Lojas Renner SA
BOVESPA:LREN3
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Lojas Renner SA
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Good afternoon, everybody. Welcome to Lojas Renner video conference about the results of the first quarter of '21. Before we start, I would like to give you some information and make a brief disclaimer. This video conference is being recorded and simultaneously translated. All questions must be asked by chat by means of the webcast platform. Questions from journalists should be sent to our press office, and the number is 11-3165-9586.
And before we continue, I would like to clarify that forward-looking statements that might be made during this video conference in relation to the company's business perspective, projections, operating targets and financial as well, our beliefs and assumptions of our management based on information currently available. Forward-looking statements are no guarantee of performance. They involve risks and uncertainties and they depend on circumstances that may or may not occur. Investors should understand that general economic conditions, industry conditions and other operating factors may affect the performance of the company and lead to results that differ materially from those expressed in such forward-looking statements.
Having said that, I would like to give the floor to Alvaro Azevedo, our CFO, to start the presentation. Alvaro?
Good afternoon, everybody. This is Alvaro. And first, I would like to thank you for participating and for your interest in participating today. Fabio Faccio is our -- with us, CEO; Carla Sffair, our Investor Relations manager, who will be organizing the questions that you will be forwarded via chat.
As we said in the release, the first quarter was characterized by an increase in number of COVID cases, leading to an intensification of the social distancing protocol. As a consequence, once again, we adapted very quickly to the need of the situation, prioritizing the wellbeing of our clients, employees, suppliers and our community.
Regarding our business, we adjusted for product and operations so that we could have the best possible use of our businesses during and after the temporary closing of the stores. Thus, I understand that we should stress 4 operating points of our third quarter.
Let's start by Slide #3, where we see the sales performance. The new restrictions regarding our operations put in force, mainly regarding temporary closures that happened in a more relevant fashion in March included areas of operation, very important for us such as the South and the Southeast. And this led us to operate with 69% of the total business hours of the quarter vis-à-vis 86% in '20. I would like to remind you that till March, it was 100% normal. And with an important pace of sales, thus, net revenue from merchandise sales was 12% lower.
Same-store sales going down 12.7%. At the end of the quarter, we only had 38% of the stores in operation, and in some locations where there was more mobility such as the North and the Midwest. If we consider only the days in which the stores were open, the physical unit performance was positive in the quarter, and this led to an adequate execution of the operation and the good acceptance of the fall/winter collection.
Now looking at the second quarter of '21, this behavior became even stronger in the following weeks, mainly as of April 19, when we started to see more flexibility in the restrictions with the resumption of activities in most stores. Ever since then, we have been seeing a very important recovery of sales, a growth of on average 2 digits over '19. Currently, our stores are open, and we had a great week for Mother's Day, the best in our whole history.
We have a diversified assortment with quality of the product, in the transition and in winter, which generated a lot of attraction to the stores. Traffic is still lower than usual, but conversion is much higher, more items per bag. And even with a faster place in the physical stores that we saw in the last 2 weeks, e-commerce continued to accelerate in this period. Because of all the initiatives underway in the quarter, digital sales went up by 173%, and in April continued to be high.
Regarding Slide 4, another important point regarding our operations was our gross margin. Once again, we saw a sequential evolution in our margin vis-à-vis the last quarter. Our inventories are well balanced with good quality, but we had the challenge of the exchange rate on imported products and inflationary pressures on raw materials besides international freights and the biggest restrictions in terms of the operation generated a more promotional environment for this period. Thinking about the second quarter of '21, even having the exchange rate and inflation of raw materials as challenges, we see a more promotion, which is more normalized.
And the third point that I would like to mention is on Slide 5, and it's about expenses. The operating deleveraging in the quarter came mainly from lower sales because of the restrictions to our operations and mainly the temporary closing of stores in March. And as we have already said in many interactions with the market, we have additional expenses related to the acceleration of digital sales and the initiative related to the digital transformation and development of our ecosystem, and Fabio will be talking about that.
For the second quarter '21, according to the trend of improvement in sales that we have seen so far, we believe there will be a lower effect of deleveraging, which will help us to bring the EBITDA margin to a positive level. Important to mention that over '21, we will see higher OpEx expenses related to the initiatives that we have already mentioned.
