Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2020-Q4

[Alexandre Birman, executive]

Good morning, and welcome to our earnings conference call for the fourth quarter and the year of 2020. In addition, we'd like to share our main strategic initiatives and especially the evolution of our digital transformation.

I have with me today our CFO, Rafael Sachete; our Executive Director of IR Strategy and M&A, Aline Penna. And we will also have some special guests today, starting off with Maurício Bastos, our Executive Director of Digital Transformation and E-commerce; Cassiano Lemos, our Operations Executive Officer; our partner, Rony Meisler; and Fernando Caligaris, the CEO of the North American operation.

Today, on this stage was actually the stage of a huge transformation of our company, which is how we do our sell-in, and that idea was in the beginning of the pandemic where we would actually invest in on -- invest in this stage to offer an incredible experience so that our clients, multi-brand clients and franchisees could feel the trends and see the products in a very clear manner. In addition, all the live shops that we had that really helped to drive e-commerce sales were made from here. We're in Campo Bom, in the heart of Vale do Sinos and headquarters of our company. So that was a great differential having invested in this. So now that we have this framework, we wanted to share that with you.

Our agenda for today is comprised of, first, I have a brief message. And then we're going to talk about the huge transformation that Arezzo&Co had throughout the year of 2020. And obviously, we will address our operating results, about the digitalization of our business and all the tools that we have in omnichannels that are, in practice, generating excellent results for our business. We'll update you on the Reserva integration.

We're also going to talk about the important investments showing Arezzo's vision and sustainability by acquiring TROC. We will also give you updates on the North American operation results and our outlook for 2021. And at the end, we will share with you our priorities for 2021, which are a part of my balanced scorecard and of my executive directors'. And then we'd like to hear the external vision about our results when we open for Q&A.

So 2020 was the year of transformation. We said that across these almost 5 decades -- and in 2022, we will celebrate our 50-year anniversary. So we've divided our company into eras. Eras are major transformations that changed the course of our company.

From the beginning, almost as romantic and heroic, my father and my uncle making shoes in my grandfather's garage. So I'd say that this is first era that lasted 20 years. From '72 to the beginning of '90 was the industrial era. In '91, we inaugurated our first Arezzo flagship on Oscar Freire Street, starting the retail era from '91 to 2007.

In the meantime, in '95 at 18 years of age, I had the support from my father to establish Schutz. And in 2007, we had the merger of one with the other and this sale of 20% -- 25% to Tarpon, where we begin the corporate era and the objective of consolidating the market of shoes and bags in Brazil, and that was 2007 to 2020.

In 2020, you're here live, seeing the creation of the new era by creating AR&Co. Now Arezzo&Co is strongly entering the market of lifestyle and fashion together with the era of digitalization of our business, so 2 major pillars that have driven our results. And it was a true transformation.

I wrote an article that's published today in Valor Econômico daily, that in Arezzo&Co, the pressure made the evolution. And a word that summarizes what happened in our company, genesis. Transformation, disruption, a new beginning, a new Arezzo&Co. So even with our almost 5 decades, as the last phrase that you read, a new beginning, a feeling of a start-up. And each collection launch, we always feel that it's a new beginning. We say that we're a company with breadth but with the feeling of a start-up. And I learned with the book The Mentality of the Founder (sic) [ The Founder's Mentality ] that successful companies are the ones that have scale with insurgence, and that's how we are driving our business.

The results were truly strong. 40% of growth in the fourth quarter, achieving the level of BRL 802 million in revenues. If we had included the entire fourth quarter of Reserva, that we would achieve close to BRL 1 billion. It's also worth noting that we are a multi-brand and multichannel company, and across these 10 years of being listed, our objective every quarter is to grow all the brands in all channels. But sometimes -- given collections or something else, sometimes it's not possible. However, in 4Q '20, we had a growth of all brands in all channels, and that makes us very proud.

We know and an important slogan that we have here is that when we achieve a goal, that means it's the basis for the next one. And my father says something important, and I remember that every day, that past success does not ensure future success. With -- so with a lot of humbleness and a lot of positioning, we trust that this figure here is the new base for Arezzo&Co growth.

And transforming that into EBITDA, we see that we grew our EBITDA by 61%, achieving BRL 122 million in the fourth quarter; very high conversion to net income, 78%, achieving BRL 83.2 million in net income. We also had expressive growth of our e-commerce across all the quarters. And in 4Q, where we even believe that -- given more store openings, that it would slow down, but no, because we are digital, 139% growth, achieving BRL 162 million in e-commerce for 4Q '20.

Let's talk about this, the Reserva Group sales. I learned that on Christmas, people like to give gifts with desirable brands, and usually big brands sell well during Christmas. And this is the most charming woodpecker in the world. Who wouldn't like to see many woodpeckers, red woodpeckers around the Christmas tree? And that's what happened, a strong growth, achieving BRL 90.3 million in December alone. Congratulations to the Reserva team.

This is a summary of all the figures I just presented. It's worth noting the strong growth of the multi-brand channel, achieving BRL 179 million, with the gross margin growing 240 basis points, 22% of our sales already coming from e-commerce, showing that we are truly already a brand -- it's not the ambition. Ambition was 2 years ago. Now in 2020, we're actually a completely digital company.

Now about our sellout results. Here, we have our main 4 brands and the results that were achieved in the omnichannel from October to February. I'm not going to read each one of them, but you can clearly see the evolution from October to December. On the bottom, you can see consolidated information.

For total for December, we achieved 99.6% of 2019 sales, meaning the same -- almost the same results even in such adverse scenario with some stores that were still closed in December. These percentages are important, but let's look at the financial volume generated by our stores in December alone, BRL 409 million in sellout in just 1 month.

In 2021, we know that it's a new battle. January, which is usually a month of sales where you're ending the summer collection and bringing in the winter collection, I'd say it was atypical but positive for our business because the leftovers from summer and the sales and markdown was much lower but we still achieved 88.1% of the results of 2019 -- actually 2020, right? We're comparing to 2020 now. And in February, where we bring in the pre-fall collection, we start growing again, getting close to 100% of the 2020 results. So we're very confident that our strategy to launch products with an expedited launch and trying to understand our consumers' tastes in addition to the excellent technological tools has given us the robustness and solidity to face any scenario.

Now I'd like to ask our CFO, Rafael Sachete, who will talk about the financial highlights of our results. Rafael, welcome. Congratulations for controlling our cash and how you've controlled things and your entire team.

So I hope that they like that you have a first-line team that's very committed, and our headquarters here at Campo Bom makes us feel very confident about that. The operation that we have here, the solidity of our data and the controls makes us feel very confident. Congratulations once again. Thank you.

[Rafael Sachete, executive]

Thank you, Alexandre. Good morning, everyone. Good morning to our investors and analysts connected. Congratulations, Alexandre, for the 2020 results, and congratulations to all our employees at Arezzo&Co. Our results in the fourth quarter is the consequence and result of the great work that was done across 2020.

Now I'm going to give you some more flavor about the results of 4Q '20. We achieved revenues of BRL 802 million compared to BRL 573 million in last year and -- growth of 39.8% year-over-year. So we're excluding the revenues of Reserva in December alone, achieving BRL 90 billion (sic) [ BRL 90 million ] in revenues. If not for that effect, we would have grown 25%, solid growth considering the Arezzo&Co brands still not including Reserva.

