Sendas Distribuidora S.A. (ASAI3) Earnings Call Transcript

[Interpreted] Good morning, everyone, and thank you for waiting. Welcome to the earnings call for the third quarter of 2026 at Assai Atacadista. I would like to highlight that if you need simultaneous translation, we have this feature available on our platform. To access, please select the interpretation button on the globe icon on the bottom part of your screen and choose your language of preference, English or Portuguese. This earnings call is being recorded and will be provided on the company's IR website at ri.assai.com.br, where you can already find our earnings release. [Operator Instructions] We would like to let you know that all of the information in this presentation and possible forward-looking statements that could be made during this call related to future business perspectives, projections, and operational and financial targets at Assai represent the assumptions and beliefs of company's management, as well as information currently available. Future statements are not a guarantee of performance. They involve risks, uncertainties, and assumptions as they relate to future events, and thus rely on circumstances that could or not occur. Investors must comprehend that general commercial conditions, market conditions, and other operational factors may affect the future performance of the company and lead to results that differ materially from those listed in such statements. Now, I would like to pass on the word to Gabrielle Helu, our Investor Relations Director.

[Interpreted] Hi, good morning, everyone, and thank you for your participation during our earnings call for the third quarter of '26. I am going to be introducing all of our team here. We have Belmiro Gomes, our CEO; Rafael Sachete, our VP for Finances and IR; Anderson Castilho, VP for Operations and Logistics; Sandra Vicari for People and Culture; and Sergio Leite for New Business. And now I am going to pass the phone to Belmiro for the presentation.