And lastly, on Slide #6, I would like to talk about the credit part. We have maintained a gradual improvement vis-à-vis the last quarter of '20 with a good quality of the portfolios and delinquency under control. Additionally, the revenues had a gradual recomposition, but still impacted by the lower origination of portfolios, as a consequence of the restrictions to our preparations and lower financing requests for the part of clients. We also had an increase in expense, mainly due to the digitalization initiatives together with the development of our ecosystem.
For 2Q '21, we continue to work to guarantee credit quality and delinquency under control. On revenues, we will have a one-off challenge of the lower generation of portfolio because of lower sales, but we will continue to evolve in measures to liberate credit limit that had been limited. And for the composition of past due financing rates as well as the offering of [ open seas ] of Meu Cartão. Also, we are accelerating the sales and organizing campaigns and incentives for the use of operation of cards, which will allow us to rebalance the operations as a result.
Now I would like to turn the floor to Fabio Faccio to talk about digital transformation and the development of our fashion and lifestyle ecosystem.
Thank you, Alvaro. Good afternoon, everybody. And before talking about our main initiatives in digital transformation over the quarter, I would like to talk about the construction of our fashion and lifestyle ecosystem and how this business model has been evolving in the company. September 19, the Board of Directors and the management met to define the strategic priorities for the next few years for the future. As changes have been very fast in the habits of consumers in a more digital environment, we understand it would be necessary to have a more complete offering in all stages of the consumers' journey, and we decided to adapt our business model to meet these demands.
Thus, at that moment, we define the design of our ecosystem, as you can see, on Slide #7. It also renewed our value proposition to meet this model. Ever since then, we have been working in the necessary adaptations, the adjustments in our culture, bringing new expertise and structuring our teams. And on March 31, we presented the plan in our Investor Day. And now we believe that we are ready to invest in the execution of these initiatives, powering up our current platform so that we may be the leading specialized ecosystem in fashion and lifestyle and reference in Latin America for this construction.
The main front of our investments are related to the extension of product assortment, category, services to our clients beside the offering of services to partners and sellers. Besides, we are working in the generation of proprietary content and media for more engagement, frequency and stickiness, increasing our life value and reducing the cost of acquisition. Likewise, the ongoing investment in the omni journey with a bigger array of channels and platforms, all integrated, brings more digitalization, flexibility in the journey, convenience enchantment and the consequence and increasing sales and a better productivity and profitability.
Additionally, we are increasing our client base in Realize CFI and increasing also the offer of financial solutions that might meet the needs of everybody in our ecosystem, being a very important driver of synergies and results. And we are also structuring a loyalty program that will bring benefit, not only quantitative benefits, but also differentiated experiences being the link between the different formats of retail and banking and further improving our ecosystem.
And so that everything may happen, we need to accelerate platforms and important enablers as well that can be seen on the lower part of the slide, driving logistics, technology, data that will allow us to bridge some of our current gaps and go ahead in our business model. And in order to face these plans that last week, we finalized an offering of 102 million in shares, totally funding of almost BRL 4 billion. And these proceeds will bring us agility, flexibility and preparedness, which are necessary to capture all the opportunities associated to the continuity of development of our ecosystem, by means of an organic construction as well as partnerships and acquisitions.
Likewise, they will allow us to invest in the acceleration of digital transformation, and they will guarantee the continuity of our work in the omni DC in São Paulo and the expansion of stores regardless of the economic scenario and COVID-19, consolidating the omni vision associated to our strategy. This follow-on was priced on April 29 at BRL 39 per share with a discount of 2.4% vis-à-vis the closing price of the day, below the average of the recent offerings in the market. And besides, we had a demand of 4x fold higher than the book. And we are very confident in the trust of our investors about our strategy, our capacity to execute it.
And I would like to take this moment to thank our shareholders for the trust that they deposit in our company. We are sure that these investments will allow us to have more enchantment for our clients, guaranteeing more competitiveness in our business and generate more value to our stakeholders.
Having said that, I would like now to go to Slide #8 and say a few words about the progress that we had this quarter in many fronts of digital transformation, which is so relevant for our ecosystem. About digital sales, as Alvaro has said already, we continue to deliver an accelerated performance with an increase in traffic and relevance in the app. And still about that, the Renner app was the most downloaded among the fashion retailers and absolute leader in MAU.
