Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2021-Q2

[Alexandre Birman, executive]

Good morning, everyone. Welcome to our video conference call for the earnings of 2Q '21 and our strategies. Today, with us, I have our Executive Officer, IR, M&A, Aline Penna; and our CFO, Rafael. I know it's a rush today for all of you. So thank you for dedicating your time to listen to our earnings call and how we see this second -- saw the second quarter and especially how we see 2Q '21 and our future outlook. This quarter started off with a lot of emotion as was the entire year of 2020. Just to think back in the time line. On April 2, it was good Friday. And then after that, all the stores were still closed and close to Mother's Day, one of our most important dates in our sell-out calendar for the first half. So we had butterflies in our stomach. But we were very ready for that. Everything that we learned in the deepest moment of the pandemic in 2020 was put into practice. Playbook of how to activate our customers digitally and operating stores, even though they were closed, was implemented very well. And even though, at that time, we had approximately 900 stores. In April, we achieved 80% of the sales year-over-year, thanks to e-commerce sales with a lot of robustness as well as our ability to use our salespeople through the online sellers, and we'll talk about that later on.

So once again, we were able to achieve exceptional results. Now moving on to our presentation. I would like to highlight, as I mentioned, the recovery of our sales on a monthly basis throughout 2Q and the beginning of 3Q was very strong. We're going to talk about our revenues that were mainly driven by the pillars that we have in our strategy, the digital transformation and the creation of our brand portfolio to actually make us a house of brands.

You'll see the ability that we had to implement the methodology of management and the sell-in, sell-out calendar in our business cycle at Reserva with a number of launches across the second quarter, in addition to implementing a unique management in shoe sales and apparel even in menswear, together with Reserva management, led to excellent results. We also have a number of growth initiatives that I would call organic by extending our core businesses. We were also able to consolidate our North American operation with constant and growing results of our B2C sales, e-commerce and also the distribution in very important department stores.

Now to give you some of the figures, and then Rafael will dig deeper into this. We achieved gross revenues of BRL 706 million, very strong compared to 2020. And our Arezzo&Co that includes Reserva, but we can also consider and EVA which we will explore in 2022 in terms of growth. Our multichannel strategy, we were able to maintain strong distribution in multichannel, which is very important for capillarity. And consequently and obviously, very strong revenues in e-commerce, achieving BRL 175 million in this quarter, and that's direct from e-commerce and they don't see digital revenues that goes much beyond that.

Consequently, we had an already BRL 84 million EBITDA without considering the accounting results that was positively affected by winning a tax case and excluding the ICMS from the base for calculation of the BPIS and Cofins tax. So in digital strength across 2020, we developed the salesperson's app, who can manage in the palm of our hands, the customer base of millions of customers. We were able to generate daily list, so they not only work with open stores and the flow of the open stores, but also when the stores were closed, they were able to have a very structured process of having daily goals to activate and to target, and that's why we have our sales levels at healthy levels even with closed stores.

The ability of our brands to attract new consumers, we grew our customer base by 81%. That's almost 300 new -- 300,000 new individuals on our base, and we're able to activate similar figures. So 294,000 customers that were reactivated from our customer base. In omnichannel, especially store delivery grew 100% of a base that was already high. And our customers with customers that have monthly purchases also grew by 25%, our heavy users.

So in digital sales, attracting new customers, be it to reactivate old customers that stop buying in the past 12 months or even increasing the share of wallet of our customers that are heavy users, we obtained excellent results. Now to translate that into figures. So this is a very direct breakdown of our results from brand-to-brand from January until August 11.

So you can see that in March, we had a valley, a drop. So 3 weeks of that month had 80% of the stores closed and a recovery -- a strong recovery as of April. As I mentioned, together with Reserva, who has a digital capacity that's amazing, so 88% of the actual of 2019. And as of May, same-store sales positive growth every single month being crowned by the beginning of the summer collection now in August, which really exceeded all our targets. This is a more detailed breakdown of our 3 main brands that together account for over 65% of our revenues.

