Lojas Renner SA
BOVESPA:LREN3
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Lojas Renner SA
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Good afternoon. We'll start our video call for 2Q '22 of Lojas Renner. I have Fabio Faccio, CEO; and Daniel Santos, CFO. Before I pass the floor to them, I would like to give some announcements. This video call is being recorded and translated simultaneously. [Operator Instructions]
Before we continue, I would like to clarify that any forward-looking statement made during this video call on business and operation targets are assumptions and beliefs based on the currently available information and are not a guarantee of performance involving risks and uncertainty because they depend on circumstances that may or may not happen.
[Operator Instructions] Let's start our presentation for today. I would like to pass the floor to Daniel.
Thank you, Carol. Good afternoon. Thank you for your presence. A little bit about the net revenue from retailing. The second quarter showed a robust growth in retailing revenue. Quarter -- year-over-year, we saw 40.6% growth versus 2Q '19 of 57.3%. The growth was 55% growth above market according to the IBGE information, which shows consistency in market share gain.
Although the flows in the brick-and-mortar store are still lower than pre-pandemic times, for the first time, we had a gain in volume. We had tickets and pieces growing about 10% compared to 1Q '19. About the factors that helped this great result in sales. First, fashion and execution, the fashion that Renner produces and distributes at stores, assertiveness of the fall and winter collection, the quality and volume, the events at Mother's Day, Valentine's Day, consolidated many Omni initiatives that took place throughout these past months. Investments in technology, data and Omni in the brick-and-mortar and digital stores.
Also to consider the winter started earlier this year, which -- and was more intense in several parts of the country, which generated a greater flow to the brick-and-mortar stores. And increasing sales in April and May on winter clothes. Also this was the first time post-pandemic that people started buying clothes again, which impacted the second quarter.
Even with a good inventory of winter clothes, in June we had some pieces sold out, which accommodated the sales volume in June and in the first half of July. And we believe that we had an advance of 5% of the third quarter to the second quarter.
Highlight for apparel. When we add Youcom in Renner, we had a 45% increase year-over-year and 56% compared to 2019. The young brand, Youcom, achieved 67% greater than 2021 and 60% '19. Camicado also showed growth compared to 2019. We had a drop of 13% in 2021. This is because we don't have a comparison base in the first quarter of 2021 and a reverse effect of what we saw in apparel because of the pandemic impact. And also transition of inventory that is being conducted.
Camicado also was impacted by many difficulties in supply because of imported items. This renewal of inventory that is taking place, we think that gradually will be able to recover sales in the next month, especially in the fourth quarter.
In regards to our digital business. We had relative growth in the GMV in the quarter, a 27% growth year-over-year and 34% compared to 2019. Penetration was 13%. So representativeness of the digital channel dropped compared to the previous quarters and that is because of the customers went back to the brick-and-mortar stores. With the lift of the limitations, we saw an increase in brick-and-mortar stores. And even with that increase, we still grew steadily in our digital channel.
The Omni strategy is very effective with the customers. They can choose the channel that is most convenient in their purchase journey. In the digital world, we still enchant our customers, and we are able to improve the level of service, time to delivery and even improve the customers' experience on the website. Fabio will bring some examples in the following slides, where we will comment what was done differently to improve customer experience.
Highlight for marketplace performance, what we call 3P. We were nominated or renamed Alameda Renner that offers categories and price ranges, strengthening the Renner ecosystem. This platform has 330 sellers in Camicado and more than 300 in Renner and combined they are -- account for 5.7% of our digital channel. All our other digital channels; B2B, Favoritos Renner account for 25% of the digital GMV.
Renner is absolute leader in the MAO among the domestic players. And for the second quarter was -- Renner was the brand that grew the most in Instagram compared to our main competitors. 18 consecutive months, Renner follows as top of mind in online retail apparel. And being a top of mind in the digital apparel is what we struggled for achieving in the digital channel. Renner was already top of mind in the brick-and-mortar, but now we are referencing the digital world as well in fashion.
Gross margin. The second quarter's gross margin was 1.1 percentage points higher quarter-over-quarter and 0.3% lower than the margin of second quarter 2019. It still reflects gaining efficiently, especially reducing markdowns, which are at the lowest levels in the past few years. But we take into account the exchange rate and inflation.
Also having an earlier winter helped the margin. We were able to sell the winter collection at full price. The markdowns in addition to the good acceptance of the collections, we also invested in data analytics and technology throughout these past years, be it in supplying products in store, the markdowns and also integrating inventory among the platforms, both brick-and-mortar and digital.
That combined helped us have better assertiveness in distributing inventory, helping the pricing of the products. The challenge of keeping the margins healthy still continues in the second half due to the economic landscape. But we're sure that lower markdowns and our collection will be able to maintain our gross margin close to the levels of 2019.
As to our operating expenses, SG&A. Just to remind you that this chart shows SG&A after IFRS. So we exclude rent, fixed costs. What we see is dilution of SG&A as a percentage of net revenue because of the leverage with higher sales and gain in efficiency in operations and greater participation of the brick-and-mortar store that more than made up for the inflation effects accumulated in 2019 and also the effects on our ecosystem.
