Empreendimentos Pague Menos SA
BOVESPA:PGMN3
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
2.2
3.96
|
| Price Target |
|
We'll email you a reminder when the closing price reaches BRL.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Empreendimentos Pague Menos SA
Earnings Call Analysis
Summary
Q2-2024
In the second quarter, the company achieved significant milestones, including a 16% year-over-year increase in EBITDA and a net income reversal to BRL 44 million from negative figures. The integration of Extrafarma led to BRL 200 million in annualized synergies. Same-store sales grew by 11.4%, while operational efficiencies reduced the cash cycle by 8 days to 156 days. The company revised its synergy guidance upward and aims to reduce leverage to below 2x by year's end. Increased customer numbers and operational improvements signal a positive trajectory for continued growth.
You don't have any saved screeners yet
[Interpreted] Good morning ladies and gentlemen. Welcome to Pague Menos Conference Call for quarter 2. This call will be recorded and will be available at the company's website, ri.paguemenos.com.br, where the presentation is also available for download. [Operator Instructions] We also informed that this call is being conducted in Portuguese by the company's management, and there will be simultaneous translation into English available by clicking on the button interpretation.
For those listening to the call in English, you can listen to the interpreter only by clicking on mute original audio. The presentation will be projected in Portuguese and the English version is also available for download at ri.paguemanos.com.br. Before proceeding, let me mention that any forward-looking statements made during this call are based on the beliefs and assumptions of Pague Menos management and the information currently available to the company. These forward-looking statements may in may involve risks and uncertainties since they refer to future events and therefore, depend on circumstances that may or may not occur.
Investors, analysts and journalists should consider that events relative to the macroeconomic environment to the industry and other factors may lead to results that differ materially from those expressed in such forward-looking statements. Today, we have with us Mr. Jonas Marques, CEO; and Luiz Novais, CFO and IRO. Now I would like to hand the conference over to Mr. Jonas Marques to start his presentation. Mr. Marques, you may proceed.
[Interpreted] Good morning, everyone. I'm very happy to be here starting this conference call for quarter 2. Being respectful to all different religions, I would like to start by thanking God for all the energy, for all the health so that we can work hard and work towards a healthier country where health services are more accessible. I'd also like to thank our 26,000 employees, their families, our shareholders, the industry, our partners and particularly our more than 21 million consumers. These customers have chosen us to take care of their health and to buy the products they need.
I'd like to start by reporting a result that's very dear to our heart. We had an increase of 5.5% in the number of customers. If we talk about mature stores only, it's 3.9%. So customers are coming back to our stores. And you may ask me what changed? What changed was our energy. What changed was our decision to regain what used to be ours, to regain the market for a breakthrough in our company to believe that we can do more, I believe in our people and taking care of our customers.
One thing that we're doing with our employees, we are training them. We had already had more than 1.5 thousand workers strain because we believe in this energy that is generated and this energy is what makes us believe in our great purpose and our great mission. So why not improving ourselves as team on? We improve ourselves team. That's what we do, right? Before going to the numbers, I'd like to stress that we are on track with what was promised during quarter 1. If you, I don't know if you remember, but quarter 1 was also very positive. Now in quarter 2, we had very good results. So you may ask me, what are you doing? What we're doing is we're doing the basic things right. Since the start of the year, we define our priorities and we will continue to focus on them to deliver the basic results, operating improvement so that we can in the foundations of the company and so that we can truly confirm this prosperity cycle that we're in.
When we look at our main numbers, we have our highlights on the screen. The first block talks about growth in same-store sales, which will probably be the highest of the market. We had 11.4% increase, not just for the Pague Menos banner, but also for Extrafarma. But we know that growth is not everything. So let's look at our market share. We gained market share in all regions where we operate. I don't know if you remember, but in quarter 1, there was only one region where we weren't gaining market share. So we are now accelerating and helping the market grow.
The second block is about profitability. So we had an adjusted EBITDA of BRL 176.9 million with the margin expansion, which is very important. And moreover, we also have a net income of BRL 44.2 million, a reversal of losses in quarter 2 last year. So this is a number that I would like you to memorize because we are truly obsessed with improving our margins to fighting losses and improving our execution. So this is a number that is very important for this year.
And the third block shows the results of our cash. So you see here, you heard us saying that we have operational missions and they have one clear purpose. In addition to building the foundations, also generating cash. So cash cycle, we were able to reduce by 8 days, 156, reaching 156 days. This is a great result. It's the better PME level that we have had since 2020. We're doing a lot of working in stock levels and we're also in the renegotiation of our debt, as you read in our release. And also, free cash flow was the highest generation part lineation in the last 5 years. So after the highlights, I'd like to invite Luiz Novais, our CFO, to show why in more detail the results for the quarter. Novais.
