Atacadao SA

BOVESPA:CRFB3

Earnings Call Transcript 2018-Q4

[Operator]

Good morning, ladies and gentlemen. Thank you for waiting. Welcome to Grupo Carrefour Brazil's Fourth Quarter and Full Year of 2018 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded and broadcast live via webcast on the Investor Relations website at www.grupocarrefourbrasil.com.br. The slide presentation is also available on this website. Slide selection will be conducted by you.

Before proceeding, let me mention that forward-looking statements are being made under the safe harbor of the Securities Litigation Reform Act of 1996 (sic) [ 1995 ]. Actual performance could differ materially from that anticipated in any forward-looking comments or statements because of macroeconomic conditions, market risks and other factors.

It is now my pleasure to turn the call over to Mr. Noël Prioux, Chief Executive Officer, to start the conference call. Mr. Prioux, you may proceed.

[Noël Prioux, executive]

Good morning, everyone, and thank you for joining us on this call to present Grupo Carrefour Brasil's Fourth Quarter and Full Year 2018 Results. I am joined on this call by Roberto Müssnich, CEO of Atacadão; José Luis Gutierrez, CEO of Carrefour Retail; Paula Cardoso, outgoing CEO of Banco Carrefour and newly appointed CEO of Carrefour eBusiness Brasil; Carlos Mauad, who has just taken over as CEO of the Bank; and Sébastien Durchon, our Chief Financial Officer. Daniela Bretthauer, our Head of Investor Relations, is also with us.

I will start with a brief overview of the key highlights of our performance and strategy, Sebastian will then detail our financial performance and Roberto, Gutie, Paula and Carlos will present the key performance highlights of their respective businesses. After my concluding remarks, we will then open the floor to your questions.

We will begin on Slide 3 with the key highlights of 2018, a year that saw significant transformation at Grupo Carrefour Brasil. During the year, many steps were taken towards realizing Grupo Carrefour Brasil's ambitions. Our goal is to maintain a leadership position in Brazilian retail, become leaders in food e-commerce, and a key player in nonfood e-commerce.

Similarly, and in line with the Carrefour 2022 transformation plan announced in January 2018, we further expanded our multiformat network. We accelerated our digital transformation. We launched new and innovative services, and we positioned ourselves as leaders in the food transition for all. All of these initiatives aim to bring us even closer to our millions of customers across the country.

We invested BRL 1.8 billion in the year in accelerating our multiformat expansion. We opened 20 new Atacadão stores and further developed our proximity strategy, opening 9 new Market stores and 6 new Express stores.

We also implemented click-and-collect in all Hypermarkets, installed 10 drives, made significant changes in CRM, made significant acquisitions and established important partnerships, the highlight going to Rappi to accelerate our last-mile delivery.

In e-commerce, we tripled the number of SKUs over the course of the year, bringing our marketplace to account for nearly 20% of GMV. Multiformat is also advancing in financial services. We started allowing the use of Carrefour card in all Atacadão stores. And we are exempting cardholders of their monthly fee.

And we continued to evolve in the food transition, with our private label representing 11% of Carrefour Retail sales at year-end compared to 8% in 2017, and with solid growth in sales of organic and healthy food, mainly due to the implementation of dedicated store areas.

We are on track to achieve our targets of 20% of private-label sales by 2022. To further strengthen the Carrefour ecosystem and integration between the physical world and the virtual world, we recently announced the creation of the Carrefour eBusiness Brasil business unit. The creation of Carrefour eBusiness Brasil is a clear sign of our commitment to profound transformation in our business model, becoming even more competitive in the Brazilian market.

We appointed Paula Cardoso to head this new venture. Over the past years, she has [ accelerated ] her position as CEO of Banko Carrefour with the role of Head of Carrefour's Digital Transformation. With the creation of CeBB, Carrefour eBusiness Brasil, she will now be dedicated full-time to this new segment.

Carlos Mauad, who is with us today, was selected to succeed her as head of the bank. On behalf of the group, I would like to welcome Carlos Mauad to the team and wish them both the best.

On Slide 4, you see how all this translates into solid and sustainable growth in sales and profitability. This slide shows the key headline numbers of both Q4 and the full year, both of which showed strong and sustainable growth in sales, adjusted EBITDA and net income. In the full year gross sales grew 8% to BRL 56 billion, adding nearly BRL 4 billion in sales. Adjusted EBITDA increased by 19% to BRL 4.2 billion, while EBITDA margins stood at 8.2% and net income group share rose 48% to BRL 1.9 billion with net margin of about 4%.

