Empreendimentos Pague Menos SA
BOVESPA:PGMN3
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Empreendimentos Pague Menos SA
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Good morning, ladies and gentlemen. Welcome to Pague Menos Conference Call to announce the Results of Quarter 3 2024.
This conference call is being recorded, and the replay will be available at the company's website, ri.paguemenos.com.br, where the presentation will also be available for download. [Operator Instructions] We would also like to inform that this conference call will be conducted in Portuguese by the company's management and that we have simultaneous translation into English. You can access translation by clicking on the button interpretation. For those listening to the English version of the conference, you can also mute the original audio by clicking on mute original audio. The presentation will be shown in Portuguese and the English version is available for download at ri.paguemenos.com.br.
Before proceeding, let me mention that all forward-looking statements are based on the beliefs and assumptions of the company's management as well as information currently available to the company. These statements 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 related to the macroeconomic environment to the industry and other factors may lead to results that differ materially from those expressed in set forward-looking statements.
Today, we have with us Mr. Jonas Marques, CEO; and Luiz Novais, CFO and Investor Relations Director of the company.
Now I would like to hand the conference over to Mr. Jonas Marques to start his presentation. Mr. Marques, you may proceed.
Good morning, everyone. Novais and I, we are in Sao Paulo. It's a rainy -- after a rainy period today, we have a beautiful day here in Sao Paulo, which makes us even more hopeful and positive to start this call with you.
I'd like to send a special greeting to all our shareholders and our investors and why not our clients as well because they are the reasons why we are here, right? And also our employees, more than 26,000 people and their families who support us every day in our mission to bring health with love to all Brazilians. And before I forget, I'd like to send a hug to our competitors as well. I received some messages recently because together, I'm sure that we will also be able to bring more [equitative] health to the Brazilian people.
We are full of energy today, and we're here to share with you the results of quarter 3. And there's no way we could be shy today. We have to release all our energy today because this was an excellent quarter, and we're going to share the results with you today. Before I go into the numbers and the record-breaking numbers we had in quarter 3, I'd like you to remember the acronym REC; so resilience, equilibrium and consistency in the delivery of results. This is the third quarter where we're having this opportunity, and we're bringing very important numbers to you. And I'd like to stress that this results from doing the basics right. We're not just talking about sprint, we're talking about a marathon. Retail has a lot of details, and this is built in our everyday work day after day. And before I go into the numbers, I'd like to ask you who still need to see to believe, you need to believe before you see because numbers will prove that what I'm saying is true.
Let's start with our gross revenue. We reached BRL 3.5 billion, the growth of practically 14%, 13.9% and this was reinforced by the same-store sales growth. And here I'm talking about mature stores. In the end of our presentation, I'm going to give you more color about how we are reaching these numbers. So this was a record. That's why we put this green stamp here for record-breaking numbers in quarter 3. Now, our adjusted EBITDA. We reached BRL 190.7 million with a 32.6% growth versus the same quarter last year. And what did we do here? We worked really well with our margins. The margin is very important here. We tackled our losses, we managed our inventory, all those foundations that we talked about in our operational missions that I'm going to discuss with you today as well. This is what brought us this very strong EBITDA. And this was also very positive. There was also a positive effect of the record net income in quarter 3, a margin of 1.5% and a penetration of 1.5 percentage point year-over-year.
Now when we look at our financial results, here, we have very solid results, representing a record compared with quarter 3 last year. On the right side of the slide, I'm very proud to announce we are growing more than the market average. And this is what sustains our future. We reached 6.3% market share, 21 bps more than quarter 3 last year, and we had increases in all regions. And for this next point, I'd really like to call your attention to the fact that there was some skepticism whether it would be possible to have inorganic growth. And if Pague Menos, when it bought Extrafarma in 2022, whether it would be able to capture all those synergies. When I joined the company in January, I had a company with Patriciana and all the rest of the Board, and they gave me the mandate of capturing at the top of the range that was informed. And we were at the bottom of the range in January and February. Then the team worked really hard. The banner conversions were very successful, as you can see from the numbers. And now we're capturing 90% of the top of our guidance. And this is a lot because we even had some media vehicles publishing that Pague Menos is delivering on its promises, and we are a consolidator that which can grow both organically and inorganically. So it's proven and it's delivered, and it's not over. We're still expecting more synergies to be captured by December this year. And lastly, but not less important, BRL 352 million in free cash flow. And this is very important. As you know here, I reiterate our commitment and my personal commitment with the company's deleveraging. We are delivering the deleveraging levels that we promised with our guidance maintained for December this year, and this is very important to work on our inventories, to work on the cost of our debt. This is very essential. And as you can see, overall, we have multiple examples that we're sharing here with you of how we're reaching our numbers, the consistency of our numbers and that this work is not over.
And to give you more color, I'd like to call Luiz Novais now. I pass the floor to Luiz Novais to share our numbers with you, the numbers of a quarter, which made us very proud.