[Interpreted] Thank you, Jonas. Good morning, everyone. As you heard from Jonas, we had excellent results. So starting on Page 6 of our presentation. I have some more information about the highlights that were just explained. So let's start with our sales performance. We grew by 12% total growth with more than 11% same-store sales and more than 10% in mature stores, a major acceleration compared to previous quarters. Since the end of last year, we have seen a lot of evolution in the growth levels of the company, and we're very happy with this evolution.
On the right side, we compare the evolution of our mature stores with the price increase, the CME price increase. So in quarter 2 '24, we grew more than 2x the drug inflation, which was 4.5%, and we grew by 10% in our mature stores, which is an excellent result. And as you heard from Jonas, this is all due to improvements in our service, in our store, in-store service, the look and few of our stores. We have renovated more than 250 facades, and they improved the communication -- internal communication in our store as we had a lot of CRM activities. And the cohort of stores that were not rated after 2021 are helping in the company's growth.
As you can see in our next slide. Our organic expansion starts in 2021. We have more than 200 new stores with very good performance. We are consolidating our organic expansion capability. The maturation curve of these cohorts is very well aligned with the plan and the total margin in all the sales levels, we have an average of 1.5% above the margin of the previous portfolio. So for all performance levels, we are performing better, which is already helping us improve the company's profitability. And these stores are delivering a tier over 18%. So this has been really helpful and will be helpful in the future to help us evolve the EBITDA margin of the company as a whole.
On Page number 8, we have more information about the banner conversions from Extrafarma to Pague Menos which is something we have been conducting since last year. We're very happy with this movement more than 96 stores have been converted. The same-store sales of these stores was nearly 22% in quarter 2. So nearly doubled the non-converted stores, which was 2.9%. And the first chart on the right side shows that the stores converted over the past 2 years are performing twice as high as the other stores.
And the second chart on the bottom right, we see the Extrafarma portfolio evolution. We have 350 stores in our portfolio and of the 350 stores, nearly 1/3 have already been converted to the Pague Menos banner. We only have Extrafarma stores in 4 states, Ceara, Maranhao, Para and Amapa, and we are also doing some test conversions in these states to measure the performance of these stores and decide on further conversions in the future.
On Page number 9, as you heard from Jonas, we have good news about our market share. We opened 20 stores last year and 30 stores this year. It is a smaller proportion of our portfolio compared with other chains, but we are still gaining market share in all regions where we operate. So our same stores are performing much better than those of our competitors. And on the right, we compare with chains, associations and independents, and we are growing above the 3 blocks. So we're very happy with the evolution of our market share and with the capture value that we're seeing in our current store portfolio.
On Page 10, we have our gross profit and gross margin. We had a 60 bps reduction compared with last year. Last year, we delivered 31% in this year, 30.6%, and this reduction is mainly due to the lower inflationary gain compared. Last year, we had a 5.6% adjustment. And this year, the price adjustment was 4.5%. And last year, we were going through a denser moment in terms of logistic integration and logistic migration. And at this time, we had 129 days of stock in quarter 1 '23. And this year, we started the year with our stock level -- much lower stock level. And the stock from last year was important for the migration phase, conversion and logistical integration and also for capturing the inflationary gains and starting quarter 2 last year.
And we also have a [local] pressure or a higher level of stock losses this year due to unbalanced stocks that we took over from Extrafarma 2 years ago, but we are already addressing this point. And on the positive note, we have better commercial conditions, better pricing and a better mix of categories, which is yielding us good performance. The good news is that negative events are one-offs, and positive events are structural. So this means we have good prospects for our gross margin in the future. And this pressure was totally offset by diluting our expenses, as you can see on the next chart.
On Chart 11, you see the evolution of our sales expenses. We have excellent news here. We were able to reduce 80 bps compared to quarter 2 last year. It's the same reduction we had in the first quarter, which was also 80 bps so we are evolving really well in the operational leverage of the company. We are growing our sales much more than our expenses are increasing. So we see the mature stores are growing more than 10%. And we have been able to control our expenses really well due to the supplies inflation, also reduction of expenses and capture of synergies with Extrafarma. And this capture of 80 bps comes along with a very important reinforcement of some of the company's expenses, for example, some investments in maintenance, investments in training and we have also been making some changes in the hierarchy of the company to improve the quality of our service and the future of the company. So even with the one-offs, we were able to reduce by 80 bps our expenses. So we're very optimistic about the future for this cost line.
On the next chart, we have the evolution of our administrative expenses. We have maintained the same level, but we were able to reduce 20 bps compared with quarter 1 with the same level of revenues. And as you see, as you saw in the previous slide, we also had one-off events on this, in this quarter. We have mobilized our Sao Paulo office to gain productivity. We had a lot of idle space. So we're saving money with rentals, and we are gaining productivity. We have also discontinued our compounding channel, our own operations. We are now working through partners, very experienced partners, and we continue to offer the service to our customers, but now in a different way without having to invest any capital and focusing on our core. And we have also been reinforcing since the start of the year were reinforcing the company's management. So these investments are now -- we are strengthening these investments, but where at the same time, we are controlling the company's expenses.