We continue working to improve this equation, be it by gaining efficiency in the brick-and-mortar and digital stores and also resuming volume. The second half will follow higher levels than the second quarter, but in lower proportions than last year.
Some points that are important to highlight. The first block that we call business as usual shows a slight reduction compared to 2019 with store expansions, which made up inflation and also the pre-operating expenses with our new distribution center, which is already operating.
The inventory was completely transported from the old CD and it will start operating with Renner in the fourth quarter. Our digital penetration showed a slight increase and a gain in the whole ecosystem and also the participation of the digital GMV and also variable costs in the digital channel, be it in logistics or performance marketing.
The third pillar are the additional expenses related to all the initiatives to gain efficiency in our ecosystems; IT, data strategy, new businesses, content, Omni tribe, marketplace, all working to build this ecosystem. Despite this drop as a percentage compared to last year is because of the scale of the business. Investments are at the same levels in IT, and we'll continue to support our strategy to work to make this ecosystem even stronger.
About Realize. First of all, we continue with strong growth of our portfolio. That's because of the expansion of our client base and migration of our private label to a co-branded card. The co-branded with the principality that maintains all the benefits of a private label card, and they can be used at any time of the customers' purchases, which made our portfolio expanse and our client base also grew 10% compared to 2019 and 20% compared to 2021.
We also have a client-base expansion because of Realize in the Renner ecosystem at Youcom and Camicado. This strategy to migrate from private label to a co-branded portfolio allowed Realize to increase revenue participation. Revenue from services account for 25% compared to 16% in 2019. We continue exploring new revenue streams that will be added in the -- to our portfolio in the next quarters.
About default. The reduction in the results in the second quarter 2022 was because of liquid loss -- net losses impacted because of the levels of delinquency because of the more challenging macro scenario. It's important to say that this comparison year-over-year is hard because of the forecasts were done in 2020, and they were changed throughout 2021. The indicator of net losses dropped because of delay in the portfolio, which achieved 25% and generates greater provisioning.
Several initiatives were taken throughout the second quarter to improve the risk of this portfolio, be it in origination, maintenance of limits and also collection. And these actions already show results. When we see the curve of the overdue for more than 60 days, we're more comfortable. It shows a recovery that shows that these initiatives had a good result.
A little bit more about these initiatives. Origination, we did have more restrictions in acquiring credit and limit maintenance. We reviewed the credit limits in the active base, and we blocked the inactive cards. Collection, we increased the collection team. We have renegotiation campaigns with special conditions for the debtor to renegotiate their debt and go back into being out of default. And we're talking to the debtors earlier than we usually did in the past.
The sum of retailing plus financial services and products, the total EBITDA of the operation for the second quarter was 47% greater year-over-year and 29% compared to 2019. Because of the improvement in retail, the retail EBITDA grew 53% compared to 2019 and more than make up for the drop in financial services.
Net revenues of profit also exceeded pandemic levels. We closed the first quarter with a robust growth, 49% growth in net revenue year-over-year, 47% compared to 2019. And gain in volume before -- pre-pandemic times, the second quarter has a 5% growth. Total EBITDA for pre -- is on line with 2019. That's above our expectations for the first half of the year, especially due to the high sales volume we had in the first half of 2022.
Now this is the second half. I would like to comment about our expectations for the second half of the year. Sales. The economic landscape is more challenging. We're sure of that. The impact of inflation and the capacity of our customers' purchasing and the second half will not have a repressed demand. It's more normal. The consumers are already back to going into stores, but we are still confident about our capacity to offer unique offers and with a high volume of consumers.
Our expectation is growth in the second half, more aligned to what we saw in the first quarter of 2022. About the total EBITDA, we reiterate our expectations of advancing to pre-IFRS to the levels of 2019. We expect results from retail above 2019, which will make up the results of financial products that should be a little bit lower than the same period of 2019.
Another thing we would like to comment, and we mentioned this in our last conference call and that we would bring some new information is about our capital structure. We concluded our repurchase program of shares that started in January '20. We totaled by 18 million shares. We announced advance in payment on interest on capital referring to the first and second quarter of 2022, which would only happen in April 2022 when we decided not to roll out our debt in the second half.
All these actions improved our capital structure and our return on investment and keeping a comfortable net cash flow, which makes us confident to face the uncertainties in the second half of the year as well as follow our investments like opening stores and strengthening our ecosystem.
Now I would like to pass the floor to Fabio.
Thank you, Daniel. Good afternoon. I would also like to thank your interest and being here with us.
We had a first good half, as Daniel said, and we expect positive results for the year, focusing on our long-term strategy. We continue with our goal of being the best and largest fashion ecosystem in Latin America with a full journey for our customers. And for that, we strengthened our culture of enchantment and expand our customer base, increasing recurrency, lifetime value and stickiness. We continue advancing in all our ecosystem fronts. Here are some examples.
