Magazine Luiza S.A. (OTCPK:MGLUY) Q3 2022 Results Conference Call November 11, 2022 9:00 AM ET
Company Participants
Vanessa Rossini – Investor Relations Manager
Frederico Trajano – Chief Executive Officer
Roberto Bellissimo – Chief Financial Officer
Eduardo Galanternick – Diretor of e-commerce
Fabrício Bittar Garcia – Vice President of Operations
Conference Call Participants
Thiago Macruz – Itaú BBA
Ruben Couto – Santander
Bob Ford – Bank of America Merrill Lynch
Joseph Giordano – JPMorgan
Irma Sgarz – Goldman Sachs
Danniela Eiger – XP
Vinicius Strano – UBS
Vanessa Rossini
Good morning, everyone and thank you for waiting. Welcome to Magalu’s Conference Call to discuss our quarterly results. [Operator Instructions] This event is being recorded and will be available later at the company’s IR website, ri@magazineluiza.com.br where you can also find the company’s release and the presentation both in Portuguese and in English. The English presentation link is also available at the chat. [Operator Instructions]
And now I would like to turn the floor over to Fred Trajano, Magalu CEO. Please Fred, the floor is yours.
Frederico Trajano
Good afternoon everyone. Actually good morning, thank you very much for being here with us in our earnings call for the third quarter of 2022. I believe that, this is a result and we are going to go into the details here in this call, it shows a significant evolution of our numbers both, absolute numbers, as well as relative numbers although, the company and the e-commerce and retail in general industry are going through a challenging moment and the macro scenario and micro as well in Brazil and in the world.
I think to start the call, I would like to take a step back and I focused on that in the second quarter, but we still see this phenomena in this quarter. This is a Brazilian and world scenario in which we see a generalized drop and the top line of the e-commerce and tech companies in the quarters that are being reported by Brazilian companies, and also companies from abroad.
And that is because in my understanding of a standardization growth process for e-commerce, and this is a growth that is becoming a standard, it is normalized and there was a drop this year, but we see that the levels at which this growth was stabilized and also the penetration rate.
These are levels that are significantly higher than the pre-pandemic level. And when it does – normalization is concluded, and I believe that in the fourth quarter of this year, we will see in the stabilization of this drop, because of the very high growth in the COVID years.
And after that I believe we will see a normal trend, I think that the market cannot bet that we will have a more analog future and less digital one that is not going to happen. I think. So we have a snapshot here for 2022.
I think we had boosted growth in 2021 because of the COVID years and from now on I believe starting on the fourth quarter and especially next year, I believe we will have a standard growth. e-commerce and digital means we will continue growing more than the analog means and we will see that as a normalized curve. So it is important to understand the market as a whole film as a whole movie and not a picture. And I think these figures speak to my understanding.
We did have a drop in the e-commerce market in Brazil, it went down 10% in this third quarter, but Magalu has grown and he has grown in all the channels specifically in the online channels, we had a total growth of 2%. I think this is a figure that is should be celebrated because most players in this segment in this industry had a hard time with lower losses and we did have growth.
So if we look at three years ago, we had a double numbers that what we had in 3Q 2019, 14b in 2019 six billion and this is a CAGR of 28% of these three years. That is a average annual growth and this growth was allowed even with a significant increase in margin we transferred freight prices, we transferred also merchandise prices increase the gross margin we transfer take rate to sellers, we reduced the delivery frequencies.
so a number of efficiency measures and margin increase measures and proving that we were able to serve that very well and move towards the monetization and improving 50% our operating margin in this quarter.
We improved 50% when compared to the same adjusted margin of last year in the accounting amount is over 100% of improvement but then the adjusted margin which is the fair comparison was 50% better is the operating profit of the company a posted growth. And we increased better results in all the channels when see brick-and-mortar stores and marketplace.
So to post this type of growth in a dropping market with a significant margin gain which we had a show that that shows that the company is walking the talk and working on the monetization side and very carefully to keep on gaining market share.
I would like to highlight the results for our brick-and-mortar stores. Initially, we expected that the World Cup effect would already have a positive effect in the third quarter. But because of elections and of a number of other issues this World Cup in fact, it was then concentrated in the fourth quarter.
And we can talk more about that later on. We have seen that starting in October and November, we have a strong concentration of the World Cup effect. And that is going to favor our growth in our fourth quarter for brick-and-mortar stores. But even without this World Cup, in fact, in the third quarter, we were able to grow 1%. And we had a significant gain of market share as well.
So I think this is good news. We grew without the World Cup, in fact, and remember that the 600 relief was just paid after August and so usually people you pay their bills and then they start purchasing. So we already have the effects of August and September in this quarter and for the fourth quarter on will have a full effect.
So this is a very positive performance considering that the World Cup is concentrating on the fourth quarter. And most of this relief spending should be concentrating on the fourth quarter and we are already at the 45-days in the fourth quarter and they are very positive considering what we are already seeing and what we expect to happen by the end of the quarter.
Fabricio and the Executive Board or member, officers are here and probably so I can also take any questions that you might have in the Q&A on this. And on the next slide, we have our e-commerce highlights. So in the CAGR of three years we were up 46% we tripled our e-commerce from the pre-pandemic, from 2019 up to now.
Even having a underperforming market, we grew 3% and we had a significant market share gain in the Brazilian market. And again, even with everything that we can say that we had to reveal the total payment terms charge of freight and a number of changing pages repricing.
So even then we were able to grow and that was thanks to all the companies in the group and the controlling company as well. And I would like to assure you that in order to Magalu growing, we had a challenge because in the last three years, we grew a lot above the market and the third quarter of 2019, we grew 36 and the market grew 39 and 2020, we grew 148 the market 82 and last year 15 against strategies.
So our quarterly base is worth in the markets and even then we had the 14% percentage points higher than the market. So that proves that Magalu has a better performance. If we go back eight years, we are gaining market share. And now we are going back to posting growth of operating margins.
And that has always been Magalu ‘s result except for the past year, because of the adjustments that we already discussed in the last calls. I really wanted to stress that I also would like to highlight the growth of our marketplace with a main highlight to the three year growth.
A marketplace they had a base of comparison that was very significant. And it was from the prior year it was much higher than the 1P, in our discussions with analysts and investors we had already mentioned that we would have a very difficult comp for 3P, because of the growth of over 67% that we had in the last year.
While 1P had already gone down in that third quarter of last year, even then our CAGR is a slightly higher high than the average of other quarters growing a 61% visa-vie the pre-pandemic levels. Increasing our sales and marketplace four times and proving the assertiveness of our strategy.
And then we will break that down, you will see that the growth of the marketplace was heterogeneous. That means that smaller sellers and sellers of new categories grew significantly more than larger sellers and also sellers of non-traditional categories – sorry. traditional categories.
