C&A Modas SA

BOVESPA:CEAB3

Earnings Call Analysis

Earnings Call Transcript 2024-Q2

[Operator]

Good morning. Welcome to C&A's video conference to discuss the results of quarter 2 2024. Today, we have here with us Mr. Paulo Correa, CEO; Mr. Laurence Beltrao Gomes, CFO and Investor Relations Director; Fernando Brossi, VP for Operations and Financial Services. Donati, VP for Commercial, Carolina Brazil, VP for People, Culture and ESG, and Guliani Volar, Head of Investor Relations. This slide presentation and the earnings release are available on our website. We would also like to inform that this meeting is being recorded and simultaneously translated into English. To listen to the English version, click on the button interpretation. The replay will also be available on our IR website. [Operator Instructions] Before proceeding, I would like to reinforce that any forward-looking statements made during this video conference relative to C&A's business prospects, projections, operational and financial targets are based on beliefs and premises of the company's management as well as information currently available to the company. These future forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions since they refer to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts must understand that general conditions, industry conditions and other operating factors may affect the future results of C&A and may lead to results that differ materially from those expressed in such forward-looking statements. Now I'd like to turn the conference to Mr. Paulo Correa to start his presentation.

[Paulo Correa, executive]

Good morning, everyone. Thank you for being here with us for this video conference. I'm very happy to share with you the results of quarter 2 2024. A word that really defines our performance this quarter is agility, agility of our management model, which was carefully built over the last years and which allows us to adjust our company to the demand and the needs of our consumers. In quarter 2, we were challenged by higher temperatures than expected. However, we were able to swiftly adjust our assortment in our stores acting on our supply chain or all our allocation and distribution systems, our communication strategies, our visual merchandising and the operators in our store always trying to focus on the most desired, the most relevant products for that temperature context. As a consequence, once again, we were able to present solid operational results in this quarter, as you can see on this slide. Let us start by the largest numbers. We had a good increase in our same-store sales, more than 13% in apparel versus the same period last year. Our gross margin for apparel reached the level of 57.7% with yet another expansion. It is actually the 10th consecutive quarter with a growth in our gross margins year-over-year. we are maintaining our discipline and control of our operational expenses with a slight increase in the period. So our adjusted EBITDA was BRL 359 million for the period with a 28.8% increase year-over-year. Our adjusted EBITDA margin went from 17% to 19.6% in the period. And as a consequence, our net income was BRL 58 million, which is an impressive increase year-over-year. We also continue working with financial discipline and moving towards a reduction in our leverage compared with quarter 2 2023, move from 3.8x in the same period last year to 1.4x in quarter 2 this year for our net debt EBITDA relationship. On the next chart. I want to highlight one of the points that I mentioned in the beginning, which is one of the keys for us to maintain the consistency of our results, which was our agility. And we see the agility as one of our greatest differentiators in this period. It allowed us to have an attractive and relevant assortment regardless of the higher temperature. Winter sales must always be seen as a long motion picture and not a snapshot. The winter sales period starts in April and last until the start of September. When winter comes early, the second quarter gets stronger in terms of sales because of the winter sales. When winter comes later as we saw in the past 2 years, the sales start picking up in the end of June, impacting the sales in quarter 3. So we need to have the right agility level to respond to the demands and needs of our customers according to the temperature. We saw the [indiscernible] by adjusting our commercial planning and postponing by 4 weeks the the supply of winter products to our stores because we had higher temperatures, higher than expected for the month of April. And with a lot of agility with our suppliers, we were able to adjust and supply the assortment for our all your collection, which had a very good performance this quarter. A good example of this agility was the Mother's Day event. Initially, we're planning on focusing more winter products for Mother's Day, but considering the higher temperatures. We had to adjust our assortment and distribution. We had to adjust the presentation in our brick-and-mortar stores. We had to change our visuals and communications in our points of sales to offer artists needed mid-season products mostly, and this led to a double-digit growth in Mother's Day sales set. Then at the end of the quarter, we very quickly responded by adjusting our allocation and distribution systems and our visual merchandising strategy in our stores to tell a stronger and clearer winter story to our consumers. And we saw a strong assertive response from our consumers. And in that period, our collection had a very strong performance as have. In the end of June, in our sales calendar, this added to our push-and-pull tools, and this added to our dynamic pricing tools. We delivered another very strong quarter with a consequent expansion in our customer base and an increase in our NPS, which is proved to the healthy evolution of our performance. This capacity to adapt and deliver consistent results is only possible due to the investments that we made in the past few years, not investments, not only in the tools that we built and implemented but also increasing tone with our supply base, which allows for a higher frequency of procurement, and we see a better assertiveness in our collections in the more than 330 stores that we have throughout Brazil. This is what allows us to have the agility and the capacity to offer exactly what our consumers need and sustain our growth consistently in the future. We understand that our business model has advanced greatly and is... New growth curve one of implementation of Energia SA, with the purpose of adding value to the company and increasing our productivity per square meter. And this is a result of the evolution of the assertiveness in our assortment, the evolution of our purchase journey to make our consumers have more animated relationship with our customer base. The strategy in gas is under a program that has different initiatives and is already in a rollout stage after being tested in brick and mortar stores and online. Among the highlights of the period, we have an evolution in the beauty category, where we had an expressive increase of 59% compared with the second quarter last year. Here, we had a clear [motion] on in our assortment. And the level of service at the point of sale, which is helping us increase the traffic of customers a On the fees on the emirates as the [PROBLEMAS] in about this... Stores, and we -- and I would also like to highlight that we have completed euro our iconic stores in GataniPortoo agri shopping mall. And this week, we also finished the retrofit of our EBITDA PeraShopping mall store, which was our first store in Brazil. It's been a year since 1978, with the evolution of our new store case. With all these things taking place and the evolution to the spring collection and with more and more versatile and relevant products, we are very confident and the possibilities that the second half of the year will bring. Now I'd like to turn the conference over to our CFO, Laurence, to continue with the financial results.

