Companhia Brasileira de Distrib. (ADR) CBD) Management Discusses Q2 2013 Results - Earnings Call Transcript

Jul.24.13 | About: Companhia Brasileira (CBD)

Companhia Brasileira de Distrib. (ADR) (NYSE:CBD)

Q2 2013 Earnings Call

July 24, 2013 10:00 am ET

Executives

Daniela Sabbag - Investor Relations Officer

Abilio dos Santos Diniz - Chairman and Member of Human Resources & Compensation Committee

Enéas César Pestana Neto - Chief Executive Officer and Member of Stock Option Plan Management Committee

José Roberto Coimbra Tambasco - Vice President of Retail Business and Member of Stock Option Plan Management Committee

Belmiro De Figueiredo Gomes - Wholesale Officer

Vitor Fagá de Almeida - Former Investor Relations Officer

Fernando Queiroz Tracanella - Former Investor Relations Officer

Alexandre Gonçalves de Vasconcellos - GPA Malls & Properties Officer

Christophe Jose Hidalgo - Chief Financial Officer and Corporate Services Officer

Jorge Fernando Herzog - Former Commercial Operating Regional Officer

Analysts

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

Andrea F. Teixeira - JP Morgan Chase & Co, Research Division

Tobias Stingelin - Santander, Equity Research

Irma Sgarz - Goldman Sachs Group Inc., Research Division

Alan Cardoso - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

Operator

Good morning, and thank you for waiting. Welcome to Grupo Pão de Açúcar's conference call to discuss the results for the second quarter of 2013. This event is also being broadcasted by webcast, which can be accessed at www.grupopaodeacucar.com.br/ir/gpa and www.viavarejo.com.br/ir where all of the presentations will be available. The slide selection will be managed by you. The replay of this event will be available right after it is concluded. We would like to inform you that the company's press releases are also available at the IR website. This event is being recorded. [Operator Instructions] After GPA's remarks are completed, there will be a Q&A session where further instructions will be provided. [Operator Instructions] .

Before proceeding, let me mention that any forward-looking statements that are being made under the Safe Harbor of the Securities Litigation Reform Act of 1996 for 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 Grupo Pão de Açúcar, and therefore could lead to results that differ materially from those expressed in such forward-looking statements.

Now I would like to turn the floor over to Mrs. Daniela Sabbag, Investor Relations Director of the Company.

Daniela Sabbag

Good morning, and welcome to our conference call on the results for Q2 of 2013. Here with us is Abilio Diniz, Chairman of the Board; Enéas Pestana, CEO; Christophe Hidalgo, CFO; and all of the other individuals responsible for the businesses of the group. We will begin this presentation with some initial remarks from Mr. Diniz, and next, we will discuss the results for the second quarter.

Abilio dos Santos Diniz

Good morning, and thank you very much for participating in this event with us. And once again, the results of the company were excellent and sales are still growing despite the fact that we had a difficult first quarter and there was some distress regarding the economy. It shows that during moments of crisis, we were able to grow. The company is sound, it's firm and very stable. Sales continue to grow. Sales are growing in every single segment and business of the company. And after Viavarejo is managed by Grupo Pão de Açúcar, it already showed growth in sales, and we are now experiencing synergies that we already experienced at the end of 2009. And this just reinstates the relevance of this business. We also experienced growth in Assaí. And I would like to congratulate Belmiro for the excellent performance of that unit, Viavarejo. José Roberto Tambasco, I would like to thank you for expanding Minimercados, or the minimarkets. This is a very interesting model for our country, and this model has been developed and tested for quite some time. We had other models that were used in the past, but this is indeed a very good model, which is the minimarket model. So congratulations. And by the way, congratulations to all of you for an excellent performance in this quarter.

The crisis does not affect us. Despite the current crisis, we are not being affected by it. But I would just like to reinstate that we trust the country and we trust the current economy. I've always said that, but I must say that the economy of the company is sound and sometimes, people have the misleading idea or a more pessimistic view of the economy. I would just like to reinstate that this company believes in the country. We do believe in the economic forecasts. We believe in the President and in our future. We are investing, we have not stopped investing, not a single moment. We will continue to invest very strongly due to the fact that we trust the performance of the company and the leadership of the country.

So having said that, thank you very much, and let's proceed.

Enéas César Pestana Neto

Good morning. This is Enéas. Pestana, thank you very much for joining us in this conference call. This is always a very important moment to us. You may not be able to see us, but there are many executives of the company present here today to -- and join -- they are here joining us in this effort. Also Daniela is doing an important work to that regard. I would like to just endorse the remarks by Abilio Diniz.

And with no further ado, I mean, I will try to be quick because as we always like to do, the entire team is here to talk to you and to clarify any possible doubts that you may have concerning the figures and the overall performance. So talking about the economic landscape, I agree with Abilio. The first quarter was more challenging and now in the second quarter, the challenge is even greater. And despite this half-year is stronger, the second half of the year is usually stronger because we have the holidays, et cetera. But considering the economic situation and the economic status, I think that in the second half of the year, we will have to face more challenges. But I do believe that this country is working based on good fundamentals. For those of you that are older than 20, 25 years of age, you know that Brazil is experiencing a very special moment in history. Therefore, we have many reasons to believe that the consumer market will grow. The unemployment level was very low and we see an emerging class looking for products with better added value. The basket of products is very articulate and very diversified in the different brackets of society, and the market is growing in the different regions of the country.

