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Good afternoon, ladies and gentlemen, and thank you for waiting. Welcome to Lojas Renner's conference to discuss the results of the first quarter of 2018. We would like to inform you that this conference is being recorded and translated simultaneously into English. The slides are being presented on the Internet at www.lojasrenner.com.br, Investor Relations section, at the webcast platform and also the MZiQ platform.
We would like to remind you that questions may be taken by phone or by the platform. [Operator Instructions] We would like to remind you that questions from journalists may be directed to the telephone number (11) 3165-9586.
Before proceeding, we would like to clarify that forward-looking statements that might be made during this call related to the business perspectives of the company, operating financial projections and targets are assumptions and information currently available to the company.
Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions as they refer to future events, and therefore, they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of the company and could cause results to differ materially from those expressed in such forward-looking statements.
Now we would like to turn the conference over to Mr. Laurence Gomes, CFO and IRO. Mr. Gomes, you may proceed.
Good afternoon, everyone. This is Laurence, and we are gathered here today in order to talk about the results of the first quarter of 2018. With me today, we have GallĂł, our CEO; Paula Picinini, our General Investor Relations and New Businesses Manager; and Luciano Agliardi, our Controller.
It was a good first quarter in spite of the late launch of the collection because of the Carnival at the beginning of February and the higher temperatures in March. And in spite of that, we were able to post an increase in our net revenue of 13.3% and same-store sales reaching 6.3% even if you consider a growth of 9.1% in the first quarter of 2017. And this performance is very favorable as we compare this to the IBGE indicators of the card operators and even if we compare to the shopping center entrepreneurs who publish more detailed information about performance of categories and store formats.
Besides our sales value, Camicado continued to develop at a good pace, notwithstanding the remodeling of 6 Camicado stores, which had -- or which have a very big weight in the sales of this company. And during this period, they were practically closed, that is to say the 6 Camicado stores, our gross margin was better with an increase of 1.8 percentage points favorably impacted by the good reception received by the March collections and also by the favorable exchange rate for imported items.
In expenses, we see an increase of 0.5 percentage points over the net revenue. That's reflecting a higher number of stores opened and also the enforcements of structures made to support this business model, the current business model. Besides the expenses related to digital and multichannel initiatives also had an impact on their participation.
But in spite of that, I believe that we should highlight the fact that this percentage is still slightly higher than last year, and it reflects the ongoing effort made by the company in terms of controlling our expenses. And this is why this is a quarter that seasonably is the weakest in the year in terms of sales. Thus, and as a consequence of all I have said so far, the retail EBITDA had a growth of 31.7% in the first quarter of '18. EBITDA margin went from 9% to 10.5%, with an increase of 1.5 percentage points.
Now talking about our Financial Products. We had a very solid result. The result went up 30% this period, mainly due to the higher revenues generated, but also due to the control of delinquency. In the case of revenues, they were impacted by the cobranded card and the lower funding cost in spite of the reduction in the cobranded delinquency rate and also the withdrawal, the quick withdrawal.
Regarding delinquency of the product had a good performance and this shows stability although they are impacted by the recent growth of 86.5% in the Meu CartĂŁo portfolio and also by the new IFRS 9 rules. Thus, the total adjusted EBITDA was BRL 250 million, which means a 31% increase in the first quarter of '18 and margin went from 15.4% to 17.8%.
And lastly, I would like to mention the net income that grew by 66.4%, going from BRL 67 million to BRL 111 million, and this performance reflects the operating improvement and our commercial strategy and also the reduction of our net financial expenses and also the lower growth of the expenses with depreciation.
These were the main highlights. And now we will be available to answer any questions that you might have.
[Operator Instructions] We see that there are some people waiting to ask questions and maybe there is a technical problem. Mr. Guilherme Assis from Banco Brazil Plural.
Can you hear me? I have 3 questions. What have you been seeing in this beginning of quarter and the end of last quarter, mainly? I'm talking about the weather because only now, we have a cooler weather. And also, I would like to ask you about the exchange rate. Could this further favor you until the end of the year? And I'm talking about the hedges, specifically.
