Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2018-Q2

[Operator]

Good morning, ladies and gentlemen. Thank you for waiting, and welcome to the Arezzo&Co Conference Call where the earnings for the second quarter of 2018 will be presented. [Operator Instructions]

This call is translated into English and overseas 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, Caroline Muzzi. Her 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 be also be seen on the company's website. In case any of you do not have a copy of the Arezzo&Co press release published yesterday, Wednesday, August 1, you can get a copy from the company website.

Today's 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 and the general economic performance of Arezzo 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 our earnings call for the second quarter of 2018. I have with me our CFO, Rafael Sachete; and our Director of IR, Aline Penna.

In the second quarter of this year is marked by the consolidation of the winter collection. We have 2 very important dates, which really make a difference in the results for our year. The main one is Mother's Day, and right after that, the Valentine's Day in Brazil.

In general, we closed this business cycle being very satisfied with our results, which is the fruit of excellent execution in management and the great flow of our collection cycle launch, in addition to more creative strategies that seek to enchant and engage customers, bringing them into our stores and generating great results. As the highlight, I'd like to mention that in the Saturday before Mother's Day, we hit our -- hit record in sales in the same day. And that places us on the path of consolidating our market share, which is the basic assumption of our strategy.

Now about each brand. Our main brand, Arezzo, has shown to be more and more resilient. The strategy of being extremely democratic, offering products for all price levels and brackets, for all kinds of women. So the positioning is very extensive, it's everything for everyone. But although it is like that, it's very well directed and the strategy is being well executed. So with that, we see a strong growth of the Arezzo brand as presented and it's worth noting that Arezzo is also becoming the benchmark in the bags category. Our market share in bags, in general, is currently higher than our shoe market share.

The biggest distribution channel for Arezzo, which is the franchise channel, since 2012 when we began a number of changes and now we have a franchising department because we believe that the franchising system is a live thing and is constantly evolving. So we think a lot of engagement and traction with our franchise network is actually a partnership, where we're working together and that can be proven by the high rates of approval that we have and all the awards that we receive, therefore, and considering on the financial side, we have a very low default rate and almost 0 in terms of store transfers. So the brand is highly consolidated. We're very happy with the results achieved in the second quarter.

Our second-biggest brand is the Schutz brand. So there's a huge challenge for Arezzo&Co in that case because it creates trends. It's a trendsetter. It brings novelties to our business. It's always at the limit of extreme innovation, bringing in fresh trends to our business. So I think it's worth learning that Schutz has a market share that's focused on Class A of 35% in the segment that it operates. So it's the leading brand.

The second place in competition isn't even close to Schutz in that segment. So Schutz has a project in place since the beginning of 2018, it's called Schutz [ Sole ]. The project has 3 important pillars. One, is strengthening the branding. So not just being a fashion brand, because traditionally fashion brands try to form themselves based on image and now Schutz is trying to create purpose. With the first campaign that we created in that sense is the Because Schutz [ topic ], which was launched in June with the Resort Collection here in Brazil and simultaneously launched in the U.S. We had a huge [ adherence ] to digital media, a lot of engagement. And now in August, we're launching the campaign called, We Do Both. So it's about sneakers or heels. They're going to be the trend. So depending on the occasion of use, I want to have [ hat ] style and [ great ] fashion, she's going to use both. We're working with Adriana Lima, great images. You can see them on our social media and the official launch will be next week, simultaneously in Brazil and the U.S.

The second pillar is the innovation of the store concept, not just thinking about the design and architecture, but the branding, and the main reason to renovate these stores is to actually create an omni experience. So it's called the Schutz Digital Store and the stores in this new concept have shown to have high adherence in sales, almost 5% of the results of revenue already coming from omni sales. So we have 4 new stores in that quarter with the new concept in Brazil and U.S.

And the third is changing the supply model for the chain, having the merchandising team that has a comprehensive review of our store chains. So working differently with our franchisees in which we're more involved in replenishment and franchisees are focusing more on operation in the store, training the team, creating traffic. So with that we can increase the in-season replenishment and bring that in faster. The stores -- the control stores are currently showing different [ torn ] and better performance based on the lessons learned from this project.

