Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2021-Q4

[Alexandre Birman, executive]

Good morning, everyone. Welcome to our video conference for Q4 results 2021. We have here today our manager with Investor Relations, Victoria Machado and Rafael Sachete, our CFO. During this presentation, we will talk about our results, focusing on our channels, mainly the digital channels. We're going to talk about our brands' performances, our main assets, together with our team. And we are going to highlight the expansion of our U.S. operations. And then Rafael Sachete will present further details about our financial results, initiatives for ESG, which are making us very proud, and we will follow on with -- in our agenda and open up to Q&A.

Especially for the women, we're going to present the campaigns and strategies for the winter collections for the brands that were launched this week. We had an opportunity to -- during the road show for a follow-on, this was a very important moment for our company back in February 3. Exactly 11 years after our IPO, we were able to achieve these investments for Arezzo & Co, which are making us very proud to share our strategic view and to hear the questions that always better ourselves.

So 2021 was the first year for the first 12-month period from December to January of the new Arezzo&Co. Arezzo&Co had a specific tipping point during the pandemic. The pandemic was a turning point, starting with the first initiatives to survive that we adopted in the beginning of March back in 2020 and showed that our main asset is our culture, a culture of the owners and people who are extremely engaged, passionate about what they are doing and committed to doing their best. So from then on, in October 2020, we had the integration of Reserva, our co-creation.

So when you see the numbers for 2021 these are certainly excellent figures. But in our humble opinion, this is just the beginning. So this is a truly the first year of this new stage that we are calling a new era for Arezzo&Co.

So starting in 2021, I'm sure that by 2031, we will be celebrating our 60 years from the anniversary of the first factory for shoes and bags for women in Brazil with international expansion. I think the number of pairs and pieces. You can imagine the number of clients who consumed our products, we're talking about that in terms of pieces for apparel, this is almost 25% of our business and 2 million bags, 2.2 million bags. So 25 million products sold for the A and B classes, 90% of these sales happening in the Brazilian market. So these are brands with great distribution and penetration.

And in Q4, I wanted to especially highlight the organic growth of the core brands, mainly our legacy brand, Arezzo, that will have its 50th anniversary in September this year, had an exceptional Q4. We're going to talk about that with special highlights to December, especially during the Christmas time.

We truly believe at Arezzo&Co that the festivities, the holidays period is when brands are desired and are put on wish-lists. And the cost of our product connected to the mix developed for this specific purpose generated great attractiveness. And this was a very relevant percentage of present sales, sales to be gifted.

And we talked about Reserva. These are the figures that we indicate here. BRL 731 million in revenue. That was a number we expected when we had the 2022 business plan. So we are 1 year ahead. You can expect that in 2022, we will exceed BRL 1 billion revenue, which was basically our full potential. So the brand is very much consolidated. And once again, I repeat it's a lot, but it's just the beginning.

About our digital operations, we have great maturity at this point. I'm going to round this up, I don't want to round it up to almost BRL 1 billion, but it's -- it was BRL 816 million in revenue and the BRL 1 billion online will happen. Our U.S. operation represents 10% of our revenue with very strong growth, very solid growth with great distribution with deep digital DTC. And this is really the consolidation of the relationship with the main department stores in the U.S. So for our gross margin, we had great figures, especially with the EBITDA in the different channels and having a more digital exposure.

So just a little bit of the summary from the last 11 years since the IPO. These are figures that make us extremely proud. And we always say that once we achieve a goal, that is just the basis for the next goal. So every quarter, we have the commitment to grow. And during these 44 quarters of -- since the IPO, we have grown 35% in EBITDA. So you know we have valued 306% versus 81% from the exchange of São Paulo. And we believe -- we truly believe in what we usually say. First, you have some cases that you have to believe to see. Here at Arezzo&Co, you might have seen so you can believe. So we have a very strong track record. And in the next months for 2022, we are going to continue delivering results above expectations.

About our ESG initiatives, we started integrating the ESC portfolio from AB3. This is really important. We were elected the -- in the green bonds portfolio, and we're going to go into more details in a bit. So now these were my opening remarks, and I'd like to go more in depth -- sorry, I forgot to say that we are going to talk about the segment that represents BRL 15 billion, which is the sum of shoes, bags and apparel for men and women. And in the first 2 months, January and February, with 50% growth since last year, and the brand with 2 stores has sold almost BRL 7 billion with an EBITDA around 30%.

Some of the big numbers here for our Q4, BRL 1.4 billion in consolidated revenue, 730 basis points for gross margin, BRL 185 million EBITDA -- adjusted EBITDA, 17% adjusted margin, BRL 1.2 billion sell-out DTC with the e-commerce participation here and representing 23% of our revenue. So it's truly a very digitalized company.