[Interpreted] Thank you, Gabi. Good morning, everyone. Ladies and gentlemen, thank you for participating in this call. Thank you also to all executives present. We can now share the first slide here. As we talk about the third quarter, I'm going to separate here, and after I'll explain a little more up ahead, but we decided to also disclose the results in October. Now we are splitting this into 2 moments. We have the pre-stop bets and the post-stop bets. So a third quarter where we have seen things work pretty much in line with the second quarter, with a macro environment of consumption that was really pressured by the debt level of the families, which is at a growing level, keeping the trade down levels relatively significant, let us say, and alongside what we have seen in the first, second, and third quarters. During this period, we were able to have a positive increase in our customer flow, but it is visible that customers have done some brand trade downs and some categories of products that had a price increase had inflation, such as the beef and the meat. You see a switch in the options for animal protein, which is a way families can adapt their consumption and handle a debt cost that is compromising their available income by about 30%. So as we had already mentioned, our strategy that has been adopted for this period with this challenging consumer environment has been, first of all, a focus on our competitive advantage at the store level, but also profitability and deleveraging. And this takes place through the fact that we have different audiences and different sales channels, and when we look at our public, part of our sales, which is really relevant, which is the telesales, and these are sales that are performed to consumer clients -- sorry, to B2B customers. And so our objective was to not get into this market and have maybe a risked margin. It would be a really big margin sacrifice that wouldn't really make sense or compensate this, right? So that's where the company was successful, and we were able to advance our gross profit significantly, and keep our deleveraging trajectory that we had already been mentioning signs to about this with the market. And so this is the lowest level of debt ever since we had the split with GPA, still we reached 2.15 net debt, and our revenue is below, and same-store sales was below in this period, but we see this as a market phenomenon overall. And actually, our market share was pretty stable in the third quarter and is now completely stable in the year when you look at the third quarter. We had a series of modifications, and I'm going to talk about these new initiatives and adaptations and adjustments we've performed with the new consumer behaviors and also the impact of food service due to GLP-1 drugs. But the company has a series of different projects to expand our share of wallet, and we're going to get into more details about this up ahead. Considering that when you have a shorter pocket, let's say, among customers, we also have to try to find ways to add value and try to see our better commercial locations, the most valuable food retail brand in Brazil, and bigger customer traffic, really to take advantage and have a whole another level of sales, right? So our EBITDA was pretty stable in regards to the third quarter of '25, keeping the same percentage. Our expenses, since the same-store sales are below inflation, goes up a bit. Our expense per customer at a percentage level is and the lack of dilution ends up making the improvements in the gross margin just stabilize the EBITDA level, right? So it's kind of what we had already mentioned in the second quarter, but considering the consumer environment, right? But now in this consumer environment with all-time high debt levels and income levels compromised, the maintenance of the EBITDA rate is an important resilient indicator for the company. So if you had the opportunity to be at our Investor Day, you'll see we're going to bring a historical series that can show you the amount of events the company went through and can -- even though we continue to deliver results, profitability, but of course, we are not immune to the macroeconomic effects. Net income in the quarter, and then Sachete, will get into more details about this later on, grows 55% when you look at the base of recurring credits. When it comes to the debt, cash generation and leverage, Sachete will get into more details about this later on, but we want to highlight the availability, the cash availability, right. So we closed with almost BRL 7 billion available, and in 2027, the company would not need to access the credit market. As we can see that actually this reflects the uncertainty in the macroeconomics and the leverage in the company at 2.15 so that the company can keep its trajectory and this deleveraging trend. So the strategy was to balance this out in the company, though our store level competitive advantage, maintenance of profitability in the company, and so that we could really keep this deleveraging trend, although this might even mean that we wouldn't have the same-store sales. If you look at all of the sales mix, maybe we wouldn't be able to get close to the inflationary rate. But that shows what our third quarter was all about, right. Advancing in the next slide. Then last year, we highlighted October because October is a very unique month, right, which is the anniversary month at Assai. It's a month where last year and the year before last, there was a base effect that was huge. And so on average, comparing October and September, it is like a month where it could be 6% or 7% greater depending on the calendar. But in Assai, the month represents 17%. October '26 was 17% more in sales than September, right? So in 2024, we had our anniversary campaign, and even in that period, [Technical Difficulty] and so there was a challenge when you look at the second quarter of the performance in October since the base effect was really relevant. But what we noticed was there was the first combination, right, with an anniversary campaign that was really well performed. [Technical Difficulty] and so the commercial team also prepared. And so we have the anniversary campaign, but even with this, we can see that it was close to about 4%. And so then, of course, our role is to observe the phenomenons, and Assai was maybe one of the first company to show the effects of the sports bets among consumers in the Brazilian economy from 2023 onwards, especially among lower income customers, right? But what we noticed in October is that from the beginning of the month, there was a significant increase in the average ticket, a slight increase in traffic, especially among the population or stores that are more focused on lower income clients, right, especially for the sales we perform in the end to the B2C customers and also the sales of -- that of the resellers that service these poor customers, right, the many markets and small neighborhood grocery stores. So the prohibition of the bets is a pretty recent event, right? The data is still going to be raised. We're probably going to perform our own survey and research to understand exactly what these impacts represent. But when we look at October, not only the Assai numbers, but we also look at the market as a whole, there's a real positive effect, right, in the quality of our products and the increase of the basket size. And we see this -- and we've seen this with October, especially after the 6. So these formats were really benefited. Although there was a base effect, we did operate with a margin level that was higher than the previous year, in line with what we had worked on with in the second and third quarters. So the level of commercial aggressiveness also, we could say that there is an improvement in the consumer environment, right? So if you look at higher income customers, although they hadn't felt much of the impact, the higher income supermarkets were really not that much impact. They didn't suffer that much impact because of different factors, such as customer debt and the bets, have pretty much kept this level of performance. And we can see obviously that we're going to need a greater period throughout November and December. So November, up until yesterday, it was a little stronger than October. And so we need to wait and see how this will behave, and so that we can really set this in, right, as an overall phenomenon, right? And then once again, we go back to demonstrating the gross profit, and we can consider this as clients have the trade down. And so we can see this negative impact in the sales, but you also see a positive impact in the percentage of the margins, right? So you have the effect of the tax distribution and substitution, and you can see the impact also of the percentage. But when you look at the total number, it's BRL 3.266 billion, right? And that's mainly due to the trade down effect and price management, as we consider that each store has its own characteristics. And we can still see this more challenging scenario. And so we can see that the customer traffic is on a growing trend. If I sell like the cheapest brand of rice or the premium brand of rice, the operational work in the store is pretty much the same, right? So we've been very rigorous in optimizing expenses and productivity, but we also don't want to sacrifice the level of customer service, since we do have the biggest customer traffic and sales per square meter. So when customers do trade down a bit in their volumes, you have a non-dilution effect in the expenses. And we can see that expenses suffer a bit of pressure, but it's still in line with what we've observed in the sale behavior, and we can highlight the EBITDA margin keeping up the same scenario in line with last year. We can advance, and now I'll pass the phone to Sachete as he shares the financial results, and I'll get back to you in just a bit. Thank you.

