Natura & Co Holding SA
BOVESPA:NTCO3
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Natura & Co Holding SA
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Good morning, ladies and gentlemen. Thank you for waiting. At this time, we would like to welcome everyone to Natura &Co conference call on the third quarter results.
This event is being recorded [Operator Instructions] We have simultaneous translation into Portuguese and questions may be asked normally by participants connected from abroad either in English or Portuguese. [Operator Instructions] We have a simultaneous webcast that may be accessed through Natura's IR website, www.natura.net/investor. The slide presentation may be downloaded from this website. There will be a replay facility for this call on the website after the end of the event.
This presentation may contain forward-looking statements. Such statements are not statements of historical fact and reflect the beliefs and expectations of Natura &Co's management. This presentation also includes pro forma and adjusted information prepared by the company for information and reference purpose only, which have not been audit. Forward-looking statements speak only as of the date they are made and the company does not undertake any obligation to update them in light of new information or future developments.
Now I will turn the conference over to Mr. Roberto Marques, Executive Chairman of the Board for Natura &Co. Mr. Marques, the floor is yours.
Thank you. Good morning and good afternoon to all of you depending on where you are. Thank you for joining us for this call to present our third quarter and 9-month 2018 earnings.
I will start with a few introductory remarks on our performance and then José Filippo, CFO of Natura &Co and Natura, will comment on our financials. I will make some concluding remarks, and we'll then open the floor to your questions. For the Q&A session, we'll be joined by João Paulo Ferreira, the CEO of Natura; David Boynton, the CEO of The Body Shop; and Michael O'Keefe, the CEO of Aesop. We are all in London this morning, a beautiful morning here in London where we had a very productive Board of Directors meeting and where Natura's 3 founders, Luiz Seabra, Guilherme Leal and Pedro Passos were distinguished as Personality of the Year last night by the Brazil-UK Chamber of Commerce. And of course, our Investor Relations team headed by [ Marcel Goya ] will also be available to you after the call to respond to any additional questions that you might have had.
So let's start on Slide 3 and let me begin with a quick overview of Q3. With double-digit growth in revenue and adjusted EBITDA and net income more than doubling, Natura &Co posted yet another strong performance across-the-board. All 3 of our brands and businesses contributed to this very solid performance, and we are very happy with that.
So let me start with Natura. So Natura outperformed the market in Brazil in 2 categories and continue to gain market share and can see the benefits of the relationship selling commercial model. Consultant productivity increased for the eighth consecutive quarter, and the number of consultants actually grew in Q3, attesting the new renewed attractiveness of our brands.
Natura's multichannel model continues to evolve with more than 650,000 consultants now using our exclusive mobile platform, online sales growth in high double digits and 12 stores opening in Brazilian cities in the third quarter. We have done -- we are also showing strong momentum gaining market share while rolling out our relationship selling model and digital strategy.
Let me now talk briefly about The Body Shop. The Body Shop continue to show progress in the implementation of its transformational plan. Sales grew and EBITDA more than doubled in the quarter, excluding the expected transformational cost of BRL 24 million than this total quarter than we booked in Q2, demonstrating new advances in the operational efficiency and our ability to really execute the plan. Like-for-like sales growth in our own store grew a very healthy 3.1% in Q3 while overall sales were stable despite 58 fewer stores as The Body Shop continue to optimize its network. Now as you know, The Body Shop entire organization is fully mobilized to deliver a successful Christmas campaign that it's very important for the year results of the business.
Finally, Aesop. Aesop turned another quarter of remarkable growth with sales up in high double digits, rising in all channels and geographies. Our like-for-like were up 17% in Q3, and the company is also becoming more omnichannel with online stores doubling from last year even as Aesop continues to open signature stores with 6 new openings in this past quarter.
In summary, Natura &Co continued to improve its financial structure and also deleveraging and we are on track to achieve our 2021 target of returning to our preacquisition [indiscernible] that as you know is 1 year ahead of our initial plan.
Finally, consistent with our triple bottom line approach, the group also saw some notable advances in sustainability with its commitment to ban animal testing that will be detailed later in the presentation. While Natura was the only Brazilian company to figure in the Global Corporate Responsibility, a CR RepTrak 100 survey published by Forbes Magazine, ranking fourth overall. So as you see, Q3 provides new evidence of the growing momentum and the strength of our global multibrand, multichannel [ year ].