So to talk about 2021, we achieved BRL 3.6 billion in gross revenue, 666 basis points, EBITDA of BRL 459 million, not considering the temporary credit results, the EBITDA was DTC -- sell-out DTC for BRL 3 billion. These are very relevant brands with great penetration in consumers' wardrobes.

So as I mentioned in the beginning, more than 18 million pairs sold, 2 million bags, more than 4 million pieces of apparel. So it shows that apparel now represents 18% of our mix. You can estimate this graph here in maximum 2 years, it will be basically 50% of revenue from apparel. So this is going to be our greatest growth channel.

Some of the highlights for our omni operation. Of course, we always need to evolve but we are at a great maturity level for integrating in the different channels. And today, we celebrate an important event here. The hub [ 1054 ], we have a Hackathon. We have sponsorship from Amazon to develop solutions to improve our digital experience. These are the data that I mentioned. So the Q4 revenue for e-commerce alone, BRL 276 million. It's really interesting to see the traffic volume in this Q4 with 68 billion of visits during these last 3 months.

Very relevant percentage in the apps sales. You know that app sales are loyalty sales. There is a very low marketing cost and sales through our different channel -- from our different channels. We've been investing -- we have a conversion of 1.3% downloads. So it's huge -- and it's worth highlighting the strength of digital. 22% of the revenue come from the app sales. So it's truly a digital operation that is greatly efficient and a lot of profitability. And we were pioneers in implementing what we call the salesperson app. We've adopted the philosophy during the pandemics that since the client cannot go to the store, we will take the store to the client. This worked.

Mother's Day was a highlight was 70% of the sales during -- compared to 2019 with closed stores. Once stores reopened, our main challenge was to maintain the culture of using these apps, even if these the salespeople, the sales staff having great traffic of customers in stores. And this happened 35% of our sellout in the brick-and-mortar stores are influenced by digital. They are influenced by the sales staff app communicating through WhatsApp, digital windows to showcase products. So this benefit or being the ease of having personalized service, which is different from a regular e-commerce sale to be able to choose their products and receive these products at home. We saw great growth of the delivery in stores. This is our focus. We want to grow in 2022.

In '23, we are going to inaugurate our new DC, and we really want to have the great distribution hubs for stores to improve the experience and we know that the shorter the time frame for customers to pick up their products, the higher the conversion rate. So this is going to be our focus for 2022. To give you an idea, this tool that I mentioned, the sales staff -- the salesperson app in 2021, this represents 8.7 million contacts between sales staff and customers.

Continuing here with the highlight of our omnichannel, 30% of our client data base already buy online and 11.6% in both channels, which is the clients that have the biggest share of wallet within our base. So the CRM data are being used increasingly more, the consolidation of our marketing, and this has generated strong data for increase in the client base, the head boost. It grew 35% clients that buy every quarter, virtually, they represent 37% of our digital revenue. So repeating customers. So the cost to bring a new client is much higher than the cost of maintaining a current customer. So our investment in digital marketing has been geared to maintaining our recurrent customers although there's a big growth of new clients in the U.S. operations because it's new brands in the North American market.

The highlights about our brands in physical channels. As I mentioned, Arezzo brand, the highlight, growing 33% compared to '19, very strong growth for the brand. We start the first 2 months of '22, even stronger than this. Actually, the brand has an excellent momentum, maintaining its cost benefit as attractive. This is the biggest edge of the brand. Arezzo is accessible, high-quality fashion.

The Schutz brand increasingly global brand, the relevant percentage Here, you see of the BRL 300 million revenue in the quarter, BRL 194 million in Brazil. That is BRL 106 million were international. 32% of Schutz today comes from international revenue. we can see that it's truly a global brand. We're in the process of starting our operations in the European market with a lot of trust.

AR&Co, as we mentioned, what Reserva sold in December, it's unbelievable. Tens of stores sold a lot in December, truly digital brand. You can highlight the omni percentage over web, which is a work that the salespeople can access the customer and sell digitally 45% and the percentage of AR&Co for online compared to DTC 31%. On Anacapri, with -- in the first quarter of '21 was presenting a performance that was below the other brands also presented great growth in the fourth quarter, growing around 30%.

To the right of the slide, the lower chart is very interesting. It's almost a 4 slice pizza with even slices. So when we say that our company is literally multi-brand and multichannel. This chart makes this very clear where we have virtually 1/4 of the revenue among the e-commerce, own stores, franchise and multi-brand stores. So this makes us feel very safe. And it's worth mentioning that this chart refers only to the revenue from Brazil.

