Good morning. My name is Sophia and I will be your conference operator. All lines have been placed on mute to prevent any background noise. This is Liverpool's second quarter 2022 conference call. There will be a question and answer session after the speaker's opening remarks, and instructions will be given at that time. Today, we have with us Mr. Graciano Guichard, Chief Executive Officer, Mr. Enrique Güijosa, Chief Financial Officer, and Mr. Enrique Griñán, Investor Relations Officer. They will be discussing the company's performance as per the earnings release for the second quarter 2022 issued this week. If you did not receive the report, please contact Liverpool's IR department and they will email it to you. Please note that this call is for investors and analysts only, and questions from the media will not be taken, nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available. They are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in El Puerto de Liverpool's most recent annual report. Please refer to the disclaimer in the earnings release for guidance on this matter. I will now turn the call over to Mr. Enrique Güijosa. Thank you, Sophia. Good morning to everyone, and thanks for joining us. I hope you and your loved ones are all doing well. As usual, I will go through the highlights of our second quarter results and leave the rest of the call for Q&A. First of all, let me point out that the second quarter of 2022 was the first one in quite some time that we can compare against the prior year on an apples-to-apples basis, as we did not encounter any special situation due to the pandemic neither this year nor in 2021. Perhaps the only exception was in terms of the duration of our Ventas Nocturnas promotions for both Mother's Day and Father's Day, where we decided to go back to the usual three-day promotion during the weekend instead of a week-long event, as we don't have to recover lost grounds due to store closures. I am glad to share with you that Q2 2022 was a very strong quarter across the board. We saw robust growth rates in our top line, in our EBITDA, and in our bottom line, and we moved forward in all our strategic initiatives. Our total revenues grew 13.4%, and our three business segments posted double-digit top line growth rates. Retail sales grew 13.3%. Interest income increased 14.2%, and revenue from our shopping centers was 15.2% above year ago. For perspective, our total revenue of MXN 42.6 billion is almost 20% above Q2 2019. Same-store sales for Liverpool posted a 14% increase, while Suburbia reached 5.1%. The latter reflects a challenging base period as we offered aggressive markdowns to get rid of obsolete inventory. We see customers returning to some degree of normality, going back to offices and special locations such as weddings and graduations. For perspective, entire department store sales reported a 12.4%, excuse me, increase in store sales during the second quarter, while the apparel and footwear categories grew 14.0%. Our retail gross margin of 32.8% was 270 basis points over a year ago. We continue to show great discipline in terms of inventory management, and this has allowed us to have higher levels of sales at full price and lower markdowns. For perspective, Suburbia's gross margin was 8 percentage points above a year ago. Our gross margin performance was also helped by a more favorable product mix as our softline categories continue to recover the share they lost during the pandemic. For perspective, our retail gross margin was 80 basis points above Q2 2019. Our consolidated gross margin improved 250 basis points to 39.2% due to the above-mentioned improvement in our retail margin and a small mix effect. Operating expenses without bad debt provisions and depreciation grew 11.5% year-on-year. The main factors behind this increase are, number one, the variable expenses that grow in line with sales, like commissions to our sales associates, credit card fees, and packaging materials. Number two, the 22% increase to the minimum wage at the start of the year. Number three, new hires, particularly in the technology and digital departments. Finally, number four, general inflation. We have started to be less conservative in our credit card business in terms of origination, overdrafts, line increases, and cash withdrawals. Still, we closed Q2 with a better-than-expected NPL ratio of 2.4%, 70 basis points below a year ago. The bad debt provision in our P&L during Q2 was MXN 527 million. Although this was 2.5x above a year ago, this has to do with the sharp reduction that we observed in our NPLs from Q1 to Q2 in 2021. For the first six months of the year, the bad debt provision was MXN 258 million, basically flat versus a year ago. Our bad debt reserve coverage ratio was 20.4% of our gross portfolio. This is 140 basis points below a year ago. When measured against our bad debt over 90 days balance, we closed the quarter at 4.7x. Both coverage ratios are conservative. Our net credit portfolio grew 16.2% year-on-year, and our total cardholder base was 6.3 million, almost 9% over a year ago. Our Q2 EBITDA of MXN 7.8 billion was 28% over year ago, while our EBITDA margin of 18.3% was 110 basis points better. This was due to the improvement in gross margin and operating leverage. For perspective, our EBITDA margin in Q2 2019 was 16% flat. Net profit of MXN 4.5 billion was 48% over a year ago due to the above-mentioned operating performance and lower interest expense. Turning to our balance sheet, our total inventories grew 27.5% year-on-year. This increase is due to normalization of receipts and advanced purchase orders for categories still facing supply issues, and also for the big ticket items to facilitate the transition to Arco Norte later this year. Although