Atacadao SA

BOVESPA:CRFB3

Earnings Call Transcript 2023-Q2

[Operator]

[Foreign Language] [Operator Instructions] Marcela Bretas, will begin the presentation. We'd like to inform you that this conference is being recorded and a replay will be available on the company's IR website where the presentation slide deck is also available. [Operator Instructions] We'd like to point out that the information contained in this presentation and any statement made during this call relative to the Carrefour Brasil Group's business projections, prospects, operating and financial targets, are based on the company's management's beliefs and assumptions as well as currently available information.

Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions seen as they relate to future events and, therefore, rely on circumstances that may or may not materialize. Investors must understand that general economic conditions, the state of the market, and other operating factors may affect the Carrefour Brasil Group's future performance and lead to results which are materially different than those expressed in some forward-looking statements. Now, I'd like to turn over to the company's CEO, Stephane Maquaire to begin the presentation. Mr. Maquaire, please, you may proceed.

[Stephane Maquaire, executive]

Thank you. Good morning, everyone, and thank you for joining us again as we disclose our Q2 2023 results. Over the course of this quarter, we reported a major landmark in the integration of the BIG Group at the end-of-store conversions. Overall, we've converted 129 stores, 5 more than initially planned and concluded the project 6 months ahead of schedule. This was certainly the result of work that was extremely well conducted by our business teams and our IMO and require great focus and a lot of effort from our teams. We feel very proud and relieved to have closed this chapter so that we may open a new one and building, the new Carrefour Brasil Group focused on reaching our sales productivity and store profitability targets. Over the course of the quarter, we also moved forward with our plan to open stores organically within the Atacadão label. We opened 6 new stores and converted 3 other stores from the Carrefour hypermarket brand.

On our banking operations, we continue to invest to attract new clients to the converted stores. We've already attracted nearly 330,000 new clients that came from the BIG Group, which will definitely contribute to the bank's future results. Our e-commerce operation continues to grow, and our total GMV has grown 30% over the quarter, totaling BRL 2 billion. Food GMV, in particular, grew by over 40% with a highlight to our 1P platform, which grew by 54% over the quarter, a result of our efforts to always provide a better online shopping experience to our customers. On financial results for this quarter, I'd like to point out the overall sales growth, which came to 10% despite the challenging macroeconomic environment we find ourselves in. LFL sales in the quarter were affected by the deflation in food items in addition to the strong basis for comparison established in 2022.

Even so, looking at the last 12 plus 24 months, LFL sales both for Atacadão and our retail operations have grown by 2 digits. We also saw an increase in gross margins over the quarter, a result of synergies that we've realized in the context of integrating the BIG Group. Our cost management discipline allowed us to keep our profitability levels steady in our legacy business. Our consolidated EBITDA showed temporary pressure, which was already expected given the accelerated store conversion pace. We had 47 stores converted during this quarter. Our bottom line is strengthened this quarter when we generated BRL 4 billion in cash and reduced our debt-to-EBITDA ratio from 2.4% to 2.2% when compared to the previous quarter. We also revolve 2/3 of our 2023 debt using funding forces that are diverse and offer longer maturity. On the ESG front, we once again reinforced or restated our commitment to social inclusion and diversity and graduated the Carrefour com ELLAs class. This is our career advancement program for women, graduating 750 female associates.

The third class is already open for enrollment with 1,000 new spots. PODER, our program for personal and professional development for [indiscernible] associates has graduated its first class of 500 collaborators across the country. Our struggle to end hunger in Brazil is also still underway, and we've had donations over 1,000 tons of food in this quarter. On job generation, we've moved forward in implementing our partnership with the Social Development Ministry to employ beneficiaries of the federal government's family stipend program. On Slide 3, we have a few pictures of the stores we've recently opened, which show that we are always moving to better serve our customers. We've launched in pilot mode, the service islands and some of our Atacadão stores and also self-checkout options to make payment faster for them.

Our new Sam's Club stores have had their layout revamped in line with our clients' premium positioning in this model. Now, moving on to Slide 4. I'd like to point out once again the end of 129 store conversions from the BIG Group, 5 more than we'd originally planned and concluded 6 months ahead of schedule. In the last 12 months, the average pace of opening was by more than 2 stores per week. This was made possible only thanks to the commitment, focus and outstanding execution capacity displayed by our teams.

Moving forward, our efforts will now focus on maturing these stores and realizing synergies. In Q2 2023, we've realized BRL 384 million in synergies coming particularly from the cost side. We are in line with the expected and we would like to reinforce our synergy guidance of at least BRL 2 billion a year until the end of 2025. On that note, I'd like to turn it over to Eric, who will go into our financials in more detail.