Now about Anacapri. To me, Anacapri is a great example of how our company has the ability of generating organic growth. Therefore, it's worth noting that for a brand to consolidate, it needs investment time, teams. So as I said, Anacapri has that track record. The brand has strong growth, meaning 45% in the second quarter, an increase in the past 12 months of 41 stores. So if we can, for the next 12 months, imagine that we could probably achieve almost 200 stores and we'll probably exceed that figure, without a doubt.

The brand was able to enter a great maturity level if we consider the product mix, having over 35% of the sales of the continuous items. That's excellent news because these products are not in our -- we don't change the markup of these. So we increase the average markup and the franchisees have higher profitability in that. So a lot, we have franchisees that are really engaged and really want to grow. So Anacapri is a growth player and we really believe that the brand still has a lot to deliver to our company.

About our strategy and I didn't mention OWME and Fiever and Alexandre Birman. So we [ strategy in the ] space that we have, and we're very confident of our choices, which is to consolidate the market share in Brazil. And consolidation is a bit generic. Like, what is consolidation? That's when you have [ taken ] over a market and, in our case, we did several international research and there's no other country that has a handbag and shoe companies that have the same market share that we have in Brazil and domestically we don't have any research [indiscernible] that is reliable for our sector, but in our analysis, the market that we address, which is Classes A and B, we have 27% of market share for shoes and more than 30% for handbags.

We also are able to maintain this growth of market share that we have year-over-year and that's our focus. So this will happen through 3 initiatives. The first is expanding our channel. So today, we have -- we mastered the franchise and we can develop and create new formats. So we have Arezzo Light as a concept. More than [ 20 ] stores are in this concept and we're going to open about 12 to 15 in 2018. And we're going to really be able to expand Arezzo's capacity.

About channels, I'm very proud to see another example just like with Anacapri. Our track record in organic growth that generates great source of earnings is our online sales. We reached almost 10% of revenue on the total revenue. Our goal was to achieve that by 2020. [indiscernible] comes from [indiscernible] that everyone understands what they're doing and heavy investments in logistics systems since 2015 operating with a global platform which is hybrid and we've been focused on customer satisfaction. So we've been winning awards over awards and our customer service team works hard so they are deeply engaged and chart the online shopping and that makes us very proud, and we're even touched about what our team does to satisfy our customers.

Going back to our strategy, let's talk about brands. In 2008, we were 2 brands and now we are 8. We have 3 main brands, in which we include Anacapri, and we have 3 that are being matured. Alexandre Birman, doesn't have a lot of [indiscernible] in the presentation. When we look at that table of revenues per brand, most of the revenues from Alexandre Birman comes from the [ foreign ] market and we're going to open next year more clearly. We've been having great advance in the international market. It's a brand that is used by several celebrities [indiscernible]. And [indiscernible] we're very confident that the brand is growing. We opened Alexandre Birman at Madison, we're going to open another one at [ Le Grand ] Shopping at Rio de Janeiro on the third quarter of 2018.

About Fiever, we define the end position as casual sneakers. And the results have been very positive as you can see, 60% -- above 60% in the third -- second quarter and we're going to open new stores in the [indiscernible] that follow. So we are ready to have a better defined retail model and expand this brand through franchise.

And OWME, which is still a baby. It's only a month old and we're [indiscernible] very happy to see this healthy growth. It's a combination of products, store experience, branding and the results of our flagship store in Oscar Freire are very positive. And that makes us trust that we have a long path to grow our revenues.

Our first front is digital transformation. When we talk about that especially, it's very important and modern. And what does that mean? Our greatest ambition with the digital platform is to grow our revenues through more foot traffic in our stores and more conversions. We do see the structure. So we have the [indiscernible] start, a very quick project is managing our database, our CRM called the [ Televisa ] Project, more than 6 million customers are registered and we, in the first half year, 50% of the revenue came indirectly or directly impacted by the customer journey. Also, increase of the omni experience in sales. All the stores in the right [ our store brand Schulz ] already have the relevant part of the revenue coming from online from the Schulz store and when you buy online you have store shipping and that's a great [ action ], so that trend will continue in what we had presented at our Investor Day last year, creating our innovation department called [ Hub 2054 ]. So we're very confident that our team is on track to grow to our capacity to manage this growth.

To conclude, the main topic of our strategy, which is the base of our strategy, which is consolidate market share in Brazil, which is investing in the American market.