As a consequence, on Page 13, you see that our EBITDA increased by 16% year-over-year. And our margin increased 20 points year-over-year, 5.1% to 5.3%. For the accumulated of the first half of the year, we had an increase of 32% in our EBITDA and 60 bps in our margin year-over-year, a very healthy combination of gross sales, dilution of our expenses and a very important trend in our margin for the coming at [indiscernible].
On Slide 14, we're very happy to share a very important milestone that we reached now in the second quarter of 2024. We have reached more than BRL 200 million in annualized synergies captured after Extrafarma’s integration. 85% of this value impact Extrafarma's EBITDA and 15% impacts Pague Menos EBITDA. So consolidated BRL 203 million annualized. Less than 6 months after completion of the integration, we have reached the bottom of the range, the lower limit of the range. We had published the range of BRL 180 million to BRL 255 million and now the bottom has been updated to BRL 195 million. And because we are closer to the end of the integration, we can give more visibility, we can have more visibility about where we're going to get in the next 6 months. So from BRL 195, we went from BRL 195 million to BRL 260 million.
We also incorporated that this synergy that we have been seeing since the start of the year, which is the theme of our stock losses. But irrespective of that, we are delivering what we promised to the market. We finished the payment for the acquisition of Extrafarma as last week. So a very complex integration logistically and technologically speaking, but we have been able to complete it successfully. We're very happy with the work done Extrafarma today is a healthy company. Our margins are comparable to those of our peers are generating cash. So we have also acquired this capability of consolidating inorganically, the inorganic growth. So we're very happy 2 years after the acquisition with the integration of Extrafarma already delivering on the range of synergies that we promised. And 6 months, from now, we have the potential of increasing the level of capture.
On Chart 15. Our net income, we delivered BRL 44 million of net income in quarter 2, reversing all negative scenarios that we had in quarter 1 this year and quarter 2 last year. We had evolutions in all elements. As we can see on the right side, our sales are increasing. Our margin is contributing and mostly our financial results, you'll see on my next chart that we have been improving the cash generation of the company, operating cash generation with the work we're doing on stock management, and this is increasing, this is helping us decrease our leverage with less anticipation of receivables, and we are diluting our financial expenses in BRL 30 million compared with quarter 2 last year, ending the quarter with BRL 44 million in results.
On Chart 6, we have more information on our cash cycle, very positive news here. We have reduced our average stock term an extra 11 days compared with quarter 1. So we had 102 days. It's the lowest level since 2020. We still have room to improve further in the future. Going back to the levels before 2019, as you can see on the right chart, this is due to the hard work reducing our stocks, adjusting our assortment, evolving our logistics match, the evolution in our average sales per store also helped dilute the stock days. And concomitantly, with reducing our stocks, we can also continue the recomposition of our receivables portfolio. So we already have 21 days of recomposed in our portfolio compared with quarter 2 last year.
It's a 10-day different difference of about BRL 30 million reduction in the anticipation volume that the company had in the start of last year, which was the more in the most intense capital allocation period that we had in the company. And this all impacts the operating cash flow, as you can see on the next chart. So here, we delivered BRL 442 million in EBITDA in the last 12 months and BRL 554 million of EBITDA converted into cash. Excluding the movement, which is the second to last column here of BRL 271 million in recomposition of our receivables portfolio. So for BRL 554 million of cash generation, which is about 100% of the EBITDA generated in the past 12 months. So on the right side, already considering the recomposition of our receivables, this is the best operating cash generation of the past quarters.
And on Chart number 18, we talked about the company's indebtedness. We closed quarter 2 with 2.5x the EBITDA. This is an important reduction year-over-year. 0.6 EBITDA less than last year when we had 3.1x. We can maintain the level of 2.5x even with the recomposition of the receivables that I talked about in our previous line of nearly BRL 300 million. We adjusted the guidance that we had published more than 2 years ago, which was to finish this year at 1.7x the EBITDA. A lot happened in the past 2 years that put a lot of pressure in the macro environment, and this also affected us. So the interest rate curve that we had projected for the end of this year was about 8%, but we will finish the year with more than 10%.
Also in the start of last year, we had a problem with Americanas where we had an increase in the spreads. Unfortunately, they have resumed the previous levels, but this put some pressure on us in the past 2 years and also additional investments in stocks which were made for Extrafarma. We will continue to focus on reducing our leverage. We will reach less than 2x by the end of this year. A lot of work in operational generation. So we will continue to capture the synergies of Extrafarma. We paid the last installment of the acquisition. We have reprofiled our debt. We go from a spread of CDI plus 1.97 to CDI plus 1.7%, which is a major reduction. We have diluted our short-term payments from 21% to 9%. So we will continue to focus on deleveraging the company and generating cash. And now I turn it back to Jonas, and he will tell us more about what's happening with the company.