Thank you, Jonas. Good morning. Well, Jonas started this call full of energy, and we are full of energy because we're very happy to share with you the numbers, the record numbers that we had for quarter 3.
On Slide #6, we have more information about the sales performance. In quarter 3, we grew nearly 14%, 13.9% with 13.5% from same stores and 12.6% from mature stores. This is a very nice chart to look at. We are in this positive momentum since last year, growing nearly 2 percentage points quarter after quarter. On the right side, we see how we're growing our average ticket and our number of tickets. So we're growing our average ticket above inflation, 5.9% for our average ticket. Inflation was close to 4.6%. So we are increasing the number of items per basket per shopping card, and we're also increasing the number of tickets. We grew 7.6% the number of tickets issued, which translates into a higher number of consumers that we are servicing. So we have additional customers. We are gaining their loyalty and maintaining this important customer base, which is very important for the future of the company. And the third chart, the bottom chart on the right shows the evolution of the mature stores and how it's distancing itself from inflation. So in quarter 3, we grew nearly 3x inflation rate in our mature stores, which is a lot. We grew 8.2 percentage points above inflation in our mature stores, and this is due to our operational missions. Jonas is going to talk about them later, how we are evolving in these operational missions, improving our customer service, look and feel of our stores and the CRM, the cohort from 2022 and '23 also is helping a lot, and the synergies with Extrafarma. This all contributes positively to the evolution of our sales.
On the next chart, we have the Banner performance. The 13.6% growth that I talked about on the previous slide, 12.6% comes from Pague Menos and 18.5% from Extrafarma. And of the 18.5%, the converted stores, 111 in total where we converted the Banner grew 30.4% compared with the same period last year. This is huge. The Banner conversions are evolving really well, and we're going to look at this on the next chart. But before that, in addition to Banner conversions, the last bar of the chart here shows the non-converted stores also had a very strong growth, 13.7%. On the right of this chart, we see the gap between the average sales between Pague Menos and Extrafarma. So in the start when we bought the company in the middle of '22, the difference between the average sales of Extrafarma and Pague Menos was nearly 30%. We were selling BRL 620,000 average per store and Extrafarma was BRL 440,000. Today, the gap is close to 20%. We have BRL 600,000 of average for Extrafarma, still far from Pague Menos, which is selling BRL 740,000 per store per month. We're closing this gap. There's still a lot of opportunities that we will capture in the coming quarters, and we're very happy with the evolution that we're seeing and very positive about the future.
On the next chart, Chart #8, we see our Banner conversions. Of the 348 stores in our portfolio, we have already converted 111 to the Pague Menos Banner. We will convert another 20 by the end of the year because the evolution is really good, and we're measuring all our levels of cannibalization and enhancing the Pague Menos brand in the states where we are converting. We still have Extrafarma stores in 4 states; Ceara, Maranhao, Para and Amapa, and we're still testing conversions, doing trial conversions and seeing how stores behave, measuring cannibalization very carefully, and we will continue to measure and advance in our conversions because this has brought a lot of value to the company.
On Chart #9, we see our organic expansion, which is also something that makes us very proud. For the past 3 years, it has made us proud. Jonas said that we were asked in the past about our competency inaugurating new stores, and it's more than proven that in this cycle or even before the cycle, but particularly in this cycle, our new openings are very successful, have a very high level of success. The 2022 and '23 cohorts were small, but they performed better than the '21 cohort, more to the left of the chart. So in their fourth or fifth quarter of operation, they reached more than 80% of their sales potential. In the past 2 quarters for these 2 cohorts, these are few stores, 4 or 5 stores. So they're moving kind of horizontally, but the trend is positive. And the '21 cohort, 118 stores is advancing really well. On the right side, we see the 4-wall margin of the 200 new openings that we had compared with mature stores. So the light blue bars are the 4-wall margins of new openings and the darker blue for mature stores. So in all different turnover levels, we are delivering at least 1.5 points more in EBITDA margin. So these stores are contributing to the profitability of the company as a whole. All of them are delivering a better return rate, better than 18%. So we're very happy and we're very confident. And now in 2025, we will resume our expansion, of course, with a lot of rigor, but we are very confident because we have a very important track record of success in our expansion strategy.
On Chart #10, our market share, we have excellent news for the quarter. Despite having inaugurated only 30 stores this quarter, we gained 21 bps in our market share. We grew in all regions. In the Northeast, we grew more than 20%. We have more than 20% market share now. It was a a mark that we already had in the past, but we had lost and now we're back to over 20% market share. And here, we see the evolution over the quarters. We see a very positive trend of recovery or market share gain. And this is due to the value we are extracting from our 1,650 stores, our same stores. We are improving the averages, and this is what we show on our next chart. When we compare our average store sales growth, so the blue bars compared with independent and associations, our average store sales are growing well above our competitors or these 2 groups of competitors in all our markets. Highlight to the Southeast, where we were able to increase 23% our average store sales in this market and the other 2 groups of competitors grew close to 10%. So we're growing twice as much in the Southeast, particularly. And in other markets, we also have very good growth rates. So this means we are extracting a lot of value from our current stores.