We challenge ourselves, and I'd really like to discuss this topic, [indiscernible] investment is organic or inorganic. As a basic assumption, it is organic because we don't do any acquisitions. However, an expansion overseas with our own operation and the largest [ global ] market is something that we can address in such a simplistic manner. And this second quarter of 2018 was a very important milestone in building our operations in the U.S. because it is a great evolution in structuring our team. We hired our CEO for global operations, Mr. Wayne Kulkin. He has more than 25 years of experience in one single company, 13 of which as a CEO. This company expanded globally becoming the [indiscernible] luxury brand in the U.S., it was recently sold to a large luxury international group. So Wayne came to structure our team with a lot of experience. It's worth mentioning that we have [indiscernible] who've been with us as the COO and which aims at structuring our business and we're now building a new operational headquarter, [indiscernible] [ processes ] especially focusing on logistics and office systems.

We're also going to work to expand our business through 3 important channels: our online sales with small changes, in July already grew and expanded to 129% [indiscernible] so we know the power of electronics commerce in the U.S. and we're going to focus deeply on that channel. We're working with department stores and so we know of the reduction of the number of department stores in the U.S., but we see large players with well-known brands that own flagship stores, all around the U.S. and our relationships with these brands -- with these stores have been increasing. The growth is very strong there and that's just the beginning. [indiscernible] look at brick-and-mortar stores. So in the second quarter, we opened the first Alexandre Birman at Madison, in New York, a flagship in SoHo in New York and by the end of the year we're going to open 3 to 4 stores with both -- either Schutz or Alexandre Birman. Of course, these investments are in our income statement as expenses. We know that we have to recover that. But this is part of our strategy. So these expected [indiscernible] and we're very confident that they will be great sources to generate earnings for our company.

And lastly, to manage a company like this one with several brands and channels, and to want -- mix of customers want our products [ to face ] its people and we're very happy with the projects that started years ago to increase our engagement and strengthening our company and 2 very important [indiscernible] sites. We just opened our headquarters in São Paulo, [indiscernible] for investors that [indiscernible] with our business. It's a new work environment and that really appeals to the Y generation, bringing innovation to the company. The best definition of the roles between our areas between São Paulo and [ Belo de Sur ] with market -- research and product development closer to the consumers in São Paulo and [ Belo de Sur ] so a structure that will enable us to have continued development of our brand because it has a whole department to consolidate our brand.

And I would like to also say first hand that we have just concluded our engagement research and we reached 76% of the [ fielding ] highly engaged, 9% growth over the previous research. It shows that we're in the right direction and we want to keep the experience. We really want to be a company that will be one of the best companies to work [ pointing ] our legacy towards 2054.

[indiscernible] I would like to invite Rafael Sachete to give us more information about our -- the second quarter 2018. Afterwards, we will have Q&A.

[Rafael Sachete, executive]

Thank you, Alexander. Good morning, everyone. In order to continue with our presentation, now we're going to move on to Page 4. We can see on the left of the chart that the growth revenue of the company reached BRL 455 million in Q2 '18, a growth of 12.4% in the domestic market and 5.7% in the foreign market.

On the next page, we have the breakdown of the gross revenue in the domestic market with the highlights of the Arezzo brand, which grew 13.6% in the quarter because of the multi-brand and web commerce channels. The Schutz brand represented 28.3% of our revenues in the domestic market. So with BRL 114.5 million in gross revenues in Q2 '18, a drop of 4.4%.

In the foreign market, the revenues grew 8 -- 11.2% in reals in Q2 '18 with the positive highlight for the U.S. operations and a growth of 22.3% year-over-year.

On the other hand, Anacapri presented an expected increase of 51.5% of gross revenues. Now the brand contributes with 11.9% of total revenues compared to 8.8% year-over-year. The franchise channel had a strong growth of 77%, which is a result of the opening of 5 stores in 2Q '18 and 41 stores in the past 12 months, in addition to the actual increase of same-store sales. It's worth noting, the increase of the share in the multibrand channel, which had a growth of 49%. Alexandre Birman brand grew 34% in the quarter considering domestic market and foreign market with a highlight to the strong increase of same-store sales in Brazil, where we have 4 owned stores, and the [expressive ] performance of sales abroad.

Fiever, to continue with this consolidation of the [indiscernible] brand presented 65.5% growth in the period with the strong performance in all channels, that means own stores, multibrands and web commerce.

