We've been searching for improvements and especially in our case where you have relevant grow. So we have 20, 30 or 28 stores.
So it's really a relevant volume, and this allows us to search for improvements in our terms with our suppliers. So when you go back to this basics, to the pressured scenario, this favors cash-and-carry, right? But maybe this is not as visible but we did have a big store opening, so with either opening the extra stores or or even our competitors working on this conversion process. So although the sector does have a strong capacity to track new customers, it's also not completely instant, right?
So especially when you get into the high income area. So this pressure combination of these factors and some fiscal issues that could also impact the price of the product, you always increase the relative advantage in our channel. So savings can be important for the entire Brazil population, and whenever they can save with basic food is in our sector. So this is another point also. And there is a sector related factor, and there's also each of the players and players are not a, like a, Law
Faithful copy, right?
So there's huge differences when you look at the operational models the services, just look at the average billing for the stores and each of the players, and you'll see that there's a difference in the sales prescribing. Sometimes people say, oh, but then it's the sector. Okay, well, but we compete with other competitors. So there are regions where we don't even have stores. So there are the retailers and cash and carrier stores, but this doesn't keep us from entering these regions. Expansion was not always done in new grounds only.
So when we take advantage of the fact that we have almost 600 people listening, just always say that, look, if you're curious, just look at the Abba's ranking, get the revenue divided by the amount of stores, and you see a big difference, right? So the sector has, is a lot more heterogeneous in its value proposition than people imagine. So when we look at the space for growth and future space for growth and the capacity that the company has for penetration, we are not only looking at the format, but we're also looking at how our -- our business model and experience is very different compared to our competition working in the same sector. So I just wanted to take advantage of this opportunity to make this comment.
Excellent. Thank you for the answer.
Well, the next questions from Vinicius the sell side analyst [indiscernible] we will enable your audio so you may proceed.
Thanks. good morning everyone. And just a question about the consumers, since you have a mix, it's a little bigger through b2c with the extra store openings, maybe this could mitigate the de-inflation effect up ahead through better volumes or even like a trade up. And could you also talk about the performance here at the stores in April, since you should have some comparison bases that are a little more difficult to cover right now?
Okay, thank you Venicius. There is a bit of an expectation. Even the stores that are already opened they, besides the fact that they're still ramping up, there's still certain things from a logistical and physical perspective that needed to be considered and some other news as well that intends to accelerate the maturity of these stores.
There's room for capturing this, and of course when we look at the level of expenses and costs and that we still carry in these stores, so it is possible cuz we have a population with higher income, but generally when we see the market and consumers, they are at a level of prices.
And so you don't have any kind of movement where, well, you have a search for savings but no stock up. So there is an expectation that this ramp will also help us offset the de inflation aspects that we've seen up ahead. So we've seen that the month of April is, if you look at the IPCA and 15th of March, you're going to see something very similar. So we are working towards the second quarter, but the expectations to have inflation that's really low.
Some initiatives should be implemented to eliminate this effect, especially when it comes to volumes because we know that from an inflationary perspective there's no gain. There are also some other initiatives to rebalance the expenses. And so over the last decade we've been going through different variations of the peaks and inflation and drops and we've been keeping up this discipline. So some of these expenses and optimizations are, we can also perform in a de inflation period. So I hope I answered your question.
No, that's super clear. Thanks.
The next questions from Ruben Couto, he's our sell side analyst from Santander.
Will open up your mic, please. You may proceed. Well, I have a follow up question here, really about working capital. So here specifically in the suppliers line, I understand that there was a seasonal aspect, right? Versus the fourth quarter, but throughout the year, should we expect a supplier flow that's more similar to what we had in the fourth quarter? I wanted to understand a bit of the comments in the last call where you did mention that there were some gains in this supplier's line that we're recurring. Does this continue? Anyways, I just wanted to understand the dynamics.
Yes, in the second quarter you'll see a more favorable ratio. We also rebalance the levels of stock and we held out these a lot more. So this will balance the ratio with our suppliers. So the gains that were achieved, of course we have this effect in the past where we changed the calendar, but we're going to see that there. This is a lot stronger from the second quarter onwards now.
Okay, thank you.
Continuing, the next question is from Daniella Egger from the XP sell site Analyst will enable your audio, so you may proceed, Daniella.
