Vivara Participacoes SA

BOVESPA:VIVA3

Earnings Call Transcript 2021-Q3

[Operator]

Good morning. Welcome, everyone, to Vivara's 3 Quarter 2021 Earnings Conference Call. We would like to inform you that this event is being recorded and simultaneously translated. [Operator Instructions]

Also, the slide deck of this presentation is available on the platform and the slide selection is controlled by the users. After the company's remarks, there will be a question-and-answer session. Questions received via webcast will be answered later by the IR team.

Now I would like to turn the floor over to Mr. Paulo Kruglensky, CEO of the company, who will begin the presentation. Mr. Kruglensky, you have the floor.

[Paulo Kruglensky, executive]

Good morning, everyone. Thank you for joining us this morning for our Third Quarter 2021 Earnings Conference Call. As usual, joining me today are Otavio Lyra, CFO and IRO; and Melina Rodrigues, our IR Head.

The third quarter results have a special meaning to us. We are closing yet another cycle of Vivara's earning releases as a publicly traded company. For yet another quarter, we have seen our competitive edge make a difference and be a pillar for growth. After 24 months after our IPO, we have opened over 60 stores, protecting our margins even before the challenge of neutralizing the effect in the increased costs of gold and share, and we continue gaining market share.

Now let's go to Slide #2 of the presentation. Here, we can see Vivara's performance highlights. BRL 410 million in gross sales, up 33% vis-à-vis 2019 and up 22.7% of same-store sales compared to the third quarter of 2019. A 40% increase in gross profit, and EBITDA of BRL 67 million and net income of BRL 86 million with very healthy margins of profitability.

Now moving on to Slide #3. As a result of such performance, we have registered an impressive gain in market share. In September, we have achieved 15.3% market share, reinforcing our absolute leadership in the market. We have gained 3 percentage points of market share since September last year. And it's great to see that Vivara is the leader and is increasing the difference and the space to the second and third players of the market.

On Slide #4, you can see a bit of our prospects for organic expansion next year. In 2022, we will accelerate the pace, opening from 50 to 60 new stores. In the short term, we are going to prioritize the expansion of Life. And this is the following opportunity scenario for Life: we see a good acceptance of the new format of Life stores and accelerated maturation and cannibalization that is under control. It's important to emphasize that we'll not stop expanding Vivara in the medium and long terms, but we want to prioritize this channel that is doing really well. We're going to have from 35 to 40 Life stand-alone stores and 15 to 20 Vivara stores. We are very confident about our potential of expanding our footprint in stores in smaller towns and malls in smaller towns, keeping attractive return levels.

Now moving on to Slide #5. Here, you can see the empowerment project of the Life brand, which is gaining good traction. Our strategic fronts that we have established to develop the Life brand and structure it as an independent channel has been showing good results. We have established 4 core values for the brand. This is a product for all. It is collectionable, giftable and with lifestyle. In the last quarter, we created over 70 new SKUs with new categories in commercial products, 6 new models of bracelets and the collections that are already a great success. Our stores now create a more seamless buying journey with 360-degree counters and better display of the products. We have also enhanced the manufacturing of our products at the plant, moving processes in-house and optimizing internal production processes.

In store expansion, we have prioritized higher returns, going for the best square footage in the country. We have also created a recurring customer recognition program called Life Lovers. These customers already account for 14% of the active customer base of our company, with a buying recurrence of 3.2x a year. This is a channel that is growing, and it will become even more relevant for us in the future, and we're very happy about the results we got there.

On Slide #6, you can see a bit more about Life and the main highlights of our stores. We have 19 stores that were recently added to our park, over 1,000 square meters. And in the third quarter of 2021, the brands of the -- the stores of the Life brand were responsible for 3.5% of the physical store revenue.

On Slide #7, you can see a brief overview of the digital journey at Vivara. In the pre-pandemic scenario, the buying journey was completely separated and fragmented. There was no stock integration. There was a low level of customer clustering. The buying journey was more focused on transaction and not on experience, and there was just a little segmentation in our product registry. Now in the last 2 years, with the evolution of our initiatives, we have been able to close the gaps of operations. We accelerated digital transformation, and we also focused on more immediate projects. We overcame the goals we wanted.

