Q2 2026 Magazine Luiza SA Earnings Call

Speaker #1: Bom dia a todos. Obrigada por aguardarem; sejam bem-vindos.

Speaker #2: Good morning, everyone. Thank you for holding. Welcome to Magalou's conference call regarding the quarterly earnings. For those who need simultaneous translation, click on the interpretation button via the globe icon at the bottom of the screen and choose the language of your preference.

Speaker #2: English or Portuguese. We inform you that this event is being recorded and will be made available on the company's IR website at ri.magazineluisa.com.br. The earnings release and the presentation are already available in Portuguese and English.

Speaker #2: The link to the presentation in English is also available in the chat. During the presentation, all participants' microphones will be disabled. Then we will start the Q&A session.

Speaker #2: If you have a question, please click on the Q&A button at the bottom of your screen and enter your name, company, and question language.

Speaker #2: Upon being announced, the request to activate your microphone will appear on the screen. You must then enable your microphone and follow with your question.

Speaker #2: Questions received in writing will be answered later by the investor relations team. I would now like to give the floor to Fred Trajano Magalou, CEO.

Speaker #2: Fred, please. You may take the floor.

Speaker #3: Bom. Bom dia a todos. Muito obrigado.

Speaker #2: Good morning, everyone. Thank you for attending our earnings conference call pertaining to the second quarter of 2026. Again, I'm here with all of the officers and leaders of verticals of the Magalou ecosystem to answer your questions at the end of our presentation.

Speaker #2: So, as we said on the first conference call this year, in 2026, we entered a new strategic cycle at Magalou after digitalization and diversification and creation of the ecosystem.

Speaker #2: And in this new cycle, we've defined some value creation pillars. I joined these pillars into two main blocks. First, to consolidate our AI omnichannel leadership.

Speaker #1: Hotel interpretation is available through the globe icon at the bottom of your screen. You may choose your preferred language: English or Portuguese. Please note that this event is being recorded and will be made available on the company's Investor Relations website at ri.magazineluiza.com.br.

Speaker #2: It's basically dedicated to all of our retail assets. And the second block is to accelerate services monetization through the growth of our services platform.

Speaker #1: Onde já se encontram o release de resultados e a apresentação. Ambos nas versões Português e Inglês. O link para a apresentação em inglês também está disponível no chat.

Speaker #2: The companies that we acquired or built during the ecosystem cycle. The first block, to consolidate the omnichannel leadership, we have very clear initiatives, and we made progress in pretty much all of them.

Speaker #1: Durante a apresentação, todos os participantes estarão com os microfones desabilitados. Em seguida, daremos início à sessão de perguntas e respostas. Para fazer perguntas, clique no ícone de Q&A na parte inferior de sua tela.

Speaker #1: Escreva seu nome, empresa e o idioma da pergunta. Ao ser anunciado, uma solicitação para ativar seu microfone aparecerá na tela e, então, você deve ativar o microfone para seguir com a pergunta.

Speaker #2: In the first half of this year, the highlight here is the acceleration of growth of physical stores, not only for durable goods but for other companies in the group, such as net shoes, época cosméticos, CABUM, and even estante virtual that we opened the first unit at Galeria Magalou.

Speaker #1: As perguntas recebidas por escrito serão respondidas posteriormente pelo time de relações com investidores. Gostaria agora de passar a palavra ao Fred Trajano, CEO do Magalu.

Speaker #1: Por favor, Fred, pode começar.

Speaker #2: This first, the quarter, the first half of the year was very good. The second quarter was extraordinary in terms of physical stores. We resumed opening physical stores with the unit in Ceilândia, and we also opened Galeria Magalou at the end of last year, and it is doing very well on this first half of the year.

Speaker #2: Bom, é, bom dia a todos. Muito obrigado por participarem aqui do nosso call de resultados referentes ao segundo trimestre de 2026. Mais uma vez, eu estou aqui na companhia de todos os diretores executivos e líderes de verticais do Magalu, do ecossistema Magalu, para responder suas perguntas no final da nossa apresentação.

Speaker #2: With highlights for all of these formats that I described of our partner companies that were only online before. So, to resume growth, resume the company's focus on physical stores, is a major pillar of this new strategic cycle.

Speaker #2: Bom, como a gente falou no primeiro call desse ano, em 2026 a gente entrou no novo ciclo estratégico do Magalu, depois do ciclo da digitalização e do ciclo da diversificação e da criação do ecossistema.

Speaker #2: The second is to increase or expand online reach with profitability. So, we have two paths for that. In the very short term, one, and another one on medium-long term.

Speaker #2: E, nesse ciclo novo, a gente definiu alguns pilares de criação de valor, sendo que eu coloco esses pilares em dois grandes blocos. O primeiro bloco é consolidar a nossa liderança omnichannel com IA—basicamente, bloco dedicado a todos os nossos ativos de varejo. E o segundo bloco: acelerar a monetização de serviços através do crescimento das nossas plataformas de serviços, das empresas que a gente comprou ou construiu nesse ciclo do ecossistema.

Speaker #2: In the short term, the way we found to resume online growth is through partnerships formed with 3rd-party platforms. We announced the partnership in this second quarter, specifically.

Speaker #2: We started to operate in June, but the full month was July, which is our partnership with Amazon. And as I will talk about a little bit later and describe it, we will announce other partnerships in the coming months.

Speaker #2: No primeiro bloco, que é o bloco de consolidar a liderança omnichannel, nós temos iniciativas extremamente claras e tivemos avanços em praticamente todas elas já no primeiro semestre do ano, né.

Speaker #2: Or even the coming weeks. So, we also see a path here by offering one product in third-party platforms. We believe we'll be able to resume growth in the online segment that was hindered in this first half of the year, with profitability.

Speaker #2: Destaque aqui para acelerar o crescimento de lojas físicas, né, não só para bens duráveis, mas também para outras empresas do grupo, como Netshoes, Época Cosméticos, Kabum e até Estante Virtual também, que a gente abriu a primeira unidade com a Galeria Magalu.

Speaker #2: What is a non-negotiable in this resumption of the online growth is to grow with profitability. And we believe there's a way to do that in the very short term, by listing these one-piece products in these other platforms.

Speaker #2: Nós tivemos, é, o primeiro semestre muito bom, mas especialmente o segundo tri foi tri excecional do ponto de vista de lojas físicas. Retomamos a abertura de lojas físicas com a unidade de Ceilândia e tivemos também a inauguração da Galeria Magalu no final do ano passado, que está indo muito bem.

Speaker #2: I'll detail this further during the presentation and tell you what specifically we do with that in the quarter and how we tend to evolve for the coming months.

Speaker #2: And the third point is to redefine digital positioning with experience creatorship and AI especially. At the end of last year, we launched two major things at Galeria Magalou that I talked about, and it's doing very well this first half.

Speaker #2: Nesse primeiro semestre, com destaque para todos esses formatos aí que eu descrevi, das nossas empresas parceiras, que eram só online. Então, retomar o crescimento, retomar o foco da companhia em loja física é um grande pilar desse novo ciclo estratégico da companhia.

Speaker #2: And we intend to replicate it going forward. And the other point is Luz WhatsApp, and we've been able to get more than 100 million BRLs in funding in the highlights in this first couple of months.

Speaker #2: O segundo dele é ampliar o alcance online com rentabilidade. E a forma como a gente, a gente tem, acho que dois caminhos para isso: no curtíssimo prazo e em mais de médio e longo prazo.

Speaker #2: And we're also share some figures during this conference. Obviously, it is an initiative more for the medium to long term. The main products in third-party partnerships is a very short-term initiative to increase or to resume growth online.

Speaker #2: No curtíssimo prazo, a forma como a gente encontrou para retomar o crescimento do online é através de formar parcerias com as, com plataformas terceiras.

Speaker #2: But for the long term, our main focus is Luz and the pioneering innovative AI commerce experience that we created in Brazil via WhatsApp. And we will take it to the app in the second quarter, second half of the year.

Speaker #2: A gente anunciou uma parceria, especificamente, nesse segundo trimestre.

Speaker #2: The second block is to accelerate services platforms. We have three major companies: Magalog, Magalou Cloud, and Magalou Pay. That are growing quite well. And one that is not a company, but it's a service platform that's Magalou Ads.

Speaker #2: All of them with very positive numbers in the second quarter. And even better, with the extraordinary outlook for the segment in this cycle. So, this cycle now has very well-defined pillars, and we believe strongly that the second quarter already showed we are on the right path.

Speaker #1: Products and third-party platforms we believe will be able to resume growth in the online segment that was hindered in this first half of the year.

Speaker #1: What profitability? What is a non-negotiable in this resumption of the online growth is to grow with profitability, and we believe there's a way to do that in a very short term, by listing these 1P products and these other platforms.

Speaker #2: And we have a lot of engines to create value to our shareholders. So, now getting into the quarter highlights specifically, I'd like to make three major highlights.

Speaker #1: I'll detail this further during the presentation and tell you what specifically we do with that in the quarter, and how we intend to evolve in the coming months.

Speaker #1: And the third point is to redefine digital positioning with experience creatorship and AI especially, at the end of last year we launched two major things that Magalia Magalu, that I talked about, and it's doing very well this first half, and we intend to replicate point is lose WhatsApp, and we've been able to get more than 100 million BRLs in funding in the highlight of this first couple of months, and we're also share some figures during this conference.

Speaker #2: And Beto will give you more details about the financials but overall, the numbers. The main highlight was the growth of physical stores at double-digit rates in a complex context and economic context to its exceptional, coming from a strong basis from last year, with 5.2 billion BRLs in sales, 9.7% same-store sales growth.

Speaker #2: So, I think that's a number that's above everyone in the segment, not only in durable goods, but overall. We also benefited from the World Cup, and I'll talk more about that later.

Speaker #1: Obviously, it is an initiative more for the medium to long term. The main products in third-party partnerships are a very short-term initiative to increase or to resume growth online. But for the long term, our main focus is Lu and the pioneering, innovative AI commerce experience that we created in Brazil via WhatsApp, and we will take it to the app in the second quarter, or second half of the year.

Speaker #2: But I'd also want to show that other categories that are not TV sets also performed great in the quarter. And Fabrício Garcia will be here to give you more color on the Q&A.

Speaker #2: We had a very strong gain in market share for physical stores, and it's important to grow in physical stores because that's the channel where we can achieve better profitability.

Speaker #2: So, we're being very strategic, focusing our growth where we have the conditions to gain more positive contributions online has a slightly more competition. And without so much rationale, but in this stores, we have this possibility for growth.

Speaker #1: The second block is to accelerate services platforms. We have three major companies: Magalog, Magalu Cloud, and Magalu Pay, that are growing quite well. And one that is not a company, but it's a service platform, that's Magalu.

Speaker #1: Ads. All of them with very positive numbers in the second quarter, and even better with the extraordinary outlook for the segment in this cycle.

Speaker #2: And we are focusing our efforts here. Not exclusively, but with a focus in physical stores. That's why growth margin increased one percentage point, actually 0.1 percentage point versus the same quarter of last year.

Speaker #1: This cycle now has very well-defined pillars, and we strongly believe that the second quarter already showed we are on the right path. We have a lot of engines to create value for our shareholders.

Speaker #2: Here, we have the highlights of our rationality. We had moments of prices in products like memory components that around the world have an impact for telephony games like PlayStation, for example.

Speaker #1: So now, getting into the quarter highlights specifically, I'd like to make three major highlights, and Beto will give you more details about the financials. But overall, the numbers—the main highlight was the growth of physical stores at double-digit rates in a complex economic context, which is exceptional, coming from a strong basis from last year. We had R$5.2 billion in sales and 9.7% same-store sales growth, so I think that's a number that's above everyone in the segment, not only in durable goods but overall.

Speaker #2: And all the IT product items that impacted Magalou and Kaboom, and we passed through that. Even accepting a drop of share in the online segment, but with the maintenance of our strategic consistency and tactics, maintaining profitability.

Speaker #2: And with that, we've been able to present an EBITDA of 709,000 million BRLs with a margin of 8%, even with a higher share of TV sets overall.

Speaker #1: We also benefited from the World Cup, and I'll talk more about that later, but I'd also want to show that other categories that are not TV sets also performed great in the quarter, and Fabrizio Garcia will be here to give you more color on the Q&A.

Speaker #2: We maintained a margin of 8%. And here, I'd like to highlight our strict expense control. We'll be able to give you more details in terms of how we're doing that.

Speaker #1: We had a very strong gain in market share for physical stores, and it's important to grow in physical stores because that's the channel where we can achieve better profitability.

Speaker #2: And we have a frozen new hire since the beginning of the year. We have a strong control of all of the accounts with a matrix management of expenses with a consultancy giving us support.

Speaker #1: So we're being very strategic focusing our growth where we have the conditions to gain more positive contributions online has a slightly more competition and without so much rationale, but in the stores we have this possibility for growth, and we are focusing our efforts here.

Speaker #2: And we have a lot to extract from this expense control. Total expense at Magalou represents more than 10 billion BRLs per year. So, there's a lot of opportunity in pretty much all of accounts for us to continue to work on.

Speaker #1: Not exclusively, but with a focus in physical stores. That's why gross margin increased 1 percentage point, actually 0.1 percentage point versus the same quarter of last year, here we have the highlights of our rationality, we had moments of prices in products like memory components that around the world have an impact for telephony games like PlayStation for example, and all the IT product items that impacted Magalu and Kaboom, and we passed through that, even accepting a drop in of share in the online segment, but with the maintenance of our strategic consistency and tactics maintaining profitability, and with that we've been able to present an EBITDA of 709,000 million BRLs with a margin of 8%, even with a higher share of TV sets overall we maintained margin of 8%, and here I'd like to highlight our strict expense control we'll be able to give you more details in terms of how we're doing that and we have a frozen new hire since the beginning of the year, we have a strong control of all of the accounts with a matrix management of expenses with a consultancy giving us support, and we have a lot to extract from this expense control.

Speaker #2: All of the directors and managers are focused to continue executing this agenda. So, we have not reached the end in terms of expense control.

Speaker #2: There's still a lot to be done. Our headcount dropped basically by freezing the workforce, both at the controlling company and the other companies. Even in the fintech, so there's a highlight here about this control, this rationality that is very clear.

Speaker #2: We didn't enter any major package for the World Cup, no major sponsorships. We knew the World Cup was going to be good, but we did not go overboard in marketing investments.

Speaker #2: And the last of the past World Cup, we sponsored the games and we joined packages with hundreds of millions of BRLs by sponsoring the World Cup.

Speaker #2: And this year, we were very grounded and sought not to make any major investments. EBITDA is also benefiting greatly by another excellent performance of our financial operations, not only Luisa Cred, and we'll talk about that going forward, but also the other operations of our financial products umbrella consortiums went very well: insurance, and the new financial company that operates the CDC, and I'll give you more details about that.

Speaker #2: And Guilherme is here as well to answer any questions you may have. So, the next one, those were the main highlights: physical stores, the increase of gross margin, and the expense control.

