Raia Drogasil SA
BOVESPA:RADL3
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Raia Drogasil SA
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Good morning, ladies and gentlemen. At this time, we would like to welcome everyone to RD People, Health and Well-being conference call to discuss its first quarter of 2019 results. The audio for this conference is being broadcast simultaneously through the Internet on the website www.rd.com.br/ir. [ On that address ], you can also find the slide show presentation available for download.
[Operator Instructions]
Before proceeding, let me mention that forward-looking statements are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996.
Forward-looking statements are based on beliefs and assumptions of RD management and on information currently available to the company. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of RD and could cause results to differ materially from those expressed in such forward-looking statements.
Today with us are Mr. Marcílio Pousada, CEO; Mr. Eugênio De Zagottis, Investor Relations and Corporate Planning Vice President; and Gabriel Rosenberg, IR and Corporate Planning Director.
Now I will turn the conference over to Mr. Marcílio Pousada. Sir, you may begin your conference.
Okay, thank you. Good morning, everyone. Welcome to the presentation of first quarter 2019 earnings. As always, Eugênio will present the results, and then just before the question and answer session, I'll stress some points, okay? Eugene, please.
Hello, everybody. First of all, thank you all for attending our first quarter '19 conference call. This was a challenging quarter in terms of markets, but at the same time, when we look -- in terms of growth, when we look in terms of the trends we see in our market, I think they are very, very positive -- very positive signals that prepare us to resume the kind of steady growth we've always [ said on our calls ]. And we believe this quarter in terms of profitability is also the inflection point for the quarter. So we ended the period with 1,873 stores in Brazil, we have 62 -- which is 62 openings and 14 foreclosures during the period. I think one of the main highlights of the quarter was our retail market share. We saw 1.1 percentage-point growth on a national basis, which improved in every single market and was a gain of 1 percentage point in São Paulo, which were -- I think was the main highlight here. We reached gross revenues of BRL 4.2 billion, 15.3% consolidated growth with 1.9% mature-store sales growth, which marked an improvement over the previous quarters. And I think [ it would be great ] for us to end this year at/or around inflation. We had the 28% gross margin this quarter, a 50 bps of margin pressure.
Our EBITDA ended the historic criteria. We have BRL 270 million, 6.5% of EBITDA margin, a loss of 1.1 percentage points. When we look -- our IFRS numbers, and I'll detail more about the IFRS in the next chart. We have an EBITDA of BRL 415 million and a margin of 10%, 90 bps pressure over the previous year. And the same with net income, BRL 105.5 million and then the historic criteria, 2.5% net margin. We then ended the IFRS 16, BRL 94 million, 2.3%. Finally, we had a cash flow of BRL 210 million negative and a total cash consumption of BRL 203 million.
Then on Page 4, we can talk a little bit about the IFRS. So this is the first quarter that we report under the new accounting criteria, which urge us to recognize our lease payment obligations as a liability and also recognize the rights-of-use of the [indiscernible] relating to these assets as a fixed asset. The problem here is that when you think about rental expenses are substituted by depreciation plus interest expenses, [ all ] I can show here in the first part of the chart here. When we look over the whole contract life, the effect is neutral.
So at end of the day, the IFRS over the whole contract term does not provide an economic effect. However because the liability is higher in the beginning versus in the end of the contract, what happens is financial expenses start very high and then decrease progressively. As a result, there is a timing difference during the lifetime of the contract. So in the initial years of the contracts, we have negative pressure on net income. And in the final years of the contract, we have a positive effect on the net income.
Having said that because the Brazilian tax authorities don't consider the IFRS 16 for taxation purposes, the cash effect is absolutely 0. We're still paying the same lease obligations despite the fact that they now consider rental plus interest expenses. And because the tax effect is also neutral, there is absolutely no cash effect or whatsoever.
It's also important to mention that this is a criteria adopted on a global basis. But in Brazil, our rental contracts, they range from 5 years to 10 years. And we have the [ write-off ] within those contracts only by paying 3 months of rentals.