Here is the total breakdown of the behavior of our sell-out throughout the 12 months of 2021. And here, we see the strong acceleration in December, already from a high, strong base. We always sell very well in December, but December '21 was spectacular. 39% of all store growth, and we didn't have that many openings. So it's actually a growth in the same stores. Highlights to the Reserva operation, growing 82% in December, as I mentioned, very good brand as gifts and with strong growth for all the other brands.

Talking about the China that was the beginning of everything when it was created in 72 up to 91 with almost 20 years of work only in multi-brands. We have -- it's very dear to us with our multi-brand partners. It's thousands and thousands of points of sale we grew in the 2 aspects. For you to grow in multibrands, you have just 2 paths, increase the number of points of sale and increase the participation that you have within each store. And we grew in both fronts. That's why the result was so good.

Imagine a multi-branch an of BRL 887 million. This is where we have a gross margin that is higher than B2B operated in the franchise channel. It's a very profitable channel, and that is increasingly more being invested in, in the digitalization of the relationship be in the way we sell or how we follow up with the sellout.

Our next step now is also going to bring multi-brand customers. It's going to be rolled out in the semester with an extra 200 stores that are going to sell through our omnichannel. So it's a big focus for us to enable multi-brands to become omni. We are always frequently asked about the real strength and the real sustainability of the multi-brand channel. You can be sure that we take good care of our multibrand channel.

We are very close -- and I'm sure we'll continue to grow and surprise this channel. That is very important for Arezzo&Co. So when we talk about digital, we talk about it a lot, brick-and-mortar stores and multi-brand.

About our international business. As mentioned, BRL 173 million growth compared to Q4 '20, very strong growth we increased -- alone in e-commerce, we increased traffic in our website. As I mentioned, the play is different in Brazil here, the play is for new customers. So here, there's still a higher CAC that is on purpose. It's deliberate. We decided to invest even more in the fourth quarter. So imagine it was 42,000 new customers, 71% of them new customers.

So we are going to continue to invest in digital through acquiring new clients, we need to grow our customer base. Our client base is very small when we think about the size of the market. So we have a huge ocean of opportunities ahead that will receive investment in marketing here, especially for new customer acquisition. So our CAC-LTV relationship in Brazil, which is impossible to be healthier.

In the United States, it's a total growth play. We're very confident because the customers that are buying, they keep loyal. They are loyal to the base. And when we get the level of 1 million customers, we're going to be satisfied. So when you talk about our brick-and-mortar operations channels, especially wholesale, 36% growth and the biggest growth also here in the number of stores within the large department stores. We are present now this is worth mentioning 108 Nordstrom stores, 43 Bloomingdale stores and 19 Saks stores. We are talking about the Schutz brand for Bloomingdale and Saks for Alexandre Birman.

Here, I just mentioned the main ones. We're very confident. The operation is very mature. -- all processes, the orders in our portfolio already for '22 is 50% higher than the same period of '21 -- so you can expect the maintenance of strong growth. Our goal in '22 is to go over $100 million in the U.S. operation. Now I give the floor to Rafael Sachete, who is going to go deeper into the financial highlights.

[Rafael Sachete, executive]

Thank you, Alexandre. Good morning, everyone, to analysts, investors and everybody on our call a bit about our revenue, Alexandre showed our number, the highest revenue is [ 106.86% ]. compared to the same period and 135% compared to '19. I highlight to all channels and all brands with excellent performance. So here, the strength of Arezzo&Co, the strength of the platform, sustaining the growth in all brands and the individual management of the brand. But here, the company has individually with which one of the brands and that all of them can develop their growth.

Special highlight for the organic brands that grew 28% compared to '20, 40% compared to '19, brands that have a very robust revenue such as Arezzo and Schutz that can deliver growth and where we have a lot of space to penetrate the market and serve our customers even better.

Another important point that is very relevant for the company's strategy from 2012. And now during the pandemic, it became a leverage -- was the growth of web. When you talk of web, not only the revenue, but also the experience that is generated for the customer. 69% growth compared to the fourth quarter '20 with a very strong revenue base and a growth of 305% compared to '19 when we did not have omni. So we have a new level in our web revenue during the pandemic. We continue to deliver growth and seeing this channel develop and reaching more consumers, more sales and delivering more experience to our consumers, be it through the website experience or the sales salesperson app that serves through our brick-and-mortar store and our online.

Finally, as Alexandre mentioned, the growth of our multi-brand very extremely relevant channel for our company in a country that has continental size with small cities where we're not going to reach with franchises, multi-brand is an excellent avenue for growth, and we have a lot to develop together with the multi-brand customers.