It's also worth mentioning the growth of the multi-brand channel and web commerce. Web commerce grew 139% year-over-year, achieving BRL 162 million in revenues. And the multi-brand channel grew 94%, mainly supported by the VANS brand.

Going on to gross profit. We achieved BRL 316 million gross profit with a 45% growth year-over-year with margin leverage of 2.4 basis points (sic) [ 2.4 percentage points ]. That's important leverage that comes from an increase in the Reserva mix, which has a sellout that's very present in the month of December, as Alexandre mentioned, with the support of the increase in the web commerce share in the Arezzo&Co revenues. So the negative highlight is an increase of multi-brand revenues with margins that are a bit lower compared to other channels and price revision of the Schutz brand in the U.S. market, which slightly drops our margin. Our EBITDA achieved BRL 122 million in the period, 61% growth and margin expansion of 2.8 percentage points.

In that point, it's worth noting the excellent revenues that we had across all the brands, across all the channels in the group. Congratulations to everyone who is a part of this relevant movement in revenues and a very impact -- relevant impact of our expenses contention. I'll show that on the next slide. As Alexandre already mentioned, the conversion to net income, that goes up to 77% year-over-year.

And in relation to expenses, the entire Arezzo&Co team from the second quarter have been very diligent with expenses and cash, strong focus on the U.S., where we had a reduction of 27% of our expenses. And in the Brazilian operation, in SG&A, we had 27% reduction optimization. That's coming from many things, optimizing contract structure and the leverage from AR&Co, and that will repeat itself in relation to expenses. It's not a one-off. It's not short-term work. It's long-term work, which will reverberate in cost optimization and increasing our leverage for the upcoming months.

It's also worth noting that during that period, we slightly lowered our commercial expenses, always focusing on efficiency. And our marketing expenses were increased in the period to support our revenue growth that was presented for the quarter. Those are the main indicators.

Next, we'll be open to Q&A. I'd like to hand back over to Alexandre.

[Alexandre Birman, executive]

We had the BriZZa launch as well. So we created a new brand, and that means -- or translates into expenses. We always like to say that projects and investment come up as expenses. So to have [ Breno Marchesini ] right, it comes through the income statement. And we're planting those seeds for an excellent growth. Congratulations.

In February 2018, I had the honor of spending 10 days with this great friend who's been with our company for almost 10 years and created the first small website for Schutz. It was already omni using the stock of the Schutz store on Oscar Freire Street. So in 2018, we did an immersion at Singularity University in Silicon Valley, and we called that the first digital day of our company.

So we have the goal of digitization for Arezzo&Co, so I'm very happy to reach 2020 and being 100% prepared. The results that you'll see here, especially for December and the volume of sales generated through all the digital tools are really amazing. So no one better than my partner, my friend, Maurício Bastos, to present this excellent digital transformation of Arezzo&Co. Thank you, Maurício. Congratulations.

[Maurício Bastos, executive]

Thank you, Alexandre. Good morning, everyone. It's a pleasure to share with you the evolution of our journey in this work of over 10 years, building and making our strategy more mature.

So I'd like to start off by stressing the big figures that Alexandre presented, our digital results across 2020. We grew 2.5x our e-commerce business, achieving the mark of over BRL 0.5 million (sic) [ BRL 0.5 billion], BRL 526 million to be more precise, and maintaining a high level of revenues even in the context of reopening stores, with revenues greater than BRL 40 million a month.

It was also an important year in relation to the acquisition of new consumers for our customer base and also reactivating customers that hadn't purchased for over a year. So our e-commerce was a big machine that maintained our relationship and customer knowledge active and also maintaining the proximity and type of conversion to generate revenues.

Moving on. We'd like to say that what we have today at Arezzo&Co is a true digital ecosystem. So the entire strength of our e-commerce has driven the construction of a big ecosystem. Could you go back, please? It's out of order.

So we have a true digital ecosystem in-house. So it starts with solutions that service the omnichannels, the brick-and-mortar stores, front-end services and financial solutions that we're implementing, a very strong pillar of technology and data, in addition to the qualification for new businesses that was also mentioned by Alexandre, so more mature areas, such as our omnichannel options and the development of the financial solutions and -- for new digital business.

In-house, we have a true arsenal of omnichannel. In addition to being a machine of physical materials like clothes, shoes, handbags, we're also a power in building digital products. Several solutions that we've been creating faster and faster, and I would like to highlight those that you can see here on the bottom of the slide, the infinite (sic) [ infinity ] shelf and social selling, which is the capacity of the seller to sell products that are in inventory [indiscernible] to -- you can pick up at store; and supply and demand that starts at our website and is delivered by a brick-and-mortar store; and link sales that is non-presential. So even during the lockdown, sales continued to happen end to end.

And all of this is tied in a powerful engine which is the app that our sellers use. This app is centralizing all the tools and digital solutions. If the customer journey changed, the role of our sales team also change. Today, it's a group of digital consultants, new designations and roles using all this arsenal of tools to promote relationship and conversion with our customers.

Speaking of technology, as I mentioned, you can pick up at store, deliver by store. We've been investing in sophisticating our solution to be able to cater to the orders in several ways. Infinite shelf, very simple, that allows selling not only a digital product but also products that are at the store, a hybrid transaction. And sales -- as I said, ZZLink, a very simple interface to generate non face-to-face sales in a very simple manner for all our customers. This also allowed us to experiment with new pathways, and one is [ ZZSales ], a tool that allows a seller to promote digital sales. It's in a pilot test. And it's very interesting that we'll scale our results through this app.

This arsenal was essential for our results throughout 2020. As I said, pickup and delivery at store, 1/3 of all the orders of our e-commerce in São Paulo are met by a brick-and-mortar store, and we want to scale this at the same proportion throughout the country. Social selling and infinite shelf, more than 30 million in transactions last year. And link sales, this powerful tool of non-presential sales that boost everything that we mentioned about digital relationship.

Looking at the consolidated figures for Arezzo&Co and AR&CO, showing the size of our digitalization. That goes much beyond e-commerce sales and affects the business overall. If we look specifically at the fourth quarter, more than 26% of Arezzo&Co sellout was affected by the digital tools. When we look at Reserva, AR&Co, more than 44%.

Looking at the year perspective, more than BRL 367 million of transactions that were boosted by technology. This turns us into a digital power when we look at the technologies added to e-commerce of AR&Co plus Arezzo&Co.

And lastly, a little bit about new businesses. I have to mention ZZMALL, our platform launched in November last year. That brings Marina Ruy Barbosa as Fashion Director and has been taking very special steps to consolidate this ecosystem that I just presented. So much more than just a marketplace, ZZMALL is a platform. And after we -- in March, we will launch MagaZZine with a lot of content and resale, which is integrating TROC, still in the first half of the year and then a loyalty program in the second half that integrates all our brands in terms of loyalty, generating more frequency, more recurrency of sales.