[ This is the ] actual decision the company has taken at any point in time. And as a result, we don't believe the IFRS have adequately reflect the economics of the company. We'll keep looking internally under the existing and the previous criteria, but we will report both criterions so the market can dig whatever criteria you want to track.
When you look at the P&L here on the bottom left, the net effect that I explained is very clear here. When we consider the IFRS, we have BRL 145 million less in operating expenses because the rentals are not under an operating expense, but then we have BRL 136 million of additional depreciation and BRL 27 million of additional interest expenses. So since we -- the -- our existing contracts are more in the beginning of the year -- in the beginning of the terms than in the end of the term, there is a negative net income effect of BRL 11.6 million in the first quarter. But regarding taxation, we paid the normal taxes just as the same independent difference if treated as deferred tax assets.
When you look on the right in the balance sheet, we see a large noncurrent assets, which is the right-of-use, but we also see the same equity and liabilities, part in current liabilities and the biggest part is the noncurrent liabilities.
Okay, back to business. Page 5. Store development.
So we ended the cycle with 1,873 stores. We opened 62 stores in the quarter and closed 14 stores. By the end of the quarter, 36% -- 35.6% of the stores, they were still under maturation.
Here on Page 6, we have a very interesting chart that shows what's happening to the market. And this has to do with the cost improvement and with the accelerated share gains we have posted in the quarter. And I think it also helps us predict how this will evolve in the coming quarters.
So on the top chart, we compare our historic annual growth each quarter versus the rest of other Abrafarma, excluding RaiaDrogasil. So we see that in 2016, which is not in the chart, at the end and beginning of '17, we had a huge gap over Abrafama. What happens here is that Abrafarma was going out of business, so all of a sudden, a huge number of stores were getting closed. And obviously, this is -- this generated an improvement for us and a decreased set of [indiscernible] make it liable.
Net from the second quarter '17 to the third quarter '18, I think we had modest growth difference with Abrafarma and in the case of 3Q '17 and 4Q '17, very small edge versus Abrafarma.
And then we see now that, since the 4Q '18, the gap [ which is ] in our growth and the rest of the large chains in Brazil is expanding. And the reason is in the chart below. Here we compare our quarterly net store addition versus the rest of Abrafarma net store addition. So the 1Q '17 alone, we have 218 stores be opened. So it's probably a peak, but still, if you look through '17 -- the rest of '17, we had quarters ranging from 130 to 160 net store additions and offices. In 2018, we never started going down. And now in the first quarter '19, it's probably [ devalued ]. For the first time in the time series, we opened more stores on our own than the rest of Abrafarma chains. What's happening here is that this huge [ collaboration ] of store openings that happened, especially start of '17, which [ summoned it ] also in 2018, which have been in a very difficult market scenario, it failed to generate value. So corporate has allocated a lot of capital. They increased leverage to do it, and guess what? Because of [ the ] areas because of the market scenario, this store failed to create leverage. They actually create pressure. So when you look around the market, there are a lot of companies, especially the larger ones, who try to pursue aggressive growth programs and that today have a very -- a lot of challenges in terms of leverage and in terms of profitability. We have companies with negative profitability. Onofre is an example. The company with a negative [ stat ] that we are in the process to acquire, but there are other companies in the market and companies that have positive profitability but lost a lot of margin. And then as a consequence, they now have to reduce growth, they now have to close more stores. And this create a very important challenge for us because we are maintaining our growth. We are very well positioned in terms of prices and because of the investment we made in terms of execution. And I think that now that the growth -- the capacity addition cycle has been reversed, I think it progressively walked towards comp co-normalization .
