Vivara Participacoes SA

BOVESPA:VIVA3

Earnings Call Transcript 2021-Q1

[Operator]

Good morning. Welcome to the Conference Call on Vivara to announce the Results of the First Quarter of 2021. This conference call is being recorded and simultaneously translated. And all participants will be listen-only mode during the company's presentation. [Operator Instructions] Now we would like to give the floor to Ms. Melina Rodrigues, Head of Investor Relations, who's going to start the presentation. Ms. Rodrigues, please, you may start.

[Melina Afonso Rodrigues, executive]

Good morning, everyone. Thank you very much for attending our conference call for the first quarter 2021. Before we start talking about the results, I'm going to make a brief introduction to explain what we are going to have today differently from past quarters and since the IPO. Today, in addition to the results, we are going to share with you a little bit of our evolution and everything that we shared with everyone during the IPO process.

We hope that very soon, we can have a live event in person with many executive officers sharing many things with you. So Otavio, the CFO, is going to start the presentation with the results, and then Paulo is going to address or to give you a business update giving you the details of our 2021 projects. For the Q&A session, you can ask questions about performance and projects. So this is it. So Otavio, you may start the presentation and talking about our performance.

[Otavio Chacon Amaral Lyra, executive]

Thank you, very much and good morning. I'm going to start on Slide #3, talking about the highlights of Q1 2021. So here, we are demonstrating continuous revenue growth, a positive expansion of same-store sales, continuous growth in digital sales, consolidation of the project Joias em action. And then in March, once again, we had more restrictions affecting the company's revenue. In April and May, as part of Q2, we are already seeing a positive trend with the growth of sales. In April, we had 92% of sales in the same period of 2019.

And we started May with the best Mother's Day ever with a growth of 10% in same-store sales as compared to 2019 pre-pandemic levels. We're really excited with the results of Mother's Day and all other results that we share with you today. We have launched the company's sustainability report.

We talk about our main strategic actions. It's interesting to read it. Last year, we had 82% of the projects were related to the theme. They were all delivered and already linked to the compensation of the company's senior management. So I'm going to give you more details about that. With more than BRL 200 million revenues, so of the usual retailers listed, we were the only ones with positive same-store sales.

Now moving to Slide #4. You can see the good side of the pandemic and making the most of it and all restrictions that affect our operation, we were able to navigate and making use of a very strong digital operation. So we cut the first wave in 2020 and in an environment where scale matters. And for this reason, we have made a difference on the day to day with 1.7 percentage points of expansion in the last 12 months, which is a quite good result.

And we have been analyzing it closely. So here to understand the proxy of how we see that, we look at the market size. And then we monitor the major fluctuations, so this is data of the credit card transactions. So it's a quite significant sample for us to effectively assess what we have today.

So the company had in the first quarter, 13.5%, which is above what we had in Q1 last year. So we continue this movement. So we think this is a year of acceleration. We have 40 to 50 new stores for this year of 2021 when there's a slight slowdown. Last year, we didn't really know what was going to happen, how long the cycles would be and impact on everything. But now we kind of know better the ground so we can start -- this will affect less our investments.

On Slide 5, you can see the operating revenue evolution. We are comparing our numbers to 2020 and to 2019. In 2021, we have reached BRL 273,000 in revenues and then minus 0.2%, almost the same level. So we have -- in January, we closed 8 watch kiosks. And in this period of the pandemic, the kiosks are the kinds of point of sale that first reacted in reopening and kiosks exclusively dedicated to watches, which are -- where the revenue, the ticket is lower, so we pay more so we want to make the category more profitable.

So you're going to see when we talk about sales mix. You're going to see -- we're going to give you more details about that further ahead and the number of products and brands available and also this change in channels. And because of the good performance of the online sales, the volume of kiosks will be gradually transferred to online and also to stores that have been performing quite well.

In April, in contrast, we opened 4 points of sales and another 74 Vivara and another 4 Vivara in April. And for May, we opened 1 today, a new concept, something that we are really excited about. And we'll be telling you how we see that -- and 2 kiosks completing the 11 new points of sales that will be added in the second quarter this year. And the highlight in May until the date is BRL 96 million in revenues with a significant growth as compared to 2019, which is pre-pandemic.