ZZMALL has a very strong strategy in terms of the app. It represents 30% of sales and follows the creatorship and excellence of all Arezzo&Co brands. Our NPS last year was more than 83, which shows the level of excellence and care with this operation and the platform that we are building. We have more than 41 brands, including apparel, shoes and accessories.

And I would like to invite you all to follow us on social media next week to launch our PLURAL '21 campaign, which is part of ZZMALL. If the external world brings uncertainties, in-house, we're sure that we're more prepared than ever and only starting this new journey of transformation.

[Alexandre Birman, executive]

Excellent. Maurício, congratulations, and the entire team. You mentioned ZZMALL app. Tell me more about Arezzo and Schutz app in...

[Maurício Bastos, executive]

Over 40% what we transacted. And speaking of ZZMALL, as I mentioned here, 170,000. If we talk about Arezzo and Schutz, we get close to 1 million.

[Alexandre Birman, executive]

Great, Maurício. Congratulations. Now moving on to our next chapter, talking about the integration of Reserva. So it's just 3 months that we've been together, but it's worth 3 years. So the speed and synchronicity, as my brother and partner Rony in this -- that the companies have, have been the basis, the foundation of the results that are really surprising us about how much we've been able to achieve, so much agility, all of this integration to create AR&CO.

I'm going to invite a person now to come here who has great experience in apparel. For 14 years, he worked at the major brand from Rio de Janeiro. He knows more about shirts and pants than bags and shoes. He's been our big integrator for both companies. He's been with us for 9 years. He lives in Rio de Janeiro, and he has that ability of always integrating in everything that he does in life and now even more.

I'd like to invite Cassiano Lemos, our Operations Officer to give you a update on the Reserva integration. Congratulations to the entire team that you managed when we were at Reserva to conclude that deal. I said it's up to you, and now you're doing great. Congratulations.

[ Declaration is ] 3 months, but we had a [ few ] years in the middle. In Campo Bon and Rio, a lot of people say, "Oh, it seems like we've been working together for much longer." And that's amazing.

[Cassiano Lemos, executive]

Right. Good morning, everyone. First, I would like to say that being able to work with Rony, Jayme and Fernando and all the teams has been a source of energy for the entire team, and that's very good.

Before talking about integration, I would like to give some figures of Reserva. 2020, even during the pandemic, we had 94% of the sales of 2019 and triple digital sales. This was only possible because of the very strong relationship culture of the sellers with their customers, supported by digital communication developed in-house through the app.

About integration, at the very beginning, when we started building this project of creating AR&Co, we had 5 work fronts, and each work front has a pair in leadership, someone from Reserva and someone from Arezzo&Co. The first operations, spearheaded by Jayme and Sachete had the first transition of the financial and administrative issues to [ Capable ] and mapping synergies and operational gain, review contracts and carrying out this first wave of capturing these gains of synergy.

The second front, which is product supply and store, has great avenues of growth for us. The first thing we're going to talk about in detail was internalizing Reserva's sneakers, also a review of the collection calendar. We have more frequent and smaller collections. The new sell-in model supported by the e-showroom that we used since 2013 has a great chance not only to increase the collections but grow in multi-brand channel. We also started to develop a project of the women's line for Reserva.

The third front, full potential. And we have a new design of the architecture of the stores, together with an expansion plan, well defined, and stores to be renovated. And a very robust pipeline of franchise is also a very important growth.

IT, spearheaded by Maurício and José, had the first win, which was integrating design of Reserva shoes. And we also mapped the architecture of the systems and the integration program.

The people and management model, we started a few weeks ago, and we had very important improvements in which we align the rights of management. I would like to talk about a topic that is central. We're going to say this together. It was one of the most important moments of my career, 3 days that I've spent with Rony and Nando and Claudia, Adriana, seeing for the first time the Itajaí valley, and Vale do Sinos is similar but different. Here, it's leather. There, it's cotton. Here, we built shoes and they clothes, all with Italian and German origin.

Just a message. What we built here since we came to the Vale do Sinos in 1995, creating a central R&D, developing the shoe software, aiming at owning R&D and do the outsourcings at the plants, connecting directly to the consumer, so managing the value chain, centralizing, that's what we're going to do with clothes. We're going to completely change the Itajaí valley with a partnership with some suppliers that are already making a difference. We have [ Andre ] here on the picture, [ Patrick of Mike Cotton ], Dalila and other suppliers that received us very well. We will change the apparel industry in Brazil. Exactly that, Alexandre. Thank you.

In the same country, when we have a production hub, world class, like we have for shoes here at Vale do Sinos and Vale do Itajaí for clothes, together with a very large domestic market, that's a huge opportunity. And the core of Reserva, the T-shirts, polo shirts represent more than half of the volume in sales. So it's very strong, and we have this link, understanding the demand on one hand and orchestrate the entire production chain so that very quickly, we can place what worked in the customers' hands. It's going to be amazing.

Just like we have in 1995, when they came here, we have a shoe software plant, in which the code of the shoes and the development is done here. Together with our partners, they create a code, produce the shoes. And the chance we have is to do this software plant for clothes in Itajaí. But -- that's just one important part.

But we have a second part, which is key, that is reading the demand very quickly. And for that -- and we have the changes in collections together with the digital connection with all the partners, franchisees, multi brand that we capture what is happening and we can direct very quickly to this fast reading and orchestrating the chain that will allow us to have great potential. Additionally, there's another opportunity for Reserva, which is an important part of the assortment, which is made of basic, solid pieces. And that's a huge opportunity for us to have fast response programs, and we're going to do that very shortly.

Now about the store model. Reserva has product categories that have a huge potential, and we can explore that in a more complete experience for the customer at the store, better segmenting the store. We're designing this new store model. And in May, we will have the first store of this new model that will be launched.

We're very excited with this project. For this year, we have an expansion plan, very well designed, of approximately 40 stores, 20 renovations, and they are key. Having this architecture project, we know that with the renovation, the sales go up very quickly.

We also talked about some synergies of operating performance. But our focus was not exactly that. It was not cost, but what we can do together, what we could create that is new and important.

And the fourth source of synergy of creating something new is Reserva sneaker line, which is already wonderful. It's called Reserva Go, and there's a huge potential for growth. The sneakers are already the second most sold category on web commerce, growing very quickly. We -- doing the distribution and production in line, we will grow very quickly in multi brand. We will also be able to have stand-alone stores, and that also extends to new lines as women's shoes.

There's another message here. What does this change in the sneakers category mean? The previous model was a license, and now we're going to have a model that we developed in-house and managing production and distribution, which is done as of March from our distribution center in Espirito Santo.

[Alexandre Birman, executive]

Brilliant, Cassiano. Thank you for your wonderful job -- work. It was incredible the speed in which we were able to integrate. We're creating an integration model of new companies, keeping the creation core, the soul, and putting the management science from supply chain all the way to results management with the Arezzo&Co format. So this acceleration of the integration of Reserva shows us the capacity of continuing with our acquisition pipeline. Thank you very much.

And now I would like to invite for a few words our CEO of AR&Co, our partner, my brother who just turned 40 yesterday. And he is on vacation with his family. And technology is wonderful, and it's king here at Arezzo&Co.