On Page 7, we can see here our store footprint. So obviously, we have nearly 1,000 stores in São Paulo, but probably the most impressive figure is that we already have 220 stores in the Northeast region. And this is a region that we have studied, we have started pursuing after the merger, probably [ 2013 ], I think that's when we had the value. I also highlight our entering Pará. This was our fastest entry. We can see that in Paraíba, it is a smaller market than by Bahia or Pernambuco. In 2 quarter -- we have been in the market for 2 quarters, and we already have almost half the stores we have in Pernambuco. So this was the most -- because we have Big Ben, which was the leader going out of the market, this was a huge opportunity. We acquired [ 10 ] locations, store location, landmark locations, actually, that belong to Big Ben. And we have made a very fast entry to the market. I mean it's great to see that these operation [indiscernible] is doing really, really well. The projection is very high, revenues per store. And also, we have seen very good gross margins almost in line with the average of the company already in the initial year of operation. So this -- not even in Bahia or Pernambuco, we have seen this. So this is very encouraging for the company.
When you look in terms of market share, we gained 90 bps on a national level, and we gained 100 bps in São Paulo. As you know, we had a lot of challenges here in São Paulo because first, we decelerated our growth. We went to open more than 100 stores, 100 branches in -- more than 100 pharmacies in São Paulo. We are now opening 60, 70 stores [ Raia ] in São Paulo. And at the same time, we had a lot of new entrants coming to São Paulo, which obviously has an effect on us.
Now as several new entrants have reduced their opening [ page ] or have stopped growing altogether. And next, our price investments has translated into tremendous volume gains, especially in Generics. What we see is that we gain share again. So we gain 100 bps in São Paulo, which is not a small feat considering the size of the operation we have here and consider the fact that we have decelerated our store openings in the market. And that I'm not detailing, but we are also growing in all the other markets where the company comp.
On page 8, we post the consolidation revenue growth of 15.3%, with 14.4% for retail and 34% for 4-Bio. When we look at the mix, the best performer was in the front, and we have seen this also happening in previous quarters. But the main highlight here is that for the first time in a while, Generics has converged and actually starting to operate Branded. And what's happening here is there's a huge pressure also in Generics. So if you compare today average price versus same quarter last year, it's a big difference. It's a [ revenue ] difference. But still, we have been able to grow in tandem with Branded because the volume growth we achieved based on our new pricing strategy has been tremendous. So we're very happy to see this happening, and this is setting the company to get back to our historic growth, to have as much a start around, so we believe we are in a firm direction towards achieving that by the end of the year.
On Page 9, we discussed the comp [indiscernible]. And so we had 5.6% [ of ] sales growth, with 1.9% for mature stores. So this was the best number in a year, for sure. And as the comp base gets easier and as we keep getting sequential improvements, our expectations, as I said, is to converge our organization around inflation by the end of the year. And if we are able to do that, next year is a whole different story. We'll be very likely talking about expanding margins, recovering some of the margins we have lost as we invested in price.
On Page 10, talking about the gross margin, we see a 50 bps pressure on the quarter. And obviously, this reflects the price investments we have made, especially in Generics. But the point I want to highlight here is that these investments do not happen here. They happened in the previous year. So that our structure of gross margin had already gone down last year. What happened is that there a lot of opportunity [ dies ], which generated more trade allowances than offset that structural loss. However, as we normalize opportunity [ banks ], we don't want to create any bubbles or any artificial into our number, so we are back to normal, back enough of buying. We now have normalized the trade allowances, and therefore, the structural loss, they should have a [ P&L ] next year, finally appearing in our numbers. But there has been no major price investment in the first quarter of this year.
And here in terms of cash flow -- cash cycle, we had a 3-day pressure of which 1 day is due to calendar related to receivables. The main factor here is loss operating loss -- of operating leverage.
On Page 11, we talk about expenses. And again, our focus on the previous standard and not on IFRS. As I told before, I don't think IFRS is the best way to look economically at our performance. So we will keep looking internally at the previous standard and encourage the market to do so because I think that [indiscernible] of cash flows. And if you don't post it, the rental, it's very difficult for that to happen.