[Laurence Gomes, executive]

Good morning. I will share with you some numbers. I'll try to give you some information. I think this quarter, we had a relevant growth, 3% year-over-year for 13% in apparel, resulting from the capacity to act and the agility and the you a temperature context, which was not in line with what was expected for the Rechstypical higher temperatures in this period. And this growth was also driven by the performance of the all year collection with highlight to women's. In the other categories, we also had a good performance and the highlight was the beauty cat with a 60% increase versus the previous year. Also helped reduce and mitigate the impact of the decrease in smartphone sales in our mix. On the next chart, we have our gross margin. Our gross margin increased for the 10th consecutive quarter. It was a 6 percentage point increase. If we look at the past 3 years, an important evolution showing consistency in the evolution of our margin, which is grounded on investments that we made in the past few years, particularly investments in dynamic pricing tools push and pull, advancement of the push and pull and the management model and the analytical capacity that we have implemented in our core business processes. We also saw our share advance in beauty, which also helped increase the share of the total gross margin for merchandise and beauty has gained share in our mix, and this was very relevant for our results. In operating expenses, we had a very important year where we structured our areas reinforce our areas with projects targeted at executing the Energia AI strategy. However, we've seen some trade-offs at an important work of priority setting and reviewing and revising our processes so that we could achieve an operating leverage of 0.2 percentage points even though the company was prepared for higher sales, but we were able to adjust to this sales base. And this is a commitment and an aspiration that we have. And notwithstanding the structural projects that we have in 2024, we will be able to maintain the dilution of our operating expenses and maintain a lower operating leverage for the company. On the next page, we see the evolution of our adjusted EBITDA with a relevant expansion and growth of our adjusted EBITDA, 28% increase and an important evolution since 2021 showing how we've been capturing the benefits of investments that we are making and the prioritization of very relevant levers in our core, particularly in the fashion core, which explains both the commercial evolution of the evolution in our sales. We have been focusing a lot on sales per square meter. This has been a note for us. We have a very well localized part in stores. And these stores will now include the continuity of the supply with better assortments and better uncertainness of collection. So this is what we have been making in terms of our energy C&A strategy. So this was a very relevant result. This change in our operating margin and the adjusted EBITDA margin. On the next chart. These are the numbers for C&A Pay. We continue with our disciplined advancement in C&A Pay, which already accounts for 27% of our sales. We also see an increase in our revenue, a very healthy level of revenue over portfolio ratio for C&A. So sales over impeded portfolio ratio is very healthy, very efficient. And this was something we were expecting. We were expecting this seasonal negative results due to this seasonal provisioning that we need. But here, in the results of the first half of the year, we had a positive EUR 11.5 million accumulated. We were also able to maintain a coverage of 97% for C&A Pay. So this means we are well provisioned for this operation. And it's also important to mention that for all indicators and new cohorts for example, the over indicators. We are seeing a better quality in our indicators, indicators for our credit portfolio. So it's important to note that for the first half of the year looking at the increase in that basis in quarter 2 compared with quarter 1, this is a seasonal effect due to the higher volume of sales in quarter 4. This was carried over to quarter 2, but the net loss is lower year-over-year. And the coverage is substantially higher if we compare year-over-year. So here, we have also been able to preserve the profitability or the financial revenue, net loss ratio, which is one of our greatest focuses. We are very attentive to the recovery indicators. And for these indicators, we are also seeing when we look at our recovery number in terms of OTA. Now on Page 10, we see the evolution of our the credit in our retail sales evolution are a healthy share of credit in retail sales, C&A is advancing compared with rates card and also compared with third-party cars. And we can see how the years we are replacing the share that came from nonproprietary credit to the credit that comes today from our own program. So this heroes today is appropriate according to what we plan and very appropriate to what the market expects or the current market practices in this segment. On Page 11, we have our debt profile, we have further reduction in our net debt-to-EBITDA ratio to 1.4x. Here, we will continue to pursue a further reduction in the company's net debt and we want to get closer to 1x net to EBITDA ratio by the end of the year. So we will continue working on this with a lot of discipline both in terms of our working capital and our CapEx and of course, we have some flexibility in what we do, but we will strive to maintain our net debt-to-EBITDA ratio close to 1x. Now the next chart shows our investment plan. Important too, we had BRL 57 million in investments, targeted digital initiatives and the retrofit of our stores -- and here, due to the increase in investments in the Energia C&A strategy, considering that quarter 2 was still a quarter of IDH and conception and design. We still expect to see this level of investment picking up in the coming quarters, so in the second half until the end of the year. And now I'd like to turn the floor back to Paulo to continue the presentation.