This result had a positive impact on our balance sheet, which remains very solid.

We ended the year with net cash of BRL 831 million with a very low indebtedness, which gives us great financial flexibility at this crucial time of transformation at the group. Free cash flow reached BRL 1.3 billion in the full year, up from BRL 1.1 billion in 2017.

Let me now hand over to Sébastien for a closer look at our numbers.

[Sébastien Durchon, executive]

Thank you, Noël, and good day, everyone.

As you see on the chart from Slide 6, we have seen steady improvement quarter-on-quarter in sales, and their growth rate also accelerated sequentially. Our consolidated sales were up 10% in Q4, in total, including petrol. This is a very dynamic performance, making the first quarter of double-digit sales growth since Q4 2016. This robust growth in the quarter results from the combination of several factors, including accelerating like-for-like sales in all formats, rapid expansion at Atacadão with 6 openings in the quarter, and sales growth of e-commerce, which already accounted for 10% of growth for retail sales including petrol in Q4 versus 5.8% 1 year ago. In the full year, gross sales stood at BRL 56.3 billion, up approximately 8% versus 2017. Like-for-like sales accelerated consistently during the year, reaching its highest mark in Q4 at 5.8% including petrol. The contribution of expansion to overall sales performance, namely the 20 new Atacadão stores, also increased quarter-on-quarter from 3.6% in the first quarter to 4.3% in Q4. The steady growth in sales throughout the year makes us even more confident in the outlook for 2019.

Please turn to Slide 7. Quarterly EBITDA performance also improved steadily during the year with adjusted EBITDA margin growing quarter-after-quarter both at Atacadão and Carrefour Retail. As Noël mentioned, adjusted EBITDA margin was close to 10% in Q4 and a little over 8% in the full year 2018.

On Slide 8, we turn to our P&L, which shows a sharp improvement in profitability, both in the fourth quarter and in the full year, thanks to the group's solid operating performance. Net sales were 10% higher in Q4 at BRL 14.7 billion (sic) [ BRL 14.4 billion ], driven by improved performance in all our businesses. In the full year, performance was equally positive.

In Q4, gross profit reached BRL 3.4 billion, up 19%. Our gross margin improved by 180 basis points to 26.3%, driven largely by Atacadão's better performance and also by Carrefour Soluções Financeiras. The margin increase reflects the positive impact of the BRL 210 million in ICMS-ST tax credits for states other than São Paulo booked in the last quarter at Atacadão. We continued our cost reduction efforts across banners, especially Carrefour Retail. SG&A expenses were virtually stable year-on-year at 14% of net sales, reflecting our productivity efforts with efficiency gains and tight control of expenses, even including the impact of an accelerated pace of expansion and of stores under construction. As a consequence of the significant increase of our gross margin and enhanced operating leverage, consolidated adjusted EBITDA rose by a very solid 27% in Q4 to BRL 1.4 billion. As a result, adjusted net income group share was up by a very strong 66% to BRL 758 million with a 5.3% net margin. Our performance in the full year was equally strong. Net sales were up 7% to BRL 51.3 billion, a gain of nearly BRL 4 billion in the year. Adjusted EBITDA was up 19% to BRL 4.1 billion with margin increasing by 76 basis points. Our net financial result was down by more than 45% in the year as a result of lower interest rates and lower debt level in the period.

As a reminder, in 2017, we used the proceeds from our IPO to pay off all our intercompany loans with Carrefour Group. As such, adjusted net income group share increased by 48% to BRL 1.9 billion. As you see on Slide 9, our solid operating performance and strong free cash flow generation of BRL 1.3 billion in 2018 allowed us to pay a higher dividend with a total payment for the year standing at BRL 470 million. This is 48% higher than the 2017 dividend payout. As previously announced, we anticipated payment of part of the annual dividend in the form of interest on shareholders' equity in the amount of BRL 380 million, which was paid in December. Yesterday, our Board of Directors proposed an additional dividend payment of BRL 90 million also in the form of IOE to complement the payout for the full year 2018, which translates into a payout of 25% of adjusted net income.

This additional amount is subject to approval at the Shareholders' General Meeting scheduled for April 16, 2019.

We will now take a look at each of our business units. I will now hand over to Roberto to start with the excellent performance of Atacadão.