Speaker #1: Total expenses at Magalu represent more than R$10 billion per year, so there's a lot of opportunity in pretty much all accounts for us to continue to work on. All of the directors and managers are focused on continuing to execute this agenda, so we have not reached the end in terms of expense control—there's still a lot to be done. Our headcount dropped basically by freezing the workforce, both at the controlling company and the other companies, even in the fintech. So there's a highlight here about this control and rationality that is very clear. We didn't enter any major package for the World Cup, no major sponsorships. We knew the World Cup was going to be good, but we did not go overboard in marketing investments. In the last World Cup, we sponsored the games and we joined packages worth hundreds of millions of BRLs by sponsoring the World Cup, and this year we were very grounded and sought not to make any major investments.

Speaker #2: And our financial operations. Bringing you more details about physical stores, we grew 9.7%, same-store sales. In physical stores, of course, the World Cup helped.

Speaker #2: So, we grew 39% in physical stores in the television segment, but we made it a point to show you that it was not only TV sets that increased.

Speaker #2: White goods grew 15% in the quarter. Even furniture grew 10%. So, showing you that the performance of Magalou in physical stores is a sound performance.

Speaker #2: It's a performance that is distributed in different geographies and categories. We have innovations in physical stores such as the implementation of physical stores for our formats of the group, like a Lydia Magalou that has been a huge success.

Speaker #2: And we had here first half of the year fantastic with a lot of media, a lot of football. It's very difficult to get football in physical stores, and with a model that we implemented, with Galeria Magalou and the constant presence of influencers, YouTube theater with a series of events, there was Harry Potter's birthday there last week at the store.

Speaker #1: EBITDA is also benefiting greatly from another excellent performance by our financial operations—not only Luiza Cred, which we'll talk about shortly, but also the other operations under our financial products umbrella. Consortiums performed very well, as did insurance, and the new financial company that operates the CDC. I'll give you more details about that, and Guilherme is here as well to answer any questions you may have.

Speaker #2: So, we've been able to break the cycle of losing clients at physical stores, and this is a format that I think is interesting. Worldwide.

Speaker #2: And we, as I said, we also opened the store in Zealandia, and we should open new stores in the second half. Fabrizio can give you more details going forward in the Q&A as well.

Speaker #1: So the next one, those were the main highlights, physical stores, the increase of gross margin and expense control, and our financial operations. Bringing you more details about physical stores, we grew 9.7%, same store sales in physical stores, of course the World Cup helped, so we grew 39% in physical stores in the television segment, but we made it a point to show you that it was not only TV sets that increased, white goods grew 15% in the quarter, even furniture grew 10%, so showing you that the performance of Magalu in physical stores is a sound performance, it's a performance that is distributed in different geographies and categories, we have innovations in physical stores such as the implementation of physical stores for our formats of the group like a Lydia Magalu that has been a huge success, and we had here first half of the year fantastic with a lot of visits, a lot of spontaneous media, a lot of football, it's very difficult to get football in physical stores, and with a model that we implemented with Galeria Magalu and the constant presence of influencers YouTube theater with a series of events, there was Harry Potter's birthday there last week at the store, so we've been able to break this cycle of losing clients at physical stores, and this is a format that I think is interesting, worldwide, and we, as I said, we also opened the store in Zealandia and we should open new stores in the second half, Fabrizio can give you more details going forward in the Q&A as well.

Speaker #2: On the other hand, online, we maintained our consistency. We raised 9.3 billion in the second quarter of this year. So, even if on the online, we did well in the TV set category, we maintained our discipline and our focus in growing with profitability.

Speaker #2: But commercial performance, we had some impact. In some categories, as I said, there's the past rule of cost for mobile phones, computing hardware, and games as well.

Speaker #2: We can give you more details about price changes. Fabrizio and Julio from Kaboom can give you more details. And we passed through, I think, whenever we have a cost pass-through in the first quarter, there's an accommodation from consumers.

Speaker #2: They were there paying 3,200 BRLs in an iPhone 16e, and now this phone is at 4,000. So, there's an accommodation in the beginning. iPhone 16e is the first price based on the Apple products, but they get used to.

Speaker #2: And we can capture that. But in the first, the same thing with the pass-through for PlayStation video consoles and all the hardware, computing products.

Speaker #2: And that's because of the memory drives, because of the global crisis, data centers are buying memory. You saw what happened with the stock market in Korea, the growth of companies that produce memory, like Samsung and its competitor there.

Speaker #2: In Korea, so these are companies that are having very high results, and they are passing that through to other categories. We maintained that that discipline so we grew in physical stores where we're getting profitability.

Speaker #1: On the other hand, online, we maintained our consistency, we raised 9.3 billion in the second quarter of this year, so even if on the online we did well in the TV set category, we maintained our discipline and our focus in growing with profitability, with commercial performance, we had some impact, in some categories as I said as the past rule of cost for mobile phones, computing hardware, and games as well, we can give you more details about price changes, Fabrizio and Julio from Kaboom can give you more details, and we passed through, I think whenever we have a cost pass-through in the first quarter, there's an accommodation from consumers, they were there paying 3,200 BRLs in an iPhone 16e and now this phone is at 4,000, so there's an accommodation in the beginning, iPhone 16e is the first price basis on the Apple products, but they get used to it and we can capture that, but in the first, the same thing with the pass-through for PlayStation video consoles and all the hardware, computing products, and that's because of the memory drives, because of the global crisis, data centers are buying memory, you saw what happened with the stock market in Korea, the growth of companies that produce memory, like Samsung and its competitor there, in Korea, so these are companies that are having very high results and they are passing that through to other categories, we maintained that discipline so we grew in physical stores where we're getting profitability, we sacrificed a little bit of the share online but it does not mean we're not working to bring growth, to to resume growth, the base of the first half of last year was heavy for the online segments, the second half is a lot smaller, looking forward what was the main solution there and I went to detail this further, that we found and is part of a strategic cycle to resume growth online and we believe we will be able to do that in the second half, especially the fourth quarter, but already in this first month of the third quarter, it's to sell on partner platforms, so what's the rationale here?

Speaker #2: We sacrificed a little bit of the share online, but it does not mean we're not working to bring growth, to resume growth, the base of the first half of last year was heavy for the online segment.

Speaker #2: The second half is a lot smaller. Looking forward, what was the main solution there? And I went to detail this further, that we found, and it's part of a strategic cycle to resume growth online and we believe we will be able to do that in the second half.

Speaker #2: Especially the fourth quarter, but already in this first month of the third quarter, it's to sell on partner platforms. So, what's the rationale here?

Speaker #2: I just wanted to explain that because I know we're going to get a lot of questions about that. The idea is for us to position Magalou's own channels or consolidate our leadership in one P products.

Speaker #2: Magalou is one of the biggest platforms in Brazil, but it is the main seller in Brazil. And one P, in addition to other platforms with one P, three P, with direct sales channels were the biggest one P operator in Brazil through our brands.

Speaker #2: Magalou, we're leader in electronics, net shoes, we're leader in sports goods. Mostly one P. Época Cosméticos, we're one of the leaders in beauty products, extensive virtual, and Kaboom, obviously, in the gaming category.

Speaker #2: So, we are leaders for one P in these categories. We were only selling one P products for 50 million active users at Magalou, people who are always visiting, 500 million visitors, but 50 million unique users that visit our platforms.

Speaker #2: We know that the web audience is a lot larger than 500 million users that access or visit Kaboom, Magalou, in the direct channels. So, we decided to introduce these one P products into third-party platforms.

Speaker #2: We had already done that with AliExpress in 2024. That was a big success. AliExpress is a very good partnership, and we continue to increase this partnership.

Speaker #2: So, what's the rationale for us here? We believe that the audience of Brazilian e-commerce is spread out and will be more and more pulverized.

Speaker #2: There are a lot of platforms fighting for the customer's audience. So, why not list our products in other platforms that are not only Magalou?

Speaker #1: I just wanted to explain that because I know we're going to get a lot of questions about that. The idea is for us to position Magalu's own channels and consolidate our leadership in one key product. Magalu is one of the biggest platforms in Brazil, and it is the main seller in Brazil in one key segment. In addition to other platforms, with one key, three key, and direct sales channels, we're the biggest one key operator in Brazil through our brands. Magalu—we're leader in electronics; Netshoes—we're leader in sports goods, mostly one key; Época Cosméticos—we're one of the leaders in beauty products, extensive virtual; and Kabum, obviously, in the gaming category. So, we are leaders for one key in these categories. We were only selling one key products for 50 million active users at Magalu—people who are always visiting. We have 500 million visitors, but 50 million unique users that visit our platforms.

Speaker #2: So, we started these negotiations at the end of last year in the second quarter. We announced an important partnership with Amazon at in Brazil.

Speaker #2: Go back to the previous one, please. And we will announce others in the coming months. So, what's the rationale here? In this negotiations, first, these negotiations, since we're the biggest seller in Brazil, Magalou wants to have special aspects and reciprocity.

Speaker #2: So, one of the assumptions for us is that we're only going to list in third-party platforms. If the profitability on those platforms is potentially higher, then the average of Magalou's online channels.

Speaker #2: Obviously, it's going to be smaller than when the client goes to our direct channel, but it must be higher than when, for example, we bring a customer through a platform like Google, Meta, Facebook, so a customer that comes through paid media.

Speaker #2: So, the profitability of those channels must be higher than paid media. Because this customer belongs to the third-party platform in the long term, not in the very short term, because it's our sale, but we need to have that rationale.

Speaker #1: We know that the web audience is a lot larger than 500 million users that access or visit Kaboom, Magalu in the direct channels, so we decided to introduce these one key products into third-party platforms.

Speaker #2: So, it takes us long to announce partnerships because we want to reach that negotiation, that guarantees us a positive contribution margin. We want to resume online growth, but we will only do that if we have a contribution margin.

Speaker #1: We had already done that with AliExpress in 2024, that was a big success, AliExpress is a very good partnership, and we continue to increase this partnership, so what's the rationale for us here?

Speaker #1: We believe that the audience—so, Brazilian e-commerce is spread out and will become more and more pulverized. There are a lot of platforms fighting for the customer's attention, so why not list our products on other platforms that are not only Magalu?

Speaker #2: If it makes sense for the business. And another thing we expect from these partnerships is a minimum of reciprocity. For the services of the Magalou ecosystem, we're focusing strongly on Magalog, both in sense of everything that I sell on these platforms.

Speaker #1: So we started these negotiations at the end of last year in the second quarter, we announced an important partnership with Amazon at in Brazil, go back to the previous one please, and we will announce others in the coming months.

Speaker #2: The idea is that Magalog delivers them, but we want to try to leverage it. We have a global platform, and I'll talk about Magalog and how well it's doing this quarter.

Speaker #2: Magalog is one of the biggest logistic operators in Brazil. It's open to sell for third parties. So, we also consider important for us to close a deal, to list our products in third-party platforms, to bring volumes from those platforms to Magalog, not only from our sales, but from the their one P operations or other sellers' operations.

Speaker #1: So what's the rationale here? In this negotiations? First, these negotiations, since we're the biggest seller in Brazil, Magalu wants to have special aspects and reciprocity, so one of the assumptions for us is that we're only going to list in third-party platforms if the profitability on those platforms is potentially higher than the average of Magalu's online channels.

Speaker #2: So, that expands the density of Magalou's logistics network, generating scale through Magalog. So, we need to have that. Profitability above our average, and a level of reciprocity, especially now focusing on our logistics operation.

Speaker #1: Obviously it's going to be smaller than when the client goes to our direct channel, but it must be higher than when, for example, we bring a customer through a platform like Google, Meta, Facebook, so a customer that comes through paid media.

Speaker #2: For light and heavy products, also with the potential of product pickup and the Magalou's physical stores. So, now specifically about Amazon, we closed this partnership in June.

Speaker #1: So the profitability of those channels must be higher than paid media, because this customer belongs to the third-party platform in the long term, not in the very short term, because it's our sale. But we need to have that rationale.

Speaker #2: We started sales in the month of June. We had the first full month in July. With sales above initial expectations, we approved Magalog was certified as Amazon's logistics partner.

Speaker #1: It takes us longer to announce partnerships because we want to reach a negotiation that guarantees us a positive contribution margin. We want to resume online growth, but we will only do that if we have a contribution margin—if it makes sense for the business.

Speaker #2: It's a slow process, very complex, but we've been able to certify Magalog as Amazon's logistic operator. So, this quarter, we're going to have a full quarter of these sales.

Speaker #1: And another thing we expect from these partnerships is a minimum of reciprocity, for the services of the Magalu ecosystem, we're focusing strongly on Magalog, both in sense of everything that we I sell on these platforms, the idea is that Magalog delivers them, but we want to try to leverage it.

Speaker #2: Fabrício can give you more details. Later, of course, without disclosing information that's not public. But the idea is that it's a staged process. Today, we are competing in the back office there as it's a regular seller, but we're going to go in with a model that it's the FB on site.

Speaker #1: We have a global platform, and I'll talk about Magalog and how well it's doing this quarter. Magalog is one of the biggest logistic operators in Brazil. It's open to sell for third parties, so we also consider it important for us to close a deal to list our products on third-party platforms and to bring volumes from those platforms to Magalog—not only from our sales, but from their 1P operations or other sellers' operations.

Speaker #2: And starting in October, maybe slightly before that, we will have our products carrying in the prime batch with the potential to boost sales even further.

Speaker #2: So, we believe this quarter is going to be a full quarter. It's a quarter with specific high volume of sales. So, it's going to make the most of the good moment of our e-commerce, but the last quarter especially with the prime batch will give us a more positive quarter.

Speaker #1: So that expands the density of Magalu's logistics network, generating scale through Magalog. So we need to have that. Profitability above our average, and a level of reciprocity, especially now focusing on our logistics operation, for light and heavy products, also with the potential of product pickup and the Magalu's physical stores.

Speaker #2: That's the fourth quarter. And Magalog starting in the next few months will be offering logistic services to Amazon. And we expect the entry of both light products, but also heavy items.

Speaker #2: And we're very positive here about this. And that's going to help, again, our logistics density. And as I said, we are in the brink of announcing new partnerships that shall unfold in the coming weeks.

Speaker #1: So now specifically about Amazon, we closed this partnership in June, we started sales in the month of June, we had the first full month in July, with sales above initial expectations, we approved Magalog was certified as Amazon's logistics partner, it's a slow process, very complex, but we've been able to certify Magalog as Amazon's logistic operator.

Speaker #2: I'd like to highlight that selling in third-party platforms is a very short-term solution for us to resume a positive growth for the online. But in the medium term, we believe strongly in one of the major innovations that we launched in the recent years that was Luz WhatsApp, we disclosed to the market last month that we reached 100 million of GMV.

Speaker #1: So, this quarter we're going to have a full quarter of these sales. Fabrício can give you more details later—of course, without disclosing information that's not public. But the idea is that it's a staged process.

Speaker #2: We launched in December, so we started in the last few months, and we're ramping up strongly or this operation. We've generated more than 18 million conversations since launch.

Speaker #1: Today, we are competing in the back office there as it's a regular seller, but we're going to go in with a model that is the FB onsite. Starting in October, maybe slightly before that, we will have our products carrying the Prime badge, with the potential to boost sales even further.

Speaker #2: So, it's a channel where you have authentication of conversations and the post-sale services in the WhatsApp channel. You don't have to go to the app to make a purchase.

Speaker #2: So, this sales channel agentic commerce was awarded a can lion now this quarter. As one of the most creative solutions for e-commerce or the use of artificial intelligence in a digital channel.

