Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2018-Q1

[Operator]

Good morning, ladies and gentlemen. Thank you for waiting, and welcome to the Arezzo & Co Conference Call, where the results of the first quarter 2018 will be presented. [Operator Instructions] This call will be translated into English and oversea participants will be able to ask questions. [Operator Instructions]

We would like to remind all journalists and others from the press that this conference call is exclusively for professionals from the financial market and current and potential shareholders. Any questions must be submitted to our Press Relations Assistant, Caroline Muzzi whose contact information is available on the company website at www.arezzoco.com.br.

This conference call and the slides are being streamed on the web and can also be seen on the company website. In case any of you do not have a copy of the Arezzo & Co press release published yesterday, Wednesday, May 9, you can get a copy from the company website.

This conference call is being recorded and the recording is available on the website after the call is over. Before we proceed, we would like to clarify that any statements made during this call regarding the company's business prospects as well as projections, operational and financial goals concerning its potential for growth are forecasts, based on the expectations of the management for the future of Arezzo & Co. These expectations are highly dependent on domestic market conditions, on the general economic performance of Brazil and international markets and are, therefore, subject to change.

Now I will hand over to Mr. Alexandre Birman. Mr. Birman, please proceed.

[Alexandre Birman, executive]

Good morning, everyone. Thank you for participating in yet another earnings call. This is a very important moment so that we can interact with you and the questions are very welcome, as always. We have with us our CFO, Daniel Levy; and our Investor Relations manager, Aline Penna.

I'd like to talk about the market context in this first quarter. It marks the transition of the summer collection to the winter collection, which is very important for our business. As we mentioned, on March 8, it's been 2 months for -- since our last interaction, we closed our summer collection in a very healthy manner in measuring the largest -- or leftovers that increased our average markup in the chain.

In addition, given that the Carnival took place earlier in 2018, we were able to launch our prefall collection in January and right after Carnival in February, we switched to our winter collection, so I'd like to take this opportunity to congratulate our entire team for the continuous evolution of the operating efficiency of our business calendar.

Our business cycle is in fact our 20-mile march, making our company work in a very consistent manner, so I'd really like to congratulate our team and the assertiveness of the major trends that really drove the sales in this period.

Among them, I'd like to highlight the fashion boots that are working strong. And we have 2 major looks: the Kitten heels, the very low heels and especially in white and red, were a huge success. In addition, there -- the boots in a stretch material, like nylon, of all different heels, sizes, they are heels that are closed ones and are very -- will remain strong into the summer collection. And the sneaker collection has a lot of our brands and has expressive share, so we're going to work strongly so we can still have a high leadership in that casual sneaker category in Brazil.

Now specifically, talking about each brand. Our Arezzo brand is still being strong as a leader in the market of -- in footwear, bags and women's fashion in Brazil. The marketing is very compliant to that. Based on our branding, we have a very strong participation of Gisele Bundchen. She really leverages the brand awareness, but that's not just it. It's a 360-degree plan, so we've been innovating more and more in digital media. We launched the collection simultaneously to a talk show, which was given by TV show host, Astrid Fontenelle, with many successful women and we had dozens of millions of people watching that talk show at the same time. And it was being -- it was live, although, it was with shopping Iguatemi.

For Mother's Day, we had spontaneous things from daughters to mothers and with a lot of recall in social media, that has also helped the attractiveness and the e-commerce of the Arezzo brand. So we've been innovating the brand communication even more and, therefore, we have solid growth.

About Schutz, it's very interesting to see the quantification of the bag category for the brand, and that's near not only by our results, but also what also makes us very proud to see the generic variations of the Schutz bags spread out throughout Brazil. When a brand becomes an icon in bags and internationally, I mean, you can go walk in New York, and you can see street vendors selling generic bags. And if that's happening with Schutz, that shows that it's very recognized as a brand.

In addition, e-commerce is almost 15% of the revenues of the brand -- share of the brand, with high digital adherence and we'll speak more about that later.