Okay, thank you Bon and Danny, thanks for taking my question first. Just a quick follow up on the issue with reviewing organic growth and so do you think that maybe these are guaranteed while others are being reassessed or postponed in this scenario? And so I wanted to understand a bit more about what we can think about when it comes to this level in the next quarters for financial results. So do we see a worsening quarter of quarter even with this interest stable? And I wanted to understand a bit of what your mindset is towards the drivers and evolution up ahead. Do we see an anticipation of the receivables?
We also mentioned this issue with negotiations of with suppliers. Is there any kind of exchange on your side? Also from a financial perspective, could you give us a little more color on these points? And also when it comes to taxes, benefiting the quarter up ahead. And another point also about interest capitalization and how we should be managing this with the financial results and earnings. And a last follow up about the comment Belmiro made on April. You mentioned inflation should be a little bit lower pressure. But could you mention what your performance has been like? Should we expect some performances similar to this when it comes to growth?
Well Danny, I was I think it was strange that you weren't the first one to submit a question, but you're always the first one. But anyways for organic stores, we haven't canceled the new stores. We're just taking advantage of some projects, right? Considering the maintenance and level leverage pre pressure. So maybe some of them would have already been started, but we're waiting. We're not canceling projects though. We're just taking advantage of this time to also renegotiate the prices of equipment and construction work.
Of course, you have pressure. The issue withholding onto these projects of it is related to the level of leverage and we expect to reduce this level in the company. And what we've seen is that there's a slowdown in the openings and the projects in the market as a whole. So there was this moment where you have the maintenance of the interest with the de inflation, and that affected everyone. All the players were investing strongly in growth in the last few years.
So this trend is not a concern. So the project remains and now it's just about being a little more careful. And in the beginning of the construction work, we've been assessing the balance point. Each one has its own characteristic, and this is the effect of the interest rates, right? So with the level of interest we have and interest rates at 1375, although it's a cash-and-carry and it's resilient, you need to be careful and wait to see these clear signs of a beginning of a drop in interest rates, right?
That has been affecting. And so as I mentioned in the beginning, when you look at this from an operational perspective and the performance in our perspective could be better, but you have this carryover of the debt at the moment the company's in. And so you require a little more care and a little more discipline.
So I'll pass the floor onto Daniela, so she can answer the other question.
Well, thanks. Any further question. On the financial results, when we look at the seasonality and we look at the payments that we have, they are a little more concentrated in the second semester. So we should have a behavior that's very similar from the second quarter to the first one and a bit bigger in the second semester due to the exits for cash. But it's natural because when you look at the forecast from the analysts and the consensus for 2023, it's really in line.
So we didn't expect like a financial result that's super different than what is in the general consensus in the market. So Gabby will be available to share this average we're looking at, but it's very similar to the consensus overall on the capitalized interest. It's important to mention that since we open up a lot of stores in the fourth quarter of '22, the capitalization base is probably the smallest we've ever noticed in the last four quarters. So it drops a lot.
And I want to remind you that the store started to arrive in a more significant way in the second quarter. And so I think this is a good reference at this moment with the peak of the stores that are present in this full quarter. Because in the first quarter you'll remember that we had received a parcel of the stores, but not all of them.
So when we look at that and we see the numbers, we see BRL 183 million in the second quarter, the BRL 169 and now BRL 60. So we're saying that we have a significant drop, BRL 183, so now it's like one third of this value and it tends to drop more and more. So I want to take advantage of your questions. I need to reinforce a bit of what we've already mentioned in other calls, which is we are following this accounting guideline, and according to this, the companies must capitalize the costs of loans that are directly attributed to the construction of this asset. So it's not like a new practice or something new we're doing.
If you look at our histories that, and if you look at our releases way before the extra project, you'll see a line with capitalized interest, which is this guideline that we're working on here, and we've been doing it as presented in the manual, right? So I think these are the main points I wanted to highlight. If there's anything missing, just let me know. For income tax and for [indiscernible] also in April. So for income tax, yeah, so the basis of this subsidy actually is considering the tax benefits.
