Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2022-Q1

[Alexandre Birman, executive]

[Foreign Language] Good morning, everyone. Thank you for participating in our video conference for the results for the first quarter of '22. We have here with me our CFO, Rafael Sachete; our Investor Relations Manager, Vicki Machado.

A bit of our agenda. I'll have some opening remarks. We're going to point out our results in -- with our omni revenue, our brands and channels, our international businesses. And Rafael Sachete will talk about the financial highlights, and then we will quickly open a very important moment that is great, our Q&A session. And if there is time, we have several annexes with marketing strategies and the moment that each of the brand is going through.

The first quarter of '22 is consolidating a big transformation for Arezzo&Co. The organic growth in the first quarter of '21, we already had the same brands, the same businesses. So it was a 64% growth that was organic.

And more interestingly to point out is the growth in pieces sold. We grew 56% in that number. This shows a huge gain in market share. We have to compare with the previous year. And I'd like to point out that today in the first quarter of '22, we're going through a new era at Arezzo&Co.

Those who follow us for longer know that we presented in these 5 decades the transformation our company went through. And I said in our Investors Day in December last year, I mentioned that we were there witnessing that transformation. And these results that are consistent and sound for our first quarter give color to what the new Arezzo&Co is now.

So comparing with 2019, we grew 125%. I learned from my father that percentages, they are important, but sometimes they are irrelevant if the base is small. So translating into absolute figures, the company that you knew before the pandemic, Arezzo&Co that already was a very solid company in the first quarter of '19 invoiced BRL 463,000. And in this new consolidation era, we had BRL 1 billion in revenue with a growth in EBITDA and gross margin, so with operational leverage.

So we are not going through a time of promises for turnaround and transformation. We are already delivering these results, and this gives us a lot of confidence.

A very frequent question is how was to -- how was for Arezzo&Co to go through the pandemic? And of course, it was a difficult moment for all humanity, a moment of loss. However, we were able to leverage the pandemic to catalyze this transformation that has translated in these exceptional results.

And I placed the 3 pillars that were crucial for Arezzo&Co to have this new moment as a new company. First of all, our culture, the culture that was established by our founder, my father, a culture of resilient passion and focus on the business. Our life is dedicated to the business, not only ours, but of all of those that work here because everyone has as their first indicator of engagement, their passion.

We also proved that our business model is replicable. Our strategy of multiple collections, multichannel with focus in R&D and brand management was proven in '21 but even stronger now in the first quarter of '22 to replicate this to other types of business.

And besides that, digital transformation. That started in January '18 when I and Mauricio Bastos, our Executive Director for Omni and Digital Transformation, we made this immersion in Singularity University. And we came back having our digital day with the Board in February 18, we started to create this vision of customer-centric data management.

So with that, when the pandemic hit, we were prepared to transform the sales in 100% at that digital moment and not wait for the customers to come to the store and been able to bring the store to the clients through the sales person -- sales app.

And last, it's more than proven when we were questioned for a while about our actual ability to associate how Arezzo&Co having such a strong culture was going to manage to bring other companies, other founders, other brilliant minds to enjoy this business model and this infrastructure that I mentioned for the -- for hard skills such as technology, logistics, sourcing capital and at the same time, maintain the positional and individual culture.

And this is more than proven, our ability to aggregate and to maintain very big diligence in generating results and strategic planning. I take the opportunity to mention that yesterday, we had our quarterly meeting that we do with all executive directors at the headquarters of AR&Co in Rio, and it makes us proud. The results that you see there for AR&Co are very sound and the result of a lot of work. They are not a result of market circumstances. Oh, people did not travel abroad, and now they are buying more in Brazil. Yes, we have to admit that this helps, but it's irrelevant.

Behind AR&Co and Rony's leadership and all the partners, there is a very sound strategy. And the business model, management model that we generated is bringing results.

So I'd like to end my opening remarks pointing out that a company that starts the year of 2022, which is going to be a challenging year and starts the year extremely preprepared and delivering very solid results, not only for top line and EBITDA or net revenue but also operational [indiscernible] generation; a company that has a working capital over net revenue of 17%; a company that's -- broadcasts its ROIC, which is a very crucial indicator, especially right now when you have the opportunity to invest in fixed income with a return of 12%, 13% a year, we delivered a ROIC of 25%, 27% a year and also together with the cash robustness.

