Companhia Brasileira de Distribuição
Q2 2019 Earnings Call Transcript

Published: 29 Jul 2019

[Operator:]

Good morning. Thanks for standing by. Welcome to the conference of GPA to present the results for the second quarter 2019. This event is also being broadcasted via webcast, which can be accessed at www.gpari.com.br with the respective presentation. The slide selection will be managed by you. There will be a replay facility for this call on the website. We inform you that the company’s press release is also available at the IR website. This event is being recorded. [Operator Instructions]Before proceeding, let me mention that forward-looking statements that maybe made during this conference call are under the Safe Harbor of the Securities Litigation Reform Act of 1996. Forward-looking statements are based on the beliefs and assumptions of GPA management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and therefore depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of GPA and could cause results to differ materially from those expressed in such forward-looking statements.Now, I would like to turn the floor over to Ms. Daniela Sabbag, Investor Relations Director of the company.

[Daniela Sabbag:]

Good morning. Welcome to the conference call of the second quarter 2019. Here with us are Ronaldo Iabrudi, Co-Chairman of the Board; Peter Estermann, CEO of GPA; and Mr. Hidalgo, CFO; and the owners of Assaí, Mr. Gomes; Extra, represented by Mr. Marcelo; Pão de Açúcar, [indiscernible]; and Proximity, Freddie Garcia. I will turn the call over to Peter to start the conference call.

[Peter Estermann:]

Thank you, Dani. Good morning, everyone. I would like to thank you for attending this conference call to discuss the results of the second quarter 2019. I would like to start making some comments on the first half of the year, which was slightly below our expectations basically driven by downturn in the consumption environment. The second quarter was more affected by this scenario, but I would like to highlight that we have already started the second half of the year more confident with the aspects related to macro economy. So the pension reform is underway. The basis of the tax reform are being discussed and new resources have been injected to the economy. And we understand that all those aspects are going to influence positively our environment of business. In this quarter, we reached an increase of 11.3% in our gross revenue, and we maintained our upward trend of the past periods.I would like to draw your attention to Assaí which continues its sustainable growth path at a very accelerated pace. This is a result of the assertiveness of the organic expansion plan and a lot of assertiveness in the opening of new stores and also our commercial policy, which is being adopted. Our mixed retail approach presented in a significant positive result and positive evolution in margin, and this is highly important, with a gain in market share. Belmiro will provide more details about it along the presentation.In the Multivarejo, we had a positive result in the Food segment with a growth of 2.5% of our gross revenues of same stores and we reverted negative result of the same period of last year even with the impact of – with a more restrictive consumption environment. And also we would like to remind you the effects of the World Cup and strikers – the truck strikers. We continue with an accelerated growth in the conversion of our stores and Extra supermarket, the Compre Bem banner and Mercado Extra banner. We have already reached the number of 56 stores, which have been converted and reaching double-digit sales and also an increase in the number of clients in addition to significant growth in market share. And the initial plan that we communicated with the stores converted will be exceeded. And our expectation is that we will have only 30 units to be converted in the first half of next year. And in relation Pão de Açúcar, we have already 26 stores which have already been renovated, G6 and G7, accounting for 25% of the sales of the banner with positive results.On this front of conversion, we also expect to exceed the initial plan of 20 units, which are already in the process of conversion. The private label strengthening plan is a very important strategy for GPA to have loyal clients and gain margins and also to be more competitive, especially in the formats of Mercado Extra and Hipermercado and Proximity. We maintain the plan of reaching 20% of share penetration of private labels up to 2020. And if we maintain the pace that we have today, which has been maintained since last year, we expect to anticipate this goal. And today, we have already reached the 20.1 share, and some formats have participation of our share, which is much more significant.As for digital transformation, which is another strategic pillar of the company, we have already reached 20 million of loyal clients, with the representativeness of 85% in sales in Pão de Açúcar and more than 60% in Extra. We have more than 9 million downloads in our Meu Desconto app, and we have already posted an increase of nearly 60% in relation to the same period of last year. We keep on accelerating the Click & Collect, which is – and also our modality of entregas Express. And we maintain our initial plan to reach 120 stores using the both models, both Pão de Açúcar and Extra. It’s a very important strategy to accelerate our online sales.In our James Delivery operation, we are very happy with the performance of James. It’s beyond our expectations. And its growth rate is still very accelerated. To put it in perspective, it’s nearly 5x the number of orders – nearly 5x higher than what we had in the same quarter of last year. And this accounts for 64% of the total line of orders in the stores we are using James. The operation have already reached some stores, so 20 stores altogether, and the expansion is estimated to reach 25 new cities until next year. This has been a positive surprise and really helpful for our strategy – in our omni-channel strategy, specifically Cheftime, for which we established a partnership. Recently, it has gone over BRL1 million in sales with more than 41,000 kits sold, which represents a 40-fold increase when compared to what we had before the partnership. We are still leaders in food e-commerce with a very fast sales growth. This quarter, we grew by 37%.These are some of the highlights that I wanted to share with you today. We will keep working internally, focusing on our operational efficiency initiatives, cost reduction, productivity increase. You are going to listen to Christophe’s presentation. For example, he is going to show our performance in terms of costs for the quarter. And now, I’d like to acknowledge the entire team of Multivarejo for their focus, for their hard work, for this specific market that is now facing the slowdown. And with all these initiatives, we are seeing more and more positive outlook when the economic situation improves in Brazil. Our work plan is starting to show good results, which makes us very confident about the improvement that we are expecting and already seeing in the start of the second half of the year. And the outlook for the future is very positive, as I said.Now with us completing the sale process for Via Varejo, we will be integrally focused on our food business, and I will work very close to our teams, supporting all our executions to make our initiatives more and more assertive over time. Thank you very much. And now I’d like to pass the microphone to Christophe for his comments about financial results.