Certainly, the initiatives implemented over 2020 for an increase in the available sales channels, which are 10 options today, contributed to accelerate online sales as well as the higher productivity of the stores, mainly when they were temporarily closed. These initiatives are sale by Whatsapp and sale by affiliates and fashion delivery, among others, which are gaining relevance and maturity consistently.
Still about the sales channel besides marketplace already established as Camicado last week, we started lab at Renner with 3P products being sold in e-commerce at Renner being an important step in the extension of the assortment available to our clients. And also, it was very relevant for the online sales performance, the use of the stores inventories that represent 32% of the total sold digitally.
Having all the stores adapted for ship-from-store, guarantee the flexibility of increasing the availability of stores with the service. And while our stores were temporarily closed, then give more traction to online besides a better service to our clients. Additionally, 80% of the potential assortment is already available in e-commerce and that half of the online requests were products, inclusive of the store where the sale would not have happened if it were not for the implementation of the infinite aisle.
In the stores, we continue to make the checkout more flexible with more relevance in the mobile mode in the finalization of sales. Besides additional cash, the clients may pay anywhere in the store, by means of the employees or the smartphone of any client. And the mobile modalities represent 31% of the sales of the physical stores in the quarter, with a ticket 19% higher and faster deliveries, more omni client. And this powerful combination is fundamental for a new level of sales online.
We had a growth of 102% in the active base of client omni with a frequency and annual expenditure, 3x higher than the current off-line client. And to supplement this formula, we continue with our expansion plan in the physical stores, which have an even more relevant role in this omni.
We have already inaugurated 20 stores, 11 Renner, 5 Camicado, 3 Youcom and 1 Ashua that also increased the number of corners of the brand within the Renner stores to 9, generating more synergies among the businesses and driving our brands. I would like to highlight the inauguration of our first Guide Shop in a pilot mode, which proposes a new concept for the consumer to have a relationship with the brand. The idea is to offer totally omnichannel experience, putting together the best in the physical retail with the facilities of digital. This is a very recent format, but the first impressions are very positive.
Regarding the unique vision on Slide #9, we continue to increase our active client base with 84% of our sales identified, and this allows us to increase our price base for our campaigns and making more organized and optimized communication with a higher engagement of the clients that are reached about content and branding. We accelerated the initiative this beginning of the year with a weekly program of live shops, implementation of mini stores on Instagram and content co-created with influencers. Considering this and other actions, the volume of sessions increased by 71% and transactions via social networks went up 103% in the quarter.
Regarding the use of data in the product life cycle, we continue to advance in the distribution of items without human intervention. Besides the 57% of the basic items of Renner be allocated by means of AI, these items represented 6.7% of the Youcom sales and 2% of Camicado. We also advanced in the use of this mode in the purchasing process and the shopping process for the same items that are allocated by artificial intelligence, such as the pilot for the price markdown engine at Realize.
Also digital account that was in an operational phase with family and friends in smart. Now in May, it was made available to 70,000 clients. And this digital account is already has a PIX solution integrated authorization of participation by the Central Bank, which occurred in April. And in terms of the increase in the client base, we are offering the Meu Cartão in a direct way, with Renner client with the option of digital autonomous upgrade by the app and the site.
And about new products, we started the offering of well-being and health insurance besides the extended warranty and subscription services. We are developing products to offer to Camicado sellers as well as adjustments in the digital solution for Youcom clients. These and other initiatives are already underway and all that, in line with the construction of a durable and sustainable ecosystem.
Now let's go to Slide #10 and talk about ESG. We launched a collection with less impacting product that uses sustainable cotton produced by women in the North of Minas Gerais, and we launched a collection at Youcom in partnership with youngsters in the community, which is next door to the company, and the sales have part of that, that goes to the community. And by means of the Instituto Lojas Renner, we had more actions to combat COVID-19. We donated BRL 1.2 million for the construction of a new vaccine plant of Instituto Butantan. And we made donation for the generation of oxygen in the Amazon and respirators in Rio Grande do Sul, over 8 million that we offered to fight the pandemic.
