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'd like to welcome everyone to RD - People, Health and Well-being Conference Call to discuss its 2Q '22 results. The presentation can be found on RD's Investor Relations website, ir.rd.com.br, where the audio for this conference will later be made available. [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 the 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. Eugênio De Zagottis, IR Corporate Planning and M&A Vice President; and Flavio De Morais Correia Director of IR, Corporate and Strategy.
Now I'll turn the conference over to Mr. Eugênio De Zagottis. Sir, you may begin your conference.
Hello, everybody. Welcome to the Raia Drogasil second Q '22 conference call. And I'd like to start by saying that this amazing quarter for the company. And this is a quarter that happens exactly after the 1Q '22, which proved to be a very challenging quarter for us. And the reason why last quarter was so difficult is that, as I mentioned in the conference call, we had an inflation lag.
The problem that we had is, we had 4 quarters of expenses going up as a function of inflation, while sales were flat because the last price increase had been 12 months before. So with peak inflation, we saw a lot of pressure in the first quarter. What we see here is the normalization of that process. So we applied in the beginning of the quarter, the new authorized price increase -- the new price increase authorized by CMED. So this has corrected our prices and put our sales intend them with the new cost of the company. So really doing an inflationary recomposition.
And on top of that, because of how the pricing system works in Brazil, once we apply the price increase, we still have all the inventories at hand, and we generate an inflationary gain on inventory. And this inflationary gain on inventory pays a lot of the pressure we have seen over the last quarter.
So if you look at the first semester, our EBITDA margin at the end of the day has expanded by 20 basis points. So we had a difficult quarter and then a very strong quarter just after that as the inflationary effect has normalized. In addition to these low inflationary dynamics, I think the structural performance was very good. The sales growth, I think, was very robust, driven by, again, the structural performance of the company, the fact that digital is driving our mature stores up. And we also benefited from the flu season. And last year, during this time, the flu season was very weak because everybody was using a mask because the vaccination for COVID was just starting. So obviously, it inhibited COVID, but it also inhibited normal flu.
And now I think we had this quarter a very strong flu season, but I think we were very well positioned to take advantage of that. So I'll talk more about this during the presentation. So to start here with the highlights. We ended the quarter with 2,581 pharmacies in operation. We opened 64 stores and closed 13 in the quarter. Gross revenues reached BRL 7.6 billion, 22.4% growth and mature stores grew by 16.1%, significantly ahead both of CPI and of the authorized price increase.
Market share 14.4%, gain of 40 bps on a national basis with improvements in every single market. Digital reached BRL 3 billion on an annualized basis, 46.9% growth. So very, very strong performance here, reaching a retail penetration of 10.5%. Contribution margin, close to BRL 1 billion, 12.9% of margin, 210 bps improvement. Adjusted EBITDA, BRL 727.5 million, 46.3% increase and a margin of 9.5%. So another 150 bps improvement over last year. Net income, BRL 343.7 million, all similar growth, 48.2%, 4.5% net margin and 80 bps improvement over last year. And finally, a slight negative free cash flow of BRL 58 million with BRL 193 million in total cash consumption in the quarter.
So next slide here, we talk about the expansion. We reached 2,581 stores in the quarter. We have opened 64 stores and closed 13 stores during the quarter. So today, 71% of the stores are already matured while 29% are in different stages of maturation. We are fully on track to deliver the store opening guidance of 260 gross stores in the year. And another thing that is worth mentioning is that -- on June 15, we updated our reference form to expand the guidance until 2025. So the guidance from 2023 to 2025 is 240 stores per year. This means 980 new openings over the next 4 years, a total of 38% increase of the current store base. So it's very relevant, the kind of growth we are doing.
And the focus of the growth will be the same we are doing now, very diversified both geographically and demographically. Finally, it's important to mention that this guidance of 240 reflects the fact that we opened 240 stores for 5 straight years. We have full trust in this space. And 260, it's the first time we are doing. So depending on how we do it during this year, depending on our ability to build a nice pipeline for the future, we may or not review this guidance from 240 to 260. We'll see how it plays out. Obviously, there's a possibility. But for the time being, we prefer to be conservative and keep the guidance at 240 stores.
Here, I'd like to talk about an issue that I think it's not very well understood and causes some distortions in terms of modeling for most of analysts who cover our company, which is store closures. So if you look over the last 12 years -- 12 months, sorry, we have closed a total of 47 stores. The first thing to mention here is that there are something like 20 closures that are atypical, 6 related to -- to an office acquisition. I'll talk more about that. And 14, which are driven by the pandemic. We're talking about downtown stores in Sao Paulo and Rio, stores in shopping malls that depended a lot on lunch traffic during weekdays. And obviously, these are regions that because of smart working, we are not seeing them getting back to historic levels. So there is a correction being pursued in our portfolio through the store closures. But I don't -- we'll see where this stabilizes, but for sure, 47 is not the running rate for the company.
Another thing that is important and here lies the mistake that I was talking about is that of all these closures, only 7 closures relate to maturing stores. So these are stores that have obviously been expansion mistakes. We're talking less than 3% of the last 12-month openings. So if someone wants to forecast net openings I think that's okay as long as you assume 3% of mistakes. So take 260 stores in the year, minus 3%. For me, that makes sense because the rest of -- the bulk of the closures, which are the mature stores, -- it's a completely different situation. These are stores that are older stores, average of the portfolio is about 13 years. And these are stores that generate positive EBITDA. So why do we close the stores? Because when we close the stores, first thing, we get rid of the full cost base of the store. We transfer working -- we redeploy working capital and some fixed assets like IT infrastructure, like shelves, et cetera, to other stores. So we improve our asset base in the company. And then 20% to 30% of the sales that the store had gets reabsorbed by other stores in the neighborhood. So this means that we transfer 20% to 30% of sales.