[Eric Alencar, executive]

Thank you, Stéphane. Good morning, everyone. I'm glad to be here with you again. As I believe you've already had the opportunity to look at the results we included in the release we published yesterday. I will quickly go over all the highlights. On Slide 5, we can see the company's consolidated result, gross sales in the second quarter of 2023 came to BRL 29 billion, up 10% versus 1 year earlier. There was a 70 basis point increase in gross margin because of the synergies and efficient management of our supply chain. Our SG&A as expected was affected by our integration with the BIG Group and the accelerated store conversion and increased by 270 basis points as a percentage of sales. This percentage tends to decrease as those stores mature and also with the initiatives to reduce our costs. Consolidated EBITDA was BRL 1.3 billion, reflecting the pressure from store conversion costs and the ramp-up of those converted stores as well as the investment in client acquisition for our banking operations and to accelerate the attraction of new customers to those converted stores.

Excluding the effects of BIG, the margins for our legacy business remain in line with the observed historically. The profit for a quarter was pressured by the increased leverage of our tax expenses seen as we have not yet began to use BIG tax credits. Here, I'd like to reinforce what Stéphane just mentioned, with the end of our store conversions, our efforts will now focus on ramping up our sales. The impacts relating to the integration of store conversions should start to diminish in Q3, and we should see the impact relating to the regular store maturing curve. Now, going to the highlights by business unit. On Slide 7, we mentioned specifically the Cash & Carry unit.

We've opened 9 new stores for Atacadão within this quarter, 6 of them organically and 3 converted from Carrefour hypermarket. In addition to the 15 stores we converted from the BIG Group, that amounted to 358 stores by the end of June. Gross sales in the unit came to BRL 20.1 billion, 6% more than last year. Based on the same stores, sales went down 4.3% over a very strong basis for comparison in Q2 of last year, pressured by the deflation in major food groups such as commodities as well as the behavior of our B2B customers, which are now operating at lower inventory levels. Even so when we look at the base for growth over the last 24 months, sales are 17% higher. Converted stores grew their LFL sales by 12.8% over the quarter, far more than the rest of our portfolio. We expect growth to accelerate over the next few quarters.

Our gross margin increased 81 basis points versus 1 year earlier because of the negotiations with suppliers as we integrated the BIG Group and our unique expertise in navigating different market conditions. Our SG&A went from -- was 9.3% of net sales, up 180 basis points nearing the accelerated conversion process and ramp-up of our stores. As a result, our adjusted EBITDA came to BRL 1 billion, 5.7% margin. Excluding the impact of BIG, our EBITDA margin for Atacadão would have been 6.7% in keeping with Q2 of last year. On Slide 8, we have a chart to help you model the maturity of the Atacadão stores.

As you may see, we have 100 stores with up to 12 months in operation, which account for 23% of our overall sales square footage. Overall, maturing stores breakeven after 6 months of operation, and at the end of their first year show EBITDA margin of low digits. In the next few quarters, you will continue to see Atacadão's numbers and the impact of the maturity of these stores because of the share these recently opened or recently converted stores have in the unit's results. Now, let's go over a retail highlights on Slide 10. Gross sales came to BRL 7.5 billion in Q2 '23, up 6.4%. Same-store sales remained steady with consumers discrantionery incomes still under a lot of pressure. Once again, our white label brands represent a high quality at lower cost alternative to our customers. And as a result, their share has increased accounting for more than 21% of our sales, a new record for Carrefour Brazil.

Our gross margin grew by 46 basis points because of the gains we've obtained in negotiations with suppliers as we integrated the BIG stores. Bear in mind that last year, gross margins for the retail unit with BIG relied on their hyperCard results, which is no longer the case. And that was about 200 basis points in BIG's margins last year. SG&A as a percentage of sales increased 334 basis points, mirroring the increased expenses relating to store conversions, the shutdown of 3 hypermarket stores that were converted to Atacadão inflation and the lower growth in sales. As a result, adjusted EBITDA came to BRL 186 million, 2.8% margin. The EBITDA margin, excluding BIG-related impacts was 5.4%, close to last year's. Now, onto Slide 12. Sam's Club reported gross sales of BRL 1.4 billion in the quarter, growing by 4.2% in same-store sales. That was because of our efforts to increase the active membership base, which increased 8.4% in the quarter over 1 year earlier.

The gross margin came to 20.2% in the quarter, mirroring improvements in pricing and assortment, especially our focus on increasing penetration of our white label brands, exclusive items and the models distinguishing factors. The gross adjusted margin in the quarter was 4.9% and with the opening of 4 new stores in Q2, which are likely to mature over the next few months. Now, moving on to Slide 14. Our digital channel continued to grow strongly by 30% in Q2. Food GMV grew by over 40%, and the highlight was our 1P platform, which grew more than 50%. This was a result of our focus and always improving our clients' experience. We've addressed issues relating to the BIG converted e-commerce stores and also already see recovery in their sales.

On Slide 16, a little bit about our banking highlights. We continue to invest to attract new clients in our stores converted from BIG. Our earnings in the quarter grew 13.4% and the revenue was BRL 1.3 billion, up over 19% versus 1 year earlier. Those new clients that we've attracted naturally create some pressure in the near term, both in terms of risk burden and SG&A. These new clients will start to generate a margin for positive net credit, starting on month 6, increasing continually their profits, hence forth. As a result, EBITDA for the quarter was BRL 210 million or BRL 260 million if we exclude the impacts relating to the investment to attract new clients.