The program, Joias em Ação, that now with our -- all of our stores open, still represents 35% of our digital sales. So it still has a great representativeness in our evolution. This participation also reflects the strong relationship of -- and the deepening of the clustering of customer information in our sales app with a more personalized service. We're now able to offer the right product to the right customer. And that was a major evolution we saw in our last quarter. We also started unifying our buying journeys, making our distribution center stock available to all stores.

In the third quarter of 2021, we had over 400,000 customers visiting our stores or our website. We have created dedicated pages that mixes the content of product and customer experience. We have created the Vivara web blog, and we also started campaigns in new platforms like Pinterest and TikTok, for example.

Now looking ahead, we're going to deepen more and more our customer segmentation. We're going to improve the personalization of the experience in order to get more customer loyalty. We'll consolidate our digital media strategy, content and product, reducing our dependence on paid media.

We want to focus on experience and content rather than working with conversion media. Our new digital platform aims to bring more agility and flexibility to UX and conversion projects, and we're going to strengthen more and more our omnichannel strategy that will enable us to explore new possibilities.

On Slide #8, you can see some numbers as examples of the recent evolution we witnessed. Digital sales accounted for 14.6% of the total sales of the quarter, double the pre-pandemic levels, a 160% growth in digital sales and 34% growth in the number of unique users.

Now I will close my participation in this earnings conference call saying that I'm very happy with our digital evolution and the evolution of our store parks with great expansion.

Now I'd like to turn the floor over to Otavio. Otavio, you have the floor.

[Otavio Chacon Amaral Lyra, executive]

Good morning, everyone. It's great to be with you yet again for another earnings conference call. We have had solid results in the third quarter of 2021.

I will start on Slide #9, telling you about the store expansion. This quarter, we opened 13 points of sales, 6 Vivara stores and 5 Life stores as well as 2 kiosks, in a total of 275 points of sales, 227 of Vivara stores and 19 Life stores as well as 29 kiosks. In October, we have already gone to 278 points of sales with 5 new store openings and 2 closures of kiosks in Flamboyant and ABC Mall. Of the 5 openings, we had 4 Life stores and 1 kiosk.

Year-to-date, we have had 29 stores opened, 19 Vivara stores and 6 Life stores and 4 kiosks. Now if we add the October numbers, we have another 5 points of sales opened in November, another 3 Life stores and 1 Vivara store. So we are on the right track to achieve our goals, which was to close the year with 40 to 50 points of sales being opened. So I think our status is quite well to achieve our goal by the end of the year.

Now moving on to Slide #10. You can see further details about our revenue growth. We had BRL 410 million in gross revenue, net of returns in the third quarter, 33.3% up against the same quarter of 2020 and 33% against the same quarter in 2019.

We -- our net revenue grew 39% against 2020 and 40.3% against 2019 with a net avenue of BRL 337 million. It's important to say that this has happened because of some of the effect I'll mention now. We had a great contribution in increased activities of our plant and revenue deductions, so we got a balance of BRL 73.4 million. As we advance our transactions between the 2 subsidiaries of Vivara SA, we increase the benefit of the sales, the tax benefit and the representativeness of such tax benefit at our company.

So the presumed credit line has been gaining more relevance, especially compared to 2019 but also compared to the third quarter of 2020, which is benefiting the deduction line. And that's why we see this difference between the net revenue and growth -- revenue growth. This will also impact other lines of our results, the line of taxes and social contribution. I'll give you further details about that later on. But it's worth mentioning that since last quarter, our plant activities have gained speed. We added head count at the Life line and also at the Vivara line. The monthly production in kilograms has achieved levels that are 3x as high the levels we were used to, to complete this internalization movement that we're going through and also to add inventory at this moment, which is quite favorable for us, and we want to make the most of our competitive edge, complementing our product lines.

So we are a bit comfortable there for our coming quarters, especially until mid-2022. So at different intensities, the plant will continue performing at higher levels than previous years, and this will continue to benefit some specific lines of our results.