Let me now hand over to Filippo who will detail our numbers.
Thank you, Roberto, and hello to everyone.
Before going to our financials on Slide 5 , I thought it would be helpful to step back for a second and provide a bit of explanation on the various adjustments that in Q2 affect our numbers and give you some visibility on their impacts. Indeed, this quarter was marked by several nonoperational adjustments. First, the Natura Brazil and LATAM were impacted by the IFRS 15 rule on reclassification of late payment charges on receivables with impacts on Natura's Brazil's net revenue and EBITDA of Natura -- and Natura LATAM's net revenue. Natura Brazil's net revenue, cost of goods sold and EBITDA were affected by the reversal of tax provisions booked last year. Next one was Natura's P&L in the outlook was impacted by IAS29 and IAS21, accounting standards relating to the hyperinflation in Argentina. And as already mentioned, last quarter, The Body Shop's EBITDA in the quarter was 9 months reflected the booking of transformation costs both in Q3 for BRL 24.7 million and in the 9 month for BRL 62.4 million.
To make the numbers comparable and focus on the underlying performance, which, as Roberto mentioned, we consider very solid. These adjustments had been excluded from the numbers that I will be commenting today. Also, please note that The Body Shop's 2017 numbers include preacquisition performance figures from January to August for the sake of compare -- comparison.
Next slide, Slide 6. I'll start with overview of our P&L with our pro forma consolidated revenues in this slide. As shown in the graph, which rose in double digit both in Q3, we saw a 16.6% increase and in the 9 months with the rise of 13.7%. These results from growth in all key of our businesses.
Natura posted strong single-digit growth in both Q3 and the 9 months of 9% and 7.9%, respectively, at constant currency. Thanks to continued momentum in core categories in relationship selling in Brazil and further expansion in Latin America, The Body Shop sales were up by 3.6% in both Q3 and in the 9 months. The quarter was supported by strong orders from franchisees ahead of Christmas, online sales and lower discounting. And Aesop posted strong double-digit growth of 34.8% and 33.9%, respectively, in Q3 and in the 9 months of 2018.
Now moving to Slide 7, we turn to adjusted EBITDA, which as you see in the graph, grew by a very solid 33.7% in Q3 to nearly BRL 500 million on the back of double-digit growth in profitability in all 3 businesses. On a reported basis, Q3 EBITDA was up 7.2%, and 9-month period also saw a strong growth of 29.1% on an adjusted basis and 1.7% growth in reported EBITDA.
As a reminder, EBITDA performance includes The Body Shop EBITDA as it is -- as if it were already part of this group in Q3 2017 and is adjusted for various effects that I mentioned earlier.
Turning to Slide 8, we look at Natura &Co's underlying operating income, which exclude acquisition-related expenses, transformation costs, financial expenses and income tax. As shown in the box on the slide, we posted 10.2% growth in underlying operating income in Q3 and even stronger 30.4% growth in the 9 months. The Q3 growth was driven by strong performance in efficiency gain at The Body Shop and Natura.
Reported net income more than doubled in the quarter to nearly BRL 133 million despite the hyperinflation and the accounting impact from Argentina and The Body Shop's transformation costs boosted by higher consolidated EBITDA and lower financial expenses.
Moving to next slide, Slide 9. Let me conclude with a quick summary with our key financial highlights, which we will net off at the main aggregate of the balance sheet. Cash flow in the quarter was an outflow of BRL 9.9 million, and this was by 2 main factors. First, higher working capital requirements both at Natura and at The Body Shop. At Natura, this came from higher level of inventories and lower accounts payable to supply while at The Body Shop, it reflects additional seasonality. Second, the higher financial expenses from debt services related to The Body Shop's acquisition. In the 9 month, free cash flow was an outflow of BRL 239.5 million.
Finally, we continue to deleverage the company in line with our expectations. Our net debt-to-EBITDA ratio stood at 3.27x at the end of September, down from 3.52x at the end of Q3 last year. We appears on track to achieve our target of returning by 2021 to our leverage ratio prior to the acquisition of The Body Shop of 1.4x.
