Arezzo Industria e Comercio SA

BOVESPA:ARZZ3

Earnings Call Transcript 2022-Q4

[Alexandre Birman, executive]

Good morning, everyone. Welcome to our video conference for our earnings of 2022 and 4Q '22. Thank you, everyone, for being with us during this journey of 50 years. I have with me, Rafael Sachete, our CFO; and our IR Manager, Victoria Machado.

So 2022 was the year for the snapshot of -- or actually take a picture of our income statement and put it up on the wall, shows us a new level of operations for our company. And it's mainly a result of the principles implemented by my father when he established the company and our entire culture and resilience of always knowing that we can evolve and do better as well as the consolidation of the strategy that we established in 2019, before the COVID pandemic.

We had strong consistencies during the year, and even with the high base for comparison, we presented excellent results in 4Q. We also had a strong ability of adapting to all adversities. It wasn't easy. We had many challenges. We had issues with the macroeconomic and political scenario. We had the World Cup in a different period than it usually is, it was close to Christmas.

And as always, Arezzo&Co has an incredible characteristic of adapting fast and consequently showing great results even in the most adverse scenarios. And that was demonstrated during the COVID pandemic and even in past decades. And it will be no different in 2023 regardless of the scenario that we have to face.

Interesting data is that in the beginning of May, when we have the call for the first quarter, it will be -- we'll celebrate 50 earnings calls and 33 million quarters with positive results, including the -- during the COVID pandemic. So we've had investments. And in many cases, our business model, investment means new organizational structure, meaning new people, new investment in research and development for products and brands.

We are very transparent and we do have adjusted EBITDA concerning taxes, but our expenses are always done for that. We don't have adjusted EBITDA for bonus payments. EBITDA is EBITDA. So that means that during the cycle, we had periods in which the EBITDA margins fluctuates. And in the last 5 years, it goes from 14.7% to 17.7%. And we also decided this year to invest so that we can grow in a deliberate manner.

Let's go on to our numbers. About the results for 2022, we reached historical levels, breaking the barrier of BRL 5 billion, 43% growth year-over-year. Net revenues, it's interesting to note that we don't have a major impact in returns or canceled revenues that net revenue grew more than gross revenue. Gross profit, very healthy, BRL 2.3 billion. Our EBITDA grew in line with revenues, achieving a total of BRL 657 million, and net income grew more than revenues for the year 2022.

The highlights that led us to these results are core brands. Who are the core brands? Arezzo Schutz and Anacapri and Alexandre Birman. That's our origin. They grew 33% in the year. We had gross revenues of our new business. The adjacency of growth in men's apparel, AR&Co of BRL 1.2 billion. It's worth noting that the incorporation of Reserva to our business and in our 5-year business plan had a target of achieving BRL 1 billion revenue in 5 years. We achieved BRL 1.2 billion in less than 3 years.

Our U.S. operations has been solid during the past years. The operation has been there for only 10 years, and compared to other Brazilian brands that are there for that period, and we've already achieved BRL 0.5 billion. Solid gross margin in the year, even with the pressure for discounts, we have the ability of acting fast with merchandising and product mix. And our return on invested capital of 28.4%.

Now specifically about 4Q '22. Even with the high base for comparison of comparing to 4Q '21, which was affected by late deliveries and the summer collection went into the fourth quarter because we usually end deliveries in the third quarter, in that year given the difficulties in sourcing, we had a high volume of deliveries in 4Q '21. But even with a high base for comparison, we grew 20% year-over-year. Net revenues following the same growth, gross profit as well. So we didn't have pressure on gross margin, even though extended periods.

The EBITDA with growth that also converted into an amount, when we look BRL 103 million net income for the period, an excellent amount, but a bit lower year-over-year and Sachete will give you more flavor on that.

The highlights that bring on the results, 50 net stores opened in the period, over 10 million products sold in the 3-month period. In December, even with the World Cup, we had excellent results. The brands and especially Arezzo and Reserva are icons for Christmas gifts. Gross margin, 53.8% at a stable level. I'd like to highlight a channel. We don't talk too much. Because of the sellout, people might think it's secondary. But this channel gave origin to Schutz, which is multi-brand.

Multi-brand is a very resilient channel, and in 4Q alone brought on BRL 376 million in revenues. It's an accretive channel for our business and all the expenses in marketing are already done for this channel. So it's very important for our business. And in e-commerce, even coming from levels of very high growth, considering the effect of 2020, we maintained strong growth of 27% in that fourth quarter.