there are some categories with high levels of inventory, like patio furniture and fitness equipment, we think they do not represent material figures and should not translate into profitability issues for the balance of the year on a total company basis. For perspective, if we compare our inventory level against the same quarter in 2019, it is 25% above, while our retail sales are 23% above. Cash flow for operations during the second quarter was MXN 5.4 billion. This was MXN 3.2 billion below a year ago due to higher working capital and income tax advance payments. Our CapEx during the second quarter was MXN 1.6 billion. This is a 50% increase over a year ago. This brought the first semester total CapEx to MXN 2.7 billion, and almost half of this amount was allocated to logistics and technology projects. Our shareholders agreed to pay a dividend of MXN 1.70 per share on their March 10 general assembly. The first installment of MXN 1.02 per share was paid on May 27, and the remainder of MXN 0.68 pesos per share will be paid on October 14. At the end of the quarter, cash on hand was MXN 23.6 billion, and our net debt to EBITDA ratio was only 0.18x. We're planning to pay our Liverpool 17-2 local bonds or Certificado Bursátil, which is due on August 19, for a total amount of MXN 1.5 billion with our own cash. Suburbia opened four new stores during the second quarter to bring the total number of openings in the first semester to six. During the second semester, we plan to open two new Liverpool stores, one in Tijuana, which is the only large city in Mexico without a Liverpool store, and the other one at the new Mítika Shopping Center in Mexico City. For Suburbia, we're expecting to open another nine stores. We continue making significant progress in all our key strategic initiatives. Our digital GMV was 17.2% over a year ago, and our digital share was 24.1%. This is 27 basis points over a year ago. Our marketplace GMV increased 50% year-on-year as the number of sellers and SKUs in our 3P platform were almost 90% above a year ago. For perspective, our marketplace SKUs account for 40% of our digital catalog. The number of visits to our digital platforms were 6% below a year ago, but this was due to the above mentioned reduction in the duration of our key promotional events, that is, the Quintana Roo business. We continue to make strides in the speed with which we deliver our digital orders. The share of deliveries that reach our customer homes in five days or less was almost 20 percentage points above a year ago. Furthermore, the share of home deliveries that were shipped directly from our store grew more than 2x to 19.3% as we continue to leverage our store network, which as you know is one of our key competitive advantages. Importantly, the normalization of our customer traffic to our stores is helping us to gradually bring back click and collect to the pre-pandemic levels. Click and collect in Q2 was 35.1% and was 9 percentage points above the same quarter a year ago. The transition of our big ticket logistics operation from Rojo Toca to Arco Norte continues right on schedule. We started to receive merchandise from our key suppliers in May, and the final phase of moving all our inventory kicked off in July. We expect to complete the transition by the end of August. On May eleventh, we announced that we have signed a letter of intent with Actinver, with the objective of defining the terms of a strategic alliance to offer savings and investment in products to recurrent and potential customers of our portfolio pool. Importantly, the execution of this alliance is subject to signing the final contracts once we obtain the approval of the banking regulator. On July seventh, we launched our RUC or Registro Único de Cliente project. This is a key initiative in terms of convenience and security for all our digital customers. One very important functionality is our virtual cards, credit cards. We are now able to complete the end-to-end origination process for our cardholders on our digital platform. In just a few minutes, our potential cardholder will know if her line was approved, and if so, will be able to start using her credit card right away, both on our digital channel and also in our stores using our wallet. Also, on July seventh, the Mexican Stock Exchange announced that we were going to be part of the S&P/BMV Total Mexico ESG Index for the very first time. This is certainly a milestone for us and reflects the progress we have made on the ESG front in the past 12 months. Finally, on the rating agencies front, just a few days ago, S&P announced that our rating for global debt issues was maintained at BB B, but the perspective improved from negative to stable. While Fitch announced that our rating and perspective were kept at BB B+ and stable respectively. Well, that's it in terms of our performance during Q2 2022. Let me share with you now a few challenges that we are foreseeing for the second semester. The first one has to do with Mexico's lackluster GDP growth, which is now expected at only 1.8%. In fact, this will not reflect a significant slowdown and even less a recession in the U.S. at the end of this year as the Fed normalizes monetary policy. The second one has to do with inflation. As you know, inflation in Mexico was 7.4% in 2021 and will probably close this year around 8%. High inflation levels erode the purchasing power of our customers, and as wages are not growing in real terms, they need to dedicate a bigger share of wallet to basic staples, leaving spending on discretionary items as a second priority. Furthermore, high inflation exerts pressure on our gross margin and our operating expenses. The third one has to do with continued supply chain disruptions. Although we have seen