So our company stands out in the market today for the right moment. We did prepare the company to maintain the soundness of these organic results, which is our focus.

And with that, we bring some measures that have been implemented. Our follow-on had a clear destination for the resources, and it already appears in this first quarter, especially in an aspect that today frightens the whole supply chain in the world, which is supply. We've taken measures. The figures show that we went from 10% for own production to 13%. It doesn't look much, but it brings -- it comes in a crescent. We're going to reach 20%. So some small but strategic acquisitions that were made in this first quarter, they come to maintain because we need to deliver and not only sell.

Retail company cannot justify enough addition of their results due to sourcing problems because the company who is in charge of being proactive and taking measures to change and be flexible and agile to ensure sourcing. This is a duty of the company. So Arezzo&Co has been showing this.

So going into our figures, as mentioned, we had a revenue of BRL 1.042 billion, an expansion of 300 basis points compared to 2021. And we would like to maintain here compared to the 2019 to show how today we are going through a new era at Arezzo&Co, 770 basis points of growth of gross margin.

We went from the sell-in to sell-out model. It's a company that is closer to the consumer. The growth in EBITDA, let's look at the adjusted, making it clear. Rafael is going deeper into this. This adjusted here is the positive unlike other companies where the adjusted EBITDA is to increase the results, ours is to reduce it.

And this delta of BRL 60 million, that seems it is one-off. It is one-off, but it is going to generate cash in 2 years for our companies. We can say that the accountable EBITDA is fair for the company of BRL 194 million, 200% versus '21 and 255% versus '19 with leverage of margin. So a company that grows in top line growth, in gross margin and also in EBITDA margin, a growth of 290 basis points.

And net profit that has some explanations where Rafael is going to give is bigger than that, but the adjusted of BRL 57 million but the accountable because it's going to become cash of BRL 98 million.

About our growth in units, our core category, but that is not absolutely representative of our brand, which is shoes, 4.7 million pairs sold, representing 68% of our mix. Two years ago, it was 90% of our mix and growth compared to '21 in pairs sold. This is important to point out, it's gaining market share. It's a big differential for this quarter. It's a growth in units.

Second largest category of our company, it's already apparel with 1.5 million pieces sold, a growth of 116% compared to '21.

And the category that we know the potential that we have to leverage even more in the category of bags with 730,000 bags sold, a growth of 83% compared to 2021. So very good pro forma based on the growth of volume.

As I said, we started investing in our digital strategy and omni strategy 4 years ago. It is obvious that the pandemic served to accelerate and show that we have the ability to maintain digital even after the opening the stores.

Talking specifically about web commerce. When you look at 2021, we were still going through the pandemic. We had a base of closed stores. We grew 41% compared to 2021. This is very relevant data for us, and e-commerce corresponds to 24% of our revenue compared to 10% in 2019. So it's a very digital company.

To the left of the page, revenue of BRL 223 million. But the most important, the traffic in our website of 70 million visits. And I point out a growth of 238% of app downloads in the quarter.

We work with Class A, B. We didn't invest as massively to -- with app downloads. It is an organic consequence of the wish to be part of the community for our brands. So it's a feeling of belonging. Our app downloads is almost organic. So it was 2.1 million downloads.

We generated revenue coming from the app because it has a very lower marketing cost. It is there already. The client is within our website. We do not have the cost to bring the customer to the site. So it generates a very high LTV, very low cost of customer acquisition. So 28% of our sales were done in the app.

So this is not in the slide but makes that the EBITDA margin of our e-commerce is up 30%. So actually, a very accretive business for Arezzo&Co. Our digital business, designed to be bringing a very strong top line, is a very high-margin business because the cost of marketing over revenue is low because we are -- the clients come to us.

So talking about omnichannel, the total revenue of our digital tools, that include pickup and delivery to store, which includes the infinite shelf, generated in the past 12 months BRL 810 million. So we had adding with web and digital BRL 1.8 billion.

So it's truly a very highly digital company, and it's worth highlighting that despite of the total increase of the flows into stores, the sales team still maintained the capacity to use the salesperson app and go to the influenced sale. In other words, they start the sale through a digital contact and then close it out at the point of sales in store.