Now let's talk about our brands and channels. As this call is for 2022, I have a more comprehensive view of the 3 addressable markets that Arezzo&Co operates in, in the domestic market. As I mentioned, our core women's shoes and handbags for Class A and B, we have a sellout greater than BRL 5 million. The market share for this year was 34.8%. We've been gaining 2 to 3 percentage points per year, year-over-year. And this data was -- when we did the IPO actually, it was under 15%. So we expanded that segment. And we were provoked and we believed in it, and why not have 50% market share.

So men's apparel, a very relevant market and we started off recently entering that market. Less than 3 years ago, we already have 4.5% of market share, a total of BRL 1 billion.

And now women's apparel. We're taking small steps. I'd say we're crawling right now as it was in the beginning with shoes, but that already accounts for almost 1% market share. That's the beginning. That's how we've divided our brand platform and how we have our brand leadership. And the focus is continuous adherence and positioning of each brand is fundamental. When we go to premium shopping malls in the city of Sao Paulo and Rio de Janeiro, our market share is much higher than that, and we will continue to invest a lot in our brands because together with our people, they are our main assets.

Now about the shoes market, so you can see that Arezzo is top of mind by far. So we have the 4 main in Brazil: Arezzo 19%; Schutz 5%; and third place at 3%. So we have 24% in 2 brands alone. And from 4% to 10% -- 9% to 10%, excuse me, they have 9%, that goes to show how in other product categories that are related to fashion. There is no brand that has such a big share and relevance compared to Arezzo.

Now about the results of each one of the 4 main brands with the company. I'd like to mention that we have a confidentiality agreement with VF. We can't formally show that, but we've had strong growth across 2022. And it's ready for continuous growth. We're exceeding all potential expectations with the licensing operation as it's a very important area for us.

The Arezzo brand achieved the revenues ascertained by the company. I must mention that 75% of the Arezzo brand has revenues coming from sell-in, mainly the franchise channel. So the share in sellout is much higher than that. So BRL 1.4 billion in the year, BRL 382 million in the quarter. And then we'll talk about the effect of an extended summer season in 4Q '21. So we're definitely sure that this brand will continue its growth of 20% on average in the upcoming years.

Schutz, same thing, strong growth. For the first time, it broke the barrier of BRL 1 billion, and more than that, BRL 1.2 billion. It already has higher exposure in B2C. It's very relevant in the e-commerce channel and also very strong in multi-brand.

AR&Co, where Reserva accounts for 85% of that volume, similar figures to Schutz, BRL 1.2 billion in 2022. Strong growth mainly resulting from the opening of new stores. And growth of the renovated stores, maintaining strong growth in fourth -- 4Q.

In Anacapri, during the second half of the year, we worked strongly on the brand identity and product mix. And we had lower growth in the first half, but we changed that around achieving almost BRL 400 million in revenues.

On the right of this part of the slide, on the bottom, we have revenue according to channels. And that pie divided into 4 is very well distributed. On the right, we have the sell-in channels, franchises and multi-brand that accounts for almost half of our business. And the other side, we have gross margin and higher expenses on net revenues, and that affects our income statement.

Highlights about the Arezzo brand. During the past 10 years, it doubled in size. So multiplied were 100% in 10 years. And it's a CAGR that I'm absolutely sure that it can maintain. It was over BRL 1.4 billion last year. And if we take away the effect that I mentioned, that's related to the summer collection. With revenues in 2021, that went from the third quarter to the fourth quarter of 2021. And if we look at the high summer season and summer together, we grew 17% in the second half of 2022 compared to 2021. And that's the basic assumption for the Arezzo brand. So you can rest assured that the number in 4Q alone doesn't mean anything to our business. There's a different calendar when we compare it to the fashion calendar. And with the recent data in 2023 shows that even with the effect of the Carnival in February, we are -- our growth is greater than 25%. So our assumptions are well supported in maintaining the growth of 17% for the Arezzo brand throughout 2023.

Highlights of our sellout. As I mentioned, strong growth in stores plus e-commerce. And even having the Carnival effect in February, we started off strong with 2023 already based on a strong base from last year. So the 23% levels in the first days of March were excellent and even stronger.

About our omnichannel operation that goes beyond e-commerce. The inventory integration between brick-and-mortar stores and online is the base of sales for our business, not just inventories, but also the customer base. So our influenced sales is an important highlight here because it's strongly connected to customers that buy in brick-and-mortar 37%. And our apps have a lower marketing cost than the sales that are made through searches on the web. It grew 90%.

