C&A Modas SA
BOVESPA:CEAB3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
6.99
13.81
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
C&A Modas SA
You don't have any saved screeners yet
Good morning. Welcome to C&A's earnings conference call for quarter 4 2022, and the full year 2022. Today, we have with us Mr. Paulo Correa, CEO; Mr. Milton Lucato, CFO; Fernando Brossi, VP for Operations and Financial Services; and Donatti, Commercial VP.
This slide presentation and the results release are already available on the results center on C&A's IR website. We also inform that this call is being recorded and simultaneously translated into English. [Operator Instructions] The recording of the call will be available right after the call on our IR website. [Operator Instructions]
Before proceeding, let me mention that any forward-looking statements that may be made by the company during this conference call, relative to the company's business prospects, projections, operational and financial targets are based on beliefs and premises of the company's management. As well as on information currently available to C&A. These forward-looking statements are no guarantee of performance. They involve risks, uncertainties and premises, and they refer to future events, that may depend on circumstances that may or may not occur.
Investors and analysts should understand that general market conditions, industry conditions and other operating factors may affect C&A's future results, and may lead to results that differ materially from those expressed in such forward-looking statements.
Now, I would like to turn the conference over to Mr. Paulo Correa to start his presentation. Mr. Correa, you may proceed.
Thank you, Carlo. Good morning, everyone. I would like to start today's presentation by linking with our last presentation in Q3 2022. At that time, we talked about the implications of the macroeconomic scenario on the way we were steering the company and the way we were building a cash protection program, which was already being implemented. We were already seeing a few impacts, but the greater impact would come in Q4 2022.
So after making this link, if we look at the left side of this chart, we see that we had 5 important factors that would ensure the success of our cash protection program.
First, the gross margin. And here, we can see that within this dimension of the gross margin, we had a 1.6 percentage point increase versus 2019 or versus pre-pandemic level. So not only were we able to increase our gross margins in the past few quarters but in quarter 4 2022, this trend continued, and this is very much related with the investments that we made in the past few years, particularly in push-and-pull, digitization and dynamic pricing.
The second important factor was the increase in our productivity and the increase in the sales per square meter in our stores, and how we continue to evolve with our digital strategy. And all these investments in digital transformation allowed us to reach record-breaking GMV results with more than BRL 1 billion digital gross revenue.
The next element, efficiency in expenses and costs. We conducted some re-organization of our structure seeking to have -- to maximize the impact of the projects that we prioritize. And this allowed for an increase in our EBITDA margin of more than 3 percentage points year-over-year.
Element #4 here is the improvement in our working capital. We had different sustainable strategy, sustainable initiatives to extend payment terms and this led to a free cash flow of more than BRL 130 million, in 2022. Also, we continue to work with a lot of discipline with our investments and our invested amounts were more controlled and more focused on those aspects that could bring stronger impacts to the company within this cycle.
So we ended the period with more than BRL 1.6 billion in cash, at the end of 2022 which means a leverage of less than 1 point or 0.9x the net debt-to-EBITDA ratio.
With this result, we are starting the year 2023, even more focused on operational aspects, in order to improve the products, services and offers to our customers.
On the next chart, we can see the highlights of quarter 4, specifically. This slide shows very clearly how we were able to improve different operational metrics, and how we are seeing better returns of the work that we have been doing. Our total gross margin reached 51.7%, as I said, more than 3 percentage point increase year-over-year and 2.6% percentage point increase versus quarter 4 2021.
For merchandise, we also grew more than 2 percentage points year-over-year, and also compared with quarter 4, 2019. And this really helped us. It allowed us to reach an adjusted EBITDA of BRL 364 million, up 20% year-over-year and practically the same that we had in quarter 4 2019, despite all the inflation increases that occurred in the past 3 years.
C&A Pay completed its first year of operation, and already accounts for 16% of the total sales of the company. The free cash flow that we generated in quarter 4 corresponded to BRL 761 million, driven by all the initiatives that we mentioned previously and that we just shared with you in our last chart.