And so this of course depends on the sales in the company, but it's pretty much the level we expect. Of course there's some variations as you have more sales coming from this tax benefit. The ICMs eventually, sorry Denny, I missed part of your question, but in April it's really similar to the first quarter. So very similar to March, we haven't seen any big relative differences, but maybe there's a bit of a difference in the new stores where you have like a natural ramp-up.
But generally with the difficulties we saw in the month of may remain in April, if you look at the second quarter, it's really going to be in line or maybe be a little better when we look quarter over quarter maybe not compared to the basis of last year where we had comparisons a little different, but we should have a second quarter that's really in line with the first quarter.
Excellent guys, thank you so much.
Moving on. The next question is from Joseph Jordano, the Sell side analyst from JP Morgan. Joseph will open up your a your audio you can proceed please.
Okay, thank you Belmiro. Thank you, Denny. I want to explore them growth avenues that maybe are not very well covered by the company yet, and I want to understand how you guys consider these possible opportunities today when you look at distribution wholesale and maybe this de inflation moment could be a good lever to improve the turnover of your stocks. So getting back to the conversion and competition, I wanted to explore and understand if you guys are seeing some kind of a CPS trend with individuals that go from the more mature stores and get into the newer stores.
So I wanted to understand the cannibalization aspects and getting back to the last point with the incentives for the ICMs, but then all of the discussions that have been going on the last few days, I want to understand what you consider to be the risks of these chip in your understanding of this suspension or incentive?
So I think starting with the incentives here when you see the incentives for the ICMs to consider this kind of benefits that we consider some with some companies and some regions in Brazil, we don't have these kind of benefits. So this of course creates difficulties in competition compared to other wholesalers or cash-and-carry players that have a lot lower tax load than we do. So I think the objective and the is that we'll be able to regulate these issues so that they can be more fair. And so whatever's applicable to one can be applicable to the other.
And so we see this as something positive in some states, and we even have some initiatives from an institutional perspective to have a more fair anomic structure when it comes to tax incentives. And this could help us with the wholesale distribution that have products that have a tax load difference of almost 13%, which makes us, even though we have scale and good proposals, sometimes due to tax issues, you don't, you're not competitive.
So wholesale distributors are so important lever for distribution. If you consider our main competitor, they have this operation. So if you consider as I ever since the first time we had our main competitor because we didn't have this distribution, so we were focused on this, we wanted to complete this. And of course it is something that the company has been focusing on, and it's one of the possible levers. And so it's a business model that requires very little investment, but it does require some disciplines and credit granting, and this could impact the cash position at the moment when you begin the operation.
So I think in the fourth quarter we're going to have a little less pressure from investment and the payments we need to implement now during the second and third quarter, and we could start maybe some projects, but it is one of the levers.
And there's another important lever also that we consider especially in the stores in the downtown region. So we didn't just add the same store model we had historically, but in the outskirts in the downtown regions, we already performed many adjustments.
Some are very well known. And so we even increased the revenue per store to show, to show that even with these adjustments, it's still a very resilient model, but still, when it comes to the categories and costs, as I mentioned, the new app also has some objectives. So the segmentation of these offerings and some is initiatives with the suppliers to increase our distribution and give us a greater strength, which is an important lever. So I think the cannibalization also impacts the other players, especially regional players that were in these central regions where you only had the hypermarket.
So as I mentioned, we had created this kind of exclusion zone because we were avoiding to compete with our own supermarket since Asai was a subsidiary of GPA. But there's some cannibalization, of course, with other sectors in our stores that even had a bit of a de-service, right?
So stores that had seven or eight thousands and it, the store has some kind of a closer store sometimes is expected in the project. So we calculate this effect by two or 3% within this store network that we open up in 2022. But this was also part of our positioning with the brand positioning. And so it was preferable it would be in this point. So it was also part of this process with the suspension. So do you want to move on?
Yeah. so Joseph, we, one of the points we wanted to highlight here is that the benefits the company recognizes today is based on or in alignment with the existing tax laws. So when it comes to this specific benefit IAI is not a beneficiary of any favorable decision. It's exclusive to the company. So it's based on that law that you see and that y'all know about. So what the government has been talking about is something that we're going to be assessing and monitoring, but we don't have like a risk with what we're fulfilling today.