[Interpreted] Thanks, Belmiro, and good morning, everyone, that are all participating in this earnings call as we talk about our financial results initially. We can move on. We've delivered a financial result of BRL 551 million, 8.8% better than in the same period last year, representing 2.9% of our net revenue. And it's important to highlight that there's been this improvement, and the origin of this improvement comes from a net debt that's lower, and also CDI that's already lower. And so we -- and we see a result that's even better if we look at the comparable basis. And so we have a recurring net income of BRL 248 million, an increase of 55%, and an accounting net income of BRL 427 million. Our net income is impacted by operational performance and our better financial results, and also the cold beverage credits. And moving on to the next slide, we talk about our cash generation and leverage. On the left side, you see our operational cash generation of BRL 3.3 billion in the accumulated period in the last 12 months. And Post-CapEx and post-dividends and the cost of debt, we were able to reach BRL 1.3 billion for free cash flow generation. And here, if we consider the lower reduction of the anticipation of credit cards, which is a cycle the company's been adjusting to for quite a while, and we tend to reduce the credit card anticipations considering the operational cash generation and reduction of the debt. Now moving on the right side, we can see our leverage, and we started the quarter with 3.03% of net debt -- sorry, we started in the same period last year, the third quarter, with 3.03. There was a drop of 0.88 in the leverage in the last 12 months, reaching 2.15x net debt EBITDA. And this is a trajectory or trend that's been adjusting on a downward trend. It's in line with the company's strategy, so CapEx has been really controlled, working capital is really controlled, and this downward trend for the debt and leverage is really consolidated and already something we've been foreseeing in the next period. So we're really comfortable with the curves, and in the fourth quarter, we should deliver downward leverage trends, right. Then on the last slide, we talk about availability. We have BRL 6.8 billion, and when we consider cash and discounted card -- credit cards. So we have a level that's similar to last quarter, and in this period, we also had a buyback of some shares to fulfill some of the stock option plans in the company. We also bought back debt, so we were able to use a market opportunity to have an early payment with some rates that are very attractive. And if it weren't for this, availability would be a lot greater. And I want to remind you all, the base we considered last year was BRL 6 billion of cash availability for the company in the short-term. So we use this cash generation to reduce debt and to have a cash position that's really comfortable, that can make us really prepared for any scenario, as we always look at how we can roll out our debt, looking at the level of deleveraging in the company, and how we can really be in a structured position to face any kind of situations imposed by the market. So this is the message about the company's cash position. I want to thank you all, and I'll pass the floor onto Sandra as she talks about sustainability and our people.

[Interpreted] Good morning, everyone. Well, moving on, we continue to advance here in our agenda for sustainable growth, with a focus on the 3 pillars that we focus on. I want to share the main highlights in this quarter, right? When we talk about the efficient operations, we were able to reach a growth in the repurposing of waste, advancing towards our goal of having a zero-landfill approach. And we also expanded the volume of waste that is disposed in composting systems, so we can reduce waste. When we talk about people and communities, we continue to strengthen this culture that is more diverse and more inclusive. As you can see in the numbers, we expand our leadership positions occupied by women and by Black professionals. And we've also been advancing in generational diversity with an amount of people joining that are over 50 years, and also including immigrants and refugees. When we talk about our ethical management and our transparent approach, we have been receiving a lot of recognition, conquering our first place among retail companies. And when we talk about the Assai Institute, we are still expanding our social impact in communities. We had the ninth edition of the Assai Academy Award. Over 7,000 entrepreneurs registered to receive this award, and we were able to benefit with financial support and training. Over 2,200 participants registered that went through each phase of this award. And we also had recognition for 20 entrepreneurs that were highlighted nationally, and we also had 4 finalists. For these entrepreneurs, we provided support in training, mentorship, and financial support, where we were able to contribute to the development of these small businesses in the food sector around Brazil. And so these results demonstrate our agenda that is translated into concrete initiatives, and we continue to generate value in the company as well. Now, I'll pass the floor onto Belmiro.