[Christophe Hidalgo:]

Thank you, Peter. Good morning, everyone. Thank you for participating in this conference call. I would like to start at Slide #4, which addresses the main financial highlights of our Food business already aligned with the IFRS 16 for this quarter. Gross sales reached BRL14.2 billion in the second quarter with an expressive growth of 11.3%, very in line with the pace of growth that we showed in previous quarters. This performance was possible even with the strong comparison days that we had with the World Cup and the truck drivers’ strike that we had last year and also the adjustments in our commercial policy that were started in the end of the first quarter 2018. Same-store sales for Food grew by 4.1%. This performance was influenced by a very challenging consumption environment and also the decreasing trend that we saw in the second quarter for foods inflation. The greatest highlight is still the notable growth that we had in Assaí, 24.4%, which is significantly above the average of the market, which, once again, shows that our business model has improved efficiency when compared to the reality of the market and our competition.Still on Slide 4, the gross margin for Food GPA reached 21.6%, mainly due to the greater participation of Assaí in our sales. The behavior of the gross margin for Multivarejo reflected a greater intensity of our promotions, in addition to some one-off effects in the quarter due to the Easter holiday, the truck drivers’ strike, the smaller mix for Pão de Açúcar, some sales. And I’d like to highlight that these margins for the quarter, they are reflecting the level of competitiveness that we deem appropriate for the current context of consumption in the country. The SG&A still has some relevant dilution and in this quarter reached a reduction of about 70 basis points, which was favored by the initiatives to control and reduce expenses, without this affecting the level of services that we provide to our customers. The adjusted EBITDA for Food has reached BRL888 million, a 0.9% growth, with a margin of 6.8%. And this margin is reflecting mostly the consistency of Assaí’s results and greater investments in competitiveness by Multivarejo. The consolidated net income for controlling shareholders reached BRL490 million with a net margin of 3.7%. I would like to stress that this quarter’s performance is reflecting some relevant one-off effects, but the consistency of the company’s strategy and the initiatives that we implemented in the end of the second quarter can already be seen in the form of a greater trend. And the expectations for the third and the fourth quarters this year are very positive.Now Slide #5, the financial result was BRL280 million for quarter two or 2.1% of the sales, so 30 basis points better than last year. This reduction can be explained mainly by the maintenance of the same debt cost, or the debt cost being kept at the same level, and a greater participation of Assaí, which has a positive effect on the working capital of the company. Another important point to highlight is the continuous improvement of the company’s leverage. For more than 1 quarter, we have kept a low level of leverage, 0.47x the EBITDA, which is considerably lower than the 0.90 that we had in quarter 2 2018. The adjusted net debt is a total of BRL1.3 billion, a reduction of nearly 46% compared to last year, and this can be explained by the completion of the sale of our stake in Via Varejo, which meant additional resources in the order of BRL2.3 billion. Also, the company still counts on BRL1.8 billion of pre-approved credit lines. Still on Slide #5, we see that the investments performed in the quarter amounted to a total of BRL510 million, a significant increase of 54.8%, and this was due to a greater distribution of new stores we inaugurated over the course of the different quarters of the year. So it’s much more related with the calendar than a genuine increase.Now Slide #6 for Multivarejo. These are the main performance points for Multi before the business heads can give you more details about the operations. As we have highlighted in this presentation, the sales in the quarter are reflecting the current consumption environment, but a positive highlight should be given to the acceleration of the sales for Foods. The sales grew by 2.5% with relevant market share gains. Food sales are keeping at a very relevant growth level, which is shown in the trends for the quarter, and the Non-food category had a negative impact, especially because of the base effects. Last year, in quarter 2, the growth for Non-food was nearly 21%.Before I turn to BU Extra, despite the challenges that we are facing in the last quarter, I must stress that we still have a positive outlook in terms of expected improvements for the third and fourth quarters, especially relative to the economy of the country, which should get stronger and more dynamic. The company will keep working to optimize its investments, improving its competitiveness, rationalizing expenses and also keeping – the company will still work hard internally to ensure adherence to our portfolio in the markets that we operate in. That is why we still keep the same expectations in terms of improved profitability for Multivarejo this year. Now, Rodrigo?