Credit availability is also growing. Even in terms of default levels, everything is under control in our business. Brazil has a very robust and controlled financial system. So the basics are here and the fundamentals are also here. But there will be challenges in the second half of the year. The economic growth of the country should be low, so there is also some inflationary pressure. And in the second quarter, there will be pressure on the food supply. But I think these are problems that will be resolved and we should be able to experience good growth in the second half of the year. Increase in interest rates certainly causes an impact, brings an impact to the business. But in terms of macro challenges, Brazil is the tax burden, which is still amongst us. But as Abilio said, in moments of crisis, we try to sell because we are a retail company and this applies to all of the other businessmen and the companies that are here. The challenges are here for everyone to experience but what I really want to share with you is that the company is very well-prepared. The company is preparing itself for many years. We react in a timely fashion. We have a long-term and strategic plan. We define our strategy based on the consumer, the consumer of today, and the consumer habits of tomorrow. So this is a multi-business company. It's a company that operates in multiple regions that have a very clear strategic positioning, with clear brands. And in my view, without being arrogant, I think we are the most and the best company and the most prepared company to face the challenges because we place customers in the core of our decision. And through different channels, we are able to serve this customer in different moments of shopping. Today, we have more demanding customers. They are quick, they are much better-informed and also, they want to be served in different moments of his life when it comes to shopping. Therefore, it's important that we are a well-prepared company in terms of presence and positioning to be able to serve customers, whatever they are. So we are working in multichannels very strongly, not only because of synergies, both back office and front office, because we want to be present where the customer is and we want to have satisfied customers.

In general terms, as we said before in other conference calls, last year we had a restructuring plan, which was very important for Viavarejo, and we also promoted a very important restructuring plan when it comes to food stuff retail. We already talked about that in our last call. This restructuring had different goals but this could prepare us for a more challenging landscape. In addition, with a strategic planning and a new landscape or a new outlook of our investment for the year, it is very clear to us how we must proceed in our strategic plan and how we will prepare our execution plan with a very well-prepared and skilled team. The team consists of very confident individuals and the compensation system is based on meritocracy. And this gives us an important contribution because as you have clear strategy, growth and responsibilities, well-defined and a well-prepared group based on meritocracy compensation. All of these factors contribute to the success of the company. And more and more, we intensify this management model.

The guidance continues despite all of the challenges. We are prepared to go after the earnings of the year, so there is no change in the guidance for the year. Now to Pontocom. Quiroga with his team, they are doing an excellent job. We started the year with a more difficult growth. We reviewed our pricing strategy and the goal is sustainable growth. But at the same time, we have to also mind service level. Now that Pontocom is one of the best companies that this country has in terms of service level, in terms of number of complaints we never had problems, we never had any impediment in terms of the way we work. Therefore, our service is sustainable, low level of investment. And now due to a balanced pricing strategy, in addition to a good marketing strategy, we were able to experience amazing growth rates. Belmiro is here, so I must congratulate you for all the work you did with your team. They were in charge of the entire restructuring of the model and the model has proven to be very successful in terms of the financial strategy with good return rates, return rates that were way above the ones experienced in the past. And now, we are also expanding the business. We are entering in 7 new states. Therefore, this just reinstates the success of the company. And then I will allow Belmiro to talk about it.

Viavarejo is doing an excellent job and it started at the end of last year and early this year. The restructuring plan aims for profitability without losing sight of our positioning, which has been acquired through several years. And we also saw some important things that are not affecting the company. And anyway, we are constantly focusing on improving the service and improving the customer experience. So the profile of the company is very sound. And together with Marcelo Lopes and the entire team of Viavarejo, they are conducting the business in a brilliant way. So I am very pleased with their work.

Also, Victor Fagá is conducting the business very well. They are able to save this very challenging moment, with good negotiations, long-term partnerships and the challenge also in this restructuring also involves an important reduction in expenses. They are now concluding this phase. In food stuff retail also, we do not want to seek increases in profitability because this comes with gains in scale and volume. But the main goal is competitiveness and competition. In a more challenging landscape, what plays an important role is competitiveness. We have to go after market share of -- in a moment of crisis, we have to be better. That's why this work that we're doing in the food stuff retail aims at having a very healthy business with competitive margins in the entire mix without hampering or causing an effect to our profitability. This will bring increased customer traffic and increased market share.

Alexandre is leading GPA malls. We just had the inauguration of Conviva in Rio de Janeiro. It was an exceptional event. It was very good for all of the mar gins, very good and this just inaugurates a different phase of the company because we are now generating value by capturing gains in the real estate market. And then, we created our own stores, we created traffic in the store and this has amazing EBITDA margin for merchants, for retailers. Retailers are experiencing EBITDA margins of 40% to 45%. And this is what makes this GPA Malls business very good. Alexandre restructured the business, the team is of excellent quality. He brought in experts from the real estate industry and that's why we are now capturing that value. And this is the value that was not included in the value composition of the Pão de Açúcar Group.