For our gross profit and EBITDA with margin, it's important to point out the company's strategy about its margins. For the shoes business, we work with fixed margins, especially during the pandemic and now with higher inflation, to point out this management model where the margins per channel are fixed and the eventual positive variations that we see here, the growth from 49.1% to 54%. It maintains the margins for the channels. But as we're getting a different mix of channels and a change of channels with our own brands and e-commerce, this gross margin is elevated, and we have Reserva and VANS that has a better penetration with own stores, which contribute to this performance of gross profit and gross margin being good.

To the right, we talk about our EBITDA, which reached a record of BRL 185 million in the quarter and an EBITDA margin of 17%. This EBITDA margin drops 2 points compared to 2020. But it's important to point out that in 2020, we had Reserva only with the revenue in December, which is the highest revenue in the year. So there is a seasonality in the Reserva market, especially in December because it's a brand that sells a lot for as gifts, and we didn't have October and November for 2020, where when we have Black Friday, and some discounts that were incorporated in our business. If it weren't for this effect, the margin would be much aligned with 2020 with what we see in '21.

And besides that, we had our marketing investments and all the investments that we continue to do to develop and leverage our brands and channels, especially in new businesses such as BriZZa, Bambini and the female launches, the American operation, that is strongly investing to capture new customers and to bring customers to the base to try our products for the first time that surely are going to become our recurring customers in the future as well as the structuring of all of our business.

For the next slide, we have a very strong leverage, which was 1 of the biggest financial pillars and goals from the executives for Arezzo&Co. We reached 30.1% when we excluded the effects with the accounting effect as well as 22%, which is not common, it's much above average, excluding here the effects of tax credit that we had in the period and the interest that balance in the acquisition of reserve and was going to start the third quarter.

Excluding these effects, our ROIC of 30%, and we understand that it is a very healthy ROIC, and we want to keep a level around 25% to 30% for the next years in the Arezzo&Co Group, very relevant goal. And that speaks about our discipline in managing our expenses and our discipline in allocating capital on our day-to-day and managing the investment that the company executes.

So to talk about the interest you mentioned, we achieved on January 1, the official integration of the Reserva Digital business as of January 2022, we are now recognizing in our data with a direct positive effect. So it is no longer a reserve, as you see here on our statement, but it is really contributing to our revenue. I think it's important to mention that.

Perfect. And in addition to having the benefits from interest from an operation of 1 year, we were able to have the transition of all the operations, all the stores. And now we are capturing the benefits of being a group operating under the same entity number, same tax entity tax number and bringing advantages for systems, for logistics, better structure, better organization and better taxes and better organizational structure for us. And it's worth mentioning that there's a difference being a house of brands which are satellite and being a real platform operating under the same standards and producing all these scale gains that you mentioned. This really shows that since the integration event in 2020 and now with 150 stores from Reserva integrated into our tax entity ID, we are truly a platform. And this goes to -- speaks to our longevity and being able to cover the management of the whole business that are operating under the same platforms.

Now going into our ESG pillar. The company has been focusing many of its investments, resources and efforts to learn more about ESG. This is not a brand, but how the company looks at it, Arezzo&Co as a company has always been on the side, the same side of society. It was a great hub of connection between suppliers and our franchisees. And we have 4 main points we would like to highlight for 2021.

First is going into the IIC portfolio for B3. Next to the best ranked companies in terms of ESG practices and control. So this is the reason for us to be very proud. We have created and implemented our diversity and inclusion strategy, which is extremely important for our business and for the world, we need -- we want to build. We were able to activate a very important step for the carbon neutralizing -- carbon emission neutralization. And Arezzo&Co is now 100% covered by the emissions neutralization with certifications and the Alme brand launch as a 100% new carbon-neutral brand. So this is the first item that we -- that is created with the raw material thoroughly tracked from beginning from end to end of the chain connecting to the demand from consumers and providing a great experience for the world and for our consumers.

In the next quarter, we will also present data for the certification we are undergoing in silicon valley -- Vale do Sinos becoming the first pool 100% certified for shoes manufacturing.

And lastly, we wanted to show you a recap of our use of proceeds of the follow-on offer here in the first quarter 2022. We are truly committed to the growth in using -- in use of resources. So just to reinforce everything that has been said so far, how we are using the proceeds and resources that have been incorporated to the company. We have started expansion of the brick-and-mortar stores much more focused on VANS and AR&Co stores because we know that Arezzo, Schutz and Anacapri stores are more geared towards franchise. And now we are looking at VANS with excellent performance. We have a follow-on from the Paulista VANS store, having payback in 5 months. So this is -- the revenue has kept over the $1 billion revenue mark since its opening. And today, we only -- we have only 25 stores with more space with a still more room to achieve another 25 stores and opening at least another 100 stores between owned stores and franchises with excellent performance.