[Unidentified Company Representative:]

Thank you, Christophe. Good morning, everyone. Today, I am speaking on behalf of Marcelo Bazzali who is on vacation. I will start by giving you an overview of the brand performance and we saw some important advances in the last quarter. In quarter two, we saw growth in the gross same-store sales of about 5.6% and 0% for Hiper and we continue to see significant market share gains for both. The work was focused mainly on the purchase experience of our customers and commercial assertiveness. We are also promoting new partnerships and we still see good profitability of our in-store leased areas with a growth of 30% when compared to quarter 2 2018.Another highlight is the performance of Mercado Extra, which still has a very positive dynamic with expressive growth in tickets, volume and market share, and there was also improved profitability. Mercado Extra already represents more than 50% of the growth of the Super format, even if it represents only 25% of the total stores. By June, we had 43 active stores in Mercado Extra with double-digit growth. We are now converting another 49 stores between July and September, amounting to a total of 92 stores, which will represent more than 50% of the total stores. Also, the model will now reach 4 states in the Northeast, a region which is very representative for the business line of the company. Mercado Extra is the format with the greatest share in our private label volume and an important leverage in terms of bringing loyal customers and improving competitiveness of our business.Despite this slowdown in consumption, Extra Hiper had a good evolution in terms of market share with highlights to the Food category, which showed strong acceleration when compared to 2018. The Northeast has an expressive participation in this growth. We are also improving our product sorting and activating our promotional calendar. However, there was a strong impact of the comparison base from the previous year, mainly due to the World Cup because we grew at 20% during the World Cup. But we already see a positive trend in categories such as home appliances, audio, smartphones and games.In quarter two, we had a consistent growth of the Clube Extra app, which has more than 6 million downloads now. Also, we are attentive to changes in consumer behavior, and we took important steps towards digital transformation and improvement of the purchase experience to bring more loyal customers. We have expanded our promotional strategy to a new channel, and now we’re better using our app and using digital sales ads, which brought cost reduction and a more assertive and customized sales strategy focused on brand customers. We have also expanded the offer of services in our app with our partnership with GetNinjas, and we have intensified the aggressiveness of our promotions promoting the Pink Friday day, right after the weekend of Mother’s Day.In e-commerce, we have expanded to another 13 stores in São Paulo, the capital city, the inner cities of the states, the seaside cities, Rio de Janeiro, Belo Horizonte and Tocantins, with a total of 18 operations in the ship-from-store format where customers receive their goods on the same day in up to 4 hours. A great part of our operations also count on the [indiscernible] service, our store pickup service, which is free of cost and much more convenient to customers. In addition to that, we have other omni-channel concepts in the region of Itaí and in Santos with e-commerce and James delivery. For the second half of the year, we are going to double the number of Mercado Extra stores with a positive contribution to the sales of Multivarejo. And in Hiper, the comparison base, more difficult, was left behind, and the expectation is to accelerate the Non-food now. I am thanking the Multivarejo and Extra team for their dedication and partnership, reiterating the commitment with continued, evolving and accelerating good results.I turn the call to Laurent.

