Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2021-Q1

[Alexandre Birman, executive]

[Audio Gap]

And we will address 2 very important topics: our strategic planning and our ESG initiatives. In general, we've begun the year very well. However, we're only in the beginning of a great cycle that will definitely be a big challenge. But the first figures are already leaving us very satisfied. We ended 2020, as shown in the results of our conference call for the earnings for 2020, we're excellent. And we started 2021 in the same way. We've prepared a big turnaround for our winter collections.

And I'd like to highlight that the first quarter is the highlight of the exit of this summer, start of pre-fall and right after Carnival, the beginning of the winter collection. We've invested massively in our campaigns, having important stars. Bruna Marquezine from Arezzo, Marina Ruy Barbosa, Schutz.

And we've changed our merchandising style, training our team. And this turnaround is scheduled for March 7. So all -- everybody knows that that's when the lockdown process began across most of Brazil. And thanks to the learnings in 2020, I'm not going to say that it was simple, but we had at our availability a button called digital sales omnichannel. We boosted that button. And based on that, we had a number of initiatives to boost our sales. So I'd like to say that stores are made to sale with doors open and not closed. But even so, we achieved excellent results, exceeding 50% compared to 2019 even with doors closed. We have an excellent Mother's Day. We'll show you the results. And right after reopening on April 22, we started a process to grow our sales. Compared to 2019, we have very strong perspectives for the second quarter.

So let's take a look at our figures. Our gross revenues were consolidated BRL 635 million, an excellent improvement in gross margin. That shows the health of our inventory. And we'd like to highlight at how we left the summer collection well with few leftovers, Arezzo&Co in apparel with the Reserva Group had revenue of BRL 90 million; EBITDA, 70 -- BRL 64 million; e-commerce revenues, 100 -- almost BRL 160 million, 27.7% share of our revenues; net income, BRL 29.7 million.

Now let's talk about our big differential, the digital strength. To our favor, that makes a huge difference to our results. We developed proprietary app where the salesperson has the database. It's a connection between inventory, the purchase history of customers. And through the system on a daily basis, they have lists. So 6.4 million contacts made through the system with our customers leading to a high percentage of sales for our stores. We also will talk about our web sales, 241,000 clients that were reactivated in overall 171,000 digital purchases, and that's very strong. And the app of our main brands, Arezzo and Schutz, already account for 40% of total revenues.

About the app, it's important to mention that it generates a lot of savings in marketing because the customer is spontaneously buying with an increase of pieces per service compared to regular sales on the web.

About sell-out, actually, I have to comment here. We have an important call at 11 a.m. with another company. So let's speed up. We wanted to spend more time with you and go into detail about the figures, but we'll have to be a bit straightforward.

So we achieved 90.4% of the sales compared to 2019. And now on this slide, it's very important to see this breakdown. This is something new. Here, we're demonstrating the results of our brands after reopening the stores that took place on April 22. So in the last 8 days of April, we had a growth of 11.1% compared to 2019. So 111% of the sales of that period leading total April to 89%. In the first 20 days of April where most of the stores were closed, the result was 78.9%.

Now let's hear our CFO, Rafael Sachete, to go into details about the financial highlights.

[Rafael Sachete, executive]

Thank you, Alexandre. Good morning to all our investors.

Starting with our financial highlights, 1Q '21. We'd like to highlight our gross revenues, BRL 635.8 million, a growth of 36.7% year-over-year with an important highlight of BRL 90 million of AR&Co revenues for the period. We'd also like to highlight that if we exclude the revenues of AR&Co and look at the domestic market only, the group Arezzo&Co grew 20.6%. That's expressive for the period, even considering the social distancing restrictions and store openings and store closings compared to 1Q -- or in 1Q '21.

We'd like to highlight our web commerce revenues. 148.9% growth achieving BRL 159 million for 1Q '21. It's also important to highlight our multibrand channel with solid growth for the quarter of 34.7%, a behavior that we've identified since the third quarter last year with a strong resilience of this channel.

On the next slide, we have gross profit achieving BRL 249.9 million 1Q '21, a growth of 4.21 percentage points, mainly a result of AR&Co and Reserva results and their brands, also the mix and higher share of them in the quarter.

On the right, we have company EBITDA achieving 64.7% for the period with a 13% margin, a growth of 3.4 percentage points year-over-year and EBITDA of BRL 36 million 1Q '20. It's important to mention that this is adjusted given the credits in the same period of last year. So the growth of EBITDA of 79.9% in the period mainly resulting from assertiveness of our collections and assertiveness in using digital tools in our sales in the period and also AR&Co and the continuous improvement of all our brands, revenues and channels, including the VANS brand and the North American operation.

