Lojas Renner SA

BOVESPA:LREN3

Earnings Call Transcript 2022-Q1

[Operator]

Good afternoon, everyone. We're going to begin the video conference for the first quarter of Lojas Renner. We have Fabio Faccio, our CEO; and Daniel Santos, our CFO.

Before handing over to them, I will give you a couple of messages. This is being recorded and streamed live. [Operator Instructions] So before we proceed, we would like to clarify that any potential statements made during this video conference related to business perspectives, operating and financial goals and projections are based on beliefs and assumptions based on information currently available and therefore, are not guarantees of performance.

[Operator Instructions] Over to you, Daniel.

[Daniel dos Santos, executive]

So thank you. Let's begin talking about our performance in net revenue in retail. We had robust growth in the first quarter at 63% year-over-year and 35% compared to the same quarter in 2019. The sales performance when we analyze that and compare it to the market, and that's based on [indiscernible] approximately 65% of growth that we see here. And that means that Renner continues to grow its share in the segment and substantially higher than the market growth.

In the first quarter, we saw sequential increase in some months. In January, we were impacted by Omicron. So we had tickets that were strongly affected in some brick-and-mortar stores given that moment we were going through in the pandemic. And in February and March, we had an increase. The first quarter overall, still had a flow of negative pieces and ticket.

But in March, we were able to achieve positive figures compared to 2019. And when we do the internal math based on that impact in January, if we had a normalized month, we would have grown 5% in the figures that we're showing here, 63.4% or 35%. So what do we see here?

On one side, we have the transition into fall winter collection, and it's actually doing well in March. We already have positive sales in that. And also the omni supply with great operations, be it in stores or digitally.

A highlight to the performance in our two divisions where we have the 2x of the consolidated, so growing 120%. And that makes us feel very confident in relation to the strategy that we have in those two divisions. April is still moving fast in a number of pieces and transactions compared to 2019, and we see volume growth in number of pieces and ticket in 2 digits. The Mother's Day event, be it in digital or in brick-and-mortar, the assortment that we have is very well chosen and the stores teams are ready to [ enchant ] and now especially being so close to Mother's Day, we've had very positive sales.

Moving on to the performance of our digital business. The growth of GMV in the quarter was approximately 38.7% year-over-year and 416% compared to 2019. So the total of 15.2% -- or 15.1% in 1Q '22. And in April, we see that with the end of the restrictions and now that they feel more comfortable going out into these shopping centers and sales centers, we see stronger movement in the stores. And even though brick-and-mortar has picked up, we're still growing our digital business.

Our omni strategy has clearly shown to be effective, where customers are able to choose the most convenient channel. If they're out and about, they can go to shopping centers, can order stores and then they go back to digital when they're at home. So it's been very efficient in this quarter and in the past months that we've seen a pickup in [indiscernible].

The good performance in digital because on one side, we have assortment and plus content and fashion. So little by little, month after month, in that digital journey, we've been improving, be it in service level or be it through their experience on the website or the app.

Today the app accounts for 67% of online sales and balances in between or sales made by affiliates and WhatsApp. We're still absolute leaders in MAU. And now we're the first leader -- for the first time, we're the leader in visits. So Renner continues to be the top of mind in fashion retail.

Gross margin, that was a bit of a concern in the last call. So I'd like to highlight that we had an important recovery year-over-year. So we achieved a gross margin of 55.1% close to the pre-pandemic margin in 2019. And that performance reflects the gains in efficiency, especially in relation to the decrease in markdowns, which is at the lowest level in the past 10 years. And that's a result of the assertiveness of the collection. When you get the collection right when consumers love it and want to buy and the correct composition and makeup of inventory.

And even with the partial makeup of inflation, has enabled us to go back to historical margins in 2019. Without a doubt, maintaining healthy margins that challenge will continue during the year given the economic environment, but we believe that the right collection with less markdowns will enable us maintain gross margin in line with the levels in 2019, and that's what we expect for 2022.

About SG&A, we presented this slide on our last call and I'd like to go over it again. I'd like to remind you that this is SG&A after IFRS 16, that does include rent costs. So on the left, you see we have a very positive evolution year-over-year because of a bigger business scale, a growth of 60% has helped in gaining scale. But at the same time, we've had efficiency gains, especially in the digital operations. When we compare that to 2019, we still have a higher SG&A base, 4.7 percentage points higher than the pre-pandemic levels.

But let's read this together. So it will give us more clarity of the share of SG&A in net operating revenues. So first of all, we have a 2 percentage point increase basically resulting from the inflation. What we call BAU is most of the expenses that the Renner stores have for operations. We had record inflation in this 13-year period -- or 3-year period, and that puts pressure on the base. And we still have the volume that's negative in the first quarter. We had an impact in January and that may be entire base negative.