On Chart #12, we have a gross profit and gross margin. We grew 10 bps year-over-year. We closed the quarter at 29.4% gross margin. The positive effects here are normalization of our inventory losses. We had mentioned this in the previous quarters that we were suffering some pressure with inventory losses because we took over an unbalanced stock from Extrafarma 2 years ago. So we normalized the inventory loss rates and we were able to get reimbursement from the industry for the products that is found in the system. The digital channels improved their profitability. So our commercial team is working hard to improve the profitability of digital channels, which is usually lower than the gross margin of our brick-and-mortar stores, but it's improving sequentially and the commercial conditions have been improving. These are the positive effects. On the negative side, we have a growth in Rx. Rx within our portfolio is a category with a lower margin compared with other categories. So it pulls our profit down and the adjustment of the interest rates. However, the negative pressure was offset by the positive effects, and we were able to increase our margin year-over-year.
On Chart 13, we have our selling expenses. So combined with market share and other indicators, this is another piece of excellent news that we have this quarter, growing nearly 14% our sales and controlling our expenses. We were able to dilute 80 bps of the company's selling expenses. It's a dilution similar to what we saw in quarter 2 and quarter 1. So we have been advancing in the dilution of our expenses, improving our operational leverage, which is what we put as a highlight, that was a positive highlight on the right, operating leverage, the sales growing well above the expenses. We've been able to extract more value from the Extrafarma synergies and the inflationary dynamics of the rents, which is also contributing to decrease the share of this item in the company's revenue. And on the negative side, we are investing on expanding the number of employees in our stores to improve the customer experience. This increases expenses, but also helps improve sales growth. So it's a very positive investment for the company, and we intend to further improve the conditions for our employees and the operational missions, which are evolving really well. And we have been able to dilute our expenses just like I just showed.
On the next chart, for G&A expenses, they are well controlled, nearly BRL 6 million less than what we had in quarter 2. So we have been able to nominally reduce our G&A expenses, maintaining a ratio of 2.4% of our revenue, which is a very positive rate. So operating leverage is helpful. Normalization of personnel expenses, and we reinforced the executive team of the company. And now in the end of the year, we will have a management compensation for our short-term and long-term compensation programs. As a consequence on the next chart, we see our EBITDA, which was record-breaking this quarter. As Jonas said in the beginning, we grew nearly 33% nominally our EBITDA, finishing the quarter at nearly BRL 191 million of EBITDA in the quarter, a very important milestone. Our margin grew 70 bps year-over-year, going from 4.7% to 5.4%. So another record this quarter for our EBITDA margin, a very healthy combination, as you can see on the right chart. We are combining our sales growth, evolution of our gross margin, dilution of our expenses. So this positive trend is seen not just in quarter 3, but also in the previous quarter.
On Slide 16, more good news. As you heard from Jonas in the beginning of the call, we reached BRL 234 million of synergies captured with the acquisition of Extrafarma. So now after more than 2 years managing the company, we have a very important volume of synergies captured, and this shows how assertive was this acquisition when we decided to acquire the brand in 2022 when the approval process was completed. So we're very close to the top of the range of the synergies that we gave as guidance since the beginning. We know that it hasn't been easy. The integration was very complex, logistic integration, IT integration, the team integration, it's not so usual to see an integration case, such a successful integration case in retail like we see in Extrafarma. So we're very happy with the results. The company is delivering about 5% or 6% of EBITDA margin, very healthy, generating cash. And with the Banner conversions that we have been doing, this will improve further. So in our opinion, this capability of integrating and consolidating via inorganic growth is another element that we will continue to consider in the future. And on the right, we see 2 important indicators. The average sales per store, as I said, we went from a level of about BRL 460,000 to BRL 600,000 average sales per store and the contribution margin, which in the middle of last year was 3% approximately. And now we are over 7%. So we're very happy to share these indicators with you today.
On the next chart, we have our net income, record-breaking for the quarter, BRL 54 million in net income, reverting the negative result of quarter 3 last year. And here, we have all the elements that contributed to this, the sales effect with BRL 20 million, the margin effect with nearly BRL 27 million and the financial result. We were able to reduce our financial expenses, which in quarter 3 last year was about BRL 120 million to BRL 82 million in quarter 3 this year. So nearly BRL 38 million in reduction of our financial expenses due to all the work that we have been doing in managing our cash cycle, monetization of tax credits and decreasing our leverage.