Our gross margin is around 29%. Then we take some variable costs. We're talking 25% contribution margin. So 25% contribution margin, over 20%, 30% of the sales of the stores that get transferred without any cost base to the other stores implies a higher EBITDA than the EBITDA that these stores currently delivered. So we are qualifying our store base. This helps us accelerate mature store growth, better dilute sales expenses and the ROIC of the company goes up because there's more sales with less cost base and less assets employed in the business.
So my point here is, if you forecast, let's say, the normal closures is 30. 260 minus 30, you are leaving behind the potential of the bulk of these new stores of several of these new stores that we deliver, and we are underestimating the improvement in profitability resulting from disclosure, closing stores when we do it well, it's a good thing and an important thing and it contributes to our profitability. So this is why I'm bringing this subject here and even showing the age of the stores that we are closing. I mean most stores here are -- have more than 10 years. The average of the year is 13 years for the last 12 months portfolio.
Okay. So I think another highlight of our recent expansion is the number of small cities that we are entering. So we have entered 76 new cities over the last 12 months, increasing our presence to more than 500 municipalities in Brazil. When we look at our stock composition over the -- our recent expansion, only 14% of these stores have been upscale stores, 86% have been hybrid or popular stores that serve the expanding middle class.
And when you look at the full portfolio, 1/3 is upscale, 2/3 is hybrid and popular. And it's also important to mention that while we -- this profile has changed over time, but the returns have actually improved. So we always shoot an internal -- an internal rate of return on a real basis, net of cannibalization already of 20%. When we look at our recent figures, they are around 24% to 25%. So the returns have even improved in recent years, even with this diversification of income profile. The diversification has not been only income profile. It has been geographic as well.
So we are today present in the whole country. We have close to 1,500 stores branded as Drogasil. Drogasil is the #1 pharmacy brand in Brazil by any means, by any criteria, and Raia is the #1 -- #2 pharmacy brand in Brazil based on revenues. So we own #1 and #2 chains in Brazil. So this is very encouraging. Our growth is a truly national growth. We're growing in every market. We grow the same return expectations.
It doesn't matter in what state we are opening the store. We have mature stores, which are performing in terms of profitability and returns at a very similar level all over Brazil. And as a consequence, when we look at our expansion, only 18% of our stores 46 stores actually have been opened in the state of Sao Paulo. All the other stores, more than 200 stores have been opened in other states which are not our native state.
But again, we are -- if you consider as a national chain, not as someone who has a flag planted everywhere, but someone who makes money on a similar basis and invest with the same expected returns and actual returns everywhere. We are the only national player in Brazil, and we opened only 18% of the stores in our native market and opening the remaining 82% all around the country. And today, we can call all the whole country as our core, not as mature, but our core market.
And finally, market share. Market share has grown up by 40 bps, with improvements across every single region in Brazil. Talking about top line growth. We reached BRL 2.641 billion in revenues in the quarter, a very material growth of 22.4% over the 2Q '21 year.
When we think about mix, obviously, the highlight has been pharmaceuticals and more specifically, OTC. The reason behind this accelerated growth is: first, a very strong structural performance, which has been driven and accelerated by digital. So as more customers become digital, they start spending more with us and they drive higher mature store growth. And so this is driving a strong top line growth. I'll talk more about that. But on top of that, we have seen in the quarter a strong flu season, some positive COVID seasonalities as well. And I think we were very well prepared to take advantage of that seasonality. We are undergoing on a global basis, a supply chain crisis. So already since the beginning of the year, we have increased our inventory levels to cope with that. So obviously, in the quarter, we -- the inventory levels went a lot up to take advantage of forward buying. But this happens mostly in disease. But through this year, we have increased store inventories as well to be better prepared for supply chain disruptions. So we are taking advantage of our capital structure to protect our customers.
And our service level has been amazing despite the in challenging moment we are. This is a result of this inventory increase. This is a result from the fact that -- we are the leading buyer of pharmaceuticals in Brazil from our manufacturers. We buy directly. We do, I think, a better job quantitatively in terms of estimating and preparing the stores and deploying inventory by item and by store. So this has translated into us being able to do really well during this favorable seasonality.
And obviously, OTC, this is where we see the full effect of the flu season of the COVID as well because COVID tests are booked here, both normal test and self test. So OTC grew 28.6% in Brand and engineer is 22.7%, 22.8%, really strong as well. And HPC grew 18.7%, obviously, because the mix cannot go beyond 100, if something is going up, something has to go down. But this growth in HPC is a very healthy one and we're very satisfied with this performance.
When we break down the growth, 22.4% top line with 18.1% same-store sales and 16.1% mature store sales. Here, it's important to mention that our mature stores, they have outgrown the -- they have outgrown both the CPI by 4.2% and the authorized price increase by CMED by 5.2%. So tremendous performance. Obviously, there is a seasonal component here. 22.4% is a peak. But I believe that even after the peak goes out and the top line normalizes, we'll still be talking about mature store growth at material levels and a very healthy top line growth. So this is very encouraging for the future.
Digital is the main reason behind this strong structural growth. We have reached BRL 3 billion in annualized revenues. We have grown 47% versus last year's figure, and the penetration has reached 10.5% of retail revenues. We are today the undisputed digital leader in Brazil in our vertical and already a very meaningful player in Brazilian retailing overall.