Also in terms of the new product categories, new brands for BriZZa, Bambini, and Schutz apparel with a reserve of women and Carol Bassi. We still have room to invest in brick-and-mortar stores, with more than BRL 40 million back in 2021. This store is -- this strategy is replicable with similar levels within the country in different capital cities with a specific targeted public.

The third item, our investments in increasing our digital and logistics capacity, we talked about opening our new -- there are 2 new DCs. The first 1 is going to take place March, April in Rio de Janeiro, focusing on apparel, mainly for the AR&Co group, but also for the other brand apparel. And we'd also have an expansion in 2022 for the doubling the capacity of shoes production and the -- looking at the growth for the next 5 years. So we are preparing to sustain this growth in the next 5 years.

There's a model shift that is also paired with the review of the distribution model for our brick-and-mortar stores franchisees and owned stores operating under an expedited replenishment system to accelerate our operations with more assertiveness for products basically, thinking about the right product at the right time.

This is the most important point that is going to transform our sellout through the experiencing of actually offering the right product at the right time. We have different -- we have the evolution of our digital platform with CRM, expanding consumer data analysis, which are extremely relevant for our physical models, but we still have a lot to scale in terms of using the digital platform. And lastly, our maintenance of our sourcing capacity with some M&A movement, small M&A moment for sourcing with companies that can support us being connection hubs for -- to source all of Arezzo&Co.

And we also have our M&A for licensing which is another growth avenue here to have -- we still have a lot to do. We are -- we have a great growth avenue for all of our targeted brands, AR&Co and VANS and Carol Bassi with more room to combine other brands to this ecosystem within this structure that will sustain and support and leverage the growth of other good brands that as we can show you. And licensing as well, along the lines of this brand discourse because this will not represent any activation costs, but it could be an excellent avenue according to -- along the lines, the experience we had with VANS, if we can scale the brand in Brazil and bring a brand that with BRL 2 billion revenue last year, we can understand that we can support great brands to add value for both sides for the company representing the brand and also producing value for Arezzo&Co with great margins.

[Alexandre Birman, executive]

Thank you, Sachete. Thank you all for listening to our presentation. We go into the Q&A session now.

[Victoria Machado, executive]

All right. So we're going to start with the question from Helena Villares. She has 2 questions. First, she talks about the growth of the core brands. and asks about the reason for the growth of this part of the business. And then she also asked about the growth to the base of the main users and what are the main initiatives for this quarter.

[Unknown Executive]

So this is something that was done throughout the year of 2021 to maintain the continuous attractiveness of our core brands connected to the reopening of the stores, the gradual reopening of the stores in 2021, facilitating physical traffic in the brick-and-mortar stores.

So with the digital operations, that's what we saw culminating in Q4. Q3 had been affected somewhat by traffic issues. But in Q4, I could say that basically 100% of traffic normalized with a very strong digital platform maintenance. This was our main work for 2021. So once we got back to normal levels of sales traffic, we could maintain the same omnichannel and digital channel sales as we had during the lockdown period. And this is mainly due to the maintenance of the digital sales and the recovery of brick-and-mortar sales.

So we know that we're almost at the end of Q1, 20 days to the closing of our Q1 2022. And results are still accelerated. As for the loyalty of customers, we have several programs today, launching Schutz in apparel. We will have a pre-exclusive launch for the heavy user clients. Schutz has a 1,000 clients. It's not -- it's a small universe but with a very high sales volume, they're called Schutz [indiscernible] and they will have exclusive access with demos, with stylists that will create the presentation of Schutz apparel line. It will be launched in the first half of April. So we have several programs in addition to having quicker service, quicker customer service launches and that's how we've been growing our heavy user base.

[Victoria Machado, executive]

All right. Next question is from Luiz Guanais asking about the multichannel brands. So how do we expect this channel for 2022 to behave? And what are the initiatives to leverage these figures after the excellent 2021 performance?

[Unknown Executive]

So we have -- we expect strong growth in the channel gaining share of wallet with a very important cross-sell between the brands that are just starting now in our portfolio, with Reserva coming into the shoe segment, that was a very important cross-sell we were able to achieve, but now growth will depend on BriZZa to increase our outreach and -- and in a reverse way, the cross-sell we're going to see for the reserve customers that will be accessed starting second semester for the summer collection with Schutz and Carol Bassi, going into the multichannel, multi-brand platform. So we expect to see this channel growth and your participation and the participation will remain around 25%, 28% of total revenue of Arezzo&Co. We have several programs, as I mentioned, for loyalty service programs, digitalization is going to be the main focus now for the multi-brand channel. And we are confident that we know how to work on these channels. We're very close to our multi-brand partners.

