Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2022-Q2

[Alexandre Birman, executive]

Good morning, everyone. Thank you for taking part in our video conference call for this -- for the earnings for 2Q '22.

Today, I have with me our Manager of Investor Relations, Victoria Machado; and our CFO, Rafael Sachete.

This morning, I was thinking that this is my 46th earnings call during these past years, and I don't know how -- what I can say. I am so emotional. It feels like it's the first even with these brilliant results. And the opportunity of sharing this with all of you and hearing your opinion is always great for us. I'd like to start off this morning with a special, deep thank you. Our Arezzo&Co family, which is currently comprised of 6,580 people that are really amazing -- and together, they enabled Arezzo&Co to deliver the best results in history.

[Presentation]

[Alexandre Birman, executive]

I wish I could show all the 6,580 faces. They really deserve this tribute, but I'm absolutely sure that the ones that I did show represent the entire team.

It is really a very strong ecosystem. And together with our vendors, customers and all of you, all of us are building something that's extremely revolutionary with a very important social role in Brazilian fashion. One of the main reasons for the results that we will present today is our ability to bring together product, communication and marketing; and consequently the activation in the point of sale and e-commerce. We can always evolve. And I know for a fact that the journey will still be a long one, but in these last years, the e-commerce of Schutz, which was christened by Maurício Bastos, our leader in digital -- we've achieved the excellence for this moment in customer acquisition, UX, the speed of delivery, our aftersales service, achieving historical levels of NPS, among other factors that contribute so that our e-commerce customers will remain loyal. And even though we have a high number of customers in e-commerce, even after the pandemic, it's still strong. And after implementing this model in 1995, which across these almost 30 years has evolved every time -- and enables us to have a complete control of the supply chain. From product creation to the product in the store, we manage all the steps and, most importantly, without having major assets.

Today, we will show you in an unprecedented way, so you can actually see how different it is, the capability that our marketing team has to create. And together with the sales team, they were able to generate a lot of perceived value for our brand, creating customer loyalty and therefore growing our sales. Our style team, with a unique capability bringing together not only regular research tools but also add to our collection, with over 40,000 different styles in [ these past 30 ] years, creating product that awaken the desire to purchase in our customers -- and last but not least, the attention and the care that we have towards our people, towards our value chain and truly making this company sustainable, as our model on the way to 2154.

Now the figures. We achieved revenues of BRL 1.2 billion in this quarter, 65% year-over-year and 138% versus pre-pandemic period. Our gross margin was historical. So especially in e-commerce, with a drastic reduction in marked-down sales, enabling our consolidated gross margins and still having 50% of our business in sell-in -- our gross margin was 56%, leading to BRL 162 million, which means a growth of 93% year-over-year. We achieved an EBITDA margin that was very healthy. And within that, we have to remind you that a number of initiatives in future growth and not to mention the deliberate marketing expenses to support the reality of the global scenario and price increases -- so to have a brand that can support that price increase, and still we delivered 17.2% EBITDA margin.

Our net income, BRL 123 million. Rafael will present this. This was linked to high cash flow generation and consequently strong return on invested capital.

The health of our growth is better explained by the growth of our sales volume. So prices increased approximately 20%. And a price increase is not just the increase of the price of the product itself but also selling less marked-down product. So the actual price increase was only 12%, but we reduced the sales in markdown, and that means we increased the average price of products sold. I'd like to highlight 4.3 million pairs sold and 1.6 million of -- pieces of apparel sold. That accounts for [ 35% ] of our volume in apparel alone. So total amount of pieces sold of 5.9 million items. Apparel already accounts for 24% of our mix and had a very strong growth in the apparel of 66% in pieces sold.

And last but not least, in the category that -- as of the end of this year, through the acquisition of HG, our biggest bag supplier, we will have the same business model. And we were -- will own the software for the bags, and that will grow. So in the quarter, 686,000 bags sold. This category had the highest growth in volume quarter-over-quarter, and it was 89%.

Now let's talk about the essence of our business together with our team, which is the capability of generating needs in men and women to buy fashion items. We know that some are basic items of consumption, but through our creativity and investments in marketing and products, we create that need in people.

[Presentation]

[Alexandre Birman, executive]

[ Arezzo now ], on September 18, will celebrate its 50th birthday, reaching this landmark younger, more connected -- and excellent execution of its sell-out calendar in the second half which focuses on mothers' day and Christmas. As you've seen, we achieved record figures on mothers' day in the period -- or Saturday before mothers' day, generating revenues much beyond our expectations.

Continuing with our calendar with a celebration date that wasn't that relevant for Arezzo, Valentine's Day. We invested highly. And all these initiatives, you've seen data that show our capacity of generating desire: more than 20 shootings, 60 images generated, 4 launchings per week, thousands of SKUs. That brought Arezzo to the growth of 64%, our mother brand, where everything started, achieving BRL 312 million in the quarter. And part of it comes from sell-in. That is still very expressive. So we achieved BRL 60 billion -- BRL 60 million in the quarter.

