Sendas Distribuidora S.A. (ASAI) CEO Belmiro Gomes on Q1 2022 Results – Earnings Call Transcript

Sendas Distribuidora S.A. (NYSE:ASAI) Q1 2022 Results Conference Call May 10, 2022 10:00 AM ET

Company Participants

Gabrielle Helú – Director, IR

Belmiro Gomes – CEO

Daniela Sabbag – CFO

Wlamir dos Anjos – VP, Commercial and Logistics

Anderson Castilho – VP, Operations

Conference Call Participants

Danniela Eiger – XP

Felipe Cassimiro – HSBC

João Soares – Citi

Felipe Rached – Goldman Sachs

Joseph Giordano – JP Morgan

Operator

Good morning, everyone, and thank you for waiting. Welcome to the Earnings Call for the First Quarter of 2022 for Assai Atacadista. [Operator Instructions] We would like to let you know that this earnings call is being recorded and will be provided on the Company’s IR website, at the ir.asai.com.br where you can read the release. The presentation will be available on our website.

During the presentation, all the participants will have their microphones off. Soon after, we’ll start the Q&A session. [Operator Instructions]

Now, I’ll pass on the word to Gabrielle Helú, she’s the Investor Relations Director.

Gabrielle Helú

Well, good morning, ladies and gentlemen. Thank you so much for your participation in the Earnings Call for the First Quarter of ’22 at Assaí. The speakers present today are Belmiro Gomes, who’s our CEO; Daniela Sabbag, and our VP, Wlamir dos Anjos, Commercial and Logistics VP, and Anderson Castilho, our Operations VP.

Before we begin the presentation, I’ll pass on the word to Belmiro for his initial consideration.

Belmiro Gomes

Thank you, Gabrielle. Thank you everyone for participating. The Assaí teams’ available here, and we’re going to be a little quicker here with our presentation as we present the numbers of the first quarter because we’ve already disclosed them previously, and now we’re just showing you the final results. And we want to really value a little more of the Q&A moment, so you can have time to take advantage of the executive’s presence here, the leaders of the business, with the presence of our Commercial and Operational VP, and our Financial Director, and also talk about some of the market trends. Before we begin, I would like to initially thank the entire Assaí team in every different area, and department, and different projects that are underway.

The company, to give you an idea, has over 45 construction projects simultaneously going on. It’s a very important year for our growth path, and Assaí has been recognized for it’s strong [indiscernible] unit, but 2022 has a different touch because for the record year, it’s opening. Especially with the store conversion coming from the acquisition project of the extra hyper market structure. So just quickly about panels, as you have noticed, we had an increase of 21% in our total [indiscernible] Most of this comes due to the contribution of our expansion stores. In 2021, the 28 new stores that opened and 19 opened throughout 2020 were really to reinforce our presence in the market, that I would say was already present from 2013, 2014, onward, then we started entering different states.

We were [indiscernible] of where we placed our first store. Last year we had the reinforcement stores, such as Rondonópolis, Porto Velho. We’re expanding our presence in Pará, Amazonas in different markets. So the performance of these expansion store’s differences in the previous years has been very positive, and it’s really caught a tiny bit of cannibalization in our network of stores. But in our vision this strategy is correct because sometimes if we have one store in the region that have very sharp performance in sales per square meters, whether it actually even a bit more difficult for the service of the customers, but the expansion network also tends to consolidate our presence where we have an exceptional performance already.

We need to expand the market availability. So the [indiscernible] sale base had about 7% growth compared to last year in the same period, but this quarter we had maybe one of the most unique quarter. So, the differences in the progression of December– progression, but, February was a lot better than January. March was substantially better than February, and April now is a lot stronger than March. So, we had to make shifts in our behaviors, in our strategies [indiscernible] as well from end-customers, but also from food service where the businesses would get back to a level activity.

Just a little more regular harmonized with the reduction of the period of the pandemic our margins were really stable, although the numbers in the stability are representative of May of different adverts made by commercial, and operational areas and many different projects of the negotiations with suppliers. And as we invest in some competitive advantages, especially in some markets where we have the entrance of new players, but also with all of the positive and negative points which still enable to end with good levels of margins in our opinion considering the overall economic scenario, balancing out margins and our competitive advantages. Something we all put strong efforts in this quarter, with the inflation coming in with a lot more strength, that that’s going to also be the overall market expectancy. Which also reached the [indiscernible] so there is a huge effort from our team, especially in the Logistics and Operations area, to be able to optimize some projects, work on cost reduction which allowed us to. Although we do have pre-operational cost timing from this expansion is really an all time high.