The operating results was very good despite the effects of Easter, which was negative in the second quarter of this year because it was in 300 basis points. And if we look at the growth of food and nonfood per category, we are distributors of food. We are the largest food distributors in this country so it is important that you share with us the way -- a correct way of reading the numbers because more and more distribution channels make sense in a very macro strategic plan. And it's important that there is a distinction between food and nonfood. So you will see 4.8% growth for food. And as I said, 300 basis points in growth. So that will be 7.8% growth for food in the second quarter. And nonfood, an excellent performance, 9.2%. And all of that with a very challenging background, and the company is prepared to grow based on gains through the competition. It puts us in a comfortable position. It's not easy, it's not simple. Nobody is just sitting and waiting. On the contrary, we are putting a lot of effort into making things happen.

The EBITDA growth in the second quarter, if you look on Page 4 of this release, you have consolidated results in the second quarter. The growth was 38% of EBITDA. The margin went from 5.8% to 7.8%, this one. The EBITDA growth was 25% going from 6.8% of margin to -- going to 6.8% margin.

I'd now like to highlight Assaí and all of the other businesses that I mentioned before. So we will fulfill our expansion plan this year. If we do not fulfill it, there is a possibility of that not happening due to delays in some sites. As we always say here, the most important thing in the inauguration has to do with location. And location is very important. Therefore, we are constantly seeking for prime locations, and maybe if there is any delays in this expansion plan, it's probably due to the fact that we were not able to find prime locations. And this is the #1 assumption for our new stores. In addition to that, we will try to fulfill our investment plans for this year. We will continue to invest and still believe in this country for the next few years. With this team that is here, a very engaged group based on clear targets with meritocracy, with very good compensation to deliver what's on the table. This is part of our culture. So -- and now, we are here to explain or to clarify any possible questions or doubts. Thank you very much.

Abilio dos Santos Diniz

Good morning, everyone. Thank you Enéas. Now we're going into the presentation Slide #2, are highlights of GPA consolidated. We show that in the period, we opened 33 new stores in the quarter. And 58 stores were opened with a sales area increase of 2.2%, in line with the guidance of earlier this year. We also highlight the growth in the food categories of 7.8%, considering the Easter effect. The nonfood categories grew by 9.3%, boosted by the progress of Viavarejo, both brick-and-mortar stores and e-commerce. Adjusted EBITDA went up by 20.6% under GPA consolidated, boosted by the gain of synergies and the implementation of new processes and reduction of operating expenses, particularly at Viavarejo.

Net income, adjusted net income was up by 35.8% over this period, owing to the operational development that we've mentioned, combined with control over financial expenses. We'd also highlight that in this period, we reported other operating income and expenses totaling BRL 350 million. We're talking about a one only effect and this means provisioning for tax risks, BRL 163 million; effects related to the association between Ponto Frio and Casas Bahia, BRL 67 million; restructuring expenses and results from fixed assets, BRL 51 million; and positions related to labor claims and others, BRL 69 million. Therefore, a total of BRL 350 million over this period.

On the other hand, when we look at the outlook for the future, we see a very positive outlook, and we expect organic expansion to speed up in all formats, keeping on with our policy of renovation and development of shopping galleries and our goal is to have an additional 35,000 square meters. We also expect e-commerce to grow above the market. We will also adopt or go into the Minacasa midor [ph] program, so as to boost furniture and home appliance sales. And we intend to continue capturing operational efficiency gains, particularly at Viavarejo, but in the group as a whole as well.

Now moving on to Slide 3, let's look at the behavior of the main financial indicators of GPA consolidated for the second quarter 2013. Growth sales amounted to BRL 14.9 billion; that is up by 10.4% over the previous period, excluding real estate projects. This growth goes up to 11.2%. And the same-store sales grew by 7.3%. Adjusted EBITDA amounted to BRL 958 million, growing by 20.6% and 37.6% if we exclude the real estate projects.

The margin was at 7.2% of net sales. Adjusted net income grew by 35.8% in the period to BRL 327 million. Excluding real estate projects, the growth was 129.1% and the margin was 2.4% of net sales. Debt indicators show that there was a continued strengthening of the financial structure of the group. Net debt amounted to BRL 9.9 million in the end of June 2012 and it fell to 4.17 the end of the first quarter of 2013. In terms of EBITDA, the debt amounted to 1.44x EBITDA last year. And now, it is 1.16x the EBITDA.

We also see in Slide 3 that despite the behavior of interest rates, there was a significant dilution of the net financial expenses, 2.2% of net sales, and this is the consolidated view of GPA.