So let's talk about our second brand I had the honor of creating when I was 18.

[Presentation]

[Alexandre Birman, executive]

The Schutz brand -- one of the toughest periods of the pandemic -- stood out. 2020, it was very resilient due to its capacity of digital penetration. As I said, it was our first e-commerce brand that has today a capacity of being omni. It's our shoe and handbag category with the highest percentage coming from e-commerce, more than 30%, which also started handbag in 2012. And now it accounts for 30% of the brand's revenue. And additionally, you saw Schutz' full look.

Schutz is omni and Schutz is global. 30% of the brand's revenue comes from the North American market, with the brand awareness in the segment very strong, very mature operation continuing to show solid growth. We're learning with this new category that is so relevant which definitely will increase exponentially our addressed market. We're very happy with the results, so far, in this beginning, less than 3 months of operation and already generating an impact in the total of accesses to our website due to being able to show shoes in a more structured way with images and the full look of Schutz. And from now on, these learnings will generate continuous growth to our second greatest brand in revenues.

Continuing with our presentation and our brands, let's talk about our brand that enabled us to open this new segment which is so relevant for Arezzo&Co in such as little time.

[Presentation]

[Alexandre Birman, executive]

[Foreign Language] impressive figures, growth already on a strong baseline, 60% year-over-year, achieving [ a brand ] of BRL 250 million in 1 quarter; growth in the sell-out of 87%, as I mentioned; a growth in volume achieving 1.4 million pieces of clothing sold; a brand 100% omni, already having 64% of its revenues even in brick-and-mortar stores coming, influenced by digital, generating 39% of the revenue from omni sales.

Everyone asks me and you already know the answer, but it's worth pointing out that the speed and agility that Arezzo&Co was able to integrate Reserva, respecting its culture and understanding its core business and adding value to the fashion business management system that Arezzo has created in time, explains these results. Nothing is by chance. The number of collections, all the images that you've seen, so far, are from Reserva omni only in the second quarter. Our strategy of launching multiple collections was in place; and the synchronicity between product, communication and marketing generating higher frequency of buying from the same customer, increasing the same-store sales. We integrated with shoes, which accounts for 20% of Reserva's revenues, from Reserva Go. And now we're implementing this addressable market that will be very important for our future growth for women's apparel. The soft launch already had impressive results in July. And now gradually, step by step -- there's something that I like in Italian, which is [Foreign Language], which means, little by little, you will reach far -- and now going into women's apparel.

And now our third largest shoe brand. And then we're going to -- we wanted to present all 16 brands, but it's going to take too much time. So now we're going to talk about Anacapri.

[Presentation]

[Alexandre Birman, executive]

[ Anacapri ], post pandemic, had to reinvent itself. Because we all know that consumption comes from the special occasions; products with more shine, more heels. Everyone wanted to shine up, and Anacapri has in its DNA more casual products for everyday activities. In 2021, [ we had led ], but we started 2022 with an interesting growth, strong if we consider that our brand already grew 25% year-over-year. And I ensure you that, the third quarter, Anacapri will surpass the 50% growth mark year-over-year, thanks to consolidating and being able to maintain the brand's assets which is flat shoes, however, bringing them, offering them in a more glamorous manner. We added the flat forms that will be launched in August. And the results of the collection sales are very strong, so I'm very confident that Anacapri will grow in a very speedy pace with a multibrand that is important for our wholesale. Our multibrand will continue to grow. And those are the -- they -- figures for Anacapri.

Consolidating all the brands and the most relevant ones. As mentioned here before: Arezzo, our mother brand with a very expressive growth with 64%, 16% of its sales coming from e-commerce over the total sell-out. Schutz with 51% growth and, as I said, our most digital brand, 34.2% of sales coming from e-commerce.

AR&Co, in this last quarter -- and a sidebar. I listen to -- I hear questions about how far will Reserva go. And the answer is somewhat romantic, which means infinity and beyond. However, we will overcome the revenue of BRL 1 billion in 2022. And honestly, we're just at the beginning. What we did in shoes, which is to have revenues of more than BRL 200 million, will be applied to other categories. And we have several initiatives in our pipeline, entering the more basic segment through [ Reserva Simples ] Reversa, as we mentioned. And our pipeline is almost infinite for growth. I know you need a model to put in your valuation, but you can consider at least double the revenue of 2022. That's what we intend to achieve for the next years. As I mentioned, Anacapri had the year of 2021 with changes in the customer behavior but still had growth; and as of the third quarter and consequently the fourth, will have expressive results.

