Atacadao SA

BOVESPA:CRFB3

Earnings Call Analysis

Carrefour's Strategic Shifts Amidst Deflation Challenges

In 2023, Carrefour Brazil navigated deflation and completed the BIG Group integration, realizing anticipated synergies. E-commerce grew by 39%, reaching 9.3% penetration, while like-for-like sales were affected by a 0.5% deflation, resulting in flat overall sales year-on-year. The Atacadão format's mature stores showed robust growth and Sam's Club sales increased by 18%, highlighting the resilience of these formats. The company pursued efficiencies leading to a quarter EBITDA of BRL 1.9 billion, with 6.7% margin and an adjusted net profit of BRL 520 million. Store portfolio optimization included closing 104 stores and planning 40 conversions to Atacadão and Sam's Club until 2026, expected to enhance profitability. The discontinued stores, which accounted for significant challenges, are expected to improve future EBITDA. Furthermore, Carrefour is committed to ESG, making strides in reducing emissions and promoting diversity.

Steering Through Transformation and Tribute to a Visionary Leader

Group Carrefour Brazil navigated through a transformative 2023, concluding the integration of BIG Group and converting 129 stores with financial discipline while honoring the legacy of the late entrepreneurial luminary, Abilio Diniz. Staying true to its mission, the company added 23 new stores and enhanced operational efficiencies despite facing challenging macro conditions.

Solidifying E-Commerce and Adjusting to Market Dynamics

E-commerce penetration grew to 9.3%, with GMV surging by 39% to BRL 2.8 billion. Notable was the doubling of Atacadão's digital channel sales. However, food deflation marginally impacted overall sales, which remained stable. Conversely, the converted Atacadão stores showcased robust growth, reinforcing the potential in strategic store conversions.

Retail Challenges and the Emergence of Sam's Club

The retail segment faced headwinds with a 13% decline in sales and a 1.8% decrease in like-for-like Cash & Carry sales. In contrast, Sam's Club excelled with an 18% increase in sales and an 8% uplift in like-for-like sales, validating the company's investment strategy in this promising segment.

Financial Resilience Amidst Portfolio Optimization

Group Carrefour Brazil's EBITDA stood at BRL 1.9 billion, with a 6.7% consolidated margin, reflecting positive contributions from the matured BIG Group stores. The adjusted net profit amounted to BRL 520 million. Concurrently, stringent portfolio optimization yielded quarterly store closures and conversions, setting the stage for strengthened profitability.

Embracing ESG Initiatives and Community Engagement

The Group has made commendable progress in social and environmental engagements, ranging from extensive food donations and social program participation to accolades in diversity and inclusion. Moreover, the clear commitment to decarbonization is reflected by the significant reduction in carbon emissions, surpassing the year's target.

Navigating Operational Overhauls and Financial Restructuring

Carrefour Brazil underwent substantial operational changes, closing 104 stores that minimally impacted sales but heavily influenced EBITDA by over BRL 200 million. The financial recalibration entailed significant write-offs, though noncash accounting steps formed the bulk of these charges. This proactive approach promises forward-looking EBITDA benefits and is supported by the property sales of the closed sites.

Yearly Fiscal Synopsis: Growth Amidst Deflationary Pressures

Annual gross sales climbed by 6.9% to BRL 115 billion, predominantly driven by expansion. Margin contractions were mitigated by supplier negotiations, despite promotional activities and ending the Hipercard partnership. Strained by consolidation and scale-up activities, EBITDA reached BRL 5.7 billion with a 5.5% margin, and an adjusted net profit for 2023 was marked at BRL 386 million.

Strides in Cash & Carry and the Retail Shift

The Cash & Carry format expanded to 361 stores, with gross sales marginally increasing to BRL 21.2 billion. The Atacadão legacy segment maintained healthy profitability margins, whereas the Retail segment's sales declined due to tactical store conversions and a decrease in same-store sales.

Sam's Club: A Story of Expansion and Membership Growth

Sam's Club continued a strong trajectory with gross sales reaching BRL 2 billion, an 18.1 million improvement, and an 8% hike in same-store sales—demonstrating substantial growth in its active membership base. The foresight in nurturing this segment stands as a testament to Carrefour Brazil's strategic diversification.

Final Takeaway: A Company Poised for Recovery and Growth

Despite some transitional pains, Group Carrefour Brazil is on a path to recovery. By closing unprofitable stores, revitalizing the portfolio, and capturing new market segments, the company is laying the groundwork for sustainable growth and enhanced shareholder value.

Earnings Call Transcript 2023-Q4

[Operator]

Hello, everyone, and welcome to Group Carrefour Brazil's Q4 2023 Earnings Conference. Joining us today from Group Carrefour Brazil are CEO, Stephane Maquaire; CFO, Eric Alencar, and IRO, Marcelo Bretas, who will begin the presentation. We'd like to inform you that this conference is being recorded, and will be available for replay at the company's IR website where the slide deck is also available. [Operator Instructions] We'd also like to say that any information contained in this presentation that any statement made during this conference relative to Group Carrefour Brazil's business prospects, operational and financial targets are based on the company's management's beliefs and assumptions as well as information currently available to them.

Forward-looking statements are no guarantee of performance. They involve risks, uncertainties and assumptions seen as they refer 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 Group Carrefour Brazil's future earnings and lead to materially different results than those expressed in such forward-looking statements.

I would now like to turn it over to the company's CEO, Stephane Maquaire, to begin the presentation. Mr. Maquaire, please, you may proceed.