So -- but we deliver the product to the client's home. So this influenced sale referred to 42% of all sales, combining the other pickup from store sales, et cetera.

So the pickup at store has been a boom. So we are having higher accuracy from our online stocks. So 91% was the growth for the pickup in store sale. So -- and we are going through a transformation process to supply our stores for Arezzo&Co, AR&Co. And we believe that this number can still grow.

And then going to what I was just mentioning, we were able to maintain the digital culture even with going back to the in-store flow. And when we look at our sellout revenue, this is very much reflected on that, so increase of flow and in-store traffic, but maintaining the digital sales rates.

We have a sales staff in this Q1 with all data that can be even audited if necessary. There were 6 million contacts in a 90-day period. So if we divide 6 million by 90, we're talking about 60,000 contacts per day done through our staff -- sales staff with combining all of our owned stores and franchise stores. So that's 60,000 contacts per day. And this is truly the huge highlights from the Arezzo&Co results, in addition to all the branding work we've talked before and you can see in our attachments.

Now going into more specific results for each of the brands and each of the channels. And it's worth remembering that since our IPO in 2011, we mentioned we would be a multibrand and multichannel brand company. And this is increasingly true.

Now we have 4 brands. And due to compliance issues, we're not disclosing specific results, but there are 5 brands that corresponds to a very high percentage of our sales.

So Arezzo is our mother brand, still with the lowest presence, web presence, but as mentioned, means 20% of our physical store sales and grew 37.4%. So this is our biggest brand. And the omni sales, as I mentioned, still with a very high percentage on our gross revenue to maintain the culture, the digital culture.

The Schutz brand is a global brand with about 38% of our revenues coming from international markets. We can say that this is truly a global brand, reaching BRL 264 million in revenue and a very, very significant growth, 55% on a growth rate that you can remember that Schutz during the pandemic was the brand that actually most grew its revenue. And now only talking about Schutz Brazil, BRL 178 million in revenue in a very, very digital brand with web sell-out of 43% and omni sales at 13%.

AR&Co corresponding to the operations of Reserva and worth highlighting also the growth from the other sub-labels, Reserva sublabels, Oficina; the children's line, Mini; and [ brand ] that is now part of Arezzo&Co with BRL 197 million revenue with a more than 3-digit growth.

And let's remember that 2021, there was a great growth from AR&Co compared to 2019. But now this is basically 300%. And this is maintaining a very high digital percentage above our 24% average and the omni culture or the culture of having these sales staff becoming a legion, an army for digital contacts correspond to 50% of their web sales. So this is truly a very digital brand, and this is our internal benchmark.

Anacapri, which is our combat brand, although this is a brand working basically with Class B sales, grew 26% compared to Q1 '21. This is also a very digital brand. 20% of its revenue comes from the web sell-out and in total, 15.7% on the omni channels.

So the share per brand in our revenues, you can see here in our gross revenue. You can -- we also have the VANS brand, but it's very, very leveled. And when we look at the revenue per channel, it's basically 1 quarter. This is very 4-piece pizza graph here.

And this is 28% from franchises, 24% for web commerce and 27% multibrand. We have our DTC corresponding to 73% of our DTC revenue. This is extremely relevant. And the growth of the multi-brand, as you saw in the earnings call was very expressive, showing our ability to work well through all the channels.

Now talking about sell-out. The ramp-up we saw in the first quarter, you can see this highlight for April with a very solid result. And remember that April 2021, was -- saw the stores reopening. So basically, until March, all stores were closed. In April, we started opening stores. So this is a more comparable basis and still a 94% growth for Arezzo&Co with huge highlights to Reserva at 54 -- 154%. And you remember that in 2021, Reserva had already shown good growth. And with Arezzo, our biggest brand, in April grew 76%, and Schutz, 65%. So it shows you the strength of Arezzo, but Schutz also with very expressive and significant growth at 65%.

So still in Q1, our sell-out grew 66%, total revenues at BRL 771 million. Compared to '19 -- to 2019 when there was no pandemic, it grew 51%. And in April, and although in May, today is still the 6th of May, the first 5 days of May were very strong. And I can tell you -- I think it's a bit early, but I can tell you that it was higher than April. So we have 4 very strong indicators for Q2 to maintain this very strong growth rate for the company.