On the right here, you can see how our company is literally multibrand. The breakdown is very structured of the revenues per brand. [ And there's the ] relevant aspect in it's 30% of our business. In 2007, it was 100% of our company, so Arezzo has strong growth but accounts for a little less than 1/3 of our revenues. And more interestingly, when we analyze this slide, is how we are multichannel. It's like a pie split into 4 identical pieces. So 25% of -- DTC brick-and-mortar, that includes owned stores and franchises. And 26% of -- e-commerce, that does not include omni sales that are in the brick-and-mortar mono brand. And a significant share of multibrand that you probably saw in our earnings growth of over 60%. And we wish to maintain that in the third quarter. That accounts for 25% of total AR&Co revenue.

So about the sell-out. In the second quarter, we had 60% of growth in DTC channel stores, achieving BRL 1.8 billion of revenues in that period in the half year. And interestingly, our earnings [ here ] for July are at the same rate. We achieved 48% of growth year-over-year. It's already August 12, and in the first 10 days of the month, I can say that the number is exactly at the 48%. For the Reserva brand, this Saturday is very special. It's we have fathers' day, and we have very high goals here. Because of fathers' day, this weekend, we're achieving our goals. So our trend is to end the third quarter with figures even more expressive in sell-out growth, and all of that very much based on our omni capability.

As presented here, e-commerce has strong resilience and growth [ of 33% ]. So if we compare to 2019, it's even hard to read these figures. It's 380% of growth compared to 2019, showing our ability to service in digital. In August, we're at the same pace. Strong growth in traffic, 70 million visits on our brand websites, a growth of 29% year-over-year. All the main brands, in the app, where the customer acquisition cost is much lower than when we sell in the website alone -- and already accounts for approximately 30% of our sales, representing 37% growth year-over-year. And that shows off in the ticket, the pieces per sale. And it's even more qualitative and giving us more margin for the business.

Now talking about our omnichannel highlights, influenced sale that accounts for 45% of the total sell-out, including all brands; very strong growth of the tool that pick up at the store, 39% year-over-year; and 7 million contacts through the salesperson app. So total sell-out in the last 12 months BRL 873 million. When we presented that LTM in the third quarter, that figure will be over BRL 1 billion.

So about our customer base, 4 million active customers; and the frequency of purchase 113% more of omnichannel, brick-and-mortar and online, with a low cost of acquisition, customer acquisition cost -- 24%. And that gives us the capability in increasing that per sales.

Now we'd like to highlight the international business, focusing on the U.S. operation, with strong growth especially due to brand awareness. The e-commerce data is really strong, 100% of growth already on top a very strong base mainly as a result of increase in traffic. And here we have a -- high customer acquisition costs, and based on this, we want to have a stronger digital business. 52 million (sic) [ 52,000 ] customers have bought in the quarter. And that's low if you consider the 4 million in Brazil and the size of the U.S. market. So you can see how our customer acquisition strategy -- even though it has a high cost, it's leading to great results. So 69% of the sales in the quarter were for new customers.

So we still have strong numbers, BRL 120 million in the quarter, in dollar 75% growth; and even with higher investment in digital, with a positive bottom line.

Now I'd like to hand over to Rafael Sachete, who will give us the financial highlights and especially talk about our strategy, [ the same as what's next ].

[Rafael Sachete, executive]

Hi, good morning, Alexandre. Good morning, everyone. I'd like to once again congratulate the entire team with brilliant, relentless work in these past quarters, making Arezzo&Co achieve these incredible results that we see here in the second quarter of 2022.

Now moving on to the financial indicators. Alexandre has already shown the importance of our revenue. The revenues are the basis of our business and the strategy of our brands and the channels of distribution, and an important thing that we should highlight is the gross margin. So the growth of revenues by 65% and [ 10 ] basis points increase that come -- came from less sales -- less markdowns in the period compared to other periods. And changes in the channel make more relevance in these channels in the company. And that's a trend that should remain, the gain in gross margins; the gain in the growth, revenue levels. And that's very important to generate value for our business.

Now about SG&A. It's worth noting the investments that we made to add value and desire for our brands. It's very important for us to maintain that desire in our brands, so we deliberately invested in the quarter. We grew the marketing investment so we can grow the revenues and volume of 65% and improve the gross margin. And in the expenses with sales, we included our projects. And the launch of Reserva women and the investment in My Shoes, all of that goes into the financial expenses line.

Lastly, we see our EBITDA that gives us great leverage, especially in the fixed expenses, with a growth of just 17.2% year-over-year. And that return, that leverage of fixed expenses is part of the Arezzo&Co culture; and it will remain as an important pillar to continue to build the business. So we ended the quarter with BRL 162 million EBITDA (sic) [ adjusted EBITDA ].