So looking here at the previous standard, we had a [ 60 bp ] pressure on expenses. Obviously, the main factor here is the loss of operating leverage as the mature comps are going below inflation, but it affects every line. But there is also some elements here that I think is transitory. The first one is logistics. We are opening the Raia 3 new distribution centers. The largest one that the company will have in São Paulo and Guarulhos, we are moving in these 2 different facilities, so we closed our existing distribution center in the [ camp site ] of Rio. And then we are opening a new one in the metropolitan area of the city. So this should entail big freight gains next year. And we're also opening, as you see, in Fortaleza, which will reduce our freight expenses because they would ship from outside the states. And this will also happen -- help us with gross margins because when we shift from out-of-state, we have a loss -- we have a higher taxation that affects our gross margin. So these investment will improve [indiscernible] at the same time and close when we see this generation of expenses. So we see 20 bps logistics pressure. And then we also have some significant sales, like 20 bps rental pressure related to the peak [ 90 bps ], which, I think, at some point, normalizes. And then we have a [ 10 bp ] pressure in energy that's also cyclical.
In terms of the EBITDA, we have a 6.5% EBITDA, 110 bps loss versus the first quarter last year. It's also important to highlight here that the first quarter of this year was very, very strong quarter for us. You can see that it was a higher EBITDA margin than both the third and fourth quarter. Regardless of the fact that January is a vacation month, and February is a short month and in the February, March, there is Carnival.
So the first quarter should always be the lowest quarter in the year. I feel this will hold through this year. I think this is a floor for the Company and the inflection point for the company. But last year, that was not the case because the price pressure was Q2 to happen. We had a very good first quarter. So this magnifies the margin loss that we have. But over the next quarter, I think it's a very positive quarter for us because of the high [ inflation rate given the ventures we have ].
I'm not going to say that we'll do the same margin next year, but even if we don't have much lower loss in margins and that third quarter and fourth quarter with the moment of truth, and it will depend on where our revenues are and where our cost-containment efforts are. For sure, it shouldn't be this kind of margin loss that we'll see in the first quarter.
Net income, we lost [ 90 bps, 200 bps ] to standard. It's basically EBITDA loss and some pressure on depreciation and on interest expenses, but the bulk is the EBITDA loss offset by [indiscernible].
On Page 14, cash flows. We had a BRL 202 million investment in this quarter versus BRL 134 million last year. So there's a big investment taking place here, especially because of the [ deceased ], which generated a negative free cash flow of BRL 210 million and a total cash consumption of BRL 203 million. I think '18 and '19 are big in terms of investment. And then as we maintain the growth level and as we don't have these major investments and [ deceased ], probably we'll have -- suddenly have less investments next year.
Well, finally, before passing it to my CEO, [ I'm going ] to show how the price is doing. For us, the most important thing is the long-term view. We have generated 25% annual returns since we [ view at 7% ]. But even this year, our share prices performed ahead of Bovespa, but this has more to do with the fact that the share price was very penalized as we ended last year. So these were my prepared remarks.
Marcílio will discuss, okay, our numbers and our trends, and then I'll get back to talk about capital market highlights before Q&A. Thank you very much.
Okay. Thanks, Eugênio. Let's turn to Page 16. Eugenio discussed about the expense percentage [indiscernible] and stress about [ 1Q ] 2018 decreased a bit. We are opening [ DCs that can ] help us -- and this used to help us to -- a transportation tax for next year, okay? The other pressures for expense that we have right now would be energy. We closed the businesses and [ turned to ] our energy providers. And we have 16 stores that would [ reduce ] the cost for energy next year, which is good for our results. The good news for expenses, the [indiscernible] expenses already start to show a reversal and making it do better in tax growth, in mature store above inflation.
The good news for this quarter in terms of sales, okay, the sales -- the main state of sales, [indiscernible] know how to open stores and not because [ of competitors is bad ], but it is difficult to do business. We are focused [indiscernible] timing [ when going to ] stores -- not [indiscernible] stores. You know there are cycles, and the cycle starts to go, help us to give the numbers.