We're going through a major process of 3 major pillars to strengthen the Schutz brand, including the transformation of the store design, focusing on converting the stores to the stores that we call Schutz Digital Stores and the stores are already operating in this new concept, with very positive results.

With continuous evolution, as we always talk about our franchising model, we always -- we're always at the end, focusing on sellout and now we're going to start a new stage to strengthen the Schutz global branding, including a campaign that will be launched May 17, on Thursday, where the star will be Adriana Lima. She will be with us throughout all of 2018. The work is great and next week, we're going to present more details about that work to strengthen Schutz branding.

Another interesting detail that today, given there's the operation in the U.S., we have 2 Instagram, almost 4 billion followers in the you -- in Brazil and almost 400,000 in the U.S. Now we're going to migrate the accounts in Instagram to strengthen the Schutz positioning even more.

About Anacapri, it was truly -- has become a solid brand. In 2018, it's the 10-year anniversary of its launch. We're going to end the year with over 150 mono brand Anacapri stores, with the share of almost 10% of our revenues, so the brand is in fact prepared in all senses, the team maturity and even training talent that are moving into other brands in our company.

In addition, the assertiveness is huge in relation to the mix with a highlight of the continuous -- sales, which is 25% of sales, giving the franchisees the confidence as they know that the brand is solid. So it's ready for continuous growth in stores' numbers.

Alexandre Birman, the same way, is becoming more mature. It's worth mentioning that both brands were launched simultaneously in 28 -- 2008, so they both celebrated their 10th anniversary, so that brand was more towards international sales. We have 4 stores in Brazil, which give us great volumes of same-store sales, with highlight to the shopping Iguatemi store that has 20 -- average sales of BRL 700,000.

It's interesting to see that both Anacapri and Alexandre Birman -- the co-founders of the brands are -- the executives of the brands for more than 10 years, so this gives us great confidence that the brand is managed by a team that knows what they're doing with the brand.

Now in the second quarter, we will open a showroom in Italy, launching to the European market. Starting that work, that will bring good results.

About Fiever, we see that we should direct the product mix for casual sneakers. It's a very strong trend globally for that type of product. The brands have been growing in this category, and we have to work Fiever to concentrate on that category. The brand had a great performance in the e-commerce channel, which shows the millennials that buy through that channel, which is the greatest amount of our customers, and we're going to open another store at Higienopolis Mall and another one, a pop-up store at Shopping Eldorado.

About our strategic planning, we're very confident we're following the track that we chose a few years ago in a very consistent manner. So if I could say a little bit about strategic planning of our company, I would say that consistency is the keyword. Within this consistency, our search to consolidate our leadership in market share in Brazil. So this happens through expansion of franchise, focusing on the original Light architectural format that has been getting great results and expanding Anacapri.

Also, diversifying product categories. We are mature in handbags, and we have a strong growth and we're already advanced in launching new categories. And our OWME management, we want to give a little bit more about that at the end of the call about the new guidelines of our structure, so that we can come even stronger in this growth.

It's worth mentioning our vision of brand portfolio. A company can -- that can have 6 brands, that are completely unique, with a high level of independence, not only in their management, but also in their characteristics and really comply -- have a great number of customers is a multibrand company. And the launching of OWME last week with our flagship at Oscar Freire, makes us confident of our capacity to create brands. And last Saturday, we sold BRL 20,000 without having anything happening in the store. It was organic sales.

So I would like to invite you all to be with us on Friday, tomorrow. We will open the store at noon. We will receive the press, and you are all invited.

The deliveries of the multibrand channel also happen with quality and tenure. And we already have expressive results from the multichannel. So for 2018, OWME probably will have good sales.

Lastly, I would like to talk about a growth path that is -- goes together with our core, which is consolidating our market share in Brazil and has been growing and it's a huge challenge. But it's also a great opportunity, which is our operations in the United States.