So if we grew 27% of total revenues and 90% sales on the app, that goes to show that it's gaining an important share of the total revenues from e-commerce. So to grow sales on the app, it's a different kind of investment. It's not the kind of marketing that I mentioned, but we do invest in technology and we use that in a smart way because we believe that app loyalty is very important. So in the fourth quarter alone, we had the barrier of BRL 100 million that was achieved in revenues coming from the apps from our main brands.

Now speaking of our customer base, we achieved in the fourth quarter 5.3 million active customers, that means customers that bought in the past 12 months. As I said in the previous slide, the omni client has 2.1 more of average ticket than those who just buy in the brick-and-mortar stores or e-commerce. So our strategy to retain these customers and acquire new ones is to make them be omni because they have provided greater revenue for our company and our cost of acquisition is lower for that customer. So our company is well based in regards to our direct relationship with our consumer, especially omni.

To conclude before I pass the word to Sachete, since at the beginning of the cycle of 2023, I would like to share the 5 main strategic guidelines that we have for 2023. As I said, maintain sustainable growth through continuous innovation of our core brands throughout this year. We all -- those who know our structure at [ Bambini ], which includes DTC sales and marketing for our core brands. We will create independent units for Schutz, Alexandre Birman and Anacapri. And the strict management of the marketing department and VIP customers in those brands will be built throughout 2023, and you will learn about that in a timely manner. And also a very detailed work of strengthening the relationship with our customers and strengthening our brands.

In the foreign market, we've been seeing a strong difference between the growth of luxury brands and those in the average ticket price. And we do want to make our brands more premium and that needs to generate value. So we started this investment with Arezzo in 2022 with very good results, and we're giving continuity to these investments in 2023. Expansion in a diligent structure well thought of manner. And we want new brands expanding our addressable market.

AR&Co, that has a very well-defined structure and spearheaded by Rony Meisler and an excellent group of executives. Today, they have ecosystem of their sub-labels, some like Reserva and Reserva Go at an advanced stage. However, even Oficina that already has a strong hold in Rio and São Paulo, still in the early stages compared to their potential. They will overcome BRL 100 million in 2023. We have still a huge market share to gain Oficina, Mini, Simples, Reversa, women's apparel. So we have a very strong pipeline at AR&Co, expanding feminine apparel in our portfolio through investing in current brands. Carol Bassi has been with us for many months.

Schutz, we had wonderful test this year. We defined that it will be hybrid stores selling shoes and lifestyle. Our benchmark is an international brand that is very successful that operated in Brazil. Although they focus more on stickers, they have a very interesting lifestyle, which is Golden Goose. So the first store is at JK Shopping Mall. It won't have a large sales floor, but it's going to be completely changed in the way they display the products and a strong growth in same-store sales. That's our goal for Schutz.

And we want to start a new growth wave in the foreign market. We already achieved a very relevant level of $100 million. Schutz and Alexandre Birman, we want a CAGR of more than 60%. We started with Arezzo. We already have a partnership with Macy's now for the second half of the year. We're going to be in 100 stores. So Schutz, [indiscernible]. And we have new brands and categories like handbags. On Broadway, we're going to open a new Schutz store that will be similar to the one in JK shopping. So we have a lot of growth in the American market, more than 10% that I mentioned before.

And we want to enter a very relevant segment, which is the emerging luxury brands. What do we consider an emerging brand? What are their features that they have less than 10 years of existence, minimum revenue of EUR 10 million? That already have products, that are the flagships of the brand. And organically, they were embraced by the greatest celebrities in the world. And it's a natural awareness organic growth. So for shoes, this cycle of brands is continuous.

When we get closer, we will give you a snapshot of the brands. This project started 5 months ago in our company. We have a leadership and strategy that is dedicated to that. In the U.S., in New York, last week, we started the first investment of Arezzo in the Paris Texas brand that has a very strong awareness in Europe without penetration in the U.S. So we're going to use our U.S. operations to leverage Paris Texas growth. And we're going to bring Schutz and Alexandre Birman back to Europe through Paris Texas. So it's an avenue of growth, and we're going to use our know-how in the shoe business management and omni sales to brands, that have these brands in the international market.

So these are the strategic guidelines for 2023. Now Sachete will talk about the financial highlights.

[Rafael Sachete, executive]

Thank you, Alexandre. Good morning. Thank you for being with us for the earnings in 2022. As Alexandre said, now talking about our revenues per channel, we can see BRL 1.6 billion in revenue in the fourth quarter, a record for Arezzo&Co and also a record of the year, BRL 5.2 billion in revenue and also growth of the core brands throughout the year and in the fourth quarter. And a huge growth of the brand that we brought to the group, AR&Co, Vans, all the initiatives that we have in-house, leveraging our revenue in the fourth quarter. It's worth mentioning in the channels the web commerce with 27% growth that continues growing in a relevant manner since the pandemic and it hasn't dropped since. I'd also like to highlight the multi-brand channel that is extremely relevant for our business.