On the next chart, as you already heard about the cash cycle, also very positive news. We reduced our inventory time compared with quarter 3 last year by 11 days, more than BRL 300 million in stock demobilization, and we reduced our average payment term going from 66 to 71 days, and this also helps in the cash generation for the period. And this is all due to our focus on reducing our stocks, improving our assortment, our logistic network, improving our sales per store and stock turns. And on the right, when we make a parallel of quarter 3 this year in average stock times with the 3 previous quarters or quarter 3 in previous years, we see that in the pre-pandemic period, there's still some opportunity to improve our stock time. We are doing much better than what we did in periods where we had higher investments, but we still have room to improve. And this all impacts our cash cycle, our cash flow that we show on our next chart. But before we look at the right side, let's look at the left side, which is another important point this quarter. We were able to reduce our EBITDA net debt, the dark blue line from 2.4x in quarter 3 last year to 2.2x this year. And when we incorporate to our net debt, the volume of receivables, the receivables advances or the payments to Extrafarma that we completed the payment in August this year, we go from the net debt plus receivables plus Extrafarma from 3.8x to 2.8x. So onetime reduction in 1 year is a lot. So we were very successful reducing the leverage of the company. And that's why in the previous chart, we were able to reduce our financial expenses with interest.
We will continue with our guidance to further lower to less than 2x by the end of the year, and we are working on that. And on the right side, we see that the origin of all this is the operating cash flow generation and all the effort that we have been putting into reducing our inventories and monetizing tax credits and the management work that we have been doing in the company to generate EBITDA and grow our average sales per store, and this all culminates in the improvement in our cash flow.
And now I'd like to turn the conference back to Jonas.
Thank you, Novais. Ladies and gentlemen, we are very proud to announce these results, but we're also very humble looking at the future because this is just the start. There's still a lot to capture and a lot to do.
If you look at our average sales per store, which we just showed an increase of 14%, you see that in Pague Menos, we have average sales of BRL 740,000. But in Extrafarma, the average sales is still BRL 600,000. So we still have room to continue to capture synergies. There's a lot of work ahead of us. The formula is working. We have to continue doing the basics right because just like I learned from the feedback from all of you in the beginning, if we increase our average sales per store, we dilute our expenses, the magic happens. So it's very important that we focus on our priorities. And that's why I have been talking about the management of our stocks, particularly non-productive stocks that we had in the company. By implementing promotions, returns and extension measures, we have been improving the cash flow of the company.
On the next chart, let me remind you of something that we have been talking about since the beginning, the 3 pillars, the importance of people and culture. We have been involving our people. We have been actively listening, improving the quality of life of our employees and particularly enhancing the presence of our leadership. All of us, our DPs, our directors, all our managers, we are visiting our operations in the different cities and not just the large cities, but also smaller cities. People want to be seen, and this is in our culture. We are a company made of people, and we take care of our people. So people and culture will continue to be a very strong pillar of our growth looking forward. The second pillar is our operational missions. I have always been mentioning this and reporting to you about what we are doing, how we're doing the basics right. We have 6 operational missions, and I'm going to give you more color on the next chart, but we continue committed to monitoring the evolution of our missions that we should deliver by the end of this year. And the third important pillar is operational excellence. And here, I put the cash flow. #3 is cash flow because this is very important. When we show for the first time our total leverage considering the receivables advance, this is our commitment to transparency, and this is our commitment to really tackle and decrease this leverage and our commitment to doing this in a very balanced way, balanced with our expansion plans. But you see that for the 3 pillars, this is very clear. Now if we look forward, if we look into our missions in details, I'm not going to read all this for you, but I just wanted to show some of the main points that have been vital for us. We always talk about importance of how we transform a company.
We transform from the inside out and from the outside and transforming from the inside out is taking care of your customer service. We got a lot of feedback through our surveys that our customers are visiting our stores more frequently and the number of customers is growing because we have better customer service. And I want to ask you, shareholder or you, our investors, if you're not our customer, give us a chance, go to our stores and see for yourself, see if what we're talking about here is really happening in our stores and send us your feedback. Another important point about customer service, we are now creating a meter to measure the customer service of our hidden customers. The hidden customer is a customer that visits 100% of our stores, and we celebrate the teams that reach a score of 100 in their customer service. We give them a diploma, a certification. We give them a breakfast. Also for Sirio-Libanes, we trained more than 5,000 pharmacists through the Sirio-Libanes Hospital, which is a renowned institution. And this is transforming from the inside out. How are we transforming the company from the outside in with our maintenance mission, more than 500 stores where we made interventions, we improved the look and feel. And it's not just that. We also focused on pricing with the new labeling model. And here, I have some numbers for you, 178,000 hours of reduction. We had to cut our labels. We had to print out our labels, 400, 500 prices and cut them using scissors. We don't do that anymore. So this was lean work done inside our stores. And this involves 2 missions. It involves our stores and pricing. And we have other points here, more IT stability, more robust processes. This really helps in our evolution and also operation support. We have changed the logic of our company. In the past, the headquarters were in Ivory Tower. We no longer have an Ivory Tower. Now we have the headquarters working, and I'd like to recognize the work from our employees in our headquarters because they're working to make stores feel more important, feel more relevant. We're no longer opening tickets to respond in 48 hours. We will talk to the employee online or on WhatsApp until we can give them an answer. This improved our agility, our speed of response and the contact with our headquarters because this brings hope to the employees and hope is priceless.