[Interpreted] Hi, Sandra. Now, I think we can move on to the next slide. And so most of these projects are in their initial phases. And so during this period, we've been working with a specialist team. And so when we have this growing trend and the brand is also growing, these are all projects that should generate significant results in the next few years. So for the drugstores in stores, we have 11 stores already operating. Of course, this is very new. The first unit was opened in August. We've seen the audience is really welcoming and enjoys this proposition here, and we have the target of reaching 250 drugstores inside our Assai stores. The other project has been evolving as well with the private labels. We have 140 SKUs, which includes Assai Brands, Assai Chef, Econobom, and Assai Bloom. We have some products that are already leading in their categories, so [ Loyani ] and Anderson's team have really been focused on this. And by the end of the day -- the year, we should already deliver 250 SKUs. Sorry. So some other items that are already category leaders, such as significant categories like potato chips, milk, coffee, clothes soap, panettones for Christmas. And our view is that this scenario with families that are under debt, uncertainty economically, and trade down effects, we'll be able to capture a bit of value even in this scenario with our private labels, right? Then we have our In and Out project with products that have really interesting price offerings, and we've already had a significant volume of sales, electric motorcycles and refrigerators. And the team has really been working hard to surprise clients with very different, unique products and prices that they would not expect to find in our stores. Then for digital, we've had last-mile partnerships growing a lot, over 200% growth. Actually, this year, we went over 4 million orders that were serviced through this modality. The stores that have been receiving this kind of service, we noticed have significant adherence, right? The logistics and facility and convenience of receiving things at home, and Assai has really good prices and a brand that is recognized, and this is a very powerful and a strong combination. While we still integrate with Meli, Mercado Livre, to expand our product mix and still be able to reach regions where Assai currently doesn't have stores or regions that are a little far off, although we are a company with a pretty big footprint. And now financial services, we're still in the process of waiting for the approval of the FIC with the central bank. Sachete's team has been working on other alternatives, and we're going to show you more details about this in our Investor Day. But we're already working on a pilot with Assai Pay, which is this little credit card terminal in 30 stores already. But the biggest project is the private label, which the company considers to have a major potential in the future, right? So among the shifts in behavior for clients, we've been advancing also what we call like the protein elements of whey and supplements and vitamins, protein bars and cereal bars, et cetera, since we've seen this difference and change in behavior, and the population, regardless of their income levels, are searching for more healthy habits and lifestyle. And so this is also at an initial phase. We're still in a learning curve as we reinforce our volumes, and clients are also getting used to buying these kind of products. And as we've notified the market recently, we also performed the first acquisition of 18 fuel stations that are installed in our store. This was done with a Grupo Ultra contract. They're going to continue to operate these stores, but in 2027, since we still have some legal issues, then this operation will move on to our management directly in 2027. And we've also been assessing the expansion of these fuel stations in our stores. So we should have over 100 units of fuel stations. This is more mid to long-term because you have some physical construction work to do. There's regulatory requirements and obligations that are also pretty significant. But the next project we should start working on is the electrical fuel stations, right? Because we've seen the advances in the amount of electric vehicles or hybrids in Brazil. Assai has 100% of its energy in self-production almost, and so we have very, very low fuel -- electric power costs. It's pretty much like half of the household rates or fees. So that's going to make us super competitive, right, with the electric fuel stations. And this is going to generate another option, right, as they can charge their vehicles and, of course, visit our stores, which will make us very happy, obviously. So we are working in this direction. And then before we get into Q&A and get into the final remarks here, our fourth quarter has been extremely important. We're talking about a fourth quarter where we start with a 5x2 work shift change. Then we also have the tax reform, and we also have the proof of how the post-bets reality, right, since we still have this temporary measure from the government with the prohibition. But the first months do demonstrate a more positive trend than what we have seen in the first, second, and third quarters. So I think that is pretty much it on my side, and now we can begin the Q&A session.