And most importantly, in the end, despite the macroeconomic context, we saw an increase in our total customer base. And we reached the mark of 24 million customers subscribing to our loyalty program, C&A&VC, which has been critical and crucial for us to boost our digital sales. And as you could see, we have reached our first BRL 1 billion in digital sales, in the end of last year. So this means we have plenty of reasons to celebrate and many advancements that we can see in our operational metrics.
On our next chart, here, we share some of our recent achievements, which were also very significant and show the results of our work and the evolution of the company. For the fifth consecutive year, we were first in our -- in Brazil's Fashion Transparency Index, and we even increased our score compared with last year. It was a more than 3 percentage point increase. We reached 73%. It is the highest index in the Brazilian Fashion Industry, and we have been leaders for the past 5 years, which attest to our seriousness, our commitment and how we are evolving in the level of transparency, and sustainability of our company.
In our Reciclo Movement, we collected 75,000 items this year or 17 tons of clothes. And most importantly, part of these items together with some manufacturing scraps were used to produce 20,000 new items. So that is circularity. Here, we can see circularity in practice within our business.
I would also like to share with you that for the second consecutive year, we were among the top 10 retail companies with over 10,000 employees in the Great Place to Work ranking for our industry, which is another reason for pride.
On the next chart, I would just like to quickly recap our growth program since our IPO and our strategy and our growth levers. In quarter 4, we have some very interesting highlights. First, in respect to our new stores and formats, we opened 1 new store, so we closed the year with 332 stores in total. And over this period, we had 17 new openings and 4 stores were closed during the year.
Also in quarter 4, we turned 10 stores into our double door ACE store format. The ACE brand has been gaining relevance. And in 2023, it accounted for 23% of the sales.
The second lever here is digital transformation. WhatsApp continues to boost our digital sales, accounting for more than 60% of the digital sales and contributing to improve our profitability because the inventory sold is often from the store itself and customers want to pick their product at the store, which increased the traffic at our physical stores, and leads to a higher average ticket as well as lower shipping rates -- lower shipping costs.
In credit offer, in the first year of operation of C&A Pay, we had very positive operational metrics despite the more complex macroeconomic scenario. Our own credit offer via a partnership with Bradesco, combined with our new product, C&A Pay, increase the share of credit offers by 5 percentage points in the year.
The fourth growth lever here is the modernization of our supply chain model. And here, we have some important highlights. Today, our capacity and our 3 sorters already in operation, also the Manhattan system that we use at our DCs, a very renowned system is already implemented at our DCs, and we also have an artificial intelligence system that is in place, to improve the allocation of items to our brick-and-mortar stores.
With all these initiatives, we have already reached 25% of our sales being done through the push-and-pull model. And this is a critical lever, this is a critical tool that allows for this evolution of our gross margin, and that allows us to show consistently over the past few quarters at gross margin, which is above the level -- the pre-pandemic levels.
And in quarter 4, this increase was more than 2 percentage points, compared with quarter 4 2019. Also, in distribution to our end-customers, we are trying to improve our profitability without any prejudice to the service level. Our 2-day delivery throughout the country increased to 51% of our sales, despite the higher profitability level and the optimization efforts. And this is possible due to all the investments and capacity building that we implemented in our supply chain. So, now I turn it over to Brossi, and he will share with you more details about our financial services operation, which, in my opinion, was one of the highlights for 2022.
Thank you, Paulo. On the next chart, I would like to share with you some additional information about C&A Pay. The first year of C&A Pay was above expectations, and this is a reason for celebration. This shows the strength of C&A sales. We closed 2022 with 2.6 million digital cards issued. So C&A Pay alone has already reached 16% share in our sales in quarter 4 2022.
And another important driver was the average ticket per customer when they use C&A Pay, which is 80% higher than the average of any other payment form. From the financial standpoint, we reached a wallet of BRL 563 million which leads to a revenue of BRL 134 million in 2022, which shows the repetitiveness of auxiliary services such as insurance, withdrawals and others.