Regarding governance, in April, we held our first exclusive digital shareholders meeting with 64.3% of our capital participating. And as of 2021, the compensation of the management is based on targets of ESG in what has to do with public commitments for 2021, in -- regarding climate, social environmental compliance of suppliers and products. And as a result, we are again, members of the S&P Global Sustainability Yearbook launched in February in the 2021 edition. And thus, we go towards the second quarter into our future.
We know that we might see some oscillation in the short run. But as Alvaro said, we believe that we have -- we are already beyond the turning point, and we are ready to go ahead, looking after now, but mainly investing in the competitiveness of our business, by means of the development of pioneer platform of brands, partners and sellers who are specialized in fashion and lifestyle.
These were my remarks. And now I would like to open for questions. You may send your questions by means of the platform, and Carla will be receiving the questions and reading them to us. Thank you very much.
Thank you Fabio, Alvaro. I have some questions here. João from Citi, but this is a theme that is recurrent and many other questions, so I'm going to put all of them together. They have to do with the gross margin inventory, markdown and the commercial environment. And I would like to ask Fabio to answer about the competitive environment, the level of markdowns in April and May. And also talking about inventories and Joseph for JPMorgan said -- asked if we have held some inventories, winter inventories to use this year. And also Guilherme from Safra and [ Benito from Sarinvest ].
Afterwards, I would like to ask Alvaro to say a few words about the exchange hedges that we have and our expectation about gross margin for the second quarter and for the year as a whole. So Fabio?
Thank you, Carla. Thank you, everybody, for questions. As we have been repeating, this moment of pandemic has been bringing a lot of volatility. So at many moments, we saw a scenario, especially during the whole year last year. We saw a consistent drop and a bigger challenge. And around August and September, things started to improve a little than October, then we had some other restrictions put in place, especially in March 2021.
But this volatility continues. However, the scenario is different now because it's a positive volatility restrictions in April and May are lower than what we expected, as Alvaro mentioned. We had an excellent Mother's Day. I believe that since mid-April, we have been delivering a superior performance vis-à-vis our expectations. And we already had a very assertive inventory with very good quality. We were able to exchange our collections on a timely basis at a very good timing.
And as I said before, due to the lower number of restrictions, for instance, today, we have 100% of our stores already open, and this is resulting into a much higher level of sales than we expected. Because of that, we have a very positive inventory volume, very adequate, I would say, for this moment, and this leads us to believe that, well, we still have half of the quarter to go. But it leads us to believe that once again, we will have a very good change of collection. And we do not expect to hold on to any inventory this year, and we expect to have a very good and adequate consumption of our inventories and projecting less markdowns than in the past.
In a way, and this is still an estimate, okay? So we are still in half of the quarter. So we have a few days to go. But it leads us to believe that in spite of pressure coming from the exchange rate and international freight, as Alvaro said, in spite of all that, with all the positive sales and the positive scenario and the -- our inventories, the probability of having -- not having to hold on to inventories and with lower markdowns, we might see margins more similar to the best moment, let's say, getting close to the levels of 2019, more healthy margins in spite of a relative pressure on the part of the exchange. So far, the expectation is positive. It's too early for us to say anything, but what we can say is that the scenario is better than we expected.
Well, let me now take the answer with 2 points that were -- the level of hedge, João and the others who are interested in this answer. It's important to mention that we have a second quarter and the third quarter totally hedged in terms of our imports. So this gives us -- this makes us very comfortable regarding the next quarters.
And regarding margin, that was another question. The gross margin expected for the second and the third quarters, I believe we could give you a retrospective here. The first quarter, as was said by Fabio, still with some pressure from the exchange rate and inflation as well, squeezing the margin a little bit in the first quarter, but we expect to see a gradual improvement and ongoing improvement with lower markdowns. And as Fabio said, the inventory has a very good composition, good product with a good acceptance. Margins becoming more robust gradually and having less markdowns expected because of the good inventory quality.
And I think what is important is to say that gradually, we might see some improvement in our margins. We will still have some investments in OpEx because of the different developments that we are carrying out and that we have already mentioned before, that are already underway. But due to the better sales, the better quality and our inventories and potential lower need for markdowns and all the developments starting to bear fruit.