After netting our consolidated numbers, let me now comment on individual performance of our 3 businesses, starting with Slide 11 with Natura. Natura posted a strong quarter both in terms of revenue and profitability. We are outperforming the Brazilian market in our key categories of fragrance, body and gifts, resulting in market share gains. And our brand preference is improving both in Brazil and in Latin America. The solid performance reflects the success of our relationship selling model, which is leading to higher productivity in Brazil and which we are now rolling out in Chile and Peru. In Argentina, despite the challenged economic environment, our business remains resilient, thanks to our robust business model. Our innovation index, which measures the percentage of innovative products in our growth revenue, remain higher at 61.7% in Q3. And we continue our digital expansion in the quarter. Our mobile platform is already used by 650,000 consultants in Brazil and 127,000 in Latin America, representing, respectively, 60% and 20% of our consultants.
Next slide, Slide 12. We look at the sales performance of Natura both on a consolidated basis and in geographic zones. As shown in the left hand of the slide, consolidated net revenue grew by 8.5% in the quarter and by 7.3% in the 9 months on an adjusted basis. At constant currency, sales were slightly higher with growth of 9% and 7.9%, respectively. This is driven by growth in both Brazil and Latin America.
In Brazil, adjusted net sales, excluding the effect of IFRS 15, rose by 5.8% in Q3, demonstrating the vigor of our relationship selling commercial model while in the 9 months, they were up by 3.4%.
In Latin America, also adjusted to clearly the effects of the IAS29 and IAS21 accounting standard, net sales were up in double digits both in Q3 and in the 9 months by 15% and 17.4%, respectively. Sales in the region were driven by Mexico, Chile and Argentina. At constant foreign exchange rates, growth was even higher at 16.9% and 20.4% (sic) [ 20% ], respectively.
Next slide, Slide 13. I would conclude Natura on each adjusted EBITDA on this slide. On a consolidated basis, adjusted EBITDA grew in double digits by 16.3% in Q2 (sic) [ Q3 ] boosted by higher sales and lower G&A expenses. This translates into a 140 basis point increase in margin to 20.2%. On a 9-month basis, adjusted EBITDA was up 8.6% posting BRL 1 billion with margin increasing 20 basis points to 17.4%.
In Brazil, Natura's adjusted EBITDA rose by a strong 17.5% and margin grew by 220 basis points to 21.6%. This results from the greater efficiency of our commercial model and lower G&A expenses as a percentage of sales. On 9 months, adjusted EBITDA grew by 2.8%, with margin broadly stable at 18.6%.
In Latin America, EBITDA grew in double digits both in Q3 and 9 months by 14% and 29.2%, respectively, thanks to higher productivity and efficiency gains. At constant foreign exchange, the growth was higher at 16.1% in Q3 and 30.1% in the 9 months.
Let's move to The Body Shop on Slide 15. Net revenue in reais increased on a reported basis by 26.8% in Q3 and by 21.5% in the 9 months, helped by favorable currency effect. At constant foreign exchange, sales were up 3.6% both in Q3 and in the 9 months, driven by stronger orders by head franchisees and strong sales both in the Asia Pacific and in the Middle East and the rest of the regions.
Despite 58 store closures in the last 12 months, owned stores sales were stable in Q3. At the end of Q3, The Body Shop has 1,041 owned stores and 1,917 franchised stores. This represents a total of 80 fewer stores over the last 12 months as the company continues to optimize its store network.
Next slide, turning to adjusted EBITDA on Slide 16. You see on the graph that we saw a very strong rise both in Q3 and in the 9 months at 55.6% and 172.7% (sic) [ 171.2% ], respectively, at constant foreign exchange and up by an even stronger 142% and 402.4% on a reported basis. Margin in Q3 grew by 400 basis points to 8.4% as a result of higher franchisee sales and lower discounting, which is part of The Body Shop's strategy.
The adjusted figures exclude The Body Shop's transformation costs, which stood at BRL 24.7 million or GBP 4.7 million in Q3, mainly related to the optimization of The Body Shop's retail footprint, organizational design and other initiatives. These costs are part of the total previously disclosed estimate cost of GBP 30 million through 2018 and 2019
Moving now to Slide 18. We round off -- just look at the performance of our businesses net income, which posted another quarter of exceptional growth. On a reported basis, net revenue grew by -- in reais by 67% in Q3 and by 54.3% in 9 months with a very strong performance across all channels and geographies. At constant currency, growth remains strong at 34.8% in Q3 and 33.9% over the 9 months.