Non-performance, as we show on Slide 17, reported slight growth but still below the level for the market at large as we see in the chart at the center of the slide. New accounts accounted for a very healthy profile as the chart on the right shows, and that refers to clients in arrears for over 30 days after 3 months of landing, which suggests a positive downward trend for the future. As we may see in the chart on the right, we have went from about 12% to 5% to 6% below our regular appetite for lending, which is likely to have a positive impact on our delinquency levels moving forward. On Slide 19, we have recovered our adjusted profit of BRL 29 million in the quarter. Our cash result after taxes and depreciation came to BRL 863 million. Our depreciation cost was BRL 476 million. And we had the one-off expense for the integration, which had an impact on the operations results, which was BRL 72 million this quarter.

Financial expenses came to BRL 783 million, in line with last quarter. And in addition to that, there was an effect relating to tax expenses, where the losses for BIG legal entity was not absorbed for the calculation of our consolidated tax payments, which had an impact in the overall payable taxes sum. Now, on Slide 10, our operating cash generation still strong this year with a gross cash flow and activities totaling BRL 5.6 billion in the last 12 months. We're actively working to manage our working capital, lowering the number of days in inventory in our legacy operation. Overall, we still see an impact of the accelerated store conversion and reopening pace which is expected to go back to normal over the next few quarters. It's important to highlight that when we look at cash generation for this quarter, we've generated BRL 1.6 billion more than in Q2 2022, totaling nearly BRL 4 billion in Q2 '23.

Despite the scenario of stress with high interest rates, we were able to generate more cash this quarter at a time of normalized CapEx as the real estate project moves forward. And as our net debt-to-EBITDA ratio goes down and interest rates decrease, we're likely to enter a virtuous cycle of cash generation. On Slide 21, we ended the quarter with 2.17 leverage, a stable scenario. We also saw when compared to the previous quarter, a downward trend. 2/3 of our 2023 debt has already been rolled over. We've negotiated with France Carrefour to roll our intercompany debt, which also shows the confidence and support our headquarters have on our local operations.

We've secured a revolving line of BRL 6.3 billion at a cost of 14.95% a year, which also adds more confidence for us to move forward investing as planned. This line as well as the other ones involve no covenants. We've also issued BRL 930 million in CRE debt securities this quarter at very competitive rates. Or 4131 rates, which are below CD1 plus 1% a year reflect the confidence the Holding has in Brazil, making our credit one of the most attractive in the Brazilian retail. With that, I finalize our details and move on to the closing remarks. Stéphane?

[Stephane Maquaire, executive]

This quarter, we focused a lot on concluding the conversion of BIG group stores into Carrefour formats. This was thanks to the great work of our teams, which added a lot of focus and energy into it. I'd like to thank all the teams involved for their dedication and all the effort, which was tireless. We now begin a new chapter in the story of our company. We are turning all our attention to growing our sales and maturing the converted stores, seeking productivity and profitability levels as in line with what we've announced. I'd like to reinforce that we are very confident in the work we're doing, integrating the BIG group and seizing at least BRL 2 billion in synergies by 2025. Our legacy business continued to perform and turn a profit in a solid way. And we've sought under Eric's leadership to introduce initiatives that will help us be even more efficient and operational and cost terms.

We entered the second half of 2023, hoping to see an improved macroeconomic scenario with a decrease in interest rates and positive impacts on consumer incomes, which will definitely have significant impacts or repercussions on our business performance. Thank you all for listening to us and for offering your support.

[Operator]

[Operator Instructions] The first question comes from Mr. Felipe Cassimiro, sell-side analyst with Bradesco.

[Felipe Cassimiro de Freitas, analyst]

Well, first of all, I'd like to go a little bit deeper into the same-store sales of your converted stores. First, I'd like to understand, while you have a takedown at 3% and same-store at single digits, what's that, and how does that stack up when compared to the company's expectations? And also, Stéphane mentioned the company's efforts now focusing on ramping up the stores. I'd like to understand a little bit more what the action plan will be to navigate this new environment with challenging competition and inflation. So how do you plan to improve your sales levels? And I'd also like to understand the rationale behind your services pilot. Last quarter, at least in my mind, it seemed like the company was fairly convinced in maintaining their cash-and-carry model without services and now you have this pilot. So I just wanted to understand the mindset, how do you understand the stores moving forward? What services will you be adding? And in what type of stores. So those are my questions.

[Stephane Maquaire, executive]

Thank you, Felipe. I will take a few of those questions and then turn it over to Eric. And also maybe make a few additional comments. Our same-store sales are for all our businesses adjusted to today's consumer scenario. As I said before, we were focused on converting those stores, and we are now entering a new stage, which is to strengthen these stores. They're all on the positive side, moving from the previous format. We had a surprise from the BIG supermarket that we converted into the Atacadão store, which involved a more accelerated pace initially. Over the next few months, as we've mentioned before, we're working to mature these stores. This is a 3-year process, and we've shown the growth chart and the growth curve for sales and profitability for these stores that were converted to Atacadão.