Now on the next slide, Slide #6. Here, you can see the -- it's broken down by channel in terms of revenue growth. So we have point -- 5.6% growth in net revenue or 3.6% in gross revenue. So here, you can see the sales in a period with a growth of 160.2%, digital sales grew, physical stores shrunk by 10.6%.

Even though this is a very good result, relatively speaking, comparing to what we've been seeing in retail and very much driven by the performance in March. In January and February, as we shared with you in our last conference call with similar growth trends, similar to what we've been having last year. And then obviously, since March 8, we started having a stronger restriction in the main markets where the company operates. And so naturally, the pace of growth in the quarter was affected. The growth came from price -- 19% from prices so what we saw in last quarter is very much because of 2 very strong years.

Now looking at the right-hand side. On Slide #6, you can see movements in the sales mix, very much following the trends that we've been demonstrating. We have grown 2.5 percentage points in share in the period. Life has grown 60x here, and watches went -- shrunk and reduced, especially because of our approach of making the category more profitable, as I mentioned a few minutes ago.

Now on Slide #7. Here, you can see our heat map of the regions that were most affected. It's more like a map of restrictions and how we were affected in each one of the regions with a negative highlight here is the Amazon, Rio Grande do Sul and Paraná in then Minas Gerais, Espírito Santo, São Paulo Goiás and Bahia suffered restrictions to where we had a performance that was slightly below in other regions. The highlight here is the Northeast, where we had a positive sales evolution and we have gained profitability.

In terms of physical stores, we have seen a slight change in the mix to regain 1 percentage point share in the period as compared to the same quarter last year, whereas watches lost the same 1 percentage point.

Now on Slide #8, you can see the evolution of quarters. And in terms of operating revenue, we -- in March, we had restrictions of the IOF. So we are still building brand relevance. In terms of e-commerce in Brazil, we have a very, very relevant brand, reaching 43% share of research. We are #4, just behind Amazon, Cacau Show. So we have 49% market share accesses. Obviously, we'll try to leverage that and explore this differential as compared to our competitors in the sector where we operate.

On Slide #9, you can see our e-commerce mix very similar to what we had in the past and the main differential in contrast with one quarter when we had not developed our program, which in the period accounted for 36.6% of sales, e-commerce sales in Q1 '21 with an expansion of 16.3% in jewelry and then a reduction in watches, and we lost just 1 point in share, thereby contributing to make this channel more profitable. This is very favorable for our margins mix, especially jewelry and life and not so much in watches.

On Slide #10, you can see gross profit and gross margin from BRL 42.7 million of gross profit in the period with 65.5% in margin. So it's a good management of category with interesting profitability in product margins, however, more than set by the loss in inventory that provisioned in the period due to the higher level of product melting in the quarter. And this is a more specific effect.

We had a higher frequency of good weeks as compared to last week, higher volume of items so that we could do all that melting and then in-sourcing more strong in the basis, and we are going to invest very much on that to gain assortment. And to adjust the mix, we are going to in-source to have better product quality. So we had a slightly larger share or larger volume for the Vivara line. So we want this line to have less or small volatility in margin. And this is our main direction and our mission of continuous offset as our inventories turn over.

On Slide 11, you can see our sales expenses. We had BRL 84.9 million, 39% of the company's net sales, an increase of 0.8 percentage points. And the impact that creates margin pressure in this period, this is a more digital operation than last year. And obviously, within the sales profile, it's slightly more than 8% in Q1 2020, now above 21%, 21.4% in Q1 '21, we see expenses with freights, marketing and taxes gaining greater weight in sales expenses, as it is natural. The marketing line follows the same trend. It's important to highlight that it accounts for more of our revenue in Q1 '21. When we isolate the digital, we gain efficiency in marketing investments just considering this business unit in the company.

So it was from 22% of revenue in Q1 '20 to 17% of revenues in Q1 '21. So the additional weight comes, especially for a higher share of digital operations and this investment in performance that we have been making, a very important point for us to highlight.

On Slide #12, you can see the evolution of general and administrative expenses. So we had BRL 32.6 million or 15% of net revenues, so 4.5% than what we had last year. And here, higher weight as compared to what we did during the year in the expenses of strategic consulting so that we can grow in the mid and long term.

