Raia Drogasil SA
BOVESPA:RADL3
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Raia Drogasil SA
Earnings Call Analysis
Q3-2024 Analysis
Raia Drogasil SA
In the third quarter of 2024, RD Saude showcased impressive growth with gross revenue reaching BRL 10.7 billion, reflecting a 15% increase compared to the previous year. This growth was driven by a strategic focus on mature stores, which grew above inflation, marking a 2.2 percentage point growth over the CMED price index. Notably, the company's same-store sales experienced a significant rise of 9.1% year-on-year, underscoring the strength of its retail operations.
During this quarter, RD Saude opened a record-breaking 72 new stores, bringing the total to 3,139. The company plans to continue this expansion, targeting the opening of 280 to 300 stores by year-end, with a focus on smaller towns and areas underserved by pharmacies. The operational strategy includes a 98% accuracy rate in store openings and the maturation of 74% of existing stores, which is expected to enhance future EBITDA growth as these stores reach their potential.
The company's commitment to digital transformation is evident as digital sales surged by 40.2% to BRL 1.2 billion, representing 19% of total sales. This growth indicates a shift in consumer behavior and RD Saude's position as a leader in the digital pharmaceutical market, evidenced by its app supporting 75% of digital sales. The company aims to further improve customer experience through technology integration and faster delivery services.
RD Saude reported an adjusted EBITDA of BRL 810 million with a margin of 7.5%, marking a notable improvement. The company successfully reduced general and administrative expenses by 30 basis points year-on-year, ending the quarter at 3%. Free cash flow stood at BRL 700 million, demonstrating solid cash generation capabilities. Earnings before tax (EBT) rose 44.7%, highlighting the firm's ability to enhance profitability amidst rising operational costs.
Looking ahead, RD Saude remains optimistic about achieving further growth and enhancements in profitability. The management indicated a targeted EBITDA margin increase while continuing to invest in operational efficiency and digital capabilities. The established competitive edge in market presence, coupled with robust digital strategies, reinforces the company's position for future success. The guidance for the upcoming quarter remains strong, with the expectation of maintaining growth trends established in previous quarters.
Despite the challenges in the broader economic environment, RD Saude maintained a strong Net Promoter Score (NPS) of 91%, reflecting high customer satisfaction rates. The company has successfully navigated market complexities, ensuring that customer experience remains a priority. Investments aimed at improving service quality and operational efficiency are expected to foster consumer loyalty and increase transaction frequency across its customer base.
RD Saude exemplifies a robust performance across multiple facets of its business model, driven by strategic expansions, digital enhancements, and a clear focus on customer satisfaction. The company is well-positioned for sustainable growth, backed by strong financials and a proactive management team dedicated to delivering long-term results. Investors should be encouraged by RD Saude's trajectory and its commitment to maintaining growth above inflation.
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Hello, everyone, and thank you for standing by, and welcome to RD Saude's conference call to discuss the company's 3Q '24 results. This presentation will be available on RD Saude's Investor Relations website at ir.rdsaude.com.br, where the replay for this conference will also be made available later. [Operator Instructions]
Before proceeding, I'd like to inform you 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 Saude's 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. Our investors should understand that general economic conditions, industry conditions, and other operating factors could also affect the future results of RD Saude and could cause results to differ materially from those expressed in such forward-looking statements.
Today, joining us from the RD Saude studio are Mr. Marcilio Pousada, CEO; and Mr. Flavio de Moraes Correia, Chief Investor Relations and Corporate Affairs Officer.
I will turn now the conference over to Mr. Marcilio Pousada. Please go ahead, sir.
Good morning, everybody, and welcome to our 3Q '24 conference call. I'm here accompanied by Flavio. And indeed, we are here at our studio. I'm going to tell you a little bit of our -- about our numbers. Flavio will delve a little bit deeper in our numbers. Then I'll close the presentation, and then we can move to the Q&A session.
Our quarter was great. I'm very proud of the 3Q '24 results. This has been a very unique quarter for us, and we can see that the company is now decreasing our G&A expenses and the mature stores have been growing above inflation, so we are celebrating those results this quarter. We have 3,139 units. We opened 72 stores. It's a record-breaking number for third quarter. And that bears witness to the quality of our operations. And our NPS was kept at 91%. And the country as a whole is going through a difficult moment. The country is growing. And still, we have been able to keep a very strong NPS of 91%, 49.1 million active customers, and 62,000 employees. We are the third largest employer in retail. We are now hiring more people. Again, we're going very well, and the company is fully prepared for the fourth quarter.
Our gross revenue came to BRL 10.7 billion, 15% more. And the most important point here is the 2.2-percentage point growth over CMED. And this has been constant over the past years. This is something that we mentioned always about shifting our paradigm of growing above the inflation in mature stores, and that has been happening. Our market share is very good with a 0.3-percentage point increase digital with BRL 1.2 billion, an increase of 40.2%. And this is a competitive edge that we have in our business.
Now health services. It is growing in importance in our pharmacies with 1.6 million services performed and 2,300 health hubs. Pharmacies are now redefining themselves in the perception of consumers. And that led to a very good result with BRL 810 million in adjusted EBITDA with 23.2% growth and a margin of 7.5%. These are great numbers. especially because of the drop in our G&A expenses.
Our EBT is also a highlight, and you can exclude the effects of the change in the tax legislation last year. We had an increase of 44.7% in our EBT with a free cash flow of BRL 700 million. So you can see that the quarter was very good, and we are very proud of our figures.
Now let me tell you some more about our strategic matters, and Flavio is going to give you more color on the numbers later. We finished the quarter with 3,139 pharmacies with a record-breaking number of openings with 72 openings this quarter. Our guidance is 280 to 300 stores, and we are trying to reach the high end of this guidance range. And we have a 98% accuracy and 74% of our stores are still under maturation, which is going to give a very strong growth EBITDA as those stores mature.