About our income statement and revenue, let's talk about gross margin. In the gross margin line, we have an expansion of 110 basis points in our sales gross margin, especially impacted by the performance of sellout and sell-out margins managed by our in-house team and our stable margins in wholesales, multi-brand and franchise. In the quarter, we had the flat margin impacted by Black Friday in November, which had a good sales performance and sustained our growth in the quarter, especially for the whole quarter.

On our expenses and SG&A, we started with the sales of owned stores and web. We grew aligned with the revenue growth and our leverage level. About our expenses with sales, with risk of supply, we included all our expenses of brands since structuring, marketing and it grew 68% in the quarter. It's also very important to say that in this line are all the investments in new initiatives. Since the U.S. operations, new brands, our relevant initiative in apparel, which is strategic for the company with Reversa and Schutz women. Also other initiatives like My Shoes and also our commercial area.

So we have 20 activated projects in expenses with CapEx that will generate revenue in the future for the company, but in some quarters, it would put pressure on the growth and on expenses because they're allocated on this slide.

Lastly, our SG&A expenses that dropped 7% in the period because of our very efficient management and focus in leveraging the platform, sustaining the group's growth without increasing SG&A expenses. It's always below online operating these expenses, always below the revenue growth.

With this, we concluded our EBITDA of 2022 with BRL 667 million, 15.5% of EBITDA margin year-over-year. It's a flat margin with 0.2 percentage points drop. When we look at the EBITDA margin of the quarter, we have 640 basis points drop impacted by the investments that are listed in the expenses.

Looking forward, we don't see -- what you can expect for the next quarters and for the year of 2023 is a better performance that with less pressure on expenses over revenue and less pressure in the full year with some improvement.

In our EBITDA line, we broke it down to net income and we have depreciation, amortization from rent, financial expenses and taxes. In this block of expenses, in this quarter, we have an expense that is a carryover from the second and third quarters in rent that impact the financial expenses and a renewal of several store rental contracts, opening of new stores and our new distribution center that generates an impact in this quarter because of the contract signed and the contract is in operation. Our net profit of BRL 367 million, that expands in line with the revenue 43.5% growth year-over-year in the year consolidated, achieving BRL 102 million of net income in 4Q '22.

About our return on invested capital, which is very important for our company and achieved 28.4% in the quarter. Due to good EBIT growth, reminding you that in the EBIT, we have all these expenses where we allocated these initiatives that are still maturing in our operational expenses and our efficient cash management, which is key and discipline in allocation and strategic alignment of where allocating the resources in a smart and structured way, always looking for the best return on investment for our shareholders and forward-looking. For the year of 2023, the levels should be maintained quarter-over-quarter as shown here.

Alexandre, those are the key highlights of financial and we're going to open -- pass the floor back to you for Q&A, and then we'll go back to the closing comments.

[Victoria Machado, executive]

Well, we have a lot of questions. So I'm going to start off with João from Citi. He says you have 23% growth in sellout. Can you comment on the performance per brand, in specifically the legacy brands? He also mentioned the volume. There was a drop in volume of shoes and bags. And can you talk about that? And is it because of the price increase?

[Alexandre Birman, executive]

Hi, João, this is Alexandre speaking. Thank you for your questions. I'll start off with the second one. When you look at the volume in 4Q '22 compared to 4Q '21, there's the effect that we mentioned in September 2021, we did not achieve our production targets. Part of the summer collection that should have been delivered in September was delivered in October 2021 leading to a certain distortion to the base and with the higher volume in 2021. So the drop in volume 2022 is a result of that.

We don't expect major volume growth for 2023. The volume should grow less than the total revenues. But today, we don't see that issue on the consumer side. Quite on the contrary, we see a certain elasticity in our prices in maintenance of our volume. So a balance between the price increase and total revenue. So the levels are good. We do quantifying research to compare the -- with the competition and also we see how consumers receive our products.

And price is usually not a reason for a consumer to give up on the purchase. That's usually not a reason that they think it's expensive. Actually, they're positively surprised by the price. And that our assumption is because of the added value of the product.