Our Omni pillar. We continue giving priority to the service and efficiency levels. In this quarter, the share of delivery up to 2 days increased 6 percentage points year-over-year. Delivery in up to 1 day in the city regions of Sao Paulo and Rio de Janeiro increased 19 percentage points year-over-year. And still we improved our service level and we reduced costs. So the cost per shipment, we saw an 18% reduction year-over-year.
Additionally we continue with other initiatives. We acquired Uello in the second quarter. And with their integration, in logistics, we started the first pilots in last mile management to gain even more efficiency in our process.
As to the Omni CD, we continue -- we finished transferring Camicado's operation to that new CD, 100% of the inventory on and off are in Cabreuva and we're in continuous improvement for Camicado. Renner Youcom and Ashua, we started the test phase. So we have tests to half of the fourth quarter when we start little by little operating throughout the fourth quarter, gaining volume throughout the first quarter of 2023.
As Daniel also mentioned, the sales channel, the new sales channel that started in the past 2 years especially to have more relevance, they continue gaining more importance, both Favoritos marketplace, WhatsApp have been gaining relevance in our sales base. Digitalization of the stores is also a very important aspect of our Omni proposal, and it is expanding.
Another example, we have self-checkout in 47 Renner stores with forecast to operating in 134 stores by the end of the year. This brings more quickness and agility especially on those days that are busier. And on the stores where we have the self-checkout, about 20% of the sales go through them. Without mentioning other types of payments like a mobile sale, which with our employees' device at any point of the store, you can conclude your purchases and also app on the customer's smartphone. They can pay their purchases in addition to bringing more convenience and agility, strengthens even more the Omni client base inside the brick-and-mortar stores.
And we also advanced with our expansion plan of the brick-and-mortar stores. We opened 16 stores in the second quarter, 7 Renner, 8 Youcom, 1 Ashua and 12 of them in new cities. And for next year, the forecast is to open 40 new stores. And by the end of the second half, we will have opened 18.
Other investments fronts on our ecosystem, we also have our active customer base with a 19% increase year-over-year and a greater retention, 4 percentage points higher year-over-year. The number of customers purchasing 3 or more brands in our ecosystem grew 37.5% over the past 12 months. These customers are very important because they spent 6.9x more than those customers that buy only 1 brand of our ecosystem. Renner Youcom customers are the ones that showed higher growth in this type of purchases.
The content and branding front focused on unifying content in all digital interactions with our customers, generating more engagement and making our brands a reference of fashion and lifestyle. We produced a total of 16 campaigns in capsule collections, especially on special celebration dates. We also had 12 live streams on Instagram, all with record audiences.
The strategy to generate content with digital network media customers continues, and we have micro and macro influencers counts with more than 600 names. Our own social media accounts also show content that leverage our results, increasing our traffic in the app in 46% year-over-year.
Additionally, for the second quarter in a row, Renner was the brand that grew the most on Instagram compared to its main competitors. And as Daniel mentioned, we are top of mind in digital fashion.
At Realize, our financial branch, we also have initiatives to occupy the ecosystem, which increased the customer -- active customer base by 19% year-over-year. And we also show growth of 48% in TPV, achieving BRL 4.5 billion. Today, 91% of the customers are digitalized, which also increased migrating brick-and-mortar store customers to the digital channel. That reduces cost and with that 100% of our customers, 99.8% of our customers actually get their digital billing.
In terms of priority in offering the co-branded card, we also had an increase of offering year-over-year. 58% of our active customer base already has a co-branded card. Our digital count also expanded. We started with a pilot in 1 store, then to 3, 10, currently, we have a pilot in 25 stores in Sao Paulo region and the forecast to roll out to 100% of our stores by the end of the year.
Also in the third quarter, we'll have a new digital platform for financial solutions even more robust, expanding the launch and rollout of digital account and other products.
We are also building our ecosystem in sustainability. This quarter, Renner and Youcom launched the first jeans tracked with blockchain, allowing the customer to track through the QR code, the entire production cycle from the cotton crops all the way to the production of the jeans. The targets for reducing CO2 emissions were approved by the science-based target initiative, which is responsible of setting these targets based on science, and we want to continue reducing greenhouse effect gases with our cycle that goes to 2030.
In April, we announced our annual report 2021, which shows the results and initiatives of our company in the past year. And in July, we are going to report to the market we inform a report under Brazilian Code of Corporate Governance 2022 with 98.1% of adherence to the Brazilian Code of Corporate Governance.
And to summarize, I think we already did a lot to date, but there's still a lot to be done. We started from scratch in some fronts, and we did a great leap in 2021 and now in the first half of 2022. But we still have a long way to go until what we desire in 2 or 3 years. As an example, our digital assortment increased 4.5x, and we will continue to expand and accelerate to expand our digital assortment.
In CRM our customer base increased 19%, and we should more than double that from this baseline. Our 2-day deliveries are around 45% of the deliveries, and will achieve 70% to 80%. At Omni, our customer base has been increasing. It started in 1%, then went to 6%. Today, we have 19% of our customers transitioning in both channels. And definitely, we will continue growing our customer base in Omni.