Going on to the capital structure and management and our discipline in relation to the financial pillars. We ended with 34% of -- adjusted ROIC -- and the investments in the amount of brand acquisition to adjust the ROIC. And this is what we have in retail. It's usually a benchmark, and it's a reason for pride for the company and with a lot of discipline. It's -- and it's an individual target and it's metric of Arezzo&Co. So the discipline of investment with a strong rule for capital allocation. And here there is also the discipline in working capital that achieved [ 14% ] in 2Q '22. And without neglecting our investment in CapEx, 50% of this amount was allocated to increase the brick-and-mortar stores of owned stores, Vans, Reserva and Schutz, in our portfolio.

We ended the quarter with total cash of BRL 715 million; net cash of BRL 360 million that was used to invest in CapEx and also the payment of acquisitions for the period. And with that, we've ended with a net cash at a position of 0.6x the EBITDA of the consolidated LTM of the business.

It's also worth noting the importance of our net income in the period, a record for the second quarter in the historical series, over 13% -- given the growth of NOPAT and the EBITDA and also the capital allocation of the company. And lastly, the [indiscernible] [ tax rate ] of the period by using interest on own capital in the month of June. So that's a performance for the year, for the next quarters in relation to the improvement of the net margin compared to the previous periods.

About our strategy, it's important, as Alexandre mentioned, the [ important ] about -- to see where we're going towards the company strategy. On this slide, we can see the chart, the web, showing our strategy; and how we see that strategy through brands, categories, segments, positioning and channels. And in our origin, we operated in women's footwear and premium and B1, 100% focused [ without leaving ]. And I'd like to mention something.

When we look to the past 10 years ago, 12 years ago, we were a one-brand company; and through 2 channels, 2 multibrand channels, and franchises. And now we have a number of footwear and handbags. And there was the IPO in 2011, strong penetration in digital and abroad, so since 2019, there was an increase in the total addressable market that you'll show here. And it's also worth knowing the geography, the expansion to the international markets and the changes of own channels -- and that it has been a star in this channel in omni and online sales. So with a track record.

[indiscernible] had inorganic movements in the period, starting in 2019. We started with Vans with a different mix of products, our first experience in male apparel, a licensed brand that brought a lot of learning to Arezzo&Co; then Reserva, which transformed our portfolio and transformed the company's culture and the revenues and the company's EBITDA results; then TROC, Baw, Carol Bassi, My Shoes and HG. All of them performed very quickly and very well, transforming our business in Arezzo&Co; transforming the brands; and transforming Arezzo&Co's entry in new segments, new categories and even new businesses as TROC and HG and Sunset, supporting our growth.

[Alexandre Birman, executive]

I would like to take this opportunity to highlight the first results of Carol Bassi brand. The first quarter -- half of this year was marked by restructuring and hiring people and creating a team, defining the key aspects of the brand. And now we're in the second half, going to go to market at a very high pace. We've already had in August the start of our e-commerce, which took place on the 9th of -- this week, on Tuesday. An addition to launching strong in the digital channel, we also launched face-to-face at our store, the Shopping Cidade Jardim, which showed collabs, this time with Maria Rudge. And write this number that I'm going to give you because, although it's for 1 day, it shows the true potential of Carol Bassi. On August 9, the store at Shopping Cidade Jardim achieved sales in 1 single day. And that's the actual figure, [ BRL 1,428,000 ], 1 store, 1 day. And e-commerce achieved [ BRL 300,000 ]. This month, the store at the mall will go beyond BRL 4 million.

And the second half, we will continue with our strategy of expanding geographically with Carol Bassi and even more exclusive store format, even more special. That will take place in Belo Horizonte in Rio de Janeiro and, afterwards, a flagship store in São Paulo that will be the most amazing women's apparel store in Brazil. And I'm humbled to say that it will be one of the largest of the world and Latin America, so we're very confident of what we did, so far, with Carol Bassi. Congratulations to the entire team.

And even if we don't have that much sex appeal, the relevance of incorporating our sourcing agent and the first handbag store that Arezzo&Co will own will have a very strategic role in the long term. That is our road map for the short term, less than 3 years. That already changed our company. And we're on a path that will take us [Foreign Language]. And that way, we consolidate our market.

[Rafael Sachete, executive]

Perfect, Alexandre.

And consolidating the information. And our track record of acquisitions and how this process takes place and how we generate value for the House of Brands at Arezzo&Co is being implemented in continuous process of acquisitions and licensing. This is the first step of a large cycle of consolidation where we apply our supply chain management, understanding the value of the brands and need of specific teams for each brand and maintaining the brands and products culture and marketing. So we're being very careful with all the brands; the quality and the speed of implementing the brick-and-mortar retail expansion, which is very important for Arezzo&Co; and also the skill that Arezzo&Co has in having 950 stores all around the country and the world.

Our capacity of digital and omnichannel tools and the rollout of these tools to all the brands and companies acquired brings a lot of value in the short term. The relevant experience in managing B2B, franchise and multibrand channels, which is very important for Arezzo&Co -- and we're implementing them also in the acquired brands. A team and an integration process: 100% is dedicated to add value and capture synergies in the back office very quickly in our acquisitions.