On the next slide, we show the effects of everything in the company's operational -- operating revenue. So here, you can see adjusted EBITDA and EBITDA margin. So we had 10.5% almost in Q1 '21 with a margin -- with an adjusted margin of 4.8%, sorry. So here, this affected the comparability between the different profitabilities.

Now on Slide #14, you can see the evolution of net income and net margin. We booked almost BRL 4 million of net income. And in contrast with BRL 19 million in the same period last year with 9.2% margin, here, the highlight is also the same BRL 12.2 million in the first quarter of 2020.

Now moving on to CapEx on Slide 15. Here, you're going to see more speed along the quarters. This year, we have invested almost BRL 13 million in the period, especially in new stores, factory renovations and maintenance. So we are having a physical expansion, and we did this during the restriction in March. We delayed a little bit the opening of some points of sales. So in April, we already opened 4 points of sale, and then we're going to open another 7. So now we are accelerating. We have more than 35 points of sale approved by company's committee.

So we are really well advanced in negotiations both for Life and Vivara. It's a year of accelerated investments. The company will invest more than BRL 130 million, especially in these 3 components: new stores, systems and factory, especially for Life, to accommodate all this gain in complexity, productivity and in-sourcing that we will conduct this year in our Manaus factory.

On Slide 16, you can see the evolution of debt. In the last quarter, as we already shared with you, the intention of us to leveling out and going back to a level of about BRL 300 million in debt. So additional debt in Q4, so to use the exemption of IOF that was extended. And now in the maturities of February and March, we are going to adjust that we ended the period with BRL 295.2 million and now a quite significant share for the long term, which is much more appropriate for the time. And with very interesting cost levels still, so a strong balance sheet assures us good prices, good rates. So we end the period with a net cash of BRL 325.6 million, almost in line with the year's closing.

Now on Slide #17, you can see the free cash generation. The company generated BRL 16 million in terms of operating cash in contrast with BRL 32.9 million in the same period last year or BRL 18.7 million after BRL 14 million of investments. And the main differential, obviously, is the result, the lower operating result, but also investment in inventory in the first quarter. As a reminder, closed last year, with lower inventory levels than we wanted to back up the growth that we want in 2021 due to the time during which the factory was closed as affected by the pandemic during 2020.

Here, we see a more intense recovery and higher metal prices contributing to a higher level of inventory. This is supporting our sales in April and May, and this will help us to grow during the year.

I finish the presentation of the results here. Thank you again. I'm going to give the floor to Paulo, who's going to continue the presentation.

[Paulo Kruglensky, executive]

Good morning, everyone. Thank you very much for your presence here today. Our idea is to give you a business update and the evolution of our business and we see our investment thesis in the medium and long term. So our agenda, first, we are going to share with you our mission and vision. Then we are going to go through the growth lever, the growth avenues.

We'll talk a little bit about the Vivara digital and then the empowerment of the brand, Life. So on Slide 20, I will like to emphasize my team, our vision and mission. Our vision is we exist to fascinate our customers by offering the best experience when choosing the perfect gift. And here, when we say fascinate, there's intensity that is more than just in chant. So fascinate is the highest level of loyalty. So a fascinated customer will hardly ever find a replacement.

And the best experience when we see here is to think about our omnichannel model, having customers at the center of experience, having as -- them as leaders, protagonists. And they can buy the presents they want whenever they can. And the perfect present is related to assortment.

So in our portfolio, with our product and price grid, this will be enough to always provide the best solution for times of celebration. Our mission is to be the most desired brand in Latin America to celebrate special moments. So the most desired brand means that will be the immediate preference for anyone thinking of giving a present.

Latin America means a pursuit for international presence and a very large basis for growth and expansion, both for Vivara and Life and celebrate special moments is part of our DNA. From the opening of Vivara, our objective has always been to lead to customers the opportunity of making the dream of owning a piece of jewelry.

So here on Slide 21, you can see our growth levers. So on the left-hand side chart, we can see the addressable market of BRL 10.2 billion. We have reached 13.1%, as Otavio mentioned. This is a really significant increase in market share and still have a lot of room to gain relevance within the market.