It's also worth noting our discipline and diligence in relation to results with a strong focus on revenues, but also permanent focus on margins and expenses. It's worth noting the base of comparison to the previous year movement that we started in 2Q '20 and adjusting our expenses and restructuring our operations and streamlining our costs, taking us to a reduction of 7.5% in expenses -- operating and logistics expenses and also admin expenses. And that in -- not including -- or including Reserva that adds other expenses, but with a significant reduction that supports the leveraging of EBITDA. It's also worth mentioning net income with a growth of 310%, achieving BRL 30 million.

Those are the main financial highlights for the period.

[Alexandre Birman, executive]

Congratulations, Sachete.

I'm going to talk about digitalization of our business and the omnichannel. So the main message here is that much beyond a promise, a plan or a dream, our business is already digital, and the omnichannel is 100% in present in our results. So that's the main message. However, we do know that it's a continuous process of evolution. And this mandala here shows our vision about how we are preparing our ecosystem, looking at all the different sides.

So on the right, to your left -- or to your right, I'm sorry, there's the brick-and-mortar stores. So here, we have all the proprietary apps that our salespeople currently use, helping them to communicate digitally with our customers and leading to many sales.

We're going through a phase where we're also investing in services, our e-showroom, which is also proprietary. We have a very bold project of being the first company in Brazil that will offer this proprietary service to the entire market. So we'll talk about that soon.

We are also talking about something that's evolving, and we were the pioneers in the partnership with Cielo, a credit card company. So starting distance credit card payment called linked payments. So we have 2 initiatives that are being developed in the company, and we will go into depth in these pillars, especially ZZ Pay.

Now about technology. Everybody knows that the foundation, the base of our company is SAP, a very robust base. We're continuously evolving in SAP. We're going through a process to migrate Reserva into SAP by 2022. And therefore, we have very robust data that's infallible.

About new digital businesses, these are fronts that we will either develop internally or invest in through acquisitions so that, as I mentioned, about the e-show, when we can offer services and have revenues not only by selling clothing, handbags and shoes, but also by selling digital products. In addition, in this pillar, we will talk about TROC as well.

And lastly, and starting and ending with #1, which is our omni reality, so our sales in e-commerce and channel integration. Here, I'd like to highlight the results presented. On this chart, you can see the robustness, the resilience across all the months of the year and our results in digital sales having 1Q '21 year-to-date BRL 173 million.

When we talk about that we have many pillars, and especially in the franchising operation, technology is everything. Without it, nothing is possible. However, in itself, it doesn't do anything. So the matter of culture is essential. Here, we'd like to give you a brief example of the routine of our sales teams, how they perform with our franchisees and salespeople with which I have a pleasure of taking part often.

And I've been feeling that it's like I usually say that with the frequency and cadence and insistence, we've been able to achieve excellent results, and that's how we presented the first quarter of '21. The figures here speak for themselves with the volume of energy, and we know that, that can't stop. And the best news that I've seen, already talking a bit about the results in May, and that it's exceptional that even with store openings, digital sales are still very strong.

And with that, we've been having results above 2019. And this is how this translates into numbers. It's incredible. 32.5% of the store sales comes from the sellers app. So the system that I mentioned is proprietary, and we have this database. And I have to say, it's like [ Gigi ]. I'm a bit old-fashioned, analogic. And I use the sellers app to see if it's proof to someone who is not tech-savvy. And I could use it very well. So it really is something incredible that we developed.

Vendor link is 5.8%. It's a way to sell. Infinite shelf has a lot to growth, 3%; and delivery and pick up at store, 3%. The city that we focus most on to have a relevant percentage of store delivery was in São Paulo. And 3.1 -- 31.2% already came from Internet sales delivered by the store.

The sum of all the tools that I showed you with percentages and putting this in absolute figures in the past 12 months, we generated through digital sales, through omnichannel, BRL 483.8 million. If we add the past 12 months with the web revenue alone, our digital potential accumulated in the past 12 months is BRL 1.1 billion through digital tools. And this puts us way ahead of our tool. And it's a problem with the cart and figures. That's what we want, sales.

Well, about the recurrency, which is so important, we have a team of data scientists today that is extremely engaged. And one of the things that I always say is the leader of our customer relations and data management is a franchisee of our company from the countryside of Paraná that has always been at the avant-garde, developing a proprietary management tools with the customer database. And we invited him a few years ago. He's been growing greatly. I would like to thank him and compliment him and the data team.

Our initiative of creating a marketplace focused in premium brands in Brazil and it's been growing greatly. This picture is from our last campaign, Marina Ruy Barbosa. She is our Creative Director at ZZMALL, together with her mother on a great campaign that we conducted for Mother's Day. This is some of the data.

So who is the persona of ZZMALL? A person with strong digital presence that navigates through different styles, and that's very important. The -- our offer is varied, seeking convenience and shopping together with interesting content. So this is Patricia, one of our customers from São Paulo.