[Interpreted] [Operator Instructions] So to begin, our first question comes from Luiz Felipe Guanais at BTG.

[Interpreted] Two questions on our side. Could you guys get into more details about the composition of the same-store sales in October? Could you break this down maybe between price, volume, and a possible trade up effects? I know we are still really at the beginning of these effects with the end of the bets, but we can still see a bit of an acceleration, as you did mention. And the second question is about the expansion and refurb plan for next year in this agenda, with this agenda for deleveraging as well. How has this scenario been in a more restricted manner here for 2027?

[Interpreted] Well, Guanais, about the composition on October, we can see that the first days were very strong. So as I mentioned, from the 6th to the 20th, and we have been finishing, because there are still some numbers to be closed off, but you have a sum of all 3 factors, which is an increase in volumes. And this increase in volumes is really coming from clients that service lower income, right. So this is resulting in the increase of average tickets. There is also an inflationary weight impacting this, but most of this comes from an increase in volume and quality brands. So some categories that were trading down and some other categories that are in a price elevation do demonstrate better performance in October. And when we see the sector data, we can see that this is not only something from our side, right? It's also a phenomenon that did service and reach other cash and carries. Of course, we need to be careful about if this is going to persist now in November. But if clients have more available income because they were spending with any other factors, the first sector that should be benefited is the food sector with lower income, because that is where people can cut off either on quality issues, reducing barbecue, or even reducing the purchase of alcoholic beverage. And they have a little more available income, and we should see a composition, right? If you look at this effects, about half of volume and half around quality, right? So if I have a little more cash, I can maybe buy a better brand of beer, just as an example for one category. So we should see this factor, right? But we've been also monitoring the indirect behaviors we've had. A few quarters where we demonstrated the effects in different channels in Brazil, depending on the income that that channel services, right? So the formats and companies geared towards low income had basically no impact from this perspective, right? With the interest or the bets, et cetera. But the curve between trade down and trade up is really high, right? So in Brazil. So we're going to observe this more and more. There are other factors as well with the cost of debt, and that continues. But one factor, as one of the detracting effects, one of them we'll be able to work with, which that abrupt suspension maybe generates this impact, right? And one point we observed is that when the provisional measure restricted access to bets platforms and the fact that it did consider the possibility of criminalizing whoever promotes these kind of platforms made the official or non-official platforms also be a lot more restricted or cautious about how they would promote these practices, right, on these platforms. So there's also another phenomenon that's very strong with the online raffle systems, and let's see how things advance up ahead. But then there's the expansion plan as well. And so far, we've considered the 5 projects we have expected for 2027, but none of them have been hired yet. So we should wait for the end of the year to start looking at how competition has been evolving, looking at the interest curves, and the weight of debt to also consider then the final decisions. And that's kind of the number in our strategic plan, but it could possibly go through some revisions if necessary.

[Interpreted] Our next question comes from Joao Soares at Citi.

[Interpreted] We do have 2 points here that we wanted to discuss. Belmiro, when -- I know it's all very preliminary, this effect, but it's still a very fluid discussion going on, right? Considering the sustainability of this prohibition, right? But as you considered, right, how much would be like the baseline effect, right? When the volumes are already dropping and you have this trend with people buying more or less in the beginning of the month, and the trend also of people having like, where people's purchase power is still really hindered. And how can we imagine the next, let's say, 2027 or I know it's a difficult question, right? But if the bets prohibition kind of falls through, what would change in your perspective for next year, right? What have you kept in mind about this, right? And about the private labels that you're considering with the FIC, the FIC agreement and the central bank and everything. How would you design this to increase the flywheel and this kind of recurring purchases from consumers? What type of discounts will you grant? What are measures or micro initiatives that the company can work on that could generate share gains, increase performance, and all of that? That would be great.