We're calling from Tulum to talk to Rony Meisler.

[Rony Meisler, executive]

Thank you, Alexandre. Thank you, everyone, who can hear us. It's a great honor to be here to speak with you in this earnings call. It's the first year in which our results are integrated in the company. I'm going to speak very briefly about our experience here in this incorporation process with Arezzo&Co.

We always believe that the secret for our business is having very good people with fashion and the use of technology to scale this capacity of delivering and generating value for people. Post closing, Alexandre and I really connected well. It was a meeting of souls.

But what we didn't expect, which was amazing, is that the Reserva Group -- we had a group of people -- of young people that had the mission of changing for the better the traditional fashion market. And they met with another group of young people at Arezzo&Co, which is also wonderful, with the same mission. And together if Alexandre and I together is strong, this group of people that we can't do without are indestructible. And during these first 90 days -- it seems like 10 years, like -- as he said, but these first 90 days, the people together did things that many companies are unable to achieve in years.

So Alexandre and my mission, like Jack Welch said, we're -- we have to align the vision and we sweep the dirt away so they can go faster. So at AR&Co, our life just turned for the better. The same vision, the same guts, but what changes at the end of the day is that we have Arezzo&Co to support us in optimizing -- streamlining our processes, using tools that we didn't have before, good management processes.

So I'm going to show you a few examples of practices that we did through -- in time so that you have an idea of what we did for these -- during these 3 months that are worth 10 years. We integrated the operations of Arezzo&Co and Reserva, and we created a playbook of integration in 100 days. This playbook certainly will be used as of now for future integrations and consolidations.

Like Cassiano said, we also changed the calendar of launching. It was every half year. Now we have a weekly launch calendar in real time, marketing, using the digital tools and our logic of printing T-shirts and every 2 months for the brick-and-mortar stores and the multichannel.

We did Arezzo&Co in-house, so we gained millions of BRLs there and millions in profit in the business. We created an expansion plan, consolidated with Arezzo&Co, so 30, 40 new stores and franchise, and we're going to also renovate 20% of the stores. And the franchise is 100% digital, almost a last-mile business beyond the door that will sell our products. We have a new store project that is also being built together using all the schedule logic and intelligence to operate franchise that Arezzo have with our way of providing service.

We have 50% of the consumer base women, so we launched a very simple, basic products for them that we called simple sneaker. This was a great hit. It generated more than 60% -- 5,000 pairs in the multichannel sold from B2B and B2C. And we are going to launch women's products like that, one after the other. And when the market realizes, we are already going to have a women's collection that is wonderful. And a spoiler, we're just ready to launch the best basic T-shirt for men and women in the market.

We're strongly investing to implement the Arezzo e-showroom. We don't talk much about that, but Arezzo probably has the only one -- if not the only one, has the best business-to-business platform, right? We talk a lot about digital platform, business to consumer, Arezzo built an e-showroom that I've never seen anything like it. It's an e-commerce platform so that sell-in can buy, so that multi-brand franchisees can buy, doing look-alike between stores. It's amazing. We're working strongly to implement that in our sell-in at Reserva.

In addition, to add to the number of things that we've done in these past 90 days, we're strongly investing in our consumers, doing a lot of investments in our printing center, on-demand printing where we have -- where we sell, print and deliver T-shirts. So we have an excellent streamlining of our inventory, and we've been investing strongly in our distribution center to increase our capacity and getting ready for future steps.

So to summarize and my -- the last thing I wanted to say, I was thinking how I could summarize these first 90 days at Arezzo&Co. The truth is we don't feel like a company that was incorporated. We feel like we own Arezzo&Co. We own a common dream with these amazing people that we've met at Arezzo&Co, and that without a doubt -- and now based on data, facts and figures and number in digital, which is amazing, the number where the consolidated companies integrate that, it's almost BRL 1 billion in sales that were influenced in between platform, digital products, digital platforms and digital sales.

So it's very strong. And in the facts and figures, we're proving what we've been talking about for a while now. So that's the example there that we can no longer drive our rocket in reverse.

[Alexandre Birman, executive]

Thank you, my friend. It's great to see you all happy. That was a great summary, but you forgot the cherry on top, which is building our new AR&Co headquarters in Rio de Janeiro.

In 3 months, we'll invite our investors in Rio de Janeiro and from all over Brazil to see that because it's going to be amazing in Botafogo with a privileged view of the Sugar Loaf; so 3 floors, research, development and product prototyping in addition to the digital side. So that's going to be the biggest center of apparel and technology in Rio de Janeiro. You just forgot that cherry on top.

Great to see you. See you next week. Thank you.

Now to continue, I'd like to talk about the important investment that goes much beyond the financial side. Investing in TROC is the first solid step that Arezzo&Co is taking to show that it's a company that's focused on sustainability.

I learn from [ Hugo Bentley ] the difference between the linear economy and the circular economy. The linear economy, you extract raw material from nature, you transform that into finished good, you sell that to computer -- consumers and then it ends. In circular, no, after you sell it to consumers, that product is used again, be it through recycling or resale. So it's very important to highlight the sustainability role that this investment in TROC has.

So as we mentioned, we don't want to have only these companies. We also want great individuals. [ Luana ] is an outlier, and we have a pleasure of having her with us. Aline is going to give us some brief highlights of TROC in the first 2 months.

[Aline Penna, executive]

Good morning, Alexandre. Good morning to our investors and analysts. About TROC, we did the acquisition process of 75% of it at the end of November. The official close was in February 1, but we've already done many things.

To put this into context, for those who haven't been close to TROC yet, TROC is our secondhand platform, and it has a huge differential. It provides a lot of added value and convenience for our customers because customers, their box of used products is picked up at their homes, TROC does that. They catalog, they put the prices, they take the pictures and they also guarantee data safety because the person who's buying a used product doesn't know who sold that product. So in current moment where data safety is very important, that's another aspect.

And there's also recurrence. When customers buy not only buyers and sellers, but they also have a repeat experience, meaning that the acquisition of buyers and sellers is higher and lower than the market average. It's about half of what we've mapped out compared to the competition.

On the next slide, I'm going to talk about the main indicators. So we're structuring TROC for that expedited growth that it will have. In the first year, we're talking about 230% growth. We think it might even be bigger. And why isn't that bigger yet because we're going to hire a lot of people. We're going to increase the processing ability. We're talking about 900% because as TROC internalizes the curatorship process, we need to process more and more pieces. So with that, we're going to increase traffic on the website as well as the ability to process and lower -- decrease that waiting list because million -- thousands of people want to sell on TROC, and they're waiting for that opportunity for us to expedite the process.

With that, we're also going to invest a lot in slots and predictive intelligence. So I'm going to be able to select the sellers that have the products that are best sellers for our TROC customers.

On the next slide, we have some opportunities that were mapped for 2021. The main one is resale as a service. And what does that mean? When I have partnerships with great brands to be an official channel to sell those used products. So our partnership with TROC started there.

We did a partnership with the Arezzo brand. And in just a couple of days, over 100 customers enrolled. And we didn't do that much noise back then. That was in October. So we were negotiating the transition. It wasn't a focus of either of the parties. We didn't even want to talk about that much, but we realized that there's a huge potential. So we already have over 10 brands that have already confirmed that and will do the RAS process with us in 2021.