In this macro context that we're living now, it's very important to show that we have strong governance of our risk exposure. We were able to maintain a well-adjusted credit policy reaching an efficient result of 14.6% in our 90-day wallet. C&A Pay still has a lot of potential to grow. And in 2023, we will continue to see its evolution. We expect our wallet to grow twofold, compared with 2022 with a continuous increase in the share of sales, and in the base of cards issued.
As for our customer offers, we will launch and implement additional financial services to improve the profitability of the business. And at the same time, we will structure the launch of our private label card. We know that with the evolution of our business to more mature levels, the over 90 will increase but we understand that it will be aligned with the average of our industry for a fashion private label.
And finally, it's worth noting that in the end of 2022, we received authorization from the Central Bank to operate as a direct credit society. The next step now is to build a more efficient market vehicle to finance the growth and the profitability of C&A Pay as a tool. Since now, we no longer will operate with amended clause. So we have clear plans of what we want from C&A Pay, and we will always keep in mind that our main purpose here is to increase our retail sales.
On the next chart, I would like to give you some more context about our partnership with Bradesco. As you may remember, in the end of 2021, we announced the launch of C&A Pay, the new digital card issued by C&A. Now as for the partnership credit cards, we agreed to continue using the credit cards in 2022, simultaneously to what we do with C&A Pay. And after, we would have the re-buy of the credit rights for 2023. And the credit card base would remain active for one more year until the end of 2023.
In the end of January 2023, we announced a new arrangement for our partnership with Bradesco. During 2022, the macroeconomic scenario became more complex and more difficult than what we had imagined. So we had a discussion to see whether the current moment would be adequate to launch our new card, which would also be used in other commercial facilities and would increase, therefore, our risk exposure.
So based on this context, we negotiated with Bradesco for some changes in relation to what we had initially contracted. We will maintain the shutdown of the sales of new credit cards under the current partnership, as agreed before. And in order not to leave our customers without a credit product, we will continue to issue credit cards with the Bradesco brand.
Payment was postponed to June 2025 and the CDI rate increased. Now, I would like to turn it over to Milton, to share the results of quarter 4.
Thank you, Brossi. Good morning, everyone. It's a pleasure to be here with you. So now let's go over our financial results. Let's start with our revenue. Here, highlight goes to our merchandise revenue, focusing on Apparel. Paulo talked about the assertiveness of our collections. And even in a quarter with significant impacts from climate conditions, national elections and the World Cup, all of which had a negative impact on the traffic in our stores, we still showed a 2.9% increase year-over-year.
And for Apparel, the year-over-year increase was 19.4%.
As for Fashiontronics and Beauty. In quarter 4, the variation was 0.3%, which is practically stable year-over-year. And here, we had the negative impact on the sales of smartphones, which was mitigated by the increase in sales for Beauty. We always say that Beauty has a relevant role in the composition of our Fashiontronics sales, both in terms of sales and also the composition of the margin, and we continue to see good results in Beauty.
Next chart shows our margin. The merchandise gross margin was a highlight in 2022, particularly due to the evolution in Apparel. As you heard from Paulo, we're capturing the benefits of the different investments that we made in the past few years. There was a clear evolution in our technology strategy, which also helps us with the pricing of our products, and the strategy that we call dynamic pricing, also the implementation of the push-and-pull technology for our stores. So all these investments are now yielding results, and contributing to a sustainable increase in our gross margin.
So for Apparel, we had a 2.9 percentage point increase year-over-year. This affected the behavior of our margin as a whole. And as you heard from Paulo, the levels are now higher than those we had in 2019, pre-pandemic levels.
I remember that this was another point of interest. We were always asked when we could expect to resume the margins that we had in 2019. So we're very happy to announce that now we are back to the same level that we had in 2019.
The next chart shows our operational expenses. And without considering our provision for bad debt, the operating expenses grew by 2.9% in quarter 4 and 17.5% during the year. Here, it's worth noting that we launched our expense efficiency plan, and also our working capital plan, we're going to talk more about this later. So we launched these plans in the middle of 2022. So when we push the button to increase efficiency, we already started seeing some signs of improvement in 2024 -- 2022, and we will certainly continue to reap the benefits in 2023.