Now let's take a look at the situation in the entire country. With -- considering the 610 cities that we are considering, we are present in 313 of those cities. And out of the 313 stores, I believe that there are just 3 cities with a population over 100,000 in which we don't have any stores. So you can see that we are present across the entire country. It is the only chain that is strong enough to be the first, second or third chain in terms of footprint in every state of the country. And that has been given us share, a market share increase. We grew by 0.6% in Sao Paulo and 0.7% in the Northeast. In the Midwest, we are still growing in market share, especially because of sell-out and sell-in. We grew by 0.2% in the South, 0.1% in the Northeast, and 0.3% in the North region. So we are still growing. We are still gaining market share in the entire country.
Now let's take a look at where those stores are located. We are present in 610 cities. I don't know if we are going to give you a breakdown of these numbers in the future, but we have 103 cities with fewer than 50,000 people. So you can see that our expansion is going to smaller towns, especially in the countryside of Sao Paulo and the northern region of Parana, Minas Gerais, Rio de Janeiro, and also in the Midwest of Brazil, thanks to the strong agri business that we have in those regions. Our IRR is still very high. No big changes there. And we are coming back to Sao Paulo. We opened 88 pharmacies in the state of Sao Paulo this year, in the last 12 months, actually, which accounts for 32% of our openings with a very strong IRR. And the pharmacy profiles are still hybrid and popular stores. So we are finding spaces in smaller towns and also in places where we had a number of stores already like Sao Paulo, and we are trying to move to a hybrid format that can attract all types of customers.
So this is a unique competitive edge that we have in our company. And now I'm going to show you a second competitive edge, which is digital. We had BRL 1.9 billion in sales with 19% in market share. It used to be 15.5% last year. So you can see that we are still growing and the app accounts for 75% of the customers. Now what does that mean? It means that we are dominating the customer journey. We want to improve the experience of customers to buy OTC products and health and beauty products through the app as well. And also, we made changes to our shipping model in the beginning of the year and the express shipping went down, but it is coming back up. And 94% of the deliveries, we can ship in fewer than 60 minutes. And the partners that we have, all the platforms account for only 5% of our business. And this is a very clear message. It shows our ambition to dominate the digital journey, just like we dominated the brick-and-mortar journey. The same change that we made to the pharmacy format here in Brazil, we are trying to do exactly the same on the digital platforms.
And now Flavio is going to give you more color on the financial side, and then I'll come back towards the end of the presentation to talk more about our digital strategy.
Good morning. Thank you. Okay. So let's take a look at the financial line items here. This quarter, we have BRL 10.7 billion in sales with a 15.9% growth year-on-year. And if you look at the breakdown, retail grew by 14.5% and 4Bio grew by 33% year-on-year. Year-to-date, considering the total sales, this accounts for over BRL 4 billion more than the first 9 months of last year. So it's a very strong growth. And that signals that our tickets will account to over 1.1 million of tickets per day.
If we look at the different categories, we can see a very good performance in all categories. For example, drugs and OTC have been growing by more than 15%, a very good performance. And the same performance cannot be seen in HPC because of the level that we had last year. Last year, it grew more than 10 percentage points in comparison with other categories. So if you exclude that effect, you can see why that category grew less this quarter. But we are still keeping our share this quarter for HPC products. So this is more related to a non-comparable reference than anything else.
And now I think that we have already talked about the 15.9% growth in the company, and it was boosted by a very strong expansion and also our constant move to digital platforms. If we look at our same-store sales performance, the stores have been growing by 9.1% year-on-year. So it's a very good performance. But more importantly, as Marcilio said earlier, we had a 2.2% growth above inflation for this period, the CMED price of 4.5%. So 2.2% is the best rate that we had recently considering all the past quarters. And we should remember that in 2Q '24, we had a calendar effect of 0.9% which made the second quarter very similar to the actual growth that we had in the first quarter. So in the third quarter, we had a 2.2% growth, and it is the best result that we have had recently.
Now let's take a look at our gross profit for this period. We finished the period with a margin of 27.6% with a total result of BRL 2.97 billion. We saw some effects coming from pressures and also other factors in our gross profit. And we had a 0.4 percentage points effect due to the 4Bio mix in our total sales. We also had a 0.1% pressure related to PIS and COFINS taxes, which has been happening throughout the entire year and another 0.1% effect because of OPV. Every month, we have some bps going up and down, but it is part of our regular activities.
The pressure effects were offset by some other effects. We had a structural gain in our sales departments and better conditions of about 20 bps. And we had a one-off situation this quarter of 20 bps related to reimbursements of ICMS taxes, but it is a one-off situation this quarter, but it is recurring for the year-to-date results. So this is a one-off situation, but it is also recurring and a structural effect that we see in our business. Our cash cycle, 59.6 days. So we come back to the normal cash cycle. And we have a situation of one-off or the seasonality of the cycle takes place always in Q2 because of the effect of CMED applied on April 1. After that effect, we go back to the regular level of about 60 days of our cash flow -- of our cash cycle rather.
Selling expenses, we end the quarter with good results, 17.1% selling expenses, which represents an important gain as compared to the same period last year. That dilution, those 10 bps of growth or improvement are due to a stronger dilution, stronger than expected in our personnel expenses, especially in Q3. Marcilio mentioned, we have a macro scenario, which looks a little better. So we started Q3 with a higher turnover, which is fewer people in our stores at the beginning of Q3. But gradually, it was recovered during the quarter. When we look at the final position of our employees in our structure in Q3, it's quite normal. So there is a small hiccup that will come from that one-off gain in our employees in the quarter.
In the quarter, we increased by 3,000 people from one quarter to the next, and we come from a history of 1,500 people in the previous quarter and basically 0 new people in the 2 other quarters, last quarter last year and Q1 this year. So it represents less than 5,000 new people from 1 year to another with almost 280 new stores. So a very stable number of employees per store. There are other effects in our gross margin, marketing, rentals, but all those effects cancel out. With that, we end the quarter with a contribution margin of 10.5% with a gain of 10 bps as compared to the same quarter last year.