We are very much in generic price [indiscernible] help us to improve our market share 1.1% this year. We are launching right now a [indiscernible] to help in pricing, maxed by [ customer by customer ] just to help us for the next quarter [ results ]. The other point that helped us a lot in sales is digital gross. The Click & Collect strategy is built for us with company's incentive tax and is in a valuable position to get restored in every corner. And [ we believe ] in the coming quarters [indiscernible] and this award was together. It did help to give the number. We did more than 40% in digital in these factors. When looking for the open -- last year, we opened [ our last ] big marketing in Brazil, the Pará state, we opened [ 89 ] stores [indiscernible] very, very well. And we think can grow very, very quickly this marketing number through marketing data this year.
I remain very optimistic about the business because it is fundamental for this business to do the same creation, population. We working very, very strong with the new stores. The marginal IR (sic) [ IRR ] of the new stores is, I think. too high, most of the company's [indiscernible] capital allocation. And then much more important for us is digital, which shows relevance for us. We don't think the [indiscernible] value in our stores in the corners [indiscernible] we will wait for the particular company and not only digital but [indiscernible] another level in the future also. And we know in terms of [indiscernible] in the future. We grow and take care of the health of customers and employers in the future for the better life of everybody. Now Eugene will be talking about a new market and [ for this year ] cash and expenses.
Okay. So I would like to highlight that we did this quarter the first issuance of certificates of real estate receivables in order to raise capital. So it was a recognition of $250 million in a single thresh with a 7-year maturity at an average cost of 98.5%. So this is very good to diversify our funding sources. Until now, we were doing mostly divestitures, which were bought by institutional investor. And now this is an interest that had tax [ redemption ] in Brazil, so it's bought by individuals. And I think it shows the strength of the membership of the company, it shows the fact that our credit rating really allows us to do operations like this and are very robust whenever we need it. And then just on -- in terms of some upcoming activities, we will post the second quarter result on August 6, 2019, in the third quarter on October 29, 2019. And finally, we have 2 investor conferences in the coming weeks. The first will be the Itaú Conference in New York, May 15 and 16. We will be represented by Marcílio and Gabriel at this conference. And finally, on June 5 and 6, the Citibank Equity Conference in Brazil. So these were our prepared remarks, and now we move to Q&A. Thank you very much.
[Operator Instructions] Mr. Joseph Giordano from J.P. Morgan would like to make a question.
I have a couple of ones. So first on the price investments. So we talk a lot about the generics here, but I would like also to understand how the private-label strategy in terms of differentiation and pricing position here is helping these trends and the competitive position you have the company? And second, it's going back like to the competitive pressure you have been seeing, particularly in São Paulo, I would like to understand like how you're seeing that evolve, in particularly with thing like the most structured player that's actually [ going to ] have that pressure you, even that we started to see some significant store closures from that side.
Okay, Joseph, thanks for the question. I think for the -- it's very easy for a company to talk about long-term view and the actions you do on the short term and the long term, they are aligned. This is a year. And actually, this, 2018 and '19, these are 2 pair of years in which we had to walk the talk, which really means making [ this ] investments that make us stronger on the longer-term but have a cost for the short-term. So we completely changed our pricing strategy. We invested very aggressively in price, especially Generics but not only in Generics. And I think that this was a huge [ factor ]. You see that how our growth is normalizing.
You see the kind of market share gains that we have achieved, the volume gains in Generics that even though still the pressure are lower, but Generics already growing in centers with Branded and obviously in a difficult environment. I mean this helps also view further barriers from our competitors.
So we are very happy with the results. Obviously, this is a considerable pressure and a considerable cost financially for the company. But we are very [indiscernible], this is the right strategy for the long term. So accelerate the consolidation of the industry. In terms of private label, I think we're also advancing here. We have a 5% trust on private-label penetration.