[Laurent Cadillat:]

Good morning, everyone, and thank you very much for attending our call of results. In Pão de Açúcar banner for the second half, it was impacted especially by the strong comparison base due to the World Cup and the effect of the truck drivers that favored the format last year. Even so, the banner was maintained stable in terms of market share year-to-date. It’s important to stress that along the quarter, the banner presented some improvements in the volume trend due to the commercial activations implemented to mitigate the effects of the strong comparison base, in addition to the launches of products and innovations that are recurring in the Pão de Açúcar. In addition, the renovated stores amounted to a growth of a medium digit, 90 bps higher than non-renovated stores. This makes us very confident in this winning model of the new generation of stores that we are going to continue accelerating in the months to come. This store cluster continues with the relevant representativeness in the banner, reaching about 25% of the sales and more than one-third of the result. The renovation plan will be intensified in the next months, and we expect to renovate about 20 stores up to the end of the year. We continue with the rollout of the [indiscernible] project. It’s an operational model that aims to get improvements in operation, sales and excellence in the stores and reaching 75 stores up to the end of June, which will be 40% of the total stores. The banner maintains its plan of including all Pão de Açúcar stores in the project up to September.Now about our loyalty program of Pão de Açúcar Mais, we amounted to 6.5 million clients in our base. It’s a growth of more than 35% since the app was launched 2 years ago with a high level of sales identified, higher than the 85%, the total sales of the banner. The Food e-commerce, another pillar of growth for us, presented a two-digit evolution as a result of the commercial activations, in addition to the Express operation maturation, shipping from store, Click & Collect that we continue expanding. At the end of June, the Express delivery reached 76 stores in 12 states, and we continue the expansion project for 2019. The expansion of James Delivery operations has been performing satisfactorily with a strong evolution of the numbers every week. The service has already reached 4 cities

[Freddie Garcia:]

Good morning, everyone. I would like to share with you all the highlights of the Proximity businesses and Minimercado. And we continue growing strongly in Proximity with 13.1% in sales in the second quarter and consistent gains in market share. While the Proximity was down 1% in the quarter, we maintained the performance of two digits in terms of growth. In relation to Mini Extra, we continue the strategy of loyalty for the bakery and our private labels.Another relevant point was the work focused on the sustainability of our activities with excellent results in the category of liquid. Especially, the group of initiatives consolidates our image, and we are very proud to have been chosen by the Paulistanos to be the best in mini markets in a research that was conducted by Datafolha in relation profitability, optimization of expenses and assortments and also all the activities to optimize costs, especially logistics costs. They all allowed for a consistent growth in relation to the same period of 2018. And Minuto Pão de Açúcar presented a strong growth in the same-store in the last quarter with sales evolution and higher number of clients, and this allowed us to continue evolving both in sales and the number of clients.We launched the Minuto Office cluster with the scan-and-go technologies, self-checkout and implementation of product assortments ready to be eaten, developed together with Cheftime, ready-to-eat or ready-to-go, eat-in-stores with the total acceptance of our collaborators. And this model allows us to plan new stores in the business centers, corporate headquarters and places where there is a higher customer traffic. We increased the wine courses in addition to reinforcing the dynamics between online platform and physical stores. All those actions allowed us to grow by 60% in sales in comparison to the first quarter 2019, with the sales of 0.5 billion of bottles. The success of this platform contributes to reinforce even more the image of Pão de Açúcar that was elected the best place to buy wine in a research that – a survey that was carried out in June by Datafolha.As for the drugstores, we continue growing in our commercial relationships and with improvements in our level of service. We also renovated the 8 sites that were implemented together with Extra stores. We reviewed the assortment of the perfumes and derma-cosmetics and created other commercial dynamics. All those initiatives allowed us to grow our sales in the second quarter, maintaining the commercial margin of the business. In relation to our gas station, we continue performing excellently, maintaining the growth and the volume with an increased growth in the number of customers. And we have another inauguration, which is going to happen in the end of the year and major reforms in [indiscernible] that we will open in the third quarter of this year.In addition to that, we are consolidating Aliado Minimercado format based on two formats of sales