Now it's important to mention that year-to-date numbers, we have achieved BRL 1.141 billion in the first 9 months of the year, growing almost 54% against 2020 and almost 18% against 2019, net revenue of BRL 916 million, a 56% growth against 2020 and 20% growth against 2019. So very robust numbers compared to other players in the market. We work in -- we operate in the retail segment, and we are outperforming slightly the rest of the segment for the high-income audience.

Now I skipped a slide, but we had 45.3% of physical stores compared to the third quarter of 2020, and year-to-date, 48.8% physical stores plus e-commerce or 70.4% if we look only at physical stores.

Okay. Moving on to Slide #11. You'll see the evolution of our sales mix at the company. We can see great stability compared to last year. So there hasn't been any major changes, but we see changes compared to 2020 when it comes to the different channels of physical and online channel. Life is gaining representative in the physical channel. The jewels are still expanding their participation in the online channel and our balance is, therefore, a bit better compared to the third quarter of 2020.

Now as compared to 2019, the e-commerce has brought us a better balance for the company. And with time, we saw great growth for the jewel category with considerable expansion of 4.4 points against the same quarter of 2019, which is a great highlight of the quarter.

Now moving on to Slide 12. You can see some numbers of our physical or brick-and-mortar stores. It's interesting to see these numbers to see not only the evolution in the number of stores because of the replacement we've been making but also a growth in sales area. We have achieved 20,600 square meters in Vivara's sales area, a 10% growth compared to 2020 and 23% growth compared to 2019.

For Life, BRL 12 million in revenue. So this is finally getting a bit more representativeness. Of course, this is still small compared to Vivara but way above what we achieved in other quarters in previous years that was BRL 3.5 million and BRL 1.7 million in the third quarter of 2020 and the third quarter of 2019, respectively. And of course, the growth has been accelerated.

Kiosk. It's worth mentioning that we had BRL 10 million in sales with 29 kiosks. The number has decreased in recent years. We had a decrease of 16 points of sales compared to 2020 and 25 points of sales compared to 2019. This is a strategy we already shared with you in an aim to reduce the number of kiosks and focus on the profitability of the channel.

Jewels has been gaining market share, over 2 points against the third quarter of 2020, and watches are stable. Actually, jewel lost 2.5 points of share and Life expanded. So this is an important message. Life is gaining representativeness in this channel. Once again, this has been influenced by the opening of the stores that we have done.

On the other hand, if we move on to Slide #13, we see the events that I have already mentioned on the mix of digital sales. We could see the opposite happening here. Jewels have an accelerated growth, with 2.2 percentage points expansion of share against 2020. And against 2019, a complete transformation that we implemented in recent years. This was, of course, accelerated by the pandemic and the relevance of the digital channel, which was also transformed with the Joias em Ação program, which has been shown to be quite resilient in recent quarters, and this has been able to add this mix of jewels and 40% higher ticket amounts, which was really important for the digital growth that we see.

The jewel category has reached 50.3% of our sales mix in digital and has had a 21.4 percentage point growth compared to the same quarter of 2019. So this is the magnitude of the transformation, which was really significant for the channel both in terms of the growth in ticket and also the representativeness of the channel.

A highlight for the Joias em Ação project was the resilience of the program, its format and shape and representativeness in recent quarters, which has remained quite stable around 35% to 37% of the digital sales. This quarter, more precisely, 37.2% share in the digital sales. And the omnichannel, the ship from store deliveries accounted for almost 10% of the digital sales in the quarter, which is something that adds convenience to our customers. This program reached BRL 22.8 million in revenue in the third quarter of 2021. And in the mix of sales, 68% was made up by the jewel category. So you see the size of the contribution and how relevant it has remained in recent quarters.

Now moving on to Slide 14. Here, you can see further details of the trends in our gross profit, BRL 228 million gross profit in the quarter with 67.7% gross margins, a 2 percentage point pressure on the margin compared to the same period of 2020 and a stability compared to 2019, only 0.1 percentage point below 2019.

Now against 2020, we have lost 1.3 percentage points in product margin, inputs, raw materials and products because of a temporary gap in price adjustments and price transfers done in the third quarter of 2020 and not on the second quarter of 2020 as we usually do because of the seasonality of our business. We had a few stores. The stores were still closed in the second quarter of 2020, and that's why we postponed the price adjustment, which benefited the margins we saw in the third quarter at the expense of the margins of the second quarter of 2020. But now if we compare and we go back to the more normal seasonality in 2021, this can explain part of the pressure that we see.