[Stephane Maquaire, executive]

Good morning, everyone, and thank you once again for joining us as we release the results for the fourth quarter of 2023. First of all, I'd like to talk about the immense loss that we all had this past Sunday. This was not just a loss for the Carrefour Group, but a loss for Brazil at large, Abilio Diniz was unquestionably one of the greatest, most successful entrepreneurs this country ever saw. He was experienced and knowledgeable about the local retail industry like no one else. He was a dedicated professional and inspiring source of inspiration and learning. He was also an incredible human being, who adhered to value such as family, health and spirituality as well as love to his country as focal to his life. I was personally honored to live more closely to Abilio. in the last 3 years. Abilio is always extremely generous with major contributions and challenges to my mission ahead of the Carrefour Brazil Group and supporting me throughout this huge challenge.

On the day, Group Carrefour Brazil loses the Vice Chairman of his Board and the country loses one of its most admired entrepreneurs, I also feel the pain of losing a partner and also a friend. To Abilio, we'd like to say thank you so much for your inputs, and our honest tribute to this great man who will continue to inspire our work.

As our thoughts and prayers are with his family, his friends and the many admirers of this unforgettable man. As for us, what we can do is to give our best to preserve its legacy and remain steadfast seeking the purpose of Group Carrefour Brazil which is to be the best and consequently, as I said, the greatest retailer in Brazil, bringing high-quality, fairly priced food to every Brazilian.

Now for Group Carrefour, 2023 was really a transformational year. We concluded the integration of the BIG Group and the conversion of 129 stores in record time with great financial discipline and realizing synergies as expected. We continue to grow our store network, adding 15 new Atacadão stores and 8 new Sam's Club stores. In addition to that, we've introduced several changes to streamline our operations, lower costs and improve our agility, which makes us a stronger company, better prepared to navigate a constantly changing macro environment.

During the last stretch of last year, we outlined a sound strategy for Carrefour Brazil as we shared with you in our investor morning event on November 28 last year. We released our plan for optimizing our store portfolio and maximizing our returns on our assets as well as introduce or implement these initiatives, which we are doing in full steam. Once the decision was made, we began to quickly and assertively introduce the vast majority of our planned steps for the year, which have now been concluded or are on track to being concluded. We've begun implementing our conversion plan for the year. And by the end of January, we had already shut down 104 of the 123 stores we had mapped for closing. Those steps will be detailed further ahead.

As for operational performance, our e-commerce came to 9.3% penetration in sales with 39% GMV growth would coming to BRL 2.8 billion. The food channel was the highlight, particularly 1P, which grew 94% in this quarter, with sales in the digital channel for Atacadão, more than doubling versus the 1 year earlier. We are still feeling the results of food deflation, which overall this year was 0.5%, that affected our like-for-like sales and consequently, our overall sales, which remained steady versus last year. In the Cash & Carry segment, LFL was down by 1.8%, improving month by month over the quarter. Now it's important to highlight the strong performance of our converted Atacadão stores, which remain on their maturity track and showed sound LFL growth by 17% versus 1 year earlier.

The retail industry in turn, had a more challenging performance when it comes to like-for-like sales, affected by the macro scenario and also by a very strong basis for comparison, seeing as in the fourth quarter of the previous year, it had grown by 14%. Moreover, we also saw a 13% decrease in sales in this department with conversions and the shutdown of stores in retail over the year. Sam's Club was the most significant highlight when it comes to sales, which were up 18% versus 1 year earlier, with like-for-like sales up 8% and 8 new stores opening throughout the year. This performance shows how resilient this model is and how important it is to have an outstanding assortment, especially when seasonal effects are more significant, such as is the case for the fourth quarter. It also shows that our investment in growing this model has been bearing very interesting results. The Carrefour Bank also performed strongly during this quarter. As this portfolio grew 15% over the previous year as we attracted new clients to our converted stores. We also saw better trends in delinquency, which have been decreasing month by month, returning to similar levels as those we saw in early 2022 and late 2021.

The EBITDA for the quarter came to BRL 1.9 billion, with a consolidated margin of 6.7%. The old BIG Group contributed positively to our EBITDA this quarter with converted Atacadão stores maturing and coming to an EBITDA margin of 5% at the store level. Our adjusted net profit came to BRL 520 million.

Now on the ESG front. We've moved forward in implementing initiatives across our 3 strategic pillars. On our anti-hunger and -- in the quality front, we've donated more than 4,400 tons of food throughout the year or nearly 18 million meals. We also hired 1,144 associates who are beneficiaries of Federal Government Social Assistance programs, exceeding our target for the year. On the diversity and inclusion front, we were acknowledged twice for our actions. First, we were recertified by GEEIS, which is designed for European and international companies that contribute to building a more equitable society. And we were also awarded the best and the greatest in black entrepreneurialship in the inclusive companies for diversity. That was because of our black entrepreneurship acceleration program, which seeks to promote products by black entrepreneurs into our value chain.

Lastly, on the planet and biodiversity protection front, we've made strides in implementing our decarbonization strategy. The purpose of which is to reduce Scope 1 emissions by 50% by as late as 2030, and Scope 2 emissions by 70% before 2040. In 2023, our carbon emissions decreased 35%, 16 points more than our target for the year. Group Carrefour's commitment to ESG initiatives is a priority for us both in Brazil and in the world.