We have people hired with training as well, trips, in different projects and initiatives to really handle or manage the expansion that generates overall expense pressure. We should have a little bit more of this in the second quarter, but even so expenses have a variation that were 0.2%, which made the EBITDA have strong performance of 6.6%. The expansion, and we’ve talked about this, maybe in a specific chapter, but it has advanced as foreseen. We increased our level, our objectives for organic stores and return, in the new year we had the projected 10 new units with two other projects that accelerated the timing for the approval. At this moment, we are kind of balancing out the expectations of 12 organic stores in 2022, and then another 40 new stores from Extra.

So, it’s the minimum level, but as we progress throughout the year with the construction and approval, it could be this is going to be growing a bit more upward, but we’ll have a little more with [indiscernible] about this in the end of this second quarter. Then we also had strong initiatives in the digital front with the structural change. I’m going to highlight it up head. If you want to move onto the next page. When it comes to sale, and I just want to quickly mention that the company has significant growth in the past few years.

81% increase in revenue. Of course, you do have an impulse of the inflation with the increase in the price of food, but this strong increase in sales comes from store openings, and achievements of better performance [indiscernible] network, and coming from the expansion in the previous years as well. To not make this repetitive here we can advanced onto the next Page. With gross profits and margins seem to be stable now in 2022 at a level that’s way above when it was operating in 2019, or even in 2018, and 2017 when it comes to the level of competitive advantages, the company has been working on. Especially when you look at the main performance [indiscernible].

For any kind of food sector operation where the volume of sales per square meter, you can see that Assaí’s performance demonstrates that we’re being really being competitive, conquering customers in different profiles of stores. And especially balancing out having a healthy balance in the maintenance of the margins of the company needs with the level of competitive advantages that we need as well. We can move onto our next Slide now. And then with this on the last three years, although sales have been growing 81%, the EBITDA doubles. And Daniela will verify this, to see that the strong cash generator, and this is even with the growth since our sales opened in this period, 47 stores in the period of two years.

The company has really been able to make the growth. Have the significance with the margin of growth in EBITDA, since the index of the cash conversion is really high, which allows the company to support the projects we have in investments and growth. And, well, I’ll pass on the word to Daniela Sabbag, our Financial Director.

Daniela Sabbag

Thank you, Belmiro. Moving onto the Slide 6. We ended the quarter with $302 million representing 2.6% of the sales. And the financial results were impacted by the strong increase in the interest rates, and the CDI increased 5x, so it went from 0.49% to 2.43%. It’s very relevant. And I want to remind you that throughout 2021 we refinanced all of our debt. We’ve reduced our debt by about 1%, and we were able to extend the maturity of these debts. So our average CDI was, CDI plus 148. So this trend was fundamental to help us reduce the increase of interest in this beginning of the year. And in the results of the quarter, we had important positive effects as well.

CRI financial estimate of $1.5 billion, which impacts our earnings by about $58 million in positive– It’s a non-cash effect in line with what the accounting standards require. And we expect that the results will not be relevant from here onwards. So in the quarter we also completed three different funding initiatives that were expected to be able to handle all of the levels of investments in 2022. This led to total $3 billion, which is a venture we completed in January of $2 billion plus a commercial note. And finally, in April out of the quarter, but also recent result, we had the fundraising of $250 million as well.

So the total cost of the debt continues to be CDI plus one and a half. And I want to highlight that on the right side of the Slide, you can see the variation of the net debt. And this is where you have a strong cash generation that’s very robust as Belmiro mentioned is growing and also very much levered by our efficiencies in working capital. So as you all know, we have a very strong cash-generating model. And this was $3.2 billion in this quarter.

And just to remind you we had a cash generation of $2.9 billion, so we continued to have a growth that was very significant. And in this Slide, we also bring in that investments were higher than the EBITDA in the last 12 months. So when we add up this payment of the extra stores, the $1.9 billion plus investments, this generation becomes very important looking at the entire investments we have up ahead. And of course, we have the financial expenses as well moving this step in a way where we ended a quarter by $6.3 billion and $2.2 billion in the leverage ratio. So I think we can now move on to the next Slide, please.

And finally, the operational performance was very robust in the quarter. We were able to capture results very well with the commercial dynamics and accelerated maturity of the stores. We had $32 million in the last 12 months. And an important highlight also is the efficiency in expense control where we’re able to control these expenses very well amidst such context that was pressured by inflation. So of course, the financial results with the increase of the interest rate brings in a very relevant impact of 120 beats and the financial results worsened.

And that’s how we can register a profit of $214 million and a margin of $1.9 million, which confirms the resilience of our business model. Now, I’ll pass the word back on to Belmiro, for his comments on the digital initiatives.

Belmiro Gomes

Thank you, Dani. When it comes to digital, as you mentioned previously, as I started off a series of initiatives and projects after the split with GPA, we’re waiting for– We have a new business development position that’s going to be led by [indiscernible] And he worked on our operation in the past with [indiscernible]. So he understands a lot about the company and he has experience in different areas. And now we have a new project we started off with the LastMile partnership, with Cornershop, but also Rappi as well. So customers have the option in 17 states over 55 cities to use the app and we have some other new features we should be launching soon, even before we enter with the new hypermarket stores that are converted.