an improvement in the availability of our merchandise, there is still a long way to go to normalize fulfillment levels. Although the market is certainly challenging, we are confident in our ability to overcome this environment and deliver strong results for the full year 2022. Thank you very much. Now, Graciano and I look forward to take your questions. We will now conduct a Q&A session. If you would like to ask a question, please press the Raise Your Hand button located at the bottom of your screen. If you are connected via telephone, please dial star nine. We remind you that all lines have been placed on mute. When it is your turn to ask a question, you will be unmuted. If you have placed yourself on mute, you will need to unmute yourself to ask your question. We will now pause for questions. Our first question comes from the line of Irma Sgarz. Please state your company name and ask your question. Yes. Hi, good morning. My name is Irma Sgarz from Goldman Sachs. Thank you for the comments. Very helpful to also have the outlook for the second half of the year. I was just curious sort of how you think about, sort of positioning yourself for this environment in terms of just how you're planning for inventories. On the one hand side, you still cited some supply chain bottlenecks, but at the same time, obviously, you have to be mindful of a potentially continued weakness in the discretionary demand. Just curious sort of how you're positioning for Suburbia, but also for the Liverpool, in terms of the outlook for the environment, changing assortment or in terms of pricing, taking different decisions. Second question, just on Suburbia, obviously, I would imagine that part of the performance that we're seeing over this is to do with the markdowns that you had to do and the weakness maybe in the consumer or the inflationary impact on that consumer that format is targeting. But in terms of operational sort of more on the micro level or company specific level, what changes are you making? What actions are you taking specifically for the second half of the year to try and close the gap in terms of performance that you have for same store sales compared to both inflation, but also the Liverpool department stores overall? Thank you. If you want that, I'll take this one, Enrique. Yes, thank you. I'll start with Suburbia. Actually, the markdowns were taken last year, because last year we had. Excess inventory. That's why you see not a big increase in sales and a big increase in margins. That actually is gonna answer the first question. In Suburbia, we plan to have inventory, a lot less inventory than what we had last year, not because of the economy or the macro perspective only, but because last year we had an excess inventory by a ton because we closed January and February. This year, Suburbia is gonna work a lot leaner. We are gonna see these good margins all throughout the year, and we are gonna see a better inventory turnover because of the lack of excess inventory we're gonna have. That's for us is key for the results this year. In terms of Liverpool, it really varies a lot through category. For example, as Enrique said, sports equipment like treadmills and stuff, we are seeing a significant decrease in sales. On the other hand, suits and shirts, we're seeing a good increase. We're planning to keep up those trends, always very careful with the inventory. In the moment we see that a particular category is gonna slow down, we will certainly introduce promotions or margins fast enough to get rid of the inventory. Having said that, we have significant bets on some categories in particular, especially TVs. This year, we're gonna have the World Cup on the second half of the year, which usually increases that by a big percentage. We have a big bet on cell phones. Great. Thank you. Very helpful. Our next question comes from the line of Alvaro Garcia. Please state your company name and ask your question. Hi. Álvaro García, BTG. One follow-up actually on Irma's question on sort of gross margin at Suburbia. Do you think, I mean, just given the competitive pressures of that specific segment, you know, whether it's Coppel or whether it's some of the newer players, SHEIN, et cetera, do you expect sort of more gross margin pressure? Do you feel like you should price your products maybe a bit lower given the competitive dynamics there? That's my first question. My second question is on supply chain. Enrique, you mentioned that it's a bit better than it was last year, but if you can give us a bit more color on sort of order dynamics with clients and if maybe you're somewhat back to pre-pandemic levels, that'd be very helpful. Thank you very much. Yes. You wanna take those, Graciano or? Shall I start with the gross margin in Suburbia? Now, we actually feel we have a good product and price quality-price combination. We believe the gross margins this year are gonna go up in Suburbia well compared to what we had last year, mainly, as I said, because of better inventory control. Although we have a tough competition there, we have a good value proposition and some of the actions, I didn't answer that on Irma's prior questions. Some of the actions we're taking, and probably you can if you go to the stores, you can start seeing them by now, are improve quality on the stores' maintenance, look, neighborhoods of all the different sections on the stores. Plus, we need to improve our omni-channel experience. We're introducing also kiosks in every Suburbia store so that omni-channel takes off because it hasn't taken off on Suburbia. We believe Suburbia margins are not gonna go up. In terms of the supply chain, again, Liverpool sells a lot of items, so it varies a lot by category. For example, some categories whose sales have