Profitability also grew in strong double digits with reported EBITDA up 57% in Q3 and an even stronger 82.3% (sic) [ 82.4% ] in 9 months or 30.1% and 54.4%, respectively, at constant currency. Margins stood at 9% in Q3 and 10.9% in the 9 months.
Aesop continues to open signature stores, adding 23 in the last 12 months to reach the total of 219 at the end of the quarter.
So now let me hand over to Roberto for some concluding remarks.
Thank you very much, Filippo.
Before concluding, let me just mention some notable advances in the quarter on Slide 19. The Body Shop capped a 15-month-long global campaign against animal testing for cosmetics by delivering to the United Nation a petition signed by over 8.3 million people. This campaign was also -- is also supported by Natura, which recently received 2 key certifications attesting to its commitment to end experiments on animals and allowing consumers to easily identify products that are not tested on animals. The Leaping Bunny label granted by Cruelty Free International, The Body Shop partner in its petition campaign in a seal granted by People for the Ethical Treatment of Animals, a leading animal rights organization. So congratulations again to both Body Shop and Natura for this very important undertaking. Finally, the Aesop Foundation made the first 10 recipients of the Next Chapter Project, which aims at sharing the voices of writer for marginalized communities in Australia.
I'll conclude now on Slide 20 with just 3 key takeaways. First of all, as you heard throughout Filippo's presentation, Natura &Co posted a very solid performance in Q3 with each 1 of our business and brands performing strongly. Natura is clearly seeing the benefits of its relationship selling commercial model in a multichannel approach. The Body Shop transformation is gaining speed and being well executed and this results remarkable growth quarter-after-quarter.
Second, the growing momentum of Natura &Co in each of our 3 key existing business show the strength of the global multibrand, multichannel group that we are building. And third, with this new quarter of solid performance, Natura &Co is on track to deliver to its medium-term financial targets while making a positive social and environmental impact.
Thank you very much for your attention. And now we are going to open for Q&A, and I'll have with me again Filippo, João Paulo, David Boynton and Michael O'Keefe. We're happy to take your questions.
[Operator Instructions] Our first question comes from Thiago Macruz with Itaú BBA.
This is Julia speaking here. We were very impressed with the Brazilian performance this quarter, and it seems that the combination of growth and margin expansion had a lot to do with the excellent operating KPIs presented by the relationship selling channel. It is fair to say that the recurring growth in the number of consultants combined with the sequential increase in their productivity we saw this quarter is mainly due to the changes you implemented in the incentives model. And what would be the potential other reasons like the digital initiatives or other initiatives you mentioned in the release? And what can we expect for this channel and the results of these initiatives going forward? And then one other question that is related to The Body Shop and their revenue advance from Christmas sales to franchisees you mentioned in the release, we should expect an impact in the first quarter growth because of this phasing you have been engaging in.
Hello, JP here. On your first question, indeed, the results we are showing indicate the strength of the new models in the commercial rules, incentives, recognitions that are being -- the methods are working well. And not only we're getting productivity gains but also, the number of consultants in our network -- we grew growth as we pointed out. So extremely healthy. And by the way, we have already rolled it out to Chile with very successful results and most recently to Peru with excellent initial results. Now on top of that, I would like to highlight the strengthening of our brand and the strong innovation pipeline and the relevance of our launches, which are supporting together with the new commercial rules, our market share gains. So -- and we are in the -- gaining market share in all of our geographies. Now let me hand it to David.
David here. Thanks very much for the question. So Q3, we managed to get the Christmas delivered on time, a thing we weren't able to do last year. So we were really pleased with the presentation in stores. We think we're in good shape, and we're feeling very confident about being able to deliver Q4 as planned. So no negative impact there. It's looking -- it's all looking as we expected right now.
Next question, Robert Ford, Bank of America.
David, could you speak a little bit on how you're driving same-store sales at The Body Shop and your initial steps to improve pricing? And can you also discuss where you are in terms of renegotiating the rents and your vision when it comes to reimaging the store base? And within that process, is there an opportunity for landlords to co-invest with you and franchisees in terms of paying for that reimaging in the locations?