And because the public in these stores have a bigger demand for digital services considering the level of needs, which are different than the standard of the stores. So we should have some news on this topic up ahead. You can advance on to the next slide and the main focus on the company and all the different areas is expansion, expansion, expansion, especially with the readjustment of the conversions of the stores coming from Extra. We had a big effort to launch in this quarter many of these stores and most of these in Porto Velho, Belém, Petrolina, Nossa Senhora do Socorro, close to [indiscernible] and now a unit close to the historical center of Salvador at the super-strong density region. That’s a unit that was built where there’s no other cash and carry operation.

Now we made this very concentrated within the first and second quarter of this year. So the company is going to have a very strong focus now with the reopening of the extra stores in the third and fourth quarter this year. So as I mentioned previously, we’re increasing our objective when it comes to organic stores. And probably by the end of the second or third quarter, we should be advancing as well. Maybe not so significantly the number of stores, but in the amount of extra stores and also in the organic stores.

So projects are up to date and within the schedule, expected Extra closed these operations in December last year where we had negotiation process with the owners and working on the construction site preparation, but from the 60 constructions who are already working on, 40 are already under construction. There’s an impact on the cost of the conversions because, as we’ve seen, the inflation has been persistent, not only for food items, but also in the cost of construction materials. So this project is within the expected level for the construction projects regarding what we expected to fulfill necessary construction projects to transform the hypermarket in a cash and carry store. But we should have more of a clear vision in the third or fourth quarter to be able to reflect the variation that we’re seeing at this moment with the prices of the construction materials especially steel and concrete where we had some non-expected impacts especially now in the first quarter with the war in Ukraine. But the project continues to progress spectacularly after extract.

They closed these hypermarkets and we noticed that most of these sales are not migrating to other hypermarkets. So we’ve seen that the sales normally migrated to supermarkets and especially to other cash and carry. Fortunately, we didn’t have that many stores close to Extra, which kind of helped that thing incorporate this network of store. At this moment, with the closing of these stores, we noticed that we should have a temporary situation as when this opens. Then I’ll say, a store with a value proposition as I have a new store that’s competing modern within your offer of services.

We have a very positive expectation because the network we have converted stores now already has, besides a better performance when it comes to the EBITDA, there’s also a better performance when it comes to sales per square meter especially because there are stores in regions with greater density, they’re in capital cities with the same kind of profile of the stores that are coming around now, besides the fact that it has more of a positive working capital effects. Because when we look outside working capital, we have a mix of stores that are in the Northern region and regions where it’s very difficult to consider this dock timing which is different than a store that’s inside the capital city. This will allow the company really to– We’ve talked about this a few times. We don’t want to be too repetitive, but with [indiscernible] the wholesale a format and regions where you don’t always have that much availability. So, major population density, any of the cash and carry store.

The current store models are prepared to work with suppliers regardless of their social level. Beside the traditional public, we’re also including new social levels that have been searching for the option of buying from a wholesale or cash and carry operation. We are opening up these stores in a very, very positive moment where the pressure for pricing has really made the population search for opportunity to save money. When we looked at the numbers in the first quarter, opportunities is not open. We have an important trade down made by the population.

Even with the higher-income population, they’ve been searching for better prices. So there is this perception of an increase overall, and we believe that this is going to be a very precise moment where we can reinaugurate the units coming from these projects with Extra. We can move on. When it comes to advances, we are bringing in a few other advances the company is [indiscernible] with some topics especially when it comes to the number of people that have disabilities. And also when it comes to diversity and women in positions of leadership in the company.

We know that we still have a long path ahead, but we have been improving this more and more adding more focus and efforts, more training, especially in the issues related to diversity. And others is related to social liability of the company because of the sector we operate in with food. So many of our initiatives and projects that we’ve already incorporated in our network of stores with a store expansion this first quarter. The operations area also made an effort to connect even more source to the free market energy supply which avoids needing to turn on the diesel generators and peak operating hours. So we are continuing to advance with new projects to be able to provide some incentives for when power generation and also portable tyke or solar panel generation.

So Assaí is also working with micro and small entrepreneurs as well as entering in the first quarter in this 360-degree movement for women. So I’ll let Dani and Gaby discuss this a bit more up ahead. And moving on to the last section, we talk about trends in the second quarter. We’ve seen an acceleration in inflation now within the first quarter. After the impacts coming from Europe, some of the commodities that were reaching some stability gained a different strength in regards to price increases.

Some supply chains are still not stabilized. The recent impact in China have also affected Brazil. And the variations in the currency rate have also led to some kind of a disruption scenario where we still don’t have normality. And the assessment is that the company will see, maybe not a peak in prices, but a high-level prices as we’ve seen now in the last month of April when it comes to inflation. So inflation has been a lot more long-lasting, and persistent, and strong than everyone expected.