Now moving on to Slide 4, going into the detail about the faster store opening in the second quarter, we highlight the fact that 29 stores were opened in the second quarter: 23 Minimercado Extra; 3 Assaí stores; 2 Pão de Açúcar; and 1 Drugstore. So on June 30, GPA Food had: 962 stores; 1,614 square meters of sales area; 2.9% increase over the past 6 months. We also highlight, under Malls & Properties, the opening of Conviva Américas in Rio de Janeiro, the group's launch in the Neighborhood Malls segment; 12,500 square meters GLA, anchored by a Pão de Açúcar store, with big retail chains and other 35 satellite stores. Viavarejo inaugurated 4 Casas Bahia stores, particularly in the Northeast of the country. On June 30, Viavarejo had 971 stores and sales area of 1,412 square meters; that is up by 1.3% over the past 6 months.

Now moving on to Slide 5. I'd like to pass the floor to Tambasco and Belmiro. They're going to talk about GPA Food and the main indicators. We see a sales behavior with growth of 8.8%, nearly BRL 8 billion in that period. Adjusted EBITDA was BRL 512 million in that period, with a 7% margin on net sales. That is an 8.1% increase over the period. The adjusted net profit was BRL 172 million in the period, up by 26.6%, with adjusted margin of 2.4%. So here, we have the main financial indicators. And I'm going to pass the floor to Tambasco, who's going to talk the highlights in the period, then Belmiro will follow.

José Roberto Coimbra Tambasco

Good morning, everyone. Let's talk about retail and hypermarket. The second quarter, to us, was an extremely positive period. As Christophe has just said, EBITDA grew by 0.2 percentage points, and as a result of the efforts we've put to pursue greater efficiency, as Enéas said. And our purpose is that this, that represented 2.2% in the second quarter will be invested to boost competitiveness and gain greater market share.

Now it's important to mention something that Abilio and Enéas said about the Minimercados. Minimercados has proved to be an extremely predictive model because it has enabled us to grow not only as a result of our expansion drive in the second quarter, but also owing to the growth of stores, which are over 1 year old that grow about 10% above the market. And we feel an impact of seasonality. I'm talking about that Easter effect that's happened in the first quarter. And like Enéas said, it was 300 basis points that boosted food growth to 7.8%.

Another highlight is the strong growth that we've seen in the perishable categories, particularly meat and poultry, where we've grown -- where our competitiveness has improved. And this is owing to the cut of federal taxes that happened in the first quarter that gave us greater competitiveness. And this is a category that has helped us grow. And I must also mention the performance of non-foods in the hypermarkets. It is below the group's average as a whole. And then Vitor is going to talk about Viavarejo. Hypermarkets have a peculiarity that is their sales is very much concentrated in categories that suffer greatly from price deflation and owing to the migration of certain items that we've mentioned, that is notebooks migrating to tablet sales. And Viavarejo has a very strong participation in this category. This performance is partly offset by the growth in telephone, where we see the opposite effect, with a growth in smartphone sales. And here, extra conventional stores have benefited.

Our expectation is that we will continue to strive to cut expenses and increase the competitiveness of our store models. We do not see a significant change in consumers' behavior, apart from this migration of products so that they can have a more economical solution to their needs; and we want to provide them with the best assortment possible. On the other hand, as regards price, we suffered greater pressure on commodities in the second quarter. There was a significant increase in price, and we already feel that these prices are leveling off in some cases. There was a reduction, which leads us to -- that inflation rate will level off and will not impact our business in a significant way.

Now I'd like to pass the floor to Belmiro. He's going to talk about Assaí, and I'm at your disposal for any other clarifications you need. Thank you very much. Good morning.

Belmiro De Figueiredo Gomes

Thank you. Good morning. Like Abilio and Enéas said, the focus of Assaí in the second quarter was organic growth. Our growth in the second quarter was 37.5%, obviously boosted by this organic expansion and the same stores growth above double digit. We moved up 31.8%. Our focus in the second quarter -- in the third quarter will be to open new stores in new states to guarantee greater presence. Over the past 2 months, we moved from 6 to 12 Brazilian states. We inaugurated the first stores in Alagoas, Paraíba, Mato Grosso do Sul, Bahia and Paraná. Therefore, over the period, we opened more than 48,000 square meters of sales area and 98,000 of GLA. And it was part of our expansion strategy to concentrate the stores in these new states. And each store requires investments in marketing and -- to announce the Assaí brand. But they paved the way for new units to be set up relationship with suppliers and it creates relationship with consumers. We have another 8 units under construction in states, where Assaí is already present. These new openings will have a greater impact, boosted particularly by the support that these existing stores will provide. And these 8 units will be inaugurated in the second half year of 2013.

As I said, net revenue moved up to 37.5%. GLA moved up by 26.5%. With the creation of new stores, expenses fell by 0.10% and EBITDA moved up by 4.6%. And when we see expenses have fallen by 10% and we've closed with 32% increase in sales -- expenses was 29.6% and EBITDA 29.6% -- and with this performance, Assaí has become the group's third most successful business for the second half year. We are very optimistic we will continue moving on with organic expansion and we'll find it easier to open new stores. And along with that, we will see the stores that were opened in the first half year are maturing, and this gives us greater confidence. We are working hard. The team is working hard with a very ambitious target, and we expect Assaí to grow by 40% in 2013.

Thank you very much. I will now past the floor to Vitor Fagá of Viavarejo.