[Paulo Correa, executive]

Before we open for questions, we have a few takeaways that we want to reinforce in this presentation. We are very much focused on executing our strategy and in our business model. Our business model is becoming more and more targeted at our consumers. And the key concept in this journey is consistency. And this consistency we have been showing is, with increasing our sales, increasing our sales volume. So we had yet another consecutive quarter with double-digit increases in our sales and same-store sales. Even with the close down of our fashion chronics kiosks, C&A is still delivering double-digit growth in same-store sales. Another important number is the consistency in the expansion of our gross margin. So 10 consecutive quarters of growth and resulting from a better to us in our collection and a better timing of supply in our stores, this is what increases our full price sales and decreases the need for markdowns and promotions. Third, the foundstaons for our customers. This growth results from an increase in our active customer base. So customers that have purchased in our from us in the past months. There was an increase in our NPS, an increase in the preference for our brand in all the surveys that we took. So people are attributing a higher level of reference to CNA quarter after quarter. Also, better controlling discipline in our expenses. So once again, we were able to decrease our expenses as a percentage of our net revenue year-over-year, notwithstanding the accelerations in investments and in the Energia stratege, consistency in our credit granting discipline, which is totally in line with the policy established. And here, it's worth noting that 90% of the credit we offer differently from any other player in our industry is done at the cash here after the customer has their products, and they are ready to pay in pay journey, we always say that the CNA picture is a journey of relationship. There's no use granting paid if you don't build a desire for your product. If your product is not what they want is not what they're looking for. So we will continue to have consistency in our sales and increase of our sales per square with all the initiatives that we started implementing in our fashion tech strategy, and we continue to implement now with Energia. So this is the end of this presentation. We can now open the floor for questions.

[Operator]

[Operator Instructions] The first question is from Danni Eiger, XP Investments.

[Danniela Eiger, analyst]

I have 2 questions. The first question is about your prospects. Considering the macro scenario and also the initiatives that you have been implementing remain this work towards adjusting your layout and your products and your assortment. We see it has yielded a lot of good results in the past quarters, even if the macro environment is more challenging. So how can we think of this balance between internal and macro looking forward, where do you see the highest potential and in terms of demand, do you see a pickup in demand? Do you think there's a higher appetite for larger card? Or you think your internal initiatives will continue to be the main leverage for growth looking forward. In will say. My second question is about C&A. I want to understand what is your take about a potential reacceleration of your credit offer. Now the credit offered by players in other industries. So this is an expectation that we are seeing posing. And how do you think this will impact you? And how much room do you have to increase the share of pain sales. You're close to 30%. But do you have a target for the share?