At the moment, we're solidifying our team. In the short-term, we will have some novelties, people, who will join our team, focusing on being ready for our growth. In the next few months, we will invest in our operations of our own brands and stores. Next week, we will open a concept store at Madison Avenue, around 75, a pop-up of Schutz at SoHo to test that market in that important region in New York, and also boost our new campaign to position our brand with Adriana Lima. We also will open between September and October, 2 stores in Florida, which is a market that is very strong for both brands; one, Alexandre Birman at Bal Harbour and the other one at Aventura Mall. The 2 stores will open and in May specifically, we have been seeing strong growth, about 50% in the stores. So we've been working very well with our team.

We're also going to invest in our e-commerce operations, launching this year -- this month, Alexandre Birman, and throughout the year, we will switch the platform from Schutz that has a great growth capacity that is untouched. For wholesale, we are now launching a drop ship with Bloomingdale's, just like we did with Nordstrom, and we see that this channel will also have a good opportunity to grow in the long term.

So that's the highlight of our strategy of the brand, the market context in this quarter. Now I would like to invite Daniel to bring more details about our results. Then we will be available to interact through Q&A.

[Daniel Levy, executive]

Thank you, Alexandre, and good morning. Continuing to our presentation, now let's go to Page 4 of the material that is available online.

On the left side of the chart, the company's gross revenue was BRL 408 million in 1Q '18, a similar growth in the domestic and foreign markets of around 10%.

On the next page, we opened the gross revenue in the domestic market, we've achieved BRL 377 million in the period. All the brands recorded growth in sales, with highlight to Arezzo and Anacapri, but also with Schutz, which is resuming its growth.

Arezzo grew 9.7% in the third quarter -- in the quarter, helped by the web commerce and multibrand, which grew 40.3% and 60%, respectively. The performance is even more relevant when we point out that these channels grew above 13% in 1Q '17. That means strong growth on top of strong growth.

Schutz grew 5% in the domestic market, also helped by the expansion of 16% in web commerce, which already represents 14% of the brand sales. And multibrand was 19 -- 9% growth in the quarter. It's also worth mentioning the performance of handbags, Schutz, that represent 21% of the sellout in the brick-and-mortar stores. Anacapri, in turn, showed expressive growth of 34% in its gross revenue. The brand contributes now with 12% of the total revenue, compared to 10% year-over-year.

We highlighted strong growth of 61% in the franchise channel, due to the opening of 39 stores in the past 12 months, in addition to increase of same-store sales resulting from the assertive positioning as Alexandre mentioned before.

It's important to say about Anacapri, expressive growth of 60% in the web, which is growing in this channel. Alexandre Birman grew 10% in the quarter, with the highlight of the same-store sales in Brazil, where we already have 4 owned stores.

Fiever, continuing with its strengthening of its presence in the domestic market, had its main highlight in the quarter performance in the web commerce, which grew 80% year-over-year, and already represents 12.4% of the brand sales.

Now going to Page 6, we have a view of the gross revenue per sales channel. Just like our brands, all the channels showed revenue growth in the first quarter. We highlight web commerce performance, 32% growth. Franchise and multibrand, with 10% growth each. Our own stores went back to growing 5.3%, due to the strong performance of Alexandre Birman and Fiever brands, as we mentioned before, as well as the recovery of the sales at Schutz store.

In terms of sellout, our mono brand chain franchise owned stores and web commerce grew 12.2% in sales, reflecting strong result of the online channel and the net opening of 62 franchises in the past 12 months, in addition to expressive growth of 8.4% of sale -- same-store sale in the quarter.

The franchise channel accounts for 51% of domestic sales of Arezzo & Co and a same-store sale sell-in of 3.7%, ending with a healthy and adequate inventory and a continuous improvement of gross margin. It's worth noting that in 1Q '17, the company presented same-store sales sell-in increase of 13.6%. That means that it's a very challenging comparison for the period. This performance would have been even better if it weren't the calendar effect on the prefall collection, where a part of the revenues were made in 4Q '17.

I'd also like to remind you that once again that for the effects of comparison, we recommend that the same-store sales sell-in and sell-out indicators are analyzed in a period of at least a 12-month period to avoid calendar effects, as the one that I mentioned, which are very common in the company's operations.

Lastly, and as mentioned, the multibrand channel grew 10% in the quarter, reflecting company's initiatives, such as new customer adherence and the continuous effort to obtain a higher cross-sell.