Good afternoon, this is GallĂł. I can tell you the following. We do have our collections in the stores, and we have a good acceptance of the collections. And our great challenge is really, as you said, the weather because the temperatures are higher and -- in March and continuing through April. And this is a very sensitive matter as far as we are concerned. I'm talking mainly about the southeast and the south where we had an average temperature between 5 and 7 degrees higher than the previous years. And the most -- or the warmest period in the last 20, 30 years, in fact. And one way of seeing that things are going well in that -- from Rio up, we are achieving our target temperatures shows -- this is being very important. But this is not something new. We have been here quite a long time and our team is used to that, and this is a very [indiscernible] run in our business, and we have been through 25 years winters as well, up to now. So we always seek the solution. Now in terms of acceptance of the collection, so we are very comfortable with that because we know we have the right collection. Now we depend on the weather. That is to say, the weather is becoming a little bit cooler. In relation to the exchange rate in our hedge, our position is practically all locked at this level of 3.30 for the next quarter. And I would like to remind you that the benefit or disadvantage or the difference vis-a-vis last year starts to become smaller, because in the second quarter we already had 2.60 last year, on average. And our position, was very close to 3.30.
Mr. Franco Abelardo from Morgan Stanley.
I have 2 questions. Same-store sales, 6.3% in the quarter. What was the contribution of the items that changed in the tax -- in taxes, the impact of e-commerce in Camicado and Youcom? I would like to know what was the same-store sales increase for the Renner brand and for the brick-and-mortar stores. Would we have a figure higher than inflation or would it be closer to 2%? I'm talking about the brick-and-mortar retail for Renner. And the second question is still about the weather. How much weaker March was because of the weather, the warmer weather, and does it continue in April? Just to know if we can expect a very big change in same-store sales for the second quarter or so.
In relation to March, it's not possible to say well, "X percent was due to the weather, X percent was because of the economy. X percent was because of consumer confidence," because what we see is that normally, the winter items would be selling maybe 10%, 15%, 20% more, the heavier items 10% and the lighter items, 15% to 20%. But it's not possible to tell you that x percent of our sales were affected in the second week or the second half of March, for instance, because there are other factors that come into play. So I really wouldn't be able to answer your question. And as I had already mentioned, another way of looking at that is that other regions have a better performance, and the other regions have, let's say, 10% to 15% lower than they should be selling.
This is Laurence. Regarding the breakdown of same-store sales, the exclusion of the ICMS was about 2.2 percentage points and the e-commerce, 60 bps or 0.6 percentage points until we get to 3.7 plus 1% of real, while the growth would be inflation plus 1.
Thiago Macruz from ItaĂş.
I have 2 questions. The first has to do with working capital. We had a greater level in this quarter, and I would like to understand whether it was something like one-off or it had something to do with the delay of the collection, and that in the next quarter, you will get a more normal level of working capital. And the other question is to Laurence. And the surprise was more on the revenue side this quarter. Would it be reasonable to expect stability in terms of contribution to EBITDA in terms of consumer finance and the fact that Meu CartĂŁo is going very well? Do you think that you could have even higher expectations, that is to say that this operation could grow even more than you expected?
Thiago, thank you for the questions. The first question is about the need for cash and cash flow and there was a higher need for working capital. And it was mainly due to the pace of sales in the fourth quarter of '17. It was a very good one, a very good volume of businesses and this is why we had to pay taxes on sales in the highest -- higher taxes that happened in the first quarter last year. That would like to remind you that in the first quarter of '17, there was a fourth quarter in 2016, in a year that was not [indiscernible]. So this brings about pressure on our cash. And this year, due to the higher volume of businesses in the fourth quarter of '17, we had more sales. And there was also a higher payment of suppliers in the first quarter compared to the first quarter of last year that had the lower volume of purchases from suppliers. So these are the main factors that came into play in this higher need for working capital. And we see these going back to normal levels from now on. Now in relation to the results from Financial Products, what we have been seeing is a stability in terms of losses and also in terms of delinquency. And I think this is a healthy moment that we are living. And I think it's important to mention that we have been achieving good results coming from the initiative that we have been implementing, revitalizing our credit process. And it is now end-to-end digital, from the moment we capture to the client and go into the whole process and the digital card, then going up to maintaining and recovering credit. Also using much more agility, much more communication in this talk or this dialogue with our clients, in terms of credit recovery and collection. So we have been achieving good results. And from now on, I think it is important to be cautious or to continue to be cautious. As you know, there were changes in the regulation that have already occurred, and they have some impact that could continue to impact the portfolio because we got into a more normal pace of growth and the provisions were because of a portfolio that grew a lot last year. So we might see a need for higher provisions. So I believe that the second quarter will be more comparable. So we continue to have a good expectation for the results coming from our Consumer Finance and Financial Products, both on the revenue side and see more normal losses due to a portfolio that now starts to get into a more normal growth pace.