On the next chart, we give you more color showing how solid this growth is. Because if you look at all our metrics, they're all positive. In quarter 3, we see that we grew our customer base. We improved their purchase frequency. These customers are increasing the number of units per shopping car. So with additional products because they feel the customer service is better, the offer is better, the assortment is better, so they buy more. And this leads to an increase in our average ticket and the average price because we are focusing on treating chronic patients really well or really taking them. I'm a chronic patient. I have hypertension, and I can't do anything about it. It's not my fault. So when I go to a drugstore, I want not just to be well received and well treated and get the products that I want, but I also want to be seen.
On the next part of this presentation, I want to show you something that makes us really proud. We are a national player. And this is what you see here. On the right, this is the average sales evolution by region. Look how much discussion we had in quarter 1 2021, nearly 30% and the discussion that we have in quarter 3 '24, the quarter that we just closed, 11.8%. This is proof that we are working in all regions. Some people think, well, in the Northeast, you have more than 20% market share. But in the South and the Southeast, we're also striving and focusing on delivering our leadership and clustering the stores, we are really playing with all retail levers so that we can decrease this dispersion because the game of increasing the average sales per store for Extrafarma and Pague Menos to be able to reduce our expenses and continue to grow has everything to do with this.
On the next chart, we see our priorities for 2024. Since the start, you know that we were diagnosing and actively listening to the people. We were working with correlation patterns and trying to understand in depth which should be our priorities. And here, we have the 3 priorities that we're working on since the beginning of the year, operational efficiency, integration with Extrafarma and financial deleveraging. So if I look at operational efficiency, this has been the main pillar of our global holistic improvement in the company. I want to remind you of something very important that we did with our inventories. And I know that it's the second time that I mentioned this in this call, but inventory in a retail company is very important. I don't need to convince you of that. But what is different is when a team decides to work together to reach optimum stock, this year, we have been able to reduce 11 days of inventory. Each day represents BRL 30 million. So we have reduced BRL 330 million, and this is an expense reduction. So when you see an improvement in our financial expenses, it's not by chance. There's a strong connection here. So improving our customer base, improving customer service, increasing the number of items in the shopping cart, operational convergence. So the operational efficiency is one important focus for us and will continue to be.
Extrafarma integration, we are delivering on our promises. We promised to capture these synergies, and we are at 90%. This is the minimum that we're going to deliver, and we will not forget about the top of this range, and we will continue to work hard to deliver even better numbers. We still have 2 months to go before the end of the year, and this helps us grow organically and also inorganically. And the third point here is financial deleveraging. Since the beginning, I received a letter from the Board when I joined the company talking about the importance of deleveraging the company. And this is what we're focusing on, and this is what the numbers show. And it's not just about the numbers, but we are very assertive in the way we're doing this through cash cycle improvement, monetization of tax credits and also the points that I mentioned about fighting bad expenses, defending our investments and really focusing on levers like stocks and losses. I am personally involved with the teams to try to tackle these points and improve our gross margin. So this gives you an idea of not just the what, but especially the how. And once again, I reinforce my commitment to really be transparent with all of you and share the data with you so that you can understand it so that we can justify the good numbers that we have been achieving. We still have a lot of work ahead. We're planning much more for the future.
And now we're ready to take your questions. Thank you.
[Operator Instructions] The first question is from [Dan Egger], XP.
I have a few questions. The first one is about your growth dynamics. Can you help us think about the same-store sales of your legacy stores? So have you been able to close the gap? I see the conversions are really going well. Extrafarma is evolving really well. But I want to understand about your legacy stores. And also in growth, what are you planning for next year, particularly for organic growth same stores, considering the average sales and also the reduction in PIS/COFINS. So these are my 2 questions about growth.
And I have another question about your capital structure. I think your focus on deleveraging the company is very clear. It really looks like you're close to reaching the target of less than 2x by the end of the year. But what level would make you comfortable resuming the expansion of the company next year? So how should we think about your expansion looking forward after the end of the year and after you reach your target of less than 2x? And also about what you said about inorganic growth consolidation. So what would also be a comfortable level in your capital structure so that you could reevaluate or start resuming the evaluation of opportunities to buy other companies.