[Interpreted] Thank you, Novais. Congratulations to you and all our employees for the results. We are really good at celebrating, so on the day after the quarter closing, we have a celebration here with all our employees. And we're happy, but we're never satisfied. And why are we never satisfied? Because although we have been diligently working on the basics, we still have a lot of work to do. We are at the beginning of this journey of this marathon. And to show you the update of our transition plan, I'd like to show you that everything starts with our people.
Next chart, everything starts with our people. Not just due to this obsession or dispassion how passionate I am about people I already told you about my background. But because I truly believe that people can change any situation. And one very important point is understanding communication, taking care of each other, having empathy, so what I wanted to show you is the completion of the formation of the new level team with the arrival of Wallace Sipat, our Chief Commercial Officer, he worked for Venancio, which is a company that's very dear to us. So he and I has now joined our team, and he is seen as the best in his field. And I have to tell you of record that he has received some calls after he said he was leaving Venancio. So welcome Wallace to our team. And I would like to welcome our C-level team. This team is unbeatable it will tirelessly work. Every day, we will visit stores. We will talk to our customers, and we will take care of our people.
Also, the shutdown of the Sao Paulo office. We diagnosed that, that office was not functional. We had -- it was like practically like we had 2 headquarters. So in a very people-centered way. We communicated the closing of our office. We have decreased our head count in about 210 people because we decided to focus on the headquarters. This created an immediate savings of BRL 1.5 million. Also the horizontalization of our operational structure.
As you know, our operations structure has to have very clear communication, very swift and agile communication. And one of the diagnostic factors that was very clear in our analysis was that there was a very large gap between the store managers and myself or the operations indeed so we decided to eliminate one which was the Operations Director. And now communication is much more fluid because we want to be close to our people. And I would like to take this chance to give you an update.
I've been to all states in the country and in some states, I visited more than one city, and it's very good to be able to interact with our people and listen to them and ask questions because it's not about what we say, it's about what people hear. And finally, the implementation of new activities of new rituals for centuries, we have had rituals, adoration rituals, celebration rituals, communication rituals. This is very important. So we have revised all our rituals to make sure that we're also creating discipline and that we're creating discipline and engagement.
On the next chart, I would like to recap our operational missions. And here, I must admit that the operational missions that we -- what we call operational missions, we internally call hygienic missions because they are the base technicians that we need to fulfill. In some of them, we already have a 70% completion rate. And I would like to talk about a few highlights that I consider very important. First, service and maintenance, we truly believe that a company is transformed from the inside out and from the outside in. How do we transform from the outside in with the new home with all the renovations and revitalization of our stores, changing the looking feel in the facade of our stores, the change in the employees' launch areas because we need to enchant the people who are enchanting our clients.
So how do we transform from the inside out with service, with intake we are mammals and mammals are interdependent. We depend on one another. We imitate all the time. And people who go to a drugstore, they are usually not very happy. They're usually having a problem with a family member. So we're training our people to remember that we are all humans in a journey that is very challenging, which is managing a happiness flow. So we are working on new service scripts. We have improved the conditions for our cost for our employees. We have trained our employees, and this is changing the service that we provide. And I'd like to take this chance to ask you wherever you are in the country, go back to our stores, if you're not yet one of our customers look for the blue stores, always look for the blue.
And technology is our last mission. We have closed the gap between our online -- for our online stock problems and 98% from online stocks to physical stocks. This is a great change. We're selling 3 million more every month after we corrected a bug that we had in the app authorization. So we are truly looking to all aspects of retail, managing categories, pricing, people, service stores. We are truly committed with this change. We are truly committed with accelerating and changing this game. And I would like to talk about doing the basics well done.
We are creating the foundations for the next cycle. And this cycle has a tripod and this tripod is a foundational tripod. First, people and culture, and we'll never stop focusing on people and culture because in our 43-year story, people have always been at the center -- at the center of everything we do, and all great changes start with the people. So we have been paying a lot of attention and carrying out a lot of interventions for our people. Operational missions, we are here to gain operational efficiency to improve our efficiency to our customer and it's like a Swiss clock. When it works, it as if you were entering symphonic or case presentation. We hear and we feel that things are working well.
Have we gotten there yet? No, not yet. It's a long journey. But I just showed you that we have the discipline, and we're focusing on a few priorities to get there. And one of them is cash generation. So I will not, I don't want to be repetitive here. It's the best cash moment that we're going through in our history. If you remember, our calls from last year, most of our EBITDA or profit was consumed by financial expenses. So now we're being extremely diligent in reducing idle stocks in fighting losses and encouraging people to own the pain and to own this company that has always been a winner that has a history of success and wants to have even more success in the future. So this is the end of my presentation, and we can open for questions, and we're very happy to answer your questions. Thank you.