Year-over-year, our customers increased in the multibrand area 6.7%, showing the continuous confidence and financial health of small business people.

On Page 7, we have the evolution of owned stores and franchises as in the total sales area. We closed the quarter with 625 stores, being 618 in Brazil and 7 abroad, an area increase of 7.4%, compared to the same period in 2016 -- '17. This quarter, we opened 7 stores, where 5 were Anacapri and 2 Arezzo, the 2 in the Light format. In the past 12 months, there were 63 net openings.

Now moving on to Page 8, I'd like to show you on the left, the chart, the gross profits of the quarter, achieving BRL 146.6 million, 12.7% higher year-over-year and gross margin of 44.4%. The growth in the quarter of 60 basis points to the gross margin is mainly explained by the following effects; the exclusion of the sales tax, ICMS, over PIS and Cofins in the owned stores and web commerce, a higher share of web commerce and domestic revenues and a better mix in exports.

And yet on this page, on the right of the chart, we have the EBITDA performance. As you can see the EBITDA achieved BRL 40.8 million, representing a growth of 13.1% year-over-year and a margin of 12.3%, which is 20 bps better than last year.

Although the 60 bps of increase in the gross margin in the quarter, we recorded an increase of 6.4% in our commercial expenses and 24.6% in our SG&A, especially resulting from the new personnel structure as well as company governance, as we mentioned, in previous calls and our continuous investment in strategic and innovation projects, which include the launch of the OWME brand, the meritocracy program for franchisees, the Arezzo Light Project, CRM initiative and speeding up the movement to internationally expand the Alexandre Birman brand.

On Page 9, you can see that net income was BRL 27.1 million, net margin up 8.2%, and an increase of 22.3% year-over-year. As in 4Q '17, we are no longer collecting income tax and CSLL over the tax benefit, in relation to the ICMS. However, part of this impact was offset -- a positive impact was offset by lower financial results resulting from a lower compensation of our available cash flow as a result of lower interest rates.

Now on Page 10, we have cash operation generation, which is BRL 30.2 million lower than 1Q '17. On January 5, we paid interest over -- on capital relating to the second half of 2017 in the amount of almost BRL 21 million. Last year, that same payment was in December of the previous year.

On Page 11, on the left, you can see that CapEx for the quarter was BRL 7.2 million, which includes the implementation of the data center system of -- from IBM and renovation of the Alexandre Birman and Schutz stores.

On the right, we have our indebtedness chart, and we closed the quarter with a net cash of BRL 161 million.

Lastly, on Page 12, we have the return over invested capital for the company, ROIC, which presented once again expressive growth in this quarter, achieving a level of 30.2%, that means 680 bps greater than 2017. The growth of 32.4% was a result of our operating results, an improvement of our working capital, continuous focus in decreasing inventory and suppliers as well as a reduction of our fixed assets.

So those are our comments about the results for the first quarter of 2018. Now I'd like to open for the Q&A session.

[Operator]

[Operator Instructions] Our first question is from Marco Calvi from Itaú BBA.

[Marco Calvi, analyst]

My first question is about Schutz. We saw that in this quarter, we had very positive results, mainly resulting from your -- the initiatives that you've been carrying out. Could you talk about -- I don't know, a schedule and sales impact to 2018? So what do you expect in relation to the rollout of the concept that you're doing this year? The second question is mainly top-down. So if you could talk about the appetite of the multibrand channel. So you see that once again, there's positive results in the first quarter. So it's like a mac -- it's like a macro question. Do you feel that the multibrand channel has a bigger appetite? Those are my two questions.