Vitor Fagá de Almeida

Good morning, everyone. We're going to talk about the segment of Eletro electronic equipment. In Slide 6, it's important for us to see a few key indicators particularly related to growth sales. There was a significant growth throughout 2013 and looking at the outlook for the second half year, we expect a growth of 14.2%, which represents nearly 12% under the same-store sales concept. Adjusted EBITDA also moved up 7.4% margin for a gain of more than 300 basis points and the EBITDA of the company nearly doubled over the period. And lastly, adjusted net profit, around BRL 155 million, gives us adjusted net margin of 2.6%, also with a very significant growth in the period.

Now looking more specifically at the bricks-and-mortar stores under Viavarejo, it's important to say that the segment is faring very well, with the very galvanized team of people, focusing on the capture of synergies as planned and looking more specifically at the strategic guidelines that were laid down. Sales are growing satisfactorily, particularly, same-store sales grew by 9.5% and total stores, around 12%. And as a consequence, we see a very sound economic and financial performance. I think a very important highlight for the expansion of the EBITDA margin, where we had a gain of more than 13 percentage points, especially from 2 sources: from the growth of the gross margin, owing to better management and logistic management and many logistic costs have an impact on gross margin; and also owing to the reduction that we've had, 1.5 percentage points in expenses as a percentage of sales, which shows us that we are indeed capturing greater synergies and streamlining a number of areas, either in marketing, IT and also personnel.

Looking at the company, it's important to highlight that we are focusing on organic growth. The company expects to grow in regions that have a great value potential. And here, as we've mentioned in this call, in the Northeast, we are opening new stores in the Northeast. And also, we are repositioning the Ponto Frio brand. This is important because it will enable the company to break into other markets and to attract other consumer segments. And from now on, we will be able to leverage our sales levels as well.

And lastly, looking ahead, talking about our outlook for the second half year and 2014, it's important to say that the company will keep on capitalizing all the gains from the productivity plan. There are a number of initiatives that are under implementation that will bring in additional gains to the project. And the company's focus is to be close to consumers, close to clients, seeking to meet not only their current demand for services, but also try to predict to the trends, the future trends for these consumers, looking ahead, looking at future demands in terms of what the consumers will want. And it's important to mention the Minha Casa Melhor program government program, which will present us with yet another opportunity to capture value very well. As regards to bricks-and-mortar stores, these are the most important highlights.

And now, Fernando Tracanella is going to talk about Nova Pontocom or NPC.

Fernando Queiroz Tracanella

Good morning, everyone. Nova Pontocom reported growth of 26% in the quarter, highest rate, which reflects the maturity of a number of initiatives that we started to improve versus, particularly in supply and pricing. The combination of prices and the categories, better margin mix, maintenance of differentiated service and higher operating efficiency enabled us to have a much better performance with growth in excess of 30% in June and a positive bottom line. I'd like to reinforce that we intend to grow above the market with balanced cash flow and profitability.

In terms of perspectives of outlook, we are trying to reduce our operating cost and optimize our fixed cost. We are creating differentiators for our clients. We are developing new businesses and partnerships, including the launch of marketplace. And lastly, but not least, initiatives to attract and develop talents in the company. And lastly, I'd like to highlight that once again, our websites were rated Diamond by the E-bit and it was elected Most Beloved Website by consumers. And this will reinforce our commitments to sustainable growth without risking, at any moment, service level to our clients.

These were my comments. Thank you very much. I will now pass the floor to Alexandre Vasconcellos to talk about GPA malls.

Alexandre Gonçalves de Vasconcellos

In fact, now we start our Q&A. Now we would like to open the floor for questions. I would like to ask you to ask all of your questions at once and then wait for the answers by the company. [Operator Instructions]

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Fábio Monteiro from BTG Pactual.

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

I have a question about Viavarejo. I would like to talk about 2 particular points. One refers to organic growth. We've heard from Ceará, and also IBGE figures, that home appliance sales are not performing so well when compared to other retail segments. And we also want to understand whether your gains of share -- your gains are coming from any particular region of the country or in your view, it's coming from other small or -- focal point. And also, still talking about Viavarejo, my question has to do with that EBITDA margin of the operation, which was 7.4% in the second quarter. Do you believe -- I mean, how much more you could grow in terms of all of the improvements that are being implemented?

Vitor Fagá de Almeida

Fábio, here is Vitor Fagá. Thank you for your questions. In terms of your first comment, we did have a very positive sales performance in the second quarter and as a consequence -- and this was the result of 2 major factors. Number one, an assertive marketing positioning that affected 3 events in the second half of the -- in the first half of the year: Mother's Day, Valentine's Day, the Confederations Cup. So for every single event, we had a very particular strategy concerning promotions of certain lines of products and also we introduced new payment format. So the results from these 3 campaigns were very positive for these 3 different lines of products. In addition, we do not have, I mean, all of the figures from these statistical agencies that cover this industry, but in our view, there were gains of share during that period during all of these events and due to all the marketing campaigns because these products were linked to these marketing campaigns. It is also important to say that categories, such as home appliances or telephones, these are all the categories that presented higher growth, even higher than what we had expected. In terms of the EBITDA margin, we already noticed the impact of several initiatives that were implemented by the company in the last few months, starting in the end of 2012. There are still initiatives that are in the process of being implemented, so we believe that we'll be able to see the results of all of them by the end of the second half of the year and we will be able to operate with expenses over -- net income below 22%, which is what we had in the second quarter. Now in terms of the gross margin, this will certainly depend on how the market will behave. And we will also -- it will also depend on the products that we will focus on in the next few quarters. And then this will have an impact on the EBITDA performance. But we are very comfortable because we will meet the guidance, which is to have an EBITDA margin for the year higher than 6.6%. We -- that's what we told the market during the call of the first Q.