These are some of the most important conversions, 76 stores were converted to the Atacadão model. And this curve starts with a minimum level of sales then go up. It goes up month by month. And as a result, we can reach a positive EBITDA result after 6 months. So how do we plan to do all of that? Naturally, we'll be focusing on performance and the number of returning customers, B2B customers, B2C customers according to each format with Atacadão. We expect to have a strong B2B customer base for this store from day one. And we need to build that over the course of every month, build this B2B customer base. And on the B2C side, it's more based on a word of mouth process. People need to learn about this new store and a new model with a new shopping environment for them.

And we have a few levers to activate to be able to achieve this customer attraction, the attraction of increasingly loyal customers with the Carrefour brand and prices, especially for commodities in Atacadão, the membership base as well that we are building gradually with Sam's Club. It's important to remember that to open the Sam's Club store, before we even opened the brick-and-mortar store, we are building a membership base of at least 20,000. So it takes at least 50,000 members to this new club and only then will we open the store. So it would be a number of initiatives that we are working on. And this is obviously a store-by-store process for every specific location will have specific measures, and this is both based on the number of potential individual customers and business customers as well.

To answer your third question, yes, we are working, and we believe that within the Atacadão stores, we have many more B2C market than the B2B market. And we have an opportunity to offer these B2B customers services such as bakery, and we believe it's important to move faster in this pilot stage to grow by adding additional services to our customers at a lower cost. We always work at a low cost with the Atacadão so that we don't hurt the model with the ultimate purpose of offering the best possible prices to our end customers with the best possible margin. Eric?

[Eric Alencar, executive]

Yes, I just wanted to add a small detail about the same-store sales and converted stores. Atacadão does have a more B2B in nature. These are clients that will do their research and will convert more faster to this new model. But we may expect to see more growth right now. And there's also the fact that we changed the selling platform with BIG and also the HyperCard, which we did not buy, and this was part of BIG's portfolio of offerings, which we are now converting to our card, but this takes a bit longer, which is why our retail curve is a bit longer.

[Operator]

Moving forward, our next question comes from Thiago Macruz sell-side analyst with Itaú.

[Thiago Macruz, analyst]

I'd like to understand the gross margin dynamics for cash & carry. We believe that the more competitive environment of the MP 1159, the change in taxation combined lead to a change in gross margin for the industry at large, but we did not see that in your figures. I'd like to understand what the company has done to prevent such a scenario. What were the steps that you've adopted, did investors have any input? Could you please add some color to that for us, please?

[Stephane Maquaire, executive]

Thank you, Thiago. Eric, would you like to take this one?

[Eric Alencar, executive]

Hi, Thiago, good morning. Well, this started with the taxation issue. So I just wanted to explain to everyone, we would not be crediting [indiscernible] to ICMS, the goods and services tax, and that could have affected. So how did we adjust for that? Well, we talked to our partners. This is about the negotiation with our suppliers. It is a principle for us to offer the best possible conditions, the best possible prices to our customers. And this had an impact on our suppliers because we negotiated between 0.5% and 1.4% of the prices we adopted. And with that, we were able to keep the prices steady, so there was no change in our margins as well.

Another thing is with Atacadão, as BIG came in, we increased our scale. We built on the best practices on each side, and that really helped us to realize the synergies and keep our margins steady also. In addition to that, Atacadão has been around for over 6 years and we are very much used to the variabilities and the floating economy in Brasil. And there's one thing that called the attention of analysts, which was the decrease in the number of days in inventory. We saw a strong decrease in inventories because we really kept them steady because if you keep your inventories when prices are going down, that can hurt your bottom line. But that work also helped us to keep our margins. This was also based on the knowledge that we were able to gain from Atacadão.

[Thiago Macruz, analyst]

Would you like to add anything, Stéphane?

[Stephane Maquaire, executive]

No, no. That was perfect.

[Operator]

Our next question comes from Mr. Joseph Giordano with JPMorgan.

[Joseph Giordano, analyst]

I have 2 questions actually. The first one has to do with the opportunity with the Carrefour bank. You mentioned there's a huge opportunity to build your client base with the hyperCard customers coming in. So how could that reduce the short-term metrics. So I wanted to understand the cost of that operation in the near term and also the opportunities you've seen with this new card, especially within Sam's Club, where we should see slightly higher discretionary spending then in cash & carry. And my second question is more on the retail front. So supermarkets, hypermarkets, we saw, I wouldn't say substantial gains, but surprising in a way as Thiago mentioned in his last question, but I would like you to explore the trends a little bit more on this side of the business. How should we expect to see the margins develop in this unit? How do you see cash & carry affecting these new labels? And when should everything return to normal?