I can start here. Thank you, Danny, for your questions. I have 3 points here. So same-store of our legacy stores, inflation growth in 2025 and deleveraging inorganic evolution or other inorganic opportunities. About the first, the same-store of our legacy stores is really healthy. The work that we did to improve the look and feel of our stores to improve the quality of the service, to improve IT stability, all these components, all of them are contributing to gain more loyalty from our customers and to attract an incremental customer base, we are breaking our own records every quarter in terms of our customer base and the customers that -- the chronic clients or chronic patients that have a higher average basket, we are also monitoring them very closely, and we see that they have a higher level of loyalty, higher and higher with Pague Menos. So that's why we grew 12% of the Pague Menos customer base, excluding Extrafarma, this is 3x inflation rates. We're very happy with this evolution. And everything that we saw over 2024 a great part of the delivery on these missions will take place in the end of the year. So all the things that we captured over the year are until now this year is very little close to what we have to capture until the end of the year because as you heard from Jonas, we started measuring a few months ago. So we already identified in which stores we can further improve the customer service and our actions team led by Carlos is working to help our stores and the operations team improve more and more the quality of customer service. For 2025, as you heard, inflation this year was 4.6%. Next year, in our measurement, it's close to 4%, but we also have the adjustment, the PIS/COFINS adjustment. So our estimation for next year inflation rate is about 4%. And this year, inflation was similar, but our growth, luckily, we're happy to say that, for example, this month, our growth was 3x inflation. We're very positive about the evolution of our company's growth and this positive trend and also with the mission still being delivered, we're very positive for next year.
And third, about deleveraging, we will continue to focus on deleveraging the company. We will open a larger number of stores next year compared with this year in 2024.
About inorganic growth, I think it's more on the long term. And of course, it will depend on finding other companies with a potential as high as what we saw for Extrafarma with a reasonable price. So this is more for the long-term, but we are also keeping this possibility in our radar, considering the successful incorporation of Extrafarma. So we're very comfortable making other movements like this in the future, provided we find similar opportunities in the market.
I don't know if I answered all of your questions.
Just 2 follow-up questions. The first one is about the 4% that you mentioned. Without the effect of the ICMS reduction or are you already considering that and the level of your capital structure? What would be a comfortable level of leverage for you to work with either in terms of your expansion or evaluating potential inorganic growth?
The 4% that I mentioned is without considering the PIS/COFINS adjustment. So the possibility of the combined inflation being slightly lower than 4% next year. Not that much lower, maybe 10 bps to 20 bps lower than this level that you mentioned. And the level of comfort for other inorganic moves, what we can say is that we will continue to deleverage. We will continue to balance the new openings and the less than 2x that we gave as guidance this year, and we should continue to see a decreasing trend for our leverage. But what would be the comfortable level for other inorganic moves? I can't really tell you. But what I can tell you is that the company is still focused on deleveraging, and we should always be prepared for potential opportunities that may arise in the future. And after we are prepared with the right capital structure, we will consider other possibilities for the long-term. But right now, we will keep working to deleverage the company.
I would just like to thank you for your question. And just to add to what Novais said, what we see is a careful expansion and balanced expansion in terms of our leverage. I think one of the words that I said in the beginning, REC, the acronym is resilience and the other one is equilibrium and consistency. And equilibrium is the highlight here because expansion in retail is equals life, right? We want to expand more in next year than the past 2 years or more than '23 and '24 combined, but always paying attention to deleveraging because this is one of our main commitments. And I can't give you detail about quarter 4, of course, but we continue to see strong growth. So taking a step back only if we need to gain more momentum. But so we will work continuously to deliver more and more growth in the future because we still have room to grow our average sales per store. This is what makes the magic happen because it dilutes our expenses. I prohibited my people to say here, we only talk about virgin grass.
Next question is from Rodrigo Gastim, Itau BBA.
I have 2 questions. The first one is about your competitive dynamic in the Northeast. You showed 40 bps of margin share increase. So can you describe this dynamic? Who are you gaining the share from smaller players or larger chains? So I'm sure you have more information about this. So I want to understand the competitive dynamics of your industry. So I start with the Northeast, but maybe you can talk about other regions as well or the country as a whole. This is an interesting first point.
And my second question is about your working capital. You talked during your presentation about the improvement in your inventory levels. So how comfortable are you today to resume the stock levels to the 90 days that you had pre-pandemic? And I want to understand if in this improvement from 100 to 90 days, which would be the main drivers? What are you doing to reach those numbers? And is there still a large gap between the legacy Extrafarma legacy and Pague Menos? Or are you seeing this convergence in the working capital as well because it's very important for your deleveraging strategy?
About the competitive landscape in the Northeast, as you can see on Chart #11, when we compare the evolution of our average sales per store with the other chains and independent and associations, the level of growth that we had was 16%. The chains were 8.6% and independent and association nearly 12%. So in this chart here, it seems that we are evolving more than the other chains and independent and associations as well. But in the comparison with chains and independent, independent are growing more than the other chains in the Northeast. So this is what we see. But the level of competitiveness, I don't think it's that different this quarter than in previous quarters.