And we're bringing new buyers, new customers to our database. The app, several companies are launching apps. Our ZZMALL already was born with app developed, and it's been well used and sales are going up. And the frequency of purchases in ZZMALL is above the average of our independent brand websites.

Now I would like to talk about that ecosystem. I'm going to go deeper into some of these initiatives of new digital businesses. So TROC will -- which I will also talk about later, will be integrated in ZZMALL in the third quarter, adding more value to our mandala, allowing to purchase in 1 single shopping cart, resale and P3P. And as mentioned, the customer will be able to use her credit, the money from the clothes she sold either to -- either cash the money or can multiply, and we're still defining that kind of a cash back of twice the amount accrued to buy at ZZMALL.

We're in a deep process to define how our content platform will work today. We have one called MagaZZine, with 2 ZZs, signed by Marina Ruy Barbosa. And we have an excellent amount of content. And the platform for content is something Arezzo&Co will deeply invest in. And we also have a loyalty program that will maintain our customers loyal to our brands.

Now switching gears, I would like to update about integration of Reserva, and there's something Rony and I say every single day, which is so far, so excellent. So to gain time, I will show the slides, and I'm going to give you some very important data that shows the speed and the capacity of integration that we had of a deal that was announced in October 23, 2020. And in 6 months, the results are here to see.

Now sales performance of Reserva, which I would say is phenomenal. So April, the brand, Reserva, together with its affiliates, AR&Co, achieved a 339% growth year-over-year, 114% compared to 2019. And if we show the consolidated of the -- it's a great channels and -- AR&Co. I would like to highlight Reserva. And this already shows one of our pillars of investment, which was to invest in that technology, in AR&Co. Now the -- a co-owner of the app for Reserva, which is similar to the Arezzo, has a huge potential to grow, and it grew 404%.

Here's a spoiler. Firsthand, I would like to invite you all that are in São Paulo in the first week of June to visit this new concept that will be a complete change in Reserva. We will separate by categories in a well-defined way. We will have an entertainment center. We will bring the warmth of a loft. And we know that the experience in retail is very important than just being in a store that sells products. And I would -- we'd like to build this space with a great synergy between Rony and I. We built a space in which the customer feels at home.

So this is just a slide. They had -- my team had prepared more, but I just want to show you this one. The first week of June at El Dorado shopping mall and afterwards, we have a few others that will be launched. So to be more specific, we will open a Reserva store at Center Norte. We're going to renovate Higienópolis, a huge expansion at the main flagship store in São Paulo, in Leblon. And a new store -- Reserva is not at Oscar Freire. It's at [ Bella Center ]. So we're moving to Oscar Freire and Megastore. So we already have several stores for our new layout.

It really is amazing, the speed of that integration. And I'm going to tell you why we're so confident in our future. Here, I will have -- this is the detail of the plan. This is the new nest of the woodpecker. And this is a picture of the sugar loft at -- in Rio. And this is the view we will have at this new office. And all investors in Rio and those who want to visit will be invited to our opening in September. Three floors, integrated space between product creation with the type done in-house with a photo studio and a pilot store.

So this is the concept that we have at our Arezzo&Co headquarters that you can -- so that many of you know, being applied as well to Reserva, which will generate great efficiency focused on R&D and also a focus on digital, a very large area for that. Human resources and -- at the second floor, which is back office. It will be amazing, and it will change the level of the Reserva brand.

Also, investments in infrastructure continuing a very important process, which is logistics efficiency. We're investing heavily in building a new distribution center for Reserva. It will start with the area of 12,000 square meters, which can be expanded to 30,000 square meters using a proprietary WMS system, which, in its origin, is from the Reserva brand, and this will change greatly. And we're also looking into social environmental aspects because this location has a very -- a much better efficient outlet for the roads.

And now if we're learning about clothing and all those things, we do understand a bit about shoes. And we announced, as an investment, it was almost a plug-and-play at Arezzo&Co. These are the results. Now this color -- this picture in color, this product that we developed in many hands. It has a great value for money. Whoever wore these sneakers don't take them out. It's made in recycled knit through a system called vulcanization that provides comfort with an EVA insole that absorbs impact. So the side is open [indiscernible] because the results are amazing. The shoe was amazing. We sold 20,000 pairs. And the sneaker is for men and women. It goes from child size 28 all the way to 44, men's size.

We invested very strongly for the first time in media and advertising. We hired Regina Casé with her family. A video 100% done at her house, and we're going to grow Reserva Go. So a little bit of our communication and marketing strategies. I'm sure that it will be a huge hit. We've had 2 launchings for multibrand store owners. And as I said, our virtual room achieved 20,000 pairs sold, and you will see this in the results.

A little bit about the -- what we did for VPL. And this is our team, our premium of 150 million. I will speed a little bit more now, so we can open for Q&A before 10:45. Now talking a little bit about BriZZa. We had a first quarter with exceptional results. 10% of the Arezzo brand sales was at BriZZa. We invested with Bruna Marquezine's partnership. This campaign is wonderful and the picture shows. We did it in Alagoas. We have 100,000 pairs sold just in the first quarter, accounting for BRL 7.5 million of revenues.