Here, we have the G&A over the total net revenue. And at some point, we should go back to the levels of 2019. Because we continue to see improvement in this indicator. We will continue on our journey towards better efficiency, and this will certainly improve the results of the company.
On the next chart, we have our adjusted EBITDA post-IFRS 16. It was 20% up, year-over-year with a margin expansion of 2.8%. For the year, the increase was 67% and the margin expansion was 3.6 percentage points. We are clearly on a journey towards recovery after the initial impact of the pandemic. C&A's focus is to recover the profitability that the company had and go beyond that. That's why we're making all these investments, and we are now reaping the benefits of these investments. We are improving our operations in different fronts. We're very positive, about the advancement of our results, consistently, with the reaping of the rewards of the investments that we're making.
On the next chart, we show our investments. So, combined with the more challenging macro environments, the increase in the basic interest rate. The increase in interest rates will increase the level of strictness that we use in our investments. That's why we revised our original plan for 2022. And part of the discipline that we started implementing in the second half of the year is also related with this. So compared with the previous year, we reduced our investments by 45%. So the total amount was BRL 373 million invested. And this is due to the cost of money. Also the returns of the investments, and the most adequate choices at the time.
This is governance in place, and this is what determines our appetite for 2022. And, we will work the same way in 2023.
On the next chart, we see our cash position. We can see a marked evolution in our cash position. As you heard from Paulo in the beginning, we closed the year with BRL 1.6 billion in cash. Here on the left side of the chart, we see the numbers for the quarter. Here, it's clear that we had the expected generation of cash for the quarter. In our financing activities, we chose to prepay a CCB that we had of BRL 230 million.
So the combination of cash generation and the choice and analysis of our portfolio allowed us to anticipate this debt, which was the most expensive debt that we had.
And on the right, we have the numbers for the full year, and we closed the year at BRL 1.6 billion in cash.
On the next chart, we see the consequences of all these moves that we made, and we closed the year 2022 with a net debt of BRL 568 million and the leverage of 0.9x the net debt-to-EBITDA ratio. And when we look at the schedule for our debt, the principal will be BRL 453 million in 2023. We extended the average maturity of our indebtedness. Today, it is at 3.7 years, and the average cost is CDI plus 2.03%.
So, this is the end of the financial part of the presentation. And, now I hand it over to Paulo, and he will continue to talk about the highlights of the company.
Before we open for questions, I would just like to close the company's remarks with a macro summary of how we interpreted quarter 4. We had a very unstable macroeconomic scenario in quarter 4 last year, and it continues to date. And C&A was able to build a very strong operational design with robust structural advancements in its gross margin with the capacity to increase its sales, particularly through WhatsApp and by advancing and developing our credit model through C&A Pay.
This, combined with our cash protection plan, which was very diligent, detailed and with an excellent execution level, this all led to these results, and this better financial soundness for the company at the end of quarter 4.
Now looking forward in 2023, we will continue to focus on our financial results and protection of our cash as a priority, considering the context and the cost of money that we see currently and the high interest rates that we have currently in our country. So these operational improvements are here to stay. We will continue to advance. Our investments will be optimized. We will perhaps decrease the number of new openings, but we will focus our investments on investing on the right technology that could bring the right impact to our customers and our results.
Expenses will continue to be continuously monitored and the working capital is benefiting from the measures, that we adopted in 2022, which will continue in 2023. So, I understand that we are very confident that we will continue to evolve and improve the deliveries of the company based on the investments we already made. And we will seek even better productivity and yields for the assets that we already have. Our brick-and-mortar stores, our new openings, our customer relationship program, our digital channels and also the acceleration of our credit model through C&A Pay. I stop here and we can open for questions now. Carlo, could you please provide instructions for the question-and-answer session.
[Operator Instructions] The first question is from Ruben Couto, Santander.
You did great work in liability management, and this had an important contribution to your working capital, considering the macro scenario that we have now. These are very good results. But, I want to know how sustainable these longer maturity times can be. As we heard from Paulo, I think you're expecting to continue to see this improvement in 2023. So, I just want to understand how sustainable this is, particularly for suppliers.