The Arezzo brand, although it's already 49 years old, 430 stores in Brazil, it was able to transform itself into a digital power. And you can see the results here. In July, we were able to exceed 2019 results. And in August, we have positive growth. Schutz, who was the precursor of fashion e-commerce in Brazil, launching e-commerce in 2011, I don't even have to talk about their digital ability. Every single month growing, compared to 2019. And now in August, it's worth highlighting the astronomic growth, 50% in the Schutz brand, and that's driven by the brand strength by the strength of technology.

And we can't forget that we're talking about a brand with 2 different product categories, shoes and bags. So Schutz, as of 2022, will expand its portfolio. I'll talk about that at the end. And you can be -- you can rest assured that our dream of becoming the BRL 1 billion brand will -- is coming soon. And Reserva, as I mentioned, thanks to all the investments that we made in the brand with the incredible leadership of our partner, Rony Meisler, and his entire team and the levels much higher than 2019 for all months of the year.

Now I'd like to ask Rafael Sachete, who will take a deep dive into financial highlights, and then I'll come back and talk about the digital highlights and main strategic pillars.

[Rafael Sachete, executive]

Good morning, everyone. Thank you, Alexandre. Now moving on to our revenues for 2Q '21. We achieved BRL 705.6 million revenues in the period, a very high growth year-over-year, 208% and 44% compared to 2Q '19. I'd like to highlight the web commerce, which is 254% compared to 2019, growing 17.8% year-over-year where we already had a high increase in the e-commerce channel. So I think it's worth noting that 2020 was marked by a very strong growth in e-commerce, but also a need to -- in gross profit. So for e-commerce, when we compare the 2 years, it's much higher than gross revenues because the margins are much better. And 70% of the period, we had stores closed. So we had to direct our focus towards e-commerce and be more aggressive in markdowns, which did not happen in 2021, that was 2020.

So revenues, BRL 175 million, and we've been very resilient in multi-brands, achieving 383% growth year-over-year and 69.7% compared to 2Q '19. I'd like to add, the big game that we have in multi-brand is much more than the figures. I know that deep down, that's really important. But it's all about digital sales. We broke that paradigm, that old paradigm about local showrooms and reps traveling. So we were the pioneers in creating the digital B2B with our live sessions, and we have a live broadcast studio. And 100% of our digital sales are really making a difference. And also going digital with a multi-brand sellout.

And the speed of transformation since the first day of the pandemic, the strategy to reinforce the multi-brand channel by having online service that didn't exist before, really, we set up the framework in 2 weeks, and we already got spectacular results. And I believe that, that resilience in that channel should remain in the next quarters.

Going on to gross revenue and EBITDA. So on the left, we have the gross revenue, BRL 297 million, achieving 53.9% of gross margin, an increase of 710 basis points compared to 2019, which is a better reference, I'd like to highlight the AR&Co revenues, many direct-to-consumer, be it through brick-and-mortar stores or online and also supporting the relevance of the web commerce mix in the Arezzo&Co brands as well. All of that supports that increase in gross margin.

But even the B2B channels and multi-brand channels had an increase in gross margin, yes, all channels with the increase in gross margin. So it is recurring. And it's also worth noting that aiming at the sustainability of our chain and chain of franchises -- franchisees and the closures that we had, we supported a drop in the markdown from BRL 10 million to BRL 11 million for our franchisees that are recognized in the 2Q results.

If otherwise, gross margin would be 130 basis points higher than what you're seeing. You touched on a very important point to highlight the assumption that we have to maintain the health of our value chain from suppliers to franchisees. We did not cancel any orders, even though those stores were closed for almost 45 days. We paid all our suppliers, all the products, increasing the inventory. We're able to have good sales with good margins. And as Rafael mentioned, we also supported our franchisees, and that reflects in the liquidity index, which is greater than 95%.

Perfect, Alexandre. Going on to the right side, you can see the EBITDA. We achieved BRL 84.2 million recurring EBITDA. We had -- the accounting EBITDA was much higher than that. The tax credit is being approved and it should materialize in cash in the next 22 to 25 months. So we'll have cash generation that's coming from those credits, and you can't see that right now in the BRL 84 million, but that will help to convert the cash for the company, a margin of 15.2% and a bit smaller compared to 2019. But it's -- here, it's worth noting the growth year-over-year.