And to close off my piece here, and then we'll hear from Rafael Sachete, during the pandemic, we also made very difficult decisions for our U.S. operations. You all know that. During the Q4 2020, results for these radical changes already were seen.

And through 2021, we had consistent growth. However, when we look at these results per quarter in 2022, you can also check the delivery box for the U.S. operations because we have results consistency with 153% growth in U.S. dollars versus Q1 '21, which was our highest growth quarter.

And this growth is based on omni channels and multichannels with 85% of our traffic on our website with a very high conversion rate. 80% of our sales on our websites are full price with the 75% gross margin rate.

We grew 122% in terms of numbers of orders and 115% in the numbers of pairs sold. We still have a very small basis. There are 41,400 customers who bought in this quarter. So it's 67% of new customers.

So when you apply this growth rate of new customers on the revenue base, this very high revenue base, we're talking about an operation going over BRL 120 million in the quarter with BRL 110 million in the quarter. This is very, very high scalability that we see.

So for 2022, we are very confident that we are truly planting very solid seeds for evergreen sales. And we grew 83%, increasing the number of doors we've been knocking on in the main department stores and also growing digital sales with partners.

So these are the highlights for our strategies. Now I'd like to turn over to Rafael Sachete to talk about the financial highlights.

[Rafael Sachete, executive]

Thank you, Alexandre. Good morning, everyone, investors, analysts on this call. Thank you for being here with us.

Now let me give you some more details about our revenue. As Alexandre mentioned, the U.S. operation had excellent results, 110 results -- 110% of growth with a huge highlight in terms of recovery.

And when we talk about channels, in addition to the brands Alexandre mentioned, it's really important to talk about our franchise channel, which grew 42% in the quarter. And this performance is not only sell-in but sell-out as well with the franchisees with excellent performance.

And this talks about our value prop for channel and financial health and doing business with our franchisees. It's a win-win game where Arezzo&Co has been consistently delivering track records for franchise management at the national level.

The other highlighted channel here are the multi-brand with growth in all brands with 61% growth compared to 2021.

And lastly, the web commerce channels with very strong bases before the pandemic 2021 -- during the pandemic, and now we see a 40% growth compared to Q1 last year.

This is a result from the full digitalization of our retail operations, omnichannel delivery and our physical brick-and-mortar stores and online environments are extremely connected, offering the best products to clients in the best way they can access our products. So BRL 42 billion (sic) [ 42% ] is a huge growth in the quarter and very good performance in April, almost 44% sell-out growth. And May has given signs of excellent performance in the future as well.

Going into our gross profit, it's really important to highlight this. We've seen a lot of retail companies influenced mainly through the price conversions. This is basically results from volume in a very well-managed value chain by Arezzo&Co to maintain our production costs, very assertive, very well controlled.

And with these small price adjustments, adjusted the calculation here to see a growing gross margin through the quarter from the cost center management and a greater mix of channels. With our owned stores and web commerce sales and the franchise channels also with a good gross margin performance. We had some discounts last year due to the pandemic period.

So we should see from now on gross margin evolving in terms of comparisons to last year, maybe not in the same proportions as Q1, but we will see an evolution for 2022. And that's what we should expect.

Going to the right side of the screen, we talk about the EBITDA margin for the company, also with growth with the best gross margin. And this mix of channels produces higher logistics and commercial expenses because with the higher number of brick-and-mortar stores and online channels, with higher investments in digital marketing and freight expenses increase our expenses with sales. But it's worth highlighting that general and admin expenses growth were 27% in the period versus 64% of revenue growth.

And this leverage tends to bring really good results in the first quarter -- in the next quarters, and this is a very strong revenue for the next quarters with an excellent scenario for the future.

We have a consolidated EBITDA of BRL 106 million. And when we discount after tax, this is what Alexandre said. After some -- 48 months, this will be reverted to cash for the company to generate value for our shareholders.

And lastly, a very important indicator. This is the shared targets shared with the whole team and monitored daily together with -- which is our ROIC. We have asset life. And although there are some changes, small changes to the model with a higher number of owned stores and more visualization, this KPI doesn't change, and the targets don't change.