In addition, we have the cost of the new distribution center in the city of Cabreuva, interior of the state of Sao Paulo, which will start up in April -- or has started up in April. And as it's being activated during the year, we're going to have duplicate costs, especially in terms of staff and that cost, during 2022, as we activate the distribution center, that will ease.

And in 2023, when it's fully operational, we'll have the gains and savings related to our logistics operations that we will see in 2023. Another important thing that we have to have in mind is the natural pressure from store expansion that were opened in the past 2 years. These stores are performing well, but they're not at the same maturity level that they would have been if we hadn't had the pandemic.

Now let's talk about the second block here. That's our digital operation. It still has a cost that's higher than brick-and-mortar, and it generates an impact to the total SG&A. The third block is the expenses to gain efficiencies in our ecosystem, the entire framework that we have currently dedicated to build that ecosystem -- that omni ecosystem.

When we put these last 2 blocks into context, they are important points here. So the pandemic enabled digital to move faster from [ 4% to 15% ]. Clearly, back then, when that moved faster, we weren't 100% ready to handle that growth, be it in shipping or digital marketing costs.

And since then, we have been continuously gaining efficiency. And that efficiency gain, on one hand, we have our new DC that after implemented, will give us 3 percentage points of margin in digital. I already mentioned that in the last call. And in addition, when we integrate the off-scale. So the volume that we have in stores with the digital operations and using the last mile in activating the points that will give us even more efficiencies in our digital logistics costs. In data integration, all the focus that we have on data will enable us to have pricing decision and shipping decisions, more streamlined and improving that equation.

We also have CRM and loyalty initiatives from more customer retention to more recurrence. During 2022, we've already had efficiency gains in digital as a result of those initiatives. We see the results in freight, acquisition and a reduction of 6.2%. So there are efficiency gains that we've seen in the quarter of '22 year-over-year.

And in 2023, by implementing the plans that we have, we will continue to have gains in efficiency. And during 2023, when the entire logistics operation is ready and working, the CRM framework and the loyalty program will see more structural profitability in the digital channel being closer to brick-and-mortar. In '22 and '23, we will continue to gain efficiency the digital operations, having gains of scale, enabling us to dilute that SG&A.

Now about Realize, the Realize portfolio. We had an increase in financial services results and mainly driven by the higher volume and portfolio and the spending of Meu Cartao that shows how we're stripping that product.

In relation to losses, the first thing I'd like to highlight is that in the comparison to 2021 and 2020, it is affected because in the pandemic, we had a strong provision given this scenario. And as the scenario showed to be less problematic, that provision went back to 2021. We see a very high amount in '20 and higher in '21. It's not a comparable base for us to reach a conclusion. When we compare that to a more normalized base, we do see an increase in losses, but that is in line with our expectations. And according to the history of similar economic moments that we're going through. So it's not a surprise to us what we see in that portfolio in 2022. Well past due and in Meu Cartao, we're looking for more profitability and taking that to more normalized levels for that product.

The delinquency levels of the total portfolio also reflects the current macroeconomic scenario. It's in line with our strategy to profitabilize the portfolio. And as I mentioned, it's in line with historical levels and our expectations for the period. We believe that in the second quarter, we'll have continuous growth of the portfolio with replenishment of revenues, but we have to bear in mind that, that comparison to 2021 will still be affected by the 2021 period and the dynamics in those 2 years and where we had the provisions. We continue with the expectations that for the full year of 2022, we would have absolute results similar to 2019.

About the EBITDA. Total EBITDA of 2022 was 12x higher compared to 1Q '21, mainly resulting from the improvement in retail and financial services in the operation. And in addition to that, we see a net income that's 23% higher compared to 2019 also reflected the positive operations, and our cash position is higher. And with an increase in the interest rates, we have the result of financial services that is more positive than the previous period, and we also see a lower income tax level, be it resulting from the follow-on we had last year and also tax incentives, especially the ones that we call that are related to investment and related to imports that are higher given the high level of imports. So the behavior of that during the year is not exactly proportional to billing. It's higher in Q1 when we have a higher level of imports to be able to operate the inventory levels during the year, so it's higher in the first quarter.

For the second quarter '22, we expect to continue to increase our EBITDA, and we believe that the absolute EBITDA before IFRS will continue to increase compared to the levels in 2019, and that's our expectation for all of 2022. To end the year with in nominal EBITDA pre-IFRS similar to 2019. Now I'm going to hand over to Fabio.