So in the next slide you see the average growth of marketplace and Magalu, you see that in 3P we are going more than the market consistently. So here, we do have a good perspective. And that is thanks to our share, again work and we launched that or three to four years ago and we have a consistent work here of gaining market share.
Now talking about the heterogeneous growth, the performance were those categories was 40 percentage points better than the traditional categories. So what does that mean? Our 3P dropped in the traditional categories, which were more than offset by the new categories, and that is the company’s strategy of diversification.
I’m not saying that it is good to have a drop in traditional categories. But this is seasonal. These traditional categories went very well in the pandemic period, people wanted to buy durable goods in the pandemic era. So that was a very high base.
A lot of them purchased ahead of time, and that ended up generating difficult comparison base. But I see that in the future, the traditional categories penetration in Brazil, they are still low, they will keep on growing but the company’s strategies to increase the share of new categories in our business.
And once again, we are here walking the talk, we are following our strategy and I think that those 40 p.p. between these performances really proves that this is what we are implementing in our strategy.
Now to make things more tangible and Eduardo Galanternick, can later on go into the details here on the Q&A. Our marketplace leaves from a base that is very strong, that is a group of large sellers.
Magazine Luiza, a leader of for many sellers that sell directly Whirlpool, Electrolux and Nike so a lot of Brazilian brands have and Magazine Luiza one of the main sales channels with a significant market share in 3P for sellers and we are working for hyper local sellers analog, sellers with for say Magalu that we launched in the pandemic.
This is an amazing job that we are doing we have great numbers promising numbers, but I want to make it clear that we also aren’t working strongly on a great opportunity for market share gains or medium sellers.
These are digital sellers they are already selling in the market and we have a great possibility here to gain market share with them very much focused and harvesting the fruits of our work in our dedication in logistics.
And I would like to highlight our Magalu interact as the logistics arm with our fulfillment that we launched in our third quarter. We already have 500 sellers and the fulfillment, we have great indicators already. The area is available in all the DCs of the company.
So I do believe that we will improve our delivery time and our logistics, we will have an opportunity to grow in the three sellers segments, maintaining leaders and medium sellers and gaining share in the medium seller maintaining our leadership with large sellers, also bringing in more and the hyper local mode.
Now we have once again significantly increased our sellers based in the last quarter, we reached 236,000 sellers with a lot of help from the stores ramping efforts and we are attracting sellers that want to use our digital channels.
And not only they sell Magalu, they can also sell KaBum!, Netshoes, they can sell throughout all our company assets, all our company’s channels and we had a significant growth in the number of ads 81 million ads here in our platform we are still growing.
Today it is impossible to look for something and Magalu and not find it. We launched and I will talk more about that. We launched that campaign that is called “look for it and Magalu” and that will provide us more visibility.
We are sponsoring the World Cup and we are focused our communication there both for Black Friday to sell, but also to show everything that you can find in our platforms. It will only – it will not find here forfeit products or products that are not legally in the country, but everything else you will find here.
But now I want to talk about something else. What is special about Magalu is the human warmth. And we are bringing that to the marketplace. We are close to sellers, we are visiting sellers frequently.
We have a corporate value here, which is just going face to face and we developed the Caravan Magalu, we have visited a number of cities throughout Brazil and better understanding the different realities and challenges of local retailers in each one of these towns that we have visited.
We were in cities in the Southeast and cities in the Northeast. And our last Caravan was in receipt, there was an event in which we had the participation of over 1000 sellers. There is a lot of content, a lot of training involved with changing mindset. Our focus is to switch the sellers from analog to digital analog.
So we have six million sellers in Brazil and only a minority of them sell online so did not bad that Brazil’s future is going to be analog. It is not going to be, it is going to be digital and Magalu will be there helping a lot of these companies in this digitization process.
And something else I would like to mention is that this strategy, which is that the base of the pyramid that I described is allowing us to bring in sellers from new geographies, most geographies, most platforms that we see in Brazil today. 70% of them have salaries from the Southeast.
But with our strategy, we are bringing in salaries from different regions. You can see here the onboarding by the stores and the onboarding by digital. You can see the concentration of salaries in San Paulo is much lower. We have more sellers in the Northeast 20% double than the digital onboarding.
So we have sellers in the Midwest and in the north regions. So we are decentralizing that and it does help us also in the carbon footprint, the less we have merchandising moving around and most of the Northeast clients that buy online they would end up receiving merchandise from the southeast. So there is so much traveling of merchandising generating an unlimited carbon footprint, it is not only cost and with Magalu partner, Parceiro Magalu we have an avenue of growth.
I said that the nontraditional categories are growing 40 points more than traditional categories and also the smaller sellers are glowing more than larger sellers, we are going 70 percentage points higher and smaller sellers when compared to larger or bigger sellers showing the assertiveness of our platform. These small sellers had a lot of help a lot of subsidies this year.
We still want to help them and we are moving them to from 1P to 3P in some cases, but our strategy is based on this pyramid. And the base of the pyramid and the middle of the pyramid and the numbers of the company are proving the strategy is right.
So once again we have to see these 3P numbers as a movie as something a movement because durables and major salaries do have an effect on the comparison base for last year. But specifically analyzing these numbers you can see that the company is moving forward with a very positive approach as I have already said.
I here would like to highlight the importance of stores as a crucial point for these smaller stores. Over 590 stores are Magalu agencies. We have over 56,000 sellers using these Magalu agencies. They used to use the post office and now they use Magalu ecosystem we use the stores as agencies as the branches rather than the post office branches.
So this is a competitive advantage. When sellers choose the store and not the post office they reducing 50% or significantly they reduced the delivery time and also they reducing 50% the cost of freight that is a better option using a network that is already supplying the stores and we have 1000 stores with 3P pickup with everything that you sell in Magalu.
And Magalu was going to the store probably in 1P that is much higher and I would like to highlight KaBum! we added pick up a store in the store of KaBum! and two months ago and 10% of everything that we sell a KaBum! is already picked up a KaBum! showing the importance of this multichannel process.
Also we have our fulfillment that deserves another highlight. We launched it in the last quarter we went from 32 sellers in July to 500. We are significantly increasing the number of sellers and enabled DC. The idea is that all our DCs can have a fulfillment operation.
And the beauty of our model and I would like to stress it to you is that the DCs are already there. The room is already there, the space and the operation and the sellers inventory is fully shared with one piece.
So there is a synergy and again that are significant with a marginal cost because I’m already paying for the rent for the DC, we have the teams working at the DC, we have the trucks leaving the DCS and going out for delivery. So to run an integrated operation between 1P and 3P is a major competitive advantage for this company.