We need to now have more EBITDA to maintain these high levels of ROIC for the company. And this has been delivered in Q1. We delivered 25.6% and 30.7% adjusted ROIC. It's important to mention ROIC.

The SG&A -- the adjusted SG&A, but artificially -- and these effects of transitions and taxes, higher rates, which are direct assets producing 30.7% for the company, in our view, within the parameters that we would like to maintain for the next quarters at Arezzo&Co.

So this is my part, Alexandre. Thank you to the whole team, and congratulations to our brands, 6,000 employees. Congratulations for all of these results, and let's go for an excellent Q2.

Now let's go into our Q&A.

[Victoria Machado, executive]

We're going to start with Helena's question from Itau. Helena is asking, we still see a strong growth of all the organic growth of Arezzo&Co, but Schutz is still the highlight.

Some -- in some quarters, you mentioned that Schutz was being benefited by the reopening, but this has been going on for a few quarters, and the top line dynamics continue strong. What do you attribute this performance to?

[Alexandre Birman, executive]

Helena, thank you for your question. The Schutz brand today became a brand with very high loyalty and a capacity to adhere very loyal customers. For example, with the Schutz science program, we're launching the second wave now with a very high number of subscriptions. This is a program that you might know very well.

So today, it has what we call a high number of heavy users and with a very high customer sales capacity. So it's a brand that consolidated this premium segment, and all the investments from Q1 is now the basis for a new era for Schutz.

We inaugurated -- we launched -- we started a new store yesterday in Rio de Janeiro with excellent results. And it's not only increasing the capacity to -- for new markets with -- for the brand Schutz, but it's also generating more brand equity with the apparel line.

And all of the investments for this -- for Q1 also helped leverage the sales for shoes and bags, which is the core category for the brand. So for us, this is just the beginning.

The brand is, as I said, is going through a new era. And we hope to maintain the same leverage rate with new categories and also through the international growth. We're starting in the second semester of 2022 to start sowing the seeds for the U.S. market -- sorry, for the European market.

So we say that this is a consolidated brand in the U.S. market. And with the global growth for Schutz, it will still see a lot of benefits for Arezzo&Co. And these are the main highlights that I could mention about the very strong growth for Schutz.

And it's our first e-commerce brand. This is -- this has its weight. We started in web commerce in 2011, and it was the first fashion app in Brazil. This is a huge highlight, the brand with the highest percentage of sales in the app. So 48% of the sales for Schutz comes from the app. And this is a very good experience for our customers.

I think these are the main factors that lead Schutz to be still a very strong highlight. But thank you for your question, and it shows this over 70% growth for Schutz. And this is what we should see with all of our brands going through excellent results, and this is a result from the team to increase our brand equity.

And this is what we did to -- by increasing marketing investments so that the brands, even with the international trips and international sales, this would still be the #1 preference for our customers. And this is what we see in Q1, and May is going to be the same. Thank you.

[Victoria Machado, executive]

Helena had a second question about Reserva. She says that reserve growth on a strong basis, what should we expect throughout the year? Are there any other detail about the growth in Reserva, client profile, category, sales channel?

[Alexandre Birman, executive]

Just like I pointed out, highlighted Schutz, I talk about Reserva. Reserva is the Schutz for a different segment. So the migration that Schutz is doing from being a brand of shoes and bags to be a lifestyle brand. It's a migration that Reserva also did for men from being apparel brand for a lifestyle brand with shoes and accessories.

Yesterday, I mentioned in our quarterly meeting at AR&Co, thank you, Rony, Jayme and [ Nando ] for the great reception for our team. It was a great day. And the main sales product for Reserva in revenue today is a shoe. So the fourth is a backpack.

So for Reserva, this result you're going to deliver April. And the forecast for the second quarter, it maintains the same rhythm with growth. It is a result of this new calendar of launches that Reserva absorbed from AR&Co and implemented very well in their planning of launches throughout the year.

But in our census from commercial marketing and supply area, it is a big challenge for apparel, an expressive growth in the shoes category and also accessories. And it is just the beginning. So in June, we are starting still as a test, just like Schutz, but knowing that the result is going to be positive from the latest line for Reserva.

The lane line of basics for Reserva is going to be almost a stand-alone business. So we are preparing the first store for the simplest brand for the first 6 months of the year. It's going to be successful. The basic line is 25% of sales. So it is -- it can become a stand-alone brand.