[Stephane Maquaire, executive]

Well, I will take the first question and then turn over to Eric. Well, you're right. We have to build on the customer base that's come with BIG, and we started doing that every quarter since the end of last year. Obviously, with the additional focus on Sam's Club. Sam's Club is a very interesting model focused on A and B level customers, which is very interesting for our bank. The penetration of the Sam's Club card within Sam's Club stores is growing month by month. And this has offered a very interesting opportunity. The risk burden as we saw is high in these first months, but quickly both Sam's Club and non-Sam's Club customers are turning that positive. So this will reflect on the bank's results. In addition to that, we started really well to be able to seize in the next few quarters, see a balance between these new clients, the clients that we expect to convert in the next few months, and the all new clients from previous quarters that we expect to provide a positive income for the next quarters. Eric?

[Eric Alencar, executive]

Hi, Joseph, how are you? Now, about the margins in retail, they're actually similar to cash & carry. Now that we're seeing this major shift in prices, our negotiation teams with retail and cash & carry are different team, but they really exchange the knowledge and expertise. But we were still able to keep our margins. And also the conversion of big stores helped significantly. Our white label brand has also helped our products grew in sales, which also helped us to keep a steady margin. And we saw that the gross margin was a factor coming both from Atacadão and from structural aspects. We know that there's competition in the retail space, but this is a regular thing for the market. It exists for a long time. And this was not something that had particular impact right now. I think that what made a difference was in a more deflationary space to sit down with our suppliers and settle on a model that allowed us to work with them and offer good prices for our customers as we've said before.

[Operator]

Moving forward, our next question comes from Mr. Luiz Guanais, sell-side analyst with BTG Pactual.

[Luiz Guanais, analyst]

Eric and Stéphane. I have 2 questions. First of all, if you could please talk a little bit about the competitive environment, especially in the areas that you converted BIG stores. And my second question is about your capital structure. You mentioned in your release the intercompany debt. And what could we expect from the company's leverage in the next few quarters, considering these factors, both your gross margin, which was a bit better right now and the ramp-up in the converted stores. What can we expect for the development of your leverage?

[Stephane Maquaire, executive]

Thank you for your questions, Luiz. I will take your second one. The competitive environment in the company is a thriving one. We have the ability for new store openings. And we know about the competition. We know about the stores, we bought macro 2 years ago. So we are part of this competitive environment, that's very substantial. Also, we have 240 stores in the country -- in the cash & carry in Q1 2021 and 2023, obviously, a more heated time for these stores, and we are still working in this environment. There are no specific regions where we see more competition activity.

We've opened converted stores all across the country, in the Southeast, in the Northeast, in the Central West, and the North. And we saw comparable development in all of those areas. We had a bit more work, and we knew that where we already had the -- where we didn't have the Carrefour brand, in the hypermarket environment, we converted some big stores in markets and cities where we did not have the Carrefour label before. So we see the maturity for these stores develop a bit more slowly, but we were aware of that from the get-go.

[Eric Alencar, executive]

Luiz, thank you for your questions. So about our capital structure. First of all, I'd like to talk to you about our mindset. This is exactly where we're at. We want to lower our leverage. So, we have been taking a number of steps to generate cash, to grow our EBITDA, obviously, and to be able to be efficient by lowering our leverage because that will help us to fund the next steps in our development. That will be one focus of our management. That being said, to talk about timing. In Q3, we had great cash generation. Historically, if you look at Carrefour's last 10 years, Q1 and Q2 are times when we report more cash burn, and Q3 and Q4 are times of more cash flowing in. We have done better than we expected these first quarters, and we will improve but Q2 and Q3 are when we prepare for the year-end activities. We have the holidays, we have Black Friday, so we expect to be able to deleverage the company in that period.

[Operator]

Moving forward, our next question comes from Mr. João Soares, sell-side analyst with the Citigroup.

[Joao Pedro Soares, analyst]

I have 2 questions I'd like to ask you. First of them is the volume prospect. When talking about Atacadão, you mentioned the fact that B2B customers are already reducing their inventories and you expect this trend to be reversed in the next few quarters as prices level off. When we look at Nielsen prices, of course, there's some effect from the basis for comparison, but we see some deterioration in same-store sales for the cash & carry market in the Southeast. So, I would like to understand how can we reconcile your comments to this new time of inventory building in terms of volume and these data points, how can we understand this development? And on a second note, there was news coming from Bloomberg today that included a comment from Eric that you're closing a few stores as you launch Carrefour Property. So, what impact should be impacted? And what should we expect there?

[Stephane Maquaire, executive]

Thank you, João. I will start by taking your first questions. Well, as Eric said before, we know very well the shifts in the market. We have been around for 61 years. So we know the B2B customers movements and how they impact the [indiscernible] sales. So, when inflation is accelerating, our B2B customers increase their inventories so that they can make the most of these still low prices at this time. This was the case for Q2 of last year. This quarter, as we've said before, at the beginning of May, we have a different situation, which is a more deflation or slowdown in inflation. And as a result, it's only natural that we saw B2B customers decrease their volume of purchases than destocking because they need to balance out their accounts. June and July, the situation is more or less the same. The preliminary inflation metrics, IPCA 15, continue to show a decrease in food inflation, and we believe that starting in August, the tables will turn.