When we talk -- I don't know of any other retailer who has this kind of growth. Obviously, the magnitude of the [indiscernible] operation is unique. Also, we will be the #6 or #7 drug chain in Brazil if RD Digital was a separate company. When you look at this penetration, we have to consider, we are a truly national company, which has just entered a lot of new markets, which operates in a lot of faraway markets with less digitalization. If we consider the percentage of digital penetration in more mature markets like Sao Paulo, here in Porto Alegre, Portale, Belo Horizonte and Curitiba, we are talking additional penetration from 15% to 20%. So we are a leader in the segment across every single dimension we look at.
The mix of channels within digital is also very unique and for 2 reasons: first, the fact that 86% of these digital sales is comprised of channels that are, at the same time, proprietary and modern. The exception here is the super apps like Happy and iFood, they account for 11%. It's part of our digital sales, but it's not proprietary. All the rest is proprietary.
And we have 3% here, which is a jurassic channel, which is telesales, phone sales, which, in reality, shouldn't even be considered as digital, even though we do consider as digital. But the difference here is when you look at our competitors, most of our competitors have a big reliance on third-party apps and have phone sales ranging from 20% to 30% of their total sales. Well, for us, it's only 3%. The flip side here is the app -- the app means for us 51% of the digital -- total digital sales. So we're talking 10.5% digital penetration. We are talking more than 5% of the total revenues of the company being achieved through the app. So our app is becoming very strong as the productivity of our schedule has improved, the quality of the app is going up. the reliability, the functionalities and the Net Promoter Score is also improving dramatically.
And so we are now undergoing a virtuous cycle relating to digital. But nobody else has more than half of the sales done through the app. And finally, when we compare the web traffic, us versus the others, our web penetration according to similar web is growing 23% and the players 2 to 6 summed up are only growing 8%. And our total traffic is more than the sum of players, 2, 3, 4, 5 and 6 in the industry. So this shows the point about our sector leadership.
And when we look at the overall retail landscape in Brazil, we are now the #8 brand in digital access, and I believe it won't take long for us to be one of the top 5 players in terms of digital access. So we are already a very meaningful player in the overall retail landscape, not only in the pharma industry.
Gross margin. This has been one of the highlights of the quarter. The effect here is very straightforward. We have a margin which is in balance. The day we increased prices. We still have all the inventories sitting there. So we achieved in the quarter, an inflationary gain on those inventories. And this margin gain happens every second quarter, but it is the highest depending on how high the price increase. So the highest the price increase, the highest this seasonal gain here.
And we had a very substantial price increase. The authorized adjustment from CMED was close to 11%. So this generated a major gain in gross margins, which went to 20 -- last year, obviously, 28.8% is higher than normal, more like 100 bps higher than normal. But this year, for much higher price increase. I mean, we reached 250 bps higher than normal, something like that. And we gained gross margin 150 bps over last year here. This is -- obviously, this margin will normalize, but this onetime gain help us pay for some of the past pressure, especially the one we saw over the last quarter.
And finally, I think we have a cash cycle that is better than last year, 65.3% versus 68.8%. But second quarter is the most demanding quarter in terms of cash cycle because of the forward buying. So this cash cycle, obviously, it goes down. But it's important to mention that we have a peak inventory level because of the measures we have taken to protect our service level and our customers against supply chain disruptions. So these will go on for a while, not at this level because seasonally it normalizes now. But it -- I think we will navigate in the coming quarters with some pressure still. And at some point, when the supply chain normalizes, we get fully back to normal levels.
So this is the power of having the kind of balance sheet that the company has, which is being used to the advantage of our customers and to advantage of our business as well. Selling expenses as a result of a very high top line growth has diluted significantly 50 bps improvement. And then when we combine this 50 bps improvement in selling expenses with 150 bps improvement in gross margins, this means our contribution margin has gone up by more than 200 bps in the quarter. So this is an amazing number here.
G&A has been stable, 3.4. This is a number that has been growing. Obviously, year-on-year, there is still a 50 bps pressure here, but this number has been stable for the last 3 quarters. Obviously, that the peak sales here helped this dilution. But even if we had sold the normal levels, it will still be around 3.5. So this is in line with what we have been saying to the market. We are now maintaining G&A flat. It's no longer growing. And at some point, it has to go down.
I don't know if it goes down -- if it starts going down in the second semester of next year, but it's not going up. And at some point, it will go down for sure. And with this, we have an adjusted EBITDA of BRL 727 million, 9.5% margin. We are talking about 150 bps in margin gain, and we're talking about an absolute growth of 46.3%. The same happened with the net income, which has grown 48.2%, 80 bps margin increase to 4.5%. And finally, it's important to mention that we have posted BRL 43 million in nonrecurring tax gains that are related to previous quarters, previous -- sorry, previous years. So we did BRL 243 million in net income, plus BRL 43 million that we have taken away as an adjustment because of the competence. So we're very always very diligent in how we deal with nonrecurring gains or expenses when they happen. But the reality is that we have seen way more nonrecurring gains in recent quarters than we have seen on recurring pressures.
Finally, cash consumption, free cash flow consumption, BRL 58 million in the quarter. It's related to the fact that inventories are higher than normal and total cash consumption after interest, after dividends, et cetera, BRL 193 million. We have a leverage of onetime EBITDA, which is very comfortable, especially if we consider that we are in the peak quarter in terms of working capital. And especially if we call -- so this will go down to some extent and especially if we consider that we are paying a 50% payout ratio, we're distributing to the market. So it shows how comfortable our position is.