So our product creation system, we call that there's all our solids to generate the best value perceived, the best value for money. And our brands have that track record in maintaining that. And here for what we presented in the first couple of months of 2023, we have on average 40% AR&Co and 16% of the core business. In March, it's still early to tell just a little bit over a week in March. But yesterday, we went into the winter collection in all brands with advertising that is bringing on a lot of awareness. I'd like to invite you to watch the Gisele Bündchen video on the Arezzo brand Instagram. That saw -- had 1.1 million views in just an hour. So product is sold out. We have growth of almost 30% of the core brands in March. So we have good expectations in the total sellout for first quarter 2023.

[Victoria Machado, executive]

Now we have a question from Danni from XP. She is asking about the North American operation. In some of the news, there should be more investment in operation. How should we think of EBITDA in the U.S.? Can we consider a short term for the investments to support your growth?

[Alexandre Birman, executive]

Thank you, Danni, for your question. Our diligence and margins and sustainability is historical. It's worth noting that I have to put a couple of hats on. In addition to being the CEO, I'm a company executive, and I have 41% of the capital of the company and we have to generate dividends. So historically, the company since the IPO has paid over BRL 1 billion in dividends. And there's only one way to do that by generating that income and cash to pay dividend. And that's a historical mantra that we have.

So you can rest assured that any investment and any decrease in margin, we have a group that's not only spearheaded by me, but all executives that have -- that are very interested in that growth, but that's an excellent question.

The North American operation still has a lot to leverage. And in a diligent manner, we always had presented since the beginning of the operations the results not only in revenues, but also revenues and EBITDA and that's important for investors to be aware of how much we're investing. It's different than just presenting revenues because you don't know where the expenses are coming from. So at Arezzo&Co, we're very transparent in our earnings release and the investment in the North American operation is very important for the future.

When you talk about Paris Texas, it has an intersection with the North American operation, but it won't necessarily affect that because it's a new company. So it's headquartered in Italy. The North American operation will have the same relationship with it that the North American operation has with the Schutz and Alexandre Birman brands in Brazil. It's going to be a sort of distributor of Paris Texas that will have the owned stores, one, to start off the flagship e-commerce and distribution in main department stores through the wholesale channel.

So entering the segment of emerging brands in luxury shoes is a very important strategic direction. There's many important names that operate in that category. It's not the time to mention third-party brands in this call. But we see that market, we act in that market. And I've been doing research in Europe for 30 years, seen many cycles and then there's a recurring characteristic that these brands come in, create a star product. They last 10 or 15 years. And after that, they don't have continuity. And we want to grab those brands when they are already a reference, there is awareness, there's an icon product. And as from then on, use the know-how of Arezzo&Co. So that's the first test.

We're starting a relatively small test in time or financial investment. It's a test like others in our company we put in the correct energy so we can have return in the long term. I remember when we were launching the Anacapri brand pretty much in the beginning of the IPO, and today, it's a BRL 400 million brand. Everything starts slow. We believe in it. We move forward and we transform that, the investment in excellent return for our shareholders.

[Victoria Machado, executive]

Well, now with Ruben Couto, you sound like an interviewer. You're doing great. You can do some podcasts. Great. So we have -- Ruben says that we said that we're not interested in acquiring Brazilian companies, but company is still looking at this, so focusing on women's apparel. So are you still looking for assets? But looking at the macro context in Brazil, would you say in the backseat in 2023 or something or if something comes up only if it's something that you can't miss out?

[Alexandre Birman, executive]

That's an excellent question, and I'll start off by answering in a different way. I'd like to thank the news agency that's very present and monitoring us. But however, I have to say that the interpretation of a journalist in interview is not a transcription of a testimonial. It's not a recording. The person doesn't just listen and type. They interpret things, and that may be used in a different way than the actual context.

So there's the version that I really like to hear of our people leader which -- what is a text outside the context, right? It could be misleading. So all of the analysts and investors that are listening to us here, if you hear any information about our strategy, talk to IR, Sachete or myself. We're always available. We have many meetings during conferences or the meetings with the banks. It's a pleasure. And then in that case, you will hear the information and base yourself on the reality of our guidelines. It's great to be covered by the press. I love to talk to journalists.

However, each one will interpret that in a different way and might count out the words in a way that doesn't really mirror 100% of our guidelines. So it's always worth basing yourself on what the press is on -- what we're speaking, telling you directly. Well, that said, today, we have a well-structured M&A department. In the past, less than 10 years, we've done excellent transformational moments for our company without -- and focusing on the return versus EBITDA.

That's what we base ourselves on and that's my vision of having still a very high relevant percentage of the company or share of the company. And I have -- without EBITDA, I have 40% -- I have 41%. If I invest 10%, go to 36% and EBITDA goes to 110%, I will make the same. So in 2019, the last year, pre-pandemic, we generated an EBITDA or net income, I'll go straight to the point, of BRL 162 million. Back then, myself and my father had 50% of the company. So we had BRL 81 million in return on equity. In 2022, we just presented net income of BRL 336 million. And we have 41% of the company. That's BRL 150 million for controlling shareholders.