Mother's Day, as I mentioned, we invested in creating connectivity and being present. And the slogan is Always Present. We had the idea of not just using pictures, but also bring audio, music that is engaging and would go viral. And we were able to achieve that. Lulu Santos song is amazing. It's called Tão Bem. And we did have engagement from our customers.

And this is the MVP of the entry of Arezzo, finally, in children's shoes. So Arezzo Bambini for Mother's Day aimed at being a test, and the results were much beyond our expectations. So I'm going to show at the end what we're going to do for -- to turn Arezzo Bambini into a stand-alone brand in our structure. And in the future, it will be distributed beyond just the Arezzo network today. So it will be a great business. And launching a new brand, the campaign is amazing, the products are beautiful.

So here, for Schutz, extremely enduring. Inclusive, using diversity as the foundation, Anacapri with Manu Gavassi, she's really cool with the singers that are called Annas. Investing for the first time in TV campaigns for Anacapri with extremely exceptional results on Mother's Day with a great value for money benefit.

Reserva, as we mentioned before, with Regina Casé's whole family as the stars of the campaign. This is where we invested in ZZMALL. And with all of these brands, we've had growth of 2%. So achieving 102% of revenues of 2019. And if we compare to 2020, 197% of growth. So I'd like to congratulate all our sales teams, all our franchisees for the excellent results.

As I mentioned, on April 29, we had our general shareholders' assembly, where we unanimously approved the new body of the Board. So I'll present them. So the chair is Alessandro Carlucci in his third mandate; Vice President, José Bolonha, focusing on Human Relations; Alexandre Birman and Rony Meisler, the strategic executives representing the brands; Guilherme Ferreira has also been with the Board for many years, focused on the Finance Committee. And we have 2 women, 2 new members, and I have the honor of talking to them and being with them. And we're going to do sort of their onboarding. Renata Vichi CEO of the CRM Group, owner of Kopenhagen and other brands. She's coming from a family-owned company that was just sold to a big investment fund. So she has a lot of experience in franchise management, and we've been learning a lot with her. And [ Juliana Buchaim ]. She's very well-known, famous, market analyst who worked in many banks and funds for many years, giving us a very interesting vision as well. Renata focused on the Strategic Committee together with [ Juliana ]. So that's our new Board of Directors.

Now about our strategic planning. I presented this slide in 4Q '21 (sic) [ 4Q '20 ] call. So we have 5 priorities, and they remain intact. The integration or onboarding of Reserva. And here, we show the evolution. The organic growth and market share gain that has been shown in our solid results. New brands, new businesses. And here, BriZZa and Bambini. And we'll give you more flavor about some other initiatives that are also being developed. The continuity of company digitization, which has been proven through our results, some off the top, and continuity of the international expansion, which we will also present.

So some more details now of our operations in the following segments. So Reserva, we'll take Reserva to female apparel. For those who are following the Instagram will see the seeding process that we can't mention now, but on May 20, the fashion retail will no longer be the same. So consolidation of the industry, increasing market share, synergies and gains in scale. Strong work in new technologies and expertise, which was done through TROC, and our continuous process to invest in new businesses through ZZ Ventures.

Now I'll go into the details. So we have a fast process of developing the Schutz apparel line, taking the brand to full look, a result of a lot of research and investments. In 4Q '21, we'll launch the first collection. Bambini, the addressable market of BRL 3.5 billion. So you can see how big the children's market is in Brazil, launching the complete line in September.

And for sell-in, multichannels and franchisees, it will be the third week of July. ZZ Stores, our pilot model that will have 5 operations in 2021. The transformation and consolidation of multibrand stores in 1 single brand. They can buy a defined percentage of other brands, but most of the brands will be Arezzo&Co brands. And the biggest differential in addition to the modern architectural concept is the capability of digitizing that operation in multibrand because we truly believe in this channel, how it can be long-lasting and give our brands all the capillarity.

So in the U.S., the entry of the Arezzo brand in the U.S., Schutz is consolidated. Here, we're talking about operations greater than $60 billion in 1Q '21 in the U.S. market. And this year, it's already actually on air, the test for the Arezzo brand and Anacapri and a pretest of the operation in the U.S. So we're very confident that this -- what this brand will give us and the continuous growth of Schutz that is present in over 60 Nordstrom stores. The growth of digital brands is strong.

As I mentioned in the beginning when I showed the digital ecosystem, we're investing in the final phase in defining how the Arezzo&Co investments will be to build its content platform.

About ZZ Ventures. We have the capability of taking our entrepreneurial DNA to leverage entrepreneurs. So our main focus here are digital companies, companies that develop features to improve the digital experience in our company; and emerging brands, especially what we call digital native brands, the famous DNBs. So that's very present in our company.