Well, our stock has suffered in the quarter. It has gone down by 21% versus 6% for the IBOVESPA, so a negative of 15%, very good daily liquidity. And obviously, when we look at the long-term performance, it's been amazing. So now summing up some of the things we have said during the presentation before we go to Q&A. This is a quarter that was really strong -- and the strength has lied in the combination of a very robust structural performance with a very -- with the level of -- the high level of capacity from the company to take advantage of the seasonality opportunities that presented themselves. There was seasonal opportunities related to forward buying. There were seasonal opportunities related to the flu season and there were seasonal opportunities related to the core. Then we took advantage in a very strong way of all that.
We opened 64 pharmacies in the quarter and 254 in the last 12 months. As I mentioned before, returns have been amazing, certainly consistently above 20% despite the diversification in terms of income segments and going into a lot of new and small cities, which is working beautifully for us. Stock closures has also contributed very positively to the improved mature store -- improving mature store performance to increasing the rise of the company, and the ratio of expansion mistakes is only 3%.
So if you want to forecast net openings, consider 97% of our guidance and that's conceptually correct. All the rest of the closures, they improve the performance. So if you net out, you eliminate a lot of new stores who create value and you don't consider the benefit of the store closures in terms of our overall economics. So this is very important. I think I made the point clear in the chart that I explained later earlier. We have grown the top line 22.4% in the quarter, 16.1% mature stores, 5.2 percentage points above the CMED increase, 4.2% above the CPI of the period. Market share gaining good gains on a national level as well as in every region. Digital has reached BRL 3 billion on an annualized basis, 86% via channels which are modern and proprietary versus only 11% of third-party channels and only 3% of this jurassic channel named call center that I don't know for how long it will exist.
Our Net Promoter Score has been amazing in the physical network. It's a record of 90, and it's evolving really well on the digital side as well. We are not publishing it yet, but the number has been very encouraging. And finally, our competitive gap versus the home market has only gone up. Our total revenue is close to the sum of the next 5 players in the industry. Our digital sales are higher than the sum of the next 5 guys. We are investing in execution capacity in terms of our corporate structure at a level that nobody else is able to replicate. We're talking about the leading company in the market spending 3.5% of sales in the structure. Now, of course, this number started going down, but this is an unmatched capacity of execution that shows up in our list of sales. Digital is not about tomorrow. Digital is about today. Digital is already significantly driving our mature store growth. Our mature stores in the quarter have reached the milestone of BRL 1 million per mature store per month in terms of sales. And digital is a huge contributor to that. And this investment has been paying itself handsomely.
Finally, when you talk about the forward buying and the seasonal opportunities, I think we have done really well in terms of maximizing the capture of these opportunities. We invested working capital and we benefited in the gross margin. We benefited from less stock out than the whole market. We are selling 2.3 million COVID tests between normal tests and self tests in the quarter. This has helped 50 bps in the sales growth.
Last quarter, it was a negative contribution because we had seen a peak in the 1Q '21. And finally, we see now an inflationary composition that has boosted our profitability. It's helping us pay off for past pressures and it's supporting a very healthy 2H '22 ahead. Margin expansion of 1.5% in the quarter. If we look in the semester, it's 20 bps margin increase despite the difficulties we had in the first quarter. And now considering this price recomposition, considering the G&A stabilization, we believe we will post a very good performance, very healthy performance for the rest of the year as well. And finally, we are advancing a lot in our strategy across all dimensions. The new pharmacy is already a game changer for us with huge focus on customer centricity, digitalizing the relationship of the customer. We have 8.8% of the total customers, which are already omnichannel. The digital channel accounts for 10.5%, but the digital customers already account for close to 17% of total sales.
The digital onboarding starts in the store. This is driving higher spending from the consumer. We measure consumers who adopted digital, how much they spent before, how much they start the spend after and we compare to a control group of people who didn't go digital. So the delta is 20% to 25% after they go digital. This is a function of our high capacity to engage the customers, send purchase or promotions, better experience, more channels to buy from. So for me, it's very expected phenomenon. Click & Collect represent more than 50% of digital transactions with amazing economics. And of 3 customers who go to the store to collect, 1 buy something else. So this is amazing from this perspective as well. We have Click & Collect across the food channel. Every single store does Click & Collect. 700 stores do ship from store. And 93% of the digital orders are fueled from the store, 50 and 51, I think, Click & Collect and the rest is [indiscernible] store, 85% within 4 hours. The marketplace is also advancing. We are increasing the number of SKUs and sellers.
I think the focus from now on will be the quality, not only quantity. So we have to improve the engagement of the sellers. We have to qualify the base. So this is the focus right now. And the other thing is that we are implementing the seller center solution from Conecta-Lá‘, which is a start-up we invested in last year, and this will improve a lot in the robustness of our marketplace operation, which will support growth as well. And the idea here is that we are focused on 6 million loyal customers and the view here is lifetime value. The customer will come from flu, then 1P and who buy from the marketplace and buy through the health platform or the customers who come from the marketplace and buy 1P or from the health platform. So this will be very synergistic businesses as well.
And finally, with health platform, we are still in the initial stages here, but we already have a huge focus on content generation, and more than 50 million visits in the year. And we are now launching the second semester, the first 2 solutions for chronic patients. Vitat is based on a company named Tech fit that we bought last year. They had amazing content, amazing programs, an amazing team, but more lifestyle-oriented, like, let's lose 2kilos for the summer. We are taking these assets but focus on the chronic patient, supporting the health journey of chronic patients. And the first 2 initial programs for chronic patients will be unveiled in the second semester, and they involve a digital solution and a lot of the service being provided in the app. So this was our prepared remarks. Let's go now to Q&A. Thank you very much.