And another quick question about expenses, also in line with what you said regarding your marketing expenses, I think, that it really contributed to hold back your other expenses. So do you think this has reached a level of reduction that is healthy and profitable for online channels, and also brick-and-mortar stores? Or do you have more fat that you can cut in 2023?
Thank you for your 2 questions. Regarding our suppliers, just to give you some context, we closed 2022 with a leverage of 0.9x. This has a strong relation with operational generation and all the work that we did towards better efficiency in our working capital. And all these efficiency actions were designed in a sustainable fashion, and they will continue throughout 2023.
Now, when we assess the business needs that we have and the operational performance that we expect, I think we did the right thing at the right time.
Now talking specifically about your question about suppliers, we extended our terms in a very cautious way, respectful. And we believe that this measure is here to stay, that it will continue in 2023, not just for our liabilities, but also for our assets. Because this was a joint work. It wasn't just a one-timer. And for the assets, this led to a natural reduction in the average payment -- customer payment times when we implemented the minimum installment for payments installments.
So this combination was something that became more visible after quarter 4 last year, but it will continue in 2023, and these measures are here to date.
Another point to your question about expenses. As you heard from Paulo, we are always very diligent in the management of our expenses. Of course, at times, the company requires more investments. This will depend on the growth strategy of the company, and the strengthening of some of our levers. This is what we did in '21 and '22. But there are also some moments when we seek better efficiency due to the macroeconomic scenario. You mentioned marketing, but marketing is just one of the examples here. It has to do with the customer acquisition cost and the return of the actions that we take to attract new customers to our channel, which actually reached BRL 1 billion in sales. So there's an effort involved, but we also see the benefits of that.
This also is valid for promotions and shipping costs. So it's not just about marketing. There's also better efficiency in shipping, and we benefit from the technological investments that we made and also, there's also due diligence, due to the impact of the inflationary pressure that we have on some of our contracts. And we are very strict in the way, we manage this so that we can minimize all these impacts.
So, when I look at the way we finished 2022, and when I look forward in 2023, I think we are on the right track.
The next question is from [ Daniel Hager ], [ XP ].
Congratulations on your results. I have a few questions. First, can you share with us, what you see for the start of the year, we know that January had a weak basis due to last year's problems, but how are you seeing the start of the year in terms of consumption? And what are the prospects for the rest of the year? This is something that we hear from all companies, but I want to hear from you -- based on the information that we have, what will be the base scenario for 2023, in terms of growth expectations?
My second question is about your leverage. You were able to extend your payment terms with Bradesco. And of course, this brings some relief in terms of cash demand. So, how are you seeing the market in terms of renegotiation of your debt? You have more than BRL 400 million to be renegotiated this year, and we -- from what we hear, this is something that is very challenging right now to renegotiate your debt? And what is the -- your level of comfort with the leverage that you have to date?
And my third question, how do you see the quality of credit and customers in terms of bad debt. Your report has a lot of information about C&A Pay because it's a new service. So how do you see this dynamic versus what you were expecting as normal levels of bad debt in your context, and how does this link to you -- you're nearly doubling your credit wallet by the end of the year.
Thank you for your questions. I will start with your question about 2023, for quarter 1 and for the rest of the year. And then Milton will talk about our leverage, and Brossi will talk about the credit quality question.
In 2023, in January -- the month of January was in line with what we were seeing in the end of December last year, which is positive. And according to our expectations, February has a more difficult comparison basis because last year, we didn't have the Carnival holiday. And this year, people were eager to go out, to celebrate Carnival. So there was a much lower traffic during Carnival days, in our stores. And, I think part one is in line with what we had expected. Not so positive, but in line with what was expected for the period.
Now looking forward, we know that our greatest opportunities are in the second half of the year. Quarter 2 -- last year, you remember quarter 2, the climate was very positive for our sales. So the baseline for Q2 is high. Of course, we will depend on the climate. And, I think the climate conditions will be decisive for the Q2 performance. And then for Q3 and Q4, we have a more positive outlook, not just due to everything that we expect to evolve during this year, but also because the baseline for Q4 is lower due to all the turmoil that we had with the national elections, and also the World Cup at the end of the year. This had a great influence on the traffic in our brick-and-mortar stores, particularly November and December.