And based on the points that we got this right and favors that are the -- is the assertiveness of our collections. Many of them were very assertive being recognized by our customers with very healthy sales margins, adding the VANS brand and AR&Co that assist in the company leverage and the improvement in the results in the North American operations, especially compared to 2019. So positive EBITDA above the breakeven, and we found the to generate results in the North American operation and strong expenses controls, especially in admin areas and fixed cost areas that were very refined in 2020, and that has been maintained in our daily operations.

In terms of expenses, I'd like to highlight that we would expect extraordinary expenses when integrating Reserve, a large company with over 135 stores, 6 months of operation inside Arezzo&Co. And in this result, we don't have anything that's being excluded. When we talk about adjusted EBITDA, it's about that the fact that the accounting EBITDA is much higher. So billions that were invested in integrating Reserva, and that is part of the total EBITDA. So across the years, we'll see recurring EBITDA that's much higher compared to what we have just measured in 2Q '20 and also related to the investments in organic items, what we're doing in-house, all the internal projects.

So BriZZa, ZZMALL, Schutz, new product categories, all of those expenses that we do not recognize those investments in CapEx, they're operating expenses that are embedded in that figure. And otherwise, we would have a higher EBITDA margin compared to 2019, and it should gradually evolve in the next quarters when these projects become more mature and convert into results for the company. We're going to speed up the presentation, so we can open to Q&A.

[Alexandre Birman, executive]

Some of the highlights of our digital operations. Our digital power that includes e-commerce and the sales influenced by the digital relationship done by the store totaled BRL 1.4 billion. We presented these numbers in the first quarter. It was BRL 1.1 billion. So a BRL 300 million growth in the past 3 months.

Now only about the revenues from e-commerce, we achieved BRL 625 million. So our dream of BRL 1 billion in e-commerce sales alone is on its path, and we put all the original sales of e-commerce and also pick up stores and delivery, it would be even higher. So highlight to the quarter from April to June, BRL 205 million. Now about our e-commerce figures with digital influence, GMV and also here, BRL 174 million.

Highlights for the 4 pillars of our channel integration. As mentioned, the sellers app had a proprietary increase that is -- was created during the pandemic and perfected during the past months. And when we acquired Reserva, they had already developed something very similar. And now we're in the phase of integrating, which is so important for the sellers to have data from their consumers on the palm of the hands.

The link sales is everything that is sold at the brick-and-mortar stores and send to the remote customer. The infinite shelf is for those products that are not at the shelves of our brick-and-mortar stores. It's sold by e-commerce and what is sold by e-commerce is delivered by the store. So 47% of our sales had digital influence.

Highlight to our CRM. As I mentioned before, we grew in all fronts, be it new customers, reactivating customers that hadn't bought in the past 12 months and also increase of the frequency of purchase, as you can see, achieving 1.67 purchases per quarter. Also our NPS of all brands, we measure NPS per brand achieved 82.

Now at firsthand, a super investment of Arezzo&Co is at the end of its setup. We are going to migrate all our digital sales that is in the same center of our product creation. We created an environment able to attract more people of digital from what we already have and things we're going to do together. [indiscernible] is the main university in the region. We're creating our hub that we'll have about 200 people working there. These are some images. It's a very modern place focused on the environment for digital.

Hugo Bethlem has been standing out with this capacity to create talents. Although today, you can hire people all from all around the world, that's a reality. But the state of Hugo has been standing out. And they're very close to our headquarters, so we can create best practices because we're the highest customers of SAP in Brazil. Highlight to ZZMALL, that grew 68% of GMV this quarter, increasing the average ticket. So number of pieces sold per purchase. And ZZMALL also has the capacity of creating new customers for our bases. We were able to create a high percentage of our customer base comes from ZZMALL. So they weren't Arezzo&Co customers and they became customers because of ZZMALL.

What's going to happen now going forward, we have -- we're launching the brand of Ginger, which is reaching very interesting sales levels in our platform. So in addition to direct e-commerce, we have -- the only other place where it sold is at ZZMALL. We also are going to launch the first phase of our Loyalty, a cross brand and also TROC acquired recently will be at ZZMALL so they can resell and have a cash back in ZZMALL.