Speaker #1: So, we believe this quarter is going to be a full quarter. It's a quarter with specifically high volume of sales, so it's going to make the most of the good moment of our e-commerce. But the last quarter, especially with the Prime badge, will give us a more positive quarter—that's the fourth quarter.

Speaker #1: And Magalog, starting in the next few months, will be offering logistics services to Amazon. We expect the entry of both light products and heavy items, and we're very positive about this. That's going to help, again, our logistics density.

Speaker #2: This quarter, we still have a conversion rate three times greater than our app, and we already have a good number, 20% of the customers who made purchases.

Speaker #2: The majority of those customers who made purchases in recent months have already come back. And this ramp has been going up. January, February, bigger than January, and March, bigger than February, June, and July, were the main highlights of Luz WhatsApp.

Speaker #1: And as I said, we are on the brink of announcing new partnerships that shall unfold in the coming weeks. I'd like to highlight that selling inter-party platforms is a very short-term solution for us to resume positive growth for the online segment, but in the medium term, we believe strongly in one of the major innovations that we launched in recent years, which was Luz WhatsApp. We disclosed to the market last month that we reached R$100 million of GMV.

Speaker #2: So, 20% of customers returned to shop on Luz WhatsApp, and it's going to increase even further. This 20%, considering the crop we have now, is already positive.

Speaker #2: And it's way higher than the app, noting that we work with products with higher tickets than the market. And this recurrence is not usual.

Speaker #2: It's very positive. And then NPS of 85, that's generating that Luz WhatsApp and our e-commerce initiative is one big highlight. Now, going to the service platforms.

Speaker #1: We launched in December, so we started in the last few months, and we're ramping up strongly, or this operation, we've generated more than 18 million conversations since launch, so it's a channel where you have authentication of conversations and the post-sale services in the WhatsApp channel, you don't have to go to the app to make a purchase.

Speaker #2: I'd like to highlight Magalou Ads. We had a growth of CTR sponsored products of 51% versus Q2 25. Active sellers, advertising increased 13%. I'd like to highlight especially here, we are a platform not only for sellers and brands that sell through Magalou, but we have all of our audience.

Speaker #1: So this sales channel agentic e-commerce was awarded a. Can lie on now this quarter as one of the most creative solutions for e-commerce or the use of artificial intelligence in a digital channel, this quarter, we still have a conversion rate three times greater than our app, and we already have a good number, 20% of the customers who made purchases, the majority of those customers who made purchases in recent months have already come back, and this ramp has been going up, January, February, bigger than January, and March bigger than February, June, and July, were the main highlights of Luz WhatsApp, so 20% of customers returned to shop on Luz WhatsApp, and it's going to increase even further.

Speaker #2: We have our stores more than 20,000 panels and displays at stores so we have a platform of retail media that works for other brands as well.

Speaker #2: And the main highlight for ads in the second quarter was the fact that Hyundai chose Magalou's media platform, Lu of Magalou, to launch i20.

Speaker #2: That's the big launch of Hyundai in the Brazilian market. It's the second car produced in Brazil, and the platform in Piracicaba to launch their product.

Speaker #2: And they launched it with Lu. Lu got a driver's license, launched the product, our efforts to advertise this new car were not limited to Luz's presence in communication.

Speaker #1: This 20%, considering the crop we have now, is already positive, and it's way higher than the app, noting that we work with products with higher tickets than the market, and this recurrence is not usual, it's very positive.

Speaker #2: We used all of our media channels, social media, and we are using all that. And Hyundai i20 is already the third best-selling car in Brazil, and a lot of dealerships they're out of product.

Speaker #1: And then NPS of 85, that's generating that Luz WhatsApp and our e-commerce initiative is one big highlight. Now going to the service platforms, I'd like to highlight Magalu Ads, we had a growth of CTR sponsored products of 51% versus Q2 25, active sellers, advertising increased 13%.

Speaker #2: So, showing the possibility for us to monetize our audience and the good work done by our ads team. This is a strong highlight. We were very happy with this partnership, and we're happy that they're happy as well with the sale of their car.

Speaker #2: Of course, they have other communication fronts, but this was one of the highlights here. Of their launch. Now, this for Magalou Ads, and I'd like to move on.

Speaker #1: I'd like to highlight especially here, we're a platform not only for sellers and brands that sell through Magalu, but we have all of our audience, we have our stores, more than 20,000 panels and displays at stores, so we have a platform of retail media that works for other brands as well. And the main highlight for ads in the second quarter was the fact that QA chose Magalu's media platform, Luz do Magalu, to launch the i20 as the big launch of Hyundai in the Brazilian market—just the second car produced in Brazil, and the platform in Piracicaba—to launch their product.

Speaker #2: To Magalou Pay, as I said, one of the major financial highlights of our business. I'll mention the numbers quickly, but we can get into more details in the Q&A.

Speaker #2: Luisa Cred, another very good quarter with 15 billion TPV, portfolio of 20 billion, 135 million BRLs in income in the quarter. 32% growth year over year, and ROE of more than 23%.

Speaker #2: Our IF starting with the portfolio growth, we already have 100% of consumer credit originations in the new financial institution. We also have a portfolio in retail that's going down, and we can explain it later, but our IF started with 17 million net income, we launched the CDB for our IF this quarter, so it operates our CDC started operating 100% of consumer credit this quarter.

Speaker #1: And they launched it with Luz, Luz got a driver's license, launched the product, our efforts to advertise this new car were not limited to Luz presence in communication, we used all of our.

Speaker #1: Media channels, all that. And Hyundai i20 is already the third best-selling car in Brazil, and a lot of dealerships are out of product, so showing the possibility for us to monetize our audience and the good work done by our ads team.

Speaker #2: So, a very positive start. I'd also like to highlight that insurance portfolio or operations with 8% growth with 11 million BRLs in premiums in the quarter.

Speaker #1: This is a strong highlight. We were very happy with this partnership, and we're happy that they're happy as well with the sale of their car.

Speaker #2: And 11 million actually insurance contracts. And we have one of the biggest consortium operations in Brazil, the sales were up 2 billion BRLs in the second quarter, 30% increase year over year.

Speaker #1: Of course they have other communication fronts, but this was one of the highlights here of their launch. Now this for Magalu Ads, and I'd like to move on.

Speaker #2: More than 11 billion of assets active portfolio in the management and net income of 15 million in our consortium. So, overall, our financial businesses are doing well with a very positive outlook.

Speaker #1: To Magalu Pay, as I said, one of the major financial highlights of our business—I'll mention the numbers quickly, but we can get into more details in the Q&A.

Speaker #2: Especially with the ramp-up of our financial company. And we would like to be able to give you more details in the Q&A. I'd also like to highlight 15% in orders delivered for third parties in the second quarter.

Speaker #1: This is a thread—another very good quarter, with R$15 billion in TPV, a portfolio of R$20 billion, R$135 million in DRLs in income in the quarter, 32% growth year over year, and an ROE of more than 23%. Our IF, starting with portfolio growth—we already have 100% of consumer credit originations in the financial institution. We also have a retail portfolio that’s going down, and we can explain that later, but our IF started with R$17 million net income. We launched the CDB for our IF this quarter, so it operates our CDC, started operating 100% of consumer credit this quarter, so a very positive start.

Speaker #2: Without considering the volume with Amazon, that will start from the third quarter. We have new clients coming in, like TPL or Logistica, Fini, Nestlé.

Speaker #2: Samsung, we announced and closed the contract with them. Very positive numbers here. We increased the number of hubs. So, in addition of having the stores, we have the pickup bases.

Speaker #2: And our main distribution centers, now we have 200 units in operation. We opened 27 new hubs in the logistics network, and we are working very strongly on operational efficiency in the use of technology.

Speaker #2: But there's nothing as great as increasing volume. So, Magalou is in a very positive context, with a lot of opportunities. Very few carriers have it same level or NPS above 95% as Magalou has, and it's cost.

Speaker #1: I'd also like to highlight our insurance portfolio, or operations, with 8% growth, with R$11 million in premiums in the quarter, and 11 million actual insurance contracts.

Speaker #2: And the fact that these volumes are short, shared with Magalou, help us have a very competitive offer for the market. We're excited with this possibility.

Speaker #1: And we have one of the biggest consortium operations in Brazil, the sales were up 2 billion BRLs in the second quarter, 30% increase year over year, more than 11 billion of assets active portfolio in the management, and net income of 15 million in our consortium.

Speaker #2: Finally, before turning to Beth, , I'd like to highlight Magalou Cloud. The first Brazilian cloud with a global scale. We went from more than 1,700 clients growing 24% with external clients.

Speaker #1: So overall, our financial businesses are doing well, with a very positive outlook. Especially with the ramp up of our financial company, and we would like to be able to give you more details in the Q&A.

Speaker #2: We also announced this quarter that we had approved funding of 300 million BRLs with BNDES for Magalou Cloud. This number is not going to be disbursed all at once, but it's going to be 100 million starting this quarter, and we'll increase these disbursements in the coming quarters.

Speaker #1: I'd also like to highlight Magalu, with an increase of 15% in orders delivered for third parties in the second quarter, without considering the volume with Amazon that will start from the third quarter.

Speaker #1: We have new clients coming in, like TPL Logistica, Fini, Nestlé, Samsung, we announced and closed the contract with them. Very positive numbers here. We increased the number of hubs, so in addition of having the stores, we have the pickup bases, and our main distribution centers, now we have 200 units in operation, we opened 27 new hubs, and the logistics network, and we are working very strongly on operational efficiency, and the use of technology, but there's nothing as great as increasing volume.

Speaker #2: And it will be the invested numbers are mostly in research and development. That is the main focus here of this funding for our team who's creating very good products.

Speaker #2: For example, we launched our first AI product at Magalou Cloud. So now, we're able to provide our Magalou client inference both for GPUs that are in our infrastructure and for models that are outside of Magalou Cloud.

Speaker #1: So Magalu is in a very positive context, with a lot of opportunities, very few carriers have it same level, or NPS above 95%, as Magalu has, and it's cost, and the fact that these volumes are short, shared with Magalu, help us have a very competitive offer for the market.

Speaker #2: Models that we call bedrock-like, a model to be able to provide that to clients in the central system and have that inference for everyone.

Speaker #2: Fatala can explain this further. And we expanded three availability zones in the southeast and expanded data centers. So, we are getting more and more certifications as well.

Speaker #1: We're excited with this possibility. Finally, before turning to Betto, I'd like to highlight Magalu Cloud, the first Brazilian cloud with a global scale, we went from more than 1,700 clients, growing 24% with external clients, we also announced this quarter that we had approved funding of 300 million BRLs with BNDES for Magalu Cloud, this number is not going to be disbursed all at once, but it's going to be 100 million starting this quarter, and we'll increase these disbursements in the coming quarters.

Speaker #2: Such as ISO 27001, Nest, SOC 2, a lot of certificates. That are either fully achieved or being activated. And that's for us important, especially to sell cloud for public services.

Speaker #2: That's one of the biggest focus for the national sovereignty of data. That's more and more critical. That's the main opportunity for Magalou Cloud that is in this growing aspect of this data sovereignty and this certifications are crucial for us to be able to provide these services and take part on government bids or regulated private sectors as well that I believe are very important.

Speaker #1: And it will be the invested numbers are mostly in research and development, that is the main focus here of this funding, for our team who's creating very good products, for example, we launched our first AI product, at Magalu Cloud, so now we're able to provide our Magalu client inference, both for GPUs that are in our infrastructure, and for models that are outside of Magalu Cloud, models that we call Bedrock-like, a model to be able to provide that to clients in the central system, and have that inference for everyone.

Speaker #2: So, we're here at a very good moment for Magalou Cloud, and we can give you more details in the Q&A. I'll turn over to Beth for the financial highlights.

Speaker #1: Thank you very much, Fred. Good morning, everyone. Thank you for being with us in this conference call for the second quarter of 2026. I will briefly go over the financial highlights once again.

Speaker #1: We have reached a gross revenue of 11 billion in this quarter. A variation of 2%. A reduction of 2%. And major highlight, I believe the audio was not very good, just one second.

Speaker #1: Fatala can explain this further, and we expanded three availability zones in the Southeast, and expanded data centers, so we are getting more and more certifications as well, such as ISO 27001, Nest, SOC 2, a lot of certificates, that are either fully achieved or being activated, and that's for us important especially to sell cloud for public services, that's one of the biggest focus for the national sovereignty of data, that's more and more critical, that's the main opportunity for Magalu Cloud, that is in this growing aspect of this data sovereignty, and this certifications are crucial for us to be able to provide these services, and take part on government bids, or regulated private sectors as well, that I believe are very important.

Speaker #1: So, resuming our main highlight was the growth in physical stores gross margin one of the highest for a second quarter. Around 30.6%. Our EBITDA with an 8% margin.

Speaker #1: So we're here at a very good moment for Magalu Cloud, and we can give you more details in the Q&A. I'll turn over to Betto for the financial highlights.

Speaker #1: Our net result was a loss of 50 million. In this quarter, affected by the interest rate that is very high. And also impacting our financial expenses.

Speaker #1: Thank you very much, Fred. Good morning, everyone. Thank you for being with us in this conference call for the second quarter of 2026. I will briefly go over the financial highlights once again, we have reached a gross revenue of 11 billion in this quarter, a variation of 2%, a reduction of 2%, and major highlight, I believe the audio was not very good, just one second, so resuming our main highlight was the growth in physical stores, gross margin one of the highest for a second quarter, around 30.6%, our EBITDA with an 8% margin, our net result was a loss of 50 million, and this quarter affected by the interest rate that is very high, and also the impact in our financial expenses, and we'll be talking more about that, and we ended the quarter with a robust total cash position, almost 6 billion, and almost 1 billion of net cash on the next slide, we have the consistency of our EBITDA margin over the past quarters, for over two years we have been able to maintain the EBITDA margin close to 8%, we talked about the gross margin, and merchandise gross margin with the share of the stores, and also with the help of services revenue as well as the increase of the CDC buy now pay later share, so physical stores also growing, the expansion of fulfillment, omnichannel strategy, also very strong SG&A control, Fred talked about this, we were able to reduce the sales expenses around 3% to 4% compared to past year, considering present inflation of 4% to 5%, and also we were able to maintain administrative expenses basically stable, vis-à-vis last year.

Speaker #1: And we'll be talking more about that. And we ended the quarter with a robust total cash position almost 6 billion. And almost 1 billion of net cash.

Speaker #1: On the next slide, we have the consistency of our EBITDA margin over the past quarters. We're over two years. We have been able to maintain the EBITDA margin close to 8%.

Speaker #1: We talked about the gross margin and merchandise gross margin with the share of the stores. And also with the help of services revenue as well as the increase of the CDC buy now pay later share.

Speaker #1: So, physical stores also growing. The expansion of fulfillment. Nitchano strategy. Also very strong SG&A control. Fred talked about this. We were able to reduce the sales expenses around 3% to 4% compared to past year, considering present inflation of 4% to 5%.

Speaker #1: And also we were able to maintain administrative expenses basically stable vis-à-vis last year. And despite of inflation. So, we have been able to control well our operating expenses and Luisa Cred and Magalou pays results.

Speaker #1: Once again, have been very strong. On the next page, we have the breakdown for our EBITDA margin. And comparing to last year, the gross margin has improved SG&A also has improved to 0.10.

Speaker #1: So, here we have also improved our equity income and 0.20. So, all of these positive factors have offset an increase in provisions of 0.4%.