[Belmiro Gomes:]

Thank you, Fred. Good morning, everyone. Second quarter, as you said, the numbers speak to themselves. It was a quarter which was extremely positive, and we have this trend of growth close to 25% of the gross sales in relation to the previous one, reaching BRL7.1 billion. And Assaí now represents nearly 50% of Food GPA and follows its expansion path. And the water that was added was 1.4 billion divided by a strong performance of was 8.1% in same-store, and this performance, even with the inflation, comes with the increase of about 3% and it has an impact of 2 percentage points.Considering that the opening of the stores, the 18 stores that were opened in the last 12 months, out of those only 3 were in new areas, new regions. So there is a natural expectation of – in terms of impact, and the impact would be about 2 percentage points in our same-store results. So with this, we have the same-store results in a very – very positive. And the 18 stores that were opened the last 12 months contributed with 16% of sales, and this volume allowed us to increase, growing market share in a very positive manner, 2 percentage points increase in the share or growth of 7% – nearly 8% in the retailer market.And when we look at this number translating into clients, would be 2.1 million clients or households or corporate clients that are using our services. And we have made adjustments to the assortment, and some actions were made by the operational market team and that we’re directed to our target public

[Operator:]

[Operator Instructions] The first question is from Joseph Giordano, JPMorgan.

[Joseph Giordano:]

Hello, good morning. The first question is for Belmiro. I see you have a strong performance with Assaí and all the expansion. So I want to see what you see in terms of competition. Is there any need to, for example, reduce prices to keep this good level of performance in terms of sales? And when you look at the expansion plans, what type of competition are we facing for the points of sale? Is the competition increasing? Or can we still find good locations, good sites that are not in the radar of our competition? And also for Pão de Açúcar, what do you see in terms of growth trends for July? I see that we had a time mismatch with the promotions and this will be seen in the third quarter. So what are you expecting for the second half of the year?

[Belmiro Gomes:]

Joseph, thank you very much for your question. In respect to the expansion, as I said, we still have a lot of markets, a lot of cities where 300,000, 400,000, 500,000 people where we don’t have any presence. So this has been our strategy. We want to have a mix of stores in regions with a faster maturation. But sometimes, the approval of the land sometimes takes 2 or 3 years with a few rare exceptions. For example, we have projects for Curitiba or larger cities that have been going on for 4 years, waiting for approvals and permits and licenses. This is always a great difficulty. Right now we have 78 projects ongoing. And about the competition, either regional or national competitors, we will be able to keep the average performance that we have been seeing in the past 3, 4, 5 years of expansion. Of course, there will be a difference in performance comparing smaller cities or inner cities when compared to large cities, capitals. The real estate market, we have accelerated the purchase of points of sales. We know that there is a recession in the real estate market, so this allowed us to accelerate our expansion more assertively with new stores because we didn’t want to run the risk of having greater prices in the real estate market. That’s why we made the decisions fast enough. Of course, for some cities, we’re looking more carefully if it’s worth entering that specific market, looking at the competition, because we don’t want to place stores in cities that will not give us a good enough of a performance in terms of margins or the speeds of growth of the store. So when we make decisions about the expansion project, we always consider all of these criteria. And that is the difficulty between the time when we identify a potential point of sales. As I said, in the second or third phase of the project, we looked at more than 400 possible sites. So this is a limitation, but we’re very confident that the 2019 expansion, 2020, 2021, 2022 expansions will be very positive.The competitive environment is always a concern in the self-service format. Of course, we have different players and all of them have their distinguishing characteristics because it is a difficult market, as we have seen. We have seen for example, a slowdown in credit concession, a lot of difficulties in terms of working capital, especially for micro and small companies that are trying to lower their stocks. They are looking for more aggressive prices. So of course, we’re paying attention to all this. Also, the country’s economy because we have this resumption in credit, and this is very important for micro and small companies in Brazil. And of course, it brings some challenges in terms of competitiveness. But we also have other leverages like we saw in quarter 2 that still allow us to increase our margins in such a scenario. I hope I have answered your question. Thank you.