[José Müssnich, executive]

Hello, my friends. Thank you, Sébastien. Atacadão posted another very strong and consistent quarter, as you see on Slide 11, with sales accelerating in double digits and margins improving. Gross sales in Q4 accelerated for the fourth consecutive time, as you seen on the left chart of the slide, attesting the strength of our commercial model. Sales rose by almost 15% in Q4 to BRL 10.7 billion, a steady significant increase over the 11% growth recorded in Q3, the 8% increase in Q2 and the 5.7% rise in Q1. We saw a continued increase in volumes and average ticket. This refers to the technique of the model, the elasticity of B2B as well as the most favorable commodity prices. The strength of Atacadão's model was evidenced by the strong acceleration in like-for-like sales that you see on the graph in orange.

Like-for-like growth accelerated quarter-after-quarter, from 0.5% Q1 to 4.5% in Q2, 6.2% in Q3 and 7.4% in Q4. Expansion also contributed 7% in the quarter and grew consistently quarter-on-quarter, as shown on the blue part of the bar chart. We opened 6 stores in the fourth quarter to achieve our goal of 20 openings this year for the first time in our history. Most of these openings were in cities in which Atacadão was not yet present. In other words, we have further broadened our footprint.

The robust pace of openings throughout the year created optimal conditions for each new store and enables us to maintain this pace of expansion in the medium term.

Gross profit in the quarter rose by 29% to BRL 1.6 billion. As mentioned by Sébastien, Q4 margin includes the recognition of BRL 210 million of ICMS-ST tax credits for states other than São Paulo, resulting from a positive [indiscernible] credit position. Those credits are recurring and reflect full year gain. In the full year, our gross margin was up 80 (sic) [ 78 ] basis points, including 52 (sic) [ 54 ] basis points of tax credits. Thanks to our efficiency and strength of our model, we managed to keep distribution costs stable in the full year at 8.1% of sales despite the 29 (sic) [ 20 ] new openings and the growth posted. Adjusted EBITDA strongly outpaced sales growth and rose by about 44% in Q4 with margin improving 190 basis points to 9%. Excluding the ICMS-ST tax gain of BRL 158 million related to the first 9 months of the year, adjusted EBITDA was 18% higher at BRL 734 million with margin up 23 basis points to 7.5%. So Atacadão's leadership and growth story continues.

Every year is better than the last with growing profitability, thanks to the beauty of our model. I will also comment on the announcement we made just yesterday of the creation of a COO position in Atacadão with the appointment of Marco Oliveira to occupy the position. This is yet to be formalized by our shareholders. I'd like to remind you, you probably know, Marco has been with me since day 1 of Grupo Carrefour in Atacadão, and has played a key role in maintaining culture and in our ongoing growth process.

Sébastien Durchon will replace him as CFO of Atacadão, combining this function with the position he has held as CFO of Grupo Carrefour Brasil for the last 5 years. This is part of a streamlined succession plan, a succession plan that would be taken forward smoothly. And I will remain the CEO of Atacadão for as long as necessary, supervising initiatives that are under development. There'll be a lot more to talk about, especially with regard to our new growth fronts, including digital initiatives. In sum, a brilliant future awaits. Thank you very much, let me now hand over to Gutie.

[José Gutierrez, executive]

Thank you, Roberto. On Slide 12, I will comment on the performance of Carrefour Retail. In the fourth quarter, our gross sales totaled BRL 5.1 billion. Like Atacadão, Carrefour Retail's sales also accelerated quarter-after-quarter. In Q4, like-for-like sales were 3.5% higher versus 2017, accelerating substantially from a growth of only 1% in the first half. This recovering sales reflect several factors. Firstly, I would like to comment on the many successful initiatives we have implemented in Hypermarkets, in line with our food transition strategy. We expanded our healthy product offer in

1/4 of the store network in 2018, and we plan on doing this in the remaining stores in 2019. We also increased the penetration of our private-label products to 11% of sales at the end of last year, showing significant growth. Secondly, the positive results of the first phase of the competitiveness plan implemented in 23 Hypermarket stores that faced greater competition in their respective locations. In the fourth quarter, we expanded this competitiveness plan into some key categories in all stores. Thirdly, the improved performance of proximity stores: the Express format, where we made a series of changes in the sales model, resulted in a very positive sales trend with double-digit increase in like-for-like sales in the fourth quarter; and the successful openings of 10 new Market stores, which reinforced our proximity strategy in 2018. And lastly, e-commerce sales made an important contribution, accounting for 10% of Carrefour Retail's sales in the quarter. Paula will detail this later. Regarding our profitability, I would like to highlight the important reversal in the gross margin trend. Gross margin in Q4 was virtually stable at 25.8% versus Q4 '17. But this level represents a significant improvement compared to the average gross margin of 24.2% in the first half of the year. This improvement was achieved despite the impact from the higher share of e-commerce and investments in the previously mentioned competitiveness plan. As a percentage of net sales, distribution costs accounted for 19.5% of net sales in Q4, the lowest quarterly percentage in 2018, reflecting our ongoing cost reduction and efficiency initiatives underway.