And it's worth pointing out the growth of this strategy that Reserva has. We were, in March, visiting a large company in the U.S. when we showed about the make your own from Reserva, which corresponds to 50% of the sales in Reserva, which is make your own, that we see to grow this technology and investments that we mentioned in our follow-on to create the dark printers that we want to bring this technology to have some distribution centers with regional printing to increase the speed of delivery for the client but also allowing the growth of Reserva Inc., which is our platform that we authorize anyone to create their brand and sell their products.

So there is a lot to get from Reserva. I'm very confident that Reserva continue with this high level of growth.

[Victoria Machado, executive]

The next question from Danni from XP. She asked about the several initiatives for growth we have with Bambini, Schutz, apparel, feminine for Reserva, Schutz U.S., Carol Bassi. If you had to list 2 main initiatives, which is the one that has more potential for unlocking value and focus? And in these lines, thinking about EBITDA profitability, what do we expect in terms of investment in this initiative?

[Alexandre Birman, executive]

Thank you, Danni. I'm going to start with the second part of your question. We invested -- and this varies from quarter-to-quarter, but we can say around 300 basis points in new growth avenues.

And it's worth pointing out that we never launched a pre-investment pre-operations such as Schutz apparel that the team has been hired for more than a year as one-off expenses. So all expenses for no new growth avenues, they are within our EBITDA.

So this figure I'm telling you, you can maintain it. We're not going to be over that. So it's 300 basis points. So we're going to -- we won't be excluding new investments, around 19% in this first quarter, excluding all the events. This is talking about our priorities.

And then I should say that both questions by Helena, they bring our great focus. Our 2 great pillars for organic growth is the continuity of growth for Reserva. Reserva is we're going to open the biggest number of stores in '22.

And we're just starting the number of retrofits in stores. I know most people hear from Sao Paulo, I invite you at the end of May to the new Reserva store at Iguatemi Shopping Mall. You will see it's a whole new brand experience. This has been showing results.

So the retrofitted stores, we have a cross-sell that is over 60%. So this is very strong data. We have still 20% of the base form. So we still have an expressive number of stores being retrofitted.

The biggest -- most of the franchises will be in this new base. So the Reserva ecosystem that we presented the slides from our follow-on, which is several pillars within AR&Co as the biggest umbrella is our priority and continue to have investment in latest apparel. So beyond Reserva with the growth of Schutz and mainly with Carol Bassi.

So we have signed 3 openings for '22 for Carol Bassi. Although it is small on the total of Arezzo&Co's revenue, it comes from about base 0, and we have a strong EBITDA margin. So Carol Bassi had a revenue in the first quarter of BRL 13 million.

So to be honest, we want to continue investing in EBITDA. It's not what we wanted to because we lack time to open stores and hiring teams, which is happening very quickly now for the [ second semester ] for the rest of the year.

So when you put it together with Schutz and Carol Bassi, these are the biggest areas of growth.

Talking about the future to '23, the continuity of our international growth is our big priority. This -- from the new avenues of growth, I'm going to list not to go away from your question. These are the priorities.

[Victoria Machado, executive]

Thanks. The next question from Bob Ford. He congratulates you for the results and asks a bit about the Schutz apparel line. What has been the learnings, the first results, the idea for the rollout? What can we tell the market?

[Alexandre Birman, executive]

Thank you, Bob, for your question. Thank you being with us since our IPO for more than 11 years. Remember our meetings in New York. We'll be there next week again.

So the results were excellent. The main highlights are first, the quality of the product. It is exceptional. The product is very well made. I talk about quality and also fit. The fit is very well adjusted, and the clients are coming back. They buy, and they come back for more.

The figures are well above our expectations. It's been around BRL 1 million in 19 days. So a very strong figure, although it is a minimum percentage of our revenue, but it is beyond our expectations.

So as I said, the biggest decision we have to make is about the rollout model of physical stores, of brick-and-mortar stores. We opened the second lifestyle store shopping [indiscernible] yesterday. So to get with Oscar [indiscernible], we have the maintenance of Schutz shoes and bags and opening the second lifestyle store.