In the food sector, this really generates a bigger challenge for the population when it goes all of the price increase in the past three years but on the other hand, it also generates a positive movement for our business. We’ve noticed, as I mentioned, that we had an important ramp-up, that was very unique within the actual quarter and this movement moved on to April. In April, it’s also a typical month because Easter fell on April. We also had another second carnival in April this year, but even with a trade-down, what we noticed is that with these special holidays is a bigger movement for end users to find their homes with like monthly shoppings, and a bigger presence from customers in the Food Service Sector in our stores. Ever since the pandemic, the Food Service Sector, with bars, restaurants and snack stands and other activities related to tourism, or even utilizers like, schools and churches have really impacted our results.

April was a month that was a lot more positive for this group. With this, in April we grew about 40% in our total bid and of course, April’s a very unique month but the performance in April and the movement in May make us consider a second quarter with growth above 30%. Once again, this movement really makes us have an extremely relevant period as we re-inaugurate the actual Hyper stores. So we have a very big expectation with the reopening of these stores. Among the surrounding population really was their best option before, when it comes to shopping for food items.

And there’s also another big expectation from the small businesses, bars, restaurants and snack stands, and many grocery stores, there’s a big expectation also on behalf of these suppliers. So some of the product lines that we will sell, specifically in Cash-and-Carry will also have options to be sold in a region with more density and central region, which also contributes to our suppliers as they see major advantages in this movement. So this is a very favorable scenario and the plans continue, the company is strong and focused in its growth path. On my behalf, that’s pretty much it. I would like to pass on the word once again to Gaby, so we can begin our Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] We’ll move on to our first question coming from Danniela Eiger, the South-Side Analyst at XP. Danniela, we’ll open up your mic so that you may proceed.

Danniela Eiger

I have two questions. The first one is just to confirm and discuss a bit more of the sales dynamic in the beginning of the second quarter. And also how, although there’s a lot of uncertainty in the year, we’d like also know about profitability. So, Belmiro you mentioned that we should wait and expect a bit more expense pressure in the second quarter, but we should probably see a reversal as the Extra stores are open. So, if you could maybe talk about these two points that would be great. And another question to Dani about the use of those $1 billion that you should be receiving as a repayment in the second quarter, would this be for prepayment of debt? These are the two points.

Operator

All right. Thank you. Dani?

Daniela Sabbag

The dynamics for the second quarter are expected, of course. Our operational expenses and the store expenses continue to be under control. We actually have some productivity gains and optimizations, but maybe this won’t be that impacting in the second quarter, but as there was an acceleration in our sales at this moment, this also generates a dilution that’s affected super positive. Since these are stores that are open in capital cities where we’re already present, there’s a bigger level of expenses in the second quarter, where our dynamics will be to invest more in competitive advantages, create a bigger movement and greater volumes of sales. But maybe just going to represent a difference of about 40 bids in our expenses because we’re rebalancing out our sales expectations, which also generates an important dilution.

Operator

Belmiro?

Belmiro Gomes

I would like to contribute here to give you an answer about expenses, and I think expenses in our– We have very low expenses in our operations part of our DNA, but our operational teams and store teams really have strong work. When we look at the first quarter compared to last year, the difference is very small, maybe mostly impacted by pre-operational expenses with Extra. Now, in the second quarter maybe they have a little more importance as you mentioned yourself, we’ll already start opening up the stores and this ends up being a little more diluted. And we also can’t forget that last year we were a record of 28 stores open and 21 stores open in the last quarter. So when we see there’s a bit of significance, but I think there are many different initiatives that say that expenses within Assai since it’s a low-cost business.

There’s not that much to discuss. Of course, we carefully look at each line with our operation store teams and support teams and other areas, so we don’t get off track. We’re a low-cost low-price business, and sales volumes also help dilute our costs. So we have very positive expectations, but this is really daily effort and initiative from the team looking at all of these lines so that we can have very positive returns. So to add on, as we mentioned, there’s a lot more in the second quarter considering the pre-operational aspects with our teams already working on training their professionals and employees, so we can really make sure that the store launches are very successful.

We’re very careful at this point, really in line with the work being done in the other teams and other stores. I hope that was clear. And about the $1 billion and the reimbursement that we will receive from the Real Estate Fund, at this moment we will not prepay debt, but obviously, it will strengthen our cash flow to be able to work on all of the investments with the Extra project, especially so we have up ahead. So at this moment, we won’t be prepaying debt, possibly a little more up ahead, but at this moment the priority is really guaranteeing the investments in the Extra store launches. All right, thank you very much.

Operator

Our next question is from Felipe. He’s a Sales-Side Analyst from HSBC. Felipe, we’ll open up your mic so you can proceed.