We also have a different basis for comparison compared to last year. August and September of last year were of stabilization, and that's what we expect for the next few months as well when it comes to inflation. That being said, we believe that we are moving toward a slightly less challenging environment than what we saw in Q2. Things are a bit more challenging in the Southeast. It's not what we saw with our Q2 results. It was more complicated within the state, as we told you before, but we expect to see better results in several places in the inside the state of Sao Paulo. To your last question, we do not plan to close stores to work our real estate operations. Our focus is first to sell food products and non-food products, both via our stores and digital platforms. And at the same time, we see the opportunity to create a subgroup, an additional company, a real estate company, but obviously, without hurting our sales operations, both in brick-and-mortar stores and online.

That being said, as I said before, we'll have to see month by month, quarter by quarter, year by year, how each one of our stores are performing and what the best investment we can make is on these stores. I mean should we convert them to a different format? Maybe close the store, maybe create a real estate project. But once again, this will be another side of our business, which is primarily to cell products. If I could just add something. It's great that you asked this question, João. Hope you're doing well. Our property operations have absolutely nothing to do with closing any stores. We have 1,700 stores. We have this huge advantage of being able to turn one format into another, a rental that we can let go of and go to our own land. And just to give you an idea, we haven't even met to talk about that. I didn't know that this was reported by Bloomberg, but we can get in touch with them because it makes no sense.

[Operator]

Our next question comes from Irma Sgarz sell-side analyst with Goldman Sachs.

[Irma Sgarz, analyst]

I just wanted to explore how do you see your margins for your retail operations now that you've concluded the integration of BIG. You mentioned cash & carry and Atacadão, but I also wanted to hear from you a little bit more about the retail side of the business. Also, if you could talk a little bit about the adjustments that you are making on the BIG stores. We saw this quarter that there were few shutdowns more in connection to the Maxi stores, as we know. There were also the remedies for the stores that were sold, but perhaps a little bit more than expected. So I'd like to hear from you, how do you see things moving forward? Are there more stores to close? Or has that adjustment been concluded by this time?

[Stephane Maquaire, executive]

Thank you, Irma. I will start with your second question, and I'll let Eric take the first one. Well, the end of a store conversion period was a time where we decided to reassess our entire set of stores. So we took the opportunity to close a few stores, as we've said before. We do not expect new shutdowns this year. But every year, we see the need to reassess our group of stores. But I think that most of those that we needed to address were closed now in the second quarter of this year.

[Eric Alencar, executive]

Irma. Thank you for your question. I'll talk a little bit about margins. I don't know if we're talking just about the gross margin but also the EBITDA margin. So I think it would be good to address both. On the gross margin, as we said before, our focus is on keeping the gross margin levels that we were able to stabilize. And they were high because of our work with suppliers to lower inventories to keep that level steady. We will now be working if we see a better environment to keep them at the current levels. Now, what had the biggest impact on our EBITDA margins was SG&A because we advanced the conversions, we made that investment and now our stores need to mature. And we have a few things to share with you about that. Our costs now that conversions have stopped tend to reduce because there's not a lot of items there. Our sales tend to mature.

And we added a slide to our presentation showing the sales record starting in the first year of our stores with 40% going to year 3 to 100%, starting with 1 and ending at the historical average of 5% to 8%. So this occurs over time because costs have already been absorbed, and we have not reached the level of sales of immature stores. Now, one thing that will affect our margin moving forward is the macroeconomic environment, both through inflation or consumer spending, and this is one thing that we will have to wait to see what happens. And there's also one thing that's very important to us, which is our banking operation. Now, we have 2 drivers there. Growing revenues and 2 offsets. One of them is a risk charge. It's difficult to talk about that right now because there's a structural aspect that will bring it down.

We do not see signs of it going down or going up. So for the next few months, we expect it to remain steady. On the other hand, we have new clients coming in with a very low delinquency level, but this is not something whose results you'll see in the first few quarters. And now there's something that's not only good for the bank but also for the client because they will have access to our clients via our cards that's more interesting. So we do not expect to interrupt these investments right now. So margins for the bank, steady gross margin for the group, steady and SG&A margins is where we have the challenge to invest, reach maturity, and reach the levels that we expect and want to see.

[Irma Sgarz, analyst]

It was clear about the margin levels, but do you expect these margins to come to the previous levels for retail or not?

[Eric Alencar, executive]

Oh, absolutely. It's just a matter of timing. In the case of retail, you have, for example, the hyperCard that we do not have, and we are little by little investing in new clients. We have online and BIG used third-party platform, and we moved that to our own platform. So in the near term, you lose clients, but in the longer term, you have the client's entire cycle within the company, even consumer spending in retail tends to develop mortgage slowly. B2B clients are more of traders unlike our consumers. So it's more about the -- how steep the curve will be. It's more about the time.