[Paulo Correa, executive]

Let me answer your first question. And then Brascan tell you more about C&A pay. First, we were very positive with our prospects for the second half of the year. And not just because all the investments that we are making and all the initiatives that we are undertaking in the past few months are flourishing with consistency, but also because we are seeing the evolution of these initiatives and new initiatives being created. So for the new stores, as I said, for the stores that have been retrofit. We are seeing a very positive response for our consumers and also the dispersion project with these very targeted changes that we're making in the customer journey and the assortment and the layout of the stores. This also been yielding very good responses to our consumers. So what I mean to say is that, first, our greatest focus is on our internal initiatives right now and how we can become more appealing, more relevant and how our assortment can become more attractive to that specific community, that specific store. How can we provide them with a easier and more smoother journey in our stores. So this is what we have been making. We have been seeing good results so far. And we have many other initiatives that are just starting, and we believe we will start to see the impact of these new initiatives in the second half. But if we think of the macro cost. If you ask me, is there any clear changes in terms of demand? No, I don't see any obvious changes. I see a very flat story right now in terms of traffic and flow and this is the beauty of the results that we are presenting here because it becomes much more from conversion than traffic than new traffic. And as you see the flow of people in our stores, and at the same time, how people are being impacted by our collections, so the communication work that we have been doing. You ended up with higher conversion rates, and this leads to higher sales for our company and a larger and larger base of active customers. So this is how we see the current situation, the macro scenario we hear in the news, and we know what is the currency change region, but we don't see any expect any major changes in the second half. What we do think is that we will see a clear evolution in our proposition and the way we relate with our customers according to what was planned in our strategy. So how do we see the future of C&A Pay? I think it's worth noting that internally, we have built a model that tries to understand all the information available in the market, both from the economic standpoint and also data provided to us by the Central Bank. So we created this model, which can forecast where bad debt is going for individual cars in the next 6 months. This model is performing really well in the past 2 years since it was created. And the indicator that we use and what it shows us is a trend towards maintenance. And of course, there is warrants some attention considering the global content. So we will maintain our focus on consistency and discipline. We will keep our current policy. We don't plan to accelerate the current credit offer policy. What we have been discussing in some optimizations and evolutions for our credit policy model. We are rolling out a new model after having tested it, and we are going to offer BRL 2 billion in combined credit and granular, more granular cutoff points for the store to store level and for the regional level to improve our testiness, this all allows us to optimize our credit granting offer positively. We will continue to use new accounts as a lever for growth, but it's worth highlighting that now with the evolution of our Energia strategy, and we have an important evolution in the CRM models. And one of the things we believe is that C&A Pay is a good tool to improve the relationship we have with our consumers. After joining Siete recurrence of these customers improve. So in addition to maintaining the strategy with the new accounts, we want to accelerate credit management and credit concession to our good customers, increasing their limit through more and more assertive offers and communications. This means we will continue to expand. We believe set of good balance point would be 65% penetration by 2026. So this is our target. But we believe we will see a continuity in this increase in the share of C&A pay. And the share increases the share increase comes from customers that already decided to buy from us who are at the cashier, and this is a testament to the good managegement of our credit offer, and we will continue the consistency in our credit offer planning to reach 35% by 2026.

[Operator]

Next question is from Joao Soares, Citibank.

[Joao Pedro Soares, analyst]

I agonize insisting on this point, but when we look at your results and your sales that you have been delivering consistently above the results of your companies and looking forward, I think that Danny's point very little bit when you think of your competitors credit offer, combined with a more difficult sales base, I want to understand what are the prospects? I know it's difficult to talk about the macro scenario, but looking at your micro story considering all the past initiatives to improve your sales and marketing and to increase the top commerce with our consumer. How do you see that versus these new initiatives that you have? Will we continue to see this consistency in your same-store sales? I think this is an important point to discuss. And my second question, Brossi, it's very clear that you're still expanding portfolio, targeting at the 35% share that you mentioned. But when we look at the over 90, which is 35% of your portfolio, do you think that maybe it would make sense to restrict this offer at least initially because we're trying to understand what is the limit for a debt that would make you more clear with the credit offer I understand that credit label provides you with a better management capacity? but what would be a number that would leave you alert and maybe slow down your credit offer?