Felipe Cassimiro

You gave us some really interesting information on the behavior of the consumers, and what really caught my attention in this process of the migration of Extra where the consumer passes on to different markets and Cash-and-Carry. But you mentioned that you’re very confident about recovering this consumer, but it caught my attention because part of these consumers are moving more towards supermarkets, maybe they’re searching for more convenience within assortment of perishable goods. Well, I don’t want to take too much time here, but I want to understand what your mindset is in regards to confidence in recovering 100% of the Extra consumers, because you still need to gain share since these sales need to go up 2x or 3x more. So, I think this question was a little bit long, but I wanted to understand a bit of your mindset in regards to this recovery.

Belmiro Gomes

Thank you, Felipe, for that question. As these stores ended, there was a restrained demand for the Cash-and-Carry, so the multiplication of sales was reached in all of the network, and so this has been a bit more clear. So the level of risk between opening up a conversion store is even smaller. You can see the amount of the population that’s surrounding and the level of competition and activities, but of course with the stores closed, we’d have to move on to other places and all of them migrated into the closest stores. And considering the quality of these stores, there’s no doubt that the numbers that were estimated, we have a buy that’s even more positive than when we set this initially in the past and pressures in cost and the need for savings.

As well as the need for consumers and even small businesses that want to have low prices not lose too much time. This continues and it’s also expanded to a bigger search for savings. So in our vision, this really reinforces the positioning for the stores we opened last year, for example. The best performance at this moment was really coming from a store that was in a region that was really the Extra profile, which was a conversion with our concept store. So, in our vision we don’t want to celebrate the increase of the inflation, but this price-increase movement for the consumption in these regions.

So in most of the regions, our teams have been reporting that there’s a big expectation with the reopening of the Assai brand. And just one more follow-up point here, with the acquisition Cencosud by GIGA will that change a bit in the competitive advantage? I know you have some limited space for discussing this, but I want to understand your vision on this consolidation. No, we don’t see any relevant impact because just Cash-and-Carry to Cash-and-Carry, now it’s going to be managed jointly with the Cencosud team, which will maybe even bring a little more difficulties for management. Some of these stores are going to be impacted with the reopenings of the Extra stores.

At least four or five that are going to open about some outside brands that are very strong, but there won’t be much of a change when you look at this overall scenario in the market. Okay, thank you very much.

Operator

Well, continuing our next question comes from João Soares, Sell-Side Analyst from Citi. João, we’ll open up your mic so that you may proceed.

João Soares

I would like to explore a bit more on this. I thought your discourse was a little more optimistic, so some points called my attention. First, the revision of the organic opening this year, and I also noticed that there’s this possibility to review these store conversions. And so depending on how things evolve, is there an opportunity to review these store conversions this year? How could we start looking at those $100 billion in billing or sales that you expect?

Do you think this is more conservative at this moment? That’s the first question. The second question is about this point with the market itself. We saw as [Phillipe] mentioned with the acquisition of GIGA that Cencosud performed, but overall it’s the seller’s market really. There’s some opportunities with the macro store, so I understand that the labor situation is a little more difficult.

You’re also busy with the Extra conversion, but the point is, is there any other opportunity or maybe should we analyze organic store openings and maybe work on some inorganic store openings? I want to hear your opinion about the assets available in the market.

Belmiro Gomes

So of course, what we’ve noticed is that the positive point is that it gives us a bit more of a correct balancing out of the values for the regional companies. Because normally, there’s some expectations in regards to price levels that would not be sustained for a possible acquisition. At this moment, this operation places level at a bit more of a realistic position when we look at the ratio of the amount paid versus the sales on this company. So in our case, we’re really focused on Extra. Now, Assai has 217 units plus the Extra units.

So this gives us a geographic footprint in the national territory, especially in the capital cities which make you reduce the volumes of players that are relevant. Because the level of overlaps are really just going up when it comes to regional players or other areas. We’re always moving back on track, but our focus as a company is really the conversion of the Extra stores, because even for an acquisition which is different than Cencosud, for example, that’s working on just the POSs but also they want to have the system’s knowhow. In our case, what’s most interesting is the commercial point, when it comes to systems, policies, expertise. So any kind of movement is really going to be looking at this and besides the Extra stores, we also opened up another unit that we bought from our construction material company and another construction project that we also bought for furniture stores.

So the disputes in the market will be focused on these areas, and there’s a difficulty in the urban logistics of [indiscernible]. So when it comes to the store conversions, our teams have been working with higher volumes than what we disclosed, so not all of the authorizations rely just on the company. There are some documents that, although there may be store refurbishings with lower levels of complexity. So if you’ve ever done some construction projects or refurbishing, you know what I’m talking about, but of course, we plan to open up as soon as possible and to make these assets start billing and selling as quick as possible. So we’ve kept this target, the $100 million and at this moment, we don’t necessarily need to review it, but of course, nominally we’d be correcting the search of it from the customer, generating a bit more security.