We have a gross margin of 52% in private label. Every single private-label product that we launched actually delivered a gross profit greater than the national brand. So we are very disciplined about that. We have refute investor launch in front of [indiscernible] which we couldn't do that. So just having something [ cheaper ] to say, margins is not good enough for us, so there is a lot of discipline by doing this. Every single process that we launch is creating value for the company. And [indiscernible] it also helps us competitive. But I think the main feedback is not exactly as a competitor, it's really improving our margin mix for the company. In terms of competitive environment, I think the chart we show in the beginning showing the growth deceleration in the market in terms of new store edition, which is a net effect from less openings and more closures. I mean I think it points to the trends, I mean, a lot of companies try to accelerate growth, especially the national companies. They were trying to grow ahead of what they could. They are trying to enter markets of huge [ indiscernible] barriers, just like these barriers did not exist. They cannot have the same process, discipline the same real estate quality to the same standard of execution inside the store. So from my view, what happened is what expects to happen. I mean a growth like that doesn't work. It makes the company weaker rather than stronger. And then the company has to view the strategy, they have to stop growing, they have to close stores, they have to manage for the short-term due to deliver profitabilities. You can see the level of training in the market for most P&Ls of public companies who have access. We can see through and offering, which have huge negative EBITDA, we are about to [ rearrange for ] [indiscernible] for the approval, but we think that this should happen relatively quick, which no reason for that [ process ] not to go through. But we are now in the best possible scenario, a scenario in which we have good momentum. We have -- we are very competitive in every regard, including prices, in a moment, initiates a lot of [indiscernible] in the market. So the scenario on our relative basis, probably the best we're seeing in a while. And it is the best [indiscernible].
[Operator Instructions] [indiscernible] with a question.
Just -- I want to clarify a point. So your citation for store -- same-store sales are [ mature ] start to reach inflation to the end of the year, what needs to happen in order for this to materialize? I mean, do you need to see a further improvement in competition? Or it just a matter of comparison basis? And the second question, would just like an update on your omnichannel initiatives. Because if I remember correctly, one of this call that you guys assembled was focused on that. So just if you guys could give us just a sense of how this process going? And when can we expect this to go live at a large scale, that would be nice.
Okay, [indiscernible], thanks for the question. Well, in terms of mature store sales, I think it's a combination of 2 factors. I think the bulk is really the comb base. So the [ core base ] gets easier as we move through, right now, we're still comparing a low generic price point with a high generics price point of the 1Q '17 -- 1Q '18, sorry, and I think it will be the [ marginal '18 ] also shows that. So as the [ core base ] in the second quarter, but especially in the third quarter, it gets easier, the [ core ] gets much easier. So I believe that the main impact is from the comps, but also, there is some need that some expectation of sequential improve. But if I have to quantify, it's more on the [ core base ] than on the sequential improvement. But you [ can see ] some improvement, also the average ticket to go for -- of the year, okay? [ Help us ] remember in the year also. When we look at the average [ industry pressure ] but as we move forward [indiscernible] we will go, and this will [ rise ] but volumes as well, we're doing well in volumes, and I think we'll keep improving. In terms of omnichannel, this is the main strategy of the company today, and we want to [ play ]. We want omnichannel to be the next new source of competitive advantage for the company and to be the next growth engine for the company.
Obviously, I mean, we have -- we invest in deliveries. We now have a 1 hour [indiscernible] São Paulo. We will expand delivery very quick, and we'll do really, really well in Click & Collect. Today, a huge percentage of additional sales is Click & Collect. But for me, that's not the digital sales, that's still a fraction of the total of the company sales. And in my view, it will always be [indiscernible] . I think the main metrics here is not how much additional sales. The main metric here is how much of -- of what percent of our revenues are derived from consumers who are digital consumers, that once the consumer [ hasn't had, I mean, they can't have ] a much [indiscernible] in 5 or 4 stores we had. [indiscernible] with the next year's and apparently, a lot of the pain points of the shopping experience leveraging the mobile technology that once [ you can ] send reminders for the consumer [indiscernible] reminders for the consumer to take the meds in the morning. We can send content to the consumer relating to [indiscernible]. So this is a huge tool for loyalty.