That's why at the end of the day, and of course, this links to your second question, the prospects, when we look at the overall macroeconomic prospects, there are a lot of uncertainty. And in such a scenario, and this is not just what's happening now. This is something that has been happening since the start of the second half last year. And this is something we've been working on since second half last year. The [indiscernible] are much clearer now. As I told you in our last call about Q3, I told you that we should see better results in Q4. So we are working in a very practical way, in terms of how we manage our cash. And within this context, we want to keep this company evolving, and we want to keep capturing the benefits of the investments that we made. At the same time, ensuring the expansion and the success of each of these work fronts.
And, that is why we implemented initiatives in different dimensions to improve our gross margin, optimize our expenses, optimize our investments. We're also paying attention to our working capital. And going back to your other question, we want -- to the previous question, we want to do this in a sustainable way. We need to make the changes and management changes that we can sustain over time, and throughout these more unstable periods that we are seeing right now. Milton, would you like to talk about our leverage.
Yes. Danny, you mentioned our commitments for 2023. And, as I said, we are working very diligently. As I said, in the first part of our conversation, we made the decision to pre-pay one of the debt that would mature in 2023, due to its higher cost and because we had room for that. Now when we look into 2023, we have BRL 453 million of principal maturing this year. And we intend to pay this debt timely, and when we look at the business needs, and I share the same view of my colleagues here, but the greatest driver for capital in 2023 will be C&A Pay, and this will be via a greater need for working capital.
We already requested approval from the Central Bank for our SCD or Direct Credit Society. And this gives us more options right now. And one of the options to structure this additional need for capital is through a FIDC. So we are now evaluating the potential use of this type of vehicle. And if we consider it effective for 2023, that's where we would put our funding for this needs raised by C&A Pay. Brossi, there was a third question about the quality of credit.
Regarding credit, I think it's worth mentioning that when we launched C&A Pay, we put a lot of attention in the forming of a credit team, a very robust team with a lot of experience. Because to build a new wallet, you don't have a legacy base to support you. So you usually face higher default levels.
So, as we launched the product, we had the diligence to follow each group of customers that joined, and in the end of the year, we made some adjustments in our credit policy, which allowed us to finish the year with a lower default rate than expected for that specific credit wallet that we had.
So looking into 2023, we will continue to use the same model. We will continue to monitor and to make decisions as needed. We do expect to see an increase in default in 2023. This is caused by the maturity level of our portfolio, but everything is within planned, within expected.
So in general terms, we will continue to work diligently and attentively. And so far, we have been able to deliver above expectations.
The next question is from Gabriel Disselli, BTG Pactual.
I have two quick questions. Can you please share more about the expected gross margin for the year and particularly for quarter 1, considering the higher inventory level of some of your competitors and the situation of some of your competitors. So are you expecting a higher level of markdowns from your company or the competitors? And also if we should expect more adjustments in the number of stores that you have or your store base today is the right size? Or should we expect any changes?
Thank you, Gabriel, for your questions. As for the gross margin, we expect to maintain the marks that we saw in 2022. Right now, we don't see any need to reduce the margins. The start of 2023 was very healthy, when it comes to inventory. Of course, that we expect more aggressiveness from the competition, and this may lead to a need for some adjustments. But at least for now, in the second half of the quarter, we still don't see any risks in this direction. So the margin should sustain the same levels for quarter 1.
Now, as for the number of stores, we are always looking for opportunities. We're always monitoring performance, prospects and the financial health of each of our POSs. And so we will always be on the look, and we will make the decisions that we need to make. But right now, I don't see any reason to accelerate closing of stores, for example.
The next question is from Joao Soares, Citi. Joao, can you hear us?
Can you hear me? Can you hear me?
Yes, we hear you.