Speaker #1: And I will go over the details on these variation regarding the provisions. This had already happened in the first quarter. And once again, this is very much related to the improvement of our CDC portfolio.

Speaker #1: Which has grown from June of last year from 1.5 billion to June of this year to 2 billion. So, it went up over 30% provisions have increased in the same period in 25%.

Speaker #1: So, they have gone up lower than the portfolio. And this is in line with our strategy. Of measuring sales by the CDC, the buy now and pay later.

Speaker #1: And despite of inflation. So we have been able to control well our operating expenses and Luiza Cred and Magalu pays results once again, have been very strong.

Speaker #1: And this portfolio reflects also allowed us to have more interests and more which more than offset the increase in provisions. Most of the interests are still in retail.

Speaker #1: On the next page, we have the breakdown for our EBITDA margin, and compared to last year, the gross margin has improved. SG&A has also improved, zero to ten, so here we have also improved our equity income in zero to twenty. All of these positive factors have offset an increase in provisions of 0.4%. I will go over the details on these variations regarding the provisions.

Speaker #1: Accounted here in this merchandise gross margin. But also here we are transitioning to our financial company. And this is going to be clearer because the financial company portfolio has already increased and interest is 10 to migrate.

Speaker #1: And the next 12 months. Totally to our financial services branch. And that's going to be clearer for all of us. In addition to all of the other benefits of the financial services, because we will have transparency, tax benefits, funding costs, and so on.

Speaker #1: This had already happened in the first quarter, and once again, this is very much related to the improvement of our CDC portfolio, which has grown from June of last year, from $1.5 billion, to June of this year, to $2 billion.

Speaker #1: On the next page, we have our working capital. And I have an observation here. We call it adjusted because these are operating adjusted assets and minus liabilities.

Speaker #1: So it went up over 30%, provisions have increased, and the same period, in 25%, so they have gone up lower than the portfolio, and this is in line with our strategy, of measuring sales by the CDC, the buy now and pay later, and this portfolio reflects also allowed us to have more interests and more which more than offset the increase in provisions, most of the interests are still in retail, accounted here, and this merchandise gross margin but also here we are transitioning to our financial company and this is going to be clearer because the financial company portfolio has already increased and interest is 10.

Speaker #1: So, when you compare that to last year, we have a better position. We are going from 1.9 billion to 2.3 billion. And this is specific quarter.

Speaker #1: Our working capital was sideways. But there was a qualitative improvement that was very important. And I will go over it. In this quarter, one of the main highlights in terms of working capital was that we were able to reduce inventory levels in almost 600 million rows.

Speaker #1: One of the main reductions for a single quarter. And also, we were able to bring down receivables. Which is very much related to our CDC, which is migrating to our financial company.

Speaker #1: We plan to migrate, over the next 12 months, entirely to our financial services branch—and that's going to be clearer for all of us, in addition to all of the other benefits of financial services, because we will have transparency, tax benefits for funding costs, and so on.

Speaker #1: So, here our receivables in the consolidated has come down over 200 million. So, on the side of the asset, we improved 800 million. And on the liability side, we reduced the balance of suppliers and now most 800 million as well.

Speaker #1: So, for the assets, we improved inventory turnover. This is very important. And also receivables reduction. We'll keep on happening on the next quarters as well.

Speaker #1: On the next page, we have our working capital. I have an observation here: we call it adjusted because these are operating adjusted assets minus liabilities. So, when you compare that to last year, we have a better position; we are going from $1.9 billion to $2.3 billion. This is for a specific quarter. Our working capital was sideways, but there was a qualitative improvement that was very important, and I will go over it.

Speaker #1: And on the liability, the balance for suppliers happened it was a reduction and it happened because as we said in the prior quarter, we purchased a lot in the first quarter so that we could be prepared for the world cup.

Speaker #1: And also to avoid stock out of products and products that were related to a global scarcity of memory chips. So, this was a bad.

Speaker #1: In this quarter, one of the main highlights in terms of working capital was that we were able to reduce inventory levels in almost 600 million rows, one of the main reductions for a single quarter, and also we were able to bring down receivables, which is very much related to our CDC, which is migrating to our financial company, so here our receivables in the consolidated has come down over 200 million, so on the side of the assets, we improved 800 million, and on the liability side, we reduced the balance of suppliers and now most 800 million as well, so for the assets, we improved inventory turnover, this is very important, and also receivables reduction, we'll keep on happening on the quarter as well, and on the liability, side, the balance for suppliers happened it was a reduction and it happened because as we said in the prior quarter, we purchased a lot in the first quarter so that we could be prepared for the world cup, and also to avoid a stock out of products and products that were related to a global scarcity of memory chips, so this was a bad, it worked to increase inventory and the second quarter, we sold everything and we reduced inventory levels once again, therefore we had a payment volume for the second quarter that was slightly higher than usual, therefore bringing down the suppliers balance and the good news is that we now have room for payments in the third quarter, to be lower, so to the right, we have our financial expenses and we see that it was basically stable vis-à-vis the first quarter, interest rates started to come down, they could have been lower but we did have some of this effect, of the higher payments for suppliers, therefore also a receivables prepayment higher in the second quarter, which tends not to happen in the third and fourth quarters, so the perspective from now on is to have lower payments and with purchase less in the second quarter, we will pay less in the third quarter, we will have less prepayment of receivables and we will have a stronger cash generation in the third quarter, and also lower financial expenses, and combining all of that with interest rates that is now coming down, we have also a better perspective for financial expenses in the second half of the year.

Speaker #1: It worked to increase inventories and the second quarter we saw that everything and we reduced inventory levels once again. Therefore, we had a payment volume for the second quarter that was slightly higher than usual.

Speaker #1: Therefore, bringing down the suppliers balance and the good news is that we now have room for payments in the third quarter. To be lower.

Speaker #1: So, to the right, we have our financial expenses and we see that it was basically stable vis-à-vis the first quarter. Interest rates started to come down.

Speaker #1: They could have been lower but we did have some of this effect. Higher payments for suppliers. Therefore, also a receivables prepayment higher in the second quarter, which tends not to happen in the third and fourth quarters.

Speaker #1: So, the perspective from now on is to have lower payments and with purchase less in the second quarter, we will pay less in the third quarter.

Speaker #1: We will have less prepayment of receivables and we will have a stronger cash generation in the third quarter. And also lower financial expenses. And combining all of that with interest rates that is now coming down, we have also a better perspective for financial expenses and the second half of the year.

Speaker #1: Turning to the next slide, we have our total cash position. And we see that the operating cash flow was around 300 million rows. Once again, this could have been much higher if it were not for the concentration of suppliers payments in the second quarter.

Speaker #1: But it was enough to cover our investments and also our leasing account. Now, the cash variation here is associated to the payment of interests as well as dividends which have been paid in the second quarter.

Speaker #1: We paid interest that were provisioned in the quarter prior quarter. So, our total debt basically came down from 5.1 billion in March to 4.9 billion in June.

Speaker #1: Therefore, reflected reflecting in the cash variation here. On the next slide, our total liquidity here 1.8 billion of cash. And 4 billion in receivables available.

Speaker #1: Minus 4.9 billion of gross debt. Then we ended with net cash of 800 million. We are now reporting here the position for CDC of our financial branch.

Speaker #1: Turning to the next slide, we have our total cash position, and we see that the operating cash flow was around 300 million rows, once again, this could have been much higher if it were not for the concentration of suppliers payments in the second quarter, but it was enough to cover our investments and also our leasing account, now the cash variation here is associated to the payment of interests as well as dividends which have been paid in the second quarter, we paid interest that were provisioned in the quarter or prior quarter, so our total debt basically came down from 5.1 billion in March to 4.9 billion in June, therefore reflected reflecting in the cash variation here, on the next.

Speaker #1: And also CDB. For our financial company. So, we have new accounts in our balance sheet so that it is more transparent to all of you.

Speaker #1: Here we also include in the capital structure the credit portfolio and also the funding from CDB. So, our net cash goes up to 1 billion.

Speaker #1: We ended the quarter with 450 million in net portfolio and 250 million in CDB. So, there's a difference here of 200 million that increases our cash or net cash credit portfolio.

Speaker #1: And finally, our debt schedule we have here a final amortization of the venture issue issuance in the fourth quarter. We will end the year with basically 4 billion.

Speaker #1: Slide our total liquidity. Here 1.8 billion of cash and 4 billion in receivables available, minus 4.9 billion of gross debt, then we ended with net cash of 800 million, we are now reporting here the position for CDC of our financial branch and also CDB for our financial companies, so we have new accounts in our balance sheet so that it is more transparent, to all of you, here we also include in the capital structure the credit portfolio and also the funding from CDB, so our net cash goes up to 1 billion, we ended the quarter with 450 million in net portfolio and 250 million in CDB, so there's a difference here of 200 million that increases our cash or net cash plus a credit portfolio, and finally, our debt schedule we have here a final amortization of the 10th, the venture issue in the fourth quarter, we will end the year with basically 4 billion, we started the year with 5 billion, so there's a downward trend here for our debt schedule of 1 billion for this year.

Speaker #1: We started the year with 5 billion. So, there's a downward trend here for our debt schedule of 1 billion. For this year. On the next slide, we have information on Luisa Cred.

Speaker #1: A portfolio of 20 billion growing 2% base of clients of 5.7 million. With our ROE of 23.5%. Luisa Cred is a very well capitalized once again.

Speaker #1: It ended the quarter with a base ratio of almost 15%. I mentioned that starting based on this base ratio, it already has to pay dividends and to return this profit to shareholders delinquency has come down year on year.

Speaker #1: A significantly both the short term as well as the long term one. And it have a quarter that was significant with a profit or net profit of 135 million growing more than 30% even with the increase of the social contribution tax rate on the financial company.

Speaker #1: On the next slide, to conclude, I have some highlights for Magalupe. The credit portfolio growing significantly since May. We have turned the key and we started to originate 100% of our CDC and the stores within our financial branch.

Speaker #1: On the next slide, we have information on Luiza Cred, a portfolio of 20 billion growing 2%, a baseline of 5.7 million with our ROE of 23.5%, Luiza Cred is a very well capitalized.

Speaker #1: And the portfolio already has reached an amount well, considering interest to compare that with retail with migrated over 600 million out of the total.

Speaker #1: Portfolio of 2 billion gross. This is how it is accounted for and retail. But we already have around 600 million in our financial branch and 1.4 billion in retail.

Speaker #1: Again, it ended the quarter with a baseline ratio of almost 15%, I mentioned that starting based on this baseline ratio, it already has to.

Speaker #1: Dividends and to return this profit to shareholders, delinquency has come down year on year, significantly in both the short term as well as the long term. And we have a quarter that was significant, with a net profit of 135 million, growing more than the increase of the social contribution tax rate on the financial company. On the next slide, too.

Speaker #1: So, we have migrated around 30%. And this portfolio should briefly go over 1 billion. So, funding in CDBs over 250 million in very few months.

Speaker #1: We also capitalized our financial company in the beginning in 200 million. So, we have a base ratio of over 50%. And also we have posted results for this quarter.

Speaker #1: With a net income of 17 million. These figures will increase but in this quarter analyzing this quarter, we have already had an ROE of over 30% in our financial institution.

Speaker #1: Include, I have some highlights for Magalup A, the credit portfolio growing significantly since May, we have turned the key and we started to originate 100% of our CDC in the stores within our financial branch, and the portfolio already has reached an amount to well, considering interests, to compare that with retail with migrated over 600 million out of the total, portfolio of 2 billion gross.

Speaker #1: These were the main financial highlights. So, now I turn the floor back to Fred. Or better, yeah, we will start the Q&A and I'm available.

Speaker #1: We are all available to take your questions. Thank you. We will now start the Q&A session to ask questions. Click on the Q&A icon on the bottom of your screen, write your name, the company, and the language of your question so that we can add you to the queue upon being announced.

Speaker #1: This is how it is accounted for in retail, but we already have around $600 million in our financial branch and $1.4 billion in retail, so we have migrated around 30%. This portfolio should briefly go over $1 billion.

Speaker #1: So. Funding in CDBs, over 250 million in very few months, we also capitalized our financial company in the beginning in 200 million, so we have a baseline ratio of over 50%, and also we have posted results for this quarter, with a net income of 17.

Speaker #1: The request to enable your microphone will pop up on the screen. And then you should open your microphone and ask your question. Our first question is from Luis Guanais from BTG.

Speaker #1: Please go ahead, Luis. Good morning, Vanessa. Beto and Fred. I have two questions. The first one, Fred, is if you can go over the partnerships once again.

Speaker #1: Million. These figures will increase, but analyzing this quarter, we have already had an ROE of over 30% in our financial institution.

Speaker #1: With the three P partnerships, how can we think about the unit economics of these partnerships compared to your one P? I understand that we have a number of opportunities here with services, as you mentioned, with Magalug.

Speaker #1: These were the main financial highlights, so now I turn the floor back to Fred, or—yeah, we will start the Q&A. I’m available, we are all available, to take your questions. Thank you.

Speaker #1: But if you can break that down so that we can understand the potential of this unit economics. Now, a second question. Talking about the increase of monetization of traffic that you also talked about.

Speaker #1: If you can give us more color on the advertising platform performance and progress and what can we expect for the performance of unit economics also.

Speaker #1: We will now start the Q&A session to ask questions, click on the Q&A icon on the bottom of your screen, write your name, the company, and the language of your question so that we can.

Speaker #1: Good morning, Luis and thank you very much for your question. Now, regarding the first question, rationale is very similar to what I said in the presentation.

Speaker #1: When you are added to the queue and announced, a request to enable your microphone will pop up on the screen. At that point, you should open your microphone and ask your question.

Speaker #1: Our first question is from Luiza Nice from BTG, please go ahead, Luiz. Good morning, Vanessa, Beto and Fred. I have two questions. The first one, Fred, is if you can go over the partnerships once again, with the three P partnerships, how can we think about the unit economics of these partnerships compared to your one P?

Speaker #1: The sales in third party platforms has to give us a contribution margin that is higher than the one that when I say I sell via a media channel like they click on Google.

Speaker #1: For instance. So, I have two large groups. Those that come in organically and purchase and those that come through a media channel. I consider these platforms equivalent to the media platforms, the channels are similar.

Speaker #1: I understand that we have a number of opportunities here with services, as you mentioned with Magalug, but if you can break that down so that we can understand the potential of this unit economics.

Speaker #1: To these media platforms. So, the assumption that we have been executing is that this has to be higher than the media channel and why?

Speaker #1: Now, a second question. Talking about the increase in monetization of traffic that you also mentioned, could you give us more color on the advertising platform’s performance and progress, and what we can expect in terms of unit economics as well?

Speaker #1: Because that client not necessarily is a recurring client because the partner has the information on the client. When someone comes to us via Google, we can have the whole information on the client.

Speaker #1: Good morning, Luiz, and thank you very much for your question. Now, regarding the first question, the rationale is very similar to what I said in the presentation.

Speaker #1: So, as an assumption, this has to be higher than the media channel and it is lower when the client comes to us and purchases directly from us.

Speaker #1: So, this is what we have in terms of a healthy partnership and sales process. So, when what we pay of take rate and receivable terms and delivery.

Speaker #1: The sales in third party platforms has to give us a contribution margin that is higher than the one that when I say I sell via a media channel like they click on Google, for instance, so I have two large groups, those that come in organically.