[Peter Estermann:]

Joseph, about Pão de Açúcar, we do indeed see a resumption in growth which was very significant in July, very positive outlook. Our expectations for the second half of the year is that this trend will be maintained. Some of the points that Laurent raised, now in August we’ll have Pão de Açúcar’s anniversary, which is a very important seasonal event that we have every year. And we are very well prepared to make the most of our anniversary this year. We also have the new stamps campaign which will certainly be very positive. It’s a very innovative marketing effort, and we will be launching the new campaign in the coming days. Another very positive trend is the strengthening of the FLV and perishables categories with a lot of innovations that have been bringing positive results. And also, many of the initiatives that we have tested in our school stores are now being rolled out to other stores with a very positive impact. And last, but not least, like Laurent already said, 20 more stores of Generation 7 are operating now, and they will bring positive impacts for the second half of the year. So we’re very optimistic with the resumption that we are expecting for the Pão de Açúcar in the second half of the year.

[Operator:]

Next question comes from Luiz Felipe from BTG Pactual.

[Luiz Felipe:]

Good morning everyone. I have two questions. The first, in the line of Multivarejo, how can we possibly think about those initiatives, your comments now on the release and also on this call, offsetting a lower growth of Food in the second quarter for the market dynamics? In other words, can we think about the guidance of Multivarejo expansion for the full year? Another question is in relation to e-commerce. Can you provide more details about the consumer profile in the James Delivery? How is this consumer differentiated in terms of average ticket and purchase behavior? Thank you

[Peter Estermann:]

Thank you, Luiz. Our expectation for the second quarter in terms of margin gain is a major challenge for us, but we have initiatives which are very well structured with a focus on the execution in Multivarejo. Our team is senior, experienced and dedicated to work on the recovery of margins for the second half of the year. For 4 weeks in a row, we have improving our margins as a result of those initiatives. I’d like to highlight some of them. First is the increase of communication and activation of offers using apps, and the return has been very significant, especially because all those offers are verticalized on the app and they meet the needs of our loyal customers and they limited the volume sales with restricted margins. It’s an initiative that has started 4 weeks ago, and we learned a lot with those actions, and we are very happy with the results in terms of margin impact that we have been obtaining. And another initiative is better planning our suppliers and also reducing significantly any rupture. And we have been able to direct the sales with the categories with higher profitability. As I mentioned before, FLV and perishables have very significant margins, positive margins. And by using the program that we have been implementing in the company for the improvement of the quality level and also to offer better FLV, perishable projects, these – all those initiatives have contributed to our margin, especially in Pão de Açúcar. Another important initiative is related to pricing. We have been working in a very dedicated – and with more smart data so that we can have regionalized pricing. And we have been able to observe that significant gains have been obtained in different categories when we consider different formats and different regions. And answering your question now, we continue – very optimistic in terms of margin recovery for the second half of the year, and the initiatives have shown very positive results, encouraging results. But it’s important to understand that the challenge is major, but everything is under control and we are betting on the initiatives that we are now implementing.

[Luiz Felipe:]

Excellent, Peter. And can I ask – can I have a follow-up on the question on James Delivery? Could you provide more information about the profile of the consumer?

[Peter Estermann:]

James’ consumer is a consumer who basically places an order for delivery – express delivery. So James delivers the product within 1 hour. So the profile is different from the average profile of our Pão de Açúcar and Extra banners. So it’s an additional sale. It’s a sale that would bring new clients to our base. In terms of average ticket, we understand that the average ticket is higher than we expected in our business plan. Still, we have opportunities that have been identified and the possibilities are out there, which are very interesting, to increase this average ticket. It’s important to observe that the average ticket in different regions would vary a lot. So we are very happy with the performance of James, and we also understand that James brings new clients to our base.

[Luiz Felipe:]

Excellent. Thank you, Peter.

[Operator:]

Next question comes from Ruben Couto from Santander.

[Ruben Couto:]

Good morning everyone. I would like to – Via Varejo and the Non-food strategy, focusing on the strategy of hypermarkets, how are you working? What are your expectations for the future? Can we think about a new space considering a lower purchasing power? And when you combine with Via Varejo, is there any expectations of change in the gross margin for Non-food because they are separated now? I would like to understand what we can expect after Via Varejo.