We can expand our core with different brands with increasing the portfolio products to complete our pyramid. In the transformation -- in core business transformation, a very tangible objective of what happened to Vivara last year, which is the physical transforming with digital.

So our digital projects of omnichannel, we are transforming the jewelry industry. We can provide services to our customers wherever they are and whenever they want. So it's not just ONS, but the infinite or the endless platform in stores. So we have created new channels and new modes of operation. And why not expanding our portfolio with accessories, or semi jewelry in the future, these are adjacent categories and other brands in the mid- and long-term, without forgetting our potential of adding customers and capabilities to our basis, which is fundamental to strengthen our structure.

On Slide #22. Here, talking a little bit about our growth avenues, we see several opportunities to create value in the medium and long term, new channels, new brands, new segments, new categories, new geographies and additional positioning.

We have a lot to develop organically. Imagine, for example, Life that as a channel, as a business unit has less than 3% of penetration in shopping malls. And that has changed the most recently is our vision of inorganic growth, which is something that was outside our pipeline. And now it's part of our internal discussions.

So there's opportunity in all these fronts. We want to unlock value that, yes, they are in our radar. When we look at an agenda of capital allocation, and we have a lot of potential to grow inorganically, but we cannot give up the capacity to complement projects that will complement our product and customer base, that will add capabilities of offering a new material.

So Vivara is a mark -- a brand that consolidates the brand. We have other players, we have increased the cap of Vivara in face of other competitors. And our midterm agenda for 2021 is based on 2 fronts that I will talk about now. The first front is the evolution of digital on the next slide, #24. We'll talk about the market trends in the jewelry market as digital evolves in 2021. And so live streaming has been growing considerably in the jewelry segment. And it's very important to see on the online period adapting and making it possible for customers to see products through a screen or in other media.

Virtual consulting assisted remote sales is a trend that has been growing since 2020 and will be very relevant in 2021. Multiple payment options, Linx, PIX, other options to make sure that customers have many options in checking out even if remotely. The O2O concept, online to off-line, is very important for us to interact and relate to our customers in all phases of the purchase journey. And it's very important for us to capture customers at the beginning of the funnel and not just buying media and converting them. And the mobile-centric shopping experience that reflects a change in consumer behavior is making it possible to have this mobility and to assure their experience through the cell phone.

In this manner, on Slide #25, you can see the long-term digital vision and transformations to use the strength of Vivara brand and the change in consumer behavior to consolidate our leadership position to transform the shopping journey and to fascinate customers in all channels. In this manner, we can generate more revenue to make customers even more loyal and to attract new customers.

Now a little bit about our current status. So where are we in this journey? So 2020 was a very important year for digital. We accelerated many initiatives that contributed, but we still have a lot to develop. Almost 50% of access share, 43% of the search share, they are numbers that really show the relevance of our brand. And the omni solution today is what we offer very well. And today, the front store is in 100% of the market through the hub model and same-store sales to us is a reality already.

The pickup store already accounts for 40% of our online sales. Another important point here that I would like to share with you is on Mother's Day, on the Tuesday, Wednesday and Thursday, before the event, we had more orders to ship from store. And then in January, we had more than 1,000 on average.

So this shows the evolution of this channel and how we are being able to integrate stores with digital. Our inventory is already integrated in 80% of the markets. This will increase delivery speed and will contribute to the endless aisle. So the inventory belongs to the customer, not to the store and wherever they are, they can buy and have this experience. And we've been talking about customer in a more segmented way. This is how we are talking to the customers. And we wanted to evolve in a model of recency, frequency and value.

On Slide #27, you can see the strategic fronts for 2021, thinking of a unique customer journey, traffic machine and the omni commerce model that I will share with you in a little bit more detail.

On Slide 28, thinking of a single customer journey, our idea is to extract value from CRM to gain scale and to have a journey that is seamless, fluid. We are already working with customer relationship based on persona, and our objective is to evolve and to be able to work on personalized relationship with customers.

Based on our business model, we already have capabilities to analyze all this information. So we are working to have automatic measurements of engagement and to increase conversion. We want to increase frequency, loyalty and input as a behavioral trigger. And here, the vision of the customer is a single journey, no matter whether they are in the stores, on the site or mobile or if they want to change channels, whether they are impacted by on and off, it's a single journey through all channels. They can close sales whenever they want.