Fábio Monteiro from BTG Pactual.
I would like to have an update regarding e-commerce. Is there something new? Or what about click and collect? In the -- and what about the platform for Youcom and Camicado? Because you were replicating what you had already done for Renner. So I would like to know about your content initiative. And given that -- please give us a general update?
Hello, Fábio. On e-commerce, it's well aligned with what we had planned. And the growth is quite relevant, growing by 3, 4x what e-commerce was in terms of apparel in Brazil. And I think that shows that we are in the right direction. Click and collect, for instance, as you said, we have in Rio, we started in São Paulo as well. And we believe that by the end of this year, we might have around 100 stores included in this click and collect initiative. We have a new website that has many more resources. I would say it is much more user-friendly than before. And things are going quite well. I've seen very good growth and that we have increased stores in -- by the end of the year in Camicado. We have a new platform. We do have a new platform in the second half of this year, and this will allow it to be more daring, I would say, and having some products that we do not have in the brick-and-mortar stores. We intend to sell other products. Comparing with a marketplace a little bit, but not so much. I mean, it may sound a little bit pretentious. And in Youcom, also receiving updates and improvements. And I think more important than e-commerce is the fact that we think we are working very much on multichannel, and it means the need for investments in technology and big use of some digital tools. And we firmly believe that the brick-and-mortar stores will continue to play a fundamental role. 30% of the analysis for instance, are in brick-and-mortar stores. Why do 30% of the women go to stores when they can just sit at home and do it with their computers, or...? So I think a store means a lot for women because they go there and there is a social purpose in that and there is a leisure purpose also included. And I can tell you that our trend is not to become a marketplace or get into a marketplace. If you draw a comparison with Amazon.com, for instance, they put black, if you pick like, a black dress, you will have 100,000 items popping up on your screen. And we think that women have less and less time available so we must help them simplify their choices. They must have a very practical and user-friendly environment for them to do their shopping. And we are very much sure that this is our path, not only in e-commerce but also our overall direction. We have a strong brand, a good brand, a valuable brand. And after all, Renner is the 11th most valuable brand in Brazil, and this is not just a coincidence, because you cannot build a brand by means of advertising only. It has to do with the store environment, with the service that you receive and if you have a very fast service. So we have to strengthen our brand further and further because it creates this sensation of going to a Renner store, for instance, and they can be a pleasurable and pleasant experience. And this is why women have fled the department stores when going to this kind of store. But this does not mean that we are not making our best endeavors to go toward multichannel. It does take some time and you cannot do that if you don't have a very strong, very powerful platform. Or the investment that you made like 12 years ago, you have to have the processing capacity. Otherwise, you will not be able to put artificial intelligence and algorithm on this platform and we have already made this investment. So this is our path, Fábio.
Just to follow-up about what you said, and looking at other operations abroad. The impression that we have, maybe it's a little bit too soon to place our bets, but the goal of getting to 5% of your sales in 2021 sounds very conservative because here, we think that Renner will achieve this target before 2021, maybe well before. And my question has to do with the following. With all these funds that you have, and considering multichannel service level, et cetera, do you think this could be a business that could represent, for instance, from 10% to 15% of your sales in the medium run or even more?
Well, this is rather ambitious, and I could tell you that this will probably reach 85% before 2021. But the remainder, well, let's answer this in one of our next calls, okay? Thank you.
Robert Ford for Bank of America.
Sales performance seemed to be particularly strong. In what regions of Brazil do you see a faster growth?