And before handing over to our guests, Jayme Nigri, who will address sustainability investments at Arezzo&Co, I'd like to say a few words about TROC.

So to me, it is the proof of how much we believe in the circular economy. It's actually bringing on an opportunity of wearing a product that's stuck in someone's closet, in women's and men's closets, and to add revenues and to decrease the use of virgin raw material and also helping to preserve the environment.

So TROC has had expressive results, very high percentage growth. And you can see loyalty, high loyalty of customers. So we're in the end stages of defining and deciding to take TROC to brick-and-mortar retail, and it will be a great pillar to grow Arezzo&Co.

This is some data. The processing capacity of this is 430% in April; high turnover, 60% sold in 30 days; growth of 125% of gross merchandise volume. And translating that into the environmental impact, it's 500 million liters of water saved, which would be hard pieces that would be made from scratch.

So straight from Rio, one of the co-founders of Reserva, I have the honor of handing the floor over to Jayme. He is responsible for ESG at Arezzo&Co.

[Jayme Nigri, executive]

Great. Thank you, Alexandre. Good morning, everyone. I'll try to be brief. I know we're running over our time.

Before I go into the topic specifically, I'd just like to put this into context because I believe it's very important. So we can't talk about ESG without mentioning purpose and value. Before this acronym became famous, and I'm glad that it became famous because it's a very important topic, ESG practice have already been a part of our business with strong values. And that's what happens with Arezzo&Co and the Reserva Group and with TROC, which is an emblematic case and as the business model is sustainable.

So we have the union of companies that have conscience and it's part of the DNA. So we always look at the founder, the journey, the long-term financial return is also important, but as a consequence. And that is connected to the whole, everything is related to the company and not just short-term return and very connected to values. That's a very important message.

So that's a very important context. The companies that truly practice that and as is our case, that we are very connected to values, and we don't change our values regardless of where the wind blows. So we have a very successful onboarding experience so far. We've been exchanging best practices. Many things that we were doing at Reserva are already being implemented at Arezzo and vice versa. So this -- we're very excited about it.

And personally, I can say that we see a lot of transparency and good things. And we can exchange what we have on the good side for each brand and respecting each of the brands.

Go back one, please. The B Corp slide, the B system, we have to start talking about that because that certifies the credibility in the world that we practice high performance, balancing social and tax responsibility as a purpose. And that shows that what we're doing is worth it. If we would define what a B Corp is, it's much more than a seal.

Is it enough? No. It -- does it mean that what we're doing is enough? It's not just obtaining this certification. It's encouragement to do more and better. And for Reserva, it was a natural process. It's not that we transformed the company to become a B Corp. It was something natural of what we are already doing in the company's culture. And with all of that, we became the first and only brand in fashion, in the capitals market to be a B Corp and the biggest fashion brand in Latin America until the certification. So the good news is that we've started certification for the entire Arezzo&Co Group. We're doing that together. That's part of our integration. The teams are working together at full speed, and we'll soon have good news in that sense.

So I'd like to invite all other fashion brands and all other companies to join us. It's a topic that -- it's not about competition. So I'd like to stress that everybody should join Reserva and all the other cool, great brands that are part of the B Corp community. It's much more than a seal. It's a global community of companies that do good and exchange a lot.

Next. We have some brands -- actually, they're strategic pillars. I'd say the first one is local production, the entire group. Arezzo&Co, AR&Co, 98% of production is in Brazil. That's pretty much a financial index for us. So it's very important index, and it's strategic and cultural. Just because the U.S. dollar exchange rate goes down doesn't mean we're going to leave Brazil. It's not just about finance and connected to the exchange rates.

We have a number of uses of natural resources. We have the ABV tech's seal. It's an association that guarantees the chain and audits many important components for the chain. We joined the I Am Cotton movement. We're the cotton brand number 500. It's a traceability that guarantees that from production, that there are correct practices involved in cotton production. And 100% of our basic T-shirts are made from organic cotton. It's BCI cotton.

And next, we have the annual report -- annual sustainability report. The next one will be published in June 2021. We have a materiality index from 2018, updated in 2020 with certification of leather sustainability and sustainable origin program we adhered in 2020. 2021, we received certification of the Schutz plant and so on.

We also have the entire group commitment in neutralizing carbon. At Arezzo&Co 2024 and our AR&Co 2030, which is the B system commitment, we already started reducing and trading off and we're well ahead and also about carbon neutralization and greenhouse effect gases. Reserva also committed to the United Nations Climate Change Charter and also TROC. That closes the circle.

And these are just a few other fronts that we listed that are very important. PCP, which is 1P5P, which is also an important program. We're going to achieve 500 million of meals with our partners, which is the [ Meza Bazoo ] and Food Bank. If you are interested in participating, you can look for those institutions in April. This topic came back after new data came out about a study on food safety. Unfortunately, during the pandemic, these numbers increased greatly. We have 19 million to 20 million people in Brazil hungry.