First, I have a follow-up question. Paulo, you mentioned that you don't see any need for changes of your strategy based on the attitude of the competition. I just want to understand, if you think the competitors are more aggressive in terms of pricing now. And your expectations for the year, we know that last year, we had very strong price adjustments in your industry, and maybe there's an expectation for a higher promotion rates this year, maybe your revenue will be more driven by volume than prices this year. So that's what I want to -- expectation in terms of top line for this year?
And also talking about the midterm, would you -- do you see any chance of resuming the opening of new stores and also what you expect in terms of your top line in the midterm?
And my last question is about suppliers. Milton said very clearly that you're expecting an improvement in your working capital this year, and I don't mean to challenge your view. I just want to better understand because there's -- well, part of your suppliers, you have [ joy ] risk. So maybe in this -- maybe the current environment is more complicated for this type of operations. So could this be a risk for the expected improvement in your working capital?
I will answer your two first questions. Regarding the competition, the competitive scenario itself today, we have a management model with constant monitoring of prices in all the categories in all our competitors. And we also have our position, and we maintain this position. So that's why, I say, that our gross margin has a strong level of consistency. Because when we adjust our prices, we don't change our competitive positioning. Our competitive positioning is exactly the same that we have before the pandemic. And we -- what we do is we strive to offer more and more interesting products to our customers. This is our proposal. This is our proposition to add more and more value, still under the same competitive positioning.
So, if we see a very striking promotional movement in the market this year, this could lead to 2 impacts. One, the impact on the cost of the products, because if we have a promotional environment, this is the result of a lower quantitative demand, and a lower quantitative demand will also cause the need for adjustments in the supply chain. This one is not so concerning. But I think, that on the other hand, we have another structuration that we made in the past few years through our technology investments. To build an artificial intelligence model that allows us to monitor our prices and adjust our prices store by store and product by product at any time.
This provides us with a better understanding of the fluctuations and the dynamics that we see, for example, the sales curve of each product at each store, and this could point to a need to make adjustments or not. This gives us a very high level of granularity, very detailed level of granularity that we didn't use to have before. So these -- or the any waves that we could see large promotional waves that could occur -- in this case, we would have much more clarity and granularity to know how to proceed.
Now when you talk about the midterm and our expansion, our intent today -- we have the potential to open 25 to 30 stores per year. And, if we didn't change our opinion about this, we understand that, that's the potential that we have. However, today, the cost of capital today, the cost of construction will increase during the pandemic, and the consequence of that is that in the short term, considering the macroeconomic context, and considering our priorities in respect to our cash in the short term, it doesn't really make sense to accelerate new openings.
So this is still in our radar. So we are being much more selective and picky now to ensure an even higher level of assertiveness for all these projects, at least during these times of turbulence. And then afterwards, we can resume, once we have lower interest rates and once the cost of capital is more balanced. Milton?
Now your question about [ joy ] risk. Let me just rephrase a little bit here. I understand your concern and the market is concerned. Considering this very delicate times that we're going through now, and we had some news in the media. But, I want to reassure you that the supplier discount subject, this is something that's done in the benefit of the supplier and not in the benefit of C&A. The supplier has the conditions to go to the market and anticipate the amount receivable within the original payment terms. So C&A is not involved in any operations that will change the supplier accounts and give them a financing characteristic.
No, the [ joy ] risk is just an option for the supplier they can anticipate it using the funding of a financial institution for that. So that's how these operations work.
Now what we did to better manage our working capital, the suppliers are just one of the elements. We have several other elements coming from operational discipline, and the revision of our appetite for investments, discipline in our expenses, shortening of the average sales term in Apparel, Fashiontronics. If you go to our stores, you can see all the actions that we're taking in this direction. So suppliers is just one of the dimensions. And we don't see any need to change that in 2023. I don't know, if I understood your question, but you asked whether we plan to be more efficient or make more changes. Now we have reached the level of efficiency that we need, and we will sustain this level for 2023. And we don't see any risks regarding our relationship with suppliers, both in Apparel or Fashiontronics or even for our CapEx, the suppliers and other indirect material suppliers.
The next question is from [ Tales Granel ], [ Safra ].