In 2018, distribution costs were 20 basis points lower than in 2017 and accounted for 20.1% of net sales despite the mandatory collective wage increase in the last quarter and investments in our omni-channel project. Thus we observed a gradual improvement in adjusted EBITDA margin over 2018 from 3.9% in Q2 to 4.5% in Q3 and to 6.4% in the last quarter. In other words, an increase of 200 basis points compared to the beginning of the year.

I will now hand over to Paula, who will comment on e-commerce and our omni-channel strategy.

[Paula Cardoso Florez Chaves, executive]

Thank you, Gutie. Hello, everyone. Once again, our e-commerce operations were the fastest-growing segment within Carrefour Retail, as shown on slide 13. E-commerce sales now account for 10% of our retail sales nearly doubling year-on-year.

As shown on the slide, Q4 was another period of strong growth, e-commerce GMV grew by 110%, significantly outperforming the market in the same period, 13% according to E-BIT. We enjoyed an excellent performance at Black Friday with growth of 71% in the number of visitors to our website, 82% increase in orders and 8% higher average ticket.

In the quarter, orders were up by 77%, as we continue expanding the number of SKUs. The number of visits was up by 76%, reaching 44 million in Q4. Average ticket was 19% in the quarter. Our marketplace is growing rapidly. It now counts more than 1,500 sellers with SKUs multiplying by 3x during the year to reach about 2 million. As a result, the marketplace accounted for nearly 20% of our GMV in Q4 compared with 16% in the previous quarter. Such strong growth is significantly helping us gain scale and profitability. The operation generated cash in 2018. Gross margin improved by nearly 400 basis points in the year when we compare the second half to the first quarter of the year.

In Q4 '18 and Q4 '17 comparison, increase was 5.6%. Marketplace has reached breakeven and should start to positively contribute this year.

Slide 14, please. Slide 14 shows you a few examples of deliveries aligned with our already announced priorities, which are expanding rapidly. I would like to point out 3: omni-channel experience, payment and data. One, omni-channel. We have completed the roll-out of click-and-collect, which has a nonfood focus, in all of our hypermarkets. Some figures are worth highlighting. This operation now represents about 10% of total 1P sales, reaching [ 16% ] of e-commerce sales at Black Friday. One in every 3 customers that chooses to pick up the product in 1 of our stores ends up making an additional purchase. 20% of the customers are new to Carrefour.

Now take a look at drives, which focus -- really focus on food items already available at 10 stores, accounts for 21% of food e-commerce orders, perceived quality indicator NPS higher than 70% and a 40% repurchase rate.

Concerning payments, we already have 3 initiatives: Scan and Go, focused on Carrefour Express, where customers scan the product and pay for them via their mobile app without having to go through the checkout line; QR code, customers that are Carrefour cardholders can pay using the QR code at Hypermarkets without using the physical card via the Carrefour app; [ Grupo Carrefour ] Pay, our digital wallet with NFC technology, which supports payment at any store that has this [ approximation ] technology available, including all Carrefour stores.

Now we'll give details about our program, Meu Carrefour. We have over 13 million customers registered in the program.

Today, 67% of sales are identified. We had over 1.5 million downloads of our app and most importantly, we have already seen growth of 51% in the active customer [ bases share ] between January and December. And frequent customers are spending 40% more on average.

We will continue to accelerate our program. Slide 15, please. Here you have a little bit about our new area, Carrefour e-business. The creation of Carrefour e-business is a clear indication of our commitment to building a strong omni-channel platform and accelerating the O2O strategy focus and resources to accelerate the transformation of our traditional retail business into digital retail. Main objectives. One, becoming leaders in online food retail. Two, building the ecosystem, which simply means to quickly leverage the integration of the on- and off-line world with logistics and payment solutions using start-ups to accelerate this process. In fact, this is already in motion. You were able to see our first acquisition, Cyber Cook. And we also took the first step towards accelerating last-mile solutions through our partnership with Rappi, which is going very well. About data and MarTech, we strongly leveraged the use of data and digital marketing so that with better knowledge of our customers, we can offer -- right offer them services and be more assertive. In this regard, in Q4, we already established a partnership with [ Tops ], a start-up for using analytic segmentation in campaigns, and we are really very excited with the results obtained so far.