[Alexandre Birman, executive]

Marco, thank you for your question. This is Alexandre speaking. I'm going to start off with the second one about the multibrand channel. So in our business calendar, we've already launched the first presummer collection, which internally we call the Resort Collection. This collection had strong adherence from the multibrand channel. It was launched in the beginning of April and it will be delivered at the end of the second quarter -- by the end of the second quarter. And the results were very good. So we hope that in the second quarter, we have very expressive results, even more than the first quarter for the multibrand channel. In our business calendar, we have the launch of the Summer 1 collection next week. For the first time, we're going to be a part of a new trade show that is becoming relevant in this sector that takes place in the City of Gramado in the south of Brazil in May. And as from June, we're going to have different movements because of the FRANCAL trade show was postponed, considering the schedule that it usually has, it's going to be on July 15 -- usually, it's July 15, but it used to be beginning of July and end of June, so we're anticipating the sales of Summer 2, that is usually launched at that trade show, we're going to start those sales at the end of June through our showrooms. So we have good expectations. It's an important channel for our business, even though we're literally a company that is multichannel. The multibrand accounts are 80 -- 20% of our revenues, so we are very proud of that. Over 2,000 points of sale, 46 years, all our brands are launched in multibrands, and we have a close relationship with these store owners. About the Schutz brand, in terms of the domestic market, in 2015, it had been close to what we saw in the go-to-market in 2011. It has a strong growth in new category. So like I mentioned, in the beginning, bags are an icon. Some of the Schutz bags are just naturals characteristics, our triangle print is the brand hologram and many new versions are being created of those bags. And the new design has provided superior sales results compared to other stores. So in 2018, we're planning on resuming the growth in Schutz, and I believe it's going to be important for our business. It's also worth mentioning that it has the biggest potential to grow in our U.S. operations.

[Operator]

Our next question is from Richard Cathcart, Bradesco.

[Richard Cathcart, analyst]

I have a question about e-commerce. The Arezzo brand achieved 7% and Schutz, 14%. So I would just like -- I think you already mentioned that in the midterm, e-commerce could achieve about 10% for the entire company. So I would like an update to see if 10% is still realistic? Or if you could start to think about even greater penetration of e-commerce for the company as a whole? And also for Schutz and Arezzo.

[Alexandre Birman, executive]

Richard, it's Alexandre speaking. Thank you for your question. That's a topic that really fascinates us. I would like to recall that our e-commerce operation is 100% our own proprietary. That means that it was created internally by our in-house team from the systems all the way to customer service. And we're always rated as the best-in-class. Our score is one of the highest, our logistics operations is our own. So that operations and revenue, our monobrand from our business, and that's the way we developed it. About figures, our goal was to reach 10% in 2020, and we understand that we're way ahead compared to that expectation. And we do see a new wave of investments. We don't know, which comes first, the chicken or the egg, but there's a new wave of investment, in which we see more than 10% as participation in the revenue. We're reformulating our structure and it will give you more flavor of what we're starting to prepare for the next step. I think we achieved what we wanted in 2020 -- now in 2018, and we're going to have a new cycle of management for our OWME strategy.

[Operator]

Our next question is from Irma Sgarz from Goldman Sachs.

[Irma Sgarz, analyst]

I have two questions. One question is about the number of customers in the multibrand. This grew 7% year-over-year. I would like to understand how much in your opinion is because of the rollout of new brands? Or if you still have a growth in the number of customers that you can achieve? And -- or if it's a sign of recovery of the economy or maybe a mix of both? I would just like to understand what you understand in terms of number of customers. The other question, the growth of Fiever is, together with that of other brands. So I would like -- I saw the growth of Fiever, I saw that in e-commerce, it's going very strongly, but I would like to know the overall growth of the brand. And if the in-store sales are satisfactory or if there's other reasons?

[Alexandre Birman, executive]