[Victoria Machado, executive]

Next question is from Irma Sgarz from Goldman Sachs. First, you asked about the evolution of the EBITDA margin she asks whether there are still important investments for '22 that much gross margin if we have ceased space for Greece. And the second question is about the U.S. She congratulates on the results and ask you to speak a bit about the next focus, channel mix of channels and evolution of sales and margin.

[Rafael Sachete, executive]

Irma, we always say that we deliberately defined several investments that pave our future growth and that at first are in our [indiscernible] expenses. So we have with 250 to 300 basis points that all quarters we deliberate to have as discretionary to faster.

Schutz apparel. This is all SG&A in investment. In our EBITDA, we don't have -- I'll ask Alexandre for in his credit, anything that is adjusted EBITDA or preoperational expenses. So it was a year of projects, more than 20 people hired. All of this value invested, which is an investment actually in DRE our expenses. So we talk about Schutz apparel, which is the same for BriZZa, Bambini and other different fronts that our company has. That's why throughout these 11 years, it's always been kept active. This is a very big feature of Arezzo&Co to be constantly innovating.

So our EBITDA margin presented in the fourth quarter is what we expect around 17% of EBITDA margin, knowing that we would easily reach To be able to reduce the degree of investment that we do that we believe is very positive to 20% of the EBITDA margin. So this is the figure that we're happy with. We think that it's healthy that generates good returns for the shareholders. And at the same time, allows us to constantly maintain the company's growth through new fronts, right? So this is actually our assumption for March.

About the U.S., what is the focus of sales, channel mix and so on. The biggest of sales focus is digital with accelerated growth that we're having, this digital is not only e-commerce for the Schutz and [indiscernible] brands. It also happens through the e-commerce of our partners for wholesale, be them partners that are pure e-commerce players, but mainly the department stores have grown their online sales a lot through a system that we implemented in 2018 drop ship. The product is on the website on the screen for Nordstrom and Saks, but we have the inventory, and we fulfill and ship, but it appears as a selling revenue in GRE and the sellout of the DTC [indiscernible] of the department store.

This digital front, we just opened our third distribution center in Miami. So we have 3 DCs, 1 in New York, 1 in Miami, another 1 in California, and we had an experience for delivery, we're competing with Amazon that so our delivery experience today in average is of 2 days. It's super fast. We have same-day delivery in a large percentage of our sales. All of our brick-and-mortar stores today, the 5 are 100% omni. So these are our biggest focus. And this is -- and the growth of our department stores. So the growth in the number of stores and the gain in the share of wallet in the space within the department stores. This is the biggest focus for '22.

We started in the second semester. The first steps with strategic vision, we haven't seen to structure our international operation into France. First, the beginning of our penetration in Europe. We are growing strongly in Italy. I will explain why that started soft in 2022. But 2023, it's going to be fast, grew fast growth for our company and other brands from Arezzo&Co in the American market. So these are the 2 future fronts for the American market.

So in terms of margin, what's most important in our opinion is the gross margin. So we feel a very healthy gross margin, our D&A expenses -- SG&A expenses are 100% controlled. It's low expenses. As we mentioned earlier, we have people working in the City of Campo Bom for the American operation. This is savings of millions of dollars compared to having people working in the American market. But the only variable expense in our sales that we deliberately decided to increase investments. So it's a client acquisition. So it's a growth play that we need to invest more in. So the EBITDA margin is going to oxalate among 9%, 12%, but this has a percentage of at least twice as much what we spend in Brazil for the cost of customer acquisition, which for us is a sure investment at this point.

[Victoria Machado, executive]

Next question is from Dannie, Dannie from XP. She has 2 questions. The first is about M&A and licensing, what we have seen in the short term. and asks about the smaller initiatives, the newer initiatives, Bambini, Myshoes, the updates we have on this front.

[Alexandre Birman, executive]

Okay. So thank you, Dannie, for your question. starting from licensing, it is very strong, especially with the global change and it makes that the big international brands want to focus their operation in their countries of origin. In Brazil, although thank god, we're a peaceful country. We have local issues that are complicated enough for the operation in the retail market. So we have a very rich pipeline with important global brands that we're studying right now. So it's a basic principle for us, which are brands that have recall and are loved by the local Brazilian consumer. And in a way that we can operate sourcing with a significant percentage done in Brazil.

We don't want to have a licensee operation for global brands that we depend 100% of international sourcing due to volatility, exchange volatility issues and also logistics and complexity of imports. So these are the big assumptions that we have for our decisions. I imagine that we're going to announce large licensing in the first semester of '22 and maybe another 1 for the second semester. It's as if it was a separate company, it's an arm. We have AR&Co, which is our apparent lifestyle business. So our licensed business that is starting to gain momentum from 2022 seen due to the success of VANS.