Now moving over to the next slide, I'd like to share with you a little bit more about how the implementation of our store portfolio optimization strategy announced in the investor morning event is doing. A quick reminder, we plan to maximize our return on our existing assets via 2 main fronts when it comes to the store network. First, by converting stores into more promising formats when it comes to growth and profitability, allowing us to grow more efficiently from a capital investment standpoint as we also leverage our operations on locations that we came to operate in over the years. We've announced we've converted about 40 stores in the retail segment to Atacadão and Sam's Club between 2024 and 2026, 20 of which will be concluded this year. And number two, sale or closure of stores, which structurally do not deliver at the level of profitability we strive for portfolio.

We conducted a meticulous analysis of our network and identified 123 stores that fit into this category. 16 of which are hypermarkets and 107 of which are supermarkets, and we're moving quickly to address the situation. It's important to note that these 123 stores account for just over 1% of our sales in 2023, but they had a negative impact on our EBITDA which was by over BRL 200 million. On the format conversion side, last December, we've already closed 6 stores to convert them and reopen them by the end of Q1. The impact of these conversions on our result will affect our EBITDA, and is by BRL 5 million to BRL 10 million per store in total. The estimated CapEx for these conversions is BRL 25 million to BRL 35 million per conversion. We expect an EBITDA gain in the maturity of about BRL 10 million to BRL 15 million per year per store.

As for sales and store closures by January 31 this year, or about 2 months after this decision was made, we had closed 104 stores and 19 other stores are at advanced negotiation stages. Virtually, all of the impact relative to the write-offs and expenses relative to these shutdowns have been accounted for in Q4. This impact on the Q4 result was significant coming to just over BRL 850 million. But it's also important to note that 2/3 of this total relate to noncash accounting steps and that the cash expenses of decommissioning will be more than offset by the sale of part of the properties on which these stores were operating. The EBITDA benefit of shutting down these deficit operations is expected to emerge in the next quarter. Shutting down stores is never an easy task for retailers, but we're confident that this decision will be the right one and quickly accretive from a result and focus standpoint seeing as this small part of our portfolio accounted for a great part of our challenges.

On that note, I'd like to turn it over to Eric, who will be detailing our financial data. Eric, please.

[Eric Alencar, executive]

Thank you, Stephane. Good morning, everyone. It's a pleasure to be here with you again. I echo Stephane's words about Abilio, who was unquestionably one of my greatest supporters and mentors here at Carrefour. He'll be greatly missed, but we'll move on doing our best to deliver the excellence he always for. On Slide 4, we look at the consolidated results for the company this quarter. Our gross sales in Q4 '23 came to BRL 31 million, down 1.2% versus 1 year earlier, particularly affected by the deflation scenario Stephane mentioned. Our gross margin, that impact was by 20%, especially because of the promotional sales in retail and also the end of our partnership with Hipercard, which helped the segment's results. And also the positive effect relative to the contract renewal with credit card brands at Carrefour in Q4 '22.

Our initiatives relative to synergy realizations, cost cutting and efficiency gains have emerged in the SG&A line, down 9.2% year-over-year and as a percentage of net sales, which improved 131 basis points despite the pressure from the growth of our store network and cost inflation. Q4 was a watershed for the company seeing as it was the first win the results of the old BIG Group have turned positive, impacted by the maturity of converted stores. The consolidated EBITDA was BRL 1.9 billion, which compared with 1 year earlier, reflects the effect of contract renewals with credit card brands at our bank in Q4 '22, the ramp-up of converted stores and the investment in attracting new clients to the bank to accelerate the capture of customers at our converted stores. Lastly, we ended the quarter with a positive bottom line. The adjusted net profit was BRL 550 million, still carrying the weight of the higher leverage and tax expenses as we have not begun to use the tax credits from BIG.

On Slide 5, a little bit about the consolidated result for the year. Gross sales in '23 came to BRL 115 billion, up 6.9% basically because of the effect of our growth, seeing as like-for-like sales in the year was affected by the deflation scenario. Gross margin was slightly down by 28 basis points because of better negotiations with suppliers during the integration. Seeing as they were enough to make up for the impact of higher promotional activities in retail as well as the end of our partnership with Hipercard.

SG&A, even though we are already at a lower level for the year, it was up 15% given the impact of the first complete year of our consolidation with BIG as well as the ramp-up in converted stores. As a result of these effects, the consolidated EBITDA was BRL 5.7 billion, with a 5.5% margin. And the adjusted net profit for 2023 was BRL 386 million.

Now let's move on to Slide 7, where we will specifically address the Cash & Carry segment. We ended 2023 with 361 stores in this format, adding 15 new stores throughout the year in addition to the stores that were converted from the BIG brand. There were no new openings during Q4 because as we had already announced, we concluded openings for the year in Q3. Gross sales in this segment came to BRL 21.2 billion in Q4 '23, slightly higher than the result we had in the previous year. Based on the same-store sales were down 1.8%, still pressured by food deflation but with improving -- improvements month by month. Old BIG Group stores that were converted into Atacadão again, performed very well growing by 16.8% in LFL sales. Our gross margin went up 57 basis points from 1 year earlier because of the new negotiations with suppliers during the integration with the BIG Group as well as the increased share of B2C in our overall sales, seeing as we had 19 stores that included bakery as well as cold storage and cold cuts services. As announced during our investor morning event, we plan to add those services to about 100 more stores by the end of 2024.