Looking at G&A, G&A has always been a fad in our earnings calls in the last 2.5 to 3 years. We have very solid performance of our G&A in this quarter. We gained 30 bps from 1 year to the next, ending at 3%. That gain is structural and recurring expected for the company. We are spending everything that we need to expand in order to keep our business growing. But at the same time, we are able to manage that line and dilute that line because of increased digital sales and our expansion throughout the business. So this is solid and recurring. So when we look at EBITDA in the quarter, IFRS, 7.5% with a gain of 0.4 percentage points year-on-year. Even eliminating one-off situations, it is growth as compared to the previous year.
Looking at net earnings and depreciation expenses and financial expenses, we had an improvement of financial expenses due to the Selic rate that came down from 1 year to the next. Our financial expenses on a percentage term is a little better. And our earnings before tax of 4.1% compared to 3.3% last year. So this is a very strong gain of our operations, 80 bps from 1 year to the next. Once again, even eliminating any one-off effect, we have solid financial results and operations as well.
Moving on to our taxes. Considering the tax changes from 1 year to the next, we see strong growth of our taxes from 0.4% to 0.9% this year, over BRL 70 million more expenses in taxes from 1 year to the next. But we should remember that this is a situation that affects the market as a whole. It's important to underscore that all players are being affected equally, and that's considered in our results. But even considering all that tax effect on our results, we have a net income of 3.1% as compared to 2.9%. It's a 20 bps gain, even considering all the tax issues along the way.
As for our cash flow, we end Q3 with a free cash flow of BRL 700 million and total cash flow of BRL 657 million with a very comfortable position, being able to generate everything we consume. So our performance is very good. And once again, our leverage, 1x the EBITDA unlike 1.3 in the previous quarter. But let us remember the seasonality of our leverage. It always takes place in Q3. So we go back to a regular situation of 1x the EBITDA.
The position of our shares in the quarter, it depreciated 0.7% in the quarter, in September, while BOVESPA grew 6.5%, but we maintain an average daily financial volume of BRL 173 million in the quarter.
Marcilio, before I turn it over to you, I have a comment. I think the market tends to look at the quarter results as something isolated and sometimes we don't look at the video. So let us recap 2 important figures in our results. For example, year-to-date, the first 9 months, we are a company that grows sales more than 15%, or BRL 40 billion. So it's not negligible. Our growth is very strong considering our volume, 15% growth. And when we look at our earnings before tax, our growth is of about 30% year-on-year in the first 9 months. So an acceleration in our profitability greater than the acceleration of our business.
Nice. Back to me. Thank you, Flavio. I have a joke so that we understand what those results mean. Yesterday, we had the U.S. elections. Clinton was asked how he had been reelected. And he said, well, the economy, why were the results good? Dilution, we also have a strong dilution. We always mentioned that when the company grew above inflation, there would be that dilution, and it's coming strongly. So that dilution is very important happening in the business as a whole. We are optimistic with the year, we will keep on delivering some margin growth every year as we have done in the past few years. And this year will be no different. We will have a Q4 that will present no problems. The company is still very strong.
I went on a roadshow in Europe with Flavio. Our numbers are even boring because we always show growth, always showing margin improvement. If you want to find something different in our business, you're going to have a hard time. So good results. We are very encouraged with the numbers, and we are very optimistic.
I prepared a chart. I have a highlight here. How expansion brings us a competitive advantage as compared to the rest of the market. So 610 municipalities and 105 municipalities with less than 50,000 inhabitants, almost all municipalities with more than 100,000 inhabitants with Raia or Drogasil brand, opening 280 to 300 pharmacies, whatever the number is, with a historic IRR that is very high in a very good process. So to me, it is a competitive edge compared to the market. It's an enormous growth path that we have in the company. We always speak about expansion.
Now digital is bringing that to us again. If we think of the 2 advantages we may have in the future of the company is also digital. I like this graph on the left, where we show the growth of digital. You can see our numbers in 2019, '20, and we will end with more than BRL 6 billion in revenue. So we achieved exponential growth in that business. So it's still very good to us. What's even better, it exceeds 15% of customers being served by the app to 75%. So it was a challenge in the beginning of the digital world.
To have our app in the hands of customers, whenever I make a presentation, I ask who has the app, everyone raises their hand. Lots of people are using the app. So we can convince customers to realize the difference of having an app, which makes us different from the rest of the market, which is even better. When we speak about pharmacies and the work done by everyone, but especially by the operations and our colleague who will present NPS from 60 to 91 in pharmacies in 10 years, we did that. And the company is in the minds of consumers. It crowns this business. I was in a financial event the other day. The 2 brands, Drogasil and Raia, are the 2 biggest pharmacy brands in Brazil. But among the 20 biggest brands in Brazil, the 14th is Drogasil and the 18th is Raia. Because of the NPS we achieved at the pharmacies, customers are pleased, they like us, and there is a return.
The same thing is happening with the app. We went from an NPS of 40 to 73 in our app. That's not the number that we want. We have bigger ambitions. We have to be increasingly closer to the customer, improving the customer experience. We will invest whatever it takes to have that. The company always thinks long term, if we need to invest even more to have an NPS of 80%, 85% in my discussion with Raduan, that's what we're going to do. So 11 million digital orders in Q3, 40% market share in the pharmaceutical market, 16% to 17%. We have 40% and 94% of orders, but the vast majority of orders, I would say that 100% of the orders of that customer that have a nearby store, we serve them in less than 60 minutes. If the customer cannot go to the store, either they go to the store or they buy from their office on the way home, they drop by and buy the product, or we deliver to their home in less than 60 minutes.
The other day, I was having dinner with the CEO of a giant platform, and he said, we are their largest delivery customer. So we managed to deliver very, very quickly. I'd like to emphasize that because this is promoting a change in consumers' habit. The other day, I was speaking to Marcello. The average frequency of the multichannel customer is increasing one more frequency a year. That's enormous for our business, and it has helped us grow our business above inflation. Growing above inflation, I go back to Clinton's comment there will be dilution. Dilution will bring us better future results.
So those 2 strategies that were set up in this company, a centennial company thinking long term will give us future growth, future margin growth. The expansion strategy, we invested heavily in the past 11 to 12 years to create an expansion platform to have a business presence throughout the country and the digital strategy, creating a digital platform to serve customers that are changing their behaviors. They are migrating from brick-and-mortar to the cell phone, and we want to serve them with the same quality that we serve customers in the past 100 years.