And the company is a lot more confident about this and we are even a bit more confident about this than we were in the past. I hope to answer your question.

Operator

And of course the next question is from [Eric Wong]. Eric, we’ll open up your audio so that you may proceed.

Unidentified Analyst

On our side, we would like to understand how you’ve seen the sensitivity that consumers have towards pricing. So whether we like it or not, the inflation topic is super significant, so I want to understand how this could maybe affect the gross margins throughout the year and also as we look a bit more towards the trade-down movement. So historically, we see this coming a lot more from the Hyper Consumers, but just to understand this a bit more as the inflation keeps up at high levels for a bit longer, have you seen a trend to capture this from the supermarket formats? These would be our main questions. So I think Wlamir, Commercial VP can answer this one.

Wlamir dos Anjos

Yes, of course. Thank you for that question. As we initially start talking about the customer migration between channels, I’m not going to call this trade-down, but migration at this inflation movement. This is something that’s been going on for a few years and whenever the inflation accelerates customer search for Cash-and-Carry format. Even as we contribute to, Belmiro speech, in this first quarter, we had a closing down of the Extra Hyper Store and Assai did not capture sale because we don’t have overlap on this point but we did have an importance in market share gain.

We were able to grow in January, February, March, and that’s how we reached the highest levels of market share in the past 12 months, and inflation has significant weight. When we talk about the inflation and the price inflation and trade-down, we’ve already been co-existing with these inflations a little longer than what we expected. We had already expected a scenario that’s a little different in 2022, but considering what’s been going on in the market internationally and in the Brazilian market due to currency issues of export, logistical supply chain et cetera, we’ve continued to have this pressure. We had very strong trade-down, about 5% trade-down. There’re some categories where– Slightly related to the pandemic especially hygiene and cleaning products that they lost a lot of volume and traction such as bleach or detergents, soap, and general cleaning products, alcohol.

The quantities consumed dropped significantly this year, and so to be precise with this more challenging scenario, we’ve been able to work on the [indiscernible] issue with a lot of speed. So just to give you an idea, we have a revision with the introduction of new products to be able to lead this [indiscernible] customers as well as a modification of our [indiscernible] by 68% depending on the market with the renovation of the mix monthly, so that we can have a policy for prices but also what to offer to customers in a very assertive way. And on the other hand, as we look at this impact as a whole, we go back to seeing an increase in the customer flows in the stores. So we eliminated part of this for a trade-down and migration of customers, and this combination has been making us very confident in our operational and commercial policies because with the inclusion of these new services in some specific market such as the battery service, without losing hand with the cost issue, and this capacity that we have to really direct our commercial policies and marketing, and a very precise promotional calendar. We adjust our policies week after week and month after month and so this combination, this is not very positive but we’ve been able to deliver a great solution to the supplier and small businesses. I hope to have answered your question.

Unidentified Analyst

So maybe just if you could follow up on the issue related to the sales performance in the month of April and May. We’ve noticed some of our competitors talking about numbers. I lost a tiny bit of the beginning of the Q&A session, but if you could maybe talk about this a little bit, that would be great. Thank you very much.

Operator

Do you want to answer this, Belmiro?

Belmiro Gomes

Yes, I can. Yes, we did speak about this. Of course, we had April as a very unique month because we had Easter and also a special curve out of normal dates, and April had a strong of sales acceleration, of course, this is the calendar effect. April [indiscernible] grew about 40%. So we estimate that in the second quarter, we’ll probably set a target of above 30%. Of course, when you look at the numbers from May, this allows us to re-estimate this once again.

Operator

So moving on. Our next question is from [indiscernible], the sell-side analyst from Credit Suisse. Gabriel, we’ll open up your microphone, so you may proceed.

Unidentified Analyst

This is Marcela Hakim [ph]. Thank you for answering my question. I have this question that most people already submitted but I just wanted to know about the following [indiscernible]. We’ve seen some contrasting dynamics in the industry with the profitability and sales effect. So there are some players that are prioritizing a more balanced effect in the sales, protecting margins, such as you at this moment and others are accelerating sales and investing in their margins, kind of, giving up a bit of their margins. So I want to know what you’re considering in this dynamic and if we could consider that you’ll continue to grow sales in a more balanced level compared to your peers in order to keep protecting margins. Thank you very much.

Belmiro Gomes

Well, Marcela, thank you so much for this question. Actually, if you look at the first quarter, our vision of the total growth is that we’ve had one of the biggest levels of growth in the market due to the size of stores open there because you have more acceleration sales, and you have this ramp-up process. As you’ve mentioned, part of these total sales were influencing [indiscernible] for sale in two percentage points. So in our vision, we balanced this out in a very healthy way, when it comes to keeping competitive advantages. The total growth rate and also the preservation of margins, especially for the second quarter, we should be working on this in a more aggressive way when it comes to searching for volumes and sales.