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

I only have one last question about the other operating expenses. And you gave us more details on Explanatory Notes 30, from Grupo Pão de Açúcar. Despite the fact that most expenses were not cash expenses, I would like to hear your feedback about the provision for tax risk; BRL 163 million for PIS and Cofins taxes, and that became very likely. I just want to understand whether this risk can be materialized in the short and midrange, or whether you could tell us anything about that risk that was provisioned by the company. This is for Pão de Açúcar. Now for Viavarejo, I want to learn more about KPMG's work. And you mentioned in that note the potential connection of an amount of around BRL 174 million related to Viavarejo. And I just want to know whether there is any particular timing for that? Even though it is noncash, I just want to learn more about the risk of not collecting these amounts, or having any risk of tax losses.

Unknown Executive

About your comment on Viavarejo, we posted BRL 71 million, referring to these adjustments. These are adjustments to our balance sheet. There is no impact to our cash position and the company is now evaluating some possible effects of that related to reimbursements. Now I'll give the floor to Christophe who will talk about GPA.

Christophe Jose Hidalgo

Good morning. Concerning that contingency, it's -- that went from likely to possible. In the second quarter, we ran some evaluations together with our consultants related to risks for PIS and Cofins and we modified the qualification of that risk. Regarding the fact that maybe this risk could become cash effect. So we understand them, first of all, we still have some room for discussion, we still have some room to discuss it further until this risk becomes cash. And we also have the possibility of thinking that in case this risk becomes a reality or if it becomes cash, we hope that does not materialize in a short period of time. So in concrete terms, there should not have a short-term cash effect. But we understand that despite the fact that this risk is posted under the category of probable, we still have some grounds to defend that topic.

Fábio Monteiro - Banco BTG Pactual S.A., Research Division

Very good there. Do you believe that there will be more provisions, or maybe other indemnification liabilities in the next quarters? Or you think that in this quarter, this already reflects the majority of the risks that you see ahead?

Christophe Jose Hidalgo

We are operating this business with a lot of responsibility. So to say that there would not be any additional risk will be probably wrong. But now, we are taking out the necessary measures to limit this kind of situation, managing the business in a very responsible way. It's not that the situation is unpredictable and we cannot say "no," but as more risks become more material, we will communicate it to the market. But the status quo today and what is reflected in our financial results contemplates our own reading and also the reading from our consultants. So the answer is, today, the risk for probable is being accounted for so as to really reflect the reality.

Operator

Andrea Teixeira from JPMorgan has the next question.

Andrea F. Teixeira - JP Morgan Chase & Co, Research Division

In fact, I have 2 questions. Enéas, I would just like to reiterate what you said. You talked about the growth, and then Christophe said something about the growing of the opening of new stores, organic growth. And also, you talked about inflation in food stuff. How can we think in terms of the growth of same-store sales for the second half of the year as you -- how do you think that we should think in terms of non-foods?

From the comments that I've heard from Vitor, there will be a reduction of marketing expenses and this reduction in marketing expenses that we cannot see it too clearly, maybe we could say that this can be weighted as you have already reached a higher margin when compared to that 6.6 margin. So maybe it would pay off to delay your marketing expenditures and we would still see market share gains growing further.

José Roberto Coimbra Tambasco

Andrea, here is Tambasco. For super and hypermarkets, we do not envision any various -- any strong movement towards price increases, but we have to look at inflation. When we measure our internal inflation, it's slightly lower than what we see in the market today. And we believe that some industries that put pressure on the prices, such as fruits and vegetables, should not occur anymore. But now, with the pressure from the dollar, some categories may feel more pressure on their prices. But we don't see any major cause for changes in those scenarios. So we do believe that we will continue to grow above inflation, even in the same-store concept. We do not see any particular situation that would deviate us from our guidance that has been established early this year.

Enéas César Pestana Neto

Andrea, now it's Belmiro. Belmiro, go ahead.