About this point, at the end, we're going to give some -- shed some light on it. So you're definitely right to emphasize the impacts of the pandemic. And just to say that after the presentation, we will talk about a very important initiative that we're going to announce today.

So there are some other things that we practice today in AR&Co, which is the maternity and paternity leaves extended. Also, head or tails. For the stores, we have a very important happiness department that does -- and of marketing, but more than that, it engages and ensures that the brand's culture and purpose are being carried out. I think we joked calling it happiness. We can't go into people's heart to see if they're happy or not. But as a company, we have the obligation to provide tools that everyone feels good. And this is a very important mission of this department that we value and pay attention to. And the sense of diversity being carried out at Arezzo&Co, and we're going to carry it out.

And the last slide I think is the consequence of all this. That's why I wanted to put into context in the beginning. The consequence is that we practice conscious capitalism. The whole group is very connected to that. And also humanized companies, we were acknowledged as that. And I think that's a reason for pride. That's something that we see. We work with retail. So that's very important.

And just the importance of this topic is that the level of awareness is increasing and we vote every 4 years, and it's complicated to vote. But we vote actually every day. And this increase of awareness is great. The consumption action, every choice we make at a restaurant, store, website is a vote. So that's the importance of this topic and the level of consciousness increasing.

I'll pass the floor back to Alexandre.

[Alexandre Birman, executive]

Thank you, Jayme.

At the end, in addition to what I mentioned before, I'm going to read a letter written by my father that will really go towards what you were saying. It's an honor having you with us.

Aline, you have the floor.

[Aline Penna, executive]

I'm going to read a few questions that we received by our analysts.

Helena Villares from Itaú. We have two questions. At the beginning, you mentioned about the initiatives, the strategic planning. And we noticed that there are many cool and interesting things. However, what are more significant in terms of financials?

[Alexandre Birman, executive]

Helena, thank you for your question. They will all be implemented in 2021. And of course, we have a time of maturing.

In terms of finance, the one that will generate the most value for our business is BriZZa. As it already is happening, very good revenue from sales. And in the next quarter, we will have exponential growth in distributing BriZZa and also Arezzo Bambini because of results we had on Mother's Day. They were very expressive. It's a very spread out market. And the recall awareness of Arezzo brand when taken to a structured collection for children will be very important. So the initiative, that will generate results in 2021. But looking in the mid and long term, the value of revenues, about BRL 200 million and BRL 250 million in the next 3 years is Schutz, lifestyle, clothes and apparel and also AR&Co initiatives that in Reserva, in addition to defining shoes focusing on sneakers.

We also have another question that Rony will address. It will be a great boost of Reserva growth, which is entering the women's apparel market.

[Aline Penna, executive]

The second question is about the United States. Arezzo brand going to the -- yes. What is the motivation of that?

[Rony Meisler, executive]

It was already mapped out. It was a follow-up of our initiative, expanding in the U.S. After we had gotten the management model right with Alexandre Birman, we're having the third quarter of positive results in the U.S. operations. Schutz is just a matter of growth, and the results are coming very strong in the second quarter, I'm sure of that. So we're starting -- not committing the same mistakes that generated learnings and launching Schutz. So we're just launching Arezzo brand. It will be a DNB for additional native brands for them.

[Aline Penna, executive]

I have some questions from Olivia from JPMorgan. One of them is about supply chain, how we see supply chain and how is our relationship with suppliers after the reduction after the COVID pandemic?

[Alexandre Birman, executive]

Perfect, Olivia, I'm going to -- thank you for your question. It's a pleasure to have you with us. I'm going to split up into 2. We have shoes, handbags and apparel. About shoes and handbags, that accounts for 80% of our revenues. You know that our business model has development products and also raw materials as proprietary with our suppliers.

So we're not stuck with our suppliers because they receive the shoes and handbag software as well as the definition of the raw materials. And we have, today, a negotiation of what are key raw material, which is leather, directly with the key producers.

So it wasn't easy, it's a huge challenge. We have a very experienced team in our Industrial Director, the most senior person in the company. He's going to turn 70, 55 of which in the shoe market, so Cisso Klaus. And we're sure we're not going to have any issues with supply with shoes. In apparel, Reserva strategy, boosting Arezzo&Co to invest in large inventories of cotton and fabrics, we're not having any issue to get that supply either.

[Aline Penna, executive]

Olivia's other question is about Reserva's women's apparel. So how will that brand equity be created?

[Alexandre Birman, executive]

Well, no one better than Reserva's founder to answer that question. My great partner, Rony, you have the floor.

[Rony Meisler, executive]

Thank you, Xandre. Well, first of all, good morning. It's an honor to be here announcing this amazing quarter with very hard work, already engaged for the next quarters that are to come.