[Operator Instructions] The first question is from Joseph Giordano from JPMorgan.
Hello, -- it's actually a follow-up from the questions you've had in the conference call heading -- So my question to you that so at this point, we are outpacing inflation in mature stores, let's say, on a recurring basis at around 4%. You mentioned that the G&A may have reached its weekend maybe tax goes down longer. So my question is like what can we take from the second quarter and kind of like extrapolate for the upcoming quarters? So that's my first question in terms of operating leverage, particularly.
And then the second question goes into the expansion plan, right? So you guys like say a little bit like the opening 240 stores a year moving forward. My question is like it is like a comfortable number. I know that like opening 240 stores a year. it's quite a challenging feet, particularly to doing that on a national basis. So my question is if make taking a more optional expense? Or you think that the digital from now on become increasingly more relevant to the extent that we do at much as many stores as we get back to the date when so think about higher revenue presented.
Joseph, thanks for the question. The audio was not great, but I think I understood. If I misunderstood something, please correct me later. I think, first, in terms of the trends going forward, I think we have to look at the numbers one by one here. The gross margin, this is obviously a peak because of the inflationary gain on inventory. The gross margin will go back to normal. So that's business as usual.
When you look at the G&A, I believe the G&A will be stable going forward. So I think that the second semester will be similar to where we are today. And probably similar or much closer to what it was in the second semester of the year. So not increasing G&A considering the investments we are making. I think it's a good advancement over time, it goes down. But I don't know if they can go down in the second quarter already. I don't think it's the most likely scenario, not in a meaningful way to the very least. Then at the end of the day, I think where the margins will be will depend on where the sales will be and where inflation will be.
At the end of the day, we're talking here about the sales expenses. This quarter, we grew 22.5%. This is not -- this is a peak. This is not a normal number. There is a strong seasonality behind. But having said that, the number we have seen in July is still a number similar to that. If you look at the quarter, it's funny because April was not a brilliant month. Then May and June, we were flying way more than this average. The average was 22.5%. What we see in July is not far from that. But it's possible that August and September, if the seasonality fades away, this number goes somewhere down. But I think we have at least 1 very good month in the third quarter. And even when we go to the fourth quarter, where obviously, there will be no seasonality, I still believe we will be posting very good top line numbers because first, I mean, just the inflation pass-through has to move the bar upwards in terms of top line growth. And the other aspect is that on a structural basis, the performance is very good. Digital is helping. It keeps expanding.
So I think that we will generate mature store growth ahead of inflation for sure. This is what we believe. But then I don't know what will be the inflation for the second semester? Because obviously, the second quarter is the quarter where I have an upgraded price and a certain expense level. The price will be frozen now for 4 quarters. The expense will grow up. If inflation is under control, this going up is not that meaningful. So it's not a problem, and we navigate better. If inflation stays at a very high level, obviously, we will see mounting pressure in the coming quarters. But then at the end of the day, if you have higher inflation, in these coming quarters. We also have a higher price increase next year. So overall, the system takes care of itself. If inflation is easier now, the price increase will not be as high next year.
So one thing for the next year will probably compensate the other. But for this year, it depends where inflation will be and where our top line will stabilize. It's difficult to call now. But I think we will be looking at a good performance. About your second question, that I didn't hear that well, but I believe I understood what it was. So we have a guidance for 260 for this year, which is fully on track. And the performance is amazing. We have a guidance for the next year, which is 240 because it's the number we have done 5 years in a row. The number we were 100% confident when we put the guidance in place.
Depending on where we are later in the year in terms of the expansion, in terms of building a pipeline, et cetera, it is possible that this guidance be revised or maybe not, we'll see. But there is the possibility that this guidance can be revised just as there is a possibility that it stays where it is. And I think digital has become increasingly more important, but I don't think digital changes our expansion because our expansion is happening in new markets for the company, new cities, new neighborhoods, so we need the stores there to execute with digital.
I think it's easier to see a scenario, depending on how meaningful digital becomes that we have more opportunities to close stores and to increase returns as a result, selling -- having higher EBITDA with less stores. If we have that opportunity, obviously, it creates a turn of value for the company maybe digital at some point can help with that. I don't think it's helping already, even though we have a mature portfolio of stores that we are constantly revising -- and we are closing stores where we believe we can do better without them as I explained.
Our next question is from [ Lucas Jes from Aster Capital ].
I actually have 2. First, the number of cities in which Raia is present is a metric we look closely because it shows how much space there is in Brazil for the company to expand. But my question is how -- if you guys have mapped, how many cities are left in which it makes sense to open a Raia store with a 20% real IRR as is your hurdle rate. So if you guys have met, how many cities are there? Because I guess it is in the 5,000 cities that are in Brazil. So if you guys have an idea and you can pass to us, which is the range approximately?
And the second question is regarding the receivables discount in the quarter. So it was, I think, around BRL 350 million. And I'd like to understand what was the rationale behind it in the financial terms, if you can.
Okay, Lucas, thank you for the question. I mean, in terms of the sales, I mean, I don't know the number here in my mind, but obviously, there is a number that we consider. But the good thing is that this number is a moving target. Because over time, cities get bigger; over time, we are testing frontiers every time and once we see that, okay, we can do well in this kind of market that is slightly smaller, this opens many other markets at the same time. And any, any step in the scale that we go down in terms of our capacity to enter smaller markets, the opportunity goes up a lot because there are many cities that are just in the border.