And in the end, the digital sales that [indiscernible] of making consumers more loyal and having a higher set of audit and having higher spending from that. So from this success, when we get 20%, 30% or 40% of our revenues coming from digital customers, and it is a matter of the digital transactions [ that we ] want to get 4 or 5 equipments is by the time digital consumers [indiscernible] 20%, 30%, 40%, this is consumer with a much better direction and then direction then to move the needle, which presently [ has a needle ]. This is not a big bank process, we are always doing improvements, as the whole idea of agile, so we lost in the collect with directly improving our app. We are expanding our delivery infrastructure, we would also be more and more compared for the consumer to improve the journey by using the app, by improving the new store experience, so this is a long journey. But I see that -- I think [ there are only a ] small number of companies in the market who have commitment, who have the resources to do it. It's not an easy thing, and I think it's something very expected to do. [ High assign ] is not for everybody. Now we need scale to work, so I [ oversee not only the ] company in the market [indiscernible ] but I think we can [ re-bet ] and I think there [indiscernible] companies completely [ attached from ] the rest of the [indiscernible]
There appears to be no further questions. Now I will turn the conference back to the company for their final remarks.
Okay. So thank you all for attending this conference call, and I like to summarize some of the points we have discussed. Obviously, this was a very challenging quarter in terms of margins. I think when we look at expense pressures, which was, together with gross margins, the [ corporate year ], it's good to see that some of these pressures are transitory, like the logistic investments we do this year, like the fact that [indiscernible] index. We can [indiscernible] the things we can improve. But obviously, this are pressures that we can improve, and they will drive the market pressure for the whole years. We believe this quarter with inflection point, being this is the lowest quarter, and I think from now on, we will only move up. This is our expectation, especially for the second quarter [indiscernible] because we will have [indiscernible] which will be higher than next year. But I think that in the second semester, when you compare to more realistic comp of second Q last year -- second half last year, sorry, by gaining more sequential improvements in some of the things we can do, I think we'll [ do those things ]. Probably [ some ] pressures but certainly see a better place. However, these margin challenge is combined because [ it's a ] very good friend, and we look at how the industry structure will evolve. The fact that we will see a reversal of the store addition cycle that happens to be a lot over the last [ 3 years, ] we see a lot of local competitors of negative profitability, like the case of Onofre, but not only Onofre, there are other players in that situation, compared to who lost a lot of margin, compared to who's figuring out that expanding outside of state is not easy. [ What is ] to show us that other players who grow at home grows well because they know the market, they have a strong brand there, the older [indiscernible] everything location on site but really, it is very complicated when the size and the geography of that expansion gets increased.
At that point, in a lot of new markets where mobile [indiscernible] will have huge inter- barriers, who have the kind of structure that they need to validate locations all over the [ transacting ] markets, which you don't know you can have the [indiscernible] all the time to follow remarks when [ they have ] locations, so you have to have a deep structure, great people, process and a leaders to be able to do that. And this is, I think, where we excel. We know how to do it. With the best part, which is positioning our brand-new markets, was already [indiscernible] so today, we are harvesting all these things that you practice in the future, and that's why our expansion into more consistent and deliver -- and really creates value. I haven't seen our large-scale national expansion who have created value besides ours.
Again, there is a lot of things in the market. And I think, as I said before, our relative position is probably the strongest it's been in a long time. The fact that we are well positioned in prices, our new stores are creating value, we are normalizing growth where we see a divestment cycle in the market with a lot of store closures in the companies. We were looking more at profitability now than looking at gross. So this is all very, very good for us, and I think it is to translate into a much better 2020. If -- When this year where we expect, which is a mature store and inflation, I think you have very different place value. I think it will be a year of recovering part of the margins we lost and no longer of margin pressures. And our operation is not only to have mature stores and inflation but together to grow ahead of inflation, both because we are better positioned in terms of prices and because of digital. This is not a guidance, this is an aspiration. But that's how we're looking at the opportunity we have.
So thank you very much for the support, and we will remain available for [indiscernible] to make a conference and road shows and even conference calls. Thank you very much.
So you may now disconnect. Have a nice day.