So we are diligent in maintaining our pipeline of new brands in Brazil. Segments, and our first slide of market share is in women's apparel and a well-structured pipeline that will comprise our portfolio. So it's a continuous and gradual process. You have to have pace, but you can't be in a hurry. And that's what we do in M&A, and we'll continue to act that way.

What I mentioned in an interview is that we now have a new opportunity that we're testing Paris Texas. The first fashion company in Brazil that has invested in a relevant brand in terms of positioning with low investment. So here, we have the ability of having a high return with low risk. Low risk, it's low employed capital. We won't invest that many -- that much time and resources from top management and that could open up a new avenue for growth by -- after we entered the area of apparel. That's my answer to that question. Sorry, I took too long, but I think it was very interesting how you confronted the news in the -- and thank you, Vicky, for bringing that together.

[Victoria Machado, executive]

Another question from Ruben. He says, can you talk a little bit more about EBITDA for 2023? So in recent acquisitions and with Reserva, that changed the margin profile a lot. So I'd like to understand if you can keep on maintaining that level and the SG&A that you're planning on working with.

[Alexandre Birman, executive]

That's an excellent question. That's our compass, our daily guideline. So just some brief history of the past 2 quarters, the EBITDA margin went from minus 1.1% in 4Q, minus 2.1%. And for '23, less -- a lower reduction, and as of then, the beginning of leveraging. So consequently, in the first quarter, it will still be lower year-over-year. But in the year, we'll have margin stability. As of the second and third quarter, we should increase margin again. And in all in 2023, we believe that we'll have the same EBITDA margin as 2022.

It's not a margin that is ideal, and I'll give you some information on our track record. 2016, we have 4.3%; 2018, 15.2%; 2019 was a great year where we had good growth pre-pandemic, 17.9% EBITDA margin. 2020 I'll skip; '21, 15.7%; 15.5% in 2022. So the company has a high predictability regarding net income and EBITDA margin. So obviously, that we have to analyze the numbers. But when you look back at the track record, and for the 10 years that we are publicly traded, it has that range. And the most difficult year 2016, 14.3%; so in 2019, 17.9%.

Okay, here, we're talking about a delta 3.6%, that's relevant. But in the middle of that, 13.5%, that's where we're at. These are the correct figures that our business won't fluctuate much, not going up or down. So top 18 is where we have our estimates for 2023, but we'll keep the EBITDA margin in line with 2022. And for 2024, I can't tell. It will depend on our sensibility, investments compared to return. I'm here until 2054. Not me, but the company. I don't know I will last that long, but we're looking at the long run. So it's a range that is positive for us, and we're going to be diligent and investing according to our forecast for growth.

[Victoria Machado, executive]

Our next question is from Maria Clara from Itaú. Still talking about 2023. Please explore in detail the opportunities you see for Fiever, Anacapri, but Arezzo&Co accelerating. So when the initiatives for growth will start?

[Alexandre Birman, executive]

Thank you, Maria Clara. As I said in my presentation, that's strategic for 2023. I'm going to talk about 3 initiatives for those brands, starting with Arezzo. Arezzo, we will change the architectural concept. We do that every 5 years. We think it's very important. Our concept that you see in all the stores in São Paulo, like what they mean would be Oscar Freire, was from 2017. So we tested last year a new concept, and it's a very complex, an important process when you -- after you establish a concept, you have to do the rollout. Shopping, what they mean, Sao Paulo, we will open the new Arezzo concept. And in addition to the architectural aspects and providing a better experience, we're going to have a larger area for handbags and small leather goods.

And we're going to have room for sub-brands of Arezzo like BriZZa and Bambini. So this is something Arezzo does in the brick-and-mortar stores. We're launching a new version of Arezzo's website and app. And lastly, we're going to strongly invest in awareness. I'm talking about the top of the funnel in marketing, bringing new customers to our base through brand image, commercials and advertising. And we're going to use icons like Gisele Bündchen using AR&Co, so you will see how this campaign is going to go around generating awareness of the brands and products.

About Schutz, the brand will have 2 large investments in Brazil this year and one in the U.S. We're going to open Schutz House. We will transfer to a building located at MariaE Fajas. The entire headquarters of the brand will be their collab, creation, marketing management will be headquartered in that building and a new hybrid of shoes and lifestyle will be opening in JK mall.