Right. Thanks very much for all those questions, Rob. I wasn't writing fast enough to be able to jot them all down so if I've missed anything, then please let me know. I think one of the biggest factors that we're seeing in terms of driving a lot -- driving our like-for-like sales are lower discounts. And we talked a little bit about that in the results. So we've been able to focus more on communicating product benefits and the very high quality of the products that we're selling in stores. And I think that historically, the focus has been really about communicating discounts and we've moved away from that with some success. And that's really helped there. Another factor in like-for-like, we put in some cities and some markets around the world where we've been reviewing our real estate position, we've seen that we're overshopped. So one of the things that's been quite pleasing so far this year is that we've seen in particular markets as we've closed stores, sales had moved to other stores and that's helped with our like-for-like growth. So I'd say there are the 2 principal points. In terms of rent reductions, it's a process that's underway. We really see the most of the upside is more likely to fall into 2019 than this year. It's been a long process. We found pleasingly that I think the landlords in general are understanding that it's a changed bricks-and-mortar retail paradigm. And they're receptive for having very good quality tenants like The Body Shop present and over the longer term. So there's a much more open conversation happening right now than there was several years ago. Let's put it that way. I don't know if I answered all the questions or there was some specifics that I missed towards the end?
No. That was great, David. I was just curious, given the shift in the balance of power, right, in terms of negotiating your occupancy cost. Is there an opportunity for you to go to landlords and help them pay for the reimaging? And when it comes to the reimaging that you want to do in the space, are you -- have you defined the concept that you're driving towards?
Yes. That's a -- it's a great question. It's a work in progress. So we're clear that the concept that we inherited is not just with purpose, we know that stores don't have a reason to exist unless they're highly experiential. Well, fortunately, we happen to operate in a very experiential category, but we haven't done a good enough job of bringing that to life. So there's lots of plans underway, the target that we have at present is Q3, we'll have a fully developed new concept on the ground. So we'll then be looking to roll out into 2020 -- Q3 next year, sorry, just to be specific. But as you say, there's definitely been a change in the balance of power and long overdue lots.
Next question, Franco Abelardo with Morgan Stanley.
I have a couple of questions. One in a -- more details on the sales growth acceleration in Brazil. You mentioned Natura is gaining market share in core categories. Which categories would you highlight is growing the fastest? And update on the non-exclusive franchised stores that are operated by consultants. Are these sales in this channel growing faster than overall in Brazil? And are they enough to restore consultant-operated stores you have right now? And what's the potential for the next 12 to 12 -- 12 to 18 months?
Franco, good morning. JP here. So on your first question, we are driving market share gains in the categories we defined to focus on, mainly fragrances, body care, gifts as a whole, right? But we are also experiencing excellent market share gains in face care. So that's really in line with our predictions and the plans that we made. On the second one, the consultant's franchised stores, they do grow faster than any other channel not only because it's -- we are opening those store, but also because their productivity is well ahead of what we predicted originally. So we roughly -- we have roughly 100 of them currently, and we want to keep that pace and maybe accelerate a little bit more next year.
That's great. And if I can do also a few question on Aesop related to your expansion. We saw that your last 10 department stores [indiscernible] this quarter. Is this part of the plan? And do you expect to accelerate expansion in the exclusive stores? And if so, in which regions or country do you see that biggest opportunity for Europe?
Thanks for the question. I think in the last quarter, the reduction in department stores is primarily because we decided to exit the David Jones department store chain entirely and moved exclusively with Myer. And I can say that's had an immediately -- immediate positive effect in that chain. Myer already moved to top 3 cosmetics brand across all of their floors. So it's really focusing our efforts more on 1 partner and a stronger presence. In terms of the question of continued signature store expansion, it's actually fairly spread across the globe. North America is still our fastest-growing region. But actually, new stores in Asia, APAC and Europe continue at pace.
Next question, Richard Cathcart with Bradesco.
So I think a couple of questions. One for JP on Natura Brazil. Just hoping you could give us a bit more color on the physical store strategy in Brazil. You've opened 12 stores in the quarter. So perhaps if you could just give us a bit more information about how the stores are performing, on what your plans are kind of for additional stores and I think kind of a different concept in the stores over the next 12 months? And then the second question for David on The Body Shop, just kind of going back to one of the questions that Robert made, I just wanted to understand the impact of lower discounts. Because clearly, it's had a positive impact on the same-store sales. I was just wondering kind of if you've seen any noticeable impact on volumes or footfall and then clearly, the higher ticket is helping your same-store sales. But just kind of want to understand a little bit on the volume side.