So as we said in the past, ZZMALL goes much beyond just being a marketplace. It's our ecosystem of relationship with our customer that we will be able to evolve very well. We can see them in the financial statements. The growth is still small, but we're creating a solution and that will bring great results. About Reserva, as we mentioned, very strong growth, 61% year-over-year. Highlights for e-commerce that grew 422%. So on Father's Day was iconic for the brand. Celebration dates reflect everything that the brand built throughout the years, and it's not by chance that you have desire to buy gifts from a specific brand, and Reserva is the brand to give gifts for your father on Father's Day.

In June, before Valentine's Day in Brazil, we launched an innovation, a new way to share basics. It's sales by subscription. The results were way beyond our expectations. We already sold a very high number of T-shirts. And also many of the customers came back to purchase their second subscription. 10% of the specific customers and 30% of them, as I mentioned, already came back to purchase again. So we're very confident we're going to explore many of these categories of the same concept.

And I'm sure that Reserva once again will innovate in many senses. A very important category for apparel, and we noticed a gap in the market. And going step by step, as what we mentioned would be an assumption for Reserva, expanding their categories to women's apparel. We mentioned the T-shirt, it's no gender piece, but we will have now a breakdown of product categories. And it will also be genderless, and this is new for Reserva.

Usually, most of the purchases for men are done by women at Reserva, and they will now be able to buy products for themselves at the brand. Reserva Go launched its first product for women at the end of 2020. It was hugely successful. On Mother's Day, we launched a campaign with Regina Casé, launching Simples 2.0 that had excellent results, and this shows the capacity of our Arezzo&Co to place brands in the shoe category in the country.

Our -- before our acquisition, Reserva already had 10% of their sales in shoes. As of now, it's 21% of sales. So we really have this capacity, and we will implement this in all the brands that we will acquire. A new solution in addition to e-commerce, although Rony knows that we already have very high sales in e-commerce. So we delayed launching the solution that already exists in shoots with this app for Reserva that will be launched. It was launched in 23rd of July with great success.

Continuing with AR&Co, our second acquisition in apparel that was concluded this week. We're very confident of stating BAW in our portfolio. It's a digital native brand. I'm going to give you some figures. BAW in August will sell more than BRL 50 million only in e-commerce. So we're very confident that it will achieve very strong figures. We're using the entire supply chain of Reserva. And the brand doesn't have any tax incentive, which will be important to improve the margins that are already very good.

Here, we have 5 main pillars that will be presented in 2021 for BAW. Starting with changing the distribution the brand already potential, and we're going to open the new distribution center in September. And like in Reserva [Sit Style] was a street style brand. We're going to launch shoes this year, multichannel brand. We are going to choose specifically where we're going to go because we want to preserve the brand and we're going to start with very few multi-brand places.

And in October, we're going to launch the first Temple store that in addition to being a shopping experience, it's also going to be an experience of relationship with the brand. I would like to invite you all. It's going to be a little bit different than what we have in shopping centers in Brazil. It's going to be in Bohechio. And this is our new way of operating sourcing of with tax incentives starting next year.

VANS doesn't require -- the figures are showing the strength of the brand. We were elected the best licensees with the highest growth during the pandemic. In the world, we were able to go digital. Even more in VANS, we achieved 27% of sales coming from e-commerce, although it has distribution in large chains of stores. So we're opening several stores with very good results. And unlike what's the base of Arezzo&Co brands growing through franchise, we're also growing in owned stores, and they have been doing very well. We're going to open 3 stores and opening the largest flagship of brands in Latin America at the best place of Floianopolis, the 220 square meters with the full collection and exclusive items that will only be sold at the flagship stores, and we're getting a lot of price from global VANS because of the growth we're having in Brazil.

Now our operations in the U.S. This figure is very important for me, BRL 73 million, meaning 11% of the revenue from our Arezzo&Co is recurring. And on the bottom of the page, strong growth of e-commerce of average of BRL 10 million per month. This figure is growing month-over-month in a very strong manner. And interesting, with the gross margin of 80%. We're selling new products, adherence to the brand is huge, and we're growing penetration in department stores. So you can expect very strong growth and estimates that the operations achieve BRL 400 million to BRL 500 million in a few years.