Now about our working capital, our commercial team is working to be as great as we can be in allocating the capital of the company to allow this deleveraging movement. And the main asset we have are our inventories. So we really need to carefully work with our inventories to not cause an impact on stock out. The commercial team is now focusing on revising our assortment, clusterizing our stores and in this clusterization effort, adjust the assortment by type of store. We have a lot of opportunities to improve and optimize our stocks in this mechanics of clusterization. The supply team, today, we already have 9 distribution centers, and we have the possibility and we are likely to inaugurate another DC in the coming months. So with all these moves, improving our logistics, improving our supply structure and clusterization and assortment in our stores, we do expect to continue seeing a decrease in our average stock time so that we can improve the company's leverage. It's very complex. The company today, we have 1,650 stores all over Brazil with the Extrafarma legacy where we still have opportunities to improve. The DCs today are already supplying to the 2 Banners. So there wouldn't be that much of a difference in this sense in terms of logistics structure. But the difference will be in the average sales per store. Since Extrafarma today is selling BRL 600,000 per store per month and Pague Menos BRL 740,000, consequently, we have faster stock turn in the Pague Menos store. But since we're closing this gap, we are also being able to optimize the stock turns in Extrafarma.
So I just want to understand, so what you see for your working capital, the inventory is your main line, right?
Yes. Suppliers, maybe there's a little about suppliers.
But the stock convergence is what will unlock the cash for the coming quarters, right?
Yes, that's right.
Perfect. And just 1 final quick question that I just remembered. It's a more point topic, which is gaining relevance in the last month, which is Ozempic. We are hearing that it's becoming more and more difficult to find Ozempic, and they're even migrating to a different drug. So how relevant is Ozempic in your sales? And in this migration or product switching process, how are you working on rebranding? Because I think that it will stabilize at some point. But during this brand migration process, well, people still don't know the other brand, it could impact your sales. So how relevant will this be for you?
Well, the diabetes category, diabetes and obesity as a whole grew this year, 30% year-over-year. The list of drugs that we have in this group in this category of products, regardless of it being gaga over Ozempic, the category as a whole is growing impressively and not just for us, but for the whole market. This migration from one molecule to another or one drug to another is a work done by the pharmaceutical companies or the pharmaceutical industry. This is monitored by them. They are suggesting the prescriptions for physicians and then physicians will prescribe the product. So our work is just to supply to the market in the best way possible and our commercial team and our logistics team really improved the supply of these drugs compared with last year. So for us, this category grew 30%. I think in the market, maybe it grew less than that. But for us, it grew more because our level of supply today for all these drugs is much better than it was in the past. But it is very relevant for us, and it is truly driving our sales as a whole.
Our next question is from Mr. Guilherme Vilela at JPMorgan.
I have 2 questions. The first question is to clarify a point that you mentioned in your release, monetization of tax credits and normalization. So I want to understand how much was it in quarter 3 and whether this is incorporated in this guidance of less than 2x the net debt EBITDA by the end of the year.
And my second question is about your selling expenses. You had the 80 bps of gain and much of this comes from your operational leverage, which is a fixed component, a very important fixed component, but I want to understand about variable components such as marketing, which could have shown some variation in the quarter.
Well, about monetization, most of our credits which if we take a step back, most of our credits were constituted in the middle of 2017 after 2 decisions. So not to tax PIS/COFINS in the calculation basis of PIS/COFINS and also the ICMS SC mechanics, which the Supreme Court decided at the time, not to use the calculation basis determined by the states, but the effectively price at which the product was sold in the stores. So in 2017-2018 was when we generated the higher volume of credits due to these 2 decisions, not just us, but the industry as a whole. And since 2017, we are working with each state determining how they want to confirm those credits. So there are electronic files that we have to deliver for each state. Then the states will do all the diligences and checks of the data. So it's a long process. And this year, our controller team really worked on intensifying this effort, showing the calculation basis for those credits. So this year, we were able to get a higher monetization volume than in previous years. This volume is close to BRL 200 million of monetization that we did this year. But the company, despite this monetization is still generating credits for these taxes, because first, we collect ICMS based on the mechanics determined by the state. And due to this decision, we can request reimbursement based on the calculation based on the prices in which the items are sold at the store. So we did strong work presenting all these files today. And this year, this item was really helpful. It really helped us improve the cash flow of the company. And we will continue to focus on this work. We still have a large volume of credit if we add -- if we combine PIS/COFINS, ICMS and income tax, close to BRL 1 billion in credit. So the company will continue to work on this. And this batch of monetization that we had this year was somewhat atypical because it culminated in this large volume this year due to the work by our controller. But in the next 3 years, we will see smaller volumes than what we monetize in the next 3 quarters, lower volume than we monetized in the past 3 quarters, but still with a very positive impact on the company's cash flow.