Well, first of all, good morning, I'm sorry. And I think you're the only one that follows us for 25 years, so you know Renner maybe better than I do. But I can tell you that when we mentioned here this difference in temperature that we had between the southeast and the south and because of that, we are suffering because of the warmer weather and some there up, I think more normal. I can tell you that there is no big difference in terms of growth. Maybe in the more agricultural areas, more toward the Midwest, we see in higher growth nowadays. But there is nothing very relevant that we can tell you unless the temperature issue that we had already talked about.
And the Camicado models are undergoing a major change. So could you talk about what you're doing there and what kind of improvement you expect?
When we acquired Camicado, 20-some stores, I would say that Camicado was a company that was not really going up or down. It was at a very good point, that is to say the brand was good but not with a very adequate product mix. At the time we went to Camicado and the sensations that you had were that they only sold white items, very basic items. And what did we do? We started to work with lifestyle in Camicado, and as a consequence, we started to see colors and more fashionable products. And we started to develop some sectors. For instance, main cooking and with more kitchen items we're bringing to this or that population. And what is interesting is that the target audience of Camicado is exactly the same as Renner. Mostly women, the same class. And you can see when you go to places, when we go to places and people turn to us and they say, "Well, Camicado's so great and things are going very well." And in fact, we do not have competitors in Brazil. So when we go to the north or the northeast, we have no competitors whatsoever. There isn't one single store that has, let's say, 10 stores or in each capital, maybe they have 1 or 2 stores, but with expensive gift items. And we are very well positioned and we are the market leaders. And I think we have all these advantages that I have discussed.
Richard Cathcart from Banco Bradesco.
Two questions. The first one, I would like to talk about the 2% growth in the quarter or I think it was 3% over last year. Are you passing on less inflation or are your consumers buying lower-ticket items? And the second question has to do with the Renner stores that were closed in the quarter. Could you say a few words about the reason for you to close these stores? Was it because the traffic -- consumer traffic was slower or was it because of competition?
Richard, thank you for the question. In relation of the tickets, we have been saying what has been going on. And last year, we saw a gradual recovery, but we still see a challenging scenario. Although it's [indiscernible] here now, we still have an environment that in which the consumers are price sensitive. They are conscious in their purchases and the prices given by the market, in fact, and it is more important to maintain a relationship with our clients and maintain our competitiveness. So this is the rationale behind this performance. And about the 2 points that you mentioned. In relation to your other question, it is important to say that we closed -- well, even -- the most important thing with regard to most relevant is that there were new stores with very good performance in these regions. So we wanted to channel these sales to these new stores and we wanted to optimize our expenses. In some of these areas or some of these stores, we're in the same city. Two of these stores are in the center of the city, and -- but the most important thing was not to lose share, not to lose coverage of these markets. And we believe that with the new stores in that or these specific regions, we are able to absorb the sales of the stores that were closed, which are just completing or adding to what Laurence said. I think nobody likes to shut down stores. And what precedes the closing of a store are attempts to make the store feasible or to renegotiate rent, as the case may be. But nobody likes to close stores but on the other hand, nobody likes to lose money. So this is a normal routine. We evaluate the operating result of the stores and we have to protect the funds that were invested by our shareholders. And we have to be certain of something. When we close a store, it is only after we deplete all the possible attempts. 80%, 90% of these clients, they end up going to the other Renner stores and we only end up losing a few eventually.
Gustavo Oliveira from UBS.
The question is about the gross margin. Yes, I understand that you got an additional 90 bps and it has to do with the hedging. And I believe you still have some gains to be realized in the second quarter. And I think in the second half, it's a little bit more difficult because the hedge has gone up to 3.60. So what could we expect for the remainder of the year, because the expansion in the margin was quite impressive this quarter? Do you believe you would still achieve this kind of growth for the remainder of the year? How do you see this?
Gustavo, our expectation regarding the year, they continue unchanged. Our expectation has not changed, and we have already talked about these expectations at the end of the year, and we believe that the macroeconomic conditions are in place. They are favorable so that we may deliver good commercial performance. But it's a little bit too early. We are still at the beginning of the year. But I believe that all the investments that we made, not only investments in terms of structures then all the initiatives that we have been put in place to achieve more sales and also a further expansion of our gross margin. So yes, going back to your question, it is possible, it is challenging. There are uncertainties ahead of us, mainly in the second half of the year. But we believe that the right conditions are in place for us to achieve a slight margin expansion still.