slowed down such as kitchen, furniture, those sort of things, supply chain is not an issue anymore. There are other categories, you all know about the chip shortages, and in clothing it is improving. It might not be quite at the pre-pandemic levels because sometimes China closes a city and it affects everything that is built there, but it's getting close to it. That's very helpful, Graciano Guichard. Thank you very much. Our next question comes from the line of Luis R. Willard. Please state your company name and ask your question. Hi, guys. Good morning. This is Luis Willard from GBM. Thanks for taking my question and congrats on the results. Graciano and Enrique, my question is about the dynamics of the credit portfolio. I mean, net portfolio is now around 12% above pre-pandemic levels. Credit cards are also up before that time, mostly coming from Suburbia. My question is, what is driving this increase in the net portfolio? And more importantly, is it coming from new customers or customers that used to have the credit card and then exited the system and now are back? Or maybe it's just an accumulation of balance of existing customers. Thank you. Yes. I think, well, first of all, I mean, what's driving the increase in the portfolio has to do with the performance of our top line, of course. Particularly in the case of Liverpool, I mean, sales have been doing, you know, double-digit growth, and this obviously flows right away and directly to our balance sheet. To our portfolio. The other one has to do as I pointed out in my opening remarks that we're also seeing an increase in the number of cardholders, both in the case of Liverpool and in Suburbia, we're seeing, you know, higher origination levels. We have been fine-tuning our origination scoring model in order to be more precise. We have started to give also credit to people that don't have any information in the credit bureau. Our cardholder base of 6.3 million accounts at the end of June was 9% of a year ago. Really it's a combination of those two things. Luis will also I think it's been a lot, but we are also being more aggressive. I mean, even the very low levels of NPLs, which frankly have been surprising to us. I mean, the delinquency rate continues to perform very well, stably below the levels that we're used to, you know, we were more in the 4%-5% range. Now we're well below that. We're starting to be more aggressive in terms of overdrafts, for example, for people that are buying big ticket items. We now have the ability to assess the creditworthiness all the way down to the transaction level. We know that the delinquency rates for people that buy big ticket items is usually lower than other things like cell phones or apparel. We're being more aggressive on giving, like, 2x the credit line when a customer or cardholder wants to buy a big ticket item and he or she doesn't have, you know, the line of credit. We give the overdraft and we can, you know, approve the purchase. That's one of the things that we're doing. We're also increasing you know the credit lines. We're also being more aggressive on the cash withdrawals, where we will have to be because of the risk involved. We have been very, you know, tight in terms of that credit offering throughout the pandemic. Now we feel confident to start little by little, opening the gates again. Those are just a few things of what we're doing in order to increase the portfolio and also increase the productivity of the portfolio. Right. Thank you, Enrique. In a nutshell, it's basically coming more from origination and/or new, let's say, products or lines rather than people that are making partial payments on their balance. Is that correct? Well, yeah, I mean, payments continue to be, you know, on the high side, and that's why that's one of the reasons we continue to see our delinquency rates so low. I mean, we continue to be surprised by the number of what we call totaleros that we have in our portfolio. It used to be in the 15%-20% range. Now it's, depending on the month, going all the way up to 40%. In that sense, we're not seeing a different behavior versus what we have seen in the past. Again, I think it's a combination again of the strong sales and a bigger number of cardholders. Thanks. That last part was helpful. Thank you. Thank you. Our next question comes from the line of Rodrigo Alcántara. Please state your company name and ask your question. Hi. Good morning. This is Rodrigo Alcántara, UBS. I have two questions here, if I may. First one on the virtual card, was wondering if you can remind us what percentage of your current customers are already with under this virtual card, and if you could possibly enumerate, like, the benefits that you see as compared to the traditional physical card, perhaps on data analytics and some of those attributes. The second question would be regarding the same store sales guidance. I mean, you remember you were quite conservative at the beginning of this year, even though you had a very robust first quarter, you reiterated your guidance both for Suburbia and Liverpool. I just wondering if that's. If this is still the case, I mean, should we continue working with the same guidance? I think it was 5.5% for Liverpool, 8% for Suburbia, if I'm not mistaken. Also would appreciate your comments on the guidance for the full year 2022. Thank you very much. Yes, Rodrigo. Well, the virtual or the digital card is brand new. I mean, we just, you know. Sure. Went live on that functionality just a couple of weeks ago. We have already implemented for quite some time, probably like a year and a half, that you can fill out your application for a credit card online. If you were approved, you still have to go to the store to pick up your plastic. You could not buy