This does not mean that we’re going to work on a very strong investment in margins, we only search for very healthy balances between these two lines at this moment. We’re preparing for the reopening of the extra store. So of course, it’s natural that we should increase our level of promotions and communication initiatives to support not only the stores and their operations at this moment but also the new units that are going to enter operation in our park now. So we’ve been reaching a very healthy level. And we can say, look, we’re just going to search for sales with no margins or just margins without sales.

I think that there’s a huge difference as well in each of the regions [indiscernible]. There’s some regions where you have a bigger level of competitiveness. So we’ve been really searching for this healthy balance. I hope that’s clear.

Operator

Well, we continue Felipe from the sell-side analysts at Goldman Sachs. Felipe, we’ll open up your mic so you may proceed.

Felipe Rached

I just wanted to cover two topics here. The first one is as we think about the extra stores that are going to be converted. I understand that they will have a product [indiscernible] different than the rest of the store network such as the battery. So could we expect that maybe this could have a working capital impact looking up ahead? Maybe the concept [indiscernible]. How has it behaved in regards to the rest of the store network? So as we think about the organic expansion, especially in the north and northeast regions, the stores in these regions have behaved when it comes to sales and when it comes to margins as well. So have you felt a bit more of an intense competition than what was expected originally, especially when compared to other markets where you have a stronger presence, or is everything under expectations?

Belmiro Gomes

Thank you, Felipe. I want to start off in the opposite direction. The north and Northeast markets do have a high-level of pressure from competition, but it’s within what is expected because they understand and know the players in the region. There are other players that are also advancing in the star progression, but the best answers when you look at the base of total growth and you can calculate the average sales per store. So and the regions in Brazil overall normally have very different behaviors and that’s expected.

There’s a different level of income and competition when you look at the numbers of course. So the company actually continues to implement some organic projects and some other organic projects are being prepared in that region. So although each region has their own specificities, it’s kind of within what was expected for each region. But the working capital, yes, the stores follow another level of service and especially the stores in central regions, not only extra, but even the organic ones where you have a bigger amount of [indiscernible], a bigger amount of services, but for the working capital effects, this is actually marginal. When we consider our working capital.

We’re looking at an average of stores in the north, northeast regions and more distant locations where the time or supply or logistical processes are a little longer. Now, we have a turnover and the inventories with a smaller time or timing than the more distant regions here. So the impact you’ll see in the working capital with the [star] convergence from extra stores in regards to the current network is a lot more positive than negative. Even when you add this figure amount of assortment or a bigger level of services and a more expanded amount of product options or…

Operator

Our next question comes from Joseph, the sell-side analyst from JP Morgan. Joseph, we’ll open up your mic so that you may proceed. You may proceed, Joseph.

Joseph Giordano

I want to explore your digital strategy a bit more. We’ve seen you’ve grown a lot with Cornershop and these last-mile players and Rappi as well, but it makes sense to maybe think of a proprietary [indiscernible] platform especially now as we add even more stores. From external, we’ll have a consumer component that maybe a little bigger. Working on some subscription models within [indiscernible] so the company itself could be following more of a supply approach, and working on more recurrence and loyalty as you see when compared to other markets. So I don’t know if this makes sense within the company strategy?

Belmiro Gomes

Well, thanks, Joseph. When we talk about digital, we have a very well-structured project and it’s underway and this will bring in a lot of new features. We, unfortunately, we’ll have to wait a bit for the launch of the project now, that should take place in the beginning of the third quarter when we reopen the extra stores, so there’s a demand. Well, one thing not necessarily does digital mean e-commerce directly or deliveries. The objective is that the deliveries really are done by a last-mile operator, but we’ve noticed that there’s a need and a desirability when it comes to digital, which is not necessarily commerce.

In the existing store network, e-commerce appears in the 14th position, actually, in the list of points mentioned by customers. So the customers want to know first, if there’s the products available in the store, if there’s vacancy for them to park, what’s the project recommendations or suggestions, you have the option of like a pickup from store. And e-commerce when you unite the digital and physical world with like a phygital approach there’s a really interesting opportunity. So we don’t plan to have a proprietary e-commerce platform, we want to be more present with digital services and different features so that customers can interact with our store using digital ads, I mean, for this, whether they’re in our store or not, then yes, so we need to wait a bit more on some of the products. We have a team developing this and they are very focused on this at the moment.

Joseph Giordano

If I could maybe mention a follow-up question here about services, we have [indiscernible] which are about four shifts and I want to understand how you’re looking at this from now onwards because the SIE card has also gained a lot of relevance with the machine, so how have you looked at this strategy as well?