The second question. [indiscernible]. You started the abstract model with online distribution and we're going to open 3 stores. And I would like to know whether this is a small market, it's -- whether it is very attractive. And is the opening of these stores a better way for you to understand the multichannel model? Is it part of your learning for e-commerce?
This is GallĂł. First, the e-commerce result is quite interesting. We have relevant growth rate every month. Secondly, this is not a small market. You can be sure that if we decided to open stores, we evaluated the total market before. Thirdly, normally, the most offers that you have in this market are very basic products with relatively high prices. And what we wanted to do was to do fashion at competitive prices. And once again, it's very important to say that we'll be creating another business, an additional business. We are going to cater to women. We want to deliver very good service and we do have the expertise to do this in-house so we can call this an experiment. But it's not really an experiment that starts from scratch. What we will be doing is the following: We acquire this experience and the experience will give us the necessary elements and figures so that we may draw the business plan. But what we see is that this market is rather interesting, and we could have a relevant share in this market and thus achieving integration among the market and going back to our multichannel approach.
So this would be a pilot test for these 3 stores, similarly to what you did with Youcom?
Yes, exactly. This is a store that has a different kind of demand, caters to a different kind of demand and also people seeking another type of product. So it has its own characteristics and they are different from the others. And the figures have shown us that we could have this individuality that is important for our consumers.
Maria Paula Cantusio from BBI Investments.
I would like to go back to the average ticket with an increase of 2% vis-a-vis the first quarter last year. We can see that the flow or the traffic has been strong. Could you qualify this? Is the traffic coming from new clients or are they old clients that are back in the stores? I believe I remember that in the peak of the crisis, you were seeing people from the A plus classes trading down and going to Renner stores. Do they continue to come to Renner? And could you talk about this traffic of people in the stores? And also the increase in the participation of third-party cards that was higher in the quarter, 2-point-something, in spite of the good results that you had in terms of your financial results?
Maria Paula, thank you for your question. In relation to segmentation, whether we saw an exchange in client segmentation, the clients that come to the store because the traffic has had a relevant participation in same-store. And the answer is no, because the characteristic of this traffic remains stable. There is nothing relevant that should be highlighted regarding a change in social classes. So we continue to be very well positioned in our target markets. This is the trend that we saw. And we continue to attract new clients and these new clients come from all the different classes. In relation to the third-party card, what we see is a trend in the market as a whole, a higher participation of third-party cards and people using charge cards more, and more extended or shorter term, that is to say, people avoiding -- getting to get, people be more cautious, looking for plans with a smaller number of installments. But the magnitude will be smaller in this quarter. There is a positive point that should be seen here. This drop in this participation was smaller. And the same way we see some important initiatives in the channels, we believe that the Renner Card is really the entry gate for a relationship with the other product and the other brands of the company. So other initiatives will be implemented over the year and they will be [indiscernible] or reducing attrition, for instance, and improving the friendly or user-friendly experience or user-friendly shopping experience. And we will have some important actions being taken in order to incentivize the use of the card as a support of our core business. And again, the card which will be the entry gate for the other products.
Guilherme Assis from Brasil Plural.
I would like to ask a lot of questions. I think the result is quite clear. You have already talked about the expansion dynamics, your margin expectations and this shows good execution. And my question has to do with your execution precisely. What about your succession plan? Have you established the timing for that? And could you describe this dynamic in the company? I know that I have already asked this in other calls, and you said that this is one of the things that are sitting on your table as priorities. And do you have an update to give us?
Well, a lot of people ask me this question mainly lately. So Guilherme, I'm going to repeat what I usually say. Our business today, we started to concern ourselves more strongly with succession about 5 years ago. It was not about my own succession but the general succession process in the company, which means that today, even the store managers. And as of this year, we have been giving a bonus to the main executives because of their endeavors in terms of training their successors. And everything that goes on, we talk on a quarterly basis at the Board. And I -- and this is a very interesting subject, not only for Renner but also for the other companies as well. And I can tell you that I doubt anybody has a better succession plan than we have at Renner. This is what people tell us when they describe what is going on here. And to answer your question, we began saying, well the good results and this and that. Guilherme, I am not the guy who produces results. The results come from a whole team, all the company executive officers and managers and store managers. These are the people who really deliver results. Maybe I give some contribution, giving a guideline or this or that and I will continue to do that, and I will continue to do that in the Board of Directors, for instance. So don't worry about it because everything is going to have a very good outcome.