[Fernando Brossi, executive]

For your question, we go back to the discussion that we had in our Investor Day. We talked about the opportunity CNA has to increase its sales per square meter. And in this dynamics, we had concrete opportunities in some categories of products and assortment. And we have been carrying out some test in these categories, which showed immediate effects on our conversion rate and our sales reasons. I gave you the example of beauty, which is one of the categories.

[Paulo Correa, executive]

So we got this of the macro scenario regardless because of the credit offer regardless of our competition, which is, of course, also always trying to evolve. When you look at the categories in one quarter to the other, when you see a category increasing 59% from one quarter to the other, this curve is totally an outlier compared to any impact the competition could have. And I can give you other examples. For example, we talked about our dispersion project. When you go to a certain store, considering that we have 330 stores as you heard from Brossi in our Investor Day, when you look at the performance in that micro region versus the performance of that specific store in that micro region when you compare with similar locations, then we start wondering why is this so different? Last week, we were in the South, visiting some of our stores, and there was clearly an opportunity to change the distribution of some products and categories in our stores and at the same time intensifying increased the assortment available. So we are somehow achieving a granular level in the way we work, either for the product, category or the management of the point of sales or the dynamics of the relationship we have with consumers with the new CRM activities that we are implementing in this engine that we established to advance in our relationship, and we are starting to see some specific points some specific improvements. This gives us the impression that there is this new belt of activities that we built in and that all the pilots and tests that we're carrying out should significantly impact the top line of the company. However, there's another part of it. Is it just about novelties No, of course, not. Because this follow-up that we're doing in this file and test chain that we have built, this is still very sipient. And we still have a lot of opportunities to explore. But if you can carry out quick tests with smaller volumes and then scale up very swiftly, you'll have better growth curves and a much more assertive product offer. And I also see a great opportunity for C&A to keep growing, to keep advancing and we will start to partially capture this in the second half of the year. We are already capturing this. We already have 40 days of the second half. And we have all reasons to see this trend and these dynamics continuing in the second half. We don't see any reasons to believe that this will change just because the comparison basis from last year's. It is a fact that we have a high comparison basis from last year but even higher than that is the result of the initiatives and the pilot tests that we're carrying out and the impact of these initiatives will continue to show in the upcoming quarters. So this is something that we already see happening. We have touched on some of these advancements and evolutions, and we truly believe that we will continue to see positive results in the second half. Well, let me answer your question about CNP. The first point is, let me give you some information. Talking about credit. We monitor credit not just with the over 19 indicators but also indicators that show the quality of the new cohorts of clients and the rolling of our portfolio. So overall, when we look at the quality of the cohorts this year vis-a-vis last year, we had a significant evolution of double-digit evolution in a reduction of bad debt for new accounts. And this was due to the continuous evolutions that we have been implementing in our model side. And the concept behind this is that we are constantly testing new tools and testing new strategy. And every time a strategy proves to be efficient. This optimizes the credit offer. So speaking of new accounts, we are better double-digit growth versus last year. And when we look at the rolling rates for early stage and later stage, the numbers are also better compared with the previous year, particularly for late-stage. And this is also a result of the initiatives that we took on both in terms of changing our negotiation models. So we pay different ways of engaging with our customers, and these have been very successful. And also the search for new partners, we found a new partner that has been yielding us very good new results by using business intelligence or intelligent models in their collection strategies. So technically speaking, our credit offer is healthy, both in terms of new accounts and the building of our portfolio. But as you heard, this optimization is very important so we are now starting a new model for midtiers and granular set of points, which has increased our differentiation capacity which will lead to even further improvements in the future. And when we brought in iPay to the cash year, 2 things happened. First, we improved the customer profile. And second, we drove productivity currently. The site of our promoters is also increasing to digits. And at the end of the day, whenever it can improve productivity at the customer and we will also improve the other end. So we improved the productivity of our promoters, we will see proven like those we saw last year, and that, of course, will be translated into me. And finally, C&A Pay has a very important role fostering credit and strengthen the relationship with our customers. And the C&A customers having a higher ticket than those who don't use pace. So that's why in order for us to keep offering it pay to our customers. And this year, we will deliver positive results for C&A Pay. Now in terms of our competition, as I said, C&A Pay is offered after the customer has picked their products. So it's not offered by a credit department. We have changed our approach and now we're offering in a pay out the cash here. So we're offering it for those who have already picked up the products they want to buy. So anything else will have a low impact on our ability to improve the share in our sales. And we are very confident that we will be delivering positive results for CNA pay this year and also in our capacity to continue evolving this year.