As to cost to appeal to these customers, CAC on retail revenues is dropping and should continue to drop even more throughout the next cycles. At Realize, the service revenues already became more relevant, as Daniel mentioned, and will continue to increase continuously. We'll continue our commitment to become a leading ecosystem in this segment in Latin America. We're sure about our future and the investments that we did and will continue to do to straighten our ecosystem, and we are working on our priorities for this year.
So we will continue to invest in developing our Omni proposal also gaining agility and time to market of our products with better collections, investing also on our logistics and technological platforms and also at Realize, expanding our products and service portfolio.
All this with high focus looking to generate more value, productivity and efficiency in our operations. Every quarter, it becomes more evident that we're on the right path when we see new records of enchantment. So once again, best level of enchantment in history in the second quarter of our history, which shows that we're going in the right direction to offer a value proposal that will enchant more and more our customers.
And we also believe that brands with meaning and with the clear value proposal generates competitive conditions to gain market share, especially in moments such as this with a very challenging landscape and consolidation as we are seeing now.
In more challenging macroeconomic moments, the customers look for the brands that they relate to the most. So we're very confident about our future as an ecosystem. And streamlining our customers and providing value to our shareholders.
I would like to pass the floor to Carol, so we go to the Q&A session.
[Operator Instructions] First is from Thiago Macruz from Itau BBA.
I have 2 questions. You mentioned that in the second quarter, we should have -- second half, we're going to have growth compared to the 1Q '22. But there are other things that affect the quarter such as digital. Can we see a drop in SG&A in this quarter, even with a more fragile top line in the second half of the year? That's my first question.
The second one is about the credit portfolio. We saw provisioning growing in the last 3 quarters and still compression of coverage that dropped the levels below what percent? Is it reasonable to believe that this coverage will go above 100% still in 2022? Does that mean maybe a period of more provisioning in the second half of the year? Those are my 2 questions.
Thank you for your question, Macruz. Well, definitely, yes, going forward, the sales in the quarter are hard to confirm, but we see a scenario similar to the first quarter when we compare to 2019 because the comparison with 2021 is a bit distorted in some periods, because we're removing the positive effect of this account in the second quarter with the repressed demand when people went back to events and also colder temperatures at the beginning of the quarter, April and May, which helped.
So if we remove that from the math, probably we can have a performance similar to what was the first quarter 2019 in terms of sales. Definitely, I think you mentioned our initiatives that are gaining maturity, which can help us both in sales and productivity and can help us to reduce expenses compared to the first quarter. But we don't think it's at the same level as it was in the second quarter because we do -- the dilution of the second quarter costs were because of a very high sales level.
So in this next quarter, it's difficult to think it will be the same, but we will gain efficiency compared to the first quarter.
Now, speaking about the portfolio coverage rate and provisions that we made so far and what will happen in the next half. When we talk about coverage rate, we follow the methodology from our IFRS 9 about the way we calculate the provisions. This criteria hasn't changed. It's the same for several years.
What did happen is when we start having a higher level of delinquency, especially when we start having more pressure, we generate more high provision. The portfolio coverage goes hand in hand with this rationale of IFRS 9. So when we see the coverage compared to the total portfolio, we had an increase of coverage actually. When we compare it to sales, there's a drop. It's part of the methodology.
There is no change compared to the methodology that we apply. Of course, when a new portfolio starts and it becomes bigger and you have the representativeness of this greater portfolio, it tends to increase.
About the coverage. What we forecast is an improvement in the quality of the portfolio throughout the third and fourth quarters, more in the fourth quarter than the third quarter. So we're going to still see a slight increase of the overdue and recovery in the fourth quarter.
Our next question comes from Danniela Eiger from XP.
I have 2 questions. One is a follow-up about what Macruz said about the sales dynamic for the second quarter. This slowdown, you mentioned a more challenging landscape. But do you feel this and because the winter was stronger in May, do you feel that still and could it be linked to this change in credit release at Realize? And how do you think about impact of the PC of the government of giving money, if it will be better than people expected?
My second question is about profitability, especially in gross margin. You said that it's close to the 2019 level. I would like to understand why you see gross margin more normalized in 2019, what we should look at? And the same question is for EBITDA. If you think that those historical levels that you have of EBITDA margin can still be reached in 2024. Those are my questions.
I can start. Thank you for your question, Danni. About the second half. You mentioned some points.
It's very hard for us to say anything like I removed my certainly from my previous answer, it's probable. We have some positive factors like you mentioned. I think that the help package from the government, which tends to help also reduction of inflation that is starting to drop also, which would put less pressure on the consumers.
We have our own internal initiatives that are also positive. But we did have some events that impacted the third quarter, which an event like when we had going back to mobility at the level we had, so we won't have such a positive impact in the winter.
So our projections with taking all this into account, we understand this landscape more likely in the future. It's very hard to state that. What we have been seeing in July, as Daniel mentioned, part of what we could have sold at the end of July were sales that were -- that happened in April and May.
So we have a winter inventory that is the riskiest part for us since we sold much more than our expectations in April and May, that had a positive effect with a greater gross margin. But we still have a little bit more to speed up in July.
We see a more normalized situation, which makes us to believe that we should have figures close to what we had in the first quarter compared to 2019.