[Fabio Faccio, executive]

Thank you, Daniel. It's important to mention that in addition to the sequential evolution that Daniel has showed us about performance through the quarter. And after the quarter, now that he's mentioned April and Mother's Day, we have positive expectations for the year and also maintain our focus in the long-term strategy.

Our objective is to be the largest ecosystem in fashion and lifestyle in Latin America, offering a more complete and relevant journey for our customers. And enchantment is part of our purpose. That's why we're increasing our base in a growing way, increasing recurrence lifetime value stickiness and on the next slide, I'll show you some of the advances that we've had to the main fronts.

So when we think about our priorities, one of them is to continue to advance in Omni. Daniel has already mentioned that in the quarter, it's shown to be the right strategy, and we continue to advance on that.

It is our priority, so we have deliveries in up to 2 days. We have same day, next day or maximum 2 days on the country average. We had an increase of 18 percentage points year-over-year. And when we look at the metropolitan region, the Greater Sao Paulo area and Rio de Janeiro, where we have the biggest markets, we had an increase in same day in [indiscernible] . So next day tops of 27 percentage points year-over-year. And even so, even with that improvement in service level, Concerning the cost per shipment, we had a reduction of 24% year-over-year, even with the entire inflationary pressure and improvement of service level.

Now in April, we acquired Uello. It's a native digital log tech focused on experience and real-time management of the last mile. That's fundamental for last mile management so we can gain more efficiency with more speed and quality, so we're integrating with Uello. It hasn't positively impacted us yet, but we're absolutely sure that not only Uello as the company will be able to grow, but it can also add a lot to our logistics ecosystem.

And as Daniel mentioned, we're starting -- we started up the operation of our distribution center in April, and we started with the first operations for Camicado. And during the second half, we'll start the transfer of some of the operations in fashion.

About channel diversification for the channels available, we've been gaining relevance with a highlight to our favorite program and on WhatsApp. And if we have the new channels, marketplace, B2B, WhatsApp and favorites, that already accounts for 22% of the digital GMV. Obviously, our highest share, as Daniel mentioned, is app sales, and that is our strategy at first. So we're still growing a lot in app sales.

In the stores operation, digitization has also advanced. We've been implementing more self-service checkout and using the Pague Digital, which was restricted to Meu Cartao and the Renner Card and now we're using third-party cards and that should increase the Pague Digital tool even more. That's important for speed in stores, convenience and digitalization for the stores and customers by increasing our customer base on the Renner app.

We also have an expansion plan. We've inaugurated 2 units in the quarter -- in the first quarter, one Renner; and one Camicado. Up to the time being -- up to yesterday, we had 10. And now we have another one. So it's 11 stores in the year. And out of those 11, 7 of them are in places where we were not present yet. So that's additional sales, not only for brick-and-mortar, but also digital.

So it's worth mentioning that when we open a store in the new place we add, on average, 20 percentage points for digital sales in that same city or placed as well. For the year, our expectation is to open approximately 40 years -- excuse me, 40 stores. And the share of omni customers has doubled compared to 2020, and it already accounts for 30% of revenues in our ecosystem.

So that really increases our potential because Omni customers have a higher spend on average 3x higher than other customers that only buy on one channel.

In CRM, we continue to advance. Daniel mentioned that was an important share that's been improving our performance in digital, not only in sales but also in channel profitability. We already have an active customer base of approximately 18.3 million active customers with an evolution of 31.3% year-over-year, with an increase in retention of 10 percentage points, also higher than the previous year.

It's also worth noting that, that customer base -- we have already found 85% of all our revenue so that we know these customers better; their consumer data -- their consumption data so we can offer them a better journey.

In branding, -- in the branding pillar, we've increased in content. We've increased the participation of our influencers and new channels. We have 500 new ones. We've had more live sessions. We're bringing in more knowledge, flow, engagement and customer profitability. So we had 11 sessions in the quarter.

In addition to a marathon with 25 sessions on Instagram alone in March. With that, we had an increase of 85% of the digital flow coming from those campaigns and an increase in 20 -- by 20% in Instagram posts.

We lowered the customer acquisition costs on digital. So that shows us that we're on the right path to strengthen the brand's presence in digital, to gain flow, to gain value with efficiency with increasingly more efficiency.

About marketplace. That's an important action in the -- in our advances in digital. It's important to stress that our strategy is to increase assortment, especially in categories that add on to our core business. So in that sense, Renner and Camicado are still working on sellers and categories with a lot of curatorship and selective items.

In Renner, we have approximately 240 sellers with 37% increase in assortment, focusing on -- adding on to product categories and price ranges. In Camicado, we have 245 sellers, and we continue to advance in the creatorship with our partners, focusing on categories that will -- that are add-ons. So we can strengthen the synergy of the brands in the ecosystem. So Camicado and Youcom in the Renner marketplace are among the top 5 sellers at Renner.