Speaker #1: So, we consider all of that and in addition to that, we have to have some level of reciprocity with the group services. For instance, Magalug or another possibility of reciprocity or the categories that we mentioned.

Speaker #1: Purchase and those that come through a media channel. Consider these platforms equivalent to the media platforms. The channels are similar, to these media platforms, so the assumption that we have been executing is that this has to be higher than the media channel and why?

Speaker #1: We got that with the AliExpress and in the new in these new platforms, we also might have this reciprocity in the catalog. The second question.

Speaker #1: About advertising. If you can go over the size of the opportunity. Well, the fact here is that we have an audience of 500 million visits a month and also stores visits.

Speaker #1: Because that client not necessarily is a recurring client, because the partner has the information on the client. When someone comes to us via Google, we can have the whole information on the client, so as an assumption this has to be higher than the media channel and it is lower when the client comes to us and purchases directly from us.

Speaker #1: So, for us, for the expansion on Cisco stores with the CDI is still high. Of course, the retail media, well, Galleria Magalug was feasible because of retail media.

Speaker #1: So this is what we have in terms of a healthy partnership and sales process, so when what we pay of take rate and receivable terms and delivery, so we consider all of that and in addition to that we have to have some level of reciprocity with the group services.

Speaker #1: We signed contracts. This was a store that was developed to be a brand place. So, we have closed the whole year with advertising the ads team worked hard to sell physical areas, physical spaces.

Speaker #1: They are also packages that can make the best use of the store. The store has a lot of LED panels. So, both in the physical and the online that is very important for us.

Speaker #1: For instance, Magalug or another possibility of reciprocity or the categories that we mentioned, we got that with the AliExpress and in the new in these new platforms we also might have this reciprocity in the catalog.

Speaker #1: It's very important to have this participation of ads as I told you we had 13% growth in active sellers and we have a higher CTR specifically about three P which is where we have an effort to improve profitability that's where things are more challenging.

Speaker #1: The second question. About advertising. If you can go over the size of the opportunity to you. Well, the fact here is. That we have an audience of 500 million visits a month and also stores visits.

Speaker #1: So for us, the expansion of physical stores with the CDI is still high. Of course, retail media—well, Galeria Magalu was feasible because of retail media. We signed contracts.

Speaker #1: We have been able to double the footprint of ads year on year which helps us improve our contribution margin for three P. So, specifically for three P, this is very relevant and for the stores as well.

Speaker #1: So, here we see the main opportunities. And as I said, sometimes we have opportunities that we call non-endemic. These are brands that are not in the platform such as Hyundai that we mentioned.

Speaker #1: This was a store that was developed to be a brand place, so we have closed the whole year with advertising the ads team worked hard to sell physical areas, physical spaces.

Speaker #1: They are also packages that can make the best use of the store, the store has a lot of LED panels, so both in the physical.

Speaker #1: Which is something that is an added value and it contributes to our results. Excellent, Fred. Thank you very much for your answers. Thank you for your questions.

Speaker #1: The online, that is very important for us. It's very important to have this participation of ads, as I told you, we had 13% growth in active sellers and we have a higher CTR, specifically about 3P, which is where we have an effort to improve profitability that's where things are more challenging.

Speaker #1: The next question is from Irma. Goldman Sachs. Irma. The floor is yours. Good morning. I hope you can hear me. I would like to ask about something that it might be too early about this partnership with Amazon.

Speaker #1: Can you tell us about learnings or what has surprised you in terms of client profile or type of product? So, maybe the journey of this client and the platform and also in terms of operations.

Speaker #1: We have been able to double the footprint of ads year on year, which helps us improve our contribution margin for 3P. So specifically for 3P, this is very relevant and for the stores as well.

Speaker #1: So here we see the main opportunities, and as I said, sometimes we have opportunities that we call non-endemic. These are brands that are not on the platform, such as Hyundai, that we mentioned, which is something that is an added value and it contributes to our results.

Speaker #1: This integration. And the second question. Also, consumption environment. We have seen a few companies and we have seen also data pointing to a potential deceleration and the second half of the year.

Speaker #1: So, I would like to hear from you about your expectations regarding that and obviously if there is a I know that there was a demand peak because of the World Cup, but things now are normalizing.

Speaker #1: Excellent, Fred, thank you very much for your answers. Thank you for your questions. The next question is from Irma. Goldman Sachs. Irma, the floor is yours.

Speaker #1: So, how do you see the second half of the year? Thank you very much. Good morning, Irma. This is Fabrizio. Thank you for your question.

Speaker #1: Good morning. I hope you can hear me. I would like to ask about something that it might be too early, about this partnership with Amazon.

Speaker #1: I will be answering about Amazon and the second half of the year as well. At Amazon, sales have surprised us in the beginning. We started at Amazon and we do not have the prime sale yet.

Speaker #1: Can you tell us about learnings or what has surprised you in terms of client profile or type of product? So maybe the journey of this client and the platform, and also in terms of operations, this integration. And the second question: also the consumption environment.

Speaker #1: With that badge, it will be there in October. So, we are delivering an average price every term of delivery that is not the final one.

Speaker #1: So, the main highlight here is on the white line as we expected the heavy items that we operate very well. I think better than everybody else in the market has been a highlight.

Speaker #1: But the categories performing well. TVs, furniture, we are very happy about this partnership. And we believe that as we get this prime badge, we will have an even better performance.

Speaker #1: We have seen a few companies, and we have also seen data pointing to a potential deceleration in the second half of the year, so I would like to hear from you.

Speaker #1: About your expectations regarding that and obviously if there is a I know that there was a demand peak because of the World Cup, but things now are normalizing, so how do you see the second half of the year?

Speaker #1: So, this is a very positive perspective for the second half of the year. And again, for the upcoming months, we are very confident because now we should go back to growing online with our partner platforms and we will have El Nino this year.

Speaker #1: Thank you very much. Good morning, Irma. This is Fabricio. Thank you for your question. I will be answering about Amazon and the second half of the year as well.

Speaker #1: The warm weather makes a big difference for us because that line of air conditioning really moves the needle also refrigeration. And when the weather is warmer, this helps us.

Speaker #1: At Amazon, sales have surprised us in the beginning we started at Amazon and we do not have the prime sale yet, with that badge, it will be there in October, so we are delivering an average price every term of delivery that is not the final one, so the main highlight here is on the white line, as we expected, the heavy items that we operate very well, I think better than everybody else in the market, has been a highlight.

Speaker #1: So, we are very well planned. We are already receiving those items that should help us in the second half of the year. We believe that the upcoming months will be good.

Speaker #1: We will have a good performance. Thank you very much. Thank you for your questions, Irma. The next question comes from Lucas Esteves from Santander.

Speaker #1: Regarding the categories performing well—TVs, furniture—we are very happy about this partnership, and we believe that, as we get this Prime badge, we will have even better performance.

Speaker #1: Lucas, please. Good morning, Fred. Vanessa and the whole team. I have two questions. The first one is about agentic e-commerce. I think you talked a lot about this on the release and I would like to know how you foresee the future of e-commerce agentic e-commerce based on proprietary platforms such as Lu or if you believe that the foundation channels will be the main channels with the clients and how Magalug intends to maintain that direct relationship with clients and tap into value from this ecosystem.

Speaker #1: So this is a very positive perspective for the second half of the year. And again, for the upcoming months, we are very confident because now we should go back to growing online with our partner platforms and we will have El Nino this year.

Speaker #1: The warm weather makes a big difference for us because that line of air conditioning really moves the needle. Also refrigeration. And when the weather is warmer, this helps us, so we are very well planned.

Speaker #1: And my second question more related to profitability. The last two years, you have prioritized profitability rather than growth. So, when do you believe that the company will be comfortable to go back to accelerating digital without letting go of the margin discipline?

Speaker #1: We are already receiving those items that should help us in the second half of the year. We believe that the upcoming months will be good.

Speaker #1: We will have a good performance. Thank you very much. Thank you for your questions, Irma. The next question comes from Lucas Esteves from Santander.

Speaker #1: And if you have a specific trigger. For that. Thank you. Hello, Lucas. This is Fatala. Thank you for your question. I will address the e-commerce question.

Speaker #1: Lucas, please. Good morning, Fred. Better. And the whole team. I have two questions. The first one is about agentic e-commerce. I think you talked a lot about this on the release, and I would like to know how you foresee the future of agentic e-commerce based on proprietary carrier platforms, such as Lu, or if you believe that the foundation channels will be the main channels with the clients. And how does Magalu intend to maintain that direct relationship with clients and tap into value from this ecosystem?

Speaker #1: Yes, we believe that major platforms are developing experience on top of a purchasing experience for clients and we have seen an initiative of open AI that tried to do the checkout as well and then they went back.

Speaker #1: They took a step back with the movement. They learned a lot from it. So, we already see a model with Google as well and some different retail fronts developing their own experience.

Speaker #1: And my second question more related to profitability. And the last two years, you have prioritized profitability rather than growth. So when do you believe that the company will be comfortable to go back to accelerating digital without letting go of the margin discipline?

Speaker #1: We believe that the asset that we have with Lu that has been created over the years is a differential and also the development of an experience which is very much focused on details.

Speaker #1: And if you have a specific trigger for that. Thank you. Hello, Lucas. This is Tala. Thank you for your question. I will address the e-commerce question.

Speaker #1: Many of these major models that are doing something that is more generic end up not having this detailed work of the experience and that hinders conversion and since the beginning of the work with Lu, we are focusing on it.

Speaker #1: Yes, we believe that major platforms are developing experience on top of a purchasing experience for clients and we have seen an initiative of open AI that tried to do the checkout as well and then they went back.

Speaker #1: We try to understand the consumer journeys and we remove friction so that we increase conversion. This is what we have been looking for and Fred was talking about it with the figures that we already have that are very good compared to what we have seen in the market.

Speaker #1: They took a step back. The movement, they learned a lot from it. So we already see a model with Google. As well and some different retail France developing.

Speaker #1: And there is a lot to be developed in the process in our case what we want to do with Lu now is that she can have the full understanding of the consumer's preferences to store a memory of everything that they do of Lu and also in the sales channels and based on that we can have customization level very much directed and focused on that person.

Speaker #1: Their own experience. We believe that the asset we have with Lu, which has been created over the years, is a differentiator and also the development of an experience that is very much focused on details.

Speaker #1: Many of these major models that are doing something more generic end up not having this detailed work on the experience, and that hinders conversion. Since the beginning of the work with Lu, we are focusing on it.

Speaker #1: So, understanding the preferred vans, the categories, and what is the shopping moment of that client and therefore delivering that experience. That should be more customized and keep on growing in order to have a higher e-commerce conversion when compared to traditional channels.

Speaker #1: We try to understand the consumer journeys and we remove friction so that we increase conversion. This is what we have been looking for, and Fred was talking about it with the figures that we already have, which are very good compared to what we have seen in the market. There is a lot to be developed in the process. In our case, what we want to do with Lu now is for her to have a full understanding of the consumer's preferences, to store a memory of everything that they do with Lu and also in the sales channels. Based on that, we can have a customization level very much directed and focused on that person.

Speaker #1: Good morning and thank you for your question. About the second part of your question. Regarding online growth, as I said, we truly believe that especially in the fourth quarter, but also starting on a few months in the third quarter, we will be harvesting the fruits of these platform listings and third-party ones.

Speaker #1: As I mentioned, we will be announcing at least another one in the very short term. We are very quick in implementing our catalog in these platforms and we have a very good penetration with our logistics all over Brazil, also inventory levels all over the country.

Speaker #1: So understanding the preferred bands, the categories, and what is the shopping moment of that client and therefore delivering that experience. That should be more customized and keep on growing in order to have a higher e-commerce conversion when compared to traditional channels.

Speaker #1: So, in the very short term, the way that we can go back to growing on online with the profitability that is our prerequirement is by these partnerships and according to our estimates, there is a great possibility of being able to switch the strand already in the fourth quarter and in a few months of the third quarter.

Speaker #1: Good morning and thank you for your question about the second part of your question. Regarding online growth, as I said, we truly believe that especially in the fourth quarter, but also starting on a few months in the third quarter, we will be harvesting the fruits of these platform listings and third-party ones.

Speaker #1: We are confident about it. And when you go in like Fabrizio mentioned, you start with a solution that is an intermediary one but then you learn how to sell in these platforms or if you increase the possibility of gaining buy box in these platforms with a number of things that will be announced from now on.

Speaker #1: As I mentioned, we will be announcing at least one more in the very short term. We are very quick at implementing our catalog on these platforms, and we have very good penetration with our logistics all over Brazil, as well as inventory levels throughout the country.

Speaker #1: I believe we can do that. So, the possibility of selling and of having great volumes and platforms is great because we are a seller that have national penetration we can we have good prices and our service level is excellent.

Speaker #1: So in the very short term, the way that we can go back to growing on online with the profitability that is our prerequirement is by these partnerships and according to our estimates, there is a great possibility of being able to switch the strand already in the fourth quarter and in a few months of the third quarter.

Speaker #1: So, we are going to get these buy boxes. So, there's a great chance that we'll be able to make this reversion in the second semester.

Speaker #1: So, great Fred and Fatala. Good morning to you. Thank you, Lucas, for your questions. The next question is from Jovana from UBS. Jovana, please, you may go ahead.

Speaker #1: We are confident about it and when you go in like Fabrizio mentioned, you start with a solution that is an intermediary one, but then you learn how to sell in these platforms or if you increase the possibility of gaining buy box in these platforms with a number of things that will be announced from now on.

Speaker #1: Good morning. Thank you for taking our questions. The first is about the sales performance after the World Cup, how it's been and how do you imagine the same store sales evolution going forward.

Speaker #1: And the second, you talked about the impact of memory chips prices. I'd like to understand your expectation for this scenario going forward and how you see the margins evolving in coming quarters.

Speaker #1: I believe we can do that. So the possibility of selling and of having great volumes and platforms is great because we are a seller that have national penetration we can we have good prices and our service level is excellent.

Speaker #1: Good morning. Jovana, this is Fabrizio. So, sales after the World Cup, the TV category, of course, has a bit of a hangover, but our store sales continue to grow.

Speaker #1: So we are going to get these buy boxes. So there is a great chance that we'll be able to make this reversion in the second semester.

Speaker #1: This quarter should grow high single digit. And the trend is for it to continue to grow in the physical stores until the end of the year, which is also benefited.

Speaker #1: So great Fred and Fatala. Good morning to you. Thank you, Lucas, for your questions. The next question is from Jovana from UBS. Jovana, please, you may go ahead.

Speaker #1: We should continue to see growth and stores increasing market share and we're very confident with that. As for the memory chips, we already had part of the cost pass through in the coming quarters.

Speaker #1: Good morning. Thank you for taking our questions. The first is about the sales performance for the World Cup, how it's been and how we imagine the same store sales evolution going forward.

Speaker #1: We see that the mobile phone category should see a small cost pass through and notebooks we imagined should remain stable. Till the end of the year.

Speaker #1: And the second, you talked about the impact of memory chips prices. I'd like to understand your expectation for this scenario going forward and how you see the margins evolving incoming quarters.

Speaker #1: But it's not that predictable because demand remains high from the big techs and the scenario shall stabilize in terms of prices at the beginning of next year.