And then we intend to open 3 or 4 more stores in that concept. In the North American market, we will open a store on Broadway with an emblematic location between -- that will really expose the brand's lifestyle for the American market. It's a new cycle of growth of Schutz in that market.

Anacapri will go to a building that was supposed to be for Schutz. But last year, we studied the location at Oscar Freire, and it's been changing the customer profile. So we thought it would be important to invest in Anacapri and opening a headquarter that will include creation, showrooms, multi-brand. So Anacapri is investing on that. And we are going to continue with Juliette, a person who has an organic relationship with the brand. She used to be a manicurist here and she became famous and she loves Anacapri. So that's an actual example of the versatility of the brand. So these are the 3 main brands that I mentioned.

So it's a strong process and initiatives developed throughout the year. You can talk to me, with Luciana and the leaders of our core brands.

[Victoria Machado, executive]

Our next question is from Irma from Goldman Sachs. Her question is twofold. She paid attention to the multichannel brand. And what are the growth factors going forward? And if you have more room to increase productivity per square meter in the core brands?

[Alexandre Birman, executive]

Thank you, Irma, for your question. Let's talk about multi-brand. I love that channel. I know that digital and e-commerce are more modern, but I'm old school. I love to go to a shoe trade show. I grew up going to them. It's where I launched Schutz in 1995. I really have special love for the multi-brand. We thought that they were going to be decimated, that they were going to lose space. But no, they have a huge capacity of relating to the customers, especially in the countryside, which is great to see. Throughout the decades, second generation like myself that are running these stores in the country, so we have strong investment made last year.

And that helps to corroborate with the margin pressure. But we believe that this investment will generate great return. So we are good to maintain that annual event. It has a very important trade and relationship feature with the customers, and we intend to grow the cross-selling of the brands, which has been important also. And Vicenza, which has a good penetration and it's -- we did something different than what we do for the other brands. The overlap of Schutz and Vicenza is low. So Vicenza has a huge potential. And I have great news about Vicenza.

We're going to open a pop-up next week at JK. There's this spot that we decided to focus on online, which is Fiever. So we have that space, and we're going to use a pop-up for Vicenza. So it's going to be in the multi-brand channel as well. So multi-brand still has a lot of potential and also automation and app for the sales force and that multi-brand can also do omni selling and sell out with multi-brand, which we've been investing in, which is different from what we have today. So that channel, we want to continue strong. The leadership has been with us many years, and we invest strongly on it.

About your question of the sales per square meter, that's a KPI that has such a high number already that, to be honest, it's not necessarily an internal performance metric. When you look at an Arezzo store, you go to any shopping mall, that has 18 million to 20 million. The stores, so you're talking about 200 per square meter, BRL 50 billion for Alexandre Birman and 40 square meters. So that KPI rather we can start looking at it a bit differently. But I'm going to be very honest with you.

Our average is BRL 38,000 per square meter. So of course, it's very important for the own store's income statement. But we already have a high yield there. So our ratio in shopping centers of occupation per revenue, it's the lowest per market -- in the market. So it's not a management KPI that we look at very carefully because it's already very good. But thank you for your question. So we're going to take a better look at it, but the flagship stores, it's more than BRL 100,000 per square meter and they always have a very positive result.

[Victoria Machado, executive]

About EBITDA margin, we have several questions about marketing investments. How was the dynamics of 2022? And what do you expect going forward? From Luiz from BTG.

[Alexandre Birman, executive]

Luiz, thank you for your question. I'm going to -- Sachete has the -- I have the idea that Sachete pays the bills. So I'm going to pass it to him.

[Rafael Sachete, executive]

Thank you, Luiz. Thank you for your question. It's important to detail that we're talking about a wish brand, like Alexandre said. He knows that market more than anyone. And we have a very well organized structure to continuously generate desire and value through our brands. It was a year of important investments and we've been.

If we compare before the pandemic to 2022, in percentage, we grew more investment than we did last year, 15% more in revenue percentage. And this investment sustains, supports our current growth and also the future value of the brand. It's extremely important for us to generate value in the future for our brands. For example, this action in marketing 360 with Gisele Bündchen, that will be an all newspapers, magazines, Internet, vehicles and our brick-and-mortar stores. This type of action doesn't generate all its effect in revenues on that day in short term, but it stays in the minds of the customers for a very long cycle, generate value to our brand for a very long time and that's very important. We're not here for 1 or 2 years. We're here for 30, 50 days and that long cycle is very important to invest on.