[Interpreted] Well, Joao, thanks. And after we -- I finish here, Sachete can also add on. But on private label, as everyone knows, today we have a partnership, right, with Itau, which is really geared to the higher income audience, right? So our share of card sales could even be greater, but we don't have any specific products like for B2Bs at the moment, right? And so entrepreneurs have, like B2B customers have a different kind of dynamic, right? And so why do we consider major expectation of the private label card? Well, because we have a view from the market, and we can see that this service has a lot more adherence than a co-branded, right? Because you can adjust the formulas and even the credit aspects that are a lot more geared to the target audience of cash and carry. And we're also talking about a big volume of sales, which is about 42% of our sales actually, and that's the micro and small businesses, right, or entrepreneurs. So in our view, just besides being able to have an additional impact in the results of the company and the EBITDA, we've also seen different cases where we maybe don't perform a sale even though we do have a more competitive price because maybe a client has some kind of a private label credit condition with some other competitor or wholesaler, et cetera. So even in a scenario where we are more favorable, we may lose that sale, right? And so this product should be very assertive if we consider that the stronger the brand is, the more recurrence, the more loyalty you'll probably be able to conquer, right, among customers. So we know that, well, we only -- it's not that we didn't believe in the product, but we just couldn't do this due to the partnership we had, right? About your first question, right, of course, we're going to need time to closely study and analyze what should happen, right? If the provisional measure is going to be kept or not, this government ordinance. And of course, this obviously impacts us because if people have less income, they're going to change their behaviors, right? Purchasing. If they're using their cash for other sectors or areas, then of course they're going to change their behavior, right? So it's a matter of public health in our opinion. Even [ Abbott ] has talked about this because it's a topic that should not be handled as a merely commercial. There's an effect, a secondary effect in public health. But it -- of course, it does improve consumption and habits and eating and diets, et cetera. So we are preparing for the scenario we had before, but the prohibition will probably generate positive effects, right, in the food sector, and not only for Assai, but for the entire sector, as it should impact most of the lower income population. And so if this is going to be a measure that's going to remain or not, we have to wait and see, right? But we have to look at also the discussion society will have in regards to all of this. But we expect that the lower income clients, if this is kept, the prohibition is kept, there should be some kind of a benefit so that they can have better eating habits and quality, et cetera. So we're in this reinflation scenario, but how could you imagine that in your same-store, right? So we saw this moment of reacceleration that you were not able to translate, right, because of the purchase power loss and the trade down. But what do you think would be the possibility to translate this, right, if we consider that this level of prohibition is maintained? Well, it's difficult to mention, right? We had this inflation scenario. Income was pressured, and I think it's going to really depend on the level of debt and how much of this income will be compromised. I think we have already kind of hit a high level, right? But if this increases even greater, I think it's going to be a little more challenging, right? If we're able to achieve something through measures, and we have to wait on this in the beginning of next year and how they are going to behave, I think there is a concern in the overall society that it is necessary to reduce this level of debt and the carryover cost of debt. So if they start dropping, then consequently we'll see positive effects. But at this moment, as I mentioned, we have strong resilience from the perspective of adjusting the profitability, but we wouldn't want to foresee this, right, because it's super complex. Anything in this sense could maybe not affect what actually happens, right? So I think they are going to have a better view when they close the fourth quarter this year, because then within that, of course, we probably already have more of a clear decision about if they are going to remain in this prohibition or not. And so, we can then set a number that is more resistant, let us say.

[Interpreted] Our next question comes from Vinicius Strano at UBS.

[Interpreted] I want to explore a little more about the same-store sales at recovery, and if you could talk about the main categories, and also confirm your understanding about this improvement in October coming mainly through tickets and considering better trade up and quantity as well. So I just wanted to confirm this understanding, and if in this new scenario you imagine there is a greater chance of same-store sales being able to keep up with this inflation of the food, and also if you would consider some kind of a reading on the impact of the Bolsa Familia government support that would -- that had an increase and could maybe impact this, right? So if you could explore a little more about this sales performance with the bets, but also the Bolsa Familia in the Northeast as well, considering all the rest of the country as well. And that's my question.