Speaker #1: Good morning. Jovana, this is Fabrizio. So, sales after the World Cup in the TV category, of course, have a bit of a hangover, but our store sales continue to grow.

Speaker #1: So, it's still slightly uncertain scenario in terms of the memory cost. Thank you for the answers. Thank you, Jovana. Next question. Pedro from XP.

Speaker #1: This quarter should grow highest single digit and the trend is for it to continue to grow in the physical stores until the end of the year, which is also benefited we should continue to growth and stores increasing market share and we're very confident with that.

Speaker #1: Pedro, please, go ahead. Good morning, Fred. Beto Vanessa, thank you for this opportunity. I'd like to explore a little bit Magalu Pay. I think you've made great progress at Magalu Pay with positive results in the quarter and as you mentioned, it's still not at its full potential.

Speaker #1: As for the memory chips, we already had part of the cost pass through in the coming quarters. We see that the mobile phone category should see a small cost pass through and notebooks we imagined should remain stable.

Speaker #1: Since the CDC at the new financial company is quite recent. I'd like to understand a little bit more how far it can go, where it can reach.

Speaker #1: Until the end of the year. But it's not that predictable because the trend remains high from the big techs, and the scenario should stabilize in terms of prices at the beginning of next year.

Speaker #1: And already linking it to profitability, it all moves towards a good fourth quarter. With a partnership of the platforms going well, there's Black Friday Magalu Pay scaling up.

Speaker #1: So it's still slightly uncertain scenario in terms of the memory costs. Thank you for the answers. Thank you, Jovana. Next question. Pedro from XP.

Speaker #1: So, do you think it will be possible to resume a profit 2027? Those are my questions. Thank you. Thank you. This is York. And then more specifically of the financial company.

Speaker #1: Pedro, please go ahead. Good morning, Fred. Beto Vanessa, thank you for this opportunity. I'd like to explore a little bit Magalu Pay. I think you've made great progress at Magalu Pay with positive results in the quarter and as you mentioned, it's still not at its full potential.

Speaker #1: So, as Fred said, during the presentation, we have four verticals at Magalu Pay. At different moments, at different points, but which are all going well.

Speaker #1: Since the CDC at the new financial company is quite recent. I'd like to understand a little bit more how far it can go, where it can reach, and already linking it to profitability, it all moves towards a good fourth quarter with a partnership with the platforms going well.

Speaker #1: So, Luisa Cred, that is a more mature operation. We focused over the last 12 months a lot more in quality control of the portfolio and you see the reflection of that in improved provisions and efficiency.

Speaker #1: With a decrease of administrative expenses. We have a growth challenge and we are also implementing platform improvements. There's an important platform change now in the second half of the year.

Speaker #1: There's Black Friday, MagaluPay is picking up. So do you think it will be possible to resume a profit level in the fourth quarter or 2027?

Speaker #1: Those are my questions. Thank you. Thank you. This is York. For Magalu Pay, I'll start talking about Magalu Pay overall and then more specifically of the financial company.

Speaker #1: Going towards microservices that will definitely improve the exposure products and client monetization. And we're also focusing on evolving a better value proposition for the cards leveraging the synergy with the ecosystem.

Speaker #1: So as Fred said, during the presentation, we have four verticals at Magalu Pay. At different moments, at different points, but which are all going well.

Speaker #1: We have IP with all of our digital accounts. Processing and insurance. This is also doing very well. A major engine for results. This aspect of this vertical is insurance that's going quite well, especially in terms of digital penetration with more growing more than 20% year on year.

Speaker #1: So Luisa Cred, that is a more mature operation. We focused over the last 12 months a lot more in quality control of the portfolio and you see the reflection of that in improved provisions and efficiency.

Speaker #1: And stores that is also very sound. Quickly about consortium. Consortium is strongly benefited by the interest environment in Brazil, but we are growing through platform improvements and a strong focus on residential and auto consortiums.

Speaker #1: With a decrease of administrative expenses. We have a growth challenge. And we are also implementing platform improvements. There's an important platform change now in the second half of the year.

Speaker #1: Going towards microservices that will definitely improve the exposure of products and client monetization. And we're also focusing on evolving a better value proposition for the cards leveraging the synergy with the ecosystem.

Speaker #1: And we expect these to continue hitting record sales. And the financial company itself finally, that's a major point here at your question. We have both financial benefits with the new structure.

Speaker #1: We have IP with all of our digital accounts. Processing and insurance. This is also doing very well. A major engine for results. This aspect of this vertical is insurance that's going quite well, especially in terms of digital penetration with more growing more than 20% year on year.

Speaker #1: And I think in the last quarters, we've run a lot with the tax. Efficiency, we are able to capture with the replacement of the portfolio coming from the retail where we incurred on ICMS taxes at a higher level for the financial company.

Speaker #1: We only have IOF that are at lower rates. So, there's a tax improvement close to 20%. In addition to having the funding of third-party resources and operating at a higher leverage.

Speaker #1: And stores that is also very sound. Quickly about consortium. Consortium is strongly benefited by the interest environment in Brazil, but we are growing through platform improvements and a strong focus on residential and auto consortiums.

Speaker #1: So, there's a financial market that's naturally supported by this change in structure. But we also have operational benefits that you will be able to see over time.

Speaker #1: And we expect these to continue hitting record sales. And the financial company itself—finally, that's a major point here to your question—we have both financial benefits with the new structure.

Speaker #1: One of the improvements we've already been able to start to implement, that's the much better seller experience. For exposure and payments and the second part that I believe you start to see more towards the end of this year, beginning of next year, which is this strong focus on portfolio quality with an upgrade of credits intelligence and collection.

Speaker #1: And I think in the last quarters, we've run a lot with the tax efficiency we are able to capture with the replacement of the portfolio coming from the retail, where we incurred on ICMS.

Speaker #1: This coffins taxes at a higher level for the financial company. We only have OF. This and coffins that are at lower rates. So there's a tax improvement close to 20%.

Speaker #1: So, we are implementing a new credit engine. We have a new team developing and starting to implement in August. The initial tests of the new models that are machine learning based operating with data from our ecosystem.

Speaker #1: In addition to having the funding of third-party resources and operating at a higher leverage. So there's a financial market that's naturally supported by this change in structure.

Speaker #1: And the new collection system that we believe will also bring a lot of synergies to the operation in the coming year. Thinking about all of that and looking at what we had of results in the financial company and retail, we operated with ROE of 20%, IOA of 2%.

Speaker #1: But we will also be able to see this over time. One of the improvements we've already started to implement is a much better seller experience.

Speaker #1: For exposure and payments, and the second part that I believe you start to see more towards the end of this year, beginning of next year, which is this strong focus on portfolio quality with an upgrade of credit intelligence and collection.

Speaker #1: We don't have a lot of ROE because since we're going to operate with a focus on capital, this can impact the metrics. But ROA we believe that without a doubt we can unlock a lot of value and this 2% may be more than 3%, for example.

Speaker #1: So we're implementing a new credit engine. We have a new team developing and starting to implement in August. The initial tests of the new models that are machine learning based operating with data from our ecosystem.

Speaker #1: I don't want to be too focused on numbers here, but this is only going to come when we have the operation stabilized. We have some implementations, regulatory implementations in the coming half year.

Speaker #1: And the new collection system that we believe will also bring a lot of synergies to the operation in the coming year. Thinking about all of that and looking at what we had of results in the financial company and retail, we operated with ROE of 20%, IRA of 2%.

Speaker #1: And I believe starting in 2027, you'll be able to capture a lot of this potential already. Thank you. Pedro, good morning. This is thank you for your question.

Speaker #1: We don't have a lot of ROE because, since we're going to operate with a focus on capital, this can impact the metrics. But ROA—we believe that, without a doubt, we can unlock a lot of value, and this 2% may be more than 3%, for example.

Speaker #1: I'll talk a little bit about this topic. We don't provide a guidance, unfortunately. So, we can't be as specific. But I'd like to reinforce this.

Speaker #1: We turned a profit in the last two years. We talked a lot about everything we're doing to resume sales growth with discipline in terms of growth margin, selling more.

Speaker #1: I don't want to be too focused on numbers here, but this is only going to come when we have the operation stabilized. We have some implementations, regulatory implementations in the coming half year.

Speaker #1: At healthy growth margins, we can dilute our operating expenses even more. We've been able to keep them in control like you've noted. Very strictly.

Speaker #1: And I believe starting in 2027, you'll be able to capture a lot of this potential already. Thank you. Pedro. Good morning. This is thank you for your question.

Speaker #1: But with more sales. We have more room for operational leverage and to be able to improve operating margins overall. With more sales, we can also generate better inventory or have a better inventory turnover we believe that in order to meet all of these new platforms we are able to sell a lot more with the inventory we have today.

Speaker #1: I'll talk a little bit about this topic. We don't provide a guidance, unfortunately. So we can't be as specific. But I'd like to reinforce this.

Speaker #1: We turned a profit in the last two years. We talked a lot about everything we're doing to resume sales growth. With discipline in terms of growth margin, selling more at healthy growth margins.

Speaker #1: So, we'll also see a dilution in inventory. We'll be improved inventory turnover with through sales increase that increase cash increases cash generation, which as a result also help reduce the exposure that I mentioned that we also believe.

Speaker #1: We can dilute our operating expenses even more. We've been able to keep them in control like you've noted. Very strictly. But with more sales.

Speaker #1: Future interest rates are already lower. Note that this last quarter future interest rates increased a lot due to the war in Iran. The price of oil, but that also impacted financial expenses in the second quarter.

Speaker #1: We have more room for operational leverage and to be able to improve operating margins overall. With more sales, we can also generate better inventory or have a better inventory turnover.

Speaker #1: Future interest rates now are pointing down. And we believe that's the trend. So, we start to benefit in the prepayment of receivables line. With this level of future interest at a lower level.

Speaker #1: We believe that in order to meet all of these new platforms, we are able to sell a lot more with the inventory we have today.

Speaker #1: So we'll also see a dilution in inventory. We'll be improved inventory turnover with through sales increase that increase cash increases cash generation, which as a result also help reduce the exposure that I mentioned that we also believe combined to a future interest rates, are already lower notes that this last quarter future interest rates increased a lot due to the war in Iran, the price of oil, but that also impacted financial expenses in the second quarter.

Speaker #1: So, we have Luisa Cred. Delinquency remains very low. Very healthy sustainable profits and everything that we talked about our financial what York mentioned about the financial company.

Speaker #1: So, we have the good ingredients and we're doing everything to strengthen this trend. Profitability that you mentioned. Thank you, Pedro. Excellent. Thank you, Batu and York.

Speaker #1: A nossa próxima pergunta vem do Andrew. Our next question is from Andrew. Morgan Stanley. This question is going to be in English and the answer in Portuguese.

Speaker #1: Future interest rates now are pointing down. And we believe that's the trend. So we start to benefit in the prepayment of receivables line. With this level of future interest, at a lower level.

Speaker #1: Andrew, the floor is yours. For the question. I'd like to understand just maybe an update on the strategy for your own marketplace. I know a lot of focus of how Magalu is selling elsewhere, but what does this mean for your own 3P strategy?

Speaker #1: So we have Luiza Cred, delinquency remains very low. Very healthy, sustainable. Profits and everything that we talked about our financial, what York mentioned about the financial company.

Speaker #1: And then just related question. As we think about fulfillment, I'm curious the characteristics of your fulfillment sellers versus non-fulfillment. Do you see them in any specific kind of seller sizes, categories, how they concentrate sales with Magalu or elsewhere?

Speaker #1: So we have the good ingredients and we're doing everything to strengthen this. Trend of profitability that you mentioned. Thank you, Pedro. Excellent. Thank you, Beth and York.

Speaker #1: These updates on your marketplace would be helpful. Thank you. Good morning, Andrew. Thank you for your question. I will start answering it and then I'll turn the floor to Garrido.

Speaker #1: Our next question is from Andrew. Morgan Stanley. This question is going to be in English and the answer in Portuguese. Andrew, the floor is yours.

Speaker #1: He is in charge of 3P. Well, first, we continue having significant efforts for 3P. But our decision when I said in the beginning about something important of our curatorship is that we are going to concentrate on the categories in which we have a competitive advantage or some type of in these categories.

Speaker #1: For the question. I'd like to understand just maybe an update on the strategy for your own marketplace. I know a lot of focus of how Magalou is selling elsewhere, but what does this mean for your own 3P strategy?

Speaker #1: And then just related question. As we think about fulfillment, I'm curious the characteristics of your fulfillment sellers versus non-fulfillment. Do you see them in any specific kind of seller sizes, categories, how they concentrate sales with Magalou or elsewhere?

Speaker #1: So, we have here endurable goods, a strong focus and a wonderful performance for 3P. We'll keep on going over sellers for these categories. Same thing for sports products.

Speaker #1: Updates on your marketplace would be helpful. Thank you. Good morning, Andrew. Thank you for your question. I will start answering and then I'll turn the floor to Garrido.

Speaker #1: And I choose also Epoca with beauty, gaming with Kaboom. So, in these categories, we wanted to leave that one-stop shop concept and to go to a concept where we are a brand place, a company that sells products with added value, the high perceived value, and we have reviewed the categories in which we believe that we have a good potential and will be focusing investments on those both for hunting as well as investments and marketing for direct channels.

Speaker #1: He is in charge of 3P. Well, first, we continue having significant efforts for 3P. But our decision, when I said in the beginning about something important.

Speaker #1: Of our curatorship is that we are going to concentrate on the categories in which we have a competitive advantage or some type of right shoeing in these categories.

Speaker #1: So, we have here durable goods, a strong focus, and a wonderful performance for 3P. We'll keep on going over sellers for these categories. Same thing for sports products.

Speaker #1: This is just an overview and I'll turn to Garrido so that he can go over this answer. And also talk about fulfillment. Thank you, Fred.

Speaker #1: And good morning, Andrew. As Fred mentioned, we are prioritizing profitability and avoiding going into a margin destruction, but we are also working on two other fronts.

Speaker #1: And I choose also Epoca with beauty, gaming with Kaboom. So in these categories, we wanted to leave that one-stop shop concept and to go to a concept where we are a brand place, a company that sells products with added value, the high perceived value, and we have reviewed the categories in which we believe that we have a good potential and we'll be focusing investments on those both for hunting as well as investments and marketing for direct channels.

Speaker #1: One of them is what Fred mentioned about choosing categories. We have prioritized in our analysis here categories where we have sales maximization that is we are already leaders and also bringing sales to other categories such as home not only furniture and white line but also portable portables and this also has a strong distribution and the high recurrence for clients.

Speaker #1: This is just an overview and I'll turn to Garrido so that he can go over this answer. And also talk about fulfillment. Thank you, Fred.

Speaker #1: So, we are working on these categories and starting to focus investments of these categories where we have less margin, less recurrence and less location to the categories where we have more of those.

Speaker #1: And good morning, Andrew. As Fred mentioned, we are prioritizing profitability and avoiding going into a margin destruction, but we are also working on two other fronts.

Speaker #1: So, that we have good margin to invest in them. So, also the second front which is also very important is that we have been working in improving the foundation so that we have organic scale to the platform to the to recover growth we have to have logistics and sellers and as we have mentioned here not only price subsidies.

Speaker #1: One of them is what Fred mentioned about choosing categories. We have prioritized in our analysis here the categories where we have sales maximization—that is, where we are already leaders—and also bringing sales to other categories, such as home.