Our biggest decision is going to open the third, which is the full look store, a big flagship store. And there will be -- we know if they face the brick-and-mortar rollout, it's going to be through creation of a new concept and bigger stores.

And it depends about the -- depends on the availability and our ability to negotiate. And it's a decision to be made. It's going to help throughout the year, but we're going to have new openings for lifestyle locations and the go-to-market of what we call multi-brands in the shoe segment.

But the name is going to call, it's going to call it wholesale. This is what we're launching for the summer collection for '22. And we have the first type of clients are going to be those that are already Schutz customers.

There are apparel stores, but that sells shoes. It's going to be our focus in '22, planning the phase 4 to penetrate in stores that are only apparel for '23.

But the results are excellent. The team that we hired is an extraordinary level of excellency. And the main KPI -- because the revenue is along the figure, it was the survey work that we carried out with those who bought. So we have monitoring, we have an index of 92% of satisfaction and positive results for those that have purchased and will come back to purchase again.

So it's just a matter of time so that the percentage of Schutz lifestyle becomes relevant within the total of the brand.

[Victoria Machado, executive]

Thank you, Alexandre. The next question by Irma from Goldman Sachs. She wanted to understand the balance between the growth and the margin in the American operation because the operation grew well above what we expected. And still about the U.S., is there a space for other brands in the country?

[Alexandre Birman, executive]

Irma, glad to hear from you from New York, a good partner of ours for many years.

When you talk about margin, I understand that people want to know about the EBITDA margin, but I'd like to take a step back and talk about gross margin.

So even with this exchange [ encapsulation ] we had, we have a very high growth in gross margin. When we talk about the EBITDA margin, today, it is totally discretionary decision. There is only one investment that affects our EBITDA margin, which is marketing.

So today, the SG&A expenses are very low. The brick-and-mortar stores, they are just 5. But the [ Ventura ] store and Alexandre Birman stores, they are profitable. So we do not have any channels today that generate negative EBITDA.

The wholesale and e-commerce channels are highly profitable. So our great KPI here is actually 2. The first is marketing. So today, we want to maintain a solid growth in top line, and we -- it's our deliberate decision. We prefer to increase the investment on marketing on the revenue to maintain this accelerated growth. So the EBITDA that you saw, although low, it is bigger than that when we include what is the plus marketing for this growth. Maybe in a year, we will normalize and see the same percentages at Arezzo&Co in Brazil.

And the second type of investment is the preparation, and this is what you mentioned to get new brands within the same platform that we created. And the second step is to get into the European market, especially with Alexandre Birman, Schutz brands.

So these investments are -- obviously come out of our gross margin and will have an impact in the bottom line. When they start becoming relevant, we're going to open it up for you. But the operation there has a buffer that is enough that even with the investment in marketing and new types of brands in the U.S. and markets for Schutz brand and Alexandre Birman are maintained in the positive level.

[Victoria Machado, executive]

The next question from Ruben Couto has 2 questions. The first one is about the full price sales that were positive in this quarter. And what is the dynamic of the inflation in prices? Is there a brand that is suffering, going through more difficult with the fragility of this in the competition as well?

[Alexandre Birman, executive]

Ruben, thank you for your question. Thank you for being with us in our journey.

Arezzo&Co comes from garage factory. And for 20 years, we had to become specialists in manufacturing even being away from the cluster. So what does this have to do with your question? It is the following. We learned to focus our product development in products that have high ability to be manufactured, and we focus in having a good line of products.

When in '95, we migrated to the south and maintained the manufacture of our prototype, of our sample and owning the software and outsourcing raw material and, of course, having supply partners, we created a process engineering that allows us to have a lot of flexibility so that when we develop products using raw materials with less inflation, so it's more than 60 raw materials for one type of shoe. So of course, leather, where it has a lot of weight in this process, 50%, but there are different types of leather.

So we've shown the migration that we do from different types to different types of leather because there was less inflation. So this capability of engineering for products is very big.

So there is a brand, the biggest global fashion brand. You know what it is that has a small but relevant presence in Brazil, especially in the largest commercial centers. We always had this benchmark as if it were a big map. And today, Arezzo is much less expensive than this brand. So I think that compared to the competition, we had the smaller price increase.