On IT, an integral part of the business, we are creating Carrefour lab with a light and agile structure.

Let's talk now about the bank on Slide 16. As Noel previously mentioned, Carlos Mauad has taken over as CEO of Banco Carrefour this year. So for that reason, this will be the last time I present the bank's performance. It was a pleasure to lead the bank for the past 6 years.

So let's talk about results. Let's go to Slide 16. Banco Carrefour posted another strong performance in Q4. Billings were again up in double digits. Adjusted EBITDA posted another impressive increase as the quality of our credit portfolio continued to improve. Billings totaled BRL 7.5 billion in Q4, up 26%, and BRL 25 billion in 2018 full year, up 35% (sic) [ 32% ]. Atacadão credit reached breakeven in Q3. The credit portfolio reached BRL 8.4 billion, growing 33%. Adjusted EBITDA in 2018 was a BRL 829 million up 49%. And the EBITDA was BRL 895 million, up 61%. The balance of loans overdue more than 30 days fell by 0.10% to 12.5%, the best point in the curve over the last 6 years.

The bank is experiencing a structural transformation in its dynamics of customer solution development. The agile methodology [ spread of ] the company's day-to-day activities, and the squads were assembled to take care of the customers' full journey.

Speaking of transformation, I would like to turn the floor to Carlos Mauad, the new CEO of the bank, who will briefly comment on what we are working on.

[Carlos Mauad, executive]

Thank you, Paula. Good morning to all. The transformation model to digitalize customer experience has already been implemented and it's gaining momentum by the day, transforming the way the company relates to its customers.

Some results of this transformation can already be seen. In Q4, we sold 5x more cards through our digital channel when compared to the same period last year.

We had a significant increase in digital customer service through our app, web portal, self-service terminal and chat bots. 50% of collection negotiations were made through digital channels and 58% of those were delivered to customers in a digital format.

Looking ahead, we are closely connected to the digital transformation plan of the group, the transformation that has been adopted by structuring the teams in squads and developing an excellent center -- an excellence center.

All of this gives us greater agility and quality in the delivery of innovative solutions to our customers. I'm confident that 2019 will see the consolidation of new work dynamics translating into the expansion of our customer base, product that excel and operating and credit efficiency. Let me turn the floor back to Noël for his concluding remarks.

[Noël Prioux, executive]

Thank you, Paula and Carlos. Let me conclude on Slide 18, which presents our priorities and strategy for 2019. We have 2 priorities: the first, to connect new customers through our omni-channel strategy in all states of Brazil; and two, to strengthen our leadership in food retail. We will maintain an accelerated expansion pace, increasing investments in e-commerce and establishing new partnerships with start-ups and other technology players. We should invest approximately BRL 2 billion in 2019, fostering integration between the physical and the virtual world.

We maintain our strong commitment to being the leader in food retail in Brazil, always with excellence in our products and services and always one step ahead when it comes to innovation.

We'd like invite you all to join us in our Investor Day. It will be held on March 29 [indiscernible] in the morning. This concludes our presentation for today. Thank you very much for your attention, and we are now happy to take your questions.

[Operator]

[Operator Instructions] First question from Joseph Giordano from JPMorgan.

[Joseph Giordano, analyst]

I would like to know more about this margin trend in retail. We see an increasing trend. So I would like to understand from Paula, what is the main strategy to leverage the whole online ecosystem? Not just the online ecosystem, but given what you are implementing at Carrefour's platform?

Perhaps big data of the Atacadão card can help come to the profile of customers at the stores. And the second point, when we look at food inflation, it's running marginally above general inflation. So I would like to understand from you, can we start thinking about having a trade budget that will be a little stronger in 2019? In 2017 and '18, I think the commission for suppliers was a little lower.

[Paula Cardoso Florez Chaves, executive]

This is Paula. I will start speaking about the platform. We have no doubt that e-business looks at Carrefour regardless of the format. What matters is to be closer to clients and more agile in deliveries and accelerating strongly our growth. The use of data is undeniably an integral part of this process. And the answer is, yes. Just like happened -- it happened with Carrefour, where the cornerstone of CRM happened at the bank. This is also happening with Atacadão. Now we have more than 8 million in the database with many identified sales, and learning a lot segmentation and targeting. In the future, undoubtedly, everything will be 1 single thing, leveraging each one of the formats in terms of efficiency, growth and its location for distribution.