And it will allow us not only to have better delivery time, and 20% of orders that are in fulfillment are delivered in one day, that is going to help a lot our promised delivery times and also at a much lower cost.
So once again, this operation for us helps us and it has a marginal cost only, because the fixed costs are already there. So this is a huge synergy. This was the differential of our 1P. And when we used synergy with 3P.
I have a quick video that I would like to show you not only about fulfillment, but the evolution of this logistic operation the Magalu agency, Magalu deliveries we acquired over four logistics companies. We integrated them in our Magalu delivery platform.
And now we have logistics for 3P that is very broad and really it is bringing in sellers and consumers. So I would like you to watch this video very quickly. Well, we will come back to our presentation.
[Audio/Video Presentation]
Well, I think that this video is self-explanatory. It shows the case of a small seller and medium seller and a large seller and the different types of delivery that we have in our logistics that is part of Magalu Delivery manual.
So we went from 28% delivery D+2 to 41% and A+2 80% of 3P deliveries go through Magalu try this and I think we have a long way to go and here the same figure for the 1% for 1P is 81% of orders delivered in up to 48 hours, I think we can increase this number from 3P to get to figures similar to 1P.
And I think this is going to be our rollout emission. The platform is developed, we are working on the DCs with fulfillment and we are confident that we will have even better results. But we are ready I have a significant strip here for sellers, which was basically developed this year, last year, and I have.
So these are significant figures for a year and a half of existence, proving that we have reasons to be optimistic about the impact that this will have in the future. So we expect to have a more growth, not necessarily investing in marketing. So this is a positive healthy organic growth for the operation.
Now, we can turn to the next slide. I would like to highlight one of the things and I think Roberto will talk about that in his presentation. So we have two additional monetization avenues. One of them is already happening, which is Magalu, we have 1,500 sellers, and this platform, we now have the self hiring, the self contracting platform. So you have ads now in Magalu search that increases the conversion to seller.
We are improving this platform for sellers it is totally integrated in the seller portal. And now also the level of potential exposure of these ads. Magalu platform and the ads will be multi platform. So you will be able to have ads in KaBum! and Netshoes and all the other channels. This is what we are working on. We are very excited and Magalu is one of the top 10 overall in Brazil, not only e-commerce.
I think we have 500 million sessions a month, it is a very significant if we consider our media assets. And so this is one strength, we have a robust platform and this came from Inloco Media that we acquired in the past, it is already bearing fruit for the company, but it will help us monetize any proof the results of our marketplace from now on it, that is going to help our sellers to sell more as well.
So I think one good thing about the ads is that with the changes of the general real protection data law, it is going to be difficult to have returns in the traditional media platforms. And I think the main growth of advertising the digital world will be in the sales channels in the e-commerce channels. So I do see this path as being a very promising one and I think we will have a great surprises here both for sellers and investors.
I would like to highlight strongly the results of our acquired companies I already talked about Inloco Media and advertisement and all the companies we acquired and logistics, but I would like to talk about the ones that are customer facing in our acquisitions.
Netshoes in the quarter had the GMV of one billion and they had another quarter of net income. Even with all the problems in the e-commerce, several e-commerce companies all over the world posted losses but Netshoes posted a positive result.
In our ecosystem we have the fashion world as well with a 45% growth marketplace. Magalu is 6% of that already has a participation in 3P, we have 1P, we have already our private label and [indiscernible] so we increase the 3P share in the category over 40,000 sellers for fashion.
And also Epoca Cosmeticos deserves a significant highlight we have over one million users and that approximately. Epoca is one of the leaders if not the leader in the online market in Brazil this year a growth of 52% in the marketplace.
All our partners have their own channels but 100% of the SKUs are available in the SuperApp of Magalu. We keep the channel because it has a large organic axis of some people like to buy and the expert e-commerce but 100% of the SKUs are also available in Magalu SuperApp, we have a full integration of the catalog.
I also think KaBum! deserves another highlight one billion of GMV in the third quarter 48 million of profit, net profit a company that is growing even it is growing in area that tends to grow even more. If we look ahead, we are in the beginning of the integration.
I talked about KaBum! integration, they already use Magalu delivers. And now with a store pickup 10% of your orders are picked up at Magalu stores. These are customers that did not buy a Magalu before this is positive.
And also AiQFome great job there 1.4 billion of annualized GMV. This is already the second delivery app in Brazil. We improved our footprint in Brazilian cities, we are there in 820 Brazilian cities. So an interesting growth for this quarter.
So all this eco system obviously is integrated and Magalu. Even AiQFome all cities that have AiQFome are integrated Magalu SuperApp, we now have a very positive perspective. For the fourth quarter more than a perspective, this is already a reality, we have the sponsorship of the World Cup.
And a lot of the media impact will come now will start to come this week with the beginning of the games and the next week and next week and not as the upcoming one. And we will use all this exposure to talk about the new categories and to attract a hits for our categories where people do not have Magalu as their first choice.
We want to show that 77% of the hits not for core categories, but we want to increase that to increase conversion. And we have an additional campaign in Magalu that we will be rolling out now for the World Cup.
Of course also working with Black Friday and we have the communication the retail communication to deliver sales in November. We are running our Black Friday, throughout the whole month. And we are using that, we are seizing that to develop our branding our awareness in these categories so that we can bring in flow for the sellers that are coming into Magalu now.
Now I would like to turn Roberto for the financial highlights and then we will have our Q&A.
Roberto Bellissimo
Good morning, everyone. Thank you very much for being with us in this conference call. I would like to start with the main financial highlights. Fred already talked about a growth sales in all channels.
Our total sales in the year is over 14 billion total sales. Gross margin of almost 28% and growing over three percentage points vis-à-vis last year. EBITDA going to a 6% and also up 50% when compared to the same quarter of last year and a negative adjusted net income affected by results that we will be commenting shortly in the next slide.
We see the EBITDA quarterly performance and it makes it clear the consistency in this performance starting the end of last year that every quarter we are improving our EBITDA margin. In general, we gained almost two percentage points.
Highlight to gross margin. In gross margin, we had pricing adjustments and interest rates adjustments that has helped in the merchandise margins, but the main highlight of the gross margin is the increase of our services revenue and especially commissions and take rate on marketplace, which have contribution to gross margin of 100%, because that is a pure revenue coming from services.
And it is important to highlight here that, we were able to increase, to grow market place increasing take rate and revenue, as we said since the beginning of the year. And thanks to our adjustments in our freight policy and receivables policy. All of that has contributed to the total take rate and also for the total profitability of the marketplace this year, especially in this quarter, which is much better than what was last year.
And in addition to the gross margin performance, in this quarter, we also had our lower SG&A level in the year. Our total SG&A went back to 21%. We are at 21.8% in this quarter, also improving consistently in all our operating expenses; logistics, marketing, affixed expenses, headcount, leases and so on. So a consistent work aiming that improvement in the operating margin.