Those were my messages. We can now move on to the Q&A session along with Flavio.
The first question comes from Irma Sgarz with Goldman Sachs.
I hope you can hear me well. Thank you so much for the presentation and the explanation. I just wanted to confirm and maybe get more color about one comment that Marcilio made about the increasing margins coming for -- going forward. And I would like to know more about the calculations that we have to make on our side. You said that the turnover was a bit higher in the beginning of the third quarter. Is that going to go back to normal levels in the fourth quarter? And for next year, do you think that we are going to see any risks because investors are asking us about an increase in prices, a regulatory increase in prices and other changes to taxation? And that might cause some hurdles in your path to dilution, as you mentioned in the beginning of the presentation.
And also, if you could give us more color about your working capital. I know that it is about the timing and the cutoff date for payables. But if you could give us more details about your working capital, that would be great, especially what we can expect going forward.
Thank you, Irma, for your question. And it's a very good question because it is linked to our long-term strategy. When we talk about the G&A expenses dilutions, it has to happen for the future. Nothing has changed. We were talking about that 1.5 years ago. And we said that at some point, that dilution would start. It has started now. And that might be the main factor involved in better margins in the near future.
Now for selling expenses, we always have a long-term view, a long-term perspective. We want to think about what's best for our customers. So we look at our NPS, which is at 99.5, 91. So the productivity that we have in our stores is always related to that. And our productivity is very high right now, considering our teams in our pharmacies. It has improved a lot in the past 7 to 8 years, and it is factored in, in our business, of course, and we are not going to lose sight of that. But if we need to invest more in our personnel in the stores to provide better services, we are going to do it. And still, even with the do it, we believe that the margins will continue the path that started a few years ago. We are going to evolve more and more over the years.
Now when it comes to price increases, every year, this happens. We don't know which way we are going, but we are going to do our best to mitigate any potential effects. Part of the medications will have a lower increase because of taxes. So we know that beforehand, and that is a major advantage. So we have to work internally to mitigate any problems, any issues we might have related to that. But our sector goes through price increases every single year. Sometimes it's just at the same level of the inflation. Sometimes it's right below the inflation. If you look at our track record, you will see that it happened before, and we were able to navigate that situation smoothly.
Now when it comes to working capital, of course, we want to be as efficient as possible, and Flavio can give you more details about that.
I think that you said it correctly. It's about the cutoff date. The structural point of working capital is about 60 days. 66 days was an outlier that we had in 2Q '24, but it is in line with the other one-off situations that we had in every second quarter in the past year. So we are going to the normal levels now. And our management is working very hard to find a way of optimizing our working capital. I'm sure that we have a huge invested capital in inventories, and we need to work on that. There is certainly room for improvement, but it has been very stable so far.
The next question comes from Luiz Guanais with BTG Pactual.
I have 2 questions. The first one is about margins for next year. If you can give us more details about the discount levels, discount for -- to consumers, that is. I think that this is a factor that you use to mitigate that variation that you mentioned in terms of higher or lower regulatory price increases.
And the second question is also about working capital. Do you see any issue related to supply in any specific category?
Thank you very much for your questions. Your question about the discount is very interesting. In the past, people will tell us that the G&A expenses went up, and sometimes that happened because we had a very competent, skilled pricing team that had a better understanding about price movements across the country. We worked very hard on that. We improved that department here in the company using data science. So indeed, we have local competitors that are very good. They're very strong. Make no mistake, our life is not easy locally. And we see some rooms for improvement here and there. And we are going to use that. We are going to harness that. We might have challenges here and there in relation to the price increases, but that affects the entire market. It's a pain point for everyone. And literature says that pain is a way to consolidation, right? And this is not really a pain point. It's 0.20 or 0.30, but it is going to affect the entire market. The whole market will have to navigate that and adapt to that.
If you look at CMED's track record in 2015, '16, in many periods, the increase was below the inflation. And now we have better tools to navigate that, especially when it comes to our pricing team.
Now when it comes to working capital, I don't see any big changes. We don't see any supply shortage in any category. Things are pretty normal for us. A big player, a listed company said that they're going to change sell-in and sell-out. And that happens. It's normal. It is a normal negotiation with the big players. They sometimes change the way they supply products. But I don't see any shortages in the market right now.
And Marcilio, what you just mentioned has no impact on our cycle with the different suppliers. So in terms of inventory and also prices, we don't think we're going to see any changes, and I don't see any problems in the market right now.
Going back to your question about discounts and the margins going forward, you said that if there is a pressure in the system that leads to consolidation. And I think that we should remember that we have a very robust P&L. We have a higher profitability than the rest of the market. So I think that we are better equipped to face those challenges in the future. But I don't think that we are going to have any problems with the change that is coming next year. The market is going to adjust accordingly.
Now we have a question from Joseph Giordano with JPMorgan.
The first one is about the growth in mature stores. It has been very strong, and we can see that those stores are growing in their reach because of the app. So I would like to know more about the new markets. You said that you are expanding to smaller towns with a population of 50,000 or even less than that. So if you could give us more details about the dispersion. I think it's 19, but I think in some markets, it could be a lot more and in others, a lot less.
And the second question is about health services. We look at RD Saude right now as a pharmacy retail company, and you are making a number of investments in services. And if we look at your numbers, it is generating a lot of value just like in other companies as well, especially outside Brazil. We saw a loss of BRL 24 million. Last year, it was BRL 30 million. And you said that you have 350 vaccines rooms. But I would like to know what's missing in terms of regulatory changes maybe for this segment to take off? And if you have any expectation for us to reach a breakeven in this operation. I would like to have some numbers around this so that I can quantify this situation. And also, when we look at the average number of employees, in the second quarter, we have 53,000 and now we have [ 63,400 ]. So I would like to know about how that compares to your selling expenses for the coming quarters.