right away on the digital channel or in the store if you have not gone to the credit card point to pick up your plastic. With this new functionality that we just implemented, you can now do the entire process, or you can fill out your application online. When you go through the approval process very quickly and you get the approval, if that's the case, right away in just a few minutes. I think that the significant change is that you will now be able to, once you're approved, to buy on the digital channel right away. You will not have to go to, you know, the store to pick up your card and in order to be able to buy on the digital channel. You can do it right away without waiting anymore. We believe that's a big, you know, convenience feature for our customers. We're very excited. I think that we will of course report on the progress we have made on that front in Q3, where we expect to see the big bump. We have already noticed that the digital application was already our number one original channel. Again, you could not complete the process without going to the store. Again, that's gonna be the big advantage. In terms of data, really, there's not gonna be a big change because, I mean, again, the only difference is that you will not have to pick up your plastic. We will still be able, as we can do that today, to monitor very closely what you do, both online and on the physical store. That's already in place. That's something that we do. That is something that we are starting to, you know, do the personalization to our customers, combining the data from the digital channel and the physical channel, which is something that we feel is very unique, of course, as being omni-channel. Again, those capabilities are already in place and are not gonna change because of this digital credit card. Now, going to the same-store sales. Well, needless to say, I mean, the performance in the first semester was well above what we expected, particularly in Q2. I mean, we already knew that Q1 was gonna be very strong because the comparison, the base was very easy because of the closure of the stores in central Mexico in Q1 2021. We already knew that Q1 was gonna be very strong. You're right, we announced that we were expecting same-store-sales growth for Liverpool in the 5%-5.5% range from April to December. In the case of Suburbia, we were expecting an 8%-8.5% range also from April to December. We are, as we speak, we are updating what we call our best guess, let's say, or forecast for how the end of 2022 is gonna look, which is something that we do at the same time that we prepare our budget for 2023. The first thing we would do is to forecast how we are looking at sales for the balance of the year as the second semester and also use that as a base to project and budget 2023. We still do not have the final numbers, but I can tell you that probably, I mean, we're gonna assume that Liverpool same-store sales will grow around 10% in the second semester, and Suburbia same-store sales are gonna be at close to 8% in the second semester. That's significantly above in the case of Liverpool, but what we had before, and of course reflects that we are seeing, you know, a customer that is more resilient to all the macro challenges than what we thought at the beginning. We're expecting a slowdown as we reported Q2 same-store sales for Liverpool were 14% up, so we expect that to go down to 10%, but still double-digit growth. I hope that is helpful. No, no. That, that's perfect. 10% Liverpool for the second half and 8% for Suburbia, right? Same-store sales. Correct. Yes. Yeah. Thank you. Our next question comes from the line of Andrew Ruben. Please state your company name and ask your question. Hi, Andrew Ruben at Morgan Stanley here. Thank you for the question. I just wanna dig in a bit more on the differences between the second half and the first half, in that you had what seemed like very strong results, both on the top line and margins, even through two Qs. With this outlook for the second half, some of the items you spoke about, is it more your general expectations, or did you see some of these sales and expense headwinds already start to occur during July? I'm just trying to better understand what seems like increased caution following what has been a very strong first half for Liverpool. Thank you. Thank you, Andrew. Well, you're right. This is more of a function of being cautious. I think that we frankly have been surprised again by how resilient customers have been. Again, you have to bet at the start of the year, you know, with inflation at 8%, and inflation of course in food and basic merchandise is running at 12%-15%. That's eroding the purchasing power of our customers. Also, the middle class, well, they're now starting to travel again, so spending money that they didn't spend in 2020 or 2021 because they basically were not traveling. You will assume that or we expect that, since we only sell discretionary items, we will see a slowdown. Month by month, we have been surprised again by the resiliency. In fact, in July, I can tell you that all the way up to yesterday, Liverpool sales are 20% above July a year ago, and Suburbia sales are 17% above a year ago. We continue to be very, very surprised. I think that the numbers I mentioned before about 10% and 8% for Liverpool and Suburbia, I think that again, we expect to see a slowdown eventually. Hopefully continues, you know, to be delayed. But again, it's more of a cautious stance instead of something that we're seeing right now. Great. That's very clear, and I appreciate the additional detail. Thank you. Thank you. Our next question comes from the line of Antonio Hernández Vélez-Leija. Please state your company name and ask your question. Hi, good morning. This is