[Operator]

The next question, Mr. Victor Rogatis with Itau.

[Victor Rogatis Trevisan, analyst]

My question is about your retail division. Your gross margin dynamics, it was positive. Will be electronics, but we see your selling expenses increased more than our net revenue. We already went over your gross margin. So this was part answer. But can you also talk about your expectation in terms of the evolution of your expect within the coming quarters?

[Paulo Correa, executive]

The most important here is that we will defend the operating leverage of the company. At the end of this year we saw an acceleration in our marketing expenses mostly to the start of this new positioning. Marketing strategy. It's something that just started and we see the first effect of in quota and also a very low base basis for this line compared with the previous year. Last year, we had a very strong focus on the company's expense structure in development and establishment of this strategic review and this new positioning that we start to act right now. We start to see the strengthening of our position. So particularly for selling expenses, the main point here was the increase in marketing expenses. So in the next 2 quarters, we should need to see a larger increase in this line compared with the others, but in the end of the day or in the end of the year. We are still confident that we will be able to have a smaller increase in our expenses compared with increase in our sales.

[Operator]

Next question is [indiscernible] to in Saffra.

[Pedro Tineo, analyst]

I have a question about Q2. [indiscernible] Do you see the rollout of this page looking forward into the year? And how does it interact with your store expansion project for next year? And we understand why there was a larger impact in the first quarter due to the seasonality of the sales of quarter 4, which impacted orders 1 and 2. But for the rest of the year, we should have an ascending curve in our results then.

[Paulo Correa, executive]

About Energia, like we said in end and we are executing right now. Is until the end of the year, we will be implementing 3 waves, each of them in 25 to and we should see the impact on these stores performing still die. So in the first half, we had the first wave, and we have other 2 waves, 25 stores each, which will impact our performance in the second half. Now in respect to the expansion of stores next year, we are now discussing the budget for next year. And although we have a lot of opportunities snapped for the next year that we are still designing our finances and analyzing the market in order to define what will be the best strategy in terms of expansion next year. We want to resume the opening of new stores in 2025 at a significantly higher level than we had in 2024, but I cannot give you an exact number. For your questions about results, when we look at our historical seasonality, the answer is yes. We believe and we are very confident that we will have positive results in the second half, and we will close the year with positive results for the period.

[Operator]

The next question is from Ruben Cuoto.

[Ruben Couto, analyst]

You talk about the consistency of the cleaner gross margin, record breaking levels, and this should continue to evolve with the several initiatives that you are undertaking. But how do you see the increase in the dollar? What is the level of hedging that you have today? Will this have any impact on your gross margin? What is the evolution that you expect looking forward? And about a different subject. You mentioned in your release a new leadership in e-commerce. Can you please give us more information about that because I think since '22 [indiscernible] Not starting on the gas for the digital channel, but I think the situation is changing now, now that your margin and your leverage is not its control. What has changed in your vision for your digital channels?

[Paulo Correa, executive]

Let me answer your second question. First, about e-commerce. The exchange rate dynamics and how the dollar will impact or not the evolution of margin. About new leadership in e-commerce. We mentioned this in our Canada when we talked about the omni journey. So the strengthening and the building of a journey, which is more and more omni-channel, it's more and more with a higher high demand for a more robust omnichannel journey is what led us to include in Astra, a higher level of importance and conservation so that we can accelerate in a healthy and structured way, the growth and the expansion of the offer on our online channels. I don't like talking about online and off-line channel. I think it's easier for people to understand when we say online and offline. But the more we understand the dynamics of our consumers, the more we have the blurring of this division between online and offline because very often you see people coming to our stores that have already checked our website first and end up converting in our brick-and-mortar store. Then in our brick-and-mortar store, people can be looking for something that is not available in that store and they can buy online. So that is why we have been talking a lot about an omnichannel journey, a really omnichannel journey increasingly integrated. And in order to strengthen the experience of our consumers in our online channels, we hired a new leader, Rony Magadi with a long track record in online and digital sales. And he will certainly add a lot to everything you do related to our digital channels and integrated with our offline channels so that we can truly be a bogus omnichannel journey for our consumers with a totally fully integrated and increasingly personalized experience. So this is the main idea and we are focusing on implementing our energy as throughout in our omnichannel journey, as we explained to you in April this year.