Belmiro Gomes

[Indiscernible] is not a strategic guidance, of course, we take advantage of the customer flow, which is significant. There should be an important expansion with the new extra stores and we have the opportunity to start off using cards even more. So [indiscernible] is focused on the card and some financial services that are sold, but there’s no like big shift when it comes to strategic guidances for [indiscernible] at this moment. So there’s a big focus in all of the different areas in the company for the reopening of the extra stores. To give you an idea, we reached the end of the first quarter with almost 1 million square meters of HL there.

So the stores coming on now are about 400,000 square meters in capitals, so in richer areas, about 40% of the store network. And there’s a big focus of really getting the convergence from extra, and then after we’ve had some other projects we’ll be conducting as well from next year onwards.

Operator

As we continue with our next question, we have [Melissa] from Bank of America from the sell-side area. Well open up your mic, Melissa, so you may proceed with your question.

Unidentified Analyst

I’ll be speaking this in English. But most of my questions have been answered, but I was hoping that you can give us a little bit more color in terms of regional sales performance and market share. So both the growth of the cash and carry segment as a whole and your performance within the segment, and then also on the digital strategy. If you can just provide a little bit more detail in terms of the economics of the existing last-mile partnerships and, you know, the incremental sales that you’re generating, if you think this is the new consumer that you are bringing in and sort of expectations for growth of the channel and more particularly when you open the converted stores?

Belmiro Gomes

Thank you, [Melissa]. Now, for digital, yes, there is an expectation for greater penetration of these stores with the extra hypermarket stores where we do plan to add a bit more detail and color when we are able to implement the new project we started working on after this that with GPA. So far, we’re still going to be careful with which numbers we disclose in regards to the operations with the last-mile partners, they’re following a very strong ramp-up in our vision. Most of these customers are new customers or customers that already used to buy from Asai and now they use our app to perform some smaller shoppings throughout the month. So we’ll have a lot more of a complete vision in digital soon.

Since the project still hasn’t been launched, we’ll have to wait until the actual hypermarket stores are converted. But in practical terms, we can say that the company is going to always adjust according to the demand and of profile customers in our surrounding region. So our previous store network was very different. As you have a customer with new needs or demands, you can offer new services and needs to be able to meet these requirements. Then regional performance, while the company has been present in 24 states in the country, we have regions where, believe it or not, there’s a bigger market share, which is not Sao Paulo actually, believe it or not.

We have more participation in Gerais [indiscernible] than what we have here in Sao Paulo, for example. And our vision, we’ve been able to be very competitive, and we’ve been able to grow despite the regions. And in the organic expansion of our stores, we’ve seen this. So we proved this in our store openings this year, where you can see that most of them are open exactly in regions that are out of the São Paulo market as well. So we understand the region in each area and the expectations and levels of investments in each area and what their performance is. There’s no region at this moment that’s under control because all of the regions have projects for growth in new units, all of them were in.

Unidentified Analyst

Thank you, when you look though at the acceleration in terms of [indiscernible] or total sales growth in April, that 40%, are there different regions that are contributing more to this growth rate? And I’m thinking also on a like for like, not just in terms of the expansion?

Belmiro Gomes

Well, the volumes in April were close to 40%, it’s a very different month. It’s an atypical month, that’s why I have to be careful to not expand these results into other months. But this movement gained a little more strength in different regions and it was all because some stores that are in regions that are more touristy or stores that are in more distant regions where there was like an internal tourism, a lot of people were traveling inside Brazil at this moment where people now in April, for example, we had very strong movement in all the different regions in Brazil and coming into the southeast region as well.

Operator

The Q&A session is officially ended. Now we would like to pass on the word to Gabrielle Helú for her final remarks from the company.

Gabrielle Helú

Well, due to timing, we ended our Q&A but we will answer to all the investors that submitted questions that were not answered. And we’ve already gone over one hour of our call, but I’ll pass on the word now to Belmiro for his closing remarks. Thank you.

Belmiro Gomes

Thank you, Gabby. Unfortunately, we really wanted to give you time for questions and split the time as well with the specialists in the company to be able to answer these questions, especially related to the market, which is the most important and most interesting, especially in this year with very strong store convergence, which is a real needle mover in the history of [indiscernible]. And once again, I want to thank our team for their work and initiatives in the first quarter and all the efforts necessary in the second and third quarters as well. There’s a big army practically of people working on our projects in the different construction projects and developments with hiring, training, people, communication, building efforts with procurement, training of our teams as well, to be able to really handle the openings of these 15 units we foresee for this year when it comes to job generation and investment. This is going to be very important as well for the regions the stores are in and for the country as a whole as well.

So all the team’s very focused and engaged. The company has plans and the strategies are in line with what we’re expected. Some possible route corrections might be necessary, but we’ve been able to do this very quickly, and we hope to deliver another quarter and a whole year of 2022, very strong in result as we reopen these units. Thank you so much, everyone.

Operator

The earnings call for SIE in the first quarter of 2022 is officially ended. The Department for Investor Relations is available to answer any other questions. Thank you so much to all participants and have a wonderful day.

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