Our SG&A remained steady versus 1 year earlier despite the stores that were opened in the last 12 months and inflation on costs, which shows how focused we are in cost control as a percentage of net sales that was 8.7%, down 30 basis points year-over-year. The old BIG Group converted stores showed a margin of 5% at the store level, which is higher than expected. The ramp-up of converted stores combined with our gross margin gains and SG&A resulted in an adjusted EBITDA of BRL 1.4 billion with a 7.2% margin, up 89 basis points year-over-year. Our EBITDA margin for Atacadão Legacy was 7.6%, virtually in line with Q4 '22.

Now on to Retail on Slide 9. Gross sales came to BRL 7.9 billion in Q3, down 13%, especially because of the reduced sales area. A quick reminder, in the last 12 months, we've converted 21 retail stores into Atacadão stores. LFL sales were down 5.5%, slightly better performance than in Q3, but still impacted by deflation and the pressure on volumes. In addition to the strong basis for comparison of 14.4% in LFL sales in Q4 '22. Our white label brand, which is an alternative when it comes to quality and attractive costs and is also an important tool to build loyalty is still breaking records and increased its share, making -- or accounting for over 21.6% of sales. Our gross margin was 363 basis points lower this year affected by the markdown in our closed stores or stores that were closed for conversion, but the promotional trend in some stores and the end of our partnership with Hipercard in Q4 2022 were also an impact.

It's important to note that in 2022, our gross margins for the retail segment with BIG relied on the Hipercard results, which is no longer the case for this year. As a result of that, our SG&A came to BRL 200 million with 2.8% margin. The EBITDA margin, excluding impacts from BIG was 5.4%, 118 basis points lower than last year, especially because of the slowdown in sales and inflation as well. Lastly, at the lower right-hand corner of the page, I'd like to highlight the impact of operations that are being discontinued this quarter. These 123 stores accounted for a negative EBITDA of minus BRL 61 million in Q4. Excluding these operations, our retail EBITDA would have been BRL 261 million with a 3.9% margin.

Now on to Slide 11. Sam's Club showed gross sales of BRL 2 billion in the quarter, up BRL 18.1 million over the same period last year. And with 8% growth in same-store sales as well as an increase in our network with 8 new stores in the last 12 months. Our investments to increase are active -- our base of active partners has been bearing some fruit with growth by 25% in our active partner base over the previous year, accelerating versus previous quarters.

Now before we begin to compare the results in profitability, I'd like to clarify something. In 2022, the results we showed -- referred to the results at the store level, seeing as they do not capture the cost center for distribution that's dedicated to them and the fair share of corporate costs as well as contingencies in line with the allocation methodology that we've adopted across Group Carrefour to make analyzing our figures easier and provide a clear view of how the business is evolving just as we did in Q3, we will now present the figures for Q4 of last year in pro forma manner, so as to make them comparable to Q4 2023.

Our SG&A totaled BRL 269 million in the quarter. Looking in sequence, SG&A was up BRL 56 million versus Q3 of last year, an increase that's explained by the new stores we opened in June and which are now maturing. We're still investing in attracting and retaining partners stores, better store experience, logistics infrastructure as well, confident that this is a format with great potential for growth and profitability. Our EBITDA margin adjusted for the quarter was 6.5%, 20 basis points higher than the pro forma margin for Q4 '22.

Now our digital channel on Slide 11, again grew strongly during this quarter, driven largely by 1P Food. Our nonfood segment continued to grow positively as its GMV went up 11% year-over-year during that quarter with positive contributions both from 1P and 3P. Overall, GMV grew 39% year-over-year and e-commerce accounted for 9.3% of our sales, again, a record rate of penetration for Group Carrefour Brazil.

On Slide 15, we show the Bank Carrefour performance. We're still investing to attract new clients or new customers to the converted stores, which reflected in 15% growth for our credit portfolio. As mentioned before, it's important to remember that in Q4 2022, our Bank Carrefour recorded BRL 262 million in revenue from the renewal of contracts with credit card brands that happens every few years. Because of that effect, our earnings during the quarter were down 9.5%, and the revenue for the quarter was BRL 1.2 billion. Correcting for that effect, earnings would have come up 12% in keeping with previous quarter.

As you already know, attracting new customers naturally creates pressure in the short term, both when it comes to risk and when it comes to SG&A. And this quarter was no different. However, just as in Q3, we already see that effect being partly offset by the financial margin for the customers we've attracted earlier in the year, which makes it so that the impact from that investment gradually reduces over the course of the year. The net effect on the EBITDA for client attraction in converted stores from BIG stores was BRL 31 million negative this quarter, lower than in previous quarters. Starting in Q3, we began to see an improvement in delinquency rates, which became more intense in Q4. As a result, our EBITDA in the quarter was BRL 252 million or BRL 283 million if we exclude the impacts from the investment to attract new clients. Excluding the effect of contract renewals with credit card brands in Q4 '22, our EBITDA would have gone up 49% versus 1 year earlier.

Now on to Slide 16, where we will go a little bit deeper into the delinquency issue. In the first chart that we see on the page, we show the over 90 and over 30 trends. On both sides, we see improvement -- gradual improvement in when comparing year-over-year figures, the same can be said. The acceleration of the curve in Q4 '22, as I said in the previous slide, was also because of the improved quality and credit for the market at large. When we compare the market's performance at large, which you can see in the graph at the center of the slide, we see that since Q3 2023 the delinquency level has been steady for us, which is better than what we see for the market at large. The new accounts show a very healthy profile as the chart on the right shows, referring to clients in arrears by over 30 days after 3 months of receiving the loan.