And when we bring together the two marketplaces, Renner and Camicado, they already account for 7.2% of GMV in digital, bringing in more flow and a benefit of cross-selling for our 1 key products in addition to the convenience for customers when you add on different categories and price ranges, increasing the flow for all of us and our sellers.

On the next slide, we talk about Realize, our financial services company that continues with a number of initiatives to occupy our ecosystem. So we've increased our active customer base by 27% year-over-year. And with that, we had a growth of 64% in total payment volume, achieving BRL 3.7 billion. The customer base growth brought on a very positive reflection on the spend of these customers out of the ecosystem, and it already accounts for 56% of the quarter.

And the churn is lower by 53% year-over-year as well. In the Realize in digitization, it's worth mentioning that 90% of our customer base have already interact digitally with Realize. So access to our digital channels grew 31% year-over-year. We also had advances in prioritizing the offer of Meu Cartao, an increase of 111% and how many were captured.

And we've already -- we already have that in 100% of the Camicado stores, which was in the reality in the past. That's why we're expanding Realize's presence in our ecosystem. So 56% of our active base is comprised of Meu Cartao customers, a growth of 17.7 percentage points year-over-year as well.

For the Renner Card, we've already had -- we've also had evolution as well with the highlight of the card in all the Youcom stores as well. And in digital, with the pilot, we're doing a co-building process with complete solution and to expand that solution to more places as of the second quarter.

About the leveraging of our ecosystem in using data and technology, we continue to advance by applying AI in deciding the assortment and guiding us in each store according to local customer preference and also the e-commerce orders in that region, positioning our inventory levels even better and improving service for our customers.

About the sales forecast, we have stability in the forecast models, which also increases the use of our system in recommending actions with a change in trend that assortment and presentation of subclasses and SKUs to improve the performance of each unit as well and replenishment. That's a front that we started a while back, so we continue to advance in that as well. We maintain replenishment with AI in the core fashion items that account for 43% of sales and we've also been advancing more in SKUs to gain more granularity in that assertiveness.

In addition, Youcom is also coming in with the scope of items that already accounts for 11% of sales in that model. And in Camicado, 10% of sales are already being replenished with AI.

In addition to replenishment, assortment decisions, we -- upon [indiscernible] we have tools for volume suggestion, which enables our inventory to become increasingly more assertive as well as a more integrated production chain to avoid any rupture or excess items.

In regards to prices. We continue to work on our markdown engine and our pricing engine is evolving at Camicado, where we have 16% of sales that are already under that pricing engine model.

On the next slide, I'm going to talk about ESG. We're very happy to say that in this quarter, we've inaugurated our second circular store with onset of circular economy, circularity in addition to digital transformation. For the fifth consecutive year, we are part of the Global S&P Sustainability Index. We've evolved into the Gold ranking, and we had the highest global score among all retailers. So with that, we'd like to stress our commitment to promote and respect -- promote respect towards sustainability.

And also in social, we recently signed the commitment letter of the economic empowerment for refugees and migrants from UN women. We were also recognized by the Carbon Disclosure Project as a leader in supplier engagement, being the only Brazilian retailer -- fashion retailer in that ranking.

In governance, we had our general shareholders meeting in April -- on April 27, which was partially digital and in person, it was hybrid. So 82.2% of our capital stock was present and all of the agenda was approved.

In January, also, the Board approved the buyback program. The total number of shares to be acquired is up to 18 million shares in up to 18 months. It's worth noting that by the end of April, we had already bought back 56.7% of the total amount approved by the program. So in summary, we've done a lot already, but there's still more to come.

So on this slide, we're trying to give you the order of magnitude of our initiatives last year and this year, but showing that we still have more to do. We say that there's still many gains and efficiency to achieve in '22, '23 and '24, so we want to give you some estimates here. An example in digital assortment where we've already increased by 24% in the quarter, but we have an ambition of increasing that even more, expanding the -- or increasing the assortment for our customers and consequently increasing sales.

In CRM, the base has grown 31.1%. It will continue to grow. Our service level for online customers, where we started at 0 deliveries, and we've increased that by 18 percentage points year-over-year. So we should achieve a bigger -- even bigger base, approximately 80% in the next years based on the service level that we believe is the minimum to service our customers at a lower cost.

In Omni, our customer base continues to increase. We currently have 18 million customers that are present in different channels, and we continue to grow.

About costs, to attract our customers, the customer acquisition cost over revenues has been sequentially dropping at Realize. The revenues from services has gained relevance and will continue to increase.