We already know our customers. We have competitive advantage as compared to other retailers, and we are segmenting by group. And now we want to seek and try look at persona in a much more segmented way.

On Slide #29, you can see our traffic machine, which is to boost brand value opportunities, balance out our traffic better and not to depend so much on paid media. We want to have and to be a company that generates strong -- very intensely to have a direct relationship with our customers to generate demand, not just purchases at the end. We no longer want to be a generator of pro, and we want to become a generator of demand and if possible, with a content factory. One example of that is the digitalization. The mother's catalog this year wasn't 100% digital. We never printed anything. This was the first time ever, and this was a catalog that converted the most in Vivara's history.

And for 2020, we evolved a lot in this concept of digital media. And for 2021, we want 100% of our media to be online. And just as a reminder of our O2O concept is to interact with customers even before they even think of the journey. So it's not just capturing them when they have the demand, but it's to create demand. So you're going to work very much this year and in the future to create demand for jewelry and not just to try and find customers when they think about it.

On Slide #30 and now in talking a little bit about omni commerce. Digital becomes a present tool in the physical retail along the customer's journey. So it's mobile checkout at stores, rolling out the inventory integration, having inventory hub stores to optimize inventory levels to have more than 50 stores spread out throughout Brazil and to replenish more frequently, to work with the idea of rapture and capture of new customers, seeking the generation of incremental revenue, unify Vivara home platform with all the functions that we have today with relation -- with the offer of relationship services, trying to find an application where the customer can have virtual consulting and monitor their services in terms of orders and guarantee and to have more information in the hands of sales women so that they can use all the knowledge when the customer is in contact with them.

To us, the universalization of inventory in all channels, this is something very important. Inventory belongs to the customer, not to the store. With all these fronts, we have been transforming our core. So in 2021, we will work with the structural gaps and we'll start working on expediting digital at Vivara, bringing incremental revenue, building loyalty with our customers and attracting new customers, too.

On the next slide, we will be talking about our other strategic front that is going to be very strong this year, Life. Here on Life, I will talk about the empowerment of the brand, Life, the product, customer profile and the new store that we are assessing today as a concept. On Slide #3 -- 33 brand empowerment. So we think how to drive value in the mid and long term. As I remember that Life has only 2.6 penetration in shopping malls. And in the next few years, we want an expansion of 20 to 25 stores per year in the best malls in the country, mature malls that have already good -- very good experience with Vivara and a gradual penetration in malls and to increase the production of Life in our factories in a wider assortment. The ideal of the brand with all this expansion is for us to become a customer that -- a brand that customers recognize and to increase our penetration.

About the brand. On Slide 35. Vivara is a brand that is present at special moments. It represents luxury desire, solidity and trust. Life is different. It carries the strength of Vivara, but it wants to make each person to become special with different attributes. It's a younger brand, represents the day-to-day life of women, a moment. It carries trends and will work much more in expansion in lifestyle.

So expression of working with many more styles to be in different fronts and jewelry that will be part of any look and any time in the day, they can wear it during the day, at night, and the jewelry will transform at an attribute of the person and co-creation of the person who buys it. So when you build your bracelet and your earing with mix and match, you can vary styles with very good cost effectiveness. And it plays a very important social role that each woman will feel unique and special based on their nature. So it's a jewelry that invites women to tell us their story.

On the next slide, the Life brand here. So we say that it's a relaxed collectable, customizable brand, democratic with a fashion approach and with the Vivara brand. So the pillars of the brand is that brand very much focused on lifestyle, collectible. So once you buy a piece of jewelry, you start the collection and start evolving with it, you can give it as a gift, and it's for everyone.

About the product, on Slide #38. So here, we are seeking to increase its portfolio with a wider assortment of bracelets, and it's been working very well with this wider array of bracelets, lifestyle to increase the concept of collectible, to work better on mix and match and the combinations in endless, different combinations for this product, combining categories and collections to work a little bit more on the combination of materials, gold with silver, silver with our exclusive rose gold. And then we have better average prices and better value for customers. The collectible aspect of our items is very important for us. And the idea of collecting and stacking, not just bracelets, but earrings, too.