Okay. You asked 3 questions, Joseph. So let's start with the first one, about our market share in the digital business, right? We don't know if that is the best indicator that we can use in this situation. We have internal ones that we don't disclose, and it is related to the number of multichannel customers. They buy at stores and also on the app. Customers are much more multichannel than we imagined in the past. If we look at the business literature, for example, and if we consider how much Amazon grew, we thought that the customers would be 100% digital or 100% brick-and-mortar. But actually, they are much more multichannel than we thought. So it's much better and much more than 19%.
Now in some regions where customers are more used to digital journeys, in some stores, we have 25%, 26% or 27%, not more than that. In a smaller town in the country south side of Sao Paulo, where we don't have a lot of traffic, the share in the digital business is smaller because it is easier for customers to go to the stores located downtown. So it's usually 15% to 16% to 25%. But I don't think that is the indicator that we have to pay attention to in the future. In the future, we have to pay attention to the loyal customer base and how many of them are making purchases on the app. We're not going to disclose that indicator. And Flavio is including now a new indicator in the presentation, which is the frequency of multichannel customers, which is 30% more than regular loyal customers. But today, it's between 16% and 25% in some locations, okay?
Now health services. We're somewhat surprised the number of health-related services that our pharmacies performing 15 to 16 health-related services. We train the company that's called counter day, had one was in such a day the other day, and he said, I was impressed. I spent 4 hours behind the counter. And there were 3 or 4 healthcare services, vaccine or measuring blood pressure. That didn't happen. We start to see in what we organize in the company, primary care, the 4 Ps: Health promotion, prevention, protection, and primary care. That's where we will act strongly.
Where will revenue come from? Good question on breakeven. I love it. I'm asked that every day. We are used to profitability, but we are used to the long term as well. To me, revenue is coming from higher income brackets. They already noticed that instead of rushing to the ER, they will go to a pharmacy to test for COVID, influenza, the dengue test sold like crazy. So we see a change in behavior. People are migrating to pharmacies. There was revenue. The higher income brackets that will go to the pharmacy, they pay for the vaccine for the service, they buy drugs, they increase frequency. That's a very good business. You have service. So it is very good for us.
Where will revenue come from in the future? The healthcare system as a whole to have supplementary and public healthcare services. And how will pharmacies act? The other day, I was speaking to physician Drauzio Varella. He's a very known coach. There are 30,000 healthcare units and 90,000 pharmacies. When those 90,000 pharmacies are at the service of healthcare, it is not only a business to us, but an improvement to healthcare as a system. That's what we are working on. That loss you saw over next year, there will be a change because those start-ups will mature. The investment phase already happened. We will invest where we have to.
So we are a lot more rational in our investments, and we will see some results last year. Average number of employees per store. We give you the total number of employees. We don't break that down per store. That's one of the main indicators of the OPF team, the pharmacy operations team. And it's quite constantly dropping. And now it's stable in the past 2 years. We don't think there is a significant drop. The most productive are -- the most productive, 1.1 million, 1.2 million. So we need from 18 to 20 people at the store. I can't reduce that to 15 or 12 people. We can be more productive in scale.
This quarter is difficult to calculate because starting in August and September, we hire many people. So the other 2 quarters, we had fewer people and more people now. But the average is more or less what you saw. The major productivity came from the past. Can we have productivity now? Yes, but it won't be big. We will have more increased sales in mature stores above inflation. So if you sell BRL 1.1 million a month, you will sell BRL 1.2 million, BRL 1.3 million in the future.
I'd like to make a point, Marcilio, selling expenses and the number of employees. We had some spending with personnel. But what we mentioned is that this is not only due to one-off. Part of that is recurring gain due to dilution and part of it is the one-off because of this ramp-up in the hiring of people. So that's a very clear message to the market.
I would just like to go back to your point on digitization and new markets. We don't work to digitize the customer in non-digitized markets. Our biggest digital penetration takes place in regions where customers are already digitized. They use Uber, Netflix, those players. Customers are already digitized. So they tend to use our app. And that's restricted to large cities. The farther in the country we go, the lower it is. Digitization happens when we open a new store. So this store is the machine onboarding of our digital platform that allows us to save in marketing. engagement takes place because of the employees at the store. That's very positive.
One last point I'd like to make when I was talking about gross margin, I mentioned different effects up and down. An effect I didn't mention were pressures related to digitization or digital sales. And this is something we mentioned several times in the past few years. This was not mentioned today. Our gross margin in digital is totally controlled in our system.
Let us move on to Ruben Couto from Santander.
I'd like to go back to digital. I know that you don't break the contribution margin per store. But can you give us an update of that gap? Does that help your profitability? Does it help you get to a stabilization? How does that stand? NPS of the app improved a lot in the past 3 years based on what Marcilio mentioned, but there is a significant gap compared to the physical stores. In your internal studies with the app customers, what can you identify as the main detractor of your NPS on the app?
Thank you, Ruben, for your question. Since day 1 of digital, well, the company is crazy about numbers. Nobody gets to these results without looking at numbers. We know exactly where there is value and there is not. In the past 3 years, the contribution margin of digital is increasingly better. It's a good business to us. We spend very little in marketing, possibly not only because stores will bring those customers, but the brand will bring the customers naturally. And we spend very little in delivery, which is a detractor in this kind of business, and we are increasingly dominating the technologies, or we are mastering the technologies.
We are better negotiating. If you go to San Francisco, you buy a square and they make a wonderful -- they make wonderful money. We can negotiate better with those guys. So it's a profitable business to us, very profitable. Perhaps the gross margin is a little smaller than the gross margin at the store, and it's only natural because the competition is different. We are competing with a larger market. But today, we have price per region, per state that helps.
So the digital contribution margin is very good, Ruben. Thank you very much, and we are improving. And we don't have a 100% digital customer. That's a theoretical difference because the customer will choose the best channel for them to buy. That gives us additional sales for a customer digitizes, which is from 20% to 30% more. It's not that they are getting 20% to 30% sicker, but that flow that was used in another channel is being brought to ours. That's very relevant to us.
As to NPS, that's the cool question. That's what we focus on in our company. And that's what we are doing. When we talked about from 40 to 73, you can see the evolution we are bringing to that business. Are we far from our objective? We are not. We know what needs to be done. Is it easy? I don't think it will be done overnight. It takes time. But we know very well what can be improved.