So this is one thing. And the second thing is that some of these cities where we are opening the first store, we will have, at some point, a second store or maybe even a third store. So I don't believe we are anywhere close to the limit that we can do. We are testing new waters. Obviously, this test is working given the returns we are seeing. So it could not work. Then maybe to be more difficult, but it is working. So we keep encouraged, and I believe we can -- I mean we have set a guidance until 2025, I think this shows the confidence that we have in the capacity of the company to keep expanding.
And I don't think the opportunities exhaust in 2025. The market is getting bigger every day because of the age of the population. So every year, there is more pharmaceutical demand. So I believe -- and every day, we are testing more of our frontiers and pushing the envelope of what we can do. So these 2 things together help us a lot.
In terms of discounting receivables, I mean, what we do is we use receivables when we have very short-term pressures. So if we have, for example, something that, okay, we have sometimes in the end of the month that we have a peak in cash consumption, but then the cash normalizes, it's -- we believe it's more advantageous sometimes to discount receivables to do it.
Irma Sgarz from Goldman Sachs has a question.
Yes. Just a follow-up on -- and I know you've discussed it on prior calls, and I think I know most of the answers to this, but I think it's just beneficial just to hear it from you. When you think about sort of the competition from digital platforms, be it through marketplaces or obviously, there could be the surge in that we've seen as sort of come and go in the past of sort of pharmacy-specific, vertical-specific online-only players. Aside from the delivery infrastructure that obviously can be a hurdle, what are some of the other factors that we should think about that are hurdles currently, whether it be from again, on logistics, customer acquisition, regulatory, I think in the logistics, also very specific regulation, right, on how stuff can be transported and whether you see any movement in terms of these, potentially considering any regulatory changes or any discussions happening there to open up competition more from the online side.
Irma, thanks for the question. And let's separate, I think, in 2 different aspects. I mean, one, the pharmaceuticals and the front store. Obviously, the front store is an open market. So that is, for example, in diapers, skin care, several of these categories that we sell, we compete with many other players. We compete with supermarkets. We compete with digital platforms like Mercado Libre, Magalu, et cetera, they are an open market. So that is obviously increased competition. But on the other hand, we are also being able to expand to new categories that we couldn't sell before because of the digital technology.
So I'll give an example. We think about beauty. So we already have beauty. And obviously, in some categories, we're seeing more competition than before because we're competing with other players. But if you think about beauty, there are categories like cosmetics, like makeup, we have almost nothing in the stores. Fragrance, we have 0 in the stores. Even hair care, we have a good hair care selection, but we have no professional hair care in the stores. So all of a sudden, we are able to put a marketplace under operation that allows us to enter a bunch of new categories that we couldn't access before. And the main traction we're seeing in the marketplace is in beauty.
There's also in other categories related to health care, et cetera, but beauty has been the main category. So the marketplace opens up competition in both ways. There is opportunity for other competitors to try to get some of our sales, but we are also able to fight back and get some other sales that we didn't see before. So again, I think it's a positive dynamics. It's very good for the consumer. And we are managing well because not every category works well in the marketplace. I think where the marketplace has done better, it's probably on skin care because it has a high average ticket, so the logistic cost gets better diluted. So it's a category that works well.
But when you think about all the low-cost categories, a lot of basic shampoo, deodorants and a lot of many other categories, soap, et cetera, it's very difficult for a digital platform to compete because the cost is low and the delivery cost is prohibitive, for example. Even in categories like diapers, logistics is very expensive. The marketplaces can only compete in diapers when they have a 1P operation. And I don't think they make money. I think they use it as a loss leader, but it is competition. So the competition that we see from marketplaces in the front store is not all across categories. I think it's focused on specific categories. I would say skincare is one category and the other maybe it's diapers. The rest, I think it's pretty well protected because it's very expensive to deliver those products considering the fact that the average ticket is low.
When we talk about pharmaceuticals, it's a completely different ball game. There's a lot of barriers. One of the barriers is regulation, but I don't believe regulation is not even the only barrier -- the main barrier. I think regulation is a secondary barrier. When you think about pharmaceuticals, the first thing to mention is that every pure-play pharmacy that ever existed in Brazil, most of them have died. The best example I can give you is Net Pharma that once belong to [indiscernible]. But even on offering at some point, had a small pharmacy chain and a big pure-play operation. The problem of the pure-play operation is that they have a very high customer acquisition cost because they have to pay Google, Facebook, Instagram, et cetera. We don't do that. Our customers are already with us because of the stores. The store is the customer acquisition machine for us.
And then obviously, when you look at our fulfillment, a motorized delivery is expensive for everyone, but we do only 1/3 of motorized deliveries. 2/3 is Click & Collect, which is the customer coming to us at 0 marginal cost. And even neighborhood deliveries, which is our store personnel delivery on food in the immediate neighborhood. These costs 0 or very close to 0. So in the end of the day, delivery cost for us is minimal. For any pure-play platform, they have to have a low price because it's price driven. They have to have a high customer acquisition cost, and they have to have a very high logistic costs. So they have died.
When you think about platforms doing that, it's also very complicated because imagine -- think about this for a minute, branded pharmaceuticals has an average gross margin of 17%. Imagine an independent or a small chain or a large chain trying to sell through a marketplace. They start the day paying 12%, 11%, 10% of take rate. Then they have to pay or subsidize the delivery. Then they have to have a competitive price. There is no way you can make money if you have to pay motorized delivery and if you have to pay more than 10% in take rates for the digital platform. It's just impossible to make a profitability in that way.