Belmiro De Figueiredo Gomes

Just adding to what Tambasco said, we felt some inflationary pressures early this year. But the consumer market is self-regulating there. So we do not believe that giving the current landscape, this will generate the impact on sales in the second half of the year. So I'm talking on the wholesale side. And we are also benefiting from increases in logistic prices, and we are also making door-to-door deliveries. And our work has been more facilitated. This just reinstates that the work that we do as distributors. So in the first quarter, we had same-store sales way above inflation. And the outlook, given the increase in customer presence throughout the year, we will see same-store sales above inflation, performing above inflation. In the home appliance business there -- it's too soon for us to give you a more precise outlook about sales in the second half of the year, even because the second half of the year is more impacted by the holidays at the end of the year. But we see a growing trend of sales, very similar to what we experienced in the first half of the year. In the second half of the year, we will see stronger growth. But now, concerning marketing expenses, we are able to optimize marketing expenses, and that is being accomplished through, number one, more efficiencies in our advertising scheduling and also, because we have good marketing assistance and good marketing companies. In terms of consumers, I mean, I don't think that -- I mean, the market is being impacted by marketing initiatives. But currently, we believe that it's not necessary, especially when we look at production sales, margins and marketing expenses, in terms of producing more sales. Currently, any increases in marketing will not generate additional value that would boost sales increases in marketing expenses or marketing initiatives would not give us the expected return. Therefore, we do not intend to go through that route. But through this optimization process, we hope to have, in the next coming months, a lower level of expenses associated to that line.

Andrea F. Teixeira - JP Morgan Chase & Co, Research Division

Very good. And can you tell me about the new leadership of Viavarejo and what would be the timing of the follow-on?

Unknown Executive

About the IPO, all we have to say we already said it to the market. So there is nothing new about that.

Enéas César Pestana Neto

Andrea, this is Enéas. Good morning. About your last question, the process is running smoothly. I'm doing that together with Salvador, our Human Resources VP. This has been a very smooth process with no setbacks. And as I said before, we will do that with no problem because we have a very good team of experts. Vitor is doing a very assertive job. He is following the strategic plan in a very efficient way, together with Usagi [ph] and the others that are part of the team. Therefore, there is no reason for us to do things in a rush fashion. We are being very demanding and very careful. I don't think it will take very long because, today, this company is capable of attracting good executives and other professionals in the market. So there are people interested in talking to us. They want to understand things further. But again, we are going -- we are being very demanding but at the same time very calm, because we want to do things right with the right people. So it's difficult for me to tell you anything else. The timing is just a necessary timing for us to be sure that we are doing things the right way, with the right person that will be there to give us more contributions and to work well with the team that is there with the goal of pursuing better results and better performance because this is how we always do things in this company. We work with teams. We work as a team, so the team is there. They are working hard. The results are presented in a very sound way. Okay?

Operator

[Operator Instructions] Mr. Toby King from Santander has the next question.

Tobias Stingelin - Santander, Equity Research

First of all, I would like to know about expenses related to Viavarejo, not only provisions or tax adjustments, I would just like to know whether you -- there is anything else to be known or whether the balance sheet is clean and all the adjustments that had to be made when the company was created are concluded. And the second question is, concerning the growth margin, the evolution of gross margin surprise me, they are high in the last quarter, is in the last quarter it was even higher. This assertiveness, do you believe that you will continue to pursue that same path and you will be able to have gross margin similar to that of this quarter? And still, connecting this question to Andrea's question, G&A came down in Viavarejo and sales expenses were up vis-à-vis your -- what was posted. So in fact, maybe we haven't even seen any drops in marketing expenses, and that's when we should expect differences in the next quarter.

Unknown Executive

Very well says part of your question, what we can say at the moment, I'm going to go quote Christophe. What we can at the moment tell you is that all the impacts that we've had are reflected. We've had no other impact that we can predict. Obviously, they should be factored in, if this was the case. As regards to your question about selling expenses, it is true that SG&A fell a lot, about 30%. And sales expenses grew as a function of sales growth, also because selling expenses are associated with expenses at the store, and there is a very significant variable component. And also to the sales team, the sales team works in a commission, and usually these are large teams. So we have a very strong correlation between these items, sales growth and sales and growth of sales expenses. Is it possible that we will see expenses fall over the coming months? Yes, it's possible, but it's very difficult to state that they will. And lastly, as regards net -- gross profit, gross profit depends a lot on sales mix. Our mix is very diversified. We have different margins and we depend on the market component, which is very important in this equation. We are very comfortable. We have an operation with gross profit around 28%, specifically in this quarter, 28.7%. But this depends heavily on the market behavior and how demand grows for the various categories or products. So it's really difficult to predict how gross profit will behave. But we are comfortable operating at 28% and plus.

Tobias Stingelin - Santander, Equity Research

Just a follow-up, now about marketing expenses, where is the bulk of these expenses? Where does it fall? In what line of the balance sheet? Is it together with sales? So is it reasonable, what I'm saying, that in practice perhaps, we haven't seen the bulk? You've just said that the marketing expense is very well sized up, but what we see is the opposite. Don't you think that you have a lot of facts to grow in marketing with better impact on the bottom line?

Unknown Executive

Well, it is possible that this will happen, but it's difficult to quantify now, today, and give you a clear outlook.

Tobias Stingelin - Santander, Equity Research

I'd like to understand better, if you could repeat, because the about turn was really significant. The gross margin is still under pressure and I believe that in the fourth quarter, this will change. But could you talk a little bit about what happened in the quarter and what the company did to be able to boost performance in this way?