And our strategy with our suppliers, and this comes from the chain of the raw material, was to have a very low inflation rate in the items and the continuing models. That's why the clients have a price reference. So when we put all this together with a big competitive edge for Arezzo compared to the competition.

It is the same methodology for AR&Co. So our ability, which was a benchmarking that we only did back in 2015 in Arezzo&Co. When we came to Reserva 2020, we just boosted it and gave more emphasis to this verticalization of sourcing and the core development.

I was happy to see yesterday in Rio de Janeiro our prototyping center for our collections. And this work of going from the cotton but in an outsourced manner allowed us to maintain the ability to increase prices less than the competition, generating even more brand value.

So it is a team that we give emphasis to. We have a deep knowledge of the supply chain. And with the acquisition of our biggest supplier of bags, which is HG, bringing the same owner of the company, João Fernando, the Sunsets, which was our productive agent and [ penalize ] this, we have -- we're going to have even more capacity of flexibility with our suppliers.

We're going to use what Sunset has, their international knowledge to also dominate the sourcing to other regions in the world. So I'm very confident that we're going to maintain this tireless focus in cost benefit and maintain the best price for our customers.

[Victoria Machado, executive]

We have another question from JPMorgan, very similar here. They're talking about inorganic movements, M&A or licensing. What can we say about that? Is there any specific category, female or women's or men's apparel, shoes, anything specific? It's Joe and Joe asking.

[Alexandre Birman, executive]

Well, thank you. Thank you for your questions. You saw that through -- during our presentation, our focus was organic growth and the great internal growth avenues that we call the inorganic growth within the organic growth. So both through M&A, and this is what we've been showing in our follow-on, and that's our main focus for '22.

And now you can see the VANS results here and the capacity Arezzo&Co had to grow. About a month ago, we had the Global President for VANS here in Brazil. And he was very impressed. VANS Brazil doubled its market share within global VANS from 2% to 4% of the global revenue for VANS. So this was a great differential worldwide for us here.

And this shows that for -- that us, that we at Arezzo&Co can add other brands to the team. So these -- we're going to have a few good brands with a very specific curatorship. And the contract is just important as many other issues that these contracts have to be thoroughly reviewed.

So we today have a team that is a dedicated team. If -- we have a lifestyle team for Arezzo&Co. We have the licenses department for this as well. And then for M&A, we have a dedicated area with a pipeline that is very comprehensive.

We've been very careful to reach this point and bring in new categories but with focus on female apparel. This is a market that we still have with Carol Bassi with a very minimum participation in the market, and this is a market that is basically double the size of men's apparel, where we already have a good market share. So that's why our main focus is female apparel. Thank you.

[Victoria Machado, executive]

Thank you for your answers, Alexandre.

[Alexandre Birman, executive]

I think we still have -- Vicki, how long do we have?

[Victoria Machado, executive]

It's 12:02.

[Alexandre Birman, executive]

Okay. So we're going to close out our call. As we mentioned, this is widely available presentation, and this is the brand per brand with details of the campaigns, the major investments, results. You'll be able to see this material. It will be available for all of you.

The Reserva work we've been doing with the NFTs, VANS, this is a very adherent brand for its public. The brand is going to go over BRL 200 million in 2022. Carol Bassi also coming in into new markets, as I mentioned, My Shoes with strong growth in a B class. And our investments to become a company that is always one step forward, making sure we're caring for our environment and with high governance. These are actions that make us very comfortable with our social and environmental commitments.

And lastly, I'd like to highlight what we can expect for this year. So Q2 has started with a strong month of May, and we will maintain this very relevant growth for 2022 more broadly. And I recommend if you still haven't read it, the Jim Collins book. It was the last book published in 2019 called The Flywheel, where he shows that Arezzo -- exactly where Arezzo&Co has become today.

So we are at a point of accelerated growth, and it's much easier for us to grow quick, to grow quickly, than if we were still going through adaptation, turnaround, et cetera. So this flywheel, which is the accelerated growth. And the more we accelerate, the more we grow. And this is what we see, and this is what we are experiencing today for us to consolidate the market for the -- for national fashion here in Brazil.

So thank you, a huge thank you to all of the team for your efforts and dedication, for our committee, to our management team. And let's continue to be healthy with great focus and reach [ 21 54 ]. Let's do it.