So Nordstrom is our largest sales in the U.S., and the growth is very strong. Now about our continuous growth of new brands. So my shoes that has almost an exclusive focus on being a white label for Mercado Livre, they call this wanting to buy our brands, and we believe that it was more advantageous to an exclusive brand for the digital world to be sold on Mercado Livre, very interesting work. It's a marketplace, and they have a lot of benefits in terms of exposure in their universe.

It's going to be operated for B2C in October and also having a channel in multi-brand in classes B and C that we cannot get into with our core brands. We've done the first sell-in. And in 1 week, we achieved BRL 10 million in sales. So very interesting penetration and the gain in market share in the social class that we do not enter with our brands -- core brands. This is about what Myshoes is all about, Simaria is a Brazilian country music singer as a brand ambassador. She is very engaged. And part of her compensation is connected to brand sales. So I believe that, that will really drive the Myshoes sales. Here are some more details about how the partnership will work with Mercado Livre. It's a 3-year contract, can be expanded to other categories in that big idea of creating a white label for the biggest online business in Brazil.

Now a little bit about TROC. TROC is much more than a business. TROC is the big Arezzo investment in sustainability. We believe that the best way to decrease carbon emissions and decrease the extraction of raw material is to use the biggest inventory and collection that humanity has in shoes, bags and clothing is our wardrobe, our closets.

So our belief is that crock -- or sorry, TROC will be not such a big business on the financial side, but also to help our planet. And our premise of decreasing carbon emissions will be this. We're investing a lot. This is one on the campaign that was done with the TROC. So here's some data about growth. First, the investment was to increase the distribution center for TROC. This is an actual picture. This is how we get the clothing.

The system is not directly peer to peer. We can get the products as consignment for people who want to resell. So we store, clean, care for them and provide a purchase experience that's much better than when it's peer-to-peer sales. It's a new type of business. It's a lot of work. However, it does offer a high loyalty with customers. The NPS for TROC is 91%. So a very high percentage growth in absolute figures still low, but the data that we'd like to show here is that we already have saved 550 million liters of water saved since its creation.

The next investment we will inaugurate in September in the city of Curitiba, which is the headquarters of TROC, the first store, brick-and-mortar stores. In addition to resale, it will be a place for collection. That's the most important aspect. So we're going to test this pilot in the third quarter in September. And from then on, it will be a new distribution format for TROC.

And lastly, I'd like to talk about some avenues for growth, organic. So the largest brands of shoes and bags in Brazil, Arezzo will expand its portfolio starting -- started in 2020 with BriZZa, which was a huge success.

In the next call, we're going to present 2 big initiatives for BriZZa in 2021, which is still locked up right now. It's a very seasonal brand and especially in summer. We're investing a lot, and you'll see what's coming for BriZZa. We've also tested the Arezzo brand adherence for children, which is a segment that accounts for 35% of adults and the results were exceptional. We expanded the collection having sell-in for multi_brands. The first test was on the Arezzo's own channels, own stores, and e-commerce. And Bambini for 2022, we have great ideas for sale.

We started to develop apparel for Schutz that will be for multi-brand customers. The big launch will be in November and Winter Collection 2022 for our customers, the big mix. It's not going to be a small launch. It's going to be very strong share in that, with exclusive stores of Schutz's apparel and a new e-commerce platform that we're investing in now, we'll have a great purchasing experience for the Schutz brand. So as the cherry on top, our brands more adherent, more desired. Arezzo continues with Bruna Marquezine. She can leverage brand awareness a lot. The campaign will be connected as of August.

Schutz with Marina Ruy Barbosa, the idea of turning the lights on, bringing back shine, and we'll have an increase in high heel sales during the pandemic. We're talking about flats in sneakers and now going back to high heels. Anacapri, very easy going with Manu Gavassi, traveling to a Tuscan Villa, that was the idea.