This is a very important aspect of Life as a product. Customer profile, as I said before, women who buy Life is a woman who is attuned, cool, romantic, delicate, creative and stylish. As you can see on slide #40, they are slightly younger than the Vivara women. And when we look into our customer base, the profile of those who buy Life is very similar here. 2/3 of the customers who buy Vivara buy Life too. And Life works like as an entry brand for new customers to make our base younger and to increase our base of active customers.

So there's a huge potential here that will gain a lot of relevance with younger women or people who want to give presents to younger women, not just with Vivara usual Vivara customer profile. Oftentimes, these people might feel intimidated of walking into a Vivara store. But they can walk into a Life store. So we want very much to increase shopping frequency with the Life model.

And on Slide 41, there's a novelty. Our first loyalty program, Vivara lovers, whose aim is to offer a unique experience for each Life lover. So the first step is to build a loyalty program. It was launched on April 23 as loyalty club. We invited all premium customers and some invited customers to be acknowledged by this program to have an exclusive access in the launch of line, so they will have special content.

We are going to work on the top of the pyramid here, and customers will be the center of our community. So here we want to work with exclusiveness and acceptation. So this is a group of people who buy more than BRL 900 per year of Life. So this is an active construction of our community, and we really believe they will be ambassadors of our brand and they work as genuine engagers. And then we will be able to work in a different way to increase the funnel.

On the next slide, the new store that we are opening today. First of all, I would like to congratulate everyone in our team involved in this project. And I've been talking to you this project has everything to be successful. This is the jewelry of the crown on Slide #43, you can see a 3D picture of the store with a nature of sophistication at the same time. There is fluidity seamless with counters, straight lines. It's a 360 closer to the customer approach. And saleswomen become much more important and style consultants and get closer to customers in this lifestyle trend.

So here, the space is focusing on providing services and interacting with customers. You can see more pictures of the store communication on the walls. I don't know if you can see in the picture, but it makes references to our items, the items here, they are protagonists in our journey. So it accounts for 50% of our sales together with bracelets.

So we have a logic with effective memory of whatever is present and people, so this is related to our portfolio and collection. We work very much with mix and match. So we have different combinations on the store. So they can walk through the lines.

So here, you can see a much more humanized approach, on Slide 45. The new store is 100% divided by sectors with an important role for us to launch our new collections. And the customer is always the most important, but they can walk around and discover the line and learn more about Life on their own.

And so the highlights here is interaction between physical and digital. So they can look up an iPad to know what's going on, to buy and get -- receive at home. And hence it really, really receives a highlight to take to them a little bit of the Vivara world. So this is all I had to share with you today. Now we are going to move to the questions-and-answers session. Thank you all very much.

[Operator]

[Operator Instructions] Our first question comes from Ms. Olivia Petronilho from JPMorgan.

[Olivia Petronilho, analyst]

Could you give me more details about your expansion plan? How many stores have already been contracted for this year for Vivara and for Life? And one thing we discussed a lot during the IPO was the training of saleswomen. So they need much more training than usual retail or clothing retail.

[Otavio Chacon Amaral Lyra, executive]

Olivia, thank you for the question. I think that I briefly mentioned during the presentation, but -- so that we can look ahead with more calm. The only thing that we did this year is to increase and we are going to start -- we have postponed it slightly, delayed it to start in April instead of March for obvious reasons. The main markets where we are opening stores or the malls are 100% closed so we depend on the opening of those points.

We have more than 35 points that have already been approved. So we have really advanced very well to meet the company's objectives, which is to open between 40 and 50 new points of sale, and the distribution is very much equivalent if we consider Vivara and Life. Vivara's were the first openings, so 4 in April and then 7 in May and 4 in the Vivara.

But Life pipeline is quite interesting and very fast. They are stores within this new concept. They're the new wave of expansion and we are going to have a quite interesting thing in terms of marketing. And we can show and I think that the pictures are a small illustration of what we are doing. So we are going to share more things with you as to the store that we are opening in Santos as part of the new model in gaining relevance, gaining significance.