Just a follow-up. What is the timing that you work with for your succession process?
Well, my contract ends at the end of this year, this is the timing.
Up until then?
Well, of course, it will be new.
Tobias Stingelin from Credit Suisse.
I have 3 questions. Digital investments, the investments that you have been making over the last quarter, where are we in this investment cycle? Could you share with us how much you have already spent and how much you still intend to spend? You talked a lot about push and pull in the past, and now nobody talks about push and pull. You talk about the digital platform. So we would like to better understand that. What is being done? What has been done and about international operations? And lastly, GallĂł, how many stores do you have that you might close? That is to say that you're studying and that you're making efforts to not close, well, digital.
It is a little bit hard to say anything about that because digital is all CapEx, OpEx and other things. What we can give you is an estimate between BRL 50 million, BRL 60 million but this is just a rough estimate, it's a ballpark figure. It involves equipment and systems that still need to be developed.
Are you saying [indiscernible]?
Next year. I don't believe it's going to be very different from that. It's very hard to tell you. What I can tell you is that in terms of hardware or platform, that is to say, nobody says hardware. Everybody says platform and cloud and this and that. I would say that to be around this ballpark figure in 2016, we may divest into the RFP platform. And over or on this platform, we are able to apply all this digital technology and the Financial Services platform was also made in 2016. And many things have already been made and done. It's very difficult to say what will be the total next year, because it's not going to be very different or more relevant than what was done this year. And the third question has to do with the stores, how many stores we might still close. Well, what I can say is that today, there is no store that we intend to close. In the full package that you see of stores, we have an ongoing work. Sometimes you have a store that is not going so well, and then you go there and you recover. Today really, we have no store whatsoever that we intend to close. This does not mean that in the second half, maybe we will not decide to close a store. If Renner has ever closed stores, it shows things are a little bit strange as far as we are concerned. But you can look at what happened with Zara, for instance. They closed 276 stores and they opened 880 every year and then they close here. And then -- so what we have to keep in mind is that closing a store is not an indicator that should be extended to the whole company or let's say, well if they close a store, it's because there is something wrong going with the company. This is not really the case. If we see that we should close a store, we will close a store. Nobody likes to lose money. What we do is protect the investment made by our shareholders. So after we deplete all the options, then what we do, we have to close the store. But so far and today, there is nothing in our radar screen.
What about international operations?
We're going well in Uruguay. We are doing 50% higher than the business plan. And in terms of the collection and all the prices have passed the test. We are going to open additional 2 this year and we will continue to track it. Other countries, no, we don't have any definition regarding other countries. But this does not mean that we will not open stores in another country. I'm talking about right now.
There is a question. I'm going to read the question. Good afternoon. Could you break down the gross margin gain, how much came from hedging? How much came from operating improvement?
Again, I think it's important to mention that we had an improvement in our commercial management. And it is also important to maintain competitive margins in this scenario that we have today, with the very slow recovery. 1.8% margin gain, 0.9 percentage point came from the exclusion of the ICMS fees and the other part, not only due to the hedge but the higher participation of important items in our product mix.
And the second question is about the net closing of stores in the first quarter. Does it mean that you are changing your footprint? Were they old stores, the ones that you closed?
What I can mention is that there is no change in the process of expansion of the company. The process, as GallĂł said, the process of reviewing all these stores is ongoing. We have to evaluate all the stores and the performance of each store and we evaluate for potential closing. So as GallĂł mentioned, up to now, there is no visibility regarding need for additional closing. You asked if they were old stores. They were mature, but they were in central regions.
So I think I have already answered the question from the webcast.
Now we close the Q&A session. We would like to give the floor back to Renner for the closing remarks.
I would like to thank everybody who participated in this call. And as always, it's a great pleasure for us to exchange ideas with you. And as always, we will remain available to you. Please call us and talk to us and we are always available to you. Thank you very much.
Lojas Renner's conference call is closed. We thank you for participating, and we wish you a good day. Thank you.