As to the restrictions at Realize, we haven't been feeling at least until now any impact there. I think that the initiatives that we've been taking are very specific. And we've been able to balance these limits to customers that are in a healthier financial situation.
And taking caution in giving credits for the inactive customers and the delinquent customers. I don't think it will have a greater impact there. We think that it will continue with the expected volumes in sales and little by little also increase in the future.
So you also mentioned EBITDA margin, right, and gross margin. Yes, the historical gross margin and EBITDA. We continue confident that the gross margin in the second half will be in line with what we had in 2019. Because most of the inflation is already here.
And for the FX, the second half is practically covered a little bit below what we had budgeted in the first half. So we were able to have this coverage when the exchange rate with the dollar was higher. So we're more comfortable this half.
And we believe that there's always a variable with the markdowns. Markdowns are dependent on the success of the collection and a sales level that relates to the inventory we have in the period. We still have success in the collections with good acceptance of the products, and that allows us to have a lower markdown.
And when we have the right product executed at the right time, be it in digital or brick-and-mortar stores, that makes our gross margin closer to 2019. We still use 2019 as a reference because after 3 years of a robust inflation, we believe that it's a good reference number. It doesn't mean that we're going to tie our reference of gross margin to 2019.
But at the moment, when we had inflation, what happened throughout these 3 years, 2019 is a good reference for quality of margin that we have been maintaining.
About the historical EBITDA. Again, we reiterate what Fabio mentioned about the behavior in the second quarter. It brought a recovery speed for EBITDA that was specific for this quarter. Of course, we're going to recover a little by little with the EBITDA margin percentage throughout this period, but we had this scale effect.
Even the winter effect in this quarter on winter clothes, we had a higher average ticket. So you have more winter clothes with a higher ticket. That all helps to generate scale in the second quarter, which is an outlier compared to the behavior of all the other quarters of the year.
But what we do reiterate and something that I've been saying in our talks. We believe that we will continue to recover EBITDA margin throughout the next 2 years, and we will get close to that historical EBITDA margin. Historical is the excellent margin we had in 2019. It's not historical, but it's the margin that we achieved, which was excellent. It was celebrated at the time. That's the margin we -- of EBITDA that we reached in 2019.
Everything we do growing above the market, which means getting scale. Also, several investments made to gain efficiency in our digital channel. So with that, we can have operation costs very close to the brick-and-mortar store levels. And all the investments in the structure that helps us to speed up building our ecosystem are part of this total expenses that has prevented us from reaching that historical margin.
All this together will allow us to get close to that margin and by the end of 2024, we believe that we will be close to that margin. But again, we believe that EBITDA nominal EBITDA growth will come together with top of line is the leverage that we're looking for.
Our next question is from Joao Soares from Citibank.
Good afternoon, everyone. You gave us 2 interesting indicators. Sales in the second half and reiterating the EBITDA at the same level of 2019.
I want to learn more about SG&A, if there are opportunities here to gain efficiency, looking at retail, imagining that the delinquency, we're seeing the banks being very conservative, so the delinquency is very challenging for the next half. So if that scenario continues challenging and provisions continue high, if you can offset additional improvements with cuts in SG&A?
And the second question is about People that are more optimistic saying that there's greater visibility with these inflation and interest rate scenario being left behind. If the company has appetite to invest more aggressively in organic investments like allocating capital as the scenario improves.
Thank you for your question, Joao. I'm going to start answering, and Daniel can continue answering.
But as Daniel mentioned, in delinquency, we took some actions to mitigate the losses and be able to get through this. It brings results to Realize lower than our expectations. But on the other hand, we've been performing above expectation in retail.
So Daniel said that our expectation is to reach the same EBITDA that we had forecast offsetting that --those losses at Realize with a better performance in retail. So SG&A of retail -- in the consolidated, we can offset that loss. And a little by little, Realize can also gain performance.
In regards -- do you want -- no, no, that's perfect. And about the acquisitions, we don't have anything relevant in mind. We're focused always in continuing to expand our ecosystem in our priorities and strategies that we already established. Many of them are internal. So we're using our resources internally, also expanding through partnerships and the acquisitions that we did until now. But we don't have anything relevant in mind.
One of the things that is worth mentioning -- we have a great opportunity to grow organically. We opened 20 stores this year. We're going to open 40. Still of the 20 stores, 8 or 9 are Renner stores in cities where we didn't operate in or expansion of Youcom. And we still have many opportunities ahead of us.
So at the same time that we continue looking at opportunities, like Fabio mentioned, Uello, which was a recent acquisition, we are concerned and focusing on our priorities. How can we strengthen our ecosystem and speed of building that ecosystem. So our M&A gives priority to that. And we still look at opportunities.
We have a lot of things to do organically. We're resuming opening brick-and-mortar stores and we would continue to speed up those launches in the future, which is an opportunity that we have. There are several cities in which we have the opportunity to open a Renner store, and we have Youcom's expansion, which is clear is a model to -- that has proven to be successful.
Our next question is from Felipe Cassimiro, HSBC.