And we're going to talk about overstock. We know that the outlet market and products that -- so products that are new from older collections is big. It's 3.5x greater than the standard secondhand products. So that's another market that we want to explore. So if we can do that not only for the group -- the Arezzo&Co groups, brands, but others. So mono and multi-brand because many multi-brands can be a part of TROC as the marketplace sell their products.

And lastly, we talk about brick-and-mortar retail. So we have a digital DNA, a start-up DNA, and we want to bring that into our DNA, which is in Reserva's DNA in brick-and-mortar. We're going to do partnerships and have some points where we can collect used products and also sell those products with immediate creatorship in shopping malls. So news is coming to foster that growth.

And the figures that we showed in the previous slide, we are not including part of those opportunities. Those are upsides.

On the next slide, we have some of the activations that we've done after the transaction. So the first example is Rafaella, and she talked about Neymar. And Neymar talked -- said good things about TROC. We had Black Friday traffic on those days. And some examples of influencers that have their stores, and they pick TROC to sell their used pieces. And they also buy TROC.

Here we have 1 of the main reasons for us to have bought TROC in addition to sustainability that we truly value. It's about the integration ZZMALL. As Maurício mentioned, we talk a lot about creating an ecosystem, which is a marketplace that's differentiated compared to the competition. We believe that through this service, this marketplace will set itself apart. So we will offer that first ZZMALL clients to sell their used products and exchange the credits that they received from the sale with new products that will be on ZZMALL. So the first integration to have the credits available for customers will already begin in March. And in the second quarter, we will completely integrate all inventory.

That's what I have to say, Alexandre, about TROC.

[Alexandre Birman, executive]

Thank you, Aline. That's great. Congratulations. I'd like to remind you that TROC is the first investment of ZZ ventures. We already have a huge pipeline in -- throughout 2021. Other investments in start-up that are already consolidated will happen as well. Congratulations on your work. I don't see your store there out of those influencers. Where is your store? You're an influencer in the financial market. You sold a lot, right? Tell me about your experience.

[Unknown Executive]

I, myself and Luciana, 1 of our directors in less than 1 day, we sold 50% of our products, and I sent 100 pieces.

[Alexandre Birman, executive]

And, wow, that's another source of income, right? Don't complain about your salary. Congratulations.

So now we're going to change or switch gears. We're going to talk about our operations in the North American market. I'd like to say first that after a tough winter, we consolidated extremely positive results in 2020. Once again, we use the crisis to take difficult decisions and focus on the operation and take the right successful path. I'd like you to take note of something that's very relevant.

The -- our operations in the U.S. market is a balance. It's sharing risks. When we invest in the U.S., that supports the Brazil risk. 11% of our revenues in 2020 came in from the U.S. operation. And in addition, we have a pipeline for future growth because now we are truly a local player that's highly recognized in that market. So it's important to say that there's a strong strategic bias there. The U.S. operation goes much beyond just a business. It's a future so we can balance out our share of revenues. And we want to have 30% of our revenues coming from the market abroad.

So to talk about the evolution in 2020 of the U.S. market, our CEO, cleanly shaven, he looks 20 years old now, 12 years of Arezzo and Co, and our true leader of the U.S. operation. After changing our executives a lot, we found the right person, and he's ready to do that. Caligaris?

[Fernando Caligaris, executive]

Thank you, Alexandre. Straight from New York. Straight from New York, technology is in our favor. Exactly. Thank you. Good morning, everyone. As you all know, in 2020 was a year of a very particular context. As mentioned, many adjustments from end-to-end, changing the structure, closing stores, new brand positioning, among other things. And these adjustments enabled us to perform together with the team's performance. So our performance in 4Q, we had a growth of 20% year-over-year in bureau.

In the positioning of the Schutz brand, we're still collecting positive perspectives of brand positioning, even with the wholesale customers that have a higher price point assortment such as SACS. And the change in positioning really favored our growth in the online channel, giving us 50% sales increase year-over-year, increase of traffic up 70%. So now we have a bigger customer base that also helps a lot. And on the bottom of the chart or the slide, you can see our evolution in revenues quarter-over-quarter. So even during the pandemic, we were able to have 43% growth year-over-year without our retail BRL and achieving BRL 75 million.

On the next slide, we can see and what we saw in Arezzo Day, this new positioning gives us a lot. So it's important to mention that in marketing strategy and communication, that's very robust. Even in a moment of many promotions and markdown, we had high revenues and a good balance between full price and markdowns. One of the big changes that we had, and we're able to execute that successfully, was changing the profile investment in expenses differently than what we had. Before, we had SG&A, high SG&A. We were able to lower that by 42%.

And even increasing our marketing expenses and doubling its relevance in total SG&A. So you can see that on that donut on the bottom, you can see expenses in marketing that accounted for 15%. And now to -- in logistics expenses in e-commerce had more exposure. So the dynamics in SG&A changed a lot. We were able to maintain the gain in marketing investments and enable e-commerce profitability with the high logistics expenses by lowering our fixed expenses.

On the next slide, talking about the future. Total expenses were very important for us to enable investments in marketing. But that change between fixed and variable. That continues. We're going to continue to lower our fixed expenses so we can increase expenses and communication in sales. For the upcoming months, we'll change our logistics operations to enable not only growth and scalability but also to maintain the logistics expenses as a percentage of revenues. We also believe that brick-and-mortar retail loses relevance, and you can see that on this chart on the bottom. In 4Q, it accounted for 5% of our revenues, our own stores, and they had a share of 20%.

So even though there's a recovery in traffic, and now we'll have milder restrictions from now on in the U.S., we believe that the focus will continue to be digital channels, be it our own website or third-party. It's also worth noting that we've always trying to achieve the breakeven. And now it's no longer -- now that we've achieved it, it's no longer the goal. It's just the beginning for the next one.

[Alexandre Birman, executive]

Congratulation, Caligaris, on your work. It's worth noting that when we talk about wholesale, most of the wholesalers are digital today. So that means that the department stores, and those players were able to transform the digital operation. So it's -- most of the sales there are digital as well, not the department stores. And our U.S. operations has a lot of digital. So yes, half. Half, exactly. Half of our wholesale is online.

When you talk about fixed costs, that the customers don't see a great idea with this new moment that we're experiencing. You don't have to be physically somewhere to work at the company. You can be anywhere around the world.

So with that assumption, we hired at Campo Bom. A lot of people in the back office that worked at Madison Avenue with a much higher cost. So success and a success to the entire U.S. team. A company with so many growth avenues and so many possibilities needs to have their priorities very clear so they don't get lost and that the deliverables are consistent. So I would like to share with you my 5 priorities that cascade to our entire team. Number one, Reserva's integration, as you saw, it's doing very well. And it really has a lot to grow. #2, organic growth and increased market share. We achieved 30% of market share 2020, and we are shooting for more. We can achieve 50%. So opening new stores, digital growth of the existing brands.

Next, continue to digitalize our business, not only on the platforms we already have but also looking at ZZ Ventures to acquire startups and technology solutions for retail.