In terms of delivery of the initiatives, we will see gradually our margin going up as of -- mainly as of 2022, getting to levels close to the pandemic levels.
Thank you. There is another question from João from Citi about the supply chain. And it has to do with what we have just said. If the chain is back to normal, do we believe there will be an additional cost in the future because of the pandemic effect still? So Fabio, could you please answer?
Thank you very much. Thank you, João. In fact, I believe that now we start to reap some fruit from the partnership of over 30 years or 35, 2015 partnerships with some of our partners in the supply chain. And mainly, we show them and we work with them hand-in-hand during the pandemic. So the relationship that we have always had in our history became even stronger during the pandemic. It became even stronger and the team, people and the style of people are working very aligned with our partners, with our chain, repositioning productions and working beforehand so that production may remain active and the windows for demand for items are performing better than expected, and what is being most demanded.
So we have not felt any pressure or any of the pressures that we see in other segments or also in other players, very much because of the work done by the team historically and mainly over this last year with our suppliers. So this pressure is not a problem or it does not tend to be a problem as far as we are concerned.
Changing focus. Helena Villares from Itaú asks about our lifestyle platform and more specifically about marketplace. What is our competitive advantage? And the work of curatorship and products, and we are already a benchmark in the market. Could it be rolled out to the whole platform and drive our ecosystem? Fabio?
Thank you very much. In Camicado, and also the first test with Renner, we see that consumers, they look for specialized platforms. Many consumers look for specialized platforms. We see some of our sellers. These are initial tests, but some of them have a much superior behavior or performance in our platform than in other platforms and also the traffic that is brought by some sellers add to the sale of our own. So we bring our client base that maybe would not be there because they would be looking for products in other categories. So this increases our client base. It increases the conversion of the 1P products besides bringing sale for us and for the seller in that category. So the experience has been very positive at Camicado. It's already growing.
And Renner, this is very recent. We only have a handful of days, but very encouraging, such as the case in Camicado. It's a very big competitive difference for clients and for sellers themselves.
Thank you. Danniela Eiger from XP. Also regarding the ecosystem and a little bit on the supply side. She has been hearing about the offering that was made and bringing a higher liquidity. I know that you have already talked about the long run, 15, 18 months for the use of the proceeds of the offering. But what about our view? Do you have any diligence in this regard? In what category, priorities and front? Fabio, maybe you could answer?
Thank you, Carla. Thank you, Danniela. As we said at the offering time, we're talking about 12 to 18 months. So there are many initiatives and many of them are organic. The development of our projects and that really drive situation going through some inorganic ones. And about the inorganic ones, we do not have any diligence started. We are talking about a whole range of initiatives that should be occurring during this period. But certainly, we are already working to accelerate all the initiatives, be it organic or through partnerships or totally inorganic. As of last week, we -- the plans are already being -- are still being executed.
Still along the same lines of the ecosystem, Joseph from JP. He asks, in the brand strategy and a more digital approach, what about adding new brands to the platform? Fabio?
Thank you, Carla and Joseph. We still have a lot of room to grow with our own brands. So I would say that the biggest opportunity for growth that we have and all the investments that we are making are in our current businesses and increasing the synergy among our current brand, Realize with Ashua, Camicado and Renner. But certainly, when you talk about fashion, it is going to require, at some point in time, the presence of 1 or 2 additional brands that could happen, yes. We could have another brand or a few other brands in order to further consolidate the market that we have in fashion and lifestyle.
Now changing shift to Youcom, Felipe Cassimiro from HSBC asks 2 questions. I would like to understand the potential of the brand online. Do you see a potential of online penetration in Youcom or higher than Renner? Do you have a specific project for e-commerce and the Youcom app in order to improve the shopping experience of the client and social commerce, for instance, for that brand specifically? Fabio?
Thank you very much. I would say that Youcom has a very big growth potential. It's a brand that is less mature than Renner. So in omni as a whole, online and also in physical stores as well, such as Renner. But the penetration that we see in the digitalization of retail, the youngsters adhered more quickly, but this is no longer true because all the age brackets participate in digital, and it's matter of convenience and experience and the profile -- because of the public profile, Youcom would be, but we started some initiatives, first at Youcom but many started at Renner.