Integrated and scalable systems for new brands and companies. They're ready. We already implemented them in almost all companies we acquired. And implementing the Arezzo&Co management system that changes the way companies are managed through culture; focus on results, on new branding and generating long-term value. As I said, we're very happy with the results we obtained, so far, and with all these integrations very well executed generating results without bottlenecks, without any problems to generate value; and now focusing on looking at new acquisitions and new movements where we will implement exactly what is said here on this slide, 33.

With this, I conclude.

[Alexandre Birman, executive]

Thank you, Sachete.

We're generating value through the infrastructure and processes and systems, people and management to become a House of Brands with excellence. This is very important, to learn our facilities in Rio Grande do Sul, where all our areas are included, that we have an exclusive group of key users that can incorporate and roll out any type of business. We proved that with Vans. And since then, our track through a lot of investment allows us to create this backbone that allows -- the entire infrastructure is available for entrepreneurs, creators. And they focus more and more on the core of creating their brands, their products; and consequently increasing sales.

I would like to take this opportunity to communicate the day of our Investors Day in 2022. It will be on November 10, a Thursday, during the afternoon. And we will send a questionnaire to all of you so that you can tell us what are the key topics that you would like to discuss. And that's very important for us. And a geographic question, so to speak: Our intention is to have you at Rio Grande do Sul because the last Investors Day held there was 8 years ago. And we evolved greatly in our infrastructure. We know that it's a period of several result calls, but I'm going to send out a survey, and democratically we can decide if it will be in São Paulo or at Rio Grande do Sul. We're advancing the date because of the calendar at the end of the year, especially because of the World Cup and with all these issues after the elections. So I count with your presence on November 10. And we will discuss the topics you choose as well as the location.

Now we're open for Q&A. And [ Vicki ] will manage the questions. I don't know if all of them -- I'm very happy with the number of questions. Those that won't be able to be answered live will be answered on one-on-one.

[Victoria Machado, executive]

Let's start with a question from João, Citi.

[Joao Pedro Soares, analyst]

It's interesting to see sell-out above 40%. Will you share the individual position of the brands? And about the high summer collection, can you tell us the differential and how it Was received?

[Alexandre Birman, executive]

I'm going to share your question in -- I'm going to split in 2 parts. Thank you, João. Just a sidebar: The collection that we're selling today in the summer collection -- we would like to invite you all to be part of the highest sell-in of a company in Brazil on August 17 at Bienal, with [ the creatorship ] of the founder of São Paulo Fashion Week, Paulo Borges. And we will present all our 16 brands together, with a mini showroom of each brand. So high summer collection will still be sold for the store owners from 17th to 30th of August and will be in the sell-out in November and December. So speaking about the results of the summer collection: They're very strong. All the brands were very well accepted with the mix of products and the strategy and communication and marketing, all this pushed by an engagement work that we did, if you follow our social media. Our event called back -- [ the magic is back ], that happened in São Paulo. And we had 1,500 sellers in person and another huge number connected. So the first week of the summer collection that closes today have been showing very good results, very exciting. The breakdown of the revenue per brand is similar to the results presented here in the second quarter.

[Victoria Machado, executive]

Our second question is from Irma from Goldman Sachs. She wants us to talk about Vans, the channels, how the stores are doing.

[Alexandre Birman, executive]

I'm going to send to Rafael Sachete, leader of new businesses.

[Rafael Sachete, executive]

Thank you, Irma, for your question. The figures are very exciting, encouraging. Without talking about the track record: When we started at Vans, we only had 4 or 5 brick-and-mortar stores. Now we have 29 brick-and-mortar stores, all of them with excellent performance, overcoming our expectations. So the positioning of the brick-and-mortar stores are doing very well with same-store sales growth higher than we had before but with a huge opportunity in the pipeline to open new stores. We're going to open this year 6 additional stores -- 6 to 10, by the end of 2022. And we have the opportunity to open at least 25 additional stores in the next 2 years for Vans in places where we already know that the sales -- Vans with other brands, like malls, where we will expand. And we've been having great performance and growth. We haven't opened it in our earnings because of the [ VF rollout ], but the wholesale is better than other brands that we have, Arezzo&Co and Schutz, that are multibrands.

[Alexandre Birman, executive]

And just a sidebar about the calendar from Vans is very different from ours. We already have all the sales that will be [ said ] in the portfolio that will be sold in 2023, and it's important to highlight the growth.