Let me give you an example. We uploaded a new search. The search speed is 10x faster than the old search. That improves 0.20, 0.30 in NPS. So we are trying to bring improvements we can identify that we know are important. We will get close to 80, 85 and close to the NPS of physical stores or what in the market standard. We know where to act. Remember that the pharmacy NPS, which is the highest retail NPS in Brazil, we are proud of it. It started being developed in 1905. It's crazy to imagine how much the company has invested with the 2 brands, Drogasil and Raia, to serve customers well. And NPS is the net result of that. We were at 16 in 2012 and '13 when we started looking at it. And today, we are at 91%. It's a long journey, but we are happy, and we know what needs to be done.
On our RD Day, you'll be able to better understand what we are doing. You have a great presentation where we are investing in digital. Raduan, Marcello, and Varela will mention where we are investing. We know what needs to be done, Ruben. That's good.
Next question from Danniela Eiger from XP.
I'm sorry for going back to margin. I just want to make sure I understood it correctly. Gross margin, you had a one-off impact this quarter, but somehow it is operational. That's why you mentioned it as operational or recurring as the year. So it should normalize in the next quarters. But it doesn't impact future years. On the EBITDA margin, the dilution in your personnel, it might have a one-off effect because of the smaller number of people in the beginning of the year and that -- and they were hired in Q3, but that increases productivity because you are working to improve NPS. So you don't necessarily cancel that dilution. Did I get it right? And as you mentioned, Marcilio, we can imagine that you will keep on expanding your EBITDA margin in the future more for the whole year rather than quarter-by-quarter. I just wanted to make sure I got your message right. I just wanted to understand those one-off events better.
My question number two is, how do you see the potential for private brands? I know that you mentioned that was a lever to offset some margin pressures. But I didn't hear you mention that more recently. I just wanted to understand the private brand. And 4Bio, can you defend your margin and the position in the short term?
Danniela, I'll be hard on the first question. We have to look at the long term. If you look at the short term, you will find lots of things. I think our figures are very good. Our margin is growing year after year, and that will continue. When we mentioned Eugenio and I said we're going to invest in technology, G&A will go up such as life. We did it. We are diluting and it will be diluted even further. If we say, well, 300 employees more or less, with due respect, this is waste of time. We have to look at the numbers as a whole. I think the results in this quarter were very good, and we have everything it takes to close the year very well.
Let me answer your question. Yes, we do work with the margin evolution for future years because dilution will bring that naturally. I saw a report this morning, dilution power. That's it. If we look at the dilution power, we will understand what comes ahead. Obviously, what comes ahead will involve easier and tougher quarters, but we are very optimistic with the future. I think this quarter was very good. I'd like to commend everyone. I'm very happy with everyone. I'm hugging everyone, and we are doing what needs to be done. We're hiring, training and preparing people to serve customers well. That's what we do every day.
About private labels, you are correct. I think there's an information gap here. I think we can address that on our next conference call. And on our RD Day, we're going to include that item in our presentation. Private labels are going well. We just launched a new brand, Needs Natos, and Bwell is gaining traction. We are also focusing on our penetration in the digital channels. We are going to work on increasing that penetration. So you are correct about private labels. We worked very hard on them over the past years to keep our gross margin stable since we are entering markets that put pressure on our margins because of the mix. And we're going to continue working hard on that. And I think that we should bring you more information on that to make things clearer to you so that you have a better understanding of our private label strategy.
Now 4Bio, this year was particularly challenging for 4Bio. There was a change in the legislation towards the end of December, and it affected 4Bio more than other businesses. We have an issue with gross margins there. But since it is improving, I think things are going to get better. But the margin is growing. And it is going to put us in the radar of specialty medications, which is the segment that grew the most over the past years in the pharmacy business as a whole. So I think that we're going to see a boost in 4Bio's margins in the coming years.
Thank you, Danniela. Thank you very much for the questions, especially the second and third questions. And yes, you are correct about our strategy for private labels.
Now the next question comes from Mauricio Cepeda with Morgan Stanley.
I'm not going to be very creative in my questions. I'm going to insist on margins because it is a question that we get a lot from investors. We receive a lot of criticism about this as well. It is obvious that your gross profit is growing and you don't have operating leverage in your headquarters and stores, and you can have more leverage, especially on digital. But in the past, you said that you wouldn't capture that margin and that, that money would be reinvested. We get a lot of questions about that. So I'm going to be straightforward here. What is your trade-off? Going forward, are you going to get more margins and reinvest? What you are going to reinvest in? And do you have any intentions about modulating your digital expenses?
That's a very good question. We've been around for over 100 years. So it's easy to address your question. We invest in what we think will add value to the company and make the company grow in the future. So the first investments that we made in the company right after the merger in 2012 or '13 was directed to creating an expansion team. We had about 1,100 people and 100 of those were working in expansion, just expansion. And people said at the time that they were going to expand just like we did. And that's actually not the case at all. We didn't want to expand just for the sake of expanding. We were investing because we wanted to get better results. And we are doing the same thing on digital.
In 2019, we did the math. We invested a lot. We learned a lot from our investments as well. We were -- we got some investments right and some wrong. And we think that, that is going to start diluting from now on. G&A will start diluting. And what's good about that is that we are bringing loyal customers more frequently, which in turn leads to a growth in mature stores that is above inflation. So it's a virtuous cycle. Our guys went to Seattle the other day, and they love talking about the flywheel for Amazon. And I think that we have our own. The more customers become digital, the more they will buy from us and the more revenue we are going to get from mature stores. It seems to be a positive movement.
Now digital investments, we are more familiar with how investments should be done in digital channels. So I think that we will be able to be more accurate in our investments. Now if we get some good surprises ahead, and we think that there's a good opportunity to invest in, we are going to do it. But I think that for the coming years, we have to dilute our investments in digital. We have to continue investing in health services. I think Joseph asked that question before. I think that we should have a better return on investments in health services. We're going to start seeing that in a few years. But for now, we need to dilute our G&A expenses. I hope it comes. We're working towards that.