And all the initiatives that we start, we look at the whole ecosystem. We look at all the companies in the group, and we protect more than one. And when we decide to roll out the initiatives, then it has to do with all of them. As we said, about the use of algorithms and artificial intelligence has started with Renner, it's being rolled out for Youcom and Camicado as well.
So the trend of the increase in digitization of Youcom is very real because there are many initiatives now that start to grow in Youcom and also bringing a very big synergy within it. So this is a very strong trend. Regarding a increasingly high penetration such as Camicado. And maybe because of the maturity of our initiatives, we should see bigger acceleration in the next few days.
Some questions related to expenses and behavior for the second quarter. Alvaro, could you answer this question, please? And I would like to enter into some details because this -- we have a combination of questions here from [ Daniela Alago ] from [ XP ], Guilherme Assis from Safra and [ Rodrigo Diaz ] from [ DCI Asset Management]. Rodrigo is bringing a question about the increase in freight expenses And could you please talk about the future in freight expenses and the other themes and expenses have to do with how much we will have in additional expenses given all the projects under way for the development of our ecosystem? And also how much dilution could we have with increase in number of stores? So you can see that all of the questions are related to expenses. So Alvaro?
Thank you very much, [ Daniela ], [ Rodrigo ] for the questions. And growth in the freight line comes for 2 reasons: the omni freight, which is associated to our e-commerce, which was one of the sales drivers for the first quarter, such as it also happened over 2020. So some growth is associated to e-commerce and more specifically in the moment in which the stores were closed. And so there was no store pickup. So this generated an additional freight cost.
So we have the omni freight and the ship-from-store, which is rather associated to our initiative of decreasing the time, the lead time when the clients buy the product online, and being able to use the inventory that is there at the stores. And this improves client satisfaction because of the shorter lead time, but it generates an additional cost because of the ship-from-store method.
And regarding the second question, I jotted it down here. How much could we see in expenses associated to the ecosystem? How many technological developments for the ecosystem could impact our OpEx? Yes, we do expect this to generate some additional impact. We have new structures that are being built. We had many structures that have already been implemented over 2020, and that are maturing now over 2021, totally, and this generates more expenses. Our expectation is that this might generate growth in the expense line from 3% to 5% of the total expenses that we currently have.
Joseph from JPMorgan asked a question about the new format of that shop. How do -- could you increase the potential for Renner? And could this model be used for Youcom and Camicado? Fabio?
Thank you, Carla, Joseph. In fact, we started the test now. So it's impossible to make any estimates regarding figures yet. But I would say that without this format, well, we have 520 stores in Renner. And this format should increase this number because it allows us to reach smaller cities less with a lower demographic than we have today, driving the online sales and the omni model as a whole. And yes, this format is possible for all our business models. But due to the initial stage, it's impossible to give you any predictability in how much this will impact the expansion of all the businesses. But we do believe in this model. And I believe that very soon, we will be able to do the calculation and know how much this increases our potential for expansion in all the businesses.
Bob Ford from Bank of America. Accessories and beauty, what is the opportunity as we become more and more digital? What about the spaces in the stores and the searches about -- from the clients? How do we deal with these 2 interfaces? Fabio?
Thank you, Carla. Thank you, Bob. This is an extremely important category as far as we are concerned. We could have a much bigger penetration. It's already a leader in the physical retail fashion and beauty, but you're asking specifically about beauty. And on online, we already have a considerable share of mind, much higher than our competitors. And we could further extend this, and we could make revenues more concrete.
Our assortment in beauty is small yet because we had an assortment that was very similar between online physical. And in the last few years, we have been increasing our assortment online. But it could be further extended very extensively in the assortment of the products that we already have and in other categories that are related to beauty and in which we do not have anything yet. And this has to do with the longer tail. It has to do with our 1P inventories and also it has to do with partners that might offer products that we do not have in our 1P.
So offering this to 3P and beauty is one of the categories such as home and interior design that have a whole range of products and services both in 1P and 3P. And we see a huge potential in these categories, such as in fashion accessories, but beauty, the assortment is still very small vis-à-vis the others. So the growth potential is even bigger.