[Laurence Gomes, executive]

2 answers to your question on the margin and the impact of the FX rate. So let's start with the margin. We have been seeing a lot of consistency with our margin. And if we compare with quarter 2 2020, we had a major increase of 8 percentage points in our margin, which is differently for what we usually see in our industry. And this growth comes from [indiscernible] Yes. And although we have seen great results, we are also implementing improvements and artificial intelligence will also bring us lessons to be learned. So we're becoming much more dynamic and much more assertive in our decision-making. Nations are very well accepted by our customers. And this leads to an increase in our sales. This is something that we already mentioned to you in our latest conversation and there's also a part of this, which is the acceleration of our concept stores, which is allowing us to use different prices, test new products and new assortments and customers are responding really well with higher entry margins. And our scalability test for scalability of our products. So we test the product, we test the prices, and we have a very fast response from customers when they gave us a positive uses. This means that the margin is consistently related with these structural movements that we're making, and this will continue looking forward. And looking at the FX rate in 2024, we don't have the exact impact that this will have on our business, but we are always looking at different designs, and we're always trying to make listagions that are future tickers. In 2025, in the midterm, we will continue to monitor the evolution of the FX rate. Gross models and the speed of the way we work gives us the possibility of making faster decisions about outperforming and the injury of these products, and we can quickly reverse or reduce the impacts. For example, we can decide to reduce the share of the reported products. We have significantly reduced the size of our supply chain in the past few years, and we can further work on that and we can increase the procurement of national products because today suppliers are prepared to deliver faster and with the quality that we require. And we will continue to use our dynamic pricing engine to test acceleration where it's needed. So yes, we are closely monitoring everything that is happening with the exchange rate, but we are prepared to swiftly respond should that happen or should that be needed in the future. And most importantly, what we see in our service is that we have been seeing these evolutions in our margin, but the value perception of our customers about our products is increasing. And this is very relevant to us. So our relative price position in the market is stable. So we also have this look. Customers continue to accept and believe that they do good business with C&A. So this will maintain our levels. But we will always be prepared to make changes if needed.

[Operator]

Next question is from [indiscernible], Morgan Stanley.

[Unknown Analyst]

I think you have answered most of it. I would just like to ask a follow-up question about C&A Pay. I think Paulo mentioned that 90% of create credit offering is at the cash here after the customer has picked up the products they want to buy. Do you have any idea or any estimates of how much of these sales would not be completed if you did not offer this credit at the cashier? And another question. Once you grant this credit to the customer, does this result in a higher ticket or a larger shopping in cart?

[Laurence Gomes, executive]

Assets in pay, what we expect for it. You remember the C&A today is capturing about 90% of all transactions at POS through our relationship program. So we're capturing about 90% of all the sales at the POS so I can see what was the behavior of that specific customer before they had any pay an asset. So to answer your question, the gain that we have in this first purchase... When the customer has added cashier ready to create this does not where these things are coming from, not from this first purchase. The phase from C&A Pay are coming from the recurring purchases and the returning customers. So the return level of these customers after they get C&A Pays nearly double what we have, we as don't have C&A. So pay is increasing the level of the relationship they have with C&A, and this is what is increasing our capacity to increase C&A Pay share. It's what I said in the beginning. We are working more towards managing the limits of our good customers and managing our relationship engines because that's where the leverage from base coming. So to answer your question, it's not from that first purchase. It's from the change in behavior that we see for those customers in the following 12 months after they have C&a Pay, increasing their recurrence level.

[Operator]

This question-and-answer session is now closed. Now I would like to give the floor to Mr. Paulo Correa for his final remarks.

[Paulo Correa, executive]

So again, thank you very much for attending our call, thank you for being here with us. And once again, I'd like to stress that we're very confident in our capacity to concretely evolve our management model. And this is something that is not us saying, this is something that we hear from our customers. We see an increase in the conversion rate, the recurrence rates in the NPS, which attests to our customers increasingly enjoying our collections and seeing more and more value in our products, in our customer service journey and in the credit offer that we have for them right now, which further strengthens the relationship we have with us. So as I said, we're very confident about the second half of the year. We had a good first 40 days, and we expect to continue on this journey towards consistent, increasing our sales, expansion of our margin and increase in our profitability. [indiscernible] Thank you, and have a great next quarter.

[Operator]

This is the end of this conference call. Thank you all for attending, and have a great day.