[Rafael Sachete, executive]

We projected for the first half of 2023 more than 24% of the wholesale channel sales and the figures that we're delivering now in the first half of 2022. Our e-commerce channel is what transforms the brand. The brand is very digital with a very strong digital presence and very powerful brand awareness. When we took over Vans' operations, the average sales was BRL 1 million in digital. And now we're -- the revenues are BRL 14 million per month and it's a huge growth. And we still believe that there's a potential to scale this e-commerce in the next quarters. And we will have a very good performance in the next quarters of same-store sales in our e-commerce, from what we're seeing of the power of the brand and the brand's digital presence. [ Consolidated ], our projection of the year is to overcome the BRL 550 million in Vans; and at least 30% growth for the next 1 or 2 years for this brand, achieving close to BRL 800 million...

[Alexandre Birman, executive]

BRL 1 billion. That's what we want.

[Victoria Machado, executive]

Our next question is from BTG, [ Bruno ]. He is asking how we see the potential gains in digitalization with Sunset and HG that will bring better productivity for sales.

[Alexandre Birman, executive]

Thank you, [ Luiz ]. Thank you for your question. I'm going to also split the answer in 2. First, speaking about gain in productivity of the acquisitions not only [ of ] HG which is a handbag plant, but the first plant we acquired at the beginning of the year that -- it's in the countryside of Bahia. I'm very pleased to say that I visited the plant last week. It's a city that has abundant labor -- and to become state-of-the-art in management, and we should increase by 50% the plant's revenues this year. Our team of industrial management learned to include new plants. And we know that -- the complexity and scarcity of sourcing. And what we've been doing allows us to have from the beginning the right product at the right time and not having any trouble with supply and sales. Handbag is new. The category performed excellently, but I confess that, with just a little investment, we created products and have very strong brands. Now with this more -- deeper learning in our manufacturing process in handbags, you can expect an increase of gross margin for 2023 and better availability of product for the category. About Sunset, which was the agent that was part of negotiations and [ quality control ] and delivery from our suppliers that also has a very important client -- customer portfolio in the foreign market: Everything in the domestic market will be conducted by [ Mr. Juri ]. And our [ DRE ] [indiscernible] in the United States, so we're unifying operations. And the revenues will come through our global operations called [ ARZZ ].

[Victoria Machado, executive]

The next question comes from [ Lynch ]. He is asking what we're talking about licensing by the end of the year, if we see interest of new properties or if we need more time to achieve something that we want.

[Alexandre Birman, executive]

Thank you, [ Bob ], for your question. It's important to say that in our strategy today we have an exclusive team for license. It was a very busy beginning of the year. I took part in many meetings. The global scenario is a bit more under pressure. And in Brazil we had advanced with great negotiations with -- the global company decided to focus on the North American market, but now we have a pipeline that was presented in our last Board meeting, on Monday, of very relevant brands. We're very confident now in researching awareness, calculating an estimate for potential market in Brazil of this brand that we're considering and analyzing some overlap risk with current brands. It's a very active agenda that is gaining traction. However, for deals as good as Vans, the decision isn't 100% in our hands. We're not in a hurry. We have to be consistent and be sure that we learn how to operate international brands in Brazil. And for the next months or years, definitely the business to license will be very important for Arezzo&Co.

[Victoria Machado, executive]

[ Bob's ] second question is about women's apparel. We're reaching the organic part of Reserva -- and if we're being -- evaluating inorganic movements as well.

[Alexandre Birman, executive]

[ Bob ], I have a very close relationship with you, [ Bob ]. Since our IPO, we meet. I'm going to say something from the bottom of my heart. The desire, the wish and -- that I have for women's apparel is very high. I want to stay humble, but our capacity and everything we know of women's shoes is huge. I'm very young. I just turned 46 and my wish to learn about women's apparel is huge. I've been visiting vendors, fabric stores. We're putting a lot of energy in the segment. We're learning. And the results, for me, are very good. We're going to surpass in September BRL 1 million in women's apparel at Schutz. Reversa started very well. And the shelves account for 5% of same-store sales in Reserva, as you've seen. That's close to 70%. So we're going to open in the third quarter another exclusive Reserva store in [ Leblon's ] mall. And I'm sure that, in a very solid manner, the organic initiatives will bring great results, but it's important to highlight what I said about Carol Bassi.

So the figures are strong. And you'll see new stores that will open and you'll understand the power of Arezzo&Co. It's not modest penetration. The stores are huge. And the sales data from [indiscernible] store at [ Cidade Jardim ] with a gross margin of [ 80% ] makes us sure that Carol Bassi will be our first great women's apparel business. And it's a continuous process of our strategy team that is very diligent in analyzing which brands will actually add value to Arezzo&Co's ecosystem brand. So it's a continuous process that is evolving greatly. And I'm sure that, in the next earnings call, we will be sharing positive results for women's apparel just like we presented a little while ago Reserva. And less than 2 years later, the brands accounts for 24% of our revenues.

[Victoria Machado, executive]

We have a question from [ Danni ] from XP. She's asking about Anacapri's repositioning. Now they have heeled shoes. So if you could explain that position and how that fits.