Irma from Goldman Sachs. Having to do with marketplace and logistics services for sellers, when do you believe you will be offering these services to the sellers? And how much is this related to the DC? Will it only be when the DC is up and ready to go that this will be offered to your sellers?
Thank you, Carla and Irma. In fact, there was an initial plan regarding the need to have the DC ready by 2022. But we are working with other initiatives in order to bring forward this road map. In principle, it would be for the second half of '22. But I believe that with the current situation, we will make our best endeavors to bring forward these initiatives to our sellers and bringing also new revenue for our group.
Alvaro, could you please answer this question about provisions and Realize? João from Citi. With the operation of stores and more origination of portfolios, do you see an increase in provisions from now on? Alvaro?
Thank you, João, for your question. Today, we could consider that we are very well provisioned in relation to Realize. Ever since 2020, we already had this situation of adequate provisioning, and we got into 2021 also with a very adequate coverage level.
And now over the second -- or as of the second quarter and over the second half, we believe that even with the growth in our portfolio, we will have an adequate level of coverage. With the quality of portfolio much better than we had in 2020 and with the gradual and expected increase in the Realize portfolio because of the improvement in sales, we believe that the coverage level will be very adequate, at least over the next few quarters of 2021.
Thank you, Alvaro. And now along the same lines from [ Elias ] from [ Intrinsic ]. The short-term results of Realize and targets in the medium-term for the business and talking about the strategy and the launch of new product and integration of apps in the ecosystem, the digital account, and with the higher penetration of e-commerce and sales, could we expect a higher participation of Realize in our EBITDA, so the result of financial product vis-à-vis the total EBITDA for the year and on?
Thank you very much for your question. It's only natural for us to start looking at Realize having a bigger share of the group. Realize is one of our arms, it's one of our businesses. And there is a very big opportunity to develop it in the ecosystem, as Fabio said during his opening remarks.
And now we started with the whole diversification of products and increasing the offerings of services and insurance and a deeper implementation of the digital account with PIX associated to it. With all that, it should increase its share. And we will have, as our objective also, to use Realize as a driver of interest on the part of our sellers, our partners in our marketplaces, lab hand and as it matures. So I would say that in terms of expectations and in the Realize ecosystem, we should be seeing an increase in the weight of Realize in the EBITDA -- in the total EBITDA of the group. Of course, during 2021, this will be gradual. We are rebuilding the portfolio and sales since April are becoming more vigorous. And automatically, this will also impact. It will also impact the growth in the number of opportunities and the number of portfolios via Realize. Probably, over time, we will see an increase in the participation of financial services in the overall EBITDA in the short and the medium run.
And you also asked if it would be participating more and more in the process of financing in e-commerce? Yes, this is one of the objectives for this business line, for Renner, Camicado, Youcom. So this is another path for revenues for the business and making its presence in the company more and more important.
Andrew from Morgan Stanley. He asked quite a few questions, but some of them have already been answered, about inventories and raw materials and promotions. And one of them, I would like to ask Fabio to answer. In our inventory planning for the year, how do we think about product mix in this scenario? Do we expect to have a return to more model products with a bigger circulation? Or will our focus continue to be on more basic products?
Andrew, thank you for the question. And I think this is a very important question. Of course, in a normal management, as I said before, if we had a more -- let's say, if the pandemic was not so bad. But right now, with the current situation, well, we expect to see -- we do not expect to hold on to anything and also only have markdowns when necessary. We have a good consumption of our inventories and adequate speed with no markdowns. Maybe one markdown maybe, and this is very positive.
Regarding trends, consumer trends, it had more to do with comfort, I would say. Loungewear, underwear consumption when restrictions were in place and what we see now with less restrictions, we see consumption of kids' product and with schools being reopened, for instance. So we see a change in the consumer behavior buying new items, items that were not required when all the restrictions were in place and now with softer restrictions, not only for children, but also women's fashion and men's fashion with people going out of their homes a little bit or gradually and some going back to their offices.