I'm going to start mentioning the advice given to me, with Alexandre being a witness, by Anderson Birman, the company's founder. He told me, well, gain -- win over the consumers of Arezzo one product at a time. That's why we're saying, we started with the sneakers. We revisited the sneaker. We launched the second version, innovating with Simples 2.0 that Alexandre mentioned was a huge hit. On the 20th, giving you a spoiler, I'm going to launch our first apparel product for women. And I'm absolutely sure that we will surprise our consumers in a very good way with this launching.

And product by product, we're investing in dressing women between 25 and 50 years. It's a self-made women, very practical. And internally, they're saying, she's not the wife or girlfriend or friend of a man who wears Reserva, which is used to describe male brands when they go to women's apparel. She is a reference of life for her professional and personal life, and I agree with that. So we have a square -- a squad of amazing people for women's apparel that is developing a product that will be sold -- sell in wholesale for multibrands in the second half of the year.

With the fit with the Arezzo consumer, we researched deeply and ask many questions to the consumers. And when we asked, the fit is amazing. But when we see them at the store, you're going to see Arezzo and Schutz handbags at our stores. But in addition to the cross-sell, the great opportunity that we have here is this knowledge, having the information. Arezzo&Co, in my opinion, is the fashion group in Brazil that best knows women's behavior.

So the opportunity that we're having of learning with Arezzo about women so we can build our women's apparel line is amazing.

[Alexandre Birman, executive]

Perfect. Thank you very much, Rony. It was amazing. We're anxious here for May 20.

[Aline Penna, executive]

I'm going to join two questions. One from Olivia from JPMorgan and another from Goldman Sachs about digital sales. I'm going to ask Maurício to join us.

Can you give us the profile of the marginal consumer that you're seeing in the digital channel? Do you see new customers in your base? How does the average ticket compared to the brick-and-mortar stores average ticket? And what are the main initiatives for that reopening scenario?

[Maurício Bastos, executive]

Okay. Thank you. Thank you for your question. I'm going to try to summarize a expanded view. So with everything that we showed in relation to digital and the strong work in connecting the different channels, we've been able to get many new customers. When we look at the consolidated and we see the growth of 14% in the quarter in digital, over 200%. So -- and the opportunity, which I'd like to stress is that it's huge. When we see the growth of last 90 days of purchase frequency greater than prepandemic, we're still talking about a frequency of 1.4x in the quarter, 90 days.

So considering the potential that we have in terms of brand and full look at the company, there's a lot of room for growth. And all of that goes -- is shown by growing omnichannel. When we see the ticket vision of an omni customer and brick-and-mortar and digital is similar, omni ticket is 3x higher as recurrences. So we still have a huge opportunity to strengthen all the different fronts, as we've been doing, to actually be able to get new customers. We've seen that the base of customer is getting younger. ZZMALL, as a reference, over 30% is from 18 to 25 or up to 25 years ago -- years of age and Arezzo&Co is 35 to 40.

So we're capturing new customers. We're increasing frequency and recurrence, but there's still a lot of room and opportunity to grow that frequency and getting closer to the entire customer base, taking advantage of that cross-selling in all brands in AR&Co and Arezzo&Co.

[Alexandre Birman, executive]

Thank you, Maurício. Maurício, he's our Executive Director in Digital Transformation and Omni, almost a decade with us. It's great to see you, and we're going to do -- so I can tear -- tell by what you're wearing that it's pretty cold.

[Maurício Bastos, executive]

Yes. It's 10 degrees Celsius here.

[Aline Penna, executive]

I'm going to consolidate two more questions from Bob from Merrill Lynch and Citi.

So I'd like to explore your mindset about M&A. You're looking at female apparel, and you want to advance with full look. But what are the capabilities that we want -- that you want? And that has to do with Bob's question, what are you thinking about M&A and the attributes?

[Alexandre Birman, executive]

So there was an article published in Valor Econômico Daily today. And it's worth mentioning that in 2022, we will be around for 50 years, and the base of its strategy is growth and organic growth. That's why our main brands were founded by us in addition to Arezzo, Schutz, Anacapri, Alexandre Birman brands.

So we started the M&A process in 2019 after the consolidation in the shoes market for A and B classes in Brazil. And we started by licensing the VANS brand in Brazil and in 2020, the new era, the new moment in Arezzo&Co with a strong entrance in the apparel market by bringing in Arezzo creating AR&Co. That's when we created an M&A branch in our company that's very active and continuously screen the market to identify the capabilities that we're looking for.

So first of all, brands. Brand is very important in our portfolio because we know that we have the capability of operating them. And that can truly help us to leverage the growth of our brands.

In addition, companies that can bring in investments such as ZZ Ventures and retail tech capabilities to expedite the continuous digitization of our businesses. In addition, we also focus on looking for companies that have teams, people, founders that will join the leadership here at Arezzo&Co, making our company even more robust and prepared for 2154.