Complementing a clear benefit that we have in nonfood, in the last 2 years, we had a strong growth both at the stores and in e-commerce.

And with that, we were able to increase our nonfood sales by almost 50%. So you can imagine all of the benefits that this brings us both in e-commerce and in retail.

Even more so with click-and-collect and all of the things we were able to implement last year.

[Joseph Giordano, analyst]

I have a follow-up question. We are using a super app, while the competitor is trying to improve theirs. So I'd like to understand your rationale of having a partner, Rappi, instead of having an in-house solution?

[Paula Cardoso Florez Chaves, executive]

This is Paula. I think there are some messages here. I cannot speak for the competitor. I can speak ourselves. We definitely want to accelerate the food business growth. We're establishing a partnership with a market leader today, Rappi. They are growing very strongly. It is an operation which is a win-win case, because we are leveraging the strengths of both our operational efficiency and a fast last-mile delivery, which is Rappi's strength. It doesn't mean that this is the only solution for us. It was the first solution. We forged a partnership with the strongest player in this market, in our view, and they are growing very quickly. We are very happy with the solution so far.

[Joseph Giordano, analyst]

Now I have a question regarding the margin.

[Unknown Executive]

Well, in the margin, in the first half, we had a strong impact on margin because of prices. We have 3 effects: one, we have initiatives of investing in a smarter way to recover our margins; the second is our negotiations with suppliers; and thirdly, multiformat with higher margin levels compared to the average of retail. And also we have a better trend. When you want to negotiate with a supplier, you need volume.

Our strategy was to maintain price to show that this is sustainable and that they can win with Carrefour because of our high volume. This is what matters.

It was difficult in the first half but now, we see an evolution.

And 2019 is expected to be the year of sustainable growth, and this is what we want, not just 1 quarter. We want to have a true policy for our customers with affordable prices, with good volume and good quality. And all of the parameters are good.

[Operator]

Next question by Thiago Macruz with Itaú.

[Thiago Macruz, analyst]

My question goes to Roberto. When we look at what happened to profitability of your business in the last 2 years, we realize that fiscal benefits that you had ended up in the margin. That led to EBITDA surprises for us compared to our prior estimates. My question is, do you expect some kind of investment of this little fat in prices in the short term? Is this reasonable? Or do you think the competition is a little less complicated than you imagined, and so it would be reasonable to suppose that the margin should remain stable or, perhaps, even higher compared to current levels? This is my question.

[José Müssnich, executive]

Hello, Thiago. Indeed, you mentioned this "fat." We don't need to use it, because this is a true buffer, it's a true fat not included in our operation. And we want to keep it this way. It is a weapon, it is ammunition. Of course, it exists and it is there. Regarding the competitive landscape, the competitive landscape is more and more competitive, not less competitive. What happens with the margin every now and then is, given the beauty of our sales model, and given the scale that we have, it can be used for us to have an effect on absolute numbers. We can perhaps use demand elasticity, reducing margin a little bit to end up with a slightly better absolute number. This is a tool that is available to us in the model and we know how to use it.

What we've seen today is that our ability to negotiate, our ability to establish partnerships with our suppliers, plus the need to invest in the markets, all of this is helping. And like we like to say, the market changes every day and we try to get the best out of the market. You saw improved margin, given the volume and given the efficiency of the model more specifically. Now if we need to use that fat, we will use it, no doubt about it. I hope I have answered your question, Thiago.

[Thiago Macruz, analyst]

You did answer my question, Roberto.

[Operator]

Next question from Richard Cathcart with Bradesco.

[Richard Cathcart, analyst]

I have 2 questions. The first is about gross margin of retail. I think Paula said that e-commerce grows the margin, generate -- or grew 6 -- or 6 points year-on-year. If I understood this well, this means that the gross margin of Hypermarket had a relevant reduction. I just want to understand if is this a fair statement? And if there is a reduced gross margin in Hypermarket, what was the reason for that? Investments in price perhaps? And my second question is on e-commerce. Paula, you gave us some detail on the gross margin of e-commerce. Could you tell us a little bit about the profitability of the e-commerce channel regarding the EBITDA?

[Unknown Executive]

Good morning, Richard. The margins were -- well, this is an important point. Paula said 5% of the e-commerce margin happened in Q4 of the year, not for the full year, in Q4. I want to remind you that e-commerce accounts for 10% of retail. So the gross margin of retail did not drop. It actually increased a little.

So this applies to the -- to Q4. Now the e-commerce point is very important. Two years ago, we had an impact, a reduction in our total margin because of e-commerce, and now we are coming to a very different moment. We're gaining scale and e-commerce is able to improve its margin.