Now the other part of this temporary pressure on our margins comes from the added expenses in our plan to support the production growth that we have achieved in the third quarter, and that we will continue adding up until mid-2022, as I mentioned in the beginning. So BRL 11.2 million in expenses and expressive growth against what we saw a year ago. This is benefited by the [ MP ] that benefited us throughout 2020. And all the additional factory expenses we had pressured our results in 0.8% of margins, especially because of the personnel that was added to our headcount. But this increase in production has already [ been reflected ] on sales in this heated environment in the short term, and we expect an even better benefit from the stock recomposition that we have been making. And we are going to dilute the factory expenses that will eliminate the pressure we see in the short term.

Year-to-date, as usual, the main goal, in spite of the seasonality of the business and the differences between gross profit and net revenue and the seasonality of the second and fourth quarters because of our sales mix and launch of new collections, we've been able to achieve a better stability. So we have 0.8% pressure against the same quarter of 2020 and 1.5% gain in margins compared to 2019.

Now on Slide 15, you can see a bit more detail of our selling expenses. Here, we have a great operational leverage that has contributed with 2.1 percentage points of added margin against 2019 or 1.6 percentage points against the same period in 2020. We had selling expenses, grew 31.6%, representing BRL 104 million in the third quarter of '21. We see a good dilution of our personnel expenses as well as lease and rent and the freight line.

In the last 2 years, we have performed a significant migration to outside the usual concentration with the mail. We went from 60% in 2019 to around 40.1% in mid-2021. This has created more convenience and speed of delivery in some regions of the country. And above all, it improved our unit economics in the last 2 years. And so we go against what we see in other companies with a greater representativeness of this freight line, which, in our case, decreased the [ road ] time. Last year, the digital channel was a bit more relevant, so there was a bit more pressure. But now that things are going back to normal, it's losing representativeness, and we see this decentralization of our freights, which was mostly done by the mail, the post office, in the past.

Now on Slide 16, you can see greater detail about general administrative expenses. You can see a bit more detail here. So you are aware of the evolution we expect for this line. We see great strong growth compared to 2019 and also compared to 2020. In the last 2 years, we went to BRL 40.3 million in administrative expenses, and that is a 2.2% profitability loss, now accounting for 11.9% of the revenue from 8.8% in the third quarter of 2019. But we were benefited from the MP. And against 2019, we have an INSS credit that benefited the balance of the third quarter of 2019. So of the BRL 21.1 million that you can see there in the chart and also BRL 3.3 million that were from reclassifications of the first quarter of 2019 for selling expenses in the quarter.

So this is a recurring balance. If we look at the 9 months of the year, this is not going to make a difference -- I'm sorry, what I mean is that it won't have an effect on the line, but this has an effect on the quarter and the size of the expenses we see. If we consider these 2 effects, it's 5.3% up against the BRL 21 million that we see here.

Now the rest. If we normalize the evolution, we see a significant growth in this line of expenses to sustain businesses because of our increased payroll and also third-party services increased to support all of our online marketing campaigns and all the technology that we have been evolving at the company. And there is also a greater participation of PLL provisions compared to previous quarters, either because the company grew or because the results evolved a lot, especially compared to 2020.

Now moving on to Slide #17. As a consequence of all of the factors we mentioned, there were almost BRL 67 million EBITDA in the period, representing 19.8% of the revenue, a 24% growth against the same quarter of 2019 or 34% against the same quarter of 2020. Year-to-date, BRL 165.8 million of operating results and the adjusted EBITDA includes the exclusion of IFRS 16.

So rents. Going back to the SG&A -- that went back to the SG&A. So the BRL 165 million represented 18.1% of the revenue, up 8.2% compared to 2019 and 110% against 2020 because of obvious reasons, the impact of the pandemic and the beginning of 2020.

Now on the next slide, you can see further details of our net profit on Slide #18. A highlight to the tax line that benefited the results of this quarter in BRL 25.3 million, quite different from the trend we were seeing in the last 2 years for the same quarter that was a bit below BRL 1 million, which is still positive but -- because of the factory levels, the production levels.