In the next slide and another important highlight in our results. Once again, we have generated operating cash that was a very special over BRL300 million in operating cash generation and a total net cash position and investments and receivables of over BRL9 billion and net cash position of almost BRL2 billion. So once again, a great consistency and this is one of the best capital structures in our segment.
In the next slide, we show this performance. We had BRL9 billion in cash in June. We generated BRL300 million of cash flow from operating activities. We invested almost BRL200 million. We paid interest in leasing and almost BRL200 million and we had debt of BRL100 million at KaBum!, extending the capital structure of KaBum!, reducing their financial show costs, and then we got to the total cash of RBL9 billion.
And the next slide, we have details on our financial expenses. The CDI went from 2% to almost 14% in these last quarters. Our financial expenses went from 2% to the levels of 5% to 6% in the last quarters. But here we have listed a number of actions that we are taking to reduce our financial expenses and despite of this leak rate increase.
The first and very important is the continuous improvement of our working capital with another quarter in which we improved the working capital. In this quarter specifically, we increased the inventory levels to prepare for the World Cup. So here we have to take that into consideration. We are leaders and TV sales in Brazil.
So we have a great expectation and a TV set sales. And as Fred said, it already started we had inventories ready in September, to sell now in this quarter. And at the same time, the World Cup is a special occasion and we negotiated the purchases of the World Cup with longer payment terms.
And therefore, we were able to increase the average purchasing time in our suppliers balance generating cash, and therefore also posting a balanced relation here with between inventory and suppliers of balance.
Now moving forward, we are in the better, in the best quarter for sales, and also the seasonality of our working capital. And after Black Friday and the World Cup, we will go back to have lower level of inventories just like what we have been doing since the beginning of the year and improving our working capital up to the end of the year and generating cash from this working capital.
In addition to the working capital, we also increased our big sales over the quarters, especially picks and cash sales and reaching almost 30% in average for Magalu. And remember that KaBum! is already selling over 40% of the picks and that is increasing in all the channels and therefore we also reduce the need of discounting receivables, we also reduce the average term of sales.
In the prior year, we have 16-months and now we have less than 10 months for that type of sales that reduces the average cost of receivables prepayment and we also increase the interest bearing sales on the Visa card on third-party cards. Customers can buy in 24 installments paying low interest rates, extending payment and reducing the amount of the installment payments. So a number of actions to mitigate the select rate level.
On the next slide, Visa card, we now have over seven million credit card accounts since the beginning of the years, we reduced the cost of the approval of new cards because of the increase in delinquency that we see in the market as a whole.
Remember that last year we went from five million to seven million, so we increase their base and this has been helping us increase our revenue, you see the total TPV of our credit cards reached 13.5 billion in growing 24%.
So this is thanks to new customers that are buying more increasing purchasing frequency and also become more loyal to our cards. And we include here also the Magalu card that which was launched last year we have 20 billion in our portfolio that is record one of the largest credit card operations in Brazil.
Now turning to the next slide. Before I talk about it, let me talk about delinquency. One of the best ways to reduce delinquency is to sell to best customers and to preapproved customers. And here we have a recent delivery from our FinTech, which is very nice.
This is a new experience for Magalu cards customers, it is in the SuperApp for preapproved clients. So the approval rate here is 80% to 90%. And we are approaching these preapproved customers only while they are navigating the app. So you can see a quick video of that experience.
One, the customer is at the checkout or navigating in our app, we offer Magalu’s card, the customer can request the card have a very fast and quick way just confirming by data and taking a selfie of himself or herself and the credit card is approved right there.
And they can already use this credit card for that first purchase. And then they will receive the physical card and their homes. So this is a wonderful experience for preapproved clients. And we are growing our Magalu card sales for these preapproved clients.
On the next slide, we have the standardization of our delinquency rates. Remember that we have one of the lower delinquency levels in the market, because we have all the database and the data was experience and also Magalu’s customers is score to improve the approval rate.
In addition to that, we also have efforts from stores in the collection process. The current level is at 9% of our NPL is in line with a post pandemic. So last year, because of all the reliefs that we had during the pandemic, it was already expected that this normalization we are going back to all the time level. So here we have part of this normalization process. And now so we have a little bit of the growth pains that we had last year.
And to the right, we have Luizacred results. Luizacred in the last four quarter has posted results that are very close to breakeven. We should mention that in this quarter it reached for the first time. If we add financial revenue and services revenue, it added up to over one billion in revenue. So we are working to increase revenue to diversify revenue.
We launched several products this year, and also deductible loan. So the Luizacred revenue growth this quarter was wonderful. It is not reflected though in the bottom line because of this normalization process of our delinquency and also a little bit because of the CDI because that affects the funding costs of Luizacred credit.
And when all that get back to normal, we believe that Luizacred will go back to its normal levels of profitability also. Then, we talk about the FinTech and here we have the TPV in our platforms over BRL22 billion of TPV increasing 20% when compared to last year in all the channels and bank-as-a-service in digital account and Magalu Payments and also in Luizacred and Magalu Card.
And to conclude, another slide, we show another very nice delivery from our FinTech. In the past two months, we encouraged the migration of our sellers and now, so we encourage them to open digital accounts in Magalu at totally free of charge, unlimited bids and sellers will get 1% of cash back and all expenses – were they used the card.
So in few months, we have 10,000 sellers receiving all their sales in our marketplace via our digital account, digital account that we have in our platform. And with that account, they can run a number of payments.
We have loans, we have the credit card machine, we have the corporate credit card that we are also implementing. So a number of financial services for that seller that they can use and therefore grow with us.
These were the main messages that we have on the financial side. So now we will open the Q&A session.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question is from Thiago Macruz, Itaú BBA.
Thiago Macruz
Hello, everyone. Thank you very much for taking my question. And I would like to understand your commercial dynamics. And here, I’m talking more about brick-and-mortar stores and 1P. It looks like you have improved your dynamics. You have a straight – you have improved also the relationship with suppliers, and this has been reflected in their cash flow. I would like to understand if that makes sense. If you can give us an update on that, I think it would be great for us. Thank you.
Frederico Trajano
Thank you very much for your question. I will turn to Fabrício. But I would like to comment on a few topics before. We have historical relationship with suppliers. That is very good and our philosophy at Magalu is win, win, win the supplier, the company, and the customer, all of have to win. This is something nice, and we are bringing that to sellers as well. And that is how we work.
Of course, that when you are in the process to reduce inventory, this is always good when you were growing, increasing volume in a growth process. And that is what we are recovering right now. So it is much easier to be talking to them this year than it was in the same period of last year when we were in a process of reducing and rebalancing our inventory levels. But right now, we are at a very positive moment.