Antonio Hernandez from Barclays. Thanks for taking my question. Congrats on your results. Actually, a follow-up on the previous question, on Andrew's question. I mean, thanks for the light that you're providing on even July numbers being quite high year over year for both formats. Just wanted to get a little bit more light on maybe if there's any change, at least in terms of credit use or how maybe credit card holders are maybe behaving differently, comparing July or even end of the second quarter versus the beginning of the second quarter. Have you seen any type of a trend there? Thanks. Yes, thank you, Antonio. Well, not really. I mean, the things that I explained before in terms of being more aggressive on the credit front in terms of origination, in terms of overdrafts and increasing credit lines, frankly are gradual, you know, changes. It's not that we're, you know, like going from a very conservative stance to a very aggressive, you know, like, posture overnight. I mean, it's something that we do little by little. No, I don't think that, you know, but the performance that we're seeing in sales has to do, you know, in a major way with these changes. I mean, they obviously help, but I don't think that they're like significantly, you know, accelerating our sales. I think that, again, they're a tailwind, but again, it's not definitely the most important one. Okay, understood. Just a follow-up. Any change also in terms of ticket and traffic, for example, within the last weeks in July and maybe the beginning of the second quarter? Any change in trend there? Well, in terms of, for example, in the case of Liverpool, the average ticket in Q2 was only 3% above a year ago. The majority of the increase that we saw in same store sales came from traffic. Traffic grew like 11%. And again, average ticket was like 2.8% above a year ago. That's not to say that we are not seeing higher prices in some categories. I think that is more of a mixed effect. The fact that the average ticket is only growing 3%, I think has to do with the fact that we're seeing you know lower growth rates in the big ticket items, especially things that had to do with the home, which were very, very strong through the pandemic. Now we're seeing you know big increases in formal apparel, as I know was pointing out. Suits and formal shirts and you know all kinds of shoes and sneakers are flying off the shelves. So those things are performing better. Although the average ticket is not growing a lot, I can tell you, for example, that for soft lines, our average price at this point in time is like 8% above a year ago. In some categories like white goods or, you know, washing machines, refrigerators, that we're seeing prices like 15%-17% above a year ago. We're certainly seeing inflation. We have been passing through inflation. The mix is kind of, you know, like giving us a different mix that we're now serving. It's giving us like a very small increase in the average ticket. Perfect. Thanks a lot. I appreciate all the color. Have a great day. Thank you. Our next question comes from the line of Marisol Andrade from Credit Suisse. Please ask your question. Hi, Enrique, Graciano. Thank you for taking my question. It's Marisol Andrade from Credit Suisse. I was just wondering about the increase we saw in provisions this quarter. I just wanted to know if we should expect this level of provisions going forward. My second question would be, how much does Marketplace represent from your online sales? Yes. That's the best. Yeah, in terms of the provisions, I mean, yeah, you know, in terms of guidance, we said that we were expecting, you know, to close the year with an NPL of a little bit above 3%. In fact, it was, like, 3.05%, the one we announced. We were certainly and still expecting, you know, that NPLs are gonna go up against the current very low levels. We are not, you know, like, changing that at this point in time. We also announced that, you know, as guidance that the charge in our P&L due to that, the provisions for the full year was going to be MXN 1.2 billion, and that was gonna be 35% reduction year-on-year. Although probably the provision is gonna be a little bit higher because of the volume effect, again, of that sales are growing ahead of what we expected a few months ago. That will probably, you know, increase the MXN 1.2 billion a little bit. We're not expecting, you know, a major change at this point in time. That's still, you know, our guidance for the full year. We are still expecting another significant reduction in the provision in our P&L against the prior year. That's what I can tell you in terms of you know provision and bad debts. Your other question that you had was in terms of the Marketplace. Marketplace accounts more or less for like 16% of what we sell in liverpool.com.mx. Thank you, Enrique. That was super helpful. Thank you. Our next question comes from the line of Sergio Matsumoto. Please state your company name and ask your question. Yes. Good morning. Sergio Matsumoto from Citigroup. Graciano, Enrique, question on your buyers' predictions for the fourth quarter. How are they seeing the consumer lifestyle in Mexico at that time, particularly in terms of apparel merchandise and what type of procurements they have done? Because, you know, you might see a couple of scenarios of a hybrid model working both from the office and home or more of a full normalized environment with social gathering and travel. And just curious on, like, the levels of, you know, these the levels and the types of these high margin merchandise like apparel and accessories and cosmetics. Thanks. Yeah. Let me get that. Wanna take that? Yeah. For example, there are certain categories that are certainly gonna slow down compared to last year. For