Speaker #1: So, we are working on scales for this platforms and in June we have 13% higher ads with visits than we had in the prior year and the prior year we were going down in this number.

Speaker #1: Not only furniture and white line, but also portable and this also has a strong distribution and a high recurrence for clients. So we are working on these categories and starting to focus investments of these categories where we have less margin, less recurrence and less replication to the categories where we have more of those so that we have good margin to invest in them.

Speaker #1: We grew our number of sellers. So, now we have 2% higher sellers with sales than what we had last year. And with a higher level all-time level of sellers with sales in active sellers.

Speaker #1: So also the second front, which is also very important, is that we have been working in improving the foundation so that we have an organic scale to the platform.

Speaker #1: So, the main drive here has been really the continuous growth of a logistics programs in the full is ahead of then, which has 25% of order, 2% points higher than last year, driven by two main things.

Speaker #1: To recover growth, we have to have logistics and sellers, and as we have mentioned here, not only price subsidies. So we are working on scaling these platforms, and in June we had 13% higher ad visits than we had in the prior year. In the prior year, we were going down in this number.

Speaker #1: One, the higher inventory levels for sellers, 26% more inventory in sellers, compared to what we had a year ago. And also with a higher coverage of orders that are delivered from distribution centers that are closer to clients.

Speaker #1: We have reached our all-time level, 2% points compared to last year. And this is a logistics intelligence, very close to what we have with 1P.

Speaker #1: We grew our number of sellers. So now we have 2% higher sellers with sales than what we had last year. And with a higher level all-time level of sellers with sales in active sellers.

Speaker #1: Naturally, there is a limit in growth here because the program. So, we have been controlling it in around 30%. It continued. It will continue growing, but not much.

Speaker #1: So the main driver here has been really the continuous growth of our logistics program, and the full year is ahead of them, which has 25% of orders—2 percentage points higher than last year—driven by two main things.

Speaker #1: And we are investing in other programs as well. For instance, we have reduced the number of deliveries 3P deliveries that were done by post office from 10 to 2% from when you're to another.

Speaker #1: And we are investing a lot in the very fast delivery program. We call that VAP. And here we have delivery areas that are closed to buyers.

Speaker #1: One, the higher inventory levels for sellers, 26% more inventory in sellers. Compared to what we had a year ago. And also with a higher coverage of orders that are delivered from distribution centers that are closer to clients.

Speaker #1: So, if they close nearby they will have a delivery on the same day. They that's paid by the client. Therefore, we have a protected margin we have been able to reach 16% of São Paulo to São Paulo deliveries using this program in the second half of the year will be expanding that to five more capitals in Brazil.

Speaker #1: We have reached our all-time level, 2 percentage points higher compared to last year. And this is logistics intelligence, very close to what we have with 1P.

Speaker #1: Naturally, there is a limit in growth here because this is a program in which we spend more. So we have been controlling it in around 30%.

Speaker #1: So, we have been able to improve the foundations of marketplace to grow organically. That's it. Thank you both. Thank you for your questions, Andrew.

Speaker #1: It continued. It will continue growing, but not much. And we are investing in other programs as well. For instance, we have reduced the number of deliveries 3P deliveries that were done by post office from 10 to 2% from when you're to another.

Speaker #1: Our next question is from Wellington from Bank of America. Wellington, the floor is yours. Thank you, Vanessa. Good morning, back to Fred and the whole team.

Speaker #1: And we are investing a lot in the very fast delivery program. We call that VAP. And here we have delivery areas that are closed to buyers.

Speaker #1: I have two questions here. The first one is related to how you have been able to keep profitability dilute expenses and I would like to understand if when we look ahead you had you have opportunities to reduce expenses and costs.

Speaker #1: So if they close nearby they will have a delivery on the same day. That's paid by the client. Therefore, we have a protected margin we have been able to reach 16% of São Paulo to São Paulo deliveries using this program.

Speaker #1: In the second half of the year, we'll be expanding that to five more capitals in Brazil. So, we have been able to improve the foundations of the marketplace to grow organically.

Speaker #1: Where do you see more opportunities there? And how we can look ahead so that we can understand the profitability? And I also have a question related to the World Cup behavior.

Speaker #1: That's it. Thank you for your questions, Andrew. Our next question is from Wellington from Bank of America. Wellington, the floor is yours. Thank you, Vanessa.

Speaker #1: Do you think that there was ahead of the time maybe Black Friday purchases and end of the year because consumption might be more cautious now.

Speaker #1: Good morning, Beth to Fred and the whole team. I have two questions here. The first one, it's related to how you have been able to keep profitability dilute expenses and I would like to understand if when we look ahead you had opportunities to reduce expenses and costs.

Speaker #1: These are my questions. Thank you. Good morning. Thank you very much for your question. Yes. We are working to map opportunities to reduce expenses.

Speaker #1: Where do you see more opportunities there? And how we can look ahead so that we can understand the profitability? And I also have a question related to the World Cup behavior.

Speaker #1: Do you think that there was a an anticipation or of electronics or people purchase ahead of the time maybe Black Friday purchases and end of the year?

Speaker #1: And I think most of it has not been implemented yet. I believe we have a lot to implement in the second half. We are working on our organization structure and also all of the accounting accounts of the company.

Speaker #1: Because consumption might be more cautious now. These are my questions. Thank you. Good morning. Thank you very much for your question. Yes. We are working to map opportunities to reduce expenses.

Speaker #1: Small ones and also hiring consulting services. Softwares, software licenses, cloud expenses. Logistics. Deliveries. We have a number of opportunities here to be tapped into in the second half of the year.

Speaker #1: And we believe that we'll be able to improve that even market. Has opportunities that I believe we are doing good numbers in terms of the dilution of SG&A.

Speaker #1: And I think most of it has not been implemented yet. I believe we have a lot to implement. And the second half of the year we are working on our structure and also all of the accounting accounts of the company.

Speaker #1: It's always difficult because we have indexation. We have inflation. Inflation is now more controlled and that will help us as Beto mentioned in reducing interest rates I believe that the market is more positive in reducing expenses but also it helps in the lease path through is also in the collective bargaining agreement.

Speaker #1: Small ones, and also hiring consulting services, software, software licenses, and cloud expenses. Logistics, deliveries—we have a number of opportunities here to be tapped into in the second half of the year.

Speaker #1: So if we can have a lower indexation of the economy and also tap into everything that we are projecting and I cannot give you details because all of these data are sensitive.

Speaker #1: And we believe that we'll be able to improve that. Even marketing has opportunities. I believe it will be delivering good numbers in terms of the dilution of SG&A.

Speaker #1: You know projects took down expenses but we are confident that we will be. Delivering on that front as we have been doing in the last quarters but the core of the project has not been tapped into yet.

Speaker #1: It's always difficult because we have indexation we have inflation. Inflation is now more controlled and that will help us as Beth mentioned in reducing interest rates I believe that the market is more positive in reducing expenses but also it helps in the lease pass through is also in the collective bargaining agreement.

Speaker #1: About the sales in the second quarter as I mentioned TV category always has a hangover after World Cup especially now August and September third quarter I believe it will go back to normal.

Speaker #1: This is common to happen in a World Cup period but we have things that will be helping us in the second half of the year.

Speaker #1: So, if we can have a lower indexation of the economy and also tap into everything that we are projecting—and I cannot give you details, because all of this data is sensitive.

Speaker #1: First is the warm weather the also the partners that we will have in the platform and also we'll be very well planned for the end of the year.

Speaker #1: You know projects to cut down expenses but we are confident that we will be delivering on that front. As we have been doing in the last quarters.

Speaker #1: I believe our Black Friday will be strong. So our perspective for the last quarter is very good. Perfect. Thank you very much. Thank you, Wellington, for your questions.

Speaker #1: But the core of the project has not been tapped into yet. About the sales in the second quarter, as I mentioned, the PV category always has a hangover after the World Cup, especially now. August and September, third quarter, I believe it will go back to normal.

Speaker #1: Next question. Guilherme at HSBC. Guilherme, you may go ahead. Good morning. Thank you for this opportunity. You answered my question in part but I'd like to understand about the evolution of sales month.

Speaker #1: This is common to happen in a World Cup period. But we have things that will be helping us in the second half of the year.

Speaker #1: And how you saw July specifically about the quarter if there's any change in demand or the behavior of consumers and also limiting to the second quarter.

Speaker #1: First is the warm weather, also the partners that we'll have in the platform and also we'll be very well planned for the end of the year.

Speaker #1: I believe our Black Friday will be strong. So our perspective for the last quarter is very good. Perfect. Thank you very much. Thank you, Wellington, for your questions.

Speaker #1: The FIFA World Cup was beneficial for the company but we had that huge issue when the country of the increase of betting. From June to May compared to May there was a 300% increase in the number of gamblers.

Speaker #1: On betting and if you can comment whether you perceive if there's a perception of the effect of betting in the consumption of the quarter in any category or whether the World Cup offset it this impact.

Speaker #1: Next question, Guilherme at HSBC. Guilherme, you may go ahead. Good morning. Thank you for this opportunity. You answered my question in part but I'd like to understand about the evolution of sales month by month in the second quarter and how you saw July specifically about the quarter.

Speaker #1: Thank you. Thank you for your question, Guilherme. This is Fabricio. About July, in July we were not that benefited by the World Cup. Brazil was eliminated before that.

Speaker #1: If there's any change in demand or the behavior of consumers and also on limiting to the second quarter. The FIFA World Cup was beneficial for the company but we had that huge issue when the country of the increase of betting.

Speaker #1: So we had the expectation of get to the quarterfinals at least but we lost about a week of sales of TV sales. Mostly. In physical stores even with this less aggressive TV sales we maintained growth.

Speaker #1: From June to May compared to May there was a 300% increase in the number of gamblers. On betting. And if you can comment whether you perceive there is a perception of the effect of betting in the consumption of the quarter in any category or whether the World Cup offset it this impact.

Speaker #1: It high digit in physical stores in July starting the quarter well and the online has a similar dynamics from what we've been presenting. We should improve August should be better than July and September should be a lot better than July and August and the last quarter will probably ramp up.

Speaker #1: Thank you. Thank you for your question, Guilherme. This is Fabricio. About July, in July we were not that benefited by the World Cup. Brazil was eliminated before that.

Speaker #1: The scenario of sales is that the World Cup was very good in June the quarter's sales dynamics is very much based on what we said before and it's going to start warming up in August 20th and our sales start to improve.

Speaker #1: So we had the expectation of get to the quarterfinals at least but we lost about a week of sales, of TV sales. Mostly. In physical stores even with this less aggressive TV sales we maintained growth.

Speaker #1: And now Fred. For bets. It's natural that when there's World Cup betting increases but betting and Brazil 70% is not actually sports related. It's more like online casinos than I'm the vice president of IDV in addition to being in Magalus CEO.

Speaker #1: It. A high digit in physical stores in July. Starting the quarter well. And. The online has a similar dynamics from what we've been presenting.

Speaker #1: We should improve August should be better than July and September should be a lot better than July and August. And the last quarter will probably ramp up.

Speaker #1: The scenario of sales is that. The World Cup was very good in June. The quarter's sales dynamics is very much based on what we said before.

Speaker #1: IDV is very local all Brazilian retailers have been very vocal about the fact that betting addiction kills in addition of being an economic problem almost 300 billion BRLs last year were moved by the bets although part of that goes back to gamblers we saw recent data that the volume of losses was dozens of billions of BRLs for betters for gamblers and everything that does not go even what goes back to gamblers is still tied into the betting system.

Speaker #1: And it's going to start warming up on August 20th, and our sales will start to improve. For bets, it's natural that when there's a World Cup, the volume of betting increases.

Speaker #1: But betting in Brazil—70% of it is not actually sports-related. It's more like online casinos than sports. And I'm the vice president of IDV in addition to being Magalu's CEO.

Speaker #1: There's a lot of gamification so that they keep their money there and this money is leaving it's moving away from consumption for the families.

Speaker #1: IDV is very local. All Brazilian retailers have been very vocal about the fact that betting addiction kills in addition of being an economic problem almost 300 billion BRLs last year were moved by the bets although part of that goes back to gamblers we saw recent data that the volume of losses was dozens of billions of BRLs for betters, for gamblers.

Speaker #1: So it is a serious problem and that is growing exponentially with very few actions taken to control it. It's a problem not only economic but it's a public health problem.

Speaker #1: I think we're being we should be acting more on that. We should already have advertising restrictions. We should have more betting controls the best revolution regulation in the world for betting is the one implemented in England.

Speaker #1: And everything that does not go, even what goes back to gamblers, is still tied into the betting system. There's a lot of gamification so that they keep their money there.

Speaker #1: And this money is leaving. It's moving away from consumption. For the families. So it is a serious problem. And that is growing explanationally with very few actions taken to control it.

Speaker #1: In the UK they have a regulatory agency monitoring these companies. So I see a situation that is growing. There is a serious economic problem but I believe it's even bigger because as I said betting or gambling kills so it's an issue we have as Brazilians and it's an election year and we should demand a commitment from our candidates to the presidency and senate and congress about their position because I think I believe a lot of Brazilians we should be more proactive in the sense of demanding concrete measures concrete proposals about gambling.

Speaker #1: It's a problem not only economic but it's a public health problem. I think we're being we should be acting more on that. We should already have advertising restrictions.

Speaker #1: We should have more betting controls. The best regulatory framework in the world for betting is the one implemented in England. In the UK, they have a regulatory agency monitoring these companies.

Speaker #1: So I see a situation that is growing. There is a serious economic problem but I believe it's even bigger because as I said betting or gambling kills so it's an issue we have as Brazilians and it's an election year and we should demand a commitment from our candidates to the presidency and senate and congress about their position.

Speaker #1: Thank you, Guilherme, for your questions. Next question. Antonio, please. You may go ahead. Good morning. Thank you for the opportunity to ask questions. I'd like to get into two points.

Speaker #1: First, I think was detailed by my colleagues previously but I'd like to go a little bit deeper maybe about your capacity to reduce expenses especially in a more challenging macroeconomic scenario or more challenging as it is for a longer period of time.

Speaker #1: Because I think I believe a lot of Brazilians we should be more proactive in the sense of demanding concrete measures, concrete proposals about gambling.

Speaker #1: I mean with a flat revenue you've been able to maintain margins. So how these two scenarios would make it more difficult to maintain margins at that level.

Speaker #1: Thank you, Guilherme, for your questions. Next question. Antonio. From Jefferies. Antonio, please, you may go ahead. Good morning. Thank you for the opportunity to ask questions.

Speaker #1: Or what would maybe lead to operational deleveraging. Another point is that I'd like to understand. I think that the company or the value of the company is less in retail itself but more on everything retail allows or enables everything that you have that is connected to retail.

Speaker #1: I'd like to get into two points. First, I think was detailed by my colleagues previously but I'd like to go a little bit deeper maybe about your capacity to reduce expenses especially in a more challenging macroeconomic scenario or more challenging as it is for a longer period of time.

Speaker #1: So how much do you intend in the medium term to open the numbers more proactively about other segments about Magalug about Magalupe's different initiatives because then we can understand this dynamic of a flat revenue but other segments with more added value growing.

Speaker #1: I mean with a flat revenue you've been able to maintain margins. So how these two scenarios would make it more difficult to maintain margins at that level.