[Interpreted] Great. Thank you. I think we have both impacts. We have the increase of Bolsa Familia. The most -- the strongest period was before this, so in the 19th, it kept this performance. And then when you look at commerce overall, you see the market data with an improvement, but maybe the values injected in the economy are not as strong as what you would lose in the day-to-day with the bets, right? So maybe that's why the food sector felt this a little more, directly or indirectly, right? So when we look at this in October, we have a really strong base, and we can see the same-stores that are kind of made up of all of them together, and we are going to go to almost 16%. So when you look at this, and if you look at this from an isolated perspective, you do have a sum of all 3 factors. Of course, it is not a super high number. It was 4%. The base was strong last year. But first of all, there wasn't this drop in the average ticket, and so you can see that there is an impact in quality, and there is also an impact in the volume. And so as I mentioned, of course, we have to be cautious about this. We're going to wait for November and December to see how much this kept as, but I do believe so, right? We have debt issues, which are also the most critical points. But if, in this case, you also see this possibility of keeping the same-store sales also going back to keeping up with the inflationary rates.

[Interpreted] Great. And which categories are the highest highlights, let us say, in growth?

[Interpreted] Well, basic food items, and there is also an increase in alcoholic beverages, beer, soda, and you can see things are really geared to family food items. So there wasn't much of a change in cleaning or cosmetics or things like that. It was just like basic food items and staples. And with the prohibition, families are probably going to have a nicer and fatter, let us say, Christmas period, right? Yes, if they keep the prohibitions, of course.

[Interpreted] Our next question came from Lucas Esteves at Santander.

[Interpreted] I wanted to explore a little bit about what's going on with the operational results of the company and if the same-store sales would go back to the mid-single levels. After many quarters, you guys have been able to preserve margins, the EBITDA margins, right, through the gross margins being very resilient, discipline in expenses, et cetera. So if we see the scenario where the same-store sales are going to go back to a positive level of maybe mid-single digits, how would you imagine the conversion of this incremental growth into operational results, right? If there is space for relevant deleveraging? Or if you would reinvest part of these gains in price to be able to accelerate the market share and heat up the same-store sales again? Could you share a bit of the strategy?

[Interpreted] Okay, yes. Thank you, Lucas. First of all, we would only invest if we really felt this would add more sales volumes, right? If we look at this, actually, the sector as a whole had an increase and was able to keep margins because the vision is that there is not enough elasticity in the market, right? So, obviously, you get into this movement, preserving margins, and then you have a bunch of other expense initiatives, right? So if same-stores kept and it gets back to being a level and inflation, we're going to have a deleveraging, right? Because the projects with efficiency and other projects that are underway at this moment should probably capture this improvement, right? Because the company is always going to research ways to optimize expenses, improve productivity. There are strong initiatives as well that we are going to work on this year, and we've been working on this with some ABRAS associates as well to adjust the industrial supply chain, right, in Brazil, because now we have this 5x2 work shift change, and we see an opportunity for improvements in the chain. I will give you 2 examples. We have the self-displaying packaging, and in Brazil, most of the packages, like industry comes in, and you have somebody have to replenish products. And so we had this major shift in the sector to start off this at the end of the year, beginning of next year. So, the team at the store can quickly replenish items, and we can rely less on labor and provide more efficiency, and that's really important for industry, right, because they have a lot of promoters. Another important shift is standardization and visualization of the barcodes, right? Because that also speeds things up. Now, even with the self-checkout, you've products that sometimes you're like -- if you have been at a self-checkout before, sometimes you have already tried to find that barcode and you spend a bunch of time turning the products around till you find it, so it takes a little longer. So there's a bunch of other ways we can work on productivity improvements, right? So the Investor Day will show that we have been going through different periods, like the impeachment, COVID, and all of these, we were able to keep profitability. So we have these different measures that can mitigate this, right? I hope I answered. I wanted to give you a broader view, right?