Richard, thanks for your questions. JP here. So on our own stores, I mean, they are performing exactly in line with our prediction. And we opened a dozen more last quarter. So we currently have 36 of them in Brazil. And they play a very important role to complement the other channels as we do reach other customers or already customers of the brand in different shopping arcades, right? And that is proving very complementary to what we already do, right? And you do see now people buying online, picking up in stores or by going to the stores with [indiscernible] and then buying with their consultants. So it's building very nicely into this omnichannel approach that we had in mind when we started that. And we do want to expand those stores going forward next year roughly at the same pace of this year.
Yes. It's David here. So yes, great question. Always a risk, of course, when you're reigning in this kind of activity. I think the thing is we're being in current region for us wherein we're being -- doing this in a very careful exclusive basis through the course of the year. And I mean, that's -- the last thing that we wanted to do was reduce traffic to the stores. I mean, there's already enough pressure on that than we've seen in years gone by looking at historical data for the business, the one that's made significant movements in price upwards that's been dramatic reductions and transactions. And we're clear that we're a value brand, and we have an accessible price point in premium beauty and lifestyle and we don't want to lose that. So through the various stuff that we've done, and we are pleased to say that we have no negative impact on transactions. I think the thing that's been interesting for us is the change in speech for the consultant in-store. In the past, it's been very much a case of a very transactional interaction where people come into the store with us and what we'd say is, hey, we got some great news. We've got a fantastic deal here and it's buy 3 get 3 free or whatever. And we're having a more qualitative conversation about the new product launches that we're having in the store, the seasonal appropriateness of the products that we're featuring in the store. And it's a better quality transaction that seems to-- between the consumer and the consultant that seems to be maintained in store. So no negative impact on transactions so far. We're watching it very closely. But so far, so good.
Next question, Joseph Giordano with JPMorgan.
I just wanted to explore at your points. So for the first one, use the Innovation Index. So JP commented a little bit that there are plans like to launch new products currently in the fourth quarter. So I would like to understand like what's the targets here in terms of Innovation Index and how you guys see that evolving over time. And then just also trying to understand why it came out as slightly lower than the first quarter as like -- we were seeing like an upward trend here. The second question is also on the Brazil side like so -- in my view, like the main part that surprised you was actually like on the expense side. So as -- and we'd like to understand like if there's more to come and what's really driving such reduction to the admin change. I understand like there's some accounting change, but -- the underlying trends here are probably very stable. So just to understand here, I think we have several headcount reductions. So what would be the impact?
Joe, JP here. On the Innovation Index, we did consider that -- the current setup of the business that -- a -- that number would be [ stripped away ] around 60%. So the changes that you've seen this quarter against previous ones is absolutely in line with our prediction, right? And I have to tell you as well that we are putting more effort in sustaining our hero brands longer so that we don't have to be so dependent on new launches, right? So that combination drove that number to 60%, 62%, And that's where we would be in the coming quarters. And as I mentioned before, totally in line with our prediction. Filippo?
Yes. Regarding the expenses, yes, we confirm that we really are committed to focus on this item and to make the strong efforts to reduce SG&A mostly coming from efficiency gains. So for example, if this quarter, we have, as indicated, some new recurring provisional adjustments that affected positively higher. But if we take out those impacts, we had a gain of efficiency here. For example, without that effect, our G&A was 14.1% of net sales. And we compare that to 14.6% in the same quarter of last year. So that represents the -- I think that with the growth of the revenues we expected will continue to be not increasing in the expenses and then -- and again, in the future, we feel like hitting them that's why we [indiscernible].
Next question [indiscernible] with Citibank.
Quick question. First, on the consultant group in Brazil, for JP, so there was kind of a sequential increase. And you said at the beginning of the year, at some point, that they should stabilize and then start growing again. What are your expectations going forward in regards to the consultant base? That's the first question. And then the second question, I just want to kind of -- on the date of the digital strategy, really are expanding very fast, 23% of orders are already online. But just give a sense of where we are, where -- what should we expect going forward? And also some expectations of how this is going to impact kind of margins or profitability further?