[Operator]

Moving forward, our next question comes from Danniela Eiger, sell-side analyst with XP.

[Danniela Eiger, analyst]

If you could give a little bit more detail and Eric talked about this in his answer, which is how the dynamics will work in your synergies. You have realized more than half of those BRL 2 billion that you projected, but we're still not seeing that play a role in your bottom line, especially for BIG because of these one-off costs or short-term costs, as Eric mentioned. So how can we expect to see that play into your results? Will that come only by 2025? And how do we think about these costs being eliminated over time? And how can we estimate your profitability developing over the next few quarters? That would be my first question.

And my second question, if you could add a bit more color about how the trend has been month by month in the market now that B2B is facing an inventory issue. And we know that that's being sanitized but there's also the price issue. So can we expect to see volume being replenished maybe over the course of this quarter or the next. So if you could add a little bit more color about how you're seeing this playing out over the next quarter and throughout the year in terms of volume, both on the cash and carry side and the retail side, that would be great.

[Eric Alencar, executive]

Hi, Danniela, this is Eric. I will answer and then Stéphane may add more information. Thank you for your questions. I'll start by talking about inventories. We have reduced nearly 15% or better, close to 10 days in the BIG converted stores. And we did that because we saw the inflationary scenario growing. And just as our clients in B2B, if we keep our inventories steady at a time of deflation, you have of that situation in terms of gross margin. And also, we have adopted the strategy of buying at the last minute so that we can pass on as little as possible of the increase in costs. So we have 5 days less than the historical average for Atacadão. I think that it's been a bit lower. That's what we felt in talks with our sales team, and we tend to increase that a little bit just so that we can make sure that there will be no shortage.

And with B2B sales, they will increase their volumes as well. So everyone will make their adjustments. So those volumes tend to increase a little bit because we're coming from very specific times. Now, about synergies, you, as much as we here, have been able to make sense of these synergies. Sometimes BIG, for example, will adopt better practices than the group as a whole, and that has an effect on our gross margins. And you're right when you say that you can see those synergies from BIG because of the high fixed costs coming from all the conversions that were just completed. So how can we model for that moving forward? First of all, Q3, we should begin to see the decrease in those costs. And there should be none of them by Q4. And there's also the maturity in the new stores. Now, what's not synergy is naturally underperformance. And that's because these new stores have a curve for maturity that's just natural.

So, I think that you'll be able to see that by looking at the chart that we provided in our presentation and that you will have access to later. If I could go back to the synergies issues. There's also the aspect of working capital for BIG. You even pointed out some of that because of the conversions. But we also see that in other lines. Are those synergies coming along? Should we expect to see them in the next quarters? Well, I don't even call them synergies. In this case, we're looking at normalization. We had 79 days in inventories with BIG, and that's moved to 70. And for the group without BIG, that number is 60%. Now, why is that? That's because when you open a store, you have higher working capital. You have inventory because of lower sales, you have less receivables. So the balance sheet looks different for a store that's just open. This is not something that should go back to normal in the next quarter. That will occur as the store matures. By the end of the year, their working capital should look a lot more like that of a mature company, but this is not something that will be normalized in 1 or 2 quarters.

[Operator]

Our next question comes from Bob Ford, sell-side analyst with Bank of America.

[Robert Ford, analyst]

Now, these aspects that you were talking about 2022 and 2023, when there should be the maturity with still slightly worse than in previous quarters. For example, the competition affecting that in the industry? And how do you think about the value proposition moving forward?

[Stephane Maquaire, executive]

[indiscernible] for your question, Bob. Yes, of course, the maturity of our converted stores is connected with the global environment in terms of consumer spending and purchasing power of our consumers. When we talk about converted store that we're opening, for example, BIG hypermarket being converted to Carrefour hypermarket or Atacadão store, it will take some time, especially considering a more challenging environment in terms of consumer spending. But we have to keep in mind that we have a 3-year period, which we've talked about since we purchased the BIG Group, and reinforced that last year when we were really able to conclude the operation, we need 3x. So it may be a bit slower to date, but in 3 years' time, we should see obviously, a completely different macroeconomic inflationary and economic activity time in Brasil. It's also important to remember that a month ago, we concluded this project of converting all those stores. So today, we are focusing exclusively on maturing those stores. Thank you.

[Robert Ford, analyst]

What about your value proposition and the consolidation of the industry? Where is your mind at there?

[Stephane Maquaire, executive]

Well, we do not have specific targets per label. In Atacadão, we have the lowest prices in the country, [ a price ] for accessibility as well. In retail, with Carrefour, we have our white label brand, and there we're proposing very interesting prices as well. And we can see the effectiveness of that in the penetration of these products, which has improved month by month. And the value proposition for Sam's Club is completely different. It's a membership club where you have access to more exclusive unique products, new products, even some white label or imported products as well. We are very confident in the value proposition that we have for these 3 formats, Carrefour, Atacadão and Sam's Club. And we also have the opportunity to build on the ecosystem, whether that's in the digital ecosystem or our banking operation and also the possibility to convert a store from one format into another if need be.