So our highlights in our investments in ESG and the main one is TROC, as mentioned before. Our annual report that was just published, it's really worth the read. With the Alme brand, we're going to present a change in positioning in the next call. It's going to be our brand that's 100% sustainable. That will offset our carbon emissions with very unique products. So we're restyling Alme to be 100% sustainable. Now about our team. High capability of attracting talent and having diversity. So once again, we had the election making us one of the great places to work. Now we're open for Q&A. Thank you for your attention and your time.

[Aline Penna, executive]

We have 4 questions. The first one is from Helena Villares from BBA.

[Helena Villares, analyst]

It's been 9 months since Reserva joined the group. What are the main learnings with the integration not only in synergies but also in the operational side of the day-to-day? What has already been delivered in the synergies that you imagine? Have you found any difficulties that you did not expect?

[Alexandre Birman, executive]

Helena, thank you for your question. I actually feel a bit embarrassed about the answers that I'm going to give you because it's so positive that it feels like that we're not even telling the truth. It's actually a huge surprise about everything that we've achieved. So with the second part of your question, we didn't see any -- find any difficulties at all.

Quite on the contrary, we found much more value than we expected. And translating that into figures, our results that will be achieved in 2021 was our goal for 2022 actually. So we're 1 year ahead. And we have the ambition of achieving BRL 1 billion in Reserva in the next couple of years.

In 2021, we'll be close to BRL 700 million. So where is this growth coming from? The first assumption was to implement a unique strategic differential in the fashion calendar, which is based on business cycle, which is not based on the seasons of the year, meaning winter and summer. In Schutz, we have 18 cycles. In Reserva, in 2021, we'll have 12 business cycles.

What does the business cycle mean? It means that you're creating a product collection and in it. You highlight the star products, that they'll be the highlights in communication. We'll invest in visual materials for that collection. We define a communication and marketing plan that's very specific. You'll have unique merchandising and for that business cycle and also connect commissioning incentives for those specific products.

So that cycle, that engine was already implemented very well at Reserva. And I'll give you 3 examples in the first quarter. So the first one was the collection, a collab with Reserva and the [indiscernible] which was very successful. After that, imagine a 100% men's brand since its foundation, did a Mother's Day campaign with actress Regina Casé, launching a sneaker, which was a huge sales success called Simples 2.0.

And after that, sticking with the assumption of turning Reserva into a brand that's not only in the men's universe, we launched, in addition to the incredible Simples basic tees, is subscription sales option for Brazilian Valentine's Day. And that gave us impressive growth at Reserva. And in retail, we found an opportunity to bring in a unique purchasing experience bringing back the origin of having -- where you have in the stores with the fridges and beers and standardizing the stores.

So we inaugurated 3 stores with 40% growth in SSS. And the iconic store in Rio de Janeiro, we're doubling the Leblon store that will sell over 25 million a year, and we're doubling the size of the store in Ipanema, so expanding the stores. And third, in the Schutz category. So you know how big the market is, the brand has a high recall awareness with Schutz businesses was pretty decent, but it was licensed that Reserva was already getting royalties. It was a factory that had their production.

So we internalized from product creation to sourcing and all the part that's not part of that, but the systems side. And since March, we've been operating the business called Reserva Go that accounts for 21% of Reserva source -- sales and has a lot to grow. And all of that connected to was already good at Reserva, which is marketing, the team, highly engaged people. So Rony is really a great partner and supporting us in many different aspects and with the different view on own stores for the Arezzo and co-brands.

So far, so excellent we call, as we say. And I'm sure that from now on with we'll have the same gains. And from then on, we're going to have a unique pipeline to grow Thank you, Helena, for your question.

[Aline Penna, executive]

The next question from Helena is about Schutz lifestyle, and we already talked about during the presentation.

The next one is from Danny Eiger from XP. I think most of it was already answered, but I'll read it to you. Could you talk about when we should see the first results of BAW and Myshoes? And also some more about the Bambini Arezzo collection, the number of SKUs and assortment and apparel coming in through Schutz and the new fronts?

[Alexandre Birman, executive]

Thank you, Danny. Based on the size of your question, that shows our ambition and our ability to execute. So since August 1, 2021, will start being a part of our results. And we believe that in the third quarter, we'll have approximately BRL 18 million to BRL 22 million in additional revenues for business.