The other thing is that our operation is very specialized. We have a lot of partnership with manufacturers like [indiscernible]). We have partnerships with health insurers. We have partnership with companies. A lot of the products we sell, they cannot -- they can only be sold in store like controlled medicines. We have the pharmacists advice. And in the end of the day, we are so happy that digital is 10%. But let me tell you something that maybe not the obvious, 90% of the sales are physically in the store. So we're talking about a competition in 10% of our sales, which is -- which for the market is much lower than that.
But 90% -- this is a sector with unmatched capillarity. This is a -- there are 80,000 pharmacies in Brazil. We have 2,600 pharmacies all across the country, only ourselves in the best corners, easy access, parking, great service, greater experience, so for a digital player to become a disruptor in my view, it's impossible. Maybe at some point the regulation allows, the digital player can have an operation. But one thing is having an operation, other thing is becoming meaningful. And I believe the execution barriers that are way higher than the regulatory barrier that also exists.
And now the last question is from Robert Ford from Bank of America.
Congratulations on the quarter. Eugênio, can you expand a little bit on the difference between your replacement concepts versus the mature stores that are being closed. How do those models differ in terms of size, assortment, service layout as well as CapEx and sales per square meter? And then on digital, as things evolve, how are you thinking about the evolution of your marketplace and digital services, both in terms of revenue and profitability? And when it comes to the app-based CRM elements, how are the younger vintages of app users evolving versus the older vintages in terms of frequency and ticket?
Bob, I don't know if I understood well the first question, I'll answer the second and third. And then I'll ask you to rephrase the first, if you don't mind. I mean, in terms of digital, obviously, we are in the early days of the marketplace. I think we have -- we are going through a steep learning curve. I think we are advancing. I think the marketplace is gaining traction. We already have a lot of -- a pretty sizable offering. So if you think about -- I mean, now our digital pharmacy used to be a pharmacy of, I don't know, 14,000, 15,000 items. Now we have a pharmacy of 100,000 items because we have a lot of 3P items, complementing our offering and making us a one-stop shop channel for health, beauty and well-being. So this is very important. And we think -- obviously, I believe we can get to a point in which the economics of the marketplace becomes relevant.
But the most important thing is when you think about the customer lifetime value. The customer by using the marketplace will also become a better 1P customer and more loyal 1P customer. They will be able also to use the digital platform. So all of a sudden, we have 3 businesses that complement each other and that will increase the engagement, the loyalty and the spending of the customer. So at the end of the day, let's say, we make 0 -- let's say we have a 0 profitability in the marketplace. But the fact that we have a much better pharmacy with 100,000 items will mean our 1P will be much stronger than before. And obviously, the marketplace is still in its early days. I think we -- at some point, we will have to provide logistics services to our sellers, this will take time, at some point, there will be the opportunity for financial services.
Media is an avenue that I think will be very important for our -- for the future of our marketplace. I think there is a big shift taking place to repay media because of the ability of not only understanding customer behavior but understanding the actual conversion of the customer, the fact that the customer bought or didn't buy. So these will open a lot of opportunities that span way beyond just the take rate we're able to get from our sellers.
In terms of digital, I think we keep seeing similar behavior from new cohorts of customers. So we are measuring that very carefully. And I think the evidence is the fact that our mature store keep on accelerating, keep on growing ahead of inflation. If the first cohort was much better than the rest, we would have seen an initial acceleration, but now that customer will still be there, but we wouldn't be seeing as much marginality from new customers. In which case, the mature stores wouldn't be growing as much as they are. So I think even the empirical evidence of the mature store growth I think, in my view, it demonstrates the point. And Bob, if you could repeat the first question, I would appreciate.
Absolutely, Eugênio. The first question was really trying to understand how the new stores compared with the mature stores that are being closed in terms of the size of the stores, the assortments, the services, the layout, but also the productivity rates and the spend or the investment that you're making into these locations.
Okay. Thank you. So we have reached in this quarter a milestone, which is BRL 1 million per mature store. This is a really important figure, unique figure in the market. But -- and part of this result has also to do with store closures. So we are closing stores that -- and these stores that are closing, they are transferring sales to the surviving stores and are helping these stores grow. So this is very, very important.
So the mature stores now -- okay. This may be a slightly peaky quarter. But right now, it's BRL 1 million. But even if it's not BRL 1 million, it's BRL 950,000, it's something like that, it's close to BRL 1 million. We will be around there anyway. When we look at the stores that we are opening, I would say most of the stores are doing where they average around BRL 800,000 per mature stores. So it's slightly below BRL 1 million, but very accretive because it comes on top of a preabsorbed structure that the company owns.
The stores that we are closing, we're talking generally stores that are selling BRL 400,000, BRL 500,000, BRL 550,000. So these are stores that are breakeven to positive. But just by getting rid of the store structure and transferring 30% -- 20%, 30% of those sales to surviving stores and redeploying assets, we are improving the profitability of the chain and the returns of the chain. This is something very, very, very important.
And the other element that I would like to mention is the Onofre acquisition. So we had 6 closures in the last 12 months that were related to Onofre. When we bought Onofre, Onofre had 50 stores. Those stores were selling around BRL 400,000 per month. Onofre had a huge negative EBITDA every year. And we paid 1/2 for the company and a company that had a positive net cash position.
Today, we have 28 stores from Onofre. Though the stores that we have, they are selling, last 6 -- in average, if you look at last 6-month data, they are selling something like BRL 820,000 per store per month, with a store EBITDA north of BRL 100,000 per store per month, plus the fact that we have recirculating something like BRL 2 million to BRL 3 million in profitability from stores that have been closed to surviving stores. So Onofre is a prime example. We are not -- our driver is not store count. We got 50 stores. We closed 22. We have 28, but the 28, because of the natural selection of the ones that survived initially, from 400, there was already north of BRL 500,000, the ones that survived -- but with our operation, with our brand, et cetera, they went north than BRL 800,000. And the stores that we closed, they contributed to the system by recirculating BRL 2 million to BRL 3 million in revenues that were monthly absorbed by those stores. So I think it shows the mindset here.