[indiscernible], good to hear you. And on the number of consultants, as you know, probably, 2,000. I said it will drop, stabilize and then we see growth as it did. And going forward, what we see is that it should grow sort of in line with population growth, low single-digit growth going forward with productivity gains. Now going to the following question on digitization, we are accelerating as much as we can. So we are targeting to have the vast majority of our consultants operating with mobile platform that best connect them among themselves, with our sales force, with Natura and moreover, with their clients, right? So we want that to happen throughout next year. We do have some major activities going on in Q2 next year that will boost that moment on -- that the movement even further.
Okay. And should we expect any major gains or some of the gains that we might see on the SG&A line or something I guess should be related to that or to process of really kind of moving the consultants faster to the digital platform?
Well, there are efficiency gains, especially in our commercial structure. There might be other efficiency gains in that -- our communication material, right, and support material. But as much as we can, we'll move that in our growth.
[Operator Instructions] Our next question comes from Gustavo Oliveira with UBS.
I have two questions, one for David and the other one for Filippo. David, still -- and I want to go back to the first question of the call just to understand a bit your seasonality on sales here. You mentioned that you delivered your Christmas orders to franchisees on time this year, which definitely helped your sales in 3Q. Will that have an impact on your total sales in 4Q? Or can you still maintain the pace of growth that you're delivering at 3.6% in constant currency?
Thanks very much for the question. So we're not obviously giving guidance on sales going forward and what we've predicted Q4. But we're feeling very confident about the plan. And just a little precision on the point about franchisees. Last year, even when the business was in the throes of the difficulties it was having on distribution, as franchisees because of [indiscernible], the majority of them are pretty far away from our base in the U.K. They were made a priority. So actually, a lot of the shipments that had franchisees, particularly the ones for Natura were being delivered on time. And the bigger material impact on performance and having a Christmas proposition already in time, which was within our company markets' closer to home, particularly the U.K. So we're not really expecting to see a significant change. We have a plan. As I said, it's looking really good in the stores. Reaction from customers and staff has been great and from our partners. So our expectation is we'll make our plan for the year.
Okay. So around the franchisee performance, you mentioned that you had very strong like-for-like sales on your owned stores around 3.1%. Is this a big -- is there a big gap between your owned stores performance to that of your franchisees? And is there a big dispersion in sales of your franchisee's network? Or -- and what is the opportunity? How do you to address that?
Yes, no. Honestly, overall, we're looking at a pretty similar picture. It's been a reasonably strong -- particularly in the second half, a recently strong product pipeline. As I said, Christmas is looking great. So the performance in our HF partners in our owned stores have similar magnitude. Of course, we're in a lot of markets, so there's that spectrum of performances. But overall, it's pretty much there or thereabouts.
Okay. Okay. And my last question for Filippo, if I may. Filippo, in the second quarter, there were some large-looking cap investments needs in The Body Shop. And now in this quarter, there's some working capital needs in Natura Brazil. Have we reached a level where you think that the working capital investments are behind and you think you are in a path for cash generation already into 4Q? How do you see the evolution of these working capital investments you're making?
Yes, Gustavo. Thanks for the question. I think it's very good point. We -- remember that we indicated earlier that we've started 2018 with the higher level of inventories, and we have that situation will impact by working capital. Because of the moment that we're having to do preparations for the last quarter, which you have typical activity -- the increasing activity, we still have levels that we don't show the reduction, but there is a lot of focus and discussion, and we're working on trying to improve that. Going forward, and by the end of the year, we definitely will be in a better situation in terms of working capital position. And then we'll benefit from the cash generation that we expect. This is Natura. And as you know, The Body Shop typically has its -- seasonalities more that we have in Natura. But it's going to be really improving in the last quarter. So we believe that in the end of the year, that's what we are. We are -- that's where -- committed to that, and we are confident that we can get to a better situation of working capital in the year-end and then if we can go to the cash.
This concludes today's question-and-answer session. I would like to invite Mr. Roberto de Marques to proceed with his closing statements. Please go ahead, sir.
Thank you. And again, thanks, everybody, for joining the call. Hopefully, that was helpful. Again, our IR team will be available for a new further question.
I want to take this opportunity -- and again, thank our teams across-the-board, the Natura team, The Body Shop team, Aesop represented here by JP, David and Michael and of course, Filippo, our CFO, for really a very strong Q3. And hopefully that continues to build the confidence, they we're really doing something especially with [ acts ] and with superior results.
So thank you very much. Have a great rest of the day. Thank you. Cheers from London.
That concludes the Natura audio conference for today. Thank you very much for your participation. Have a good day.