[Peter Estermann:]

Thank you, Ruben, for the question. We do not see any significant changes in terms of impact on gross margin. You know that for the industry, it’s interesting to have clients such as those of Extra and other market players. It’s to not to have a concentration is a strategy that we apply. The volume of purchase is much lower than Via Varejo, but relationship has been very close to that performed by the industry and I don’t see any negative impact in terms of the gross margin and sales volume. The profile of clients that go to Extra have different profile of those that purchase at Via Varejo, so we do not expect sales to be reduced or gross margin to be reduced either. So we expect to be growing in this category with Extra.

[Ruben Couto:]

It’s clear. Can I ask another question related to Pão de Açúcar banner? You say that out of the 20 stores that will be renovated until the end of the year, could you remind us of how many stores will be renovated in G6 and G7? And can we accelerate the speed of renovation? Do you think there will be an inclusion of CapEx so that this number can be higher?

[Peter Estermann:]

No, there’s no CapEx bottleneck for we have prioritized investments when we made adjustments to the portfolio of our stores. And in fact, I wouldn’t even call it a bottleneck. But our capacity of execution stands at a very high level, and there’s not much room for us to be more aggressive in terms of expansion volume. Another point is that when we made comments about the preparation of stores for the generation of – G7, we are likely to have 50 stores with the capacity to expand because of the location and the number of clients for G7. So we are likely to complete those conversions in the first quarter of next year. And from then on, we are likely to expand the model to other regions where we see a significant growth potential.

[Ruben Couto:]

Thank you, Peter. It is very clear.

[Operator:]

Next question comes from Richard Cathcart, Bradesco Bank.

[Richard Cathcart:]

Hi, I am sorry. Thank you for taking my question. I would like to ask about gross margin in Multivarejo. In the release, I read that there was a 70 bps in competitiveness. I saw that in the press release. I would like to understand if this was something very specific for some base effect. Or should we expect this in the third and fourth quarters as well?

[Peter Estermann:]

Okay. Richard, as I said, yes, there are some specific effects for the second quarter. The second quarter was a very competitive quarter. As I have already mentioned, the resumption that happened in the month of July is very positive, and we believe in the plan of margin recovery that we are implementing. So the expectation that margins will improve for the third quarter in relation to the second quarter is very strong. But as I also mentioned, we have a big challenge ahead of us. So those points have been raised, and we are confident that we are going to continue implementing those initiatives in a very assertive manner as we have done in the past few weeks.

[Richard Cathcart:]

Thank you Peter

[Operator:]

Next question is Irma Sgarz from Goldman Sachs.

[Irma Sgarz:]

Good morning I would like to go back to the point that we have already discussed for the margin recovery for the second half of the year. But I would like to understand the guidance that you presented for Assaí is also being reiterated to Multivarejo, not in terms of margin but also for sales. And the second question, could you talk about the Clube Extra brand? I understand that we should have a new agreement with Vila Varejo considering that the sites have divided operation. And what is the strategy you see to be applied in terms of Clube Extra site?

[Peter Estermann:]

Okay. Irma, answering first the guidance issue. As Belmiro has already discussed before, Assaí guidance is in line with what we had planned. And in Multivarejo, we have an additional challenge. So because we haven’t revised the guidance is because we understand that we have internal initiatives that will lead us to fulfill all those targets. So all the guidance have been maintained, but we are aware that we have a big challenge in Multivarejo. In relation to the sales of electronics at Extra, we have an agreement with Vila Varejo. And at this time around, it’s not a priority on our agenda. And obviously, we are going to address this topic in the future.

[Operator:]

The Q&A session is over. We would like to turn the call over to the company for its final remarks.

[Peter Estermann:]

Thank you for attending this call. We are very optimistic for the second half of 2019, especially because we expect to have a positive resumption in the macroeconomic environment. I would like to thank for the dedication of our team. And I would like to draw your attention to the fact that we ended the survey of organizational climate, and the results were sensational. 90% of the team answered the survey, and you are well aware of the number of employees we have at the company. And what is important is that the level of commitment increased by 7% in relation to the previous survey, and the satisfaction level ended at 73%. I believe this is very relevant considering that all the challenges that we have ahead of us will only be able to be delivered if we have a motivated and committed team. So this survey made us very happy. And I would like to thank the GPA team for the commitment that they have, and I believe that we are going to be very successful in delivering the results that we promised to you. Thank you.

[Operator:]

The conference call of GPA is over. The Investor Relations department is at your service to answer any questions you might have. We would like to thank you for your participation and have a good day.