We hope it's very successful with similar return rates, similar to our previous investments, even though we are moving to points of sale that once again are the best malls in the country, and we are paying a little bit more to go into those as it was expected. Again, our wish list goes through another 40 new points in addition to the 35 that the committee has already approved. So we have many options for choice. So as of April and May, we are going to do it very intensely in late October and November, no later than that.

[Paulo Kruglensky, executive]

So now talking about training. Your question was very good, Olivia. Vivara has evolved a lot during the pandemic in terms of remote training. So last month, we launched a new version of Vivara world. This is our internal e-learning platform and communication training. We have a wide array of training in test stores where we can monitor.

So note, performance of saleswomen, we have 50 school stores spread throughout Brazil where saleswomen can go to those stores to undergo training. And one example of success that we have, as Otavio mentioned, just 3 days ago, we opened 7 new stores, 7 points of sale. So it was very good work in terms of training so that these people are okay for sales. So this is what technology suggests in terms of tests, and we have videos too. Thank you very much.

[Operator]

[Operator Instructions] Our next question comes from Eric from Eleven Financial.

[Eric Huang, analyst]

So you say you want to keep it within very well controlled levels. In terms of quality adjustments and in-sourcing of Life, what can we expect from that or to expect in the next new quarters? And in terms of expenses, regarding the maintenance and expansion and the more strategic projects, what can we expect in future quarters for the company?

[Otavio Chacon Amaral Lyra, executive]

Eric, thank you for your question. So starting with gross margin. So this is very much in line with what we had in terms of expectations with you. And especially in this beginning of the year, we have an accumulation of meltings so this pressure will go down in next quarters. So most of the items of the meltings will turn into gold and silver. So there is a movement for the year, and we are going to close it. Above 80% of the manufacturing of Life will be in-sourced in our Manaus factory, and there are some changes in the products that we manufacture in home and that are then off site.

So considering what we are going to have along the year, we have selected products and with all these meltings and adapting the line so that we can effectively offer from now on. The main effect comes from Vivara, from gold products, not Life when Life is smaller. So this pressure is going to fade along the next quarters. And the evolution of results are going to be interesting.

So product margins are still under control. And obviously, in a scenario where revenues respond faster, the operational pressure in the factory where we are investing more, it will gain efficiency and will help us in this comparison period. And so here, looking at expenses, structural fronts, when we lose relevance in revenue, especially in March when the main markets closed, we saw a retraction in sales of about 6%.

And so in the main month, in the quarter, it increases the relevance of those expenses in our performance, especially other operating expenses and expenses with consulting, as you can see the more detailed when we break down in our financials.

In terms of relevance and amount of those lines, we had already been showing an increase especially the last year. And this level, this higher level will continue along the year, once again, a more mid- and long-term investment to support growth and what will reduce, it will worsen in the future and in a scenario of full revenue that is not so affected in terms of circulation of customers and limitation in the opening hours in shopping malls, all over the country. Of course, this is lighter to us.

And seasonally, Q1 is usually the Q with the lowest sales. The last one is usually the main one for us where we -- from which we derive most of the company's operational profit and more interesting seasonality in performance. It's not just gross revenues, but gross margin with a more favorable mix in these 2 times of the year. So we hope that this more specific pressure will become smoother along the period, and so we have cost increase, and this is under control for the management with super stability as compared to previous periods. And this looses relevance as compared to revenues as we evolve. And this has been evolving very well over the past 2 months.

[Operator]

Our next question comes from Helena Villares from Itaú.

[Helena Villares, analyst]

We have 2 questions here. Now going back to what we've been discussing over the past few quarters, we have M&A, consolidation, new categories and the consolidation in the addressable market. Could you give us more details how has it been evolving along quarters, just to give us an update on that theme?

And today, you talked a lot about digital. So you have a lot of digital presentation as compared to traditional retail. And we think about the omnichannel strategy. So you started doing it last year. So just penetration data, could you tell us in a little bit more detail the levels you're in now.

[Paulo Kruglensky, executive]

In answering the first question about the M&A, it was not an active agenda in the company. And yes, it has become an active agenda. We really believe in the growth of Vivara and Life and why not within that brand strategy or category strategy to look out and see how we can consolidate the market even further.