Irma, thank you for your question. This is Alexandre speaking. About the number of customers on the multibrand channel, you asked me a question and helped me with answer. It's a combination of the factors. First, I would like to point out that there is an upturn of the economy, so those figures of 2016 and 2017, we had a reduction of the name -- of the number of customers and now it's resuming. And the new brands bring a little bit of a different profile of store owners, so there is an addition of new customers, especially those that are more focused on apparel that are selling our new brands that still don't have a very strong monobrand presence. The brands that are already established, and have a very expensive monobrand chain in Brazil, don't give the opportunity to sell in the multibrand stores, which is not what happens with the new brands. So with the expansion of OWME in the first half of the year, you're going to see these figures continue to grow. About your second question, more specifically about Fiever, compared to the total growth of the brand in the quarter, it was below the total growth of our company. And within that issue, as I said, with my opening comments, we want to focus greatly on sneakers. So the brand started with its positioning with streetwear, reaching other categories of products being sold. So we'll direct our brand to casual sneakers, where we see a strong growth in that category. So we're investing and repositioning the communication of the brand. It's worth mentioning that the monobrand stores, the 4 brands and e-commerce, had a great result in the first quarter. So for the second quarter, we're starting to look at continuing to expand the monobrand, opening 2 stores that I mentioned, at Higienopolis Mall and a pop-up at Eldorado Store. We're going to test the profile of customers at that mall, and definitely with the greater direction for casual sneakers, I'm sure that Fiever will continue to show good growth.

[Operator]

[Operator Instructions] Our next question is from Irma Sgarz from Goldman Sachs.

[Irma Sgarz, analyst]

Well, I have another question. For Schutz in the United States, you're obviously, creating new partnerships with Bloomingdale's as you mentioned. Could you just remind us, it was an impact of those selling to independent stores? Are you completely phasing out on that channel? And are you focusing on the department stores? And which department stores are you working with at the moment?

[Alexandre Birman, executive]

Irma, it's Alexandre again. Once again, thank you for your follow-up question. I would say that, no, we're going to resume a strong work on our subchannel. We have 3 subchannels that we have in the United States. We have the field online players, with Shopbop and Reebok, with excellent results for Schutz, and it's the first -- #1 of Rebook, it's been growing a lot. Today they completely dominate the Court Yolo, [ Coachella ] so -- the music festival in California. We have the department stores and also we have the independent retailers, and the independent retailers work differently in the United States. I would say that not -- we weren't effective in managing that in the first quarter. We saw a drop in the number of independent retailers, but we're working to resume the growth in that subchannel with -- which really helps us give better distribution to the brand. We know that it's a stagnant channel in the United States. They had a huge drop for the past years and some retailers, because of the creatorship of the owner, were able to work better in a certain region. But they're not in the large malls in the United States, far from that. So an example; in the Four Seasons Hotel, there's a very cool multibrand that sells Alexandre Birman and we're going to take Schutz there as well. But they are very specific locations. It's not like in Brazil that there's a large density of independents. Our greatest focus for growth are the department stores. Today, the greatest partnership that we have is with Nordstrom, and we're going to launch Adriana Lima's campaign as I mentioned, with Nordstrom next week. They were great partners and they bought out of the calendar and we presented a proposal for Adriana Lima about a month ago, and the campaign will be launched simultaneously in our monobrand stores and at Nordstrom. And at Bloomingdale's, I had a meeting with the General Merchandise Manager last week. They just opened a new shoe floor at their flagship at 29th West Lexington. They had 2 floors on second and fourth and now, they moved to the fourth -- to the fifth floor. It's a huge shoe floor. So it's a huge store and Schutz has a highlight there, having great results in sales. So that's another partnership that we want to have as well. About the monobrand stores, as I mentioned, we are getting great results in the same stores.

[Operator]

Our next question is from Richard Cathcart from Bradesco.

[Richard Cathcart, analyst]

I'd also like to take this opportunity to ask a second question. I'd like to know about Europe, Alexandre, because here in the release, you're saying that you're going to open a flagship for the Alexandre Birman brand, and you also recently opened an office in Europe, if I'm not mistaken. So I'd like to understand if the strategy in Europe at this time is just about Alexandre Birman brand? Or are there any learnings, any other strategies that you're considering for Schutz that could also be developed in Europe?