My first question is very specific about logistics cost. It's interesting to see this drop. Even in the very challenging environment of inflation, this 18% drop with improvement of services and better delivery. If you could give us a little bit more information about what led to that drop and Uello helping to gain efficiency?
And the second question is about financial products about partnerships that you mentioned in the release with Enel. What are the plans to expand Realize to other retailers? And if this will contribute to share, what are the drivers to expand your services?
Well, about logistics costs. And Felipe, I think I mentioned in a few of the meetings we had with investors, when winter started -- well, the pandemic started, and we had an acceleration of digital. Renner wasn't 100% ready for that. So everything that we did was done quickly to be able to meet the consumers' needs. So we generated several inefficiencies from simple things like a specific route, we only had one operator on, which was the only one available and we started with them because we had it to meet a certain demand and the stores were closed to inventory management.
So from that moment, when we started in 2020 to now, there were several actions taken to streamline this logistics chain, bringing new providers. In some places, we had one route, now we have 2 or 3. We positioned inventory. So several things were done to streamline the logistics structure.
Uello doesn't contribute at all in the performance yet. Uello to what we mentioned, there are several leverages in the digital world. One is to -- when our CD is ready and operating 100% in addition to Camicado, Renner, Ashua, will be in the CD because we have logistics gain, which is more substantial for digital.
We are talking about 3 percentage points gain in margin. We bring digital inside the CD we gain in scale and also the transition. We have physical and digital products using the same truck. So we gain scale, working together, which allows new gains in 2022-2023. So about the logistics cost.
In regard to the financial products, I would say that we started a first partnership with Panvel. We have some retailers that come to us for us to be the financial service provider like we have Realize that caters to our retail companies. Some other retailers ask us why can't we operate or provide for them. We know retail, we have a card with a retailer since 1983.
So we've been working with consumers retail for 39 years, but we never provided for other companies. We operated at Renner and recently in our ecosystem like Camicado and Youcom, which have been gaining more relevance, also products to our suppliers for cross-seller. So we've been working inside our ecosystem.
And since there are some players that ask us, we also ask ourselves, with all this knowledge we have in retail and some types of retail would make sense, which are adjacent to ours, but which can give us good synergy, both for us and for that retailer, generating knowledge, providing financial services for them and also for Realize, bringing scale and expansion of clients. So it's a beneficial relation for both sides for Panvel and for us.
So it's a first partnership. We're learning since it's the first time we do this. we intend to make this grow so that we can operate well with Panvel generating value for their clients and also generating more value for Realize.
So our intention is to see this as a growth leverage gradually focused on what we know. But this is our first movement. We're still starting. It's very recent. We need to better assess it so we can grow with caution.
Our next question is from Vinicius Strano from UBS.
Could you talk about your performance of your recent store openings and what marginal return we can expect for going forward? And if you could give us detail about the new cities, how is the competition there? And an update on what you see as potential of opening Renner stores, both street stores and at malls?
First, the performance of new stores has been excellent, very good. So that's what Daniel said about focusing our investments there. During the pandemic, at the beginning, we had a reduction of store openings, so we could focus on digital initiatives. And we've been having good performance and we opened 18 in the first half '20.
We opened one today in the city, in the countryside of the state of Rio Grande do Sul one yesterday, a Camicado in Santa Catarina. So most of the stores have been in new cities, which is very positive as well. Even stores in regions close to large cities that are unmet and stores in new cities.
So the competition in these cities is not that big. Every new city that we opened a store in has increased 20 percentage points, also the digital sales for that city. So that's very positive. And that also allows us some specific initiatives, not only opening stores, but improving our portfolio.
We opened new stores but recently, we closed a street store at Ibirapuera Avenue in São Paulo, and we expanded our store at Ibirapuera Mall. So it's not one more store. It's one store less, but it will generate more value with the lower cost. So we can have these initiatives as well. So we're looking at brick-and-mortar stores that have good potential, both to gain efficiency and also expanding other stores.
The figures for the next years, we're talking about 40 stores this year, including all the brands and probably -- we have to align a few numbers, but we should be able to have a greater number. So we have projects both for malls and street stores. Smaller cities, usually, we focus more on street stores, which is a longer path.
We're trying to speed up that number, but we want it to be greater next year than it was this year.
Our next question is from Ruben Couto, Santander.
A quick question. When you talk about the performance in the second quarter similar to the first quarter, excluding that impact of Omicron, I just want to confirm that. And also about the expansion and street stores that you've been opening, what do you expect to happen that decision -- what made you decide that you're going to have more street stores than mall stores.
Is there anything that will allow us to have a greater share of street stores than mall stores. And I want to understand if those stores are in the smaller regions and the model you have well described and what are your first impressions, if things are working, things are not working, the adjustments you have to make?
About your first question, you're right. When we talk about the results in the first quarter, we said a reference of 2019 because the reference to 2021 is polluted for the fact that we had the second wave of COVID in 2021. We talk about 35% to 40%. That's our reference, 35% to 40% compared to 2019. So that's the reference that we have as a base for growth expectations for the second half.