One important point here is our gain in market share, and its evolution. We've been able to do it in a very intensely fragmented market. So we had 11%. Now we have 13%, this just with the strength of Vivara and Life. And why not in M&A that will make it possible for us to have new channels, new sales strengths and that we could go in the market where Vivara and Life are not today. So it makes sense so long as it may complement our core environment and that it is something that we can work and see as a business potential.

As to digital, this is an evolution in the company. So when you see digital, we are working on website sales, and sales of saleswomen working as a consultant working in that platform, tablet sales. So it's not just the physical stores. It's how this experience of physical store will be impacted by the digital experience and how we can have many tools for saleswomen to sell more. And so something that was very nice, this Mother's day, we are working with a very good portfolio of endless shelves. So grids. For example, I have a ring that is #12 in the store. And then through the tablet, I can sell up to size 27.

So I have a chain or -- that is 50 centimeters, but I can sell 70 centimeters. So if I have a small ring and I sell the large one or a bigger or smaller within inventory that is not present right there and then, but then they can see the inventory in all sales in all stores for the future. Today, we have 110 stores connected in EOMS, and I don't need to have 100% because given the example of a store that is very close to another, for example, to close-by stores here in São Paulo. So I can take a store that has a very intense flow and then focus the marketplace both to sell and to do this omni shipping. So I mentioned that we had more than 1,000 orders shipping from the store. 40% of the stores already have pickup. So once we reduce lead time and reduce rupture, it makes sense to have these operations inside the stores.

So you will not see 100% of our stores locked or plugged. It depends on delivery logistics. And shipping from store is still low, but we can increase it very much with a model that we are using to ship to a different state. We are proving that. Some states are already working like that. You can buy from Manaus a good that is in Recife and you have it shipped to Rio Grande do Sul. So this is the beginning, but there will be something new coming up in the next quarter.

[Operator]

[Operator Instructions]

Our next question comes from Ms. Eiger from XP Investments.

[Danniela Eiger, analyst]

First is a follow-up regarding M&A. You said that you're analyzing new categories. Just to understand, are these categories in the jewelry world, something addressing lower social classes? Or is it a new category that would complement accessories? Just to understand better that point.

And and in the release, you talked that you're seeing a significant recovery in sales, Mother's Day was really exceptional, not just for you, but we've been hearing this feedback from all retailers. But can you give us some color after Mother's Day, how has it been evolving? Are you seeing a higher flow in stores? Or is it more digital? And how has the recovery been?

And the last question, if I may, is about your loyalty program. What kinds of benefits or incentives does it provide? Or is it more related to content, so earlier collection, something exclusive, what are there points or something? And you say it's still very much limited to your main customers. But what would be the criteria for those customers to fit into that category, frequency, shopping, amount shopped?

[Paulo Kruglensky, executive]

Now in answering your first question, we are looking at everything that strengthens your core. So we sell jewelry in gold and silver. When I say silver, the value perceived by customers for our silver stores is not similar to silver or to semi jewelry. We have a very good markup and very good prices. So we are looking into segments and categories that can complement our core business.

Mother's Day, we still have good flow, good performance in our stores, above our plan for the after-Mother's Day. So we are satisfied with everything that we have been seeing both in physical and digital stores.

As to Life lovers plan, as I said, this is very much in the beginning. We started with premium customers who bought more than BRL 900 in a year. They are at the top of the pyramid. They will have access to exclusive launches to directed launches. And our idea is to, yes, work to build their loyalty, maybe giving discount. We have a nice program this week. We have the gold week. We have the silver week. And then can bring their old pendant to change it for a new one so they can use it as part of the payment. This is very embryonic still. And we want to increase it and to make it recognized.

We want to work with an awards program. And in the future, if they are in that program, they may have access to exclusive pendant and to be recognized for that. We are really excited with the engagement of these customers with the beginning and how much they're fans of the brand, and they may serve as ambassadors on the brand.

[Operator]

If there are no further questions, I would like to give the floor back to Mr. Paulo for his closing remarks. Please, you may proceed with the closing remarks, Paulo.

[Paulo Kruglensky, executive]

Thank you all very much. Thank you, everyone, for attending our results live, and I wish you a good day.

[Operator]

Thank you. The conference call of Vivara has now ended. Have a good day. Thank you.

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