Next, continue to expand AR&Co through pipeline of acquisitions and new businesses. And now as for what Caligaris showed to share our revenue matrix growing our international revenues. So 5 priorities that I work with every day.

Now a little bit more flavor at Reserva. Expansion for new categories of products. We're going to launch next week on May -- March 11, the first sneaker brand made by a Arezzo&Co focusing also on women's shoewear. We also hired a style director that will start creating the women's line of Reserva, consolidating the fashion market in Brazil through acquisitions, obtaining new technologies and expertise like TROC by ZZ Ventures that will bring us in surging brands and new digital business.

I would like to point out 5 pillars that we see as Arezzo&Co projects to develop the base business. So organic growth. We have 2 brands with a huge pipeline of stores to be opened, Anacapri and VANS. So of our expansion announced at Arezzo Day, the greatest will be Anacapri and VANS. VANS has huge room to grow as well as Anacapri.

We will also launch, as a test, we're very confident on the pilot. On Mother's Day, we will use our NPV with the Bambini line of Arezzo. So the mothers that are hearing us will be very happy. We will have a line for children and teenagers at Arezzo and we will develop the entire structure, just like we did with BriZZa to support Arezzo Bambini.

Schutz clothes. This is an old dream of becoming a lifestyle brand. And now we have all the tools we need through the Arezzo and Corporation, especially for the EVA brand that is in our pipeline with people who are very experienced in women's apparel. So in the second half, we will launch Schutz apparel. Also, with the huge growth that you saw in the multi-brand channel and with the share of wallet,that is very high, we developed a project to consolidate by creating a new line of stores that we'll call -- be called ZZ Stores, in which multi-brand will change the store continuing to be multi-brand, with 80% of the supply from Arezzo&Co, but with 20% from third parties, we will deliver a full package from the architecture to the digital sales systems. And we will continue with the signature of the local store.

So ZZ Stores buy for example, which is a multi-brand store from Santos. We will also hire a person with huge expertise in fashion and brand licensing to license our brands for the those that are close to our core such as sunglasses and also going to homeware and beauty.

And lastly, also as a test, in the first half, we will go into the United States with Arezzo and Anacapri by launching e-commerce of both brands. And this test, if it's well accepted by the market, we will develop a full potential plan for Arezzo and Anacapri. So these are the pillars and our targets. They all have a budget, a project and a dedicated team so that we can continue with this growth pipeline at Arezzo&Co.

I would also like to bring these 2 last slides before we go to Q&A. So get ready. I would like to conclude updating the January and February of 2021, which is very important. During these 2 months, we grew more than the fourth quarter of 2020. 45% of consolidated revenue. The United States, with a double-digit growth with profitability. We have a very strong pipeline to open new stores. And as we said before, the brick-and-mortar stores with a high level of sales, with expansion of gross margin because we had fewer products to markdown.

I would also like to share with you our vision for the current moment, which we start again a lockdown process. So the stores had to close. So they're closed physically for the audience but open digitally for sales. Today at 9 in the morning, I had 2,000 sellers from the state of São Paulo, emphasizing all the tools that Maurício showed and how we're going to keep our sales active. Obviously our protocol, we have to care about the health of our employees.

An exponential growth of sales on the omni-channel and implementing all the tools for the seller that, in which cases, will work from the story even close. But even at home, with the seller's app, we have 60 contacts per day converting 5%. That means 3 sells per seller even from home. And also that sell that is generated by the e-commerce and delivered by the store.

The balance in the inventory and sales ratio. So today, 50 kilometers away, we have almost all our suppliers. So this week was very intense and remaking some orders, reducing sales, rescheduling deliveries. So we have a fine-tuning between inventory and demand. Increase the frequency of launchings, being sensitive about the consumers' profile, what they're looking for, reducing fixed expenses that are not essential, preserving money to invest in marketing and communication to keep our brands close to the consumers and our digital investments and, obviously, maintaining the financial health of the value chain, so our suppliers and franchisees.

With this handbook implemented with excellence, I'm sure that we are ready to face another unavoidable lockdown period. And you can rest assured that we will come out even stronger as happen in 2020. We're going to open for the Q&A.

We already have a list of analysts ready to come on live with specific questions, and it's a huge pleasure.

Thank you so much for being with us. I hope you enjoyed our stage here at Campo Bom and that you liked our way of presenting the figures. Thank you very much.

[Aline Penna, executive]

I'll show that the first question is from Olivia from JPMorgan.

[Olivia Petronilho, analyst]

My first question. I have 3 questions actually. I think that the first one is about margin. I think it was very high in the quarter. If you could give us more details about how this margin worked for Arezzo and Reserva. The Arezzo stores without Reserva had a lot of investments in marketing, both ZZMALL. So if you could break that down.

The second question is about the licensing pipeline and M&A. You're looking for relevant companies. You mentioned at some events of going stronger in the lifestyle business. So how will you structure the capital and the acquisition?

And the third question, you talked about supply chain, and we see some companies in the segment facing some issues with the supply chain for the past months. If you could tell us how you see your supply for the beginning of the year, especially with the growth that you're seeing.

[Alexandre Birman, executive]

Olivia, thank you very much for your questions. It's always a pleasure to have you close to our company. Of your 3 questions, let's start about the gross margin. Obviously, at Reserva, there's a percentage of sales that are sell-out, and that is an important figure with expressive growth of Arezzo&Co's e-commerce. So the gross margin comes from those 2 and reducing markdown products. When you talk about marketing investments, I think you're talking about expenses and EBITDA margin.

Sachete Will help me with that.

[Rafael Sachete, executive]

Olivia, as Alexandre said, Reserva has a higher gross margin, and we see the impact of December with full price sales that resonates. We're not ready to disclose Arezzo&Co and Reserva in AR&Co results, but I can give you rough figures. The revenue December with BRL 90 million and EBITDA of Reserva is about BRL 25 million, BRL 26 million. So you can achieve the EBITDA of Arezzo&Co in our revenue. You can have a base of margin, 16%, 17% of EBITDA margin.

16%, 17% EBITDA margin ours of Arezzo&Co in the quarter, excluding the AR&CO revenue. And as Alexandre said, with many marketing expenses and creating new brand new label. We're 50% expenses higher in the fourth quarter and -- than previous quarters. And we will continue with that strategic trend. So going from 55% to 30%, 30% to 35% of market share, we want to achieve 50%.

About your question about the M&A pipeline. So apparel, women's apparel. Our first initiative, organic initiative, as I just showed you, is a project being developed to launch Schutz Lifestyle in the second quarter. But yes, we do intend to acquire in this segment and the capital structure that was made at Reserva for us was ideal.

So in a nutshell 1/3 cash, 1/3 in shares, converting the founders and shareholders, having the freedom for them to carry out, within their culture, their way of being the part of product creation, marketing, store management, using the backup and shared services that include logistics and technology of Arezzo&Co. That's how we see it.

We have a very robust cash. And access to capital today is not a restriction. Myself and Anderson as controllers breached the barrier 50 plus 1. And Rony, we went back to 50. So we're open. So that interesting moments keep this dilution so we can add value. It's better to have 40% of a piece of 200% than 50% of a piece of 100%, obviously. So that's our bias.