[Interpreted] [Operator Instructions] Our first question is from Ruben Couto Santander. Mr. Couto, you can ask your question now.
[Interpreted] Jonas, you talked a lot about the improvement in your sales rhythm after the basics were well done, done and well done. And after all the things that you have done to come to this situation, and I could read in your release, but I want to understand, in your view, how much of these basics have already been completed, have already been delivered or what is still outstanding or pending so that you can reach a higher percentage of the basics well done in your store portfolio. So can you give us maybe rate from 0 to 10%. How much of this work is already completed for us to be able to know whether this is going to be a driver for your growth of your sales for the rest of the year? And my second question is about your working capital. Can you talk about your expectations for the rest of the year? And where you still have room to grow in each of your lines?
[Interpreted] Thank for your question. Here, I don't want people to say that we talk about what we have done, we need to talk about what we have to do, we still have to do. So I'm comparing with other industries, and we know that we start with processes, reviewing your processes and asking questions and understanding what are the types of friction that we have in our stores. So we have been doing some serious work, and I want to congratulate the plots that have been focusing on this to reduce friction in our stores.
In the past, we used to cut price tags. And this will take 6 hours from one of our workers to us to cut the price tag and change the price on our shelves. And I can mention other frictions that we have been eliminating that we have eliminated already. We have improved our processes were communicating better. But I can't really tell you that this has already been fully captured. This is just the beginning. And another thing is the human pillar. Some people need to see in order to believe after they see, they're energized, they understand, they understand the purpose and the priorities and then quickly, they can turn the switch and start working towards better results. But we have people that need to see in order to believe and then they just they want to see it and wait, is it going to work, is it the right way to work. So this is what we have tirelessly doing to recognize, celebrate and to work with diligence.
One thing I can promise is that we will never be idle. We will never be compliant. We will always ask what happened and how can we improve. And this always starts and ends with our people. So to answer your question, we have started doing this work. We're happy with the acceleration and the capture of the foundations and doing the base. It's well done.
A lot of things have changed already. I gave you the example of our app, we were losing $2.5 million per month in sales and now we're selling BRL 3 million more after correcting a bug due to a feedback of our customer, and we take feedback really seriously. But we still have a lot to capture. You also talked about whether we can expect to see this level of growth in the coming quarters. What I can tell you is that we are diligently working and taking care of our people to connect with this purpose, and we are not taking time off. We're working tirelessly, as I said, to capture all the potential that we have and to go back to being the company that has always operated with very high delivery levels. Let me give you some spoiler. Novais will not like this, but July was a very positive month. This is the only thing I can tell you. Novais, can you answer the second question?
Yes. Thank you, Ruben, for your question. About the working capital, we have reached a very important point in terms of average stock time, 102 days in quarter 2, the lowest level since 2020. But in 2019, in quarter 2, when we were only at that time, we had 96 days of average stock time. So this means we still have opportunities to improve. Of course, today, we have a more call company. We have more than 1,600 stores.
Extrafarma, the average sales per store has evolved greatly. We took over the company with an average sales per store of BRL 420,000. And today, it's reaching BRL 600,000 and the average sales per store of extra pharma is still under 750, which is the number of the mature stores that we have in the Pague Menos banner. So in the stock turn, they still has some effect, but there is still a lot of opportunities to improve in the future in terms of the average stock time.
As you heard from Jonas now with Wallace in our C-level team and our commercial team, we have been focusing on this term. But now we have a lot more opportunities in assortment and product categories that we're still working under share versus the market. So there's a lot of opportunities to improve, both in terms of sales and stock management. We have a lot of opportunities in our logistics to optimize and also other levers. So yes, we still have room to improve I can't really give you any guidance of course. I can't formalize anything, but we have opportunities to improve, particularly the average stock time. And consequently, this will help evolve our receivables recomposition time. We had an important payment for the last installment of Extrafarma in quarter 2. But then in the second half of the year, we know the industry goes in vacation. So we need to a high level of stock, but not considering these exogenous effect, we will evolve in our stock time looking forward. Thank you.
[Interpreted] The next question is from Carles Granel Safra. Mr. Granel, you can ask your question now.
[Interpreted] I think Jonas mentioned in his first call about the opportunity you had in expenses in this quarter, and we saw your operational leverage helping. So I want to understand what are the other opportunities you have in your expenses? And my second question is about the banner conversion we saw same-store sales that nearly doubles after you convert and Novais mentioned that you already have projects for the 4 states where the Extrafarma banners to present. So looking at your performance in these projects that are already ongoing, is there a possibility of completely eliminating the Extrafarma banner, which is not something you had planned in the past, but considering the performance that you're having, converting all your stores to Pague Menos?