As of 4Q, we'll have the first brick-and-mortar store for BAW and still in the test phase, the Schutz category for 2022, you can expect BAW with a growth of 100%, year-over-year, BRL 80 million to BRL 90 million in revenue by growing its own e-commerce obviously. And also based on the driver of the e-commerce that addition to digital, it's the distribution center that we've been growing since 2021.

The opening of some specific stores and going into some specific multi-brand stores. Why specific? Because we want to preserve that unique BAW identity. So our 5-year planning for BAW, we will -- we are absolutely sure that we will achieve that in a structured manner. And last, not on revenues, but in terms of margins, as mentioned, BAW currently is not operating under the law created to support the fashion segment in Rio de Janeiro, which is called the Fashion Claim.

And as of 2021 and also we currently to 2022, it will operate in the same distribution center, and we'll start talking about that. We're investing in a huge distribution center for our apparel business that will obviously operate for Reserva and affiliate brands, but also BAW and Schutz lifestyle will be operated in that distribution center that's exclusively created for apparel and inaugurated in the first quarter of 2022.

Other questions?

[Aline Penna, executive]

Bambini started with assortment to test at Mother's Days of only 10 SKUs in 2 categories. That injected sandal like a vulcanized sneaker. The sell-out, it was sold out in the stores. Now we have a back-to-school collection with that is generating a huge buzz in our stores. And for Children's Day, we have a collection with 40 SKUs expanding categories. We hired a style team with experience and expertise in children's shoes. So we're using a new sourcing center. Schutz has that thing of these hubs for women's shoes and the city of Birigui for children is our hub to produce Arezzo Bambini.

And as of 2022, we will break down as an independent branch of the business the same way that we are already making independent BriZZa, which was an assumption when we presented it at the end of 2020. And for the fourth quarter, we have BriZZa with the partnership with one of the largest department stores in Brazil, and we want BriZZa to be distributed also, not only at the traditional resident multi-brand stores we have, but also in this huge department store chain. So what I mean is the diversification of Arezzo brand through flip-flops and children's footwear is huge.

About Myshoes, that's the next question. Yes, well, we launched the sell-in. Myshoes will have 2 sales channels. One, digital exclusively at Mercado Livre, we're creating our own space of distribution in our distribution center close to Mercado Livre. So a very deep process of going digital and it's going strong. And as of the beginning of October, the sellout of Myshoes will be through Mercado Livre and another channel, our multi-brand stores that we don't reach. It's not just Schutz stores, but other types of stores, more than 7 stores between Arezzo and Anacapri, and we have exclusively on those stores, we don't show 2 multi-brand in certain places.

So Myshoes is also a brand so that we can penetrate in thousands of multi-brand point of sales that we have restrictions because of franchises. We did the first collection very briefly to test. BRL 10 million were already sold, that will be included as of October. So Myshoes will be in our financial statements as our fourth quarter.

And also, she mentioned about the stores, the cross brands. Will it only be for ZZMALL customers, or will be integrated in the brick-and-mortar retail?

That's a very important point. Through ZZ Ventures, we will announce the investment in a loyalty platform that we were the first customers to use. It will be announced soon. We're still in the due diligence phase. We're working with co-investors. But we will be partners of those platforms even though a small share, and we will be able to create a cash back program that will be very interesting. We tested in 2020 with a very high rate, and it will be also used for all the other brands, not only at ZZMALL, but ZZMALL will be the connection platform, and it will be through ZZ Ventures. So first TROC and now ZZ Ventures is our own venture capital, a specific fund that is separate. But that's what we're using when we don't acquire 100% of the business. So it will be the case of this investment on this type of store. We always want to bring brands for the first quarter of this year.

The next 2 questions are from Olivia from JPMorgan.

[Olivia Petronilho, analyst]

I would like to explore your plan for the women apparel segment. We are seeing expressive growth of Reserva some initiatives in the brand for expansion. Do you believe that EVA and Reserve can gain relevance to the women's apparel segment? Or should we understand that focus relevant for M&A.