Our organic initiatives, you mentioned some, I'm going to mention 1 that you didn't mention, which is Schutz apparel, which is the main 1 in all senses, be it in opening the addressable market and where we actually are having the biggest investment, we're very confident with the go-live in April of the 2 brick-and-mortar store in Sao Paulo and in Rio. And with the new e-commerce and the other initiatives that you mentioned, Myshoes was a player in the moment to have a partnership with MercadoLibre. The results were not the expected ones, but it was a very positive surprise.

The big growth that Machos had in the multi-brand segment, especially in the regions when we cannot sell Arezzo, Schutz or Anacapri, where we have the franchise operation. So we've achieved strong growth. It's going to be a brand about BRL 100 million in revenue in '22. About initiatives within the Arezzo brand, they have a bigger focus in the second semester. The results are still much in line with what we delivered in the fourth quarter '21. And the biggest rule of the investments that we do here to generate a flow.

[Victoria Machado, executive]

So Bob, as what are the must-have the products for winter this year? And how is the competition positioned? And how are we thinking about the sustainability of demand throughout the year?

[Alexandre Birman, executive]

Bob, your first question, would the competitors are not here, but it is very clear that it is -- winter that has a lot of renewal, so we have colors, mainly. It's the most colorful winter than normal, which is positive. Color attracts consumers and the tractor boots have a large percentage, but not the black classic ones, but mainly the off-white shades that are very strong and a highlight that we had. We just did a research in the Northern Hemisphere. It starts now in the winter, a new strong trend for shoes, different from the casualization of fashion and the growth of sneakers and flats, we start to see this winter that is going to come very strong for summer, which are the platform shoes. So it's a type of product that sells a lot in Brazil.

In the end of the 2010s, it was a huge success. The brand shoots for those who know the story. It positioned in the market as the biggest market for platform in Brazil. It's a big trend that is still a bit shy in the winter, but with excellent results and coming very strong in the summer.

And lastly, the sports channels, the Teva style, the number is -- namely Brazil is not very nice, but these are our sandals were launched by Channel and it was the must-have for the wardrobe, a very strong category as well. So I hope the competition is not listening in because they're listening the biggest trends for the winter products.

[Victoria Machado, executive]

The second question is about the demand throughout the year, how we forecast that.

[Alexandre Birman, executive]

Demand depends on our ability to maintain attractiveness of our brands with products. As I mentioned, I'm very confident in the summer that we're starting to develop. We have our first summer selling still in March. We're going to anticipate this interest in the summer due to the strong trend that I mentioned. So I'm very confident that winter for me, it's home already.

The comparison with '21 in March, you cannot even look at it due to lockdown. But compared to '19, the growth is very strong, much bigger than the fourth quarter '21. And then we start with the Mother's Day right after we're investing a lot on Mother's Day with very creative campaigns to connect the customers. And as I was saying, we're going to have summer -- pre-summer already in half July, mid-July. So in this semester going to be strong.

The fourth quarter, we start planning it in April. We have strong weight up for Christmas sales. I think it's a bit early to know what the consumption behavior is going to be. What I can say is that we're going to work with a lot of planning and way in advance to maintain the attractiveness of our brands and to have a very successful Christmas. This is how we frame our next month of the year. I hope I have answered your question.

[Victoria Machado, executive]

Next from Joao related to demand. He asked if we think that performance from the beginning of the year is related to the reduction of trips and other allocation of resources to classes A and B.

[Alexandre Birman, executive]

Joao, I guess that in our cycle of our company, I don't know if you pay excellent bonus, but what I hear from my friends is that there is no reduction in expenses with traveling. Maybe we did not have the Carnival in Rio or in Salvador, but everybody is traveling a lot. So I think this paradigm that classes A and B, stayed in Brazil and bought more in Brazil at the end of last year, and this benefited our brands. I think the results from January and February had the opposite impact because airfares are very expensive, and you -- I was in Paris during the fashion week. Portuguese was spoken everywhere. So key resorts, the same. So I imagine that this effect is gone. I think people are traveling already, and it has not affected our sales. So this is something that we thought about in '21. But I see that it is normal now and sales are still very strong. Was that the question from on Joao?

[Victoria Machado, executive]

Yes. Richard asks about Reserva girl. You talked about performance of shoes and what were forecast for the apparel business.

[Alexandre Birman, executive]

For shoes today, we have the adherence of the customer to buy Reserva already for shoes. We wanted to start with shoes. We will have the go live by the Mother's Day for the Girl brand is going to be very jeans-oriented, very casual, very street wear. And we have almost an MVP, Schutz apparel starts a bit stronger in the go-to-market with more investments with a project that has been have more investments than Reserva girl. So Reserva girl is still going to be in a testing phase, and we will see some growth as of the second semester opening up new stores. And we decided that we're going to have new sales environment, purchase environment. Reserva girl not be sold inside reserve of stores. We'll have another name that I can't disclose right now, but that's not the name we're going to be using for consumers, we'll be investing a bit more in the second semester.