Just a quick follow-up about expansion and leverage. With a decreasing leverage level in some of your competitors, they're closing some stores -- competitors are closing stores. So, can we expect a momentaneous acceleration in some points that are maybe underperforming and also about push-and-pull, the push-and-pull technology now accounts for 25% of your sales. So what do you expect for the end of 2023. And this higher penetration combined with a more discounted environment or do you think you have more room to gain even more gross margin this year? So this is my question.
For your question, Brossi will answer. And Donatti will talk about push-and-pull strategy and the possibilities for our gross margin.
Thank you for your question. So yes, this is in our radar. We are monitoring all the potential opportunities and very diligently, as you heard from Paulo, we are studying whether these projects make sense, this year. Overall, so far, we haven't found any projects that are worth putting in place this year, but we will keep looking. There's an important point here, which is location. And since C&A today, has a nationwide presence, we are now looking for places where we are not present. So that's why we haven't found that many opportunities, but it is, yes, indeed in our radar and in the radar of the market as a whole.
Now, in respect to our gross margin, I think, this is an important topic. We got a lot of questions about our gross margin. So let me try to build a time line here for you. First, we have been showing a lot of consistency. We are seeing a lot of evolution for the past 4 quarters. We are seeing increases. And this is something that we have been preparing since 2020. As you heard from Paulo, that's when we've started with our push-and-pull project, and this project is very important for us because it has improved our capacity. It has dramatically improved our capacity to replenish our stores based on the SKU number, on the SKU.
Also in 2021, we did a price survey, and we were better -- we were able to better understand our positioning compared with our most strategic competitors, and also before our customers. So this allowed us to understand where the opportunities lied and where -- which were the most important opportunities so that we could adjust our prices and accelerate our margins.
And the last one, just as important, is our dynamic pricing system using big data and artificial intelligence. We change our prices store by store, product by product and size by size. And we can already do this today. And there's very intensive use of technology, starting with push-pull and going through to our dynamic pricing system is allowing us to advance without putting a lot of owners on our customers by increasing prices.
In February, we have 30% of our products being distributed through the push-and-pull system. And by the end of the year, we want to reach between 40% and 42% of the products. This is a tool that we have been using, and we will continue to invest in this tool because it has proven positive results for our business and for customer perception, at the store because our customers can find the right product at the right time at the right place.
The next question is from Andrew Ruben, Morgan Stanley.
I'd like to follow up on the e-commerce side. You had an accelerating result this quarter at the same time while the digital marketing came down. I'm curious, how you describe what drove the e-commerce acceleration, and how you're thinking about the digital spending going forward?
Andrew, thank you for your question. Here, we always talk about this, that this great acceleration in the last quarter last year, has to do with the work that we have been doing for a while now, which is selling through digital channels and selling through WhatsApp. This is -- our assertiveness in managing this new sales channel is improving over time, and this is based on our customer base, the customer base that we already have in our loyalty program, C&A&VC. Because it is a proprietary base of customers. And through this channel, we can have direct contact with these customers. It requires less investment in terms of acquisition -- customer acquisition, for example, using social media. So this is what allows us to have a much more optimized marketing spending, a much more assertive marketing spending.
So this is the greatest reason behind this growth, and at the same time, a reduction in our spending volume for marketing.
And now for 2023, we will maintain this strategy. We have no reason to increase investments in social media, beyond our growth capacity as a whole.
And this question-and-answer session is now closed. All the questions that could not be answered during this session will be answered later by our IR team. And now Mr. Paulo Correa will make his final remarks.
Thank you all for attending our earnings conference call. We understand that the macroeconomic scenario right now is very unstable, in Brazil. However, we have been consistently working on our strategic plan since 2019, focusing on the same levers and ensuring that we capture all the potential of these levers with a very strong execution capacity by our team. We are trying to optimize all the resources that we can, maximizing the impact of our investments, and the capture of these results.
So in 2023, we will continue on this journey, increasingly capturing better results, and although, we cannot control the macroeconomic environment, we are very positive and very confident about the work we have been doing, and the consistency and the good impact that will bring for our investors and our company as a whole. Thank you very much. I wish you all a great rest of your day, and we will be in touch. Thank you.