On Slide 18, we've restored the net -- adjusted net profit of BRL 520 million we had in the quarter. Our cash result after taxes and depreciation came to BRL 1.4 billion. The financial expenses came to BRL 758 million, helped by the reversion on our provisions. Tax expenses came to BRL 80 million, still affected by the fact that our legal entity -- the BIG's legal entity had a loss that still hadn't been absorbed for the purposes of calculating the consolidated taxes.

Now on to Slide 19. Our operational cash generation for the year is still strong, albeit impacted by the integration of the BIG Group with a gross cash flow for our operating activities coming to BRL 5.2 billion in the last 12 months. Our free cash flow for shareholders came to minus BRL 70 million, which is neutral in the year of intense investments, showing the group's ability to finance the strategy as we come back to normalized CapEx with a ramp-up of our open and converted stores and the reduction in our indebtedness, we should see a virtuous cash generation scenario. In Slide 20, ended the quarter with a net debt, including receivables and discounts of BRL 8.2 billion, BRL 343 million more year-over-year, with the result of an investment intensive year. Our leverage index was 1.48x our net debt to EBITDA.

I also like to say that it's important to note in early 2024, we saw an attractive window in the market and issue an institutional debenture of BRL 1.5 billion with an average maturity of 2.5 years, at an average rate of CDI plus 1.27 and CRA of BRL 1 billion with an average maturity of 4.3 years and an average weighted rate below CDI plus 1. In both cases, it's clear that the quality of credit for the Carrefour Group is high, and the appetite that the market has for our name is also clear, with demand 1.4x for our debenture focused on the institutional audience and a distribution of 95% of the CRA in our primary issue. This really was a home run for the group.

With that, I conclude the financial highlights and turn the conference back to Stephane. Thank you so much.

[Stephane Maquaire, executive]

Thank you, Eric. So in closing, despite the challenging year we had in 2023, I believe that we started 2024 with a very sturdy store portfolio with high-performing stores and rightly sized team well prepared to seize the opportunities that will be presented to us throughout this year. Our focus this year is to continue to serve our clients the best way possible, reasserting our position as Brazil's greatest food retailer. Once again, I'd like to pay tribute to the great man and great professional Abilio Diniz was and also our commitment to keeping his legacy alive. Thank you so much, everyone for joining us today and for supporting us. And let's now move on to your questions.

[Operator]

[Operator Instructions] Our first question comes from Maria Clara, sell-side analyst with Itau.

[Maria Clara, analyst]

I'd like to focus on the store portfolio optimization in retail. This quarter was defined by adjustments at the BRL 1 billion around, and in addition to the stores that have been closed, you have more to announce, and as to the profile of the debt, how will that affect the new quarters? And if you could, please talk a little bit more about the amount that will come from the sale of the properties where the stores were operating?

[Stephane Maquaire, executive]

I will turn over to Eric. But before that, I'd like to say that, as we said during the presentation, we've mapped out our entire store network and decided to either shut down or sell 123 stores. So everything has been mapped out already. As we begin to optimize our store network in retail, and we expect to take more steps like this one over the next few quarters. Over to you, Eric.

[Eric Alencar, executive]

Thank you, Stephane. Hello, Maria, and thank you for your question. This really was a significant point during our quarter. I think the first thing to clarify is we closed 11 stores in November and then another 93 and that will come to 123. In our balance sheet, we've mentioned the provisions for all 123 stores. And even if those shutdowns come later, those provisions have already been provided. And even if you may ask the question, well, what could come in addition to what you have provided for? Well the storm is now passed for the most part when it comes to noncash effects. But what were we not able to provision for? Well, maybe some type of action that we could have not predicted. But that would be much less than we could think.

Maybe it has to do with how those properties will be evaluated or valued. We know there is a BRL 370 million impact on our cash from all these shutdowns. So what can happen in addition to paying fines -- that those properties are worth more than BRL 4 million. But as you know, November 28, right after the decision is when we began to move, but we can say with absolute certainties these assets more than exceed these BRL 327 million that we mentioned. Once we have more information, we can share that with you, but I just wanted to make it clear because I understand how important this is. The vast majority of those provisions for those 123 stores have already come in even for those we haven't shut down yet.

[Maria Clara, analyst]

Okay. That was great. And if I could just quickly follow up on the transformation costs that you mentioned. Of the BRL 1.1 billion overall, BRL 850 million come from the store optimization process and the other BRL 327 million are also connected with that. Now I'm struggling a little bit to understand what other drivers are there in addition to the revenue from those reverse provisions that are affecting this line. Could you maybe offer more granularity on what were the other adjustments you made?

[Eric Alencar, executive]

I will mention the most important of them, which is the impairment relating to our brands. When you shut down those BIG stores and you don't have neither BIG stores nor the [indiscernible] stores, more than BRL 200 million were impaired as the company's brand value that made no sense for us to have anymore, and we hadn't sold yet. So that alone answers 80% of your question. But there are other assets relative to the restructuring, and that's the layoffs that will not amount to more than $50 million.

[Operator]

Moving forward, our next question comes from Felipe Cassimiro, sell-side analyst with Bradesco BBI.

[Felipe Cassimiro de Freitas, analyst]

I have only one question. This was another quarter of negative same-store for Sam's Club in spite of the ramp-up for converted stores. And I understand the issue of deflation and the reversal of that will help you moving forward. But I'd like to understand in greater detail what the company's action plan is to recover same-store sales, especially to exceed your direct competition.