[Operator]

Our next question comes from Vinicius Strano, sell-side analyst with UBS.

[Vinicius Strano, analyst]

Stéphane, Eric. Now, my question is about the cash & carry converted stores. Could you give us an idea of what the mix of B2B and B2C customers looks like for these converted stores? And also, if we could explore more of the strategies that you're adopting to bring more of these B2B customers into the store to seize this ramp-up curve, what should we believe, what should we expect for the near term? Is it just a matter of time until they come into the store?

[Stephane Maquaire, executive]

Well, I will take the first part of your question and then let Eric add his comments to that. With regard to the converted stores, we have a slightly different answer. It will depend on what format these converted stores come from. Within the 76 stores that we converted into the Atacadão stores, we have 46 that come from a cash & carry model as well. So we have a customer base of both B2B and B2C customers. With the others, we're still building, and we have a ramp-up perspective, that's more or less in line between B2B and B2C clients. Of course, we are analyzing all of that store by store. When we convert from a hypermarket store, a BIG hypermarket store to the Atacadão model or the Atacadão format, we obviously start our journey with more B2C customers than otherwise or in situations where we are converting from other types of stores. And it's only natural that, that would happen, right? So there we have bigger opportunities to grow in terms of trustability because we're building a B2B customer base for these stores and adding to that the prospect of growth in our B2C customer base as well. Eric?

[Eric Alencar, executive]

Hi, Vinicius. The only thing I would add there is the effort is already in place. We are now doing the maturity curve, and it's all up to us. We have great expertise in the B2B space. And one thing that's really added to our strength and negotiations is our online customers. So the growth of our online operations. So the Atacadão operations are growing. So we expect to bring in a great volume of new customers there.

[Operator]

Moving forward, our next question comes from Andrew Ruben, sell-side analyst with Morgan Stanley. So moving forward, our next question comes from Mr. Ruben Couto, sell-site analyst with Santander.

[Ruben Couto, analyst]

Just to confirm the efficiency gain comment that you made in SG&A that could come to as high as BRL 350 million. That's regardless of the time line for realizing your synergies with BIG, right? We can confirm that this will be incremental, right? Should we expect any non-recurrent effect adding to that? Could you talk a little bit more about that effort?

[Eric Alencar, executive]

That's very simple. These are items that we started to look at once we started with the company. These are many small items, which go from looking at the journey and the cost, especially when looking at efficiency on the supply side, [indiscernible], these are items that take a little bit of time to be implemented, but once they are in place, we expect them to bring these efficiencies and these are connected to the entire group. Thank you.

[Operator]

Moving forward, our next question comes from [ Tales Grinnell ], sell-side analyst with Safra.

[Unknown Analyst]

I have a question about your set of stores. You mentioned that you have reassessed it now that you can complete the store conversion process. Now, what does the budget looks like for new store openings? How many new stores do you plan to open? Now, about the conversion of formats, say from retail to cash & carry, are you happy with the performance, and as the pilot project moves forward, do you plan to have more of those conversions moving forward, or is that not in the picture right now?

[Stephane Maquaire, executive]

Well, thank you, Mr. [ Grinnell ] for your questions. The budget for 2024 and 2025 will be calculated at the end of this year. And as we said a few months ago, we are waiting for the last quarter results this year to assess our prospects for the next year. We expect that to not be as challenging as it has been this year but so far, we do not have a fully formed view of what we will be doing in 2024 and 2025. Naturally, we have the opportunity to grow and open new stores initially in the Atacadão format, but further details for 2024 and 2025 will take a bit longer to work out. Now, your second question is an interesting one because we talked several times about the opportunity that we have to seize our ecosystem and convert a few stores from the cash & carry model to the retail model and vice versa.

Now that we have Sam's Club, we may even work out a few combos between Sam's Club and Atacadão. So a ton of opportunities. And in the next few years, as we've done this year, we see a few opportunities to convert a few stores from Carrefour hypermarket into other formats. Now, gradually, as necessary as the opportunity comes up, according to the specific needs of each store. So we are paying very close attention to these opportunities with positive prospects for these converted stores in their first few weeks. So we're also with our eyes open for other types of store conversions as well.

[Operator]

With no further questions, we conclude the Q&A session. We will now turn over to the company for their final remarks.

[Stephane Maquaire, executive]

Thank you very much, everyone. Thank you for your questions. This was very interesting for all of us on the call. Once again, we are now starting a new chapter in the history of our company. We spent the last 12 years converting several things, not only stores but also distribution centers and integrating customer bases and distribution centers. We are now paying attention to growing our stores and maturing of stores. This was a very intense work from all the teams, and I'd like to say once again that we are very, very happy seeing the involvement and commitment to everyone and our teams and making everything that we are making. And we have great prospects for the next few quarters. Thank you so much.

[Operator]

The Carrefour Group Q2 2022 earnings conference has now concluded. The company's IR department is available to answer any additional questions. Thank you so much for everyone attending, and have a great day.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]