And so we move into the second quarter of the year. Daniel has already mentioned that the sales in April very good. In the beginning of May, we're close to Mother's Day. Sales are positive in April and May. They're greater than our initial expectations. So we're very much ready for the reality that we've been seeing now and moving forward.

We continue committed to our purpose to consolidate as the leading ecosystem in Latin America, and we're very optimistic about the short term. We've seen a very significant demand for our products, market gains, so we're absolutely sure that the investments that we've made in the pandemic and are still making now have brought on a differential for our company. So we continue to act on our priorities expediting online, growing digital share, increasing our Omni customer base, investing in logistics and technological platforms as they are essential for us to advance in the service level and gain productivity, making many improvements in responsiveness and the demand in time to market, having the right product at the right time and the right place so we can have [indiscernible] that's increasingly more integrated and fast. And our investments at Realize, which, on its own, is already a very important business and adds value to all of us and our partners in the ecosystem.

With all of that and being highly focused, we're looking for generating more value, productivity and efficiency in our operations. Daniel I believe he has already mentioned this, how much we're growing above the market. This is a line of the monthly survey of trade. You can see that there is market consolidation going on. We still see that happening. And as what happened in different times, we've been expanding our market gain. And we believe that this time, we have an even better opportunity to do that. As a result of the depth of the crisis and the significance of this crisis, the market frailty and at the same time, all the efforts and investments and initiatives that we have done in that sense to improve our company.

So based on the consumer point of view because it's a moment where a consumer will look for a brand that they trust more and we've been investing so that we not only -- they will not only trust us based on our past performance, but also for the future as well. And that's how we believe we can gain even more with that.

And to conclude the presentation, you can see that the -- that trust and the investments that we've been making, we can tell that customers can see the value in our investments. You can see that during the past years, we've exceeded our historical level of our enchantometer. So once again, in the first quarter of '22, we've beat our records.

And that's to show that we do know that there's many things for us to improve. That's why we're still investing, but it does show us that we're on the right path. And even though there's still a number of different opportunities, the strategy is right. The path is right and we believe we will see growing gains for every period that's coming. I think we talked too much, right? We want to leave some time for Q&A. So I'm going to hand back over to Carla.

[Carla Sffair, executive]

[Operator Instructions] I am going to start with the audio questions from Helena Villares from Itau.

[Helena Villares, analyst]

Can you hear me?

[Carla Sffair, executive]

Yes, we can.

[Helena Villares, analyst]

We have two questions on our side [indiscernible] The first one is that you've showed a lot about logistics, the distribution center, the Uello everything that you've been doing. What do you think about the mid-term about what's still missing?

Or was that the investment that you wanted? And you -- during the call, you also shared about how we could think about the ramp-up, but 3, 4 years into the future, how big do you think the Uello operation would be or distribution center capacity. We want to look at logistics in the medium term.

Second point that you shared during the call, in the Realize is the use of AI and how you've been focusing on that in many different areas of the operation. And that's a very interesting aspect. We see in global players that have very successful operations, we see that as well. So what do you think are the main learnings in using AI? Would it have been the main challenges? So those are two questions.

[Fabio Faccio, executive]

I'll start, Helena, and then Daniel can add afterwards. About your first question, and thank you for your questions about logistics. We have a strategy -- an important strategy in our logistics platform, which is positioning inventory, the entire logistics operation fulfillment and network and supply handling and supply of customers. So when we look at the investments, relevant investments that we made in the new DC. It's a heart, I'd say, for brick-and-mortar stores and last mile in the Omni operations, digital operation with very modern technologies in the distribution center, it will be the most modern in our segment in Latin America.

And that will bring on higher levels of efficiency for our operation. And I say efficiency, not only in speed, but also in cost, in replenishing stores and also delivering to our customers and also an opportunity to scale that up, which is very important in logistics. So we'll have a win-win situation. We're going to bring in all our operations to the same engine to the same heart and we gain synergy in freight and transportation. And so even service our partners and we can gain more scale, frequency, cost reduction and gain in service level for everyone.

That's not just the DC operation. That's an important thing. There's also the positioning of the inventory to gain efficiency and cost and speed and about Uello managing that last mile I think we can help to scale up Uello's presence, and they can give us better management in our last mile, giving us more efficiency. For investments, we definitely have -- still have some things to do, but a more relevant part of that was focused on the new distribution center when we think of investments. Daniel?

[Daniel dos Santos, executive]

The most relevant part is behind us already. And our priority is going forward or executing all of that, really starting that up, integrating Uello with the operation unless we have a very giant volume growth, which would make us very happy, then we would consider additional investment. But this DC does have is sufficiently sized to operate our -- to work with our operations for the next 5, 6 years.