About 2023, we will continue or even reduce the percentage on revenue, but not that we're going to invest less. We're going to invest more, but the revenues are going to go up more than we're expecting. But we're not changing our strategy. We're not -- we're going to be just here and there for short-term marketing, but our vision looking forward is to invest in marketing, excellent strategy. Brand is a human being that we have to always care for. We can't let it go because it's almost impossible to rebuild it with a huge investment amount and time.

[Alexandre Birman, executive]

We have 1 or 2 brands that support the business. We have more than that, Arezzo, Anacapri, Alexandre Birman, Schutz, BriZZa with strong investments, we have Reserva, Oficina, Vans, Carol Bassi, which is a brand of huge awareness. So we have 9 brands, Vicenza, Paris Texas, that I would like to invite the investors who are in Sao Paulo, we're having a pop-up at any MK store on Wednesday. It's going to be an incredible launching. And Vicenza is opening a store at JK, so I invite you to go see these new brands next week.

So brands are part of our assets and even other lines of expenses that in time, our investments that can be improved. But brand is our essence. It's what generates that wish and that's going to -- what's going to make us stay here until 2054.

[Victoria Machado, executive]

Our next question is from Vinicius from UBS. Could you talk about the franchisee sellout, especially retail? And how -- can you compare sell-out, sell-in 2023?

[Alexandre Birman, executive]

Franchisee sellout is very much in line with our own stores. In the universe of over 750 franchises, you have regional variations. And here, when you look at the average compared to the volume of sale and growth, same-store sales growth is very similar to our own stores. There are some significant differences when you have exceptional franchisees that we use as benchmarks in other franchisees, because we like to say that the relationship is not one corporate to another corporate.

It's actually a corporate with an individual sometimes. So it's worth noting the journey, 38 years as a franchiser. And we have a delinquency rate lower than 4% in the franchisee segment. And with sales term and we extend that in 2022, so the health -- and our thermometer is the fact when they're not in default. And we'd always like to say that it's something live. You're always evolving that relationship. So you have that process -- continuous process of making adjustments to that relationship which is very close. It's very personal. So I really dedicate myself to the relationship. I open up the home. We have Christmas dinner for them.

Just to give an example, in the conventions that we have, we are very close to the franchisees. And they do well. It's great to see the second generation and many of the operations already taking on the business. The franchisees really love it, and they treat our brands as they were their own and the commercial operation is much different than a fast food franchisee's or services franchisee's. It's a very deep relationship with the brand. And that's very important for us to nurture. So that's my answer.

Another question?

[Victoria Machado, executive]

He asked about volumes, but you already answered that. Our last question is from Tales from Safra. He says, the company has new customers in the base. Are there still stores that are not present in cross-selling opportunities in shoes? How do you feel that you're in that process? Is most of it there yet or do you saw room to improve?

[Alexandre Birman, executive]

Great question, Tales. The number of customers with Vicenza, at least 600 more customers that we didn't have, that the Vicenza customers alone, and they're going to be part of the customer base as of April where we will recognize the revenues inside the income statement of Arezzo&Co. So very interesting mapping. The multi-brand growth through both fast and the growth of share of wallet and same-store sales and sell-in, so the numbers should continue to grow. There's brand exclusivity. But since there are many brands, we can distribute that in small towns because every important store owner will have a group of brands that are ours. We're very careful with that.

In cross-selling with apparel, that didn't even start. We recently started that work. And there will be an important event where we will add multi-brand profile, not only for shoe wear, but also bags. New apparel don't buy the shoes, but having a rate store seems like it will be harder. But today, in apparel, customers like Reserva, for instance, we can grow shoes from our other brands. And Baw is already doing that in a brilliant way. So the cross-selling is a continuous dynamic. So to answer your question, the cross-selling in multi-brand, shoes and apparel is very low.

[Victoria Machado, executive]

Thank you, Alexandre.

[Alexandre Birman, executive]

Thank you, everyone, for participating in our 4Q '22 call and the year of 2022. Very emblematic, very striking year. And now we have to give continuity to Arezzo&Co. It's just continuous growth leveraged by a lot of investment and a lot of work.

I'd like to see if this is going to work. We prepared a 1-minute video, so you can preview the 3 main campaigns now that we're going into our winter collection. So visit our website, visit our stores. The collections are incredible, well-executed campaigns. I'd say it's the best in terms of the mix of delivery and marketing strategy. So we're very confident that going into winter will be a huge success as we've already seen these first couple of days. Let's see if this is going to work. I'd love everyone to watch this. And thank you very much for the dedication and your trust on the way to 2054.

This is live. I don't know if this is going to work. Okay, we'll send it on WhatsApp. Thank you, everyone.

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