Unknown Executive

Good morning, Tobias. Well, we can summarize that over the past quarter, Nova Pontocom repositioned websites, product and categories. We tried to maximize the elasticity of each categories in each of the 3 websites. And what I said in the beginning about a better pricing is true. We also moved on and 2 very important points that helped us in sales performance, first of all, there was decentralization of sales price, which is very important because there is a greater participation in the long-tail [ph]. And also, lack of concentration in terms of regions. So in the bricks-and-mortar world, we are increasing our share away from the São Paulo-Rio route, particularly in the Northeast, but the growth in competitiveness is relevant. Our growth resulted not only from a greater effort, but also a greater conversion.

Unknown Executive

And we believe that the outlook will be remained for the third quarter. We've started very well, still above the average of the second quarter.

Operator

Mrs. Irma Sgarz from Goldman Sachs would like to ask a question.

Irma Sgarz - Goldman Sachs Group Inc., Research Division

I would like to ask about working capital at Viavarejo because there was a significant increase and the terms to pay suppliers. Did you implement any initiative, and can we believe that this will be the new level that we should adopt from now on? Could you explain that? And then I'll have another question about Assaí.

Unknown Executive

Thank you very much, Irma. Yes, we've been working hard with suppliers, but not only with suppliers, also within company processes to optimize working capital within the company. And yes, we can expect this inventory level from now on, particularly connected to -- talking about suppliers, there was also a significant progress and we can consider these new levels. About Assaí?

Irma Sgarz - Goldman Sachs Group Inc., Research Division

Assaí, my question is in the initial comment, in the initial remarks. I'd like you to confirm that the target this year is to grow 40%. I don't know whether I understood this correctly.

Belmiro De Figueiredo Gomes

This is Belmiro. Yes, the target for 2013 is to grow 40%, in the second quarter, 37.5%. This will accrue from the first quarter, 32%. But there is still a number of stores to be opened now in the beginning of the second half year in [indiscernible] . We opened a store. It was one of the best inaugurations that we had. And there's another one, which is nearing completion. And also the maturity of existing stores leads us to believe that we will be able to grow by 40% in 2013.

Irma Sgarz - Goldman Sachs Group Inc., Research Division

And now for the future, you said that operating expenses will fall below 10% according to as the new stores mature. Now about the gross margin, as you grow into new states and treat prices, should we expect that you will work in a level around 15% or more than 15% in 2014 or 2015? And related to that, the EBITDA margin perhaps could be above 5%, 5.5%, with these 2 changes, OpEx falling below 10% and gross margin moving back to historic levels.

Unknown Executive

Every time we open a store in a new state, we have to invest in marketing, and there are a number of expenses, staff training, et cetera. The strategies that we're using was exactly to get a foothold and pave the way for other stores to be opened, so that it doesn't pressure so much the margin and expenses. Our purpose is that total expenses will be around 10%. Obviously, this scenario may change. And obviously, the longer the stores are in the state, the greater the possibility that we'll adapt to the mix to the regional suppliers, and we will and be able to capture an increase in margin.

Irma Sgarz - Goldman Sachs Group Inc., Research Division

But is there an EBITDA margin that you're working with over the medium term always upward?

Unknown Executive

The purpose is to increase it and favorably continuously as the market allows us and as the team works for it. But our purpose is always to increase it.

Operator

[Operator Instructions] Mr. Aldo Cardoso from Bradesco has a question.

Alan Cardoso - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

I've got 2 questions, first one about Minha Casa Melhor. Can you share with us if you feel an impact of adopting the program in Viavarejo?

Jorge Fernando Herzog

This is Herzog. In fact, the program is very insipient. This is a program where the government will provide a credit facility to the beneficiaries of Minha Casa, Minha Vida. So they started distributing these cards and we will only feel the impact of the sales on the business as of August. In July, we felt something that it will only be after August that we will actually notice whether the program is helping sales.

Alan Cardoso - Bradesco S.A. Corretora de Títulos e Valores Mobiliários, Research Division

Great. My second question is about discounted receivables. In the second quarter, expenses moved up by 15.4%. Your gross revenue went up 14%. And comparing the quarters, there was a drop in the average selling interest rates. So why didn't you have a reduction in discounted receivables in this quarter when compared with the previous quarter or with the quarter in 2012?

Unknown Executive

Thank you very much, Aldo for the question. Very good question. We've had an increase in discounted receivables, particularly in credit card receivables. And I'm talking about a relative increase, and revenue grew by 14% and the discount grew above that. In fact, there are 3 factors that led to this result. First of all, the growth in sales volume as you've mentioned; but it's important to see that in the second quarter of 2012, revenue was around BRL 5 million. Regarding the subordinate of, so this lowers the comparable base. So there is a 3 percentage points of difference, and we've had an increase of 0.2 months in the average term in the comparison between this period and same period last year, which is around 3, 3.5 of this difference. So there was a difference in the average payment term, and this is why we saw the discounted receivables to grow. But if you exclude the other effect, it's not to the tune of what we see without thinking about the factors. Thank you very much.

Operator

The Grupo Pão de Açúcar conference call is closed. And the Investors Relations department of the group is available to answer your questions. Thank you very much, and have a nice day.

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