[Alexandre Birman, executive]

Richard, and thank you for your second question. This is Alexandre speaking. Okay, so our main focus to grow internationally is in the U.S. We have tried through a number of groups to other countries in the world to open stores, but we do want to take one step at a time. And we're almost there in making our operation in the U.S. concrete, which is -- and then after that, we can look into other markets. So we're starting -- we're taking our first steps now in Europe. And that step is just being taken with the Alexandre Birman brand. And it's not a flagship actually, it's a showroom that's being inaugurated in Milan and not just the showroom, it's also a distributor. Because currently, in the U.S., the U.S. store owners buy the product from a U.S. company, which is our subsidiary in that country. Our European customers, we started to have an important growth in department stores, such as Harrods in England, NET-A-PORTER in England, Mercedeh in Germany. They buy through a third party. So we use a distributor, who we pay a commission to, so that they can bring the product into the European market and then distribute it for us. But now, we want our own operation there so we can have more control, and have a better margin. So that's the beginning. As we started in 2012 in the U.S., we're starting with the showroom and a sales office and the distribution that will be done in Italy to the entire European market. That's what we have for the time being.

[Operator]

Our next question is from Felipe Cassimiro from HSBC.

[Felipe Cassimiro de Freitas, analyst]

I have 2. So the first one is about the sales recovery of the Schutz brand. So I'd like to understand the brand's performance in the franchise channel specifically. And now, in April, beginning of May, in general, I'd like to know about the brand's performance. And my second question is that Alexandre mentioned, about a new category in the Fiever brand, but I'd also like to hear about other new categories in the company overall in other brands.

[Alexandre Birman, executive]

Felipe, thank you for your question. This is Alexandre speaking. I'm going to start off with the second question about the Fiever brand and then maybe correct some of my words. I wouldn't say it's a new category in the Fiever brand, but instead of that focusing on a category that we call casual sneakers, because they are not sneakers when you compare to the sports brand. They're casual sneakers, as we call them, because they're the big strength and trend of the fashion market. Women are now wearing sneakers with more casual clothes, but they don't want to wear sport shoes because then it's going to be too much of a sporty look. So in international market, there are number of brands that are creating this type of product. And in addition to this category, Fiever had other categories. So now we're focusing the products and communications for Fiever in -- on -- focusing that on casual sneakers. But now we're going to extend that to other categories. So bags, bags it has been a big focus of ours, and we studied 26 -- in 2016 and 2017 other adjacent categories, but we preferred to dedicate our time and effort to actually quantify the bag category. But I'd say that resuming the analysis of these categories is in the pipeline. We did that through consulting firms and projects, but we decided to set that aside a while, because of time and resources. But now, throughout 2018, we'll resume studying that, but we don't expect to launch anything in 2018. We'd really want to make the bags category solid first. About the Schutz brand, your question, we had a growth in all channels. However, in franchises, there was a change as I mentioned. Actually, it's an evolution. Since 2013, when we started off the process to fully control the sell-out and sell-in with the Arezzo project called Strada that was from 2015 to 2017, we've been constantly reviewing the franchise model. It's a live thing, which is constantly being adapted. So for Schutz, we're now testing a pilot group where we have more ownership in relation to the store supply. Therefore, we're splitting the royalties charged, which usually takes place upon sell-in so that there's also a part during sell-out in order to decrease the risks that the franchisee is taking as they're letting us decide on the supply of the store. But then again, there's more ownership and better replenishment in the case of the best sellers. So the stores that are in the control group are having higher performance compared to the other group that is still operating in the normal supply model. So we're going through a process to adapt the systems team and processes. But the first results of the pilot project are exciting. So in 2018, we're going to continue to migrate that in other Schutz stores throughout 2018.

[Felipe Cassimiro de Freitas, analyst]

Could you -- this is a follow-up. How was the evolution in April in quantitative terms with the positive performance of Schutz?

[Alexandre Birman, executive]

Yes, April, we still have positive results for the Schutz brand.

[Operator]

Since there are no further questions, I'd like to hand over to Mr. Birman for his final remarks.

[Alexandre Birman, executive]

Once again, thank you, everyone, for taking part in our earnings conference call, and I'd like to end with a few words.