About our selling expenses, this year, we did have phasing out of our marketing expenses, which was an item that you mentioned, which was different from last year. Last year, we concentrated our marketing expenses more in the start of the year. We sponsored Big Brother in the start 2023. And now in 2024, the phasing of our marketing expenses was more linear over the course of the year. So yes, there's a phasing of the expenses. But looking at the 9 months to-date, the dilution of expenses was major. So this item was really helping the phasing of the expenses. But in the consolidated numbers, we diluted our expenses. We're growing our revenue over 13% and the expenses are well controlled, growing at 8% or close to that. And this dilution should persist should go on. As you heard from Jonas and myself, all the sales increment drivers are very consistent and should continue to be and also our expenses are under control. So there's a positive trend towards continuing to dilute our expenses looking forward.
The next question is from Ruben Couto, Santander.
You're showing good evolution in the reduction of the productivity gap between Pague Menos and Extrafarma. Jonas even mentioned that there's a lot still to be captured in Extrafarma. So thinking specifically of your store base, Pague Menos store base and the operational missions that you shared with us, what is the potential that you see for that BRL 740,000 that you have today, how much could it reach in the long term or in the midterm?
Ruben, internally, we do not see any reason why we wouldn't be able to reach in our 348 stores that came from Extrafarma, but today are not totally converted. So 250 have the Extrafarma Banner and 111, the Pague Menos Banner. There's no reason why these stores will not come closer or even get to equal numbers as those of the Pague Menos stores. So this is not just about Banner conversion, but this is work that the marketing and CRM team has been doing to invite back the customer which -- while the company had supply problems or doing store recovery, we will invite these customers to come back to our stores because before the Ultra Group acquired the Extrafarma stores, the average sales per store of the chain was much higher. Today, it has improved, but there's still a lot of room to improve further. So this gap in the mid-term, it should be totally closed. The average sales per store will be very similar comparing Extrafarma and Pague Menos, but this will require intensive work from our marketing, CRM and loyalty teams and all the drivers that we were working for Pague Menos will have to focus on them for Extrafarma and more intensely for Extrafarma, I would say, but we should see the convergence of the average sales per store next year.
So my question is for Pague Menos stores about the closing of the gap. This is clear that it will -- the numbers will be much closer in the future. But for the Pague Menos store, BRL 740,000, with the work that you have been doing, do you have any guidance you can give us about how high that number can get?
Novais, let me just add that there's something new that we have been doing. So let me give you more details. I think that what's good about being new in retail is that you have a high level of curiosity, and we never want to lose this curiosity. So we started visiting stores which were about to close. They were in the list to be shut down. And we were looking at the root cause as why those stores were not performing. So we decided to come up with a recovery plan. So not just deeply understanding, but also implementing actions, reinforcing the personnel. And what we're seeing is that some of these stores are recovering really fast. So this is also a way of improving the closing of this gap, not just growing the stores that are already selling well or are on average, but also helping reduce the pulling down from the stores with a poor performance.
Yes. I think we're very far from the maximum potential of average sales per store for Pague Menos stores as well. We had 42 deliverables of the missions of the company delivered. So of the 42 items delivered, so IT stability, the tenant meter and the hidden customers, so only 30% of these 42 deliveries are completed. So 70% of the deliveries will take place by the end of the year and then the beginning of next year. So the average sales in Pague Menos stores, we will keep working to do as much as possible. I can't really give you an idea of how high this number can get. But what we will do internally is try to reach as high as we can, but the potential value of these stores, 1,250 stores approximately, the potential is huge. There's a lot of value to be extracted still.
This question-and-answer session is now closed. Now I would like to turn the conference back to Mr. Jonas Marques for his final remarks.
Thank you, Novais. Thank you all for attending. Thank you for your time, and thank you for your trust.
We will continue to work tirelessly to capture all the potential that our business has and to improve returns on our assets. We explained in details how we're growing our sales. And one thing that is key is our people, our team. So very quickly, I'd like to thank Novais, Renato, Rose, Carlos, Wallace and Roberto. These are the 6 VPs, which with me, we work very happy every day. And I think it's the difference. We can form a team, but it can work, it works, sometimes it doesn't. But we are soaring with this team because we are humble, we are confident, we understand the vulnerabilities. We understand that the market is ever changing and that we need to adapt fast, but we also bring a lot of energy to everyone. People here can't really quantify how important it is to have a happy team, to have psychological safety, to have a safe environment for everyone.
So thank you very much. Thank you all for your trust. Visit our stores. We have our Black Friday promotions this month. So give us a chance and visit one of our stores. So with these final words, since we will only see each other in March 2025, I want to wish you happy holidays, Merry Christmas to you and your families. And based on what we saw in the start of this quarter, we will come back next year with very positive and consistent news because resilience, equilibrium and consistency are the 3 guiding words that we want to leave you with as a takeaway. Thank you, Novais, and thank you all. God bless you. Bye.
Pague Menos' conference call is now over. Thank you all for attending, and have a great day.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]