And about the expansion. The street stores usually are in smaller or midsized cities where there aren't any large malls, it's not that we don't have stores in malls. We do have some as well, very few new malls, some existing malls, and street stores in midsized and small companies that have been performing well.
Our latest openings, we had a few this year. By heart, I think most of them [indiscernible] today there are several cities, all of them performing very well. Sapucaia as well, all of them performing very positively. That doesn't mean that we're going to have more street stores than mall stores.
Most of our stores will continue to be a greater number in shopping malls in our portfolio because the trend today for 2023 is to have 60% of the stores, opening street stores in 40% in malls. But that doesn't make that much of a difference in the total impact.
Our next question is from Joseph Giordano, JPMorgan.
I want to explore this part of growth. Fabio mentioned 60% street stores. I would like to know how you see guide shop, it's initiative, which is recent and can provide capillarity to the Omni strategy. We talk about Renner, but the other brands are kind of second plan. So my question is about Camicado. How do you see the evolution and normalization of the demand. When we look at penetration of e-commerce, it's already at 25%.
I want to understand if it makes sense to continue or even speed up this expansion to speed up the company's e-commerce. And in costs, the gross margin in the second half should go back to similar to 2019. When you say that, is there any upside coming from the recent drop in cotton prices. Maybe it shouldn't impact the collections that are now in the second half, but if that can be a good thing for the next year?
Thank you, Joseph. Well, about guide, it's very recent for us. We opened a store last year in a much smaller city to test in much smaller cities, and we recently opened one at Villa-Lobos mall in Sao Paulo, which has been operating for a small time -- short time, but it's very important for us. We tested the model in Garibaldi and then we wanted to make some adjustments. We adjusted a lot of things in the operations to have a more fluid operation store, and that happened for the Villa-Lobos store, it was a gain. And now we are refining some of the issues, so we can discuss the model.
So in our expansion, when we talk about expansion in number of stores, we're not including that new model. We're still testing that model. If we reach the conclusion that it's a model that allows greater penetration and capillarity, which is our hypothesis, that is in addition to our expansion model. But meanwhile, we don't have any new information about that. We're still testing our hypothesis.
About Camicado. Daniel mentioned when he did his opening comments. We have a different scenario at the moment compared to fashion. We suffered less during the pandemic then fashion and now fashion recovered greatly. People are leaving their houses, especially now in the second half. So they're buying more fashion articles and they started buying less things for the house.
Internally, there are some adjustments to be made to bring novelty to our product assortment. I think it's our homework that will happen, especially at the end of the third quarter and the beginning of fourth quarter.
Our expansion of Camicado. It's a sector that has a greater digital penetration. So Camicado, we invest more in product assortment and digitalization than in expansion. Camicado, we have more opportunities in streamlining the store portfolio. And Renner, Youcom, we have more opportunity to expand brick-and-mortar stores and Ashua.
And there's a pressure -- a slower pressure on sub products like cotton and also the cost of oil has been dropping recently. But too early to say anything. And the market is very volatile. So like Daniel mentioned, we hedge the purchases and the imported goods. We have also a more stable situation domestically. So we're projecting a margin close to 2019.
It depends on several factors with the collection, how the landscape will turn into. But the pressure is a little bit lower on prices. It's hard to say if it's going to continue like that. But at the moment, the pressure is also lower. We've been feeling that as well.
Our next question is from Richard from Bradesco.
I have a few questions about the e-commerce delivery times. You showed that there was an improvement both in D+2 and D+1. I would like to understand the behavior of the consumer that is receiving the faster deliveries. Do they buy more afterwards?
And the second part of the question, I think you're delivering 45% in up to 48 hours. Where do you think this compares to your other competitors?
Thank you, Richard. I think that the purchase frequency and the cost of acquisition has reduced because the level of service and stability did improve, but that's connected to the second part of your question.
The entire market has been improving greatly. And if we look at our direct competitors, we have a better level of service, and we're improving. But when we look at the generalized stores, they also have a better performance because the market requires that. So we have to continue to advance greatly in that front.
We have 45%, we want to reach 80%, and we will reach 80%. And that's continuous investment, both in the distribution center and in part of our platforms like Uello and improve efficiency in store shipping. We recently invested a minority investment in a log tech that has solutions for the store's logistic infrastructure.
So Daniel mentioned the trans points, so we can get frequency routes with the volume that we have to supply physical stores to use that for the last mile in digital as well. So there's a lot of things that are interconnected to our logistics platform that continue to give us gain and service levels going from 45% to 80% at a lower cost so that we can do this at a lower cost.
Definitely, that interferes positively in the customer experience, purchase frequency, but I think everyone is doing the same. When we talk about digital, we're talking about delivery logistics and levels of service. That's part of the business.
Our next question comes from Irma from Goldman Sachs.
My first question is about the comment about traffic not being 100% recovered. On the one hand, this can bring gain and traffic maybe in the next months. But I want to understand if you think that this is just part of the recovery that wasn't 100% concluded or if it's something more structural that if you see any kind of concentration in lack of traffic recovery in some places or some type of specific store. I just want to understand what is your opinion about this, why the traffic has it gone back to 100% as we had in 2019?