[Alexandre Birman, executive]

It's great to be part of our strategy. Our interaction with you is always excellent. They're not heels actually. The concept of heel for shoes is when the feet have a curvature, and women know that, so you'll have the heel at a higher level than the toes. So that forms an arc. Anacapri doesn't have that. Anacapri has a flat form, meaning the same height on your heels and on your toes. It's still flat, but you have some height there. So 2 types of soles that will be launched in August. They're already being produced. We're very happy with the price and quality of the product. The price is very assertive. I don't know if you've noticed in our earnings we have a star in apparel that is well executed by the team, which is Juliette as Anacapri's ambassador. We're going to invest our investment in marketing. We're going to go to air TV with brand awareness with Anacapri. And about your second question: There's no overlap with Schutz. Schutz have -- has -- My Shoes has a lower price point, and it's a family shoe type of store. It's different from Anacapri's position, so there is no overlap with My Shoes.

[Victoria Machado, executive]

Next question, Maria Clara. She has several questions about systems. She's from Itaú. She's asking about how we see this scenario for the second half.

[Alexandre Birman, executive]

Thank you, Maria Clara. I'm very happy with your concern. And what matters the most to us is our absolute figures. When we talk about a company that in 2022, post pandemic, the first full year, the EBITDA will go beyond BRL 5 billion, that shows a transformation in the company. So we have a list of activities. And I can say that, the first [ base of ] licensing of [ chap ] and men's apparel, check; and organic growth of our brands through -- by strengthening them; and our penetration [ nominee ], check as well. We will continue to bring expressive figures of growth. The second quarter, the figures will be -- the third quarter will bring figures close to the second quarter with double digits, like I mentioned. We will have a great sell-in next week, strategy, starting with Black Friday and they'll -- then Christmas sales, that will have a lot of our energy. And I'm sure that we will have figures much higher than the average of the market, gaining market share and -- for the fourth quarter. In July, we already had 48%. And for the third quarter, we can consider a minimum around that number. And for the fourth quarter, we will grow, bringing expressive numbers not only from results of revenues but also EBITDA.

[Victoria Machado, executive]

Alexandre, a question from Vinicius from UBS about the united -- operations in the United States, how we see the risk of a possible slowdown of consumption in the country. And how is the go-to-market strategy for Arezzo?

[Alexandre Birman, executive]

Arezzo in the United States.

[Victoria Machado, executive]

Yes, [ perfectly ].

[Alexandre Birman, executive]

Thank you for your question. It's a company that has the mission of having a relevant international presence. And we have to deal with these setbacks, as we showed, being "very good" in crises just like we were in COVID 2020. We have a saying that strong [ winds make the strongest ] to speed up, and that's the assumption we're using. Of course, the relationship with large department stores have some business deals that go beyond our control, but our capacity of growing, especially in digital, and the capacity of our local team today in the U.S. make me very confident that in the long term we're in the right direction. And all the bases are already planted. We know how to operate in the U.S. market today and we will continue to create good growth opportunities. This new global mission of [ meeting ] the foreign market: Headquartered in New York will bring continuity of the growth in our international business. And in the third quarter, if we look at the international business, it will grow more than what we have right now in Brazil. We do face [ a few ] challenges, but our capacity of fighting against them is even higher, so we will continue with the strong pace regardless of the percentage, if it's going to be X or Y. What matters is to be sure of our strategy and our client base and customer satisfaction and brand awareness. That's the path, but the figures are very promising for our international business.

[Victoria Machado, executive]

We have another question, from [indiscernible], about Reserva -- from [indiscernible]. We're seeing the performance in [ same-sale stores ]; and also about consolidated gross margin, about markdowns, if it's going to be anything different from what we've seen.

[Alexandre Birman, executive]

I'm going to start with your second question, [indiscernible]. Thank you for your question. We closed July with a markdown of our winter collection. We had very low inventory leftover. Our full price, compared for off-price, in July was very high; and this makes our gross margin grow for August. So this increase of growth in full price shows we're going in the right direction. If you look at the indicators we highlighted in our earnings -- that is our working capital over net revenue is at its record high. The number of inventory days is lower than 60 days of revenue, which shows our capacity of inventory turnover which is very good. So we don't have that risk of sales, that markdown because we don't have inventory. So we're very confident that the gross margin, compared to our track record, will continue to grow. And that 56% level was very good. The second quarter has very few sales. It's marked by full price. The months of April, May and June don't have markdowns. The second half has July. Although we did reduce the off price compared to full price, it's still a month of strong sales. And Reserva, this happens after fathers' day, which is this Sunday, but historically we're selling more full price than off price. But this number, 56%, it's that we have to compare it with the second quarter of -- third quarter of 2021 with 2022. And I'm sure we're going to grow.

[Victoria Machado, executive]

[Foreign Language] We're...