example, pants, pajamas, those type of things. Sporting clothes are also kind of not gonna grow as much as they did last year. There are some certain categories as more events, not only the office is coming back, but also weddings, first communions, those type of things. Formal or semi-formal attires are coming back. Ties, definitely not. No, we haven't sold a tie since the pandemic began. Those are more or less. We are not fully back to normal because we still have the numbers of last year. We cannot use last year as a comparison. Again, as I said, we are coming back to normal little by little and in certain categories, shoes, women's shoes, handbags, we are doing really well. Kids, for example, we're expecting a really good back to school this August because last year we didn't have a back to school, not a really tough back to school. There are some areas that look really good for the foreseeable future, some that are not gonna do as well. Hope I answered your question. Yes, understood and agree with the ties. I don't think I've bought one in quite some time. Another question, perhaps maybe for Enrique. I believe, correct me if I'm wrong, but I believe there's a guidance of, you know, kind of like maintain that 16% from last year for EBITDA margin. You know, year to date it's already 17%, and typically the fourth quarter is seasonally higher margin. Would you say there's perhaps some sort of a structural step-up in the margin versus pre-pandemic or not quite so? No, I don't think that I would love to tell you that we're seeing a structural step up, but I think that it really has to do with some you know like special effects like for example provisions as I said this year are gonna be only like MXN 1.2 billion, where we usually you know saw numbers of MXN 2 billion or MXN 3 billion or even higher of course depending on the cycle of credit. That is giving us a big help in terms of our SG&A of course and margin. I think that it will be you know hard to say that that's the new normal. No, I think that we're shooting, you know, to keep our EBITDA margin around 16.5%, now that I believe that's more or less the sustainable EBITDA margin level based on what we are forecasting right now. I think that if we end this year above that, I don't know, at 17%, I think it's gonna be hard to maintain that in the next couple of years. Understood. Thank you. Thank you. You're welcome. Our next question comes from the telephone line ending in 4983. Please state your name and company and ask your question. 63. Hi. I don't know if you can hear me. Yes, we can hear you. Yes. Yes, please, state your name. Okay. Sorry. State your name and the company, please. Paulina Moreira from Compass Group, and most of my questions have been answered. I have one left, regarding CapEx. The guidance of the year was around MXN 10 billion, if I remember correctly. Your accumulated is around MXN 2.7 billion. Do you think you're going to reach the MXN 10 billion from the guidance or you're going to stay below that? Thank you, Paulina. Yes, we are always. I think that year-on-year, I mean, we are very optimistic on our CapEx guidance and then we're not that fast in terms of deploying the cash. So I think that you're right. I mean, we are. We set out the issue. We were expecting a CapEx of MXN 10 billion. We saw an acceleration of our CapEx deployment in Q2 that as I stated in my opening remarks, it grew 50% year-on-year. Still, I think that although we have a lot of backlog projects like the Arco Norte project is spending a lot of money that will stack up in order to, you know, to complete what we need to to be ready to have the full operations in by the end of August, early September, all of our big ticket items. I think that we're probably gonna end the year at MXN 8.5 billion in terms of CapEx. Okay, thank you. From those MXN 8.5 billion, 50% is going into logistics, right? Yeah. I think that it's a combination of both logistics and IT or technology. Okay. Thank you. Really clear. Thank you. Our next question comes from the telephone line ending in 9790. Please state your name and company and ask your question. Please press star six to unmute. Hi, this is Robert Ford at Bank of America. Congratulations on the quarter and the great start to July, Luciano and Enrique. Luciano, can you talk a little bit about how you're balancing algorithm-based inventory planning with some of the big bet overrides that you mentioned and maybe how that's impacting markdown activity? And on a side note, I understand, you know, the bet on TVs with the World Cup at the year-end, but can you explain a little bit what's behind the bet on cell phones? And how should we expect Arco Norte to impact how you distribute inventory, you know, the implications for greater 1P breadth, 3P fulfillment times generally and incremental efficiencies. And then lastly, you know, there certainly doesn't seem to be any impact on Suburbia right now from low price cross-border e-commerce. How are you thinking about that over the long term, particularly if we begin to see kind of a fintech overlay on some of the cross-border stuff? Thank you. All right. Thank you. The bet overweights, well, TV is pretty clear. Cell phones, what we have been seeing is that our customer is preferring to buy open cell phones from us, and that's a bet that we have been doing, and that has allowed us to have the correct inventory we needed and not dependent on the carriers necessarily. That has given us a big boost on cell phones. Arco Norte, remember that the part we opened is big ticket. We're opening soft line on the end of 2024 and 2025. For big ticket, it's gonna be a necessary buffer because in the latter season, November, December last year and all the other previous years, we already