[Fabio Faccio, executive]

Second question, Helena, about the learnings in AI and algorithms and so on. There are many because modeling that in a scenario with so much volatility is really hard. We could have even deployed some solutions even faster, but we're a bit conservative, I'd say, in some aspects. Because if you automate some solutions without being sure of it, you'll make it worse. So I'd say that we're being very realistic. We don't want to move up too fast, things that can help, of course.

But in times of volatility could even make things worse. So we're scaling that up in a very conscious manner so that we can use the tools and the solutions to have gains in efficiency and profitability and positioning of inventory and pricing and volume decisions that are better.

So we've been looking to be very careful and not speed things up too much and worsen than them at the end. So that's why we've had gains. If we were just focusing on doing faster, I don't think our gains would have been so good.

[Carla Sffair, executive]

Next question is from Ruben from Santander.

[Ruben Couto, analyst]

I'd like to follow up on Helena's question. about investment. It seems like most of it has already been done. But can you give us an update on your CapEx expectations for the year. I think there was some ups and downs because of the distribution center opening and store openings. So to think about the amount for the year, what we should expect?

And given that most of the investments have already been made, what should we think about capital allocation going forward? Because the cash generation should improve during the year, as you mentioned, so the payout and the share buyback. Can you give us an update on that? Fabio mentioned that the program that you just started in the beginning of the year, you already bought back almost 60%. So is there room to increase that buyback program or speed that up?

[Daniel dos Santos, executive]

Starting off with CapEx. Our vision for this year, an investment is approximately EUR 1 billion. And in that, we have strong investments in the ecosystem, which are related to technology. We still have some last investments in the DC and then store openings and expansion. So about the buyback, we already bought back 56%. Obviously, we've been monitoring the shares and all of them are operating at lower levels. So we'd like to take advantage of lower prices. And at some point, we might speed that up. So in that existing program that we've already disclosed in the beginning of January, we should be able to expedite that and finish it earlier.

[Carla Sffair, executive]

Next question is from Danni from XP.

[Danniela Eiger, analyst]

My first one is pretty much a follow-up to Ruben's question, but more on a capital framework angle. So I'd like to know, what do you think about your current framework? I know that there's a macro challenge, which is good. Sometimes you have a higher liquidity buffer. So I'd like to hear your vision, Daniel, what would be the ideal capital framework and maybe a higher payout level according to what Ruben said? So I'd like to hear your vision on that.

And the other one is about EBITDA margin dynamics. Daniel, you mentioned dilution of SG&A as from a specific point. I think I lost that. So when will we start seeing the gross margin going back to normal and being reflected on the EBITDA margin? And what would you -- what do you think would be a normalized EBITDA margin in your ecosystem with digital share and might have more pressure -- margin pressure on that. So that's my -- those are my questions.

[Daniel dos Santos, executive]

Let's take that step by step. First of all, let's talk about the capital structure. As you mentioned, it was adequate for the moment that we were going through, the follow-on, when it happened and you see all the investment that was made when we consider 2021 and 2022. So '21 when you consider CapEx and OpEx, [ 1.3 ] and '22 million OpEx CapEx well low and the distribution center, all of that would total approximately BRL 3 billion. So we're using those funds that entered the company last year, but we are aware that we still have a high cash position. So the capital structure could be improved. That discussion is part of the agenda. We're looking at our strategy in relation to new businesses, maybe new acquisitions that can be done to streamline and expedite the building of our ecosystem. And now in August, September, we should look at what we can do to improve that capital structure. That's what we can share with you at this time. About your second point, what was that again?

[Danniela Eiger, analyst]

The EBITDA margin. Evolution in the short-term dilution and what would be a normal level.

[Daniel dos Santos, executive]

That's the number one question always, right? In the next quarters, we'll see a sequential evolution and improvement of our EBITDA margin. All of us have the 2019 EBITDA margin as reference. So at this time, what I can share is that we will continue to see a positive evolution of the EBITDA margin and given it's a new business model because before, we only had brick-and-mortar and now we're going to have digital stores and ecosystem, new services what we've been making very clear is that we believe that our EBITDA generation and for company growth and EBITDA generation will be higher.

It will be different and considering a capital return from 15% to 20%, that's what we want to achieve. And being able to achieve the same level of the 2019 EBITDA, it's something that's hard to say when and if it's possible to get there. But in the upcoming quarters, we'll have a sequential improvement, and that gap will become increasingly smaller.

[Carla Sffair, executive]

Next question is from Joao Soares, Citi.