[Alexandre Birman, executive]

The renovated stores that you've seen in São Paulo and Rio are growing 25% -- it's not 25%. It's 250 basis points higher than other stores. We only have 20% of the stores renovated. So we're like a machine, to renovate the stores. And this will take place until we reach a level 100% of the stores renovated, which will happen in the next months. About Reserva, the number of franchises, especially in regions that don't have high sales: Yesterday, Rony went to the Northeast. We talked this morning. He saw with his own eyes the capacity that the region has to grow. It's a region that Arezzo has a very high percentage of sales, and we know exactly which malls to open. So Reserva still has an expansion pipeline, be it by improving the experience in the current stores, after renovation, and also growth in the number of stores. When you add new product categories, the omnichannel growing, you can be sure that, although -- what's happening now, Reserva will show very top -- good top line results in the next months.

[Victoria Machado, executive]

I only have 2 more questions. There is one from Maria Clara. Her question is about gains and profitability, will -- where the company is investing in OpEx more than other -- than before and what we're going to do forward.

[Alexandre Birman, executive]

Great. That question is always excellent. And there's that answer for everything, which is the excellent is enemy of good. As controllers and shareholders, we want to increase our bottom line so that we can increase our dividends. However, we know that a relevant percentage of our expenses in OpEx are a base to create future growth. So the second quarter, we achieved [ 17.5% ] of EBITDA. If I show you -- I can't give you disclosure of our projects, but you can be sure that, excluding initiatives that are still in the investment phase, this number was above 20% of EBITDA. So every quarter, there are moments in which the investments will be higher. Our range was always between 15.5% and 18%. And there will be some oscillations in the quarter, but what matters is to look at our fixed expenses over our net revenue. That's where our leverage comes from because our expenses -- our variable expenses grow according to sales. And more importantly, we will -- our disclosure of our financial statements, we have a line in our SG&A called [ eventual spot expenses ]. It's for marketing and expansion of new areas like expanding the handbags category, new acquisitions. We have to hire new people, so it's a deliberative investment. So only increased margin efficiency can hinder long-term growth. And all the quarters, except the quarter of COVID, we grew. And that's our main focus. So that range of 16% to 18% is where we're going to stay in. I'm very confident that that's a healthy number. And these investments generate the base of future growth of Arezzo&Co.

[Victoria Machado, executive]

The last question is from [ Thiago from XP ]. He asks about BriZZa, if we're -- what we've been doing about the brand, if we're focusing more on multibrand or stand-alone stores.

[Alexandre Birman, executive]

Thank you for your question, [ Thiago ]. If you're at [ XP ], less than one kilometer away from us, I invite all of you to come to our showroom because yesterday we launched a new collection of BriZZa. And the first half of this year was a year of learning in which we understood it's a product with high seasonality. [ I'm working with my council member Renata Vichi ] on how to operate this seasonal business. It's different, although the seasonality of mothers' day, Christmas -- in our business, it doesn't -- our revenue doesn't vary that much month-over-month, only in December. And flip-flops, the first half has a much higher sales capacity than the second half. We're very confident. We developed new products, new shapes and new forms. And we're investing in our own plant for BriZZa. That's already in the deals and will help our capacity to go to market. And on Tuesday, we're going to launch a campaign with BriZZa, which will include 2 stars that were part of BriZZa, Bruna Marquezine and Anitta, that have very strong awareness. We're learning how to communicate with this type of product. And I'm sure that BriZZa will be a reason for pride at Arezzo&Co.

[Victoria Machado, executive]

And with this, we conclude our Q&A.

[Alexandre Birman, executive]

Don't turn off yet. Thank you for your questions, but we have 2 slides that will prove our long-term vision.

First, about SEG (sic) [ ESG ], our capacity of Arezzo&Co to be a reference in footwear and certified [ in Vale do Sinos ] as sustainable and having a seal that all the companies in the region will adopt due to the tracking of the origin of the raw material and the way that we address society will be a reason of pride. This is important information about our ESG initiatives in this quarter.

And I close, inviting you to be part of the greatest fashion group event in Brazil [ in content ]. It will be at Bienal on Wednesday, the 17th. Rony and I will offer 3 talk shows. [ Most of ] our brands will have amazing fashion shows. And great -- the best part, we will have 16 showrooms. For the first time, we will show all our brands together with more than 13,000 stores.

Team, congratulations for the results. Thank you for your dedication and your passion.

And we're going to watch a video about [ Pulsar ].

So let's go towards 2154. Thank you very much.

[Presentation]

[Alexandre Birman, executive]

Technology worked fine till now. We will send you the video because it really will be an unforgettable event. Thank you very much. And all the other brands that were not here in our presentation are in the slideshow, so if you want to take a look at each brand, it's really worth it. This was done very efficiently with all our brands.

Thank you very much, and let's go towards 2154.

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