[Aline Penna, executive]

This is a follow-up on João's question. He's asking about our expenses. What would be gains in synergy with the acquisition of Reserva?

[Alexandre Birman, executive]

Well, that's our last question. We have a call at 11. So we already have. Well, the biggest focus is not savings, I'd say, but how we can leverage growth in revenues. I think we've -- I believe that we've demonstrated with Reserva Go and their sneakers line about how that will lead to growth and value. We'll have BRL 10 million in EBITDA just with Reserva sneaker line alone. So it's the -- it's increasing and expanding brick-and-mortar retail and all the digital tools. But we also have savings, not very relevant, expenses that in annual terms are in the magnitude of BRL 7 million. When we add that to internalizing shoes, we have a net present value of BRL 150 million. Are those the questions?

[Aline Penna, executive]

Yes.

[Alexandre Birman, executive]

Well, today, we're going to be bold and dare to end a conference call for the earnings of a company in a capitalist world and talk about our vision of society and the role that we have as leaders, especially in such difficult times that humanity is going through. It has never been this important for people and companies to engage in social movements, and we will not only commit today, but we will also give you practical demonstrations of how we will act in the universe that we deem interesting.

And as the cherry on top, I would like to read a letter received from a person that carries out many roles in my life, the first and most relevant one is being my father, partner and the founder of this company, Anderson Birman. Remembering a letter that he wrote me in March 2020 and in the beginning of the pandemic, and now he has an updated view after the 12 months.

So human beings have to be more ESG. A little over a year ago, we were beginning to experience the pandemic, but we had no idea what that meant about how many people would die and how long we would be confined in our homes. And we probably still don't know what this is all about because we don't know how far this will go.

On 18th of March 2020, I risked myself to publish an article about to get through a crisis and overcome it. And my main message at that time during a moment of a lot of insecurity was that our capacity to adapt would be essential to get through those times. That was my advice. After over 40 years as an entrepreneur in this country and witnessing other difficult times that today I know haven't come close to what we are experiencing right now.

And 1 year later, it's very clear that we have been through most difficult times. Over 3 million people died in the world as a result of COVID-19. And even though we continue in the same difficult times, I'd like to risk myself and give a forecast about the pandemic, considering that next year, the vaccine would be able to stop mortality. And now I can truly say it's not enough to adapt. Human kind has to change. Considering that we will have tough times moving forward, I believe that many people will become unemployed and that will not have the most basic needs, hunger increasing to many as we've already been seeing.

Days ago, I was watching the TV and people all together in waiting for a train. How can we help them in the pandemic if they have to use public transportation to work? So this context is inviting us for transformation.

Many people have been talking about ESG and companies. And they demand decisions from executives that will benefit the environment, society and governance. But I believe that ESG should also be valid for people. All human beings will have to become more concerned with these 3 pillars. And as companies adopt metrics to resolve them, all of us have to consider that the actions that we do generate for the world, we have to become less egotistic and more benefactors. And we have to stand behind what we want.

So the changes in individuals will be -- make it easier to implement ESG in companies, which are a collective of individuals. And these movement where companies are pretending that they're concerned, and, in fact, actually consider that this topic is a priority. Human beings plus ESG also means to care for others. It's from transmitting a simple flu to COVID-19, people that have ESG will not open restaurants or be out in social gatherings where we don't have to wait for the government to take the adequate measures. We cannot only think of ourselves. What's valid for one has to be valid for everyone. So we have to consider everyone.

I also believe that human beings will be less materialistic. Our existence is becoming too heavy for the planet and for business. It's great. It sells. But will we have a future if we continue like this? Conscious capitalism is the rule of the game. It's time to review our consumption from manufacturing to what we put on our table. We have to change fast and change old habits and behaviors and do what the world is showing. Let's not go back to what 2019 was. Forget that possibility. We have to adopt a new way of living and the only solution is that human beings have to change.

So I'd like to take this opportunity to thank for having our founder at my side and showing how we are seeing the world and inviting everybody to, together with Arezzo&Co, start changing and looking at what the base of a human being is to survive, which is food. So we'll -- we're going to work strongly together with many organizations.

And today, I'd like to state to my friend, Edu Lyra, who has been a relentless fighter, removing from poverty and hunger millions of Brazilians through his program, Gerando Falcões. So we're going to generate 1 million to Gerando Falcões' foundation. So we can fight dozens of millions of people that are currently going hungry.

So focusing on that and looking at our business, trying to be more efficient, growing our brands and channels and mobilizing ourselves and always taking care of our environment and our people, we want to be closer to our dream and our ambition, which is to be here in 2154.

So I hope we have an excellent year. Thank you for your attention.

[Aline Penna, executive]

Our call is now adjourned.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]