There's less impact on the compound margin for Retail. And again, we had a strong growth at the stores. At the stores, we are improving, marginally, the margin. So this -- there is no reduction of whatsoever in Retail margin.

[Paula Cardoso Florez Chaves, executive]

This is Paula. Talking about the profitability of e-commerce. It is always important to remember that this is a start-up operation. For 2.5 years, we've been investing. We don't give guidance on the EBITDA margin, but we can tell you clearly that the gain in scale was very strongly. Our expenses improved almost 6 points this year. We were a cash generator, which is extremely important in an e-commerce operation and improving our margins with specific mixes and synergy gains. This is the path to go. This is the point of no return. This is an important growth driver. It's important for the omni-channel strategy, but undoubtedly, we have a focus on profitability, and scale gains and growth will allow us to improve that relationship year after year.

[Richard Cathcart, analyst]

Just a quick follow-up question. Actually, I wanted to understand the growth margin of the Hypermarket excluding e-commerce.

[Unknown Executive]

Well, food had a stable margin, improving slightly. And non-food remained steady. But again, net of e-commerce and retail, we have a greater growth in non-food than in food. So look at the combined picture of the margin, it's slightly lower. But sector-by-sector, the margin did not fall.

[Operator]

Your next question by Mr. Robert Ford with Bank of America.

[Robert Ford, analyst]

Paula, how will the demand impact the profitability? I know that your experience with Rappi is new, but can you tell if we have incremental deliveries, or if it's just a change in the behavior of existing customers?

[Paula Cardoso Florez Chaves, executive]

Robert, I'm sorry. I didn't understand the beginning of the question, could you repeat the beginning of the question, please?

[Robert Ford, analyst]

How will the demand delivery impact the stores? And I know that your experience with Rappi is new, but can you tell us if this is incremental deliveries, or if it's just a change in the behavior of existing customers?

[Paula Cardoso Florez Chaves, executive]

Well, regarding the profitability, we are at the very beginning of this partnership. I think that both parties are investing and we are learning a lot. I think that this is a learning moment. We have new customers, 60% of what we are getting is new customers, A, B income brackets. We are learning a lot about a regional action. So, Bob, we are in the third month of this partnership. We're implementing it and growing fast in more than 48 stores. And this is a learning moment regarding customer behavior, and regarding the right offers to customers. This has been a very rich experience for us. Regarding profitability, we are at the very beginning. We have a number of negotiations ongoing to grow the partnership. It's too early to say. The operation is -- it's [ crawling ] still.

[Operator]

Next question from Mr. Ruben Couto from Santander.

[Ruben Couto, analyst]

I have 2 questions. Could you give us an update on the competitive plan for the Hypermarket? Do you intend to roll out in more stores, in addition to the initial 23? What has been -- how well was this received by suppliers? And another question, very quickly. You mentioned a minimum of 20 new openings for Atacadão, could you increase this number for 2019? Where do you see an opportunity to accelerate expansion, in markets where you don't have a footprint? Or perhaps, opening more stores in existing locations?

[Unknown Executive]

Well, in 2018, we decided to address the stores that needed more investments. And then, we focused on the food category.

This was a decision that we made in 2018. And now we are measuring the impact in terms of volume growth and to see the results. And obviously, an important work of this new investment has to do with the volume that we negotiate with our suppliers.

Regarding the opening of stores, Ruben, well, we have a pipeline and the pipeline requires some time so that we can get the approvals and so on and so forth. And our pipeline ensures a minimum of 20 openings for 2019. However, when we get authorization to open a store that we qualify as extremely profitable, extremely good, we won't take too long to do the work.

And that's why we state a minimum of 20 stores. But if there's an opportunity, we can fill in some of the gaps and do a little bit more.

[Ruben Couto, analyst]

Second, just a follow-up question regarding the expansion. You are now opening more stores in cities where you are not present, in smaller regions, or are you focusing on opening more stores in regions where you already have a store?

[Unknown Executive]

Well, we try to have a balance there, a balance between existing markets and a strategy not only to protect these markets, but also to tap into those markets because in our model, when we are in an existing market, we offer the same price in the competitive clusters. And [ about -- ] with the new markets, where we can offer our proposition to supply to our customers and to have a good performance, so we are trying to have a balance.

And it's almost half and half, half of the stores in existing markets and half in like spots where we would open new stores to increase our footprint all over Brazil.