[Stephane Maquaire, executive]

I will take this great question, and thank you for asking that. We are monitoring the B2B side with the return of positive inflation, which we've seen over the last few months, has led to more robust volumes, especially on the B2B side. And the Atacadão team is working every day so that they can keep track this source of sales on the B2B side. On the B2C side, as Eric said, we are working in full steam with bakery and cold cuts and cold storage will be put to more stores in our network to increase the share of sales in store.

So these are 2 fronts we're working on. And I could also add a third point going back to B2B, which is the digital channel. We have additional steps when it comes to digitalizing our relationship with our customers. For example, our one peak customers to make sure that we grow even more on this channel. So these are 3 steps, monitoring food inflation, the digitalization of our B2B sales and growing B2B sales via digital and third the focus on B2B sales with new services in our stores, and they will be offered in 100 more stores until the end of Q3, if I'm not mistaken. So these will be initiatives for our end customers.

[Operator]

Moving forward, our next question comes from Joseph Giordano, sell-side analyst with JPMorgan.

[Joseph Giordano, analyst]

I'd like to go back to the first question and talk about the provisions so that we have a better idea of how to model how those effects will taper off over time. We saw expenses of about BRL 130 million on legal increase. And when we look at provisions for that in this quarter, they came to BRL 330 million. While some reversals came, so this was a very low result. So I wanted to explore, especially on the labor side, we have BRL 2.3 billion, how should we look at this line moving forward? I understand there's the effect of provisions right now. And maybe over the next 2 to 3 years, we should see the cash effect of that. So I'd like to understand how we should -- what we should expect from this line.

[Stephane Maquaire, executive]

Thank you. Let me turn it over to Eric. .

[Eric Alencar, executive]

Look, the profile you'll see in 2024 will depend on the number of agreements we will close. And this is huge because Group Carrefour, once we acquired gig -- BIG begin to use or to adopt the strategy of not wait until the agreement. So you can expect about BRL 830 million as cash impact in all of our initiatives for 2024. And for 2025, we're still modeling that, but we definitely expect a significant decrease in that. And that's because in 2025, those older processes that we had will come to an end. But for this year, something between BRL 700 million and BRL 900 million is what we expect. When it comes to tax provisions, as you can see, we used about BRL 900 million throughout the year. When you look at the impact of labor to costs, those were cases where we either lost or settled on the tech side, much of that had to do with reversals. And that was especially because of the statute of limitations. And the profile might also be similar in 2024. So a few model for 2024 much like what you saw in '23 and reducing from 20% to 25% for '25, that would be what we would consider the best we could expect for the future.

[Operator]

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

[Vinicius Strano, analyst]

With regard to your pricing strategy, if you could please talk a little bit about whether there's any appetite for a more intense promotional sales effort, especially on the Cash & Carry side? And also if you could talk a little bit about how has the Cash & Carry operations performed during this current quarter? And lastly, about Carrefour Bank, what do you expect to be the interest cap measure on the bank's results?

[Stephane Maquaire, executive]

I'll take your first question, says Stephane. Our approach to Atacadão is obviously to see the highest possible sales or highest possible volumes, but without falling for the trap of offering too many promotional sales. The Atacadão model is very well placed with the level of gross margin where we can maybe make small tweaks according to how the market performs, but we will not increase the number of promotional sales to remain a little bit more positive. We are working from a long-term perspective. We have times of the year when we run with that, for example, on the month -- during the month of April when Atacadão has its anniversary, but this really is not the way we work.

We will not seek 0.5% higher like-for-like sales just to show a prettier figure for the month. This is long-term work. And the steps I presented following Felipe's question, we have a specific set of actions to work with a during 2024. Now as for what's going on now in early 2024? With we are following the continued growth until we see actual increase in like-for-like sales with a So -- what we saw in Q3 month by month was the same thing we saw or was the same trend that we continue to see in January.

And going back to the first -- the answer to your first question, we continue to work on our long-term project without offering too many promotional sales, but rather working the right way. As for the Carrefour Bank, obviously, the revolving credit reform is very -- a significant issue for us, and the team is working very diligently to offset that. And I believe that those results will gradually impact our results with the bank. And that will have to do with the maturity of our new customers. So over the first half of 2024, we expect to see that impact. Now I'll turn it over to Eric, who will add his point of view to my answer.

[Eric Alencar, executive]

Well, it is exactly what Stephane said. In the first 6 months of the year, this will be a very unsubstantial impact. But in the second half, we are still calculating the impacts and mitigating measures, especially considering the decrease in delinquency in this new model. And we'll need to have a clearer vision of how things will work in the second half. In the first half, it's clearer because there's this transition in the model. But once we have a clearer overview of what will the second half look like, we'll give you more details so you can add to your models.

But even before that, Vinicius we're already working to offset and make the most of the first few months to offset any impact that we might have in the second half of the year. That's our attitude here at the bank to go in strong at the beginning of the year and not waiting for the definitive impacts of this reform.

[Operator]

Our next question comes from João Soares, sell-side analyst with Citi.

[Joao Pedro Soares, analyst]

I just wanted to start sharing your condolences for Abilio You definitely left an invaluable legacy for the Brazilian market. I have 2 questions for you. First of all, the return from these stores that you're converting really called our attention, those that are now closed. And there are 2 things that caught our eyes. First, the BRL 135 million CapEx, which seems substantially lower than what we're seeing with the competition. So of course, we're not here to talk about the competition. I just wanted to understand if there is any impact or any efficiency that you're now getting to obtain this lower CapEx? That was just my impression. And also, I wanted to talk about the profile of these stores. If you could talk about how confident you are about this incremental EBITDA. You seem to be getting very interesting returns with these conversions?