[Joao Pedro Soares, analyst]

I'd like to hear about your sales. We see sales going faster, and your breakdown was very clear what's traffic, what's price. So in the short-term, I'd like to know about the evolution. What's driving the sales now? Is it because the mobility is coming back and prices are heating up. Can you give us some flavor how you see the sales sustainability? And another interesting aspect is the market share dynamics that you've shared. Can you talk more about where you're getting market share gains? Where do you see better opportunities for growth in which cities?

And last, if you allow me, about the portfolio. Daniel mentioned that a lot and that you expect growth in the short-term. So I like to hear about -- and like you mentioned, absolute results in the year should be similar to 2019. So what about delinquency in the Realize results? What is your opinion about delinquency?

[Fabio Faccio, executive]

I'll answer your first question and Daniel answer the rest. Well about sales, we've seen growing movement. I think January was an outlier because of Omicron. February was good, March better. April even better and May seems good as well. We're still in the beginning and in the most important moment of the month, March was very good. April and May has been very good in sales.

And part of that we see market share gains. We also see a recovery in the industry. The increase in population mobility leads to a demand for fashion items, even more, a higher demand, so people have more demand and higher consumption because more mobility. They're going to go to parties, social events, go back to work. And that's for the entire industry. And in the industry, we do have market share gain.

And that usually happened during times like these where companies that have a better value proposition and that consumers trust. And the other part is because of the better assertiveness of our collections, the right product, excellent value proposition. And the other aspect because of the investments that we've made because, in fact, we have invested, especially in '21 and '22, and the investment brings the return. It's starting to show why it was made so we have better service level. We have more channels working. Growth comes from all sides. So important recovery in brick-and-mortar, but continuous growth in digital as well. So it's consolidated of increase in demand, gain in market share, and that gain in market share is because of very adequate value proposition and because of all the investments we've made for that. That's very sustainable during the year.

Obviously, it's hard to say how that will be going forward. We still have the rest of May ahead of us. In June, we have Valentine's day in Brazil. And then we still have the middle of winter, and then we have the election in the second half. So there are many different variables. We can't really say how things will be going forward, but what we see currently is even higher than what we expected and let's see how that will behave. So the market gains and the investments that we made are long-lasting and sustainable. So I believe that, that should continue.

[Daniel dos Santos, executive]

Joao, on about the Realize portfolio and how we see that going forward. We will see an increase in that. We continue to explore that. We'll be fully using the Renner customer base, be it by offering cards through Youcom, Camicado or even the Renner stores. So we'll see that increasing.

But obviously, granting credit because we're going to monitor that in their credit team has been monitored that on a daily basis about how we can manage risk in the current situation. Fortunately, we have a number of information that's available and the team can calibrate that, be it the place or region. They can calibrate the credit supply for the portfolio. So when you increase the portfolio in nominal losses the amount will increase. But with the credit policy that we will have, we should be able to adjust that and have good profitability and reach the level that we expect, which is to achieve the total EBITDA that we had in 2019.

[Carla Sffair, executive]

Next question is from Richard from BBI.

[Richard Cathcart, analyst]

I'd like to know about Slide 15, where you show us the progress that you've had in some metrics and KPIs in the ecosystem and what you have for 2024 and 2025, and others that you've been advancing active customers and customer base and so on. So I'd like to know if you're more advanced for what you expected at this time. [indiscernible] if in the upcoming quarters and next year, if those calls would be reviewed upwards, just to understand where you're at on that journey? So if you have an even bolder goal for the future.

[Fabio Faccio, executive]

Without specifically going into one, but in the consolidated of everything, when we look at the first quarter, is that's very much in line with the expectations, not only in results, but also in deliveries. When we evolved sequentially in sales and deliveries, we've evolved sequentially. So I say that a snapshot for the end of the first quarter, we are according to expectations, very close, a bit higher and also in the deliveries as well.

So we see sequential improvement. At this time, still the beginning of the second quarter, not only in sales but also delivery, we see a sequential improvement. So in the snapshot, we're above our expectations and deliveries as well, but there's still a lot to consider if that will reflect an improvement in '24 and '25. First quarter is in line. And now we're detaching from that in improving in our expectations and deliveries as well.

[Carla Sffair, executive]

Next question is from Joseph from JPMorgan.

[Joseph Giordano, analyst]

I'd like to talk about the connection of Realize with the company's fashion ecosystem. You're mentioning a lot using Meu Cartao, a portfolio that's very expressive. I'd like to explore how the Realize customer has behaved in the Omni world? And how that compares? When you compare the Realize customer an Omni or the purely digital customers to see the real actual power of that ecosystem.

And the second point is, what are you doing in opportunities? You mentioned financial incentives, like cash back. And if that's a driver for use and engagement, I'd like to explore what you've seen in that sense? And lastly, looking at the system makeup, the surprise for the quarter was Youcom. So how do you see the potential to build digital native brands in Renner for the fashion ecosystem. So Youcom is a spin-off of Renner Lifestyle, but maybe building other brands and other categories.