And Marcilio, we should remember that we are -- we have been around for 100 years, but we have been accelerating our expansion. We are opening 10% more stores every year on a platform that has been growing. So we have not found a better way to invest the money that we can make than continue to grow. So that's why we have been showing you this curve, the expansion curve. The marginal ROIC and the IRR coming from the expansion is higher than the results that we have in the current company. So we are investing in a business that will bring more value. And we measure our IRR every week, our expansion IRR. We pay attention -- close attention to that. And I think we've been saying that for over a year, our G&A expenses are going to be diluted. We might spend a little bit more here and there, but we are very comfortable with what we have been doing.
Now the next question comes from Leandro Bastos with Citi. Again, next question comes from Leandro Bastos, or we can go to the next one.
Can you hear me now? This is Leandro. I apologize. I have 2 questions. First, about market share. The company has been gaining market share every year. You have been growing in your mature stores. And for the second quarter in a row, we saw a deceleration in your market share gain. So I would like to know more about that. And also, if you could give us more color about the competition? That's my first question.
The second question is more specific about OPV. You adjusted your non-cash effect. I would like to know more about the nature of that adjustment. And has anything changed about the methodology that you use?
Thank you for your question. Market share is always very important for us. I don't see major changes in our market share. We used to gain a lot more share in the past. There were some points in which we gained over 1 point in market share, but it is natural for the competition to adapt and adjust so that they can grow more as well. This is a very complex market, by the way, because we don't have a big pain point and the market grows more than the inflation every single year. So it's about opening stores and measuring things.
And your question about competition. Well, we believe that there are very good competitors out there. Here in Sao Paulo, we have a very strong competitor, a good company that's been competing with us for over 70, 80 years. In the South, there's another one in the state of Minas Gerais as well. In the South, actually, there are 2 very good companies, and the same in the Northeast and North. Those are the most organized players competing against us. And there are easier and tougher moments that they have to go through as well. They start sometimes investing more in expansion, then they stop. So I think things are normal, business as usual, nothing different from what happened in the past when it comes to competition. I believe it is a bit more competitive than it was 1 year ago where we gained almost 1 point in market share.
Abrafarma, we always keep a close eye on the Abrafarma market share. And I believe that our model brings more productivity. The competitors generate [ 600 ] or [ 700 ], and we make [ BRL 1.1 million ], for example. So I don't think there is any change in our market share. We might grow by 0.3 or 0.4, not 1 as we did in the past. But I think that it is a normal cycle.
Now OVP, I think it's a technical detail in our calculations. We consider the effect of OVP in our inventories. It is an adjustment in the formula. And the effect of that is measured every month. And the effect is about BRL 1 million or BRL 2 million per month. It is a non-cash effect, and it's just an adjustment that we made to the formula.
The next question comes from Vinicius Strano with UBS.
If you can talk a little bit more about ads and the relevance, the importance of that vertical. If you can talk more about monetization plans going forward. And also about suppliers, do you think there's room to get more discounts for suppliers in the future? And about personnel, what is your pipeline like right now for hiring new employees next year since the labor market will be heated? And also, how do you connect that with personnel costs?
Well, I think that someone asked the question before that related to this. If you look at our corporate and consolidated EBITDA, the difference is related to the investments that we are making in companies in our ecosystem that are adjacent to our company. The adjacent businesses can generate a lot of value for us in the future. Take 4Bio, for example, with a very good ROIC. So these adjacent businesses can add a lot of value. I believe that we are still at a very low level with ads. And I believe that we are going to give you more color on that on our RD Day. And it is indeed a business that can generate a lot of cash by nature. It's not that it's easy to generate cash, but it is a business that can naturally generate cash, and we can benefit from that in the future.
It is a different ads model than the ones that you see in the market. For example, the fight between Amazon and Google, they pay by search. And this is not what our business is like. Our business is more sophisticated. It's a lot cooler. And yes, we are going to monetize that business.
Now about discounts, I've been doing that for 40 years. I think I'm getting old actually. But yes, we ask for discounts all the time. And it has to be a win-win situation. The suppliers that have been working with us since the beginning, they are very thankful for the growth that we've had in our company. I don't see any major changes when it comes to asking for discounts from suppliers. It's business as usual. It's what we do every single day. Of course, in some molecules, we had 40% to 30%, 30%, 45%. And we were very important when it comes to launching new medications in Brazil. And of course, a company as big as ours has some advantages. But do ask for discounts recurrently from suppliers.
On the personnel pipeline, we've been there. Before the Dilma administration, if you remember, the country had full employment. It was enormously difficult to hire people at the time. So nothing unheard of. I don't think it's a change. I think we are doing well. We believe if the country keeps on growing, and we hope it does, and companies will have a hard time hiring people, remember that the first person that is hired, I heard something the other day. We train that person, and it has to be the best place that person will have worked for. Well, some people will look for another job, but some people look for a career with us. We haven't hired anybody from outside our ecosystem. So there is a growth path. That's what we bet on so that we can keep the best, and we'll keep on betting on that in the future. I don't think it's an issue, issues for next year. I think we will not have major issues speaking about costs, not on personnel.
Our unit economics is based on the fixed expenses of a store, and employees are fixed expenses. They don't grow with sales. As we grow sales in mature stores above inflation, we are able to dilute fixed expenses, and we love people. We train them, we prepare them, we make them grow. We like to have happy people working for us. And that's what we've always believed in. We want to take care of them so that they grow along with us.
All right. Do we have one more?
Next question from Rodrigo Gastim from Itau BBA.
I have 2 questions. Number one, on digital, Marcilio. I wanted to speak a little about HPC. I think you are doing a great job in the drug side, somewhat shielded. But on HPC, that worries me somehow competition-wise. You see several marketplaces talking about these categories that generate high margin, high turnover, high added value. So when you focus on digital by category, as is the focus for the category of HPC, and within HPC, is there an item that is more or less relevant and the evolution of competition in HPC?
Question number two, on Ozempic, or the lack of supply, the undersupply of Ozempic. Just to dispel the myth, how does that impact in your operations, the migration from Ozempic to Wegovy? How is that taking place? I just wanted to understand those 2 points.