We are convinced about what we do and in the way the law is structured, we're fulfilling this, but we understand that the discussions can be extends. So we've been keeping up with all of these different initiatives, the government's talking about economic feasibility, we've been fulfilling this and within the investments this kind of suspension, right? So ever since 2017 we've been working on investments above BRL 10 billion.
And so we're going to monitor and reassess this according to the different guidelines that the government has been sharing, but we're super in tune with this topic as well. So, another point that maybe wasn't as clear as it could be, when I talk about the second quarter compared to the first quarter we expect that it should be growing in compared, compared to the first quarter due to the seasonality in the quarters.
But what I mentioned is that the total growth rate in the same stores considering that the inflationary composition is probably different, it might not be totally the same or totally equal, but we do expect some growth due to the composition of the seasonality regardless of the stores also that we're going to be opening now. So there's a big amount of stores that are going to be open in now in the second quarter as well.
Moving on. The next question is from Irma Sgarz from Goldman Sachs, Irma. We'll open up your mic so you may proceed, please.
Well, Good morning everyone. Almost good afternoon. But thank you for taking my question. I just wanted to go back to discussing the expectations for your margins in the year when it comes to the gross margins and the EBIDA margins. I understand it's a really important moment to have this kind of conversion and expansion project. So these movements in the first quarter were really well explained. And how should we look at these movements in the rest of the year since the gross margin has some offending factors with special sales done during the openings.
But I imagine that there are also some negotiations going on with suppliers in regards to these volumes to be able to stock up a new storm, or of course with the expenses you may have some other issues in the beginning that are then diluted. So if you add all of this how do you look at the margins in the year? Should we expect margins that are pretty stable year-over-year, or are there points that will require like better expansion or more pressure? Thanks.
Well, I think you mentioned that pretty well. Within this we have offending factors and then we also have positive factors. So even the ramp-up for maturity the fact that the new stores that come from conversions already started entering activity with a higher level margin and a possibility for an expansion in a scenario where the industry is also going through difficulties. So we're still opening up new doors and this helps us with some negotiations. On the other hand, we should see some pressure when it comes to competitive aspects.
So we're searching for no scenario with these effects and we should keep some stability in their margins. So this court is normally the most challenging to the first quarter, which is where we have the complex period, we had variations of 0.3%, but the objective when you look at these offending factors and the detractors, and then the positive aspects that we're going to have this stable margin compared to the previous year.
Moving on, now we're going to go to our last question, which is in English. It's from Andrew Ruben, our sell side analyst at Morgan Stanley. Andrew, we'll open up your mic, so you may proceed, please, Andrew.
Hi. Thank you. I just had one quick follow up. You mentioned not canceling any organic openings, but what about conversions? Has the number changed? And you can you update the timing now for completing this project? Thank you.
Thank You, Andrew from the Organics. Yes. this is actually in our decision process whether we're going to begin the construction work or not, but for the conversions our focus is to end this. And this is of course a lot more connected to some complex projects of stores that remain in central regions and the approvals of these licenses than from the perspective of holding onto this conversion.
So the conversion has expenses with spent pre-Op expenses that consume cash in the company. So the focus is going to be to complete the conversions and within the second quarter and we should be paying off most of them. There are two or three stores that we're still already having a bit of a difficulty from a legal perspective, although this is these are some commercial existing poss and these are approvals or licenses to renovate a refurbish.
And so all of these can be a little more time consuming, which is different than when you have a conversion of a cash-and-carry store to another cash-and-carry store. So it's a lot more related to this, but the company is completely focused on finishing this as soon as possible.
Sessions officially ended, and now we'll pass the floor back to the company for their final remarks.
Thanks, Everyone. Participating. of course, we discussed the main points and covered them in a very transparent way with the questions, concerns, and advantages we've been able to achieve. There is a challenging environment. The companies at this really on the right track. And so we're based on growth. We're looking at the future. We want to invest and we want to reap these results up ahead. So we know that this moment is a moment that has a combination of high interest.
We're opening up most of the new stores, and this is going to lead to a more, a stronger company that's going to be better positioned. So we have good things and we need to have patience and work on this maturity of the stores we open up in the first quarters. And there's some other factors that we need to look at that go beyond the company's interest. When it comes to interest rates. That's we all expect this interest rate can be a little softer. And in our perspective, it was a lot more positive.