And I will turn to Fabrício so that he can give you more color about this
Fabrício Bittar Garcia
As Fred said, we spent the first half of the year adjusting inventory levels and when you adjust that you decrease volume and you starts the relationship. But we are the first one with all the players, so we always had a good relationship with them we have a win, win relationship when we develop a plan for the second half of the year, very consistent well done planning. And I think that allows suppliers to be confident and improves our relationship even more.
In the last quarter, we are experimenting and we are seeing a good sales volume. We know that in our business to have the product available at the right time is crucial and that is making a lot of difference right now. And we are working very well with all suppliers we had great planning and the positive not only for the World Cup and TV, but also in all categories.
Operator
Next question is from [indiscernible] from BTG.
Unidentified Analyst
Two questions on our side. I think the first one Fred is that if you can comment on the performance of the average ticket, especially of Magalu partners, sellers. What can we expect for the next quarters as you increase the density in the regions that you mentioned?
And the second question, if you can comment, if you have room to increase prices for 2023, how would you expect that relationship to work, especially in the second quarter with an economy that is probably going to be challenging?
Frederico Trajano
I will start by your second question. And Edu we will elaborate more on the average ticket question. I already added some information. We are growing, so second question is about price. I think, I want to talk about price, that always depends on what the market is doing. If I want to lower or increase prices by myself, okay, if I want to lower prices, by myself, I can do it but through increased prices, I cannot do it by myself.
What happened this year is that I think that we have seen a price balancing that was very reasonable. I don’t see anything that might change it. Even in the tax framework for next year. I don’t see a real need to increase prices.
But what we need is operating leverage by increasing sales volume in the case of Magalu wants to gain share, I knew saw that we were able to increase prices gaining share. We were able to increase prices gaining share, because we have a service level that is above the average and we have a brand that consumers like and respect a lot.
So I think this was a very positive and that is why I highlighted our growth in our market that is underperforming. I think this shows that the company does not need to sell at a lower price to grow or to really attract to clients. I do not see the need of having prices increases next year.
And what I see – what I expected for this fourth quarter we already seen which is to increase sales volume and to increase the daily level of sales in all the channels. I think this is the trend that we see.
We are coming from a reduced consumption we have now two more months of the relief, we are going to the third and fourth months. So probably it will be maintained. We have the World Cup in this quarter, which is very positive.
It is concentrated now in the fourth quarter, as I said, I expected some of that in the third quarter, but it is all concentrated in the fourth quarter. We have positive trends and not everything needs to be addressed with price and now about average ticket. It is all a mix. But we will elaborate more on that.
Eduardo Galanternick
Hello, Louis. Thank you for your question. So, all our strategy for Magalu partner is to bring in sellers that are not here yet. So this is very important, first geography. So we are leaving the large, larger metro areas and now we are going to smaller sellers. And for the first time many of these sellers are selling via internet and also assortment most of the sellers in Magalu partner are in categories that are not our core categories.
And that is why the average ticket is lower than the traditional categories. And a lower ticket for a lower ticket, we need a partner so that we can have the profitability and that is the idea of where the partner.
And as Fred said today the Magalu partner is already important for us on our side, we are even more important for them because that is the first time that they are selling online and they are being the driver of our growth. As Fred mentioned, we have 70 points difference between the Magalu partner, and also the traditional seller.
This is a strategy in which we trust a lot that we have a larger, the larger sellers have already, already has a demand. The small one provides us a differential. And we have the middle one that will benefit from the fulfillment structure and the logistics structure. So we have today a platform that can cater to all types of sellers, each one with their own particularities.
Just adding to that something that I would like to stress is that we want to reduce the average ticket and to increase sales in new categories. But in these categories, not really selling the bottom ticket of the categories. So what do I mean by that?
Magalu is a company in which consumers trusted to buy branded products or products that have a higher ticket, we have credit options, payment options. So the unit economics of these categories for larger categories is better. And what do I mean by that? Low tickets are R$20 to R$30 for the economics is not good, even in the hyperlocal was not that easy to have a profitability good margin there.
So we want to reduce our ticket but improving expanding the penetration of all categories, but we want to have an overshare of the average and higher tickets of all the other categories because then we believe that we will have in 1P and especially the 3P better units economics, and I want to just to highlight that to make it clear.
Unidentified Analyst
Excellent. That is very clear. Thank you and thank you Edu.
Operator
Our next question is from Ruben Couto, Santander.
Ruben Couto
Hello, everyone. Good morning. Fred, you talked about events from the World Cup and sales coming in later than you expected now in October and November. Is this happening in all channels, also brick-and-mortar stores. So the quarter starts in an acceleration pace, as you were expecting and is that happening in all channels? And to start seeing that acceleration you had to be more promotional than expected, or is that following your strategy, your plans and you did not need investment and promotions and sales to encourage volume. Just to know what we can expect in terms of margin now in the fourth quarter as this sales acceleration starts to show now? Thank you.
Frederico Trajano
Ruben, thank you for your question. And yes, we are seeing now a sales situation and a growth that is better in all the channels in this quarter. Especially because of the World Cup, but not only because of that.
There is nothing being done in extraordinary way except what is already a promotion for a black Friday period. The volume is coming in organically. We are not having to push anything. This is important to mention.
Fabrício, would you like to add?
Fabrício Bittar Garcia
I think what is most important in this year-end is execution. We have a very good planning and we are executing it wonderfully well, and we are able to sell in both channels online and offline according to our forecast.
And following our promotional dynamics, we are not being more aggressive than what we had already planned to be. So sales are coming in. And thanks to our execution ability, which I think is very good.
Ruben Couto
That is clear. Thank you very much.
Operator
Next question is from [indiscernible] from Citibank.
Unidentified Analyst
Thank you very much and good morning. I would like to go back to the 3P discussion, that was very interesting. It is about the ticket. Priding here, I think the matter is that, when you look at this reversal of the lower ticket of that seller, the profile of that seller, thinking about the maturation curve of the seller from now on. What do you expect in terms of the 3P growth. I think this is important. You started the call talking about the stabilization. The online will go back to the natural circular growth. So I would like to understand how 3P fits into this context? That is my first question.
My second question is that, when I look at the coverage rate, it came down and it also matches the delinquency level. I would like to know, if you were comfortable about this coverage level and if you find with it from now on?
Frederico Trajano
Well first, thank you very much for your questions. I will answer the first part of the question and then I will turn the floor to Roberto. Well, our understanding or our vision, if you look at the CAGR of the last year, you will see that 3P is growing significantly more than 1P and significantly more than brick-and-mortar stores.