About the supply chain, the great differential of Arezzo&Co. And that differential is historical. In 1972, we started as a plant. So it's a company that controls R&D of products with our partners that are the manufacturers, our franchisees, but we know how to manage a plant. We even have our own production of 1.5 million pairs.

So we work here in a cluster. And 100% of the raw material is local. Our shoes do not depend on imported raw material. So today, we work with the key suppliers, which are the leather producers and free reserve of production space. We buy semi-finished products. And we also have 52 -- Klaus has 52 years in the shoe industry, and he is our Industrial Director. And he takes care of all that part. So we were able to continue with our supply without any issue. So this flexibility of the supply chain makes all the difference.

About Reserva. Reserva already started last year to invest in its relation with raw material suppliers from the thread to the fabric producers that we're investing after this trip that we took 3 weeks ago to develop during the next 90 days, our R&D center and buy raw material at the [indiscernible] especially Brusque. So we're very confident that we will also be able to have great flexibility in turn for apparel. I don't know if you have any other questions.

[Aline Penna, executive]

Next analyst is Ruben Couto from Santander.

[Ruben Couto, analyst]

Thank you for your presentation. Very complete. A lot to digest. But if we could focus on the first -- fourth quarter. Can you talk more about the multi-brand channel performance. It really drew my attention, even excluding VANS. And I don't know if it was a concentration of sales at the end of the year or Brizza that made a huge difference. How can you explain this performance in the quarter? And what do you expect for next year for the channel? Is it similar to what we saw in 2020? And if you can also consider an increase in the cross-selling channel with Reserva.

And also another question, more towards the novelties you mentioned. 2 months ago, we were at Arezzo Day. You brought some novelties. And now you have more. So these new announcements, like ZZ Stores, which is incredible, what changed with the integration of Reserva that made you more constructive in terms of in joining ecosystem faster and if your new initiatives,will be in effect this year? Or are they more in the midterm?

[Alexandre Birman, executive]

Thank you for your question, Ruben. The multi-brand channel was the origin of our company. Ever since Schutz and Arezzo, Anacapri were founded, the distribution through multi-brand is 1 of our assumptions. So several factors helped this growth. Basically through gaining share of wallet. So the penetration inside the store. The way that you're feeling these virtual launchings was done every 2 weeks during 8 months of 2020, bringing multi-brand, which, before, was serviced by a sales rep without any connection to additional [ impairment ] with the Style Director, bringing them in-house. So it was a huge change, and they felt part.

Our greatest growth came from small customers. Our greatest growth came from customers that -- the tier 4, not the large customers. So it was a gain in market share in multi-brand, share of wallet. And ZZ Store will solidify so that we can take all our technology in retail and digitalization implemented in our franchise for multi-brand. When they work with point-of-sale that we will define a system connected to our system, and they will be able to benefit all the tools of the seller's app, ZZ Link, sellers link. So it's a project that already exists. All the projects that I showed. Since Anacapri and Schutz is going to -- and Arezzo going to the U.S., licensing our brands for sunglasses watches, homeware. These are projects that have been designed since 2015.

Why are they being implemented now? Because the company gained robustness in the project department, in the strategies department and a pipeline of people that is very strong. So we were able to equal, to balance our U.S. operations, for example.

I went to New York 16x to make it work there. 2020, I didn't travel anytime. So I have more time. And the team has more time. And integrating Reserva, for example, could be very time consuming. It could have been slow but it flowed very well. It already happened, free more time and resources for these new organic projects.

Multi-brand depends highly on the external scenario. We already gained this share of wallet. So if I go from 60% of retraction to 80%, 85%, I won't be able to have the same growth because the brands, Arezzo, Schutz and Anacapri crappy are dominant in our stores. But we expect growth by launching Reserva shoes. That will happen officially on March 11 and also the growth of VANS.

So we believe in this channel. It has important share of our revenue with an excellent gross margin.

[Ruben Couto, analyst]

Just to have an idea of the 4 multi-brand partners. Do you have an estimate of how many can becomes ZZ Stores?

[Alexandre Birman, executive]

Let's start with the pipeline of 40 stores to test. I think that could reach during the first 18 months to 150 to 200 stores.

[Aline Penna, executive]

Next question is from Irma Sgarz from Goldman Sachs.

[Irma Sgarz, analyst]

Perfect. I'd like to follow-up on the multi-brand question. Seen that without a doubt, you've executed well the online strategies and multi-channels. And it's been years that I've been following your work and Maurício's work. I Know that a lot is to come. But online with strong brands provides an opportunity to sell direct-to-consumer. And when you sell direct-to-consumer, obviously, that markup comes in-house and then can further be used to invest in innovation, technology, product, and you're a company that has showed that well across the years that's always investing in growth.

When are you considering -- when you think about the multi-brand channel, specifically in the next 3 to 5 years, is it right to say, correct to say that you'd go to a more qualified store like a ZZ Store? And a part of that channel might migrate to online and brings that opportunity through the growth cycle. Just to understand what your thoughts are on that multi-brand channel.

[Alexandre Birman, executive]

Do you have another question?

[Irma Sgarz, analyst]

Yes. I do. It's about segmentation of the sneakers product between Reserva, Fever and VANS, if you can explain that better so we can really understand how you'll segment that.

[Alexandre Birman, executive]

I'll start off with the second question then. Thank you, Irma. Thank you for following us. I think since the IPO, if I'm not mistaken, 10 years, right, with all -- with the pregnancies, right, that you've had a couple throughout these 10 years, and your question is brilliant. It's excellent. And 1 of the big concerns that we have here in all brands is a very clear positioning to avoid cannibalization.

So you've mentioned 3 sneaker brands, and I'm going to explain how they are different and how they can live together and gain market share without cannibalizing. First of all, VANS is focused on skateboarding. It's a brand that has a huge legacy, and it has a very specific customer profile, younger people, from teenagers and children, obviously, for older people. But the brand is highly focused on skateboarding.

And for Reserva, the brand is a casual brand. It's a brand that you wear -- like I'm wearing here to -- not the way I'm wearing it here, like a more -- in a more formal manner. It's not -- it's very casual. You can even talk about sports and gyms. Rony and I, we hate this word, but it really explains what we call here the sneaker shoe in Brazil. So it's a sneaker that plays the role of a shoe. And Fever is really focused on that urban style in a more urban fashion.

I can't speak more -- too much about this because Aline won't like that. We're -- if you check out Fever's Instagram, we're going to do a partnership with BAW, B-A-W. We're launching a partnership with B-A-W. So it's the kind of thing that's very young, street style, teenager. It's about music. And VANS is low profile. And Fever is more techno. It's upbeat. So that's important, the segmentation.

I'm going to bring in Maurício. He's not going to like it either because I'm going to give you a spoiler. You mentioned something excellent, and we found this through the brainstorming with Rony 2 weeks ago. So we're going to have a pilot test. And you're completely right. The qualifieds will be ZZ Store. And the way -- how will these multi-brand stores not lose the market to online? This is what we're going to do. We're going to transform ZZMALL, who was born with the concept of being a marketplace of brands to consumers. And ZZMALL will be our marketplace of the multi-brand stores as well.