Now there are 2 -- one major effect we have excluded from nonrecurring, almost BRL 19 million in the quarter, monetary correction of tax credit. PIS/COFINS and ICMS that we recognized in 2019. So we're bringing this back to the results, and this is benefiting the results in BRL 19 million, BRL 18.9 million, to be more precise.

Another effect, as I mentioned in another slide, is the increase in factory activities. Our factory operations increased. There has been an increase between the subsidiaries, and our income has increased. The income pays a tax of 15%. And when consolidating both companies in Vivara S.A., we get credit at 34%. So the higher the activity, the better the benefit, the greater the benefit, and this benefit disappears as the activities stop being as intense to compose the additional inventory that we want. We have a growth of about BRL 7 million, which would give us a balance that is very similar to what we got in previous quarters. We have considered this a recurring effect because the plant accelerates and slows down every year because of the seasonality, and we can see the presence or absence of the benefit in our business, which is a very recurring effect in our business. Not at this same intensity, but this has been seen in all of our operational years.

Now on Slide #19, you can see the investments of the company. Vivara has never invested this much in its operations, opening new stores in the quarter, almost BRL 18 million invested; renovations, almost BRL 2 million; factory, BRL 2 million; and IT systems, BRL 3.5 million. Now if we compare to the same quarter of 2020 in which we were still slowing down investments or resuming investments after a halt in the second quarter because of the impact of the COVID-19 pandemic, year-to-date, BRL 58.2 million in investments, BRL 38.7 million in new stores, almost BRL 4 million in renovations and then factories and systems, more -- with a greater representation than previous years.

The expectation is that we closed the year with over BRL 100 million in investments, considering the stores to be opened, most of them Life stores, and we'll close the year with 40 to 50 new points of sales with some additional investments in renovations in factory as well.

Now Slide 20, you'll see our net debt and net cash of the company. Gross debt closed September with BRL 290 million, which is quite stable. Ever since the first quarter of the year, the adjustments we saw from December 2020 to September 2019, a BRL 100 million reduction was the adjustment in the size of the debt that we did in the first quarter in February and March because of the additional raise that we did in the end of last year to make the most of the IOF benefit that was being given because of the effect of the pandemic on the different companies.

We closed the quarter with BRL 713 million of cash, free cash flow of BRL 400 million -- BRL 435 million. Now we're working with a cash flow that is closer to BRL 600 million than BRL 700 million, which is very close to the level that we will land at the end of the year.

Now on Slide 21, you can see the effect of all that on the operational cash flow of the company, BRL 71 million in cash generation, BRL 45.4 million of free cash flow. And it's important to mention the benefits of the operations. We've been doing almost BRL 35 million of positive effect on the quarter or BRL 102 million year-to-date.

As a reminder of the history of these transactions, we were already predicting this increase in inventory levels with this effort that accumulates BRL 200 million from the end of last year to September. This was an important strategy to alleviate our cash consumption. And at a net cost of 0, the spreads charged at these operations are above the cost of these operations for Vivara, so it makes perfect sense. And this extends our deadlines in the purchase of gold and silver, which are our main inputs, and this has helped us to normalize the trend of operational cash flow in the third quarter and year-to-date. Year-to-date, BRL 127.2 million after BRL 52.8 million in investments.

That's all, ladies and gentlemen. Thank you, once again, for joining us this morning. And we have just started the most important season of the year for our company and for the whole retail segment. We have started the months of November and December. This is a very important quarter for us, accounting for about 35% of the company's revenue, historically, and over 40% of the income. And in the pandemic year, the -- this is not going to be well-balanced because of the effects we had in the months of March and April that impacted the results of the second quarter.

Now we have started our sales convention. This has been a very exciting event. All of our salespeople from all over the country and the Vivara team in São Paulo is gathering to share our results, share our values, product launches and to prepare for this very important season for Vivara. We are all very excited and very well prepared to start the month of November with the Black Friday event that will start soon with activities here at our company. And with other stores to be opened, to complement our joy, we'll continue with our expansion program at an even higher pace next year, creating jobs not only during the pandemic year in 