Eugênio, just to follow up, you're telling me that there's really no change in the concept, size, assortment, service, layout?
No change.
I mean just a better location then? Or how should we think about this?
No, because I mean, over time, our store density has increased. So the average age of the stores we closed, is 13 years of the mature stores, it's 13 years. So imagine a neighborhood in Sao Paulo or Rio, where we had stores and then we keep populating. At some point, the density grows a lot. At some point, a store which was initially great, it becomes just okay. And if the proximity is close, we have the chance of closing that store, which is the weakest of the neighborhood and recirculating revenues and making, transferring a higher EBITDA than the EBITDA the store mix on its own with a full expense base there. But it doesn't mean that the store will be bigger or smaller, that the store will provide more or less, it's similar.
Obviously, the locations we are closing, it's either the worst locations or in the case of Onofre, there may be some reasonable locations, but which were very, very [indiscernible] of the store. But -- so there is a natural selection in terms of location quality, but not in terms of -- and obviously, the revenues are much smaller, but it doesn't mean the profile -- the physical our service profile is different.
And now the Q&A session is over. Now Mr. Eugênio will present the final messages.
Okay. So thank you all for attending this call. And I would just like to summarize some of the messages here. I think this was an amazing quarter that shows, I think, the strength of the company. This is a quarter that comes after a very difficult quarter. And when we presented the first quarter, we talked not about expense pressure but -- inflationary pressure, but about an inflationary lag. It was a timing issue.
We had a revenue which was frozen for 4 quarters. but we have an expense which had gone up by double -- low double digits. So there was no way the margin could be the same. Now what we see is the inflationary normally the pass-through to the prices. So we see a recomposition that has normalized, has put back sales in tandem with expenses. So dilution has improved, because of how good the pricing system -- how interesting the pricing system is, we generate every year, this onetime gain in the second quarter that pays for some of the past pressures. So another point that is interesting here, obviously, as you know, I think we are a safe harbor in Brazil in terms of the economic situation because our demand depends on the age of the population, not about the GDP.
And likewise, we are safe harbor in terms of inflationary protection because we have a pricing system that passes down the prices, the inflation to the prices. And even if there is a timing issue like we saw in the first quarter, this onetime gain of the second quarter pays back for that. So it's a very, very healthy situation. Now if we see inflation still high, this will mean more price increase next year. If inflation is easier, this will be better this year, but it will mean less price increase next year. So this is how this whole system balances out.
Another thing that is important, I think we presented a very strong top line growth. Obviously, 22.5% is a peak. I don't think this is the number that should be going on. But there's a lot of seasonal elements that I think we were very well positioned to take advantage from. But the structural side is what matters. And I think with high inflation pass down with mature stores sustainably growing ahead of inflation, I think we will keep on going at a very good top line growth, which is not 22.5%, but I think we should be still be very healthy for the rest of the year.
The reason behind the structural performance, I think, is digital. Digital is not about the future. Digital is about today. Digital is already a game changer. Digital already separates us and what we do from our competitors. We have an unmatched execution capacity. We are a company which is more than twice the size of our main competitor, investing percentage-wise more than all our competitors. So if you look at the execution capacity that these dry powder buys is absolutely unmatched. And we are seeing this converted in value creation. And when we see mature stores outgrowing inflation on a sustainable basis when we see a quarter like this.
So we are raising the bar in terms of execution in a way that our competitors cannot match. And I think this is just starting. I think we'll see more of this going forward. Obviously, we talk about the spending improvement, lifetime value, lifetime -- customer lifetime value growth that digital entails because of better engagement, better convenience, the fact that our digital Net Promoter Score is improving a lot and the customer sees the app getting better, new functionalities, more robustness; we know we don't have a state-of-the-art app still but we have a strong and robust app today, which we didn't have 1 year ago. And I believe over time, we will have -- we already have a best-in-class app, but I believe we will have a state-of-the-art app like Nubank, like Mercado Libre, like Magalu. This is our benchmark. This is what we're trying to achieve. This is our aspiration. It will take time, but we're getting there, and we're getting every day better. And the customer sees that and the customer pays us back in loyalty and spending.
Finally, we keep advancing in the new strategies. The marketplace keeps advancing. The implementation of the Seller Center will be very important for us. I think a focus on qualifying our sellers not only keep growing sellers will be very important also going forward. I think in the future, we'll be talking about seller services as well. I think Vitat is launching the first -- the first 2 lines of services that are in line with what we expect for the future and not in line with what the company we bought was doing in the past. So I believe the future is good, and I think we are just starting to see it.
Finally, I have to -- I would like to finish by thanking all our long-term shareholders, both from the majority group and investors from our free float -- as I always say, I believe the company chooses its investors based on its strategy, based on its communication. We have a relentless focus on long-term value creation. We are not in the game of optimizing the quarter or making the year at any cost. And any long-term trajectory has -- and like the one we are thinking about has some noise along the way, has some volatility along the way. It's made of tougher quarters, and it's made of stronger quarters. And despite this volatility, our share suffers way less than any comparable shares in Brazil because of the trust that our long-term investors have had in the company.
So we are very grateful about that. I'd like to thank you all for supporting us and we believe the best, as I said, still lies ahead. Thank you very much.
RD's conference call is now over. We thank you all for participating, and wish everyone a great day.