So Maurício will talk about that. It's not in his presentation because it's still a pilot, but he can talk about that.

[Maurício Bastos, executive]

Perfect, Alexandre and Irma. It was a pleasure all these interactions throughout these 6, 7 years, really helped us to mature our strategies. And as we showed here today, we're very prepared in this ecosystem vision to plug-in and connect many ends. We believe that the most important aspect that's in the middle of everything is to service our customers in the fastest, best experience, best enchantment.

So as Alexandre mentioned, it's very clear to us that through the ZZMALL platform, which is more than a marketplace, it's a channel to digitize multi-brand. If on 1 side, we have mono-brand operations, digitizing the franchise, on the other hand, ZZMALL can digitize multi-brand, and we can use the inventory through our technology so that ZZ Store and the multi-brand can work on servicing fulfillment the last mile.

[Irma Sgarz, analyst]

Congratulations.

[Aline Penna, executive]

Next question is from Citibank, [ Jone Suarez ].

[Unknown Analyst]

Congratulations on such an excellent event and very interactive. It's very interesting for us. It's really great. We're giving other companies the feedback and using you guys as the benchmark, so congratulations to the entire team.

Alexandre, I'd like to explore some of the points and following up on Maurício's and Irma's question. Talking about online. And another thing that we always like to look at, obviously, a channel has -- like ZZMALL has a great outlook. I'd like to understand how you're profitabilizing the cost of acquisition of consumers. So a metric that we've been looking at a lot in e-commerce companies is the lifetime value of that customer through -- according to the cost of acquisition. So any metric about how that's evolving? And that's an initiative that came up in November, but how do you see that evolving? That would be very interesting.

Another point. And I know that in the short term -- it's always best to focus on long-term questions, but you did mention the lower markdowns in solving Reserva a lot in December. I'd like to hear about the short term. How do you see that? I know that the environment is still flowing. But I'd like to understand what you're doing and what you -- how do you see pricing today? And how do you compare that to the rest of the industry? If you see a more promotional environment and the second half and talking to other apparel players effective drop in the markdown of the gross margin. So I'd like to know how you're setting yourselves apart and how you see that competition?

[Alexandre Birman, executive]

Perfect. Thank you for your question. I miss Tobias. I imagine he's in a different call today. It's full of earnings call. So you're -- very well represented by you. Your point, the way we've been seeing it to increase our profitability, which is much different than an online operation that doesn't have a brand behind it. That really changes our customer base. Maurício will tell you more about it, and I'm going to talk about pricing and markdown and how we're surviving, selling more at full price.

[Maurício Bastos, executive]

Thank you, [ Jone ]. Thank you for your question. And, in fact, the indicator that you mentioned is the base online acquisition purchase indicators and NPV to acquire that customer and the value that the customer delivers in time. So that's a very important metric for us. We have an acquisition cost that is low compared to other operations from what Alexandre said because the brands are very strong. And it's organic. Our cost in marketing is half, I would say, than a player that only has third-party products.

That's very clear also because today, we have a pool of more than 10 million customers in our base between active and those who haven't bought for more than a year. And our marketing is cheaper to attract. We use push, What's App and other cheap ways of activating them. We can also bring this customer at a lower cost. And this dilutes. Since we have a group with several brands, we have to start working on looking at the customers and the brand portfolio. And in the customers closet, a lot of brands fit.

So we already have a relationship with some other brands. So we can create consumption. And to give you a flavor, 1 of the indicators for the past 90 days, repurchase from our base, we started the first quarter last year with the metric around 11%, 12%. In the fourth quarter, that went to 35%. We increased the recurrence of purchase that we already have in-house emphasizing that ZZMALL is not a marketplace. It's a platform. We're going to do exactly what you said. We're going to have a loyalty program that will really help.

[Alexandre Birman, executive]

Exactly. Perfectly.

[Maurício Bastos, executive]

Alexandre.

[Alexandre Birman, executive]

So the loyalty program of ZZMALL will be the driver of ZZMALL. It's not going to be a cash burn of large media to make it grow because we already have the base. What it's going to do is a unique value proposition joining our brands and inviting our sellers to work with us working on that loyalty.

Aline thought that the list was very long, and they will be the base to create the loyalty.

[Unknown Analyst]

About pricing, the assertiveness of products. So the right product at the right time at the right price is highly -- you're highly connected with the consumer, and you can read the demand and understand the demand in a very precise manner. Having the habit skin deep, and this will be a way to reduce markdowns and adjust in time purchase.

The difference of the retails that you mentioned is that they have a lead time that is very long. 4 months is fast for apparel. Usually, they operate with 6 months. So you don't have any space to maneuver, to adjust volume demand or the profile. Yesterday, during the long meeting we had said yesterday, Cassiano said, well, we are the only ones who can get here on March 4 and have the product we want to receive at the end of April. We have to have the supply chain in our hands. And that really changes. That makes us agile.

We're not buying products for 6 months' time. We're buying it for 60 days. So that really changes the speed. And our intention is to continue to sell it full price. That's a very important indicator for our business.

[Aline Penna, executive]

Alexandre, we don't have any questions. If you want to give your closing comments.

[Alexandre Birman, executive]

Yes. Thank you, Aline. So I would like to leave a few messages. On February 2, we celebrated a very important date. Both 2x was my Father's Birthday, 66 year olds, and the day that we did 10 years of IPO. This was a letter that I published, a gift from my father, our re IPO with Rony, next to us, feeling the taste of bringing the ballot at BOVESPA. And this letter really was emotional for me with all my gratitude towards my father.

During these 10 years, we had huge growth of [ 70 million ] to BRL 2 billion in 2020. We want to reach BRL 3 billion by 2021, a 15% increase. The principal of BOVESPA valuing of 325% throughout these 10 years of the 40 quarters, 37% with the revenue growth and including 2020, we had 2 that had a drop, so a base of 705 shareholders to 34,000 shareholders.

And I want everyone to see me on my Instagram. I want you to be our shareholders, an BRL 840 million paid in dividends throughout these 10 years. It's a very solid company. We're going towards 2,154. To our investors, thank you very much.

My closing message, I would like to say that 2021 marks the Genesis, the transformation, a new era of Arezzo&Co with strong penetration in the lifestyle and apparel market and a company with a very high level of digitalization. Strong acceleration of sales in the fourth quarter 2020. And the first 2 months of 2021, March will be a bit more challenging because of the number of stores on lockdown, but we are going to have digital sales.

Strong digitalization of our business and a vision of ecosystem, which is most important, attracting more people to be our partners. Integration of Reserva, as I said, is in full force. It's going ahead of schedule, so we can look at other alternatives of M&A before we expect it.

And also, as I said in appetite, and a very robust cash structure to consolidate the sector. Closing this cycle of 2020, I thank you all, our shareholders. Thank you, our stakeholders, suppliers, franchisees, especially our consumers. Our Board, my new partner, Rony, and especially to my beloved father, our major shareholder, which is also always a source of inspiration. I wish you all health, strength and faith to overcome the challenges of 2021 and closing another year of success and accomplishments. Let's go towards 2021, 54th.