And for us it is very clear, although 1P was greatly benefited from the two pandemic years, and people were inside, purchasing durable goods, and we did have a growth that was higher than normal for the period.
And now, looking ahead, the company is concentrated in the 3P growth, in all salaries groups, for all categories, but especially for average salaries and/or small salaries, and especially for noncore categories.
But the focus, if you consider the figures for the next year. We have a great opportunity to grow. I believe that the online penetration in Brazil was still low when we compare that to the world and Magalu’s share in 1P is high and 3P has a lot to grow.
So I see that we will gain increasing the online share in Brazil and also increasing Magalu share and 3P, we gain share in this quarter. And we will continue gaining share, when I look ahead, I am confident about that.
Especially by the 3P channel, now in the fourth quarter, we have 3P that will pose the better growth better than the third quarter and this is already happening. The base for last year was very strong, the base for 3P in the fourth quarter is lower.
But we are going to have a better growth and for next year, so bases will be better this was a year of adjustment personification of pricing of 3P and investments and it tends to grow, but for the fourth quarter 1P goes very well now because of the World Cup.
So we have to take that into consideration, because the World Cup will have a greater impact. And 3P will grow, because it grows organically regardless the World Cup, but all three channels will post growth and here we have to see 1P and stores, because of the World Cup product sales.
About the delinquency question Roberto will address it.
Roberto Bellissimo
About delinquency first, our level is very conservative. Once again, customers are approved by Itau Unibanco and Luizacred follows all the credit collection provisioning risks policies from Itau Unibanco and as you know, they are very conservative. The total level of provisions increased in the past quarter. So we are with the provision level of around 2.7 billion, almost 14% of our portfolio. And the coverage ratio as a whole is an assumption is comes from these figures.
So last year, for instance, the NPL was officially low, and that usually ends up causing a high coverage level, but when the NPL is higher this previous provision decreases. It is natural, this is a math, but if we look at the access of provision, it even has grown when compared to last year. So we have a robust provision level.
We do not foresee any changes in the coverage ratio, and the provisions are made according to the IFRS, considering risks of each customer, and that is unbiased [indiscernible] so we believe that the provisions are very robust, very conservative and we have a coverage ratio that even at this level 140, 150, we believe it is very high and very conservative.
Unidentified Analyst
Thank you Roberto and thank you Fred.
Operator
Our next question is from Bob Ford, from Bank of America Merrill Lynch.
Bob Ford
Good morning and thank you for taking my question. Fred, what is the current conversion rate and 3P and how do you expect that the behave as the results improve? And what can we think about your margin and cost structures for next year. Can we expect improvement in margins as you develop other areas such as ads or when other sellers grow in the mix? Thank you.
Frederico Trajano
Well, Bob, I will answer. We cannot disclosure the conversion rates, but I will try to answer it qualitatively. So that you can follow the rationale. The conversion rate of 3P I would say still one-third of 1P more or less. So, a little bit less maybe.
So we have a conversion in 1P that is significantly higher than 3P and we have a KPI that is shared by the business area marketing with the labs area from Fatala. So we are working on conversion improvement. And that involves a number of things and one of them is delivery time.
I think there is a strong correlation of conversion and delivery time with the fulfillment and the expansion of Magalu deliveries with the improvement of the routes of Magalu deliveries. We are improving that indicator and I’m sure we will also improve the conversion when we look ahead.
It is already improving even with the free freight and reduction and we were able to hold growth on a 3P base. And that is thanks to the improvements that we have implemented and I believe that 3P conversion will grow significantly and get close to 1P levels. And also because we are working together to make it happen.
We are working with algorithms and the search process and the ranking of the products. Remember we went from six million supplies to 81 million products in two years. So we have to train to calibrate the search algorithms. There is a lot of work involved there and we are working on it. And I’m very optimistic about that.
In terms of margins Bob, obviously, once again, we improved in 50% our operating profit we increased our margin in another quarter. We are working hard to improve all lines of our operating results. We will keep on working on that next year. We have already operated and levels over 6% of EBITDA margin in the past.
Obviously, it was another model. We had a lower share of the marketplace and the marketplace changes the reality a little bit. But I believe that, we can go back to historical margin levels and we will be working for that. We will be dedicating ourselves to that. We are more focused now in balancing out growth and profitability.
We are bringing that and we are delivering that over the quarters and that is what we continue to see in the process. We have many projects that have been implemented. So this is the idea to continue on that effort.
The same margin of 6% of EBITDA, three years ago was 250 net profit in the bottom-line, because we had a different select rate. I cannot expect that the select rate will come down magically. So we have to keep on working to increase our EBITDA margin and also to decrease our financial expenses that is attached to sales.
And these involve, what Alberto has mentioned, the increase in fixed sales or launching new products such as the credit card and that credit is available in e-comm and also in the stores and this is something special that we brought then the financing is on the hands of the issuer, not the retailer.
This is natural in other places in the world. And we are in that here and we believe that could have a positive impact to really increase operating margin and reduce financial expenses that is attached to sales. And this is the focus of the company when you look ahead, not to consider a macro reduction of the interest rates.
We have to work on our side and that reduction in the interest rates, that has to happen, because I believe this is the highest level that we are seeing last 10 years. It is not sustainable overtime. I’m sure it is going to come down, but we are working on our end, reducing sales expenses related to sales.
Bob Ford
Very clear Fred. Thank you very much.
Operator
And next question is from Joseph Giordano from JPMorgan.
Joseph Giordano
Good morning, everyone. It is already good afternoon. My question is about the competitive environment. Do we see the main players in the industry that are leveraged with cash generation price to buy a select rate. So I would like to hear from you, how do you see this performance in the competitive environment? I would believe that last year things were more complicated than the year on now.
So second question is about stores. So we start hearing a little bit about the extension of this emergency relief. I would like to hear from you, if it makes sense, considering that to think about expanding these stores. I know that now your balance sheet that is above the competition. And now finally analyzing the assets integration, you had a number of parts and you were and you posted this flywheel of the start ups and how is the integration level of all these start ups?
Frederico Trajano
Thank you for your question, Joseph. I will try to address other questions about the competitive environment, I don’t think that we can only have bad news or a bad economy, high interest rates, high inflation rate. I hang over in the tech world. But I think this favorable environment has generated a rational aspect in the digital world in a way that I have never seen.
I have been in the e-commerce for 22-years. And that is the first time that I see the players talking about profit, profitability charging by services to grow in a rational way, and Brazilian players, Chinese players. So everyone is very much rational here. And they are crunching numbers and this is the good news for this more difficult macro world.
So I see that online in the marketplace and everyone wants to grow and make money. That is very good and that is not by chance that we were able to improve the gross margin, to improve the EBITDA margin and to increase sales and gain there.