First of all, this is yet another quarter that makes us feel very confident about our business model, so the integrated management of the value chain focusing on the main assets, which are brand, product and people, and having partners at the production side and also the commercial side is truly a business model that's very successful, constantly evolving and our strategic guidelines are very clear. We're confident that, although, we've had been making voluminous investments, in the medium and long term we'll be able to prove with Anacapri and Alexandre Birman that we can change such investments in drivers for our brands.

Within this entire context, we've made some changes to make our structure more solid. So I'd like to say that Fabiola Guimarães is once again taking on the global direction of the Schutz brands for product creation and marketing. In addition, we invited [ Luciana Veznik], she's been with us for over 20 years to be -- to spearhead the Fiever brand and Mariana Toledo, who has been responsible for the bags category and Schutz to manage the OWME brand. So they are important changes that are providing good results to our business.

And lastly, I'd like to announce the creation of a new position in our company at the C level, which will truly emphasize our entire digital expansion. I'd like to invite him to say a few words. He is right next to me, Mauricio Bastos, which throughout these almost 8 years, he started very young in our company and now, we have an honor to appoint him as our Executive Director/CEO. Congratulations on this new position. Could you say a few words?

[Maurício Bastos, executive]

Thank you, Alexandre, for your kind words. Good morning, everyone. It's a great honor to be able to be here with you and share with you all of our beliefs and perspectives to transform our business.

In the past year, as Alexandre mentioned, I had the opportunity of spearheading the construction and consolidation of our online channel, which we've been talking about the results and perspective. And today, in the consolidation, where we're already counting on operations, so the 9 digital operations of our 6 brands in the Brazil -- in Brazil and the U.S., with a very solid platform that enables us to strengthen the consistent growth in Brazil, and also enter a fast growth -- fast digital growth in the U.S. as well.

About the framework, which is digital transformation and having a kick-off on -- ahead on February 20 with -- together with the Board of Directors, which we call the Digital Day. And this structure counts on different areas in the company, so we have the OWME commerce area, which is the integrated view of OWME commerce. Technology is also part of that framework and the movement to bringing in the digital and agile culture in an integrated manner so we can reap the benefits of the technical and digital world of experience of an entire chain, to reap the benefits of working in a chain with a strong physical and online environment, together with our areas of innovation and special products and potential technologies that we learned a lot about, myself and Alexandre, and data, which is the new engine -- new driver of this new world and economy.

And all of that integrated with our CRM, called Valorizza, we're customer-centric, and we're highly confident that this new structure will make us closer to our customers and bring even more important results for our business.

[Alexandre Birman, executive]

Thank you, Mauricio. Welcome to this new challenge. I'm very happy to see our internal talent, which is the basis of the growth of our business and likewise the ability to attract external talent that fascinate us, such as very senior people that had joined our company in the past years and now, play a very important role in building our future.

I'd like to take this opportunity once again to emphasize the invitation to join us on Friday in the official inauguration of OWME. It will be a great pleasure to present the entire brand concept to all of you. It's very well presented in our flagship store in a very clear manner. You can really understand the purpose of the brand. And it's a brand that has a very clear identity as from its birth in a very different retail experience. When the customer arrives, first they ask and if they say have some time available, they offer her a foot bath so she can relax and then to this "ohm" spirit of meditation. So we offer her some tea. And we also give them a test drive, which I really recommend. And we have -- we've been having a lot of conversion in the people that test the OWME products because they are very comfortable.

In addition, I'd like to invite all the children and husbands to buy our brands a lot for Mother's Day. Yesterday at Iguatemi Mall, I had the pleasure of seeing a man, a consumer, buying 6 pairs of shoes for his wife and that made me very happy. So I'd like to invite all these children or husbands to buy our brands for Mother's Day.

So I'd like to thank you, thank our Board of Directors to give us so much strength and strategic direction and thank all the board members in advance for holding our first meeting that will take place at our offices in New York. It's a very important moment, where Brazil is standing out and also another important event that will take place at that time and the inauguration of our store. I'd like to thank our Board of Directors and our Founder, Anderson Birman and all our team for all their efforts in this first quarter, and I hope we continue to have great results throughout 2018. Thank you.

[Operator]

The Arezzo Conference Call is now closed. Thank you for your participation.