And second, I thought the store maturity data per very interesting. And it seems like the returns from legacy stores is going down from 8 from 7.7%. I just wanted to understand if there's any impact here that we should be monitoring for the long term. Maybe the increase in offered services or anything that could be deteriorating of the returns from these legacy stores. And what would you say is the sustainable margin for the 2022 and 2023 crop of stores?

[Stephane Maquaire, executive]

Thank you so much for your questions, Rob. To your first question, the CapEx for converted store is something we have already shown for the stores that were converted from BIG to Atacadão. There were 129 stores that we converted and we converted actually 29, 30 stores from BIG hypermarket to Atacadão, and we are now through with the CapEx. We know how to do that type of conversion with that size -- that size of CapEx for store. And I can't comment on what the competition is doing. What I can say is that with that level of CapEx, as we showed you, every quarter, we have a very interesting level of maturity for these stores. So this is the CapEx that we feel is very appropriate. And that's to your first question. And I might turn to Eric to conclude the answer to your second question about the incremental EBITDA.

[Eric Alencar, executive]

So let me talk about those two things. I think the incremental EBITDA comes from the confidence from our increased awareness of what the EBITDA from our stores is post conversion. Now this comes when we look store by store. And obviously, this EBITDA comes from maturity. So I do not want to oversell, but this comes with a high level of confidence from us because we're now seeing how much potential these converted stores have. As for the 18.7%, you're not being picky. It makes a difference in retail. But what happens is 2023 was a year when these more mature stores had a negative like-for-like rate. And there was also pressure from SG&A costs overall. So this 0.3 comes as a result of that. And for this year, as you see a scenario where inflation on costs and food inflation sort of walk hand in hand, you have a more positive scenario. I think it's also important to say that in spite of that, the group was able to offset and have a higher EBITDA even in these more mature stores with slightly lower results. And that was especially because of the efforts we've had in realizing the synergies in our integration with the BIG Group. But thank you for your questions and what you say makes perfect sense.

[Joao Pedro Soares, analyst]

That was perfect, Eric and Stephane. If I could quickly follow up. You're not opening from those conversions, how -- what's the share of Atacadão? What's the share of Sam's Club, right?

[Stephane Maquaire, executive]

No, not yet.

[Operator]

Our next question comes from Gustavo Sande, sell-side analyst with

[Unknown Analyst]

My first question is more on the strategy side. We recently saw in the news Jose as the new CEO on retail -- on the retail side. Could you talk a bit about the rationale behind this strategy? And what will be the project for And the second, more in the near term, if you could talk a bit about the gross margin trend for Atacadão that also caught our attention this quarter. What can we expect moving forward considering the fiercer competition for the company.

[Stephane Maquaire, executive]

Thank you for your questions, Gustavo. We are very happy, obviously that we were able to draw to our team. This is a very experienced expert. He is a background in several segments of the industry, whether it's Cash & Carry, retail or even the Sam's Club model. We believed we would increase our efficiency by joining these 2 chains. Now first of all, it's just about the optimization of our store network. We are now reducing our retail network. And also, we will go through Marco's team and also Sam's Club. So it made sense to do all of that with Sam's Club and retail within the same group, and then move to other models and other groups within Vasques team and also increasing the agility when it comes to purchases and so on. Now as for the gross margin for Atacadão, the answer is always the same. I believe we have this ability to manage and make the right tweaks to our gross margin with Atacadão. And that will depend on the changes in the market, whether it's because of food inflation or food inflation outpacing general inflation that will affect our offers, and maybe we have a more complex scenario where food inflation slightly lower than general inflation. And then we have to be a bit more careful working with the longer term in mind. And moving forward, that's how we'll continue to work, offering an increasingly more solid margin for Atacadão as we showed in our results.

[Operator]

Moving forward, our next question comes from Ruben Couto, sell-side analyst with Santander.

[Ruben Couto, analyst]

I'd like to go back to the effect of those shutdowns in retail. And you mentioned that we're already seeing the results of these shutdowns emerge in Q1, but I imagine there's also an impact because of the markdowns that we saw in Q1. Considering all these moving parts, what can we expect in terms of EBITDA margin for the next few quarters? And the adjusted EBITDA margin that you saw of 3.4% may be sort of excluding some of these one-off effects, is that a threshold for the year? Or might come up in adjusted margins for the next few quarters as well?

[Stephane Maquaire, executive]

Thank you for your question. I will turn it over to Eric to answer it more in detail.

[Eric Alencar, executive]

Well, we do not offer guidance for relating to our margins. And obviously, if you look closely, you'll see that our Cash & Carry reported very good margins in our retail operation, even though our SG&A there has decreased significantly, the gross margin decreased even more, which affected the margin for the group at large. And that was because of a few reasons. First of all, because of the operations and also because of the promotional sales. And second or third because of those stores that were sort of dragging the results. Moving forward, those BRL 61 million or a large share of that will appear in Q1. I can't say that those 3.9 actually will be the floor, and that's what we're working for. But we're still adjusting several items in retail. We are going through transformation in retail, as you know, because you've followed us for a long time. And this includes over -- reviewing the assortment and the pricing and even looking at the losses, which were a bit higher in retail than they are in Cash & Carry. And once we're able to work on all of that, the results will come. But we really cannot offer any guidance when it comes to margins. What we can say very confidently is that in Q1, a large share of those BRL 61 million will come because part of that markdown comes from the recurring rate that we've provisioned for.