If the competition were following that, it wouldn’t happen. So Magalu knows how to work in this environment, Magalu has always been a profitable company cash generating company, our e-commerce always posted results, except for this past year, which was an yourself adjustment.
And I’m sure that this is an environment in which we can know how to play very well I took over the company and we have posting good results since then we had an adjustment period and monetization period and let’s go back to track.
And we will learn, I think some tech companies we will try to take their first steps and we acquired and I choose that was posting negative results and now they are posting positive results Epoca was also a company posting negative results and now they are posting positive results. Even a food delivery is a posting results to Magalu and this is a company that has the profile and the characteristics of operating there.
So this is a favorable environment. And now for brick-and-mortar stores, we have a possibility to gain share, but about expansion plans, we have to analyze what is going to happen, what is the scenario and macroeconomic side will have to read the environment and to define if we are going to expedite that or not.
And so far, we are not comfortable and accelerating anything. So we are still cautious. But as soon as we find it and we see it then we tend to be optimistic, and we have a capital structure that supports our plan. And then we will go back and we will go back very quick. We know how to open stores and how to open DCs. But for now we are waiting a little bit and we are sitting on our cache.
Now, what was your other question again about the integration. Okay. I think, I described a lot that we have done Magalu deliveries and it came thanks to the integration of four companies that we are acquired [indiscernible] five companies actually, so all of them are in Magalu Entregas and Magalu deliveries platform and that they have 80% of 3P deliveries and also 1P and I choose KaBum! deliveries all of them are using our branch Magalu deliveries.
This is fully integrated and logistics these acquisitions were in the right ones, and they allowed us to improve 40% of the deliveries in two days. And that is thanks to the acquisitions, everything that you have seen in that video that those are the, the companies are integrated in Magalu deliveries.
We also see the digital account were brought to you and all our efforts here. The digital account is a hubs product, something that we acquired and integrated. And salaries now will receive the amount of their sales by having that integrated accounts. That is very good for them. And you also saw ads, which was in local, we acquired the base platform, we developed that platform, we have that platform with the in local team that we acquired.
Do you have seen couples results at the time, all of them, generating a good results and that shows as well a good level of sales and they are 100% integrated and Magalu’s catalog, using Magalu delivery, some of them already using Magalu payments. So I think we are growing and we are evolving in a very positive way in all these processes.
The acquisitions are not fully integrated in a year. And I don’t like to say integrate, I say to connect, to connect IT, to connect systems. And we are doing that in a very positive way. And I think that is a very nice way. AiQFome is also integrated in the cities where AiQFome is present, it is already integrated in the SuperApp.
[Rosella] (Ph), do you want to comment anything else?
Unidentified Company Representative
Hello, Joseph, thank you very much. And just adding to what Ed has already said, we are focusing in connecting and generating value in the ecosystem by using our services. So here is an example AiQFome, even VIP commerce, which is a market integrators, they are already connected into the SuperApp. So we do not want it to connect or integrating back office systems, but rather, we are connecting businesses so that we can generate value, both for customers as well as for our sellers.
Joseph Giordano
Perfect. Thank you.
Operator
Our next question is from Irma Sgarz from Goldman Sachs.
Irma Sgarz
Hello, good morning. I think some of my questions have already been answered. And I would like to go back to Luizacred. I would like to understand how you see the risk appetite for this fourth quarter. I think the portfolio is more stable now from the second to the third quarter. And I think it is even lower when we compare quarter on quarter. And that makes sense and with a macro scenario with delinquency a little bit higher, but for the fourth quarter, I would imagine that this is very important commercially. So I would like to know if you already believe that you can recover growth there. And I also want to understand how you see Luizacred’s growth is going towards that normalization. And also of that a net profit and a positive level.
And another question related to that. I don’t know if it is possible to measure it, but by this conversion rate have you seen a more conservative approach in the credit assignment. Has that affected sales of the third quarter somehow?
Frederico Trajano
Okay. Good morning, Irma. Thank you very much for your question. Now starting by the appetite, we are maintaining basically the same approval rates and we are also taking a number of actions and efforts to improve conversion, whether in the store or on the online. And in the online, we can highlight the experience of the pre-approved card and it is called – or surprised.
So we are improving the sales quality. It is also important to say that, the delivery indicators or the delinquency indicators, I’m sorry, of this past year, these months, especially the digital, they are very good. They are compliant to our history of delinquency. So this is a very healthy credit concession credit assignment.
In the third quarter, we talked about the share of our payment needs and that has decreased a little bit, when compared to last year. But it was not too relevant. It was around BRL100 million. And we offset that share exactly in cash sales and big sales.
So when you compare that in the mix, the increase of 5 of 6 points in the mix offset a little bit our approval reduction in Magalu Card and Luizacred. And now, so allowed us to decrease the third-party charges. So we are using other strategies. We are improving experience. We also have campaigns using PICs.
We have seven million clients with pre-approved credit. This is a BRL20 billion portfolio, and we have practically BRL20 billion more of limit and the average limit of our because of this limit, it goes around 50% to 60% of the limit amount.
So we do not need to sell a lot to new clients to keep on growing and fostering new sales. We have a lot of buyback actions that are towards increasing the loyalty of our clients that already have the pre-approved credit.
And finally talking about profitability of Luizacred. I mentioned that, we’ve reached the record sales over BRL1 billion in the quarter for the first time. We have had a high growth in all revenues, financial revenues and service revenues. We have a room for revenue on a portfolio that is higher than the current one.
We reviewed, some services and fees that we offer to clients also to improve Luizacred’s profitability. And we are sure that this funding anchoring is that should increase with a CDI reduction. And that should become normal, should normalize. We then believe that the other customers are still very profitable. And Luizacred has an efficiency rate that is a benchmark rate.
So we continue looking for opportunities to improve efficiency, but we are sure that we are on the right track that prior clients, the earlier times were very profitable. And that is just a matter of time to going back to those levels of profitability or even higher. And we are always to be looking for greater efficiency at least at credit as well.
Just adding to that, I think that today the whole universe of opportunities and making money with credit it goes beyond Luizacred, we talk a lot about Luizacred, but all the FinTech universe, the corporate accounts all of that are not in the scope right now. So we have a great opportunity right now.
The account float, so prepayment, receivables prepayments for sellers. Magalu payments and we still have room to increase penetration in the online world, because it has almost 50% of penetration in the off and less than 10 in the ons.
So I believe that this is something that that is already mentioned and we are working on the pre-approved clients, it is not open see that shows that we have an origination with a great credit quality. So we have a horizon to monetize Magalu’s GMV with financial products that we still and we still have a lot of room there.
And Luizacred business is it is a cyclical and in the last years, some we did have a better provisioning and lower results. But for most of the years, we had great results. And I’m sure that we will go back to them.