[Fabio Faccio, executive]

Joseph. So to the first part of your question about the importance of the Realize customer and Realize importance to the ecosystem. It's very relevant. Let me give you an example. You mentioned Realize customers and their relationship with our brands, we talk a lot about the Omni customers that have 3x more spend than the ones that spend on just one channel. And when we talk about Realize that work in more ecosystem of Renner and Youcom, Renner and Camicado, that type of customer spend 7x more than other customers. So yes, it is an important customer. So when we see Realize customer if it's one channel, they have a higher spend. If it's omni, they have a higher spend. If it's multibrand, in the ecosystem, that's even higher spend.

So the importance of the Realize customer is very relevant. Realize, as a business on its own, still has a lot to grow and a lot of opportunities and increased assortment and services and be more present in the ecosystem. Because it very much focused on the Renner brand. And now it's starting to have more of that with Camicado, Youcom and other partners in the ecosystem. So we can also foster or offer that benefit for customers. We're in the test in the pilot of our loyalty program that should be launched by the end of the year. So we've been testing that a lot because we don't want to just be a cash back program. We know it's a benefit for customers, but we see a lot of that, and we've been testing that a lot in the pilot in offering benefits for our customers that makes sense for them and leverage their experience, making them a cross brand customer that don't just depend on cash backs. So we're creating a program that we believe will be something that will is very different for our customers and for us as well because they're very important for all the brands that you mentioned.

About your second question about Youcom, we've seen important growth at Youcom. It's something that we launched a while back, and we've been working on it a lot. We've been improving that model. And I believe that we're at a very good level. The collections are very nice, our Youcom customers, our brand fans. They strongly interact with the brand. It's a loved brand, and it's been bringing -- making us very happy. We've done great work with it. It is a different model than what we had in the main operation at Renner. And yes, it does enable us to think that we can have an opportunity for another brand, a specialized brand for a specific target audience. Right now, we don't have anything in mind, no projects to be launched. But yes, it shows us that there's an opportunity for having projects like that for specific target audiences as we had for Youcom and had a significant, as you can see, has had significant growth.

[Carla Sffair, executive]

I have a question from Irma, Goldman Sachs. I'd like to know about the competition of third-party cards. So at what level do you see the share in sales being stabilized? And what are the differentials that you are offering and will still offer to defend and grow the base and share of your own card, Daniel?

[Daniel dos Santos, executive]

Well, first of all, let's put that into context, right, what's been happening in the past 2 years. A great source of growth in card issuance of the stores. The stores were closed. They lost [indiscernible]. So the major source of growth went through a very difficult situation. And now with store openings and recovery, you see that, that's coming back. And that will continue especially because now we have Camicado, we have Renner, we have Youcom. So we have a base that's available where we can explore the card issuance even more.

On the other hand, we have initiatives to increase the share of that card. In the strategy where we leave the private label that's just Renner and with a bigger brand, then it's another way to increase share. It's going to have all the advantages for customers to buy at Renner. So many installments, interest-free and other campaigns that could happen through the card, it will still maintain an advantage in buying in the Renner store chain and stores and ecosystem. These initiatives in the ecosystem will coexist with the card. So when you think of the loyalty program, the CRM program, a Realize card is going to be an essential aspect of that program. So we believe that, that will enable us to recover the Renner share -- or the Renner Card share in the Renner sales.

[Carla Sffair, executive]

Thank you. We would have one more question on the chat, which is related to the delinquency, I think it was just -- it was already answered and in collection or risk. If you have nothing to say about that, Daniel, we would end the Q&A session.

[Daniel dos Santos, executive]

No, I think I've already addressed that.

[Carla Sffair, executive]

Thank you, everyone, for your attention. Daniel, Fabio, would you like to make any final comments?

[Daniel dos Santos, executive]

We'd like to thank everyone for your presence. So it's the first quarter that we see post-pandemic, so we're very satisfied with our 1Q results and even more happy about the results we're seeing in the second quarter. I believe the next call will be in August and have a great Mother's Day. Thank you, everyone.

[Fabio Faccio, executive]

As Daniel mentioned, as the first quarter, it was almost clean and say we still had an impact in the beginning. And in the second quarter, I think thing -- I hope things will be increasingly more normal. And in that more normal context, we see that very favorable and especially for the company because we've been working a lot for that to happen in the past months. So there's a trend, an expectation that we will see significant improvements in the upcoming months. Thank you for your attention and presence. Happy Mother's Day. Congratulations to all the mothers out there and have a [Audio Gap]

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