Now moving on to Page 6. We have the gross revenues per sales channel. So there's a growth of the franchise channel growing 13.5%, multi-brand growing 18.9% and Web Commerce growing 25.5%.

On the bottom chart on this slide, in terms of same-store sales sellout, we grew 3.9% in the quarter, a positive figure considering the impact of the mall and retail foot traffic during the strike of the truck drivers in May and considering the World Cup in June. For the [ sell-in ] same-store sales, the franchise channel had a growth of 7.3%. Lastly, the multibrand channels grew 18.9%, which is a result of the combination of some factors, such as obtaining new customers and ongoing efforts for higher cross-sell, not only in between the brands in the same point of sales, but also increasing the bag share in our sales mix.

On Page 7, we see the evolution of the number of owned stores and franchises as the total of sales area. We closed the quarter with 633 -- 36 stores being 627 in Brazil and 9 abroad, an [indiscernible] increase of 8% and 66 net openings in the past 12 months.

In the quarter, we opened 11 stores, being 5 Anacapri, 3 Arezzo, 2 of them Arezzo Light, 1 OWME store, 1 Alexandre Birman store and 1 Schutz store. The 2 latter, Alexandre Birman and Schutz, were openings in the U.S.

Now moving on to Page 8. On the left, we have the chart, the gross profit of the quarter, achieving BRL 178.8 million, which is an increase 15.8% year-over-year and the gross margin of 47.8%, an increase of 90 bps of gross margin in the quarter is with the results of the [ culling ] effects including the ICMS and the PIS/COFINS calculation excluding [indiscernible] and the sellout channels improving the gross margin in the foreign market and the bigger share of the web commerce and the mix representing 10.1% in the company's gross revenues for the domestic market compared to 9% year-over-year.

On this page, we also have on the right, the EBITDA performance, achieving BRL 56.6 million in the quarter with a 12.4% growth and a 15.1% margin. That means BRL 28 million under the previous quarter. The increment in the expenses in the period is mainly resulting from the decision of our strategic planning that includes developing the operation in the U.S. by hiring new executives and new marketing campaigns as well as other strategic trends [ upfront ] among them related to the OWME brand and the Alexandre Birman brand abroad as well as investments in our CRM front as well as the Arezzo Light format.

On Page 9, we can see that the net income for the quarter achieved BRL 33.1 million, 15.7% lower year-over-year. Excluding the noncash effect, the -- it would be BRL 46.9 million, that means 19.4% higher year-over-year.

Net income was negatively impacted by the worsening financial results resulted from the higher exchange rate of variation in the period. It's worth mentioning that [indiscernible] cash effect in that operation. The increase of the financial expenses related to higher indebtedness compared to 2017 and lower financial revenues because of the reduction of the [ product ] rate in the past 12 months.

On Page 10, we have cash generation for the company. In the quarter it was BRL 28 million. It's worth noting that the company paid supplementary dividends on June 8, related to 2017 in the amount of BRL 2.8 million, the interim dividends based on the profits reserved for 2017 in the amount of BRL 46 million. I'd like to reiterate in relation to our dividend distribution practice, we plan on maintaining the recurrence in line with the amounts distributed recently in the years to come.

On Page 11, on the left, we see that the CapEx in the quarter was BRL 2 million, with the highest investments in Brazil to the new headquarters of Arezzo&Co São Paulo with the launch of the first OWME flagship store on Oscar Freire Street. The renovations of Schutz own stores to the new concepts of a digital store and the project for our own plant for sneakers and comfort shoes.

In the U.S. market, this quarter, we inaugurated the Schutz stores and our Alexandre Birman stores in New York as mentioned before.

On the right of the page, we have the indebtedness. We closed the quarter with a net cash of BRL 107.6 million and a net debt to EBITDA ratio of 0.5x.

Lastly, on Page 12, ROIC, once again, had a strong growth of 31.2%, that means 750 bps over 2017 resulting from an impressive growth of 37.8% in our operating results.

Those are our comments for the second quarter of 2018. So now, I'd like to open for Q&A.

[Operator]

[Operator Instructions] Our first question is from Robert Ford, Bank of America.

[Robert Ford, analyst]

I'm trying to better understand your efforts in the United States. How did you [ lose in the ] for the Independent sales and could you -- can you tell us about the department store that you added in the United States? And how is the brand Schutz received by those customers in those department stores?