And I'll give you 1 example. We are opening next Thursday near [ Belaine ] in the city called [ Kastinau ], and 2 weeks later, we will open a store in the state of Mato Grosso in the city of Tangara da Serra, which is a new market for us. This location is currently served by a store which is 300 kilometers away. And then another store in Alagoinhas in the state of Bahia.

[Operator]

Your next question from Gustavo Oliveira with UBS.

[Gustavo Oliveira, analyst]

Congratulations on all of the changes you're making. They make a lot of sense in our point of view. Congratulations. So still in your Atacadão expansion plan, is there any condition -- I remember that we had conversations in the past when you said you have the possibility of opening stores which are smaller than the current size of stores.

Is this plan being executed? Or can you start executing it? And is it independent of the profitability level which is as high as what you are having today, or could you perhaps have a little less? Because I imagine that smaller formats could bring a slightly lower margin in the Atacadão banner. I would like to have more color on that please.

[Unknown Executive]

Thank you, Gustavo. Again, the key word here for you to understand this is balance. Yes, depending on the opportunities, when we have a smaller plot of land and smaller spaces, we have opened smaller size stores. That will not impact Atacadão's [ EBIT ] operations. So it's not just the assortment that we offer, basically, food items, but also the operation as a whole. We have our stores with their own inventory. The ammunition of the store is the inventory at the store. We don't want to change that model much. And overall, the profitability targets of the stores remain in a good balance. It doesn't change store to store. It's not according to the size of the store that we have different profitability models. No, the stores have to have the same economics that we have in all of the stores throughout the expansion plan.

In large cities, we can have stores -- closer stores with smaller sizes. We already have that, we know how to operate them. Actually since 1995, we've had some stores that were 3,500 or 4,000 square meter stores that are extremely profitable and following the Atacadão standard. I hope have answered your question.

[Gustavo Oliveira, analyst]

So when you talk about a mix of 20 new stores, do you see any change or slightly smaller stores perhaps gaining more share? Or you can see any change in the trend?

[Unknown Executive]

No I don't see any great change in the trends. There's a possibility to have these stores. We should not forget that there's no motivation. For example, [indiscernible], 600 kilometers from Cuiabá. There we have a purpose which is clearly distribution. What is the purpose of having a smaller-type store. That doesn't make sense. In large centers, that is possible. If we have a wholesale operation that can support that, then we can have the smaller size store with more accessible delivery [ spend ], never touching the economic model.

[Operator]

[Operator Instructions] The next question from Thiago Bortoluci with Goldman Sachs.

[Thiago Bortoluci, analyst]

I have 2 questions. One about the outlook of margins in retail. You mentioned in the release there's an SG&A pressure because of your investments in omni-channel and that these pressures should continue along 2019. What is your expectation regarding the EBITDA margin of multiformat? That's the first question. And second question regarding the performance of the bank. We see solid growth but we feel a pressure on margins at the bank as well. We would like to understand this pressure. Is it 100% mix with Atacadão gaining more representation or if there is any other impact at play here?

[Unknown Executive]

Thank you, Thiago, for the 2 questions. About the first one, as you know, we don't give EBITDA guidance. What I can tell you is that, look at 2018. Quarter-after-quarter, EBITDA margin of retail has improved. So at this point, we don't see any reason for a different trend this year.

Regarding your second question, Thiago, I need to understand what you mean about a pressure on margin so that I can be more [ assertive ] in my answer. Because we see strong growth of portfolio, we see growth of our revenues, we see better credit quality, great efficiency in reducing expenses. So I don't see exactly what you're seeing.

[Thiago Bortoluci, analyst]

When I tried to calculate your EBITDA margin, I get your EBITDA margin and I divide it by your sales.

[Unknown Executive]

I don't know if this is the way we should look at this in a bank. It's different than retail. Thiago, I think we have to look horizontally how revenue grows and with what efficiency level. Looking at the EBITDA according to revenue, [ the sales even ] work. You would have to look at the whole volume, almost BRL 37 billion, and not the financial margin. What you're getting is strong growth, with strong profitability, with good credit quality. For a bank, this is the best way to analyze efficiency. This is what I recommend.

[Operator]

This concludes today's question-and-answer session. We turn the floor to Carrefour for the final remarks.

[Noël Prioux, executive]

Well thank you very much to all. I would like to thank my team for such great results for the full year. And I hope to see you on our -- in our Investor Day on March 29. Thank you very much.

[Operator]

That does conclude Carrefour Brasil conference call for today. Thank you very much for your participation. Have a good day.