Comfort products continue to be important, but we see a higher demand for other items that were not demanded during the peak of the epidemic. We see a very important movement in the last few weeks. And Mother's Day, for instance, it comes from the mother's event, it comes from the cold weather because they had this change, whether it's cooler now and the reduction in the number of restrictions. And this brings more traffic to the physical stores and also it continues online with evidence of our omni proposal. In spite of the growth in physical stores and also with more categories because people go out now a little bit more, they consume more products in other categories as well. So comfort, we believe, will continue, but items related to work, workplace, school, they are coming back gradually.
I have one question. And another one, and we are going towards the end. And I think we have been able to answer all your doubts. From Felipe Cassimiro from HSBC. Are you opening new stores in 2021? We have been talking about 2025. Fabio?
Thank you very much, Carla, Rodrigo (sic) [ Felipe ]. 2025 talking about Renner. So if you talk about the Renner brand, it's very difficult to accelerate more than that because we are talking about bigger stores and they are more time-consuming projects. But we should be within this range for the Renner brand, but 5 to 10 Youcom, 5 to 10 Camicado, for instance. So in principle, for 2021, the range should be kept like that. But '22, '23, '24 and '25, this should be gradually increasing from 25 to 30 for Renner and maybe a little bit more than that. And the expectation that we have is to maintain this range for 2021 and accelerating this as of 2022.
Thank you, Fabio. Just one correction. I'm going to ask 2 more questions because we do not want to exceed the time. [ Benitez ] from [ SAR Invest ] with a follow-on, and having all these proceeds and our capital structure being used in up to 18 months, Alvaro, could you please talk about the capital structure and also the cost of capital from now on, when you use the proceeds, after you use the proceeds?
Very well. Thank you very much. We expect to use this capital, as Fabio said, let's say, between the next 12 to 18 months. We have a very low leverage as you can see, with all the figures of last year and also the figures of the first quarter. And as a consequence of this follow-on and the inflow of these funds and over the utilization of the same, we should be maintaining this low leverage and that recently went through some other funding operations already at low cost, the market cost. But compared to the costs that we had in the past, the cost was much more adequate to the current economic situation or the current economic reality. So in the next few months, as this capital is used fully, then we will revisit another future move regarding the leverage of the company. But for the time being, we have a positive expectation regarding the next few months.
Thank you, Alvaro. Now the last question, Fabio. What changes in the level of service for the clients with the new DC in São Paulo? What are the main benefits coming from this new DC?
Thank you, Carla. This is an important operation for us. We already have a very advanced automation in the Rio de Janeiro, Santa Catarina DCs, but automation will be much more advanced in the São Paulo DC. The operation has already been thought and designed to supply the stores and last mile as well. And the previous DCs, they do -- they performed the 2 functions, but they were not originally designed for the 2 functions. This DC has a production capacity that is much better. It is faster, more assertive, from the viewpoint of automation and design, to supply the stores and last mile as well.
Besides, it brings a much bigger area. In this DC, we will have a bigger capacity than we have in our whole structure today. And it will also allow us to have all the companies in the group performing services to the sellers in one place with -- which reduces the freight cost, which is a major cost, and bringing more synergy among all the businesses and services to our sellers and gaining efficiency. And as a consequence, more frequency and a shorter lead time for physical stores and for client directly at a lower cost.
And I would like to remind you that being in the state of São Paulo, we are very close to most of consumers. So we impact, in a short time, most of our consumers, both in physical stores and online.
With that, we finish our Q&A session, and the Investor Relations team will remain available to you should you have any additional questions. And I would like to give the floor back to Fabio and Alvaro for the closing remarks.
I would like to thank you all for participating. And we are available here at all times should you need any further clarifications. Our Investor Relations team will continue to be available to you as usual. And we see that the biggest challenges were in '20 and the beginning of '21, but the scenario seems to be rather different from now on. Not only we are very confident in our future plans, but also we have been seeing a very encouraging short term, very different from the scenario that we saw until then and ending in the first quarter of this year. So I would like to thank you all very much, and we hope to see you again in our next events.
I would like to take the opportunity to reinforce Fabio's remarks. We are optimistic regarding the next few months, given all the investments and all the programming that we have regarding the possibilities of development for ecosystem and based on the results that we have obtained recently. And we are optimistic but prudent in the light of the pandemic that continues to evolve, but people becoming more and more vaccinated.
So I would like to take the opportunity to thank you all very much for your presence and for the opportunity to talk about our company.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]