[Alexandre Birman, executive]

Bob, thank you very much for your question. I remember as if it were today our first interaction in 2012 in New York to talk about the beginning of our operations in the U.S. So, since you've been following us all these years, we've been working organically in a very solid manner, step-by-step and now we're at a moment of investing more and attaining more maturity. In 2019, we'll be ready to -- maybe even at our Investor Day in December this year, to give you more information about our full potential in that end market and [indiscernible] American know very well. More specifically, [indiscernible] reduction, the reduction that we had -- the reduction of our independent stores, those are the multibrand boutiques. It's a type of store that for the past years are reducing greatly in numbers in the U.S. That was something transient. So we refreshed our whole sales team, which is wholesale in the U.S. We got a new team that started with us in June. So our focus is first to consolidate our expansion and then in the department stores and I will give you some figures for the follow-up of the question. However, we just put that -- we put that [ as a default ], that reduction. We have to work constantly to grow with the new team, a new sales system and we're going to work with [ ultimate ] stock and real logistics so we can be sure that we will grow greatly in independent stores. So that's what happened in the second quarter was something transient. And it will not be the base of our sales for that type of store. [ Otherwise it's a ] very small percentage of the American market and that's the department store. People are now selling 34 Nordstrom stores in a concept called [ Jobs Store ]. They offered their products and the sales that, they don't carry, we have in our warehouse to ship directly to the consumer and we have 15 members, 15 Nordstrom stores in our [ 2024 ]. Given that we've grown from 6 to 15 stores, we're starting also with Dillard's which is greatly focused on Texas and Florida. It's a large store in that region and we're going for the first time to do Saks. I'm assuming [ Saks ]. We work with Bergdorf Goodman with Saks in [indiscernible] stores and now we're [ going ] in Nordstrom and [ even ] Neiman Marcus. So it's -- I'm sure that in the next month, we're going to have great results. And in Schutz, because of issues in the market, we did some adjustments in price for the entry of Schutz brand. So that positioning, today, they're more a high-end brand, so a [ pack ] from Schutz will be sold at $150. It was $180 and that really increases our customer base. The sneakers are $120 [indiscernible] -- about $120, at the entry level -- $220, I'm sorry. So we're adjusting the entry [indiscernible] and there's something [indiscernible] so it will be great if we could have greater traction. [indiscernible] I would invite all of you on August 30, we will be here, receiving Mr. Wayne in our new headquarters in São Paulo. So I hope you who are interested in meeting him, it will be a pleasure to have you all there to talk [ and discern ] our strategy. [indiscernible] for your questions, please do any follow up you see, you feel you need to do.

[Robert Ford, analyst]

[indiscernible] Just one other question. You're talking about the [indiscernible] for the Arezzo franchisees and do you see any opportunity to expand that? And not just expanding in this channel, but are there brands also for your high-end products?

[Alexandre Birman, executive]

Thank you, Bob, [indiscernible], I think you're talking about the supplies [indiscernible], right? So model that you're going to mix sharing to both deliver [indiscernible] [ Schutz pilots ], 30 stores for Schutz, in which to talk about more about the [ store ] franchise, we'd have to pay a [ split ] of the royalties charged -- it used to be 100% in the sell-in and now it's 50% in the sell-in and 50% in the sell-out. So we can improve the cash flow for the franchisee. And as a consequence, we have autonomy for supply. We have a sell-in, sell-out, they show a minimum guarantee. So we have a small team to take care of that and it's a pilot project as mentioned, as the result of a very positive story of having a better results in sales than other stores, but the way that we are operating is [indiscernible] as I've mentioned as a test case. So it's something we've been studying for some time but we've decided to have a pilot run first and learn from our mistakes before we structure other pilot testing. So we would want to be confident [indiscernible] and the future for our franchise will have the franchisee more focused on appealing to the customer, training their sales team, managing that the sell-in. We will work on the intelligence part, understanding the product and having product innovation and also replenishing with [ open grate ] so we can control that supply and that will lead us to more changes. It's a gradual project, it's a mid to long-term project. We [indiscernible] because we know it's good for the future, but we're still at the very early stages for the [indiscernible] of the Schutz brand.

[Operator]

Our next question is from Marco Calvi from Itaú Corretora.