[Operator]

Our next question comes from Felipe Rached, sell-side analysts with Golden Sachs.

[Felipe Rached, analyst]

I just wanted to follow up on Atacadão sales. When it comes to the gap between B2B and B2B performance, I think that we could focus on legacy stores where there are fewer exogenous factors affecting that trend. Do you see more changes in like-for-like sales between those? I just wanted to understand the trend so that we understand a little bit better what's going on with the operation. And what we can expect for the future once inflation levels off a little bit more? And if I could quickly follow up on the last question. Your plan to shut down the less profitable stores in retail move forward very quickly, even quicker than expected. But considering those that remain, it would be interesting if you could have more details on the ongoing initiatives that you talked about, Eric, in terms of working with assortment and inventory management. If you could talk a little bit more about what the initiatives are and what will be their timing? That would be very helpful.

[Stephane Maquaire, executive]

Thank you for your questions, Felipe. Your point about Atacadão sales, what we can say that we've seen in the last few months B2B sales have returned because of the more positive food inflation scenario, and that's something we've been monitoring very closely. It's also something that we're seeing at the beginning of 2024. So an acceleration in B2B sales and on the B2C side, once all of these new services are available in those 100 new stores, we will also see an acceleration that should come in that front this year to strengthen Atacadão sales. So right now, it's more about a return in B2B sales but further ahead in 2024, we have B2C sales that will become stronger. And obviously, on the digital side, our B2B sales will continue to grow stronger. After having shut down so many stores and not having those sales, we have a much more positive store network in terms of profitability. So there is nothing -- there's no specific urgency in terms of strengthening these stores. As I always say, we have several stores that are going really well, and we're always looking into opportunities to strengthen them whether via -- whether that's via digital channels or via the bank channel. And that's something that's been working really well for several quarters. And that's because of the initiatives being developed, especially on our bank side. We also have our white label brands to offer our products at a lower price -- so at a lower price than our national brands. And we're always trying to regionalize our assortment of products. So this process of optimizing our store network that was less detailed, but we're trying to see where we have stronger markets where we can develop our regional product sales more than the competition. And obviously, we're looking into opportunities of having better prices and working our pricing strategies with these stores. But as I said in previous quarters, never taking too many steps when it comes to pricing. So that's on the retail side. Is there anything else you would add, Eric?

[Operator]

The next question comes from Luiz Guanais, sell-side analyst with BTG Pactual.

[Luiz Guanais, analyst]

We have 2 questions. First, about your SG&A, if you could talk a little bit about how recurring this will be for the next quarters. I think that the cost optimization work was very good. And with your now a strong portfolio, how can we expect that to work in terms of revenue? And as for sales, you relinquished that as you shut down stores. You talked about that 1.5% that comes from your network. How can you recover part of those sales through these stores that remain within the Carrefour Group?

[Stephane Maquaire, executive]

Thank you for your question -- your questions, Luis. To your second question, we believe we will recover much of those sales by working on these stronger markets I just talked about. So we are working market by market. So being fully transparent, we do not see a lot of opportunity to recover that in those stores. So once again, that BRL 1.5 billion seems a lot, but it's just -- it's about 1% of our sales. Now I'll turn it over to Eric who will answer your first question.

[Eric Alencar, executive]

So about our SG&A. Much of this improvement is structural. So we should expect it to come again. It comes from the different size of the holding, which is now significantly smaller and also negotiations with suppliers. There's a part of that, between 20% and 25% in Q3 that have to do with seasonal period. We know that Q4 is a time when we make more money and also spend more. And we did a lot of that in Q4, as you saw in terms of really releasing cash for our initiatives, but 20% to 25% of those initiatives are structural. We usually don't offer any guidance about that. But just with that in mind, I think that you can better model for the gains coming from the synergies that we have realized after acquiring.

[Operator]

Moving on, the next question comes from Jago Soza, sell-side analyst with [indiscernible].

[Unknown Analyst]

I'd like to explore a little bit more the use of tax credit from the BIG Group. When do you expect these credits to be used?

[Stephane Maquaire, executive]

Thank you, Well, to put it very simply, these credits will be used over time. I think that the most difficult part is to take the actual steps in terms of restructuring the company to use those tax credits the best way possible. We are in the process of streamlining the entire organization. And throughout this process, we expect to take all the necessary steps to use these tax credits. It's a very delicate thing to use that because we need to plan around them to use them the best way possible. And we expect to until the end of this quarter, we should use them and you should wait for positive news in the next few quarters about that.

With no further questions, we now conclude the question-and-answer session. I will now turn over to the company for their final remarks. Thank you, everyone, for the excellent questions, and for the opportunity to share our challenges and everything that we've delivered in this fourth quarter and a little bit of what we are pursuing in this next few quarters. Once again, 2023 was a challenging year. We concluded the integration of the BIG Group, and I think we've emerged with a very clear vision as we presented to you in our investor morning event in November 2023. And we've achieved all that we plan for very quickly so that we will be very soon -- very soon we'll be able to reap the results of all these initiatives, in early 2024, hopefully. So that's how we'll continue moving on very strongly respecting the legacy of our friend Diniz. Thank you.

[Operator]

Group Carrefour Brazil's Q4 2023 Earnings Conference is now concluded. The company's IR department is available to answer any further questions. Thank you so much for joining us, and have a great day.