Speaker #1: Or what would maybe lead to operational deleveraging. Another point is that I'd like to understand. I think that the company or the value of the company is less in retail itself but more on everything retail allows or enables.

Speaker #1: The product the merchandise doesn't grow but Magalug grows. Magalupe grows. Consortium grows. So what's your initiative about that? Those are my questions. Thank you.

Speaker #1: Everything that you have that is connected to retail. So how much do you intend in the medium term to open the numbers more proactively about other segments, about Magalog, about Magalupe's different initiatives because then we can understand this dynamic of a flat revenue but other segments with more added value growing.

Speaker #1: Good morning. Thank you for your questions. About the expenses. I just talked about that but I'd like to stress the following. If there's something that does not depend on the macro scenario is expenses it's fully in our hands.

Speaker #1: It's our decision. Maybe it's one of the few accounts in our balance sheets that depend only on us on our capacity to be efficient there is a strong agenda now that we didn't mention that is important which is to diversify AI and processes.

Speaker #1: The product, the merchandise doesn't grow but Magalog grows. Magalupe grows. Consortium grows. So what's your initiative about that? Those are my questions. Thank you.

Speaker #1: We ran a test of AI in the company and I believe that all of the companies leaderships have the incentive to use AI for process improvements either increasing productivity of programmers.

Speaker #1: Good morning. Thank you for your question. About the expenses. I just talked about that but I'd like to stress the following. If there's something that does not depend on the macro scenario is expenses it's only in our hands.

Speaker #1: It may not even be optimizing and automating processes. It's doing better the control of the call center with greater automation and customer service all the processes even audit is using that.

Speaker #1: It's our decision. Maybe it's one of the few accounts in our balance sheets that depend only on us, on our capacity to be efficient.

Speaker #1: So I think there's a huge opportunity to use artificial intelligence for more efficient processes. Expenses do not depend on the macro scenario. It depends they depend on the discipline and focus and the determination of our team to make decisions to think that are not focusing only on a vain metrics like having a large team having a lot of people here it's a lot of responsibility but we need to think about efficiency working on the cultural aspect as well for expenses is important and I think that when you have more and more people and leaders concerned about it and now with the possibility of having tools that help them become more efficient which is brought by AI but why are we putting so much money in AI in the world because there's a significant share of those investments that are focused on increasing productivity that's precisely what we're seeking at Magalu.

Speaker #1: There is a strong agenda now that. Didn't mention that is important which is to diversify AI and processes. We ran a test of AI in the company and I believe that all of the companies leaderships have the incentive to use AI for process improvements either increasing productivity of programmers.

Speaker #1: It may not even be about optimizing and automating processes. It's about having better control of the call center with greater automation and customer service. All the processes, even audit, are using that.

Speaker #1: So I think. There's a huge opportunity to use artificial intelligence for more efficient processes. Expenses do not depend on the macro scenario. It depends they depend on the discipline and focus and the determination of our team to make decisions to think that are not focusing only on a vain metrics like having a large team, having a lot of people here.

Speaker #1: So we have hundreds of initiatives here developed by our leaders for automation and improvement of expenses not to mention all the other traditional works in the sense of containing expenses in these cases.

Speaker #1: It's a lot of responsibility but we need to think about efficiency. Working on the cultural aspect as well for expenses is important. And I think that when you have more and more people and leaders concerned about it and now with the possibility of having tools that help them become more efficient which is brought by AI but why are we putting so much money in AI in the world.

Speaker #1: So that does not depend on macro scenarios. It depends on our discipline and our determination. Antonio, thank you for your question. I think talking a little bit about our earnings release what we disclose we seek an ideal balance between providing a lot of information and maybe sometimes making it more difficult to understand and the details from our investors versus not providing enough information that on the other hand would also hinder understanding or a full understanding of our ecosystem.

Speaker #1: Because there's a significant share of those investments that are focused on increasing productivity. That's precisely what we're seeking at Magalupe. So we have hundreds of initiatives here developed by our leaders for automation and improvement of expenses.

Speaker #1: Not to mention all the other traditional works in the sense of containing expenses in these cases. So that does not depend on macro scenarios.

Speaker #1: It depends on our discipline and our determination. Antonio, thank you for your question. I think talking a little bit about our earnings release and what we disclose.

Speaker #1: So I thank you for your question. This is something that we're always looking at always seeking to evolve this quarter specifically we started to provide more color about the financial company Magalupe that I think is an evolution and before that all of the interest in our CDC portfolio were mixed with a merchandise growth margin and just to give you an idea and a portfolio of 2 billion VRLs considering an interest rate that we charge and the average duration we have revenue of interest in this portfolio of more than 1 billion VRLs that was before within the margin form merchandise subject to ICMS taxes.

Speaker #1: We seek an ideal balance between providing a lot of information and maybe sometimes making it more difficult to understand and the details from our investors versus not providing enough information that on the other hand would also hinder understanding or a full understanding of our ecosystem.

Speaker #1: So I thank you for your question. This is something that we're always looking at, always seeking to evolve this quarter specifically we started to provide more color about the financial company Magalupe that I think is an evolution and before that all of the interest in our CDC portfolio were mixed with merchandise, gross margin and just to give you an idea and a portfolio of 2 billion BRLs considering an interest rate that we charge and the average duration we have revenue of interest in this portfolio of more than 1 billion BRLs that was before within the margin for merchandise subject to ICMS base and COFINS taxes.

Speaker #1: So now with this migration we'll have more transparence more tax benefits more stronger results in the financial company Magalupe. The other platforms in our ecosystem each of them is at a different point in their maturity and we believe that in the right at the right time we will begin providing more information for example about the performance of Magalu cloud and the performance of our Magalug as well and so on.

Speaker #1: So we are seeking the right time to give you the ideal volume of information seeking to have a balance between complexity and simplicity and depth for you.

Speaker #1: So now with this migration we'll have more transparence, more tax benefits, more stronger results in the financial company Magalupe. The other platforms in our ecosystem each of them is at a different point in their maturity and we believe that in the right at the right time we will begin providing more information for example about the performance of Magalupe Cloud and the performance of our Magalog as well and so on.

Speaker #1: But thank you for your question Antonio. Thank you. Thank you very much Antonio. We're next question is from Nicholas at JP Morgan. Nicholas please.

Speaker #1: Thank you very much Vanessa. Good morning Beto Fred and the whole team and thank you for taking my question. I would like to talk about working capital.

Speaker #1: So we are seeking the right time to give you the ideal volume of information seeking to have a balance between complexity and simplicity and depth for you.

Speaker #1: We have seen improvements in the inventory levels with now in the second quarter we had a good influence from the World Cup and I would like to hear about your perspective for the year because you have debt metrics that you expect to settle by the end of the year.

Speaker #1: But thank you for your question Antonio. Thank you. Thank you very much Antonio. We're next question is from Nicholas at JP Morgan. Nicholas please.

Speaker #1: So what is the level of inventory for the next second half of the year and also receivables prepayment? How does volume should perform now?

Speaker #1: Thank you very much Vanessa. Good morning Beth to Fred and the whole team and thank you for taking my question. I would like to talk about working capital.

Speaker #1: Thank you. Thank you Nicholas for your question. I will go over one of about each one of the working capital accounts. So an inventories we have been able to reduce and we reduced it significantly in this quarter and we reached the level which was the lower inventory levels over under 7 billion in the last five years.

Speaker #1: We have seen improvements in the inventory levels with and now the second quarter we had a good influence from the World Cup and I would like to hear about your perspective for the year because you have debt metrics that you expect to settle by the end of the year.

Speaker #1: So, what is the level of inventory for the second half of the year, and also receivables prepayment? How should volume perform now? Thank you.

Speaker #1: Now the natural trend is to have it increase because of the Black Friday sales in the fourth quarter maybe it will see that going up in September but mainly in October and November that we will have an inventory peak and naturally we should bring that level down and we should finish the year at very healthy inventory levels and with inventory turnover that should be the best one in the year and better than last year considering what I mentioned before.

Speaker #1: Thank you Nicholas for your question. I will go over one of about each one of the working capital. Accounts. So an inventory is we have been able to reduce and we reduced it significantly in this quarter and we reached the level which was the lower inventory levels over under 7 billion in the last five years.

Speaker #1: We should resume growth without having to increase inventory levels to meet the needs of all platforms. And now so we are very well supplied with have good quality of inventory distribution.

Speaker #1: Now the natural trend is to have it increase because of the Black Friday sales and the fourth quarter maybe it will see that going up in September but mainly in October and November that we will have an inventory peak and naturally we should bring that level down and we should finish the year at very healthy inventory levels should be the best one in the year and better than last year considering what I mentioned before.

Speaker #1: We are well prepared for the sale acceleration and to improve inventory levels. For payments we intend to keep that. We do not have that much room to increase it much more.

Speaker #1: But we will maintain that term and improving inventory levels. We also improve that ratio between inventory levels and suppliers. I talked about receivables and the migration to our financial company.

Speaker #1: That we should resume growth without having to increase inventory levels to. Meet the needs of all platforms. And now so we are very well supplied with have good quality of inventory distribution.

Speaker #1: So in retail and working capital we should see a significant improvement. In June's position we still had 1.4 billion of receivables. In retail that tend to be amortized in the next 12 to 15 months and that will bring more cash to retail and this portfolio will grow in the financial company which is going to be financed by CDB's financial securities.

Speaker #1: We are well prepared for the sale acceleration and to improve inventory levels. For payments we intend to keep that. We do not have that much room to increase it much more.

Speaker #1: But we will maintain that term and improve inventory levels. We also improved that ratio between inventory levels and suppliers. I talked about receivables and the migration to our financial company.

Speaker #1: And so we are in financial bills and we are aiming here a base ratio of 20% and we'll be financing this portfolio with 80% especially with CDBs and financial bills.

Speaker #1: So, in retail and working capital, we should see a significant improvement. In June's position, we still had R$1.4 billion of receivables in retail that tend to be amortized in the next 12 to 15 months, and that will bring more cash to retail. This portfolio will grow in the financial company, which is going to be financed by CDBs and financial securities.

Speaker #1: So we tend to have a deleveraging here. We still have 1.4 billion to deleverage in the retail for the next quarters. I have not talked about taxes but we also have here a significant opportunity to accelerate taxes monetization.

Speaker #1: In this first half of the year we maintained the balance rather stable offsetting the monetary restatement of these balances. And in the second half of the year we should have a reduction in the main balance as well.

Speaker #1: And so we are in financial bills, and we are aiming here for a base ratio of 20%, and we will be financing this portfolio with 80%, especially with CDBs and financial bills.

Speaker #1: So we tend to have a. Deleveraging here. We still have 1.4 billion to deleverage in the retail for the next quarters. I have not talked about taxes but we also have here a significant opportunity to accelerate taxes monetization.

Speaker #1: So in addition to turning the monetary restatement in cash also we will have a reduction in the principal balance increasing the contribution of taxes for cash generation just last week we had a good news over 100 million in court deposits that have been released and approved.

Speaker #1: In this first half of the year we maintained the balance rather stable offsetting the monetary restatement of these balances. And in the second half of the year we should have a reduction in the main balance as well.

Speaker #1: We have 3 billion of ICMS PIS and coffees that we are monetizing organically with the tax reform. We also expect that the tax cash flow improves even more because it's going to be easier to offset that.

Speaker #1: So, in addition to turning the monetary restatement into cash, we will also have a reduction in the principal balance, increasing the contribution of taxes for cash generation. And just last week, we had good news: over 100 million in court deposits have been released and approved.

Speaker #1: We won't have this current dynamics of the tax replacement that we end up no paying taxes ahead of time. We prepay taxes. So I believe that in the next quarters and maybe in the year or two we'll be monetizing this taxes to be recovered a balance of 3 billion and also we have court deposits in 2 billion to be monetized and I believe most of that has already been fully approved especially default and had to fab.

Speaker #1: We have R$3 billion of ICMS, PIS, and COFINS that we are monetizing organically with the tax reform. We also expect that the tax cash flow will improve even more because it’s going to be easier to offset that.

Speaker #1: And this is already in the final court decision. So we have a lot of opportunities of cash contribution and contribution for our working capital to generate more cash and with all of that we have more resources to keep on reducing our indebtedness level.

Speaker #1: We won't have this current dynamic of the tax replacement, where we end up, you know, paying taxes ahead of time—we prepay taxes. So, I believe that in the next quarters, and maybe in a year or two, we'll be monetizing these taxes to be recovered, a balance of R$3 billion. And also, we have court deposits in R$2 billion to be monetized, and I believe most of that has already been fully approved, especially default and hatch fap.

Speaker #1: You also asked about that and we should be reducing indebtedness level by the end of the year. And also with this cash generation we bring down the volume of receivables prepayment.

Speaker #1: That is very much related to working capital. This happened in the second quarter. It should not happen just as the same in the second half of the year.

Speaker #1: And this is. The final court decision. So we have a lot of opportunities cash contribution and contribution for our working capital to generate more cash and with all of that we have more resources to keep on reducing our indebtedness level.

Speaker #1: So this receivables prepayment should be lower in the second half of the year and also the cost will be lower because there is going to be lower term here and also lower interest rates.

Speaker #1: You also asked about that, and we should be reducing indebtedness levels by the end of the year. Also, with this cash generation, we'll bring down the volume of receivables prepayment.

Speaker #1: So we are also aiming to reduce financial expenses and financial expenses on top of our results and with a reduction of the debt and also of the interest on the debt and interest rates on the debt and also the prepayment of receivables.

Speaker #1: That is very much related to working capital this happened in the second quarter. It should not happen just as the same in the second half of the year.

Speaker #1: So the receivables prepayment should be lower in the second half of the year, and also the cost will be lower because there is going to be a lower term here and also lower interest rates.

Speaker #1: We have a positive trend there, Nicholas. Very clear about it. Thank you very much. Encerramos neste momento a sessão.

Speaker #1: So, we are also aiming to reduce financial expenses, and financial expenses are on top of our results. With a reduction of the debt, and also of the interest on the debt and interest rates on the debt, and also the prepayment of receivables, we have a positive trend there.

Speaker #2: We end now the Q&A session. I would like to turn the floor to Frederico Trajano for his final remarks. Please floor is yours. Thank you all very much for being with us in this conference call.

Speaker #2: I would like to stress that we end another quarter aware of our challenges but also very confident about what we are building. We will move on with discipline the urgency understanding with also relying on retail and in Brazil and in the best version of retail which we consider to be the omnichannel.

Speaker #1: Nicholas, very clear—thank you very much. We end now the Q&A session. I would like to turn the floor to Frederico Trejan for his final remarks.

Speaker #2: Thank you all very much and have a nice weekend.

Speaker #1: A teleconferência do Magalu está encerrada.

Speaker #2: Magalu's conference call has ended. Investors relations team is available to take any further questions you might have. Thank you all very much for your participation.

Speaker #1: Please the floor is yours. Thank you all very much for being with us in this conference call. I would like to stress that we end another quarter aware of our challenges but also very confident about what we are building.

Speaker #1: We will move on with discipline and urgency, understanding and also relying on retail in Brazil, and in the best version of retail, which we consider to be the omnichannel.

Speaker #1: Thank you all very much and have a nice weekend. Conference call has ended. Investor relations team is available to take any further questions you might have.

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