[Interpreted] Yes, very clear. I wanted to approach another topic, right? After deleveraging, what would become your next priority? We have seen that you reached 2.15x deleveraging, and you finished the year below 2x. Next year, you have another step up in the deleveraging. So I wanted to understand if at some moment this story stops being about deleveraging and becomes more of a capital allocation issue, right? And then what would be the level of leverage that you would consider to be comfortable to get back to discussing an acceleration and expansion, whether organic or inorganic? Or even an increase in the payout through buyback? That would be interesting, right? If you could talk about your mindset about capital allocation post-deleveraging, that would be great.

[Interpreted] Okay, yes, I'm going to pass this on to Sachete, but the difficult questions here, right? What's the optimal point?

[Interpreted] Yes, exactly, Belmiro. But thanks for the question, Lucas, and for provoking us on this. But this answer, we always try to bring in, like, it depends on the economic scenario, the same-store sales, the interest. So there is a set of items that really impact the decision matrix, and we cannot ignore these items, right? So the reality we have today in this photograph until the third quarter is like a pretty light same-store sales, very close to 0. And that's what we had seen, right, in a country with this interest rate, 14%, 15%, and still considering a company with a high leverage. And that was a really strategic decision, right, to expand. So our goal is to continue to grow, but the reality we have seen so far is that we needed to deleverage, considering the context, and we are heading to this number below 2. But when we look at this photograph, and we see today the interest and economic reality, we believe that it needs to be below 1.5, and this is where we would like to be. And after this, both paths seem to be making sense, right? But after if we have a booming economy, expansion of the stores, and that's kind of where the company has the capacity to generate value through growth. But now, if we're in another economic scenario that's very challenging, of course, we would like a buyback or some other way to monetize and return capital to shareholders. That could maybe make more sense, right? October would be a first sign of improvement, which would make us excited in some way. But of course, we have to behave on this. And then in this scenario, it could be an opportunity to accelerate the store expansions and our projects, right? So today, below 1.5 is where we would be more comfortable to head out to an expansion process with capital allocation through the buyback or payment of dividends.

[Interpreted] Our next question comes from Joseph Giordano at JPMorgan.

[Interpreted] I wanted to explore 2 points. The first one, Belmiro talked about a lot with the expenses and efficiency in the company. We want to understand the next leverages, as you have mentioned, automatic replenishing options, and where do we have the most levers to be able to keep this expense ratio really flat? And then, of course, about the tax reform topics, right?

[Interpreted] I think this is a theme that's really being discussed broadly right now, and if that's going to be or not postponed, and if putting in the main points here in December would give you guys the necessary time and for the industry also to face this, right? Especially with the smaller players, that could maybe be a bigger risk. I think you kind of talked about everything here, but maybe the issue is not about postponing the reform itself, but considering more of the CBS, right? And so when we look at this, we can see that since there hasn't been, like, a prior anticipation of the rules and everything, it would be very productive to postpone the beginning, right? Because it's a long trajectory with the tax reform, and starting off with problems or starting off with difficulties could be very bad for the country, right? So big companies like ours have a whole team geared towards this. And most of the systems were placed, and the rates were considered, right? But if the whole network of service providers or smaller companies that have a smaller structure in Brazil, people are really concerned with the tax load, but the complementary obligations are sometimes even more complex. So understanding how much taxes you actually have to pay, right? And for small and medium companies, especially when we get into the overall chain, it's really complex, right? So if we could have a postponing of the beginning of this, I think it would be interesting, right? We do foresee a scenario of turbulence if they keep this day of the beginning of next year, since there was no prior information on the rules. It's not only the systems of the companies, but also from the actual authorities. And so I think it would be beneficial, and that could be interesting, right? But then for expenses, the company continues to have other projects with the optimization. There's important advances with the use of artificial intelligence, and so we could monitor this in the most efficient way. And we've also migrated significantly in payroll and a bunch of other tools using AI and self-servicing platforms as well that should probably give us some gains as well. But we have a series of gains in projects, and expenses are like nails, right? You always have to find ways to optimize them, and we've considered major potential for the initiatives that were opened with industry, right? So we've this huge event with all of the players in the sector, and there's an agreement that we're at the moment, where the industry really needs to invest more in packaging that have lower operational friction, let's say.