[Alexandre Birman, executive]

Thank you, Olivia, for your question. The answer is Reserva has the assumption of basics. So T-shirts, polo shirts, now jeans on those basic categories, we will gradually launch some drops. We won't have a huge launching of women apparel. We're going to start with shoes, T-shirts, then jeans, and we're going to go little by little. And so they will have a percentage of basic wear in their closets. We're studying a specific line of products for Reserva that are only women's apparel. We're still understanding how that works. At Reserva, our focus is on basic wear that are genderless.

So they have -- they're a little bit shorter, the neck is a little bit thinner, but it's the same T-shirt in terms of colors that you find in menswear. The jeans have an incredible fit. So it will be launched in the stores soon.

As of how we will do this? We're changing EVA's positioning. We are going to -- I can't give details, but we will absorb a market created by EVA so that we can grow in women's apparel through a change that we will do internally. We will announce that at the end of October.

And then your question -- the most direct answer is that a step for to grow in women's apparel, consolidating as a house of brand will be through M&A. BAW has about 40% of its sales in women's apparel. So it's a brand. It's not -- it's a no gender brand. It's the right way to say how this brand is that is both for men and women.

[Aline Penna, executive]

The last question also from Olivia.

[Olivia Petronilho, analyst]

What are the greatest surprises of the result was again the streamlining of expenses, although higher investments in marketing? How should we think about the investments of BAW and Myshoes go into the portfolio?

[Alexandre Birman, executive]

Perfect. I think I mentioned this when Rafael was showing the results. It was expected to have expenses for integration and to prepare Reserva. And the results of Reserva are way beyond our business plans, expectations and all the expenses we add, that could be called preoperational for Reserva. We're already naturally absorbed with this results much higher than our expectations in revenues. So that already absorbed all the additional expenses with BAW, we expect the same thing to happen.

Because as I mentioned, the brand doesn't have any tax incentives yet. And many companies that only have their operations in Rio de Janeiro, they have a huge tax incentive from the fashion loss. So BAW will start operating from the Rio de Janeiro distribution center. We're testing to see if it's possible to migrate in 2021 without affecting the results of the month of November, which is the highest sales of about BRL 20 million to BRL 25 million only in November, but all the expenses that we can have with the new distribution center, the first flagship stores, we will absorb in BAW.

And Myshoes has marketing investment at the beginning, that is much higher than would be usual for that, but we have a good campaign on the multi-brand channel. Everything that we have selling the second collection in the multi-brand and B2C through our stores at Mercado Livre will already generate profitability. And the people structure for Myshoes, every brand of Arezzo and grow works as an independent business unit, but we have synergies and products, and we're using the structure of our core brands.

So we understand that these businesses will be top line accredited. And the new organic growth like Schutz's lifestyle is being done. It's not through MVP. We already hired a structure for Schutz that is fully dedicated to it. To have an idea, we are building a small workshop to prepare these new pieces. So Schutz will have expenses not revenues only after winter of 2022. Arezzo Bambini and BriZZa are still brands that -- the investment is marketing is higher than we desire for more mature brands. But these operations have a positive bottom line, but they need to leverage in time.

Operations in the U.S., we're growing strongly in revenues, and we will achieve an average of BRL 30 million to BRL 35 million as of August. For 2022, we have a target of achieve BRL 0.5 billion in the U.S. market. And we have a structure of people and logistics very well set up. The only investment in the U.S. operations is to invest in marketing so we can continue to grow in the market, and we will check how it goes throughout the quarter, but it also has a very positive bottom line.

[Aline Penna, executive]

Those were the questions, Alexandre.

[Alexandre Birman, executive]

Great. I know that you all have very busy days on this Friday 13. I would like to thank you, my team for their dedication and passion in the second quarter. Full of challenges, as I mentioned, we started with the core shutdown. We didn't even know what was going to happen in Mother's Day, but it was one of the best Mother's Day for Arezzo shoots. We're very confident for the third quarter. We're almost in the half of the third quarter, and the results are very positive.

I'm sure that we're building a platform that goes much beyond being a company that generates results. It's doing good things for our ecosystem and providing a very inclusive work environment, maintaining our differential that we want to reach 2054 with a great name. Thank you very much for trusting our company. Have a great weekend.

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