[Interpreted] Novais, I will start and then you can add something if you want. Thales, thank you for your question. It was a pleasure to be there with you a few weeks ago. Well, expenses are about creating a culture. You really have to look with a large magnification at a high level of regulation at taxation. We did all the austerity measures that we needed to do. And we advise people that it all matters. Every real matters, right? Every dollar matters. And we work in retail, and we operate at billions in sales. So we need to deleverage people's minds that it's not about billions and not millions and not thousands, but it's every dollar.
And we had an important reduction in our expenses and this reduction in our expenses was used for our nonrecurring expenses. We reduced more than 210 headcounts I told you, we had a lot of changes in our operation, people that were in our stores, people that were unhappy people that had been through a coaching process, so we have decreased our head count and retrained the people who stayed in. As I said, every dollar counts. And in our budget, we have been diligently working to reallocate these investments, turning expenses into investments to improve our stores to improve the quality of the people that we have and our head count and the nonrecurring expenses, and this is what we have been doing. Novais, do you have anything to add?
[Interpreted] Yes. Thank you, Thales, for your questions. As you heard from Jonas. We who work with very tight margins in retail. 24 hours a day, we are thinking of projects to be able to optimize and reduce our expenses. So we have a lot of potential fronts. We have potential in people, rentals, transportation. We have a lot of fronts that we're working in and also investments in store maintenance, strengthening our staff and other elements. The dilution of expenses is much more about the growth in our sales and adequate control of our expenses. We can, we have a lot to improve in the average sales per store and with looking, changing the look in field, training our staff, motivating our team and working on other categories, but this expense dilution is coming mostly from the growth of our sales -- much more from the growth of our sales rather than expense control.
And with our sales increasing more than double the inflation rate, we have been able to improve our operational leverage, and we have good prospects in the future. About the banner conversion, as you heard, Thales, most of us we have Extrafarma stores in 4 states where the brand is still very strong. Ceara, Maranhao, Para and Amapa, we are testing -- we're doing test banner conversions in these states, and we're measuring the cannibalization because in this case, we'll have an extra pharmacopeias when we convert a store, sometimes we have stores that are too close to each other, so we're measuring cannibalization. And because we have more than 90% of our sales identified, we can clearly measure this cannibalization.
Of the few tests we are conducting, the sample is still very small, and we have been working for only a few months, so we will continue to conduct these tests. And if we see the same performance that we are seeing with the 96 stores that we have already converted. We will consider the possibility of continued this conversion. I can't really answer your question today, and I don't think it's very likely that we will fully eliminate the Extrafarma banner, particularly in Para, where the brand is very strong, but we will keep you posted about our new activities in terms of banner conversions.
[Interpreted] The next question is from Denis XP.
[Interpreted] My first question is a follow-up question about conversions. Novais, you said that in some of the states, we are not planning to convert. I remember that in the start of your integration, you mentioned that Extrafarma had a different positioning and some categories had a larger strength, for example, generics that resulted in a higher gross margin compared with Pague Menos but do you think that the strength of the Pague Menos brand can offset for this margin to margin difference.
So if you have more sales per square meter with a lower margin, the economics will still make sense?
And also the SG&A and the operating expenses, I understand that most of the dilution comes from there, but you had some one-off impacts in this quarter. You talked about 10 bps in G&A and selling expenses. I don't know if it's the same magnitude. So I want to know the magnitude of the one-offs for this quarter. And one of your question about the revision of your guidance. You had already delivered your guidance at the end of the day, the BRL 200 million annualized -- BRL 200 million annualized was already within the range. So I want to understand why you're revising and why the low limit is not what you delivered already maybe you're trying to show that you still have further opportunities to capture synergies and I don't know if there's any risk, and that's why the law is below what you have already delivered. So I wanted to understand this revision in your guidance.
[Interpreted] Can I start Jonas, thank you for your question, Denis. So let's start with your last question about the revision of our guidance. When we published the guidance 2 years ago, we had said that, that guidance was going to be revisited due to the change in inflation. So what we did was we applied the accumulated inflation of the period, and we adjusted the bottom of the range from BRL 180 million to BRL 195 million, which is very close to the moment we're going through today, BRL 203 million. So we chose to correct based on inflation, and we chose to reduce our range because it was too wide of a range. And we heard from analysts that BRL 100 million from BRL 180 million to BRL 270 million, BRL 100 million was a very broad range so that's why we decided to decrease it because now we are closer to the completion of the integration.
And why didn't we also correct the top of the range because we do have some dissynergies that we need to consider. The main one is the stock level, stock losses level, which is slightly higher than planned due to the unbalanced stocks that we inherited from the company. But we're very happy to have reached the bottom of the range corrected by inflation at this point. So that is why we revised.