[Marco Calvi, analyst]

I have 2 questions. First, about the inventory level and it increased a little bit during the first quarter. If we make São Paulo for the franchisees, is there any change in inventory levels on the franchisee side after the second quarter finished? That's my first question. My second is, Alexander, you talked about [ Arezzo Light ] initiative, can you explain better the size of the initiative. I think we mapped out 100 possible stores, what is the potential size of this initiative due to the current format? And how many stores will we see in the future after these 100 stores are concluded.

[Alexandre Birman, executive]

Marco, it's a pleasure to talk to you. Thank you for your questions. About your inventory question. So there are 2 different views and I would like to understand which one do you want me to follow so I can give you the best answer. We talked about the increase of inventory that we have in our balance sheet. That's something that is the company's. And we talked about the inventory of the franchisees, that's [ on top of ] [indiscernible] explain that. Could you explain which inventory level you want to discuss further?

[Marco Calvi, analyst]

About franchisee inventory, so since we can't see that through the balance sheet, I'd like to know if you have an increase in inventory with the franchisees given the fact that your inventory increased?

[Alexandre Birman, executive]

No, no, our inventory is not related to theirs. So on our balance sheet, our inventory is comprised of the controller, the parent company inventory, because we buy the products and we distribute them, and that inventory has 2 sides. We have one that we call committed and not committed. Committed means that it's still in inventory because of the season, okay? So the products are here and they're not ready to be shipped to the stores. And the one that's not committed, that means that we backed up [ with ] replenishment, that means the basics of Anacapri, basic and classic of Arezzo and inventory of new trends that we want to bet on in the future. So that's an important percentage that we have. We also have owned stores and web operation inventory. With the growth of web operations, we know that the inventory is higher than the average when you compare it to the parent company. And then we have inventory of our own plant. We've been increasing the production focused on casual sneakers for Fiever and comfort for OWME. And then the operations, and for the operations in the U.S., that's what you see in [indiscernible], but it's not directly related to franchisee inventory. Now talking about franchisee inventory since the best analysis is the past 12 months, you can't consider the quarter alone because you have the seasonality of deliveries. So there's the sell-out divided by sell-in. And that's within same store -- so sell-out same-store sales sell-in. So in the past 12 months, sell-in is 1% higher than sell-out. So we can say that, that is in line and to be more objective, there are no changes to inventory levels for our chain, it's in line as last year. We're now ending the winter season with a healthy leftover mix, which is part of our business model. What's the second question again? Oh, about light, okay, I remember. I have Aline Penna here. She's awesome.

[Aline Penna, executive]

So speaking about light, the figures that you have are our first goal -- so 100 stores. These stores will happen in the next 48 months focused on countryside stores, under 150,000 inhabitants, revenue from BRL 90,000 to BRL 120,000. We already have 13 stores inaugurated. We should end the year with at least double that. The results are very positive for that first wave that we have. When you see a chain like Arezzo in the segment that we act, we're very big. So those 100 stores will take us to the level of close to 500 stores, which we believe is very significant. However, there's a second stage that we're still analyzing, which is the share in the outskirts of major cities. So we have the capitals, where we have stores in all main shopping malls as well as relevant street stores. But there are specific neighborhoods that we know have a good result and then those places we still don't have a franchise. So that's a second stage and will be studied only in 2019, but it's not with -- it's not part of our rollout of the Arezzo chain growth.

[Operator]

Our next question is from [ Elena Zalaris ] from Bradesco.

[Unknown Analyst]

First of all, I'd like to understand the e-commerce better so I'd like to know your strength in that channel, what you've learned and what are the main challenges and opportunities that you've seen in that channel? My second question is about Schutz. In my vision, the launch is for sneakers in that category is new for that category and now launching it as a lifestyle, so I'd like to know how customers are receiving Schutz as a lifestyle brand?