had trouble shipping correctly because we had too much stuff in our warehouse that was not built for that much items. That initially is gonna not change a lot the deliveries for soft lines. We are also Arco Norte is not only Arco Norte, we're also building seven regional depot centers, where we're gonna test two next year in Guadalajara and Monterrey, where that's gonna help me have inventory closer to the customer, but not at the store level. It's gonna help me replenish the stores in less than one day and also deliver faster to my customer because then the customer is gonna get his or her merchandise directly from the store. That's gonna allow me to deliver to the customer in 24-48 hours, and also replenish that store in the same amount of time. That's gonna be gradual because this part of Arco Norte is big ticket. Understood. When it comes to just trying to reduce some of the markdown activity with the algorithms, are you beginning to see material benefits in that regard? I was hoping you could just touch on that cross-border theme as well, please. On reduced markdowns, what we actually learned on COVID is that we could do the same with less. Especially in Suburbia, we were having excess inventory, so it's not that much of the algorithms yet because we are having a pretty robust project called Planning, Assortment and Allocation, which is exactly that, where you have artificial intelligence, but that's not. We only have the planning part already set up. We are still missing assortment and allocation. The next part, which is allocation and which has those algorithms, but more artificial intelligence, is gonna come next year. We need to remember that 50% of the commerce in Mexico is not legal, it's contraband. Yeah. That's a lot bigger impact than the e-com still coming through. If we can fight that illegal commerce in Mexico, the potential for brands like Suburbia, but also Coppel and Liverpool, Milano, all those stuff, is huge. It doesn't compare to the merchandise being brought by maybe Alibaba or Shein or whatever. We still have to get the government to help us with that one. Do you see a political will there or maybe not in this administration? I don't know. Yeah, I'm not sure. I apologize for asking the question. Thank you very much. Thank you. We have time for one more question today, and it is a follow-up from Irma Sgarz. Please ask your question. Yeah, thanks. Thanks for the follow-up, and I apologize, I got temporarily disconnected, and someone may have already asked the question. Please feel free to just refer me to the transcript. I was just wondering, you've now sort of stabilized at about 24% online penetration, if I'm not mistaken. When you sort of think, you know, this new normal or whatever you wanna call it, post-pandemic maybe, where do you see it sort of going from here? Do you see it sort of gradually sort of shifting up? Do you think at some, in some categories you may actually see sort of a reversion still back down, electronics, for example? Do you sort of see some degree of normalization there that actually implies that some of the online penetration gets reverted again? Or do you sort of see it now, sort of from this level actually continuing to shift up? Thank you. No, I don't see it going down in any categories. There are some categories where we are not doing a good job, cosmetics for example, where we have a lot of opportunities. I see it gradually growing up in general, but in some categories, significantly growing up in the next couple of years. With Marketplace, I see that we have a pretty big potential in terms of being in the top mind of the customer in terms of things that you would not normally look for today in Liverpool or Suburbia. Now I see it gradually growing up in general. Thank you. If I may just squeeze one last in. From the Marketplace sellers that you have on the platform, is there any service or any sort of functionality that they are asking for that you are not yet providing that you feel could help or could be meaningful in going forward? Yes. For example, we still have not massively rolled out Fulfilled by Liverpool. What we already introduced and is working pretty well is, I don't know how we call it, but it's when you have, for example, adidas, and I run out of a shoe size on my stores, it immediately turns up on the webpage, but it's through Marketplace, it's inventory from the vendor. I already have this mixed input, where if I run out of a special model or I run out of iPhone, for example, then it turns the inventory from Apple. Those type of things that only omni-channel merchants can do are really working for us. I'm really. Enrique answered the sales of Marketplace, but today we already have, at any moment, 50% of our SKUs are from Marketplace. We are gonna see a very big rise in sales from that. Arco Norte is gonna give us additional capacity, big ticket items, to really increase the Fulfilled by Liverpool, which is something that our big ticket sellers have been asking for. That we were not able, you know, to be very responsive because of the constraints that we had in terms of capacity, where we're talking. That's one of the things that Arco Norte will allow us to do. Great. I imagine that's a pretty unique capability that you'll be able to offer there. Absolutely. That's one of the big, you know, differentiators for us. So that's something that will, I think that will help a lot in terms of selling. Yeah. Thank you very much. Thank you. Thank you. That concludes your question and answer session. I would now like to hand the call back over to Enrique Güijosa for some closing remarks. Well, thank you very much for your attendance, and we'll see you in Q3. Take care. Bye-bye. That concludes today's call. You may now disconnect.