Good questions. On digital, we have a clear message. We want to have a medication journey that is perfect. We have to lead that as the drug journey to us. We are the best in the country. We have to emulate that in the digital world. Our focus is on drugs, but it doesn't mean that we are not focusing on HPC. We believe there is a significant value, and we are evolving in that. Now the increased assortment in the marketplaces, and we have to show our strategy a little better next year, we are growing because that will allow us to have enough assortment to compete with major platforms. Obviously, we have an assortment of shampoos in the store, you have 25, 30 brands on the platform. They offer a lot more. That's what we look at in the digital world to have a curatorship of assortment for HPC. We have to be the customers' destination for HPC, and we need a very important curatorship.
Quick items that customers need, quick OTC or quick HPC, we will always compete with those marketplaces, undoubtedly, because of convenience. And whoever is faster and more cost-competitive, will win. Our delivery cost is [ BRL 6.90 ]. I buy at a food marketplace. Well, food in my house is great, but I buy a lot in the marketplace. The freight will go from 19.9% to 25.5%. And then there is gambling. It's a mess. Be careful when you look at those platforms. Try to run a supermarket journey in those platforms. It's not that good. They are not working to improve that. Now HPC most certainly is key to us so that we are strong in digital, and we have an eye on it.
On Ozempic, Novo Nordisk had a strategy to introduce Wegovy, promoting the migration from Ozempic to Wegovy, that promotes some undersupply of Ozempic during the month, some stores without the product. But as far as semaglutide is concerned, we are doing well. Our share is somewhat growing a little. So we don't have major issues overall, but it is a transition. We will have to look at it. I'd rather look at the Citibank report that everyone saw talking about the revolution of that medication class and how, in the long term, it can help everyone's health. So you may have some undersupply of Ozempic, but it will normalize. We already see the competition getting ready to enter the market. There is no set date, but they are getting ready. And we see a very good preparation of domestic industries getting prepared to have generics in the future.
I think the discussion we should have as a sector as far as semaglutide is concerned is access. That's what we need to discuss. Today, we have -- we sell 130,000, 140,000 drugs a day. The country has 250 million. How can this drug help people as soon as access becomes easier? So you may have one-off undersupply problems, but it's the same to the whole market. It's not that just one player will be undersupplied. But this is an enormous growth opportunity because it generates longevity in the population, improving people's quality of life. And that will create more market, more growth. And that will confirm our reason of being, which is to help people. That's the message.
The last question by Bob Ford, Bank of America.
Congratulations on your results. Do you have an estimated impact of the loss in GLP-1 drugs? And how long will it take to solve that imbalance? And what are the possibilities to leverage those drugs? And the 40 basis points, how much of that is one-off and how much is recurring?
On GLP-1 inhibitors, we know there would be problems when Wegovy was launched because of the company strategies. But we look at the class as a whole, Wegovy plus Ozempic. Our overall numbers are very good. We don't see major changes. Some companies may have a problem, but not us. It's always traumatic when there is a transition when that decision is made by the laboratory. But I don't see major gains. The share semaglutide has in our business is stable. We believe it will grow because Wegovy is a drug that will allow people to lose weight according to the label, and it will bring more consumers to our business, which is good. If people take the drug correctly, that's a recurring purchase, and we want people to take the drug correctly. I don't see major changes, Bob.
Be careful, because we are looking at the wrong thing. Selling expenses in the last 2 quarters was 17.2%. Now it's 17.1%. First part of it is personnel. That happened in the past. Part of the productivity that came from these new employees between June, July, and August stays in the business, and we will recover that. So we have to maintain the quality of service we've always had. If we have to invest more in people, we will do so as a company. So you may have more or fewer employees depending on the quarter. That's only normal.
But there is no major issue for the company. Our quarter was extra good. That's my message to you. May we close any opportunity with technologies to improve services at the store? Absolutely, Bob. And absolutely, we're doing it. Our service system is being revamped. You are right, and thank you very much for bringing that up. It will bring us productivity in the future. As the new system already generated productivity in the past 7 to 8 years. When I joined the company, I remember there were 2 TCs, one for one of the brands that was more evolved. The other one was less evolved. When they put the 2 together, we gained productivity. We will have that next year.
Thank you for the question, Bob. We are investing in that digitization is not restricted to the app. Melissa, our future Operations VP, digitization also means improving the customer experience at the store. We will go into details in our RD Day.
May I close, Flavio? Just to remind you, on December 2, on the RD campus, you're all invited at 2:00 p.m., there will be welcome coffee. We will have our RD Day with all VPs, our new CEO, Raduan, had will be welcoming everyone. It will be super-cool. I hope to see you all at our campus, which is where we work day in and day out in order to disseminate our culture to all stores. Everyone will be there on December 2 at 2:00 p.m.
Let me just mention something to conclude. Once again, very good sales. The growth of mature stores, 2.2 is really impressive. Flavio mentioned it, the largest growth in mature stores ever. No calendar effect. Basically, I saw a very interesting report this morning, the dilution powers. This is what is coming into our business. Our ability to keep on growing our mature stores will bring us better results. Multichannel is something that will be very hard to be copied because of the investment that is required. The market is trying to do it, but it's not easy to have a multichannel where 75% of sales are from the app, 72 opens, I don't think we celebrated enough. Never before had we opened so many stores in Q3, especially in smaller markets. All of that is helping our dilution. Our G&A dilution is something to be celebrated with the stable contribution margin.
I always mentioned that those 2 competitive advantages will bring us more business, more margin for the future because historically, we know that this will grow. The population will age, and that will bring us consumers. The more we improve the company to take care of those customers with a long-term vision, it's a virtuous cycle that will bring more results to the company. I'm highly optimistic. I think we had a very good third quarter. We are now into the fourth quarter, and I'm sure you will confirm that.
Thank you very much for taking part in our earnings call, and let us hope for better results in the future. Thank you, all.
Thank you, Marcilio, Flavio, for your final thoughts for joining us today. And RD Saude earnings call is closed. I hope you all have a great day.