[Alexandre Birman, executive]

[ Elena ], thank you for your question. This is Alexandre speaking. About e-commerce, as presented, this quarter was extraordinary. We exceeded the bar of 10% compared to the total revenues of our company which is a result of the consolidation and maturity of our operation where we have the operating efficiency level based on the experience and the agility and how fast you as a consumer can navigate, the assertiveness is great where you find the product that you're looking for. The initiative which is the [ great sale ], selling products that are still in production and still haven't arrived in e-commerce. That's pretty much 20% of Schutz revenue. Logistics operation with the delivery rate or shipping rate, even with all the challenges that we have in our country, are in line with the commitment to our consumers which is supported by service that we are very proud of. And I think that's the best way to learn more about our e-commerce and even help our sales is by our e-commerce and understand the satisfaction level and be a tough consumer -- the one that complains that the product is late or that you want to return it, so we can learn from you. So our biggest challenge today is to continue to grow that channel. Right now, we are reinvesting in our technology. We have the [ beta clip ] and the platform that we need, now we're revealing new features that we can offer to make it an even smoother experience and completely frictionless. Creating an omni experience with the, connecting the brick-and-mortar stores with online stores. So those are about the lessons learned and challenges. About your second question, about the Schutz brand. We studied that a lot. And thank you for being so close to our sneakers launch because it really has changed its positioning as a lifestyle brand. It was a huge challenge because it's traditionally known for its high heels, for very fancy sandals and platform shoes. The sneakers are a [indiscernible], if you think of it in this category, but the conclusion that we reached and the campaign that currently is being aired, we already have 4, over 4 million followers on Instagram. That's exactly it. We can do both. So you can see that women, we were afraid of having a drop from high heels to sneakers. But it's not, it's about the moment, it's about the occasion. So we're adding more use and occasions to use Schutz considering the fashion, Vanguard and differentiated lifestyle. So we're very satisfied with the results that the sneakers category has shown. In terms of lifestyles, the brand has over 20% of its revenues coming from bags. The project that we had that was put on hold, which is prioritizing other strategic fronts such as [ guidance ] of products in Schutz, we're going to go back to those studies in early 2019. Thank you for your question.

[Operator]

[Operator Instructions] If 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 for your participation. It's always a great moment to hear your questions that really make us think more about our operations. We are very confident in our business model, which has been proven by our solid results, not just in this second quarter but also in the past year. I'd like to share with you the focus that we have on our company in August now. So first of all it's launching the summer collection in the stores. It started this week on Tuesday, July 31, so Arezzo was this consolidated strategy of live marketing, which is a live broadcast of a talk show of women that talk about feminism, women that are really known in Brazil, Astrid Fontenelle, [ Ingrid de Marange ] and Ms. [ Araujo ] So it was strongly attended through the social media. Focusing on 360-degree action for our products in winter 2018. We have the case of a product called Nina at Arezzo, it was a Fiever. It's the block pumps, thin in front, to tie around your ankle. Now we launched a Nina flat, other actions that we will put into practice throughout [indiscernible] as well as consolidating [indiscernible] as the Arezzo [indiscernible] post in our Instagram with over 14 million followers and that style was sold out in stores. Speaking of Schutz, there is more and more engagement, which is very much directed. So we're working on the content in the social media platforms that have consumers as the star. But we also have the global campaign with Adriana Lima that will be launched simultaneously in Brazil and the U.S. as well as the consolidation of the store renovation. On July 31, we inaugurated the new store at the Leblon shopping mall in Rio de Janeiro. [indiscernible] evolution of the new concept that we started off in December in the [ Iguatu ] store in São Paulo. We're very happy about that. And [ accomplished ] a lot of consistency in its positioning. So for over 2 years, [indiscernible] [ Alberti ] is the star of the campaign, bringing in that uncomplicated mood, casual mood and so we can work on the [ convention ]. Fiever and OWME, next week we launch the summer collection. So I'd like to invite everyone to visit our stores and support the growth of our sales. An important moment at the end of the month is the launch of the [ selling-in ] and the high summer collection, which will bring in a lot of flavor for the opportunities that we have to close 2018 with great results. And in the U.S. operation, next week, we'll have a local show in New York. So we'll have dozens and hundreds of customers at our showroom. It's a very important moment for our business. We'll be opening 2 stores signing with a third -- contract for the third and continuing to manage our processes, consolidating our team, we're going to receive 5 new executives and on August 27 to visit our operation and on the 30 and 31 [indiscernible] will schedule with your interactions in our headquarters in São Paulo. So those are highlights for the moment and the focus of our team.

Congratulations to the entire team on the results in the second quarter. Thank you very much for the support and strategic direction from our Board of Directors. So we hope to have more and more strengths and dedication to overcome any of this, all of the challenges, which aren't little. Thank you very much for your participation.

[Operator]

The Arezzo&Co conference call is now adjourned. Thank you for your participation, and have a good afternoon.