And we have a BRL600, four more months, not only up to December, but probably for next year as well, the increase of the minimum wage, and I think all of that will affect the Luizacred is customers especially the low income ones.
Irma Sgarz
Thank you very much.
Operator
Our next question is from Danniela Eiger from XP.
Danniela Eiger
I think all my questions that were already addressed. I have a quick one. Just about that dynamic of durable versus long tail. We see this as very strong, long tails gaining room, because of macro, but how do you expect to see that in 2023, we are still talking about the high interest rates in the area. This is important for the category of higher tickets and I would like to understand how do you see this balance for 2023. And if you can give us more color about the fulfillment. I understand that is still a very early movement, but how the impact is and the sellers economics that are using the service and also in the rollout for more stores. What do you expect to see that in terms of timing?
Frederico Trajano
I think, I have already answered it. But I would like to stress it. Certainly, we should look at and the next few years a growth that is higher than 3P, when compared to 1P in stores and e-commerce. And I think that is the natural trend regardless the macro scenario because this, this is a company strategy.
We started before, we started not long ago. So it is normal that, although 3P is already the same size of stores GMV. So in three years, we were able to reach the same level of stores in 3P, but we are able to grow more because you were toddlers to the base. You have no categories. And everything that we have described here as a fulfillment and that is going to help conversion and growth, sustainable growth of this 3P in the future.
Since 3P and our strategy is very much in the tail is a base and the mid ones and usually these sellers are not electric electronic product sellers, we believe we are going to have a decentralization of categories. And remember we have the channels that will keep on growing, fashion will keep on growing, sports will keep on growing.
These channels have been lower online penetration, then the electro electronic. Those have a penetration in Brazil that is much higher than the other channels and the gap between what is Brazil in the world. For these other categories, this is greater, so the transistor will see these categories growing more. And we are very well prepared to gain share and to seize the growth of these categories as well. I think this is going to happen.
The only thing that I usually say is that I don’t like to grow one thing and not the other. The good example here is when we grew durables, we did not decrease the number of a brick-and-mortar stores even with a pandemic, the sales volume of brick-and-mortar stores is the same as the pre-pandemic levels.
So all growth that we have in one line 1P for durables was not from brick-and-mortar stores, we would like to add we don’t like to subtract, and that is what we want the sellers of new categories to grow but if we can gain share and durables, we will do it because we can operate. And this is a category in which we work for 60-years.
This is a cycle category, we have five good years and a year and a half that is not that good for four years. And I have they are very, very good and so on. So it is cyclical. But when it comes back, it is really strong and everyone wants to sell everyone is out in the market. So the process is there.
The trend as a trend in the long-term for new categories, gaining more, share gaining more room but not because we are going to sell less durable but we want to grow proportionally.
Eduardo Galanternick
Now this is Eduardo here. Thank you for a question about the fulfillment. We are operating with that for a few months. We are operating very well the sellers that are in the platform are providing us a great feedback.
And our focus now is to scale to try to speed that up and to increase the number of sellers that are operating in our fulfillment. We have three DCs that are taking sellers products. We will be working more on that next year.
And what we have seen clearly is that the sellers that are in the fulfillment, they have a conversion that is 50% higher than the conversion that we have in the Magalu deliveries. If it is the seller that does not use Magalu delivery, they double the conversion. So this is an avenue of growth, the cost is installed. There is no additional cost in the company for that expansion. So our priority right now is to bring in more sellers for that platform.
Operator
Next question is from Vinicius Strano from UBS.
Vinicius Strano
Good afternoon, everyone. Thank you for taking my question. How the economics of the marketplace is evolving in the past few months considering these adjustments and the pricing of 3P and also here in marketing, do you already see any slowing down in that area and what is the performance between the organic and paid traffic?
And the second question. You talk about 1P products turning to 3P, your sellers – or Fred, can you go into the details which are these categories, that would be great as well. Thank you.
Frederico Trajano
Thank you for your question. I think that allows us to have an additional comment. 3P economics has evolved significantly. This was a very significant performance, as I haven’t seen before. So obviously, we were investing in 3P. We needed to reach a minimum scale.
We had the volume of 3P of brick-and-mortar stores that shows that this is already a consolidated significant player and that is very important for all the sellers that we have. Usually, not for all sellers, we are the first options, but for some we are.
And for some, we are second or third, so we are very relevant for everyone. And I think this is very important. We have evolved a lot. Marketplace today is positive. We have a contribution margin that is very positive to the company. It has very low expenses. Basically, it has no fixed expenses and we do not have working capital in the marketplace.
We do not have inventory there. Their ROIC is higher, and so it is easier to manage it. So it is going well and the more we sell, the best will be the results for the company. So what is nice is that, even in the investments area marketplace, we are already using an installed base from GFL, the routes of our trucks, stores and the DCs themselves.
We have one million square meters available that will be available to 3P. This is already there. We reduced the 1P inventory levels, and we are now having this area that it will have no additional cost to the company.
So we will be using this area to increase the marketplace fulfillment. And then it tends to be very positive when we look ahead, that is going to be great for our economics. We have nice take rates now. We still are more affordable than the leading company in terms of total cost.
And I’m not talking about take rate only, but take rate and delivery rate, if we combine both of them. We are three percentage points to five percentage points lower than some marketplace in the market. We still have room to improve. But this is already contributing positively to the company we tend to grow.
We developed a platform, for instance, the fulfillment, the fulfillment is also for heavy products, we developed fulfillment, this is a new product that we did not have in the market, because usually these are for smaller items and we can operate furniture and appliances, and some electric electronic items with our fulfillment.
And the products that didn’t make sense to add to our working capital, because they have a low turnover or a low margin, the industry will operate directly when we are going to offer the industry.
This fulfillment service will be very disciplined and we will have an in our stocks, whatever base our margins and whatever is not there. We are going to operate into 3P, we want to be a digital platform with brick-and-mortar stores, and warmth service and we want to turn the key and that is going to be very easy and very quick.
Operator
We now end our Q&A session. I would like to turn the floor Frederico Trajano for his final remarks. Please, Fred.
Frederico Trajano
I would like to thank you all very much for being here with us in this call one hour and 40 minutes of very broadening call, I would like to stress the work of Magalu’s team in rolling out a number of improvements in the company. A significant increase in operating margin and we were also able to gain market share.
I would like to say that I have a positive outlook for the next quarter, the fourth quarter with a Black Friday, World Cup of full emergency relief and these next three-months we are prepared to tap into this opportunity. So thank you all very much. Thank you especially to our team here. And I would like to stress that I have a very positive feeling for this year-end.
Operator
The conference call for Magalu has ended. The IR team is available to take any other questions you might have. Thank you very much for your participation and have a nice day.
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