And my second question, it's very interesting the details about self-checkout. Thank you for the detail of almost tripling the number of stores by the end of the year. Do you see that same store sells in these stores? I don't know how to quantify this to control this element. But I think that the speed of sales is higher on these stores. I don't know if you can measure that in some way.
Thank you, Irma. Well, about traffic compared to 2019, there are several factors, and it's hard to say, but the structural part is gradually recovering. So when you asked about the different types of stores during the pandemic and even where the restrictions started to be lifted, we saw a higher loss of traffic to the stores that were close to office buildings, street stores, close to business centers or downtown centers or close to subway stations or corporate centers. That's where we saw the lowest reduction in traffic.
This has been recovering greatly in the past months with the return of people working hybridly and some people working at the office. So part of it went back, but part still has to be recovered. So that's still where we have a greater structural loss. But there's a trend for part of that to come back.
I don't know if it's going to be back to what it was, but I think we can still recover part of that traffic structurally, especially on those locations.
To your other point, this scenario is not structural for the pandemic, but the consumers that are definitely more cautious with the moment we're experiencing. And with inflation, if we do have an improvement with the support that is being provided by the emergency aid and with the reduction of inflation can generate greater traffic.
Another part of your question -- it's still about traffic. We still see in the winter, there were moments when we saw greater number of respiratory diseases, not just COVID, but other diseases. So the traffic reduced a bit. When we have a reduction in these respiratory disease cases, the flow went up. So that is something specific that tends to recover traffic for the next months, probably.
About self-checkout. Yes, it does have a positive impact. That's why we're expanding our investments, both in the consumers' perception, levels of enchantment and also in the store's capacity, productivity, efficiency and speed for service, especially at events like and days that are busier.
It's not that much of a difference on a Monday morning, but it's a lot of a difference on a Saturday afternoon, like not a huge difference close to Christmas and Mother's Day. That's why we're increasing the number of self-checkout by the end of the year. So we should have all the stores I mentioned with the self-checkout at the end of the third quarter, beginning of fourth quarter, which will make a huge difference in the same-store sales, especially for the main event of the year, which is Christmas.
But I think all the busy days, peak days are important because of the volume.
Due to time, we're going to answer the last question that came by text, and all the other questions will be answered by e-mail after the call. It's Andrew from Morgan Stanley.
The first question he would like to understand more the study where you show Renner top of mind on online. Can you talk about the initiatives to improve online awareness and how far you are in this journey?
The second question, [indiscernible] was possible to reduce 18% in cost per delivery, where does the efficiency comes from? And if there's a combination of shipping of stores and distribution centers to be seen.
Well, your first question, the study. We didn't show the study, right?
No, we just mentioned it.
We mentioned a study from [ Mitch Nielsen ] that is constantly released. And the topic is the most recalled online sales store.
Renner, if I'm not mistaken the last study has 13%. The second player is 8% and other 3 players with 7%, 5%, and these are all types of players that sell fashion. So Renner by far the first in online fashion recall in Brazil.
I think this shows that despite having a lot to do to improve our online sales content, experience, recommendation and level of service, we still rank first and far from any other player that sells online. Even with an assortment much smaller when we compare to large marketplaces that has a much higher number of SKUs than we have working with 3,000, 4,000 assortment. And we only have 300 sellers. So even having a lot to do, this tends to get even better. And that also means greater increase in revenue.
I think I mentioned a little bit for your second part of your question. First, the reduction of 18% was compared to a base that had many inefficiencies, as I mentioned before, to have more than one operator on a certain route. We also were able to position the inventory better. So we have less interstate freight. There's another thing that we can consider are the business rules when we define if you have a product located at a place what are the business rules in terms of what delivery you can offer. So these components helped us to have a good gain in efficiency.
In regards to distribution center and store shipping, we have the option of the customer to pick up at the store. When we have that and the inventory is at the store, it does reduce your cost in shipping costs.
One other thing that's in your question is about the scale of replenishing the store and delivering digital. Once the distribution center is ready, and we put the transit point strategy in place and activate it. In the same DC, we can replenish the store. If you have -- you're going to have maybe a digital shipping that will go in the tank truck if the delivery is close to that store, so you can deliver that as well.
So you have maybe a bicycle or a motor cycle for that last delivery from the store. And with that, you can have scale in the physical world being borrowed by the digital world and also gain in service. The fulfillment in stores will be made mostly every day. So every day, you're going to have a daily route to fulfill the stores. And the digital can go with the same truck, you gain cost and streamline. That's what we will implement next year when the distribution center is ready, and this dynamic is implemented.
With this, we conclude our video conference. I would like to pass the floor to Fabio and Daniel for their closing comments.
I would like to thank you all for your presence and your interest. I hope we answered your questions. We're at your disposal, our Investors Relations team. And also reiterating that we truly believe that the investments we are making in the future of our company and the enchantment of our customers, and we're confident that we are building a better company for our customers, our employees and our shareholders. Thank you very much, Daniel?
Thank you, everyone. See you next time. Have a great weekend.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]