[Victoria Machado, executive]

So the last question is from Nicolas from JP. He's asking about the supply chain, especially in apparel, if we have some challenges and especially due to the freight costs in the U.S.

[Unknown Executive]

So I'm going to start with the second question. This air freight price increase was stronger in 2021. We don't know what's going on now since the last few events with the cost of oil going up, this certainly will have some effect. It had gone down in the beginning of the year, it was lower than at the end of 2021. So our product has a high gross margin. So we have a good cushion for airfreight. And for the more continuous sales with a high percentage in U.S. sales, we are using seafreight, maritime freight.

So we are -- and this is very speculative. We have to wait for problems to take place to find solutions. Of course, we started to see that back in the beginning of last year, and we were very proactive in all fronts. We had no impact on our sales. Much on the contrary, we had a very positive impact in our supply capacity and for tennis shoes, for sneakers, apparel. So we have no supply chain challenges within our business. And I can actually correct myself. We had great challenges.

However, they were all overcome with great work, proactivity investments, and this is part of the use of proceeds of our follow-on because we know the challenges, but we are being extremely proactive attacking from -- upfront. So this doesn't impact the performance of our business because this is part -- it's mandatory in the fashion business. we can't justify the non-sales due to supply. So our sourcing team is extremely proactive and I'm very confident that we will have a -- 2022 with many challenges but also overcoming all of them to investments in all of our proactiveness.

[Victoria Machado, executive]

So these were our questions for today.

[Alexandre Birman, executive]

Perfect. I'd like to thank you all for your attention. But before we close out, I'd like to ask for 5 minutes of your attention to briefly present the strategies to launch the winter collections of our main brands for this important season. So Arezzo brand is celebrating its 50th anniversary in September, looking ever younger, going back to Bob Ford question tendency, we have Isabel Fontana here with the platform heels. This is going -- is coming back strong with different models that are very unique to Brazil, very inclusive.

The Schutz brand is preparing its go-to market for apparel with a preview of what's going to be a revolution in communication for Schutz. It's hard to explain here, but Schutz will launch a band, a true band with their own music with hired musicians, talent. These girls are the Schutz band girls that are going to be launched in low -- no, I'm kidding. But in April, we'll see the Schutz band launch. It's going to be a year-long strategy with unseen activity. So I invite you to take a look at the Instagram to see the campaign. You can see by the photos that it's very young in attracting young customers to Schutz.

Reserva has also a new campaign, a new collection with great collabs with Blitz, it's going to be amazing. We've just seen kind of all here with [indiscernible] with exclusive store in Panama with the whole [ Mangara ] collection. And now we come with the vintage rock style. You can see the photo. This is really cool with great marketing activities, and this is 1 of our main differences. And a company with the sneakers, you can see by the photo, and I did mention this in the beginning, and this was a question from a journalist, about what I think about using cheaper raw materials. I think it's just suicide. Here, our play is to value the product with a great cost-benefit equation, but with good products and adding value to images. This is a bit more elevated campaign for an accompany the price is the same, but we want to strengthen the brand. And this is a great success.

Carol Bassi with the capsule collections. We've also launched the shoes collection in February for this line. It was a huge success. 13 products that were sold out. We also launched the evening collection and it was a great success. And in March, the first 10 days of March, we went over BRL 1.3 million in sales for 1 single store. So we're very confident in the Carol Bassi line.

This is the [ Ekati ] line that we launched in the pre-winter collection. [indiscernible] with the global strategy, this is an investment to -- for the Northern Hemisphere with the high-low investments, we were the Paris Fashion Week. And next week, we're going to be part of the Latin American fashion Summit in Miami, the brand was invited to be the main speaker. So all of the events are going to be mostly in the Northern Hemisphere with huge sales going over BRL 200 million in 2022 -- in 2021.

And Myshoes with a great focus in multi-brand, bringing an innovation and added value to the multi-brand customers. So these are the main brands I wanted to highlight for this preview, we're going to -- that we are launching for the winter collection. And we are very confident that we will see a great and strong closing for Q1 and opening the new quarter with campaigns, dedication, passion, great products. We will have an excellent 2022, celebrating our 50th anniversary.

I'd like to thank our team, the strategic support from the admin team, all of our investors and which we have an excellent 2022. So we are officially closing out the 2021 cycle with the financial statement, celebrating another achievement and congratulate this wonderful team who've dedicated heart and soul to make 2021, a historical year for Arezzo&Co and setting the foundation for an even better 2022. So thank you, and goodbye.

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