Now your next question about the one-offs and selling expenses. I believe the volume is similar to that of the G&A expenses, about 10 bps. So the adjustment in our personnel investments in training, in maintenance, in addition to what we had already been doing in previous quarters, it's close to 10 bps, which is similar to what we saw in our G&A expenses. About banner conversions, so yes, in the beginning, when we acquired Extrafarma, the generic category was already an outlier for Extrafarma, and this is something that we learned here in Pague Menos.
And since then, we have been incorporating the operation know-how for Extrafarma more than we had for Pague Menos, and the category here in the company is growing as a whole. But irrespective of this better performance in generics and of course, the brand strength in Para, Maranhao, Ceara. We are conducting some tests in these states to be able to extract maximum value from the assets we acquired. And when we paid BRL 700 million for the chain, part of this investment was for the brand, which is very valuable in a few markets. The position is very similar. The customers that frequent our stores, the extra farm and the Pague Menos stores are very similar in terms of their income level, maybe with the review that Jonas for the future of the company, maybe we will be able to position our banners for different client profiles. This has not yet been decided.
We will be discussing this in the coming period. But always trying to capture as much value as possible and as fast as possible. And this will certainly involve some additional conversions in these states, but maybe at a lower level than in other states where we eliminated the brand. And in all other states, except the 4, we have the Pague Menos brand, but we will keep you posted about our next steps, and we are already very happy with the value that we have been able to extract from this acquisition, and we still have a lot to extract in the future but we are focusing on capturing these effects in the future. Congratulations on your results.
[Interpreted] I would just like to say that I believe that all brands need affection. They need a careful look. We need to understand what it is, why it's customers, so we need to have a careful look. So I don't mean to spoil, but we're doing the strategic revision in the next 14 weeks, and we will be carefully looking at the brand because in the states where we decide that it is -- when states where it's really strong. It needs this careful look. We need to be careful with the people, with the brand, with the store. So this transformation is also applicable to Extrafarma and its values. So this is what I wanted to add.
[Interpreted] Next question is from Guilherme Vilela, JPMorgan.
[Interpreted] My question is about increasing your leverage guidance that you mentioned yesterday in your results call. When we think of an increase in the guidance, it's likely that the 2025 guidance will also be higher than the initial expectation, considering that the macro scenario will be relatively stable. So what can we, what can you say in terms of expansion for next year? My second question is about your gross margin. What is the performance of your gross margin, particularly in quarter 2 between Extrafarma and Pague Menos?
[Interpreted] I can go first, Jonas. Thank you for your question, Guilherme, about the company's leverage it's a very good question. And we what we can say to the market is that we had a very strong deleveraging trajectory this year from last year to this year. So we went from a level a more intense investment level in the beginning of last year of 3.1x with a high volume of anticipations at the time. And we will finish the year under 2x the company's indebtedness with a level that was practically half of the level of anticipations that we had in the past for stocks.
So we will close the year at under 2x and in 2025, we will maintain the company's indebtedness as one of our main focuses and priorities. We do not plan to increase. We want to resume an expansion that will be slightly larger than what we had this year, slightly more than 30 stores, but without affecting the company's indebtedness. We will keep the levels under 2x even with the partial and gradual resumption of the company's expansion. And about our gross margin. In the beginning of this integration, we were very quick to capture the gross margin increment from Extrafarma. So with the equalization of commercial conditions that we had in Pague Menos among other elements, we had gross margin levels close to 32% in the Extrafarma and while as in Pague Menos we were closer to 29%.
From the end last year until now, the stock losses put a lot of pressure. So this gap that we had this improvement in the gross margin of extra pharma, we had about 2 points of increments. It is now closer to 1 point. But it is a temporal element we tend to have in the future even better margins than what we have today with Extrafarma because we are focused on cleaning our stocks, reducing our stocks. And by the end of this year, this process should be completed.
And starting 2025, we will tend to see a better evolution of the margins for Extrafarma after this critical period of adjusting our stock losses. And also with the reinforcement in our commercial C-level team, we also have all the conditions to improve our margins in categories that are still under explored or coming closer to the numbers out of the industry as a whole. So fortunately, we have a lot of levers to explore in the future. Of course, we will continue to keep our foot on the ground and be realistic about we believe that in 2024, our gross margin will be similar to that of last year, and we will gain operating leverage and improve our EBITDA through expense dilution in 2025. We're still working on the guidance. But because this is a temporal element, we tend to have to see some evolution over the course of next year. And we will, we can give you a clearer information closer to the end of the year.
[Interpreted] The next question is from Clara Lustosa, IBA. Clara, you can ask your question now.
[Interpreted] I have 2 questions. My first question is about your omnichannel strategy. In your release, you mentioned that the contribution margin of digital channels expanded by 2 points. You were able to realize 40%, 42% of your deliveries in 2 hours. And based on your release, the channel is not out one of your largest gross margin detractors. So considering the gain in your contribution margin that you reported, can you give us more information and make cap what are the adjustments made and how much of this is in your gross margin or in expenses. So this is my first question.
And the second question is, even without opening new stores, you're doing some excellent work gaining market share. So it's the basics well done, as you mentioned in your presentation. Can you please talk about the competitive scenario and the reaction of your competition to your adjustments you're making in your look and feel of your stores and your operations? And where do you think the share gain is coming from?
[Interpreted] So let me start with the in all of our digital channels. Clara, thank you for your questions. Before talking about the P&L, I want to focus on some important highlights and we're very happy with these highlights. We have reached 14.1% share of the other channels in the total sales of the company, 2.4 points more than last year. The team is working to improve the purchase experience on this channel, so reducing the download times of the website, improving the journey and integrating the channels with WhatsApp, which was an evolution that we had this year, which is a channel that is today, 100% automated and integrated, and this has been really helping us evolve in this front.
The margin of this channel improved about 2 points year-over-year, and this improvement comes from 3 elements: sales, improvement in our sales improvement in our gross margin and dilution of our expenses. We're also working on improving the quality of delivery with more effective partners and also our gross margin with better commercial negotiations and optimizing the pricing mechanics of the channel. So it's coming from all directions, I would say, Clara. And our strategy will continue we will continue to invest in these channels. We're very happy with this evolution, and we can't really say when it will stabilize in the future. About the competitive scenario, I can also tell you what we see in the short future for the regions or the stores. I think it remains the same. Our competitive capabilities are improving.
So we believe that our same-store is better than that of some of our competitors, considering all the performances, we don't really see any increase or aggressiveness in terms of price reduction or promotions to fight this evolution that we're seeing in the company. The pharma retail has always been very competitive, and it will continue to be for many years to come. But we are happy to see that we are evolving well that we are extracting more even more value from our same stores, and we will continue to focus on gaining market share either organically or inorganically. And we will continue on this trajectory, and we don't see any major movements in the competitive scenario. Maybe independents are being hit a little more as we were seeing since last year, but associations are growing and the chains, particularly the other pharma chains are growing as well. Go ahead. I was going to say thank you. Go ahead, Jonas.
[Interpreted] No, I thank you, Clara. Clara, I was not expecting to disturb our competitors. So we're early. We of course, we have a lot of friends in these companies. We know that we are disturbing our competitors, and the competitive scenario is very promising. If you look at the past 10 years in this industry, the growth of the market was double-digit growth, but there's still a lot to conquer lot to do. Most of the population in Brazil have limited access to health services.
We're investing in our health hub. We are taking care of primary attention. We want to ask you that view of pharmacists and pharmacies as a center of well-being and health. And about the competitive scenario, I can tell you that the Brazilian market could double in size. Let me give you an example. I'm coming from Australia. The consumption of vitamins in Australia per capita consumption is 10x higher than our penetration is still very low. So we still have a lot to do before companies start to fight. We still have a lot to explore. We have to explore in Brazil, and we are working very humbly to improve our margins. And we have a very promising scenario in our industry despite the bad mood that we see in the market as a whole.
[Interpreted] This question-and-answer session is now closed. Now I would like to turn the conference to Mr. Jonas Marques for his final remarks.
[Interpreted] Novais thank you very much. And I'd like to thank you all for your interest in our company for your support. And I want to reassure you that we are working diligently with a lot of discipline and energy and a lot of ability, recognizing all the opportunities for improvement and focusing on how we can further democratize health services in this wonderful country, which is Brazil.
Also, about the Olympic spirit, I would like to stress at this moment, we're going through when we see all the effort and all the dedication of these athletes who will stop leaving their personal lives to pursue an objective. And I can compare the moment we're going through with how these athletes live. I sent a message a few years ago to the family members to the families of our workers because they are the support they need so that we can focus on working towards a healthier company and recovering the market value that our company deserves. I will keep traveling to different locations in Brazil. I'd like to thank you all for receiving me. It's a pleasure to meet you all. I was with Gasmar traveling around, and I was very glad to see the level of respect he has the dream he had when he created this company, and this dream is still present here today.
The energy and people's willingness to do something better, people's optimism, people's enthusiasm because we were all born to be happy. And I'd like to wish you a happy Father's Day for all the fathers who are watching us. I'd like to send a hug to Pedro Mattes, Mariana and all your kids so that they can learn and understand that we need to work to fulfill our mission and to leave a better world for those who come after us. Have a great day, a great week, great months, and let's keep working because we are in mid-August and time goes by fast. Thank you. I'll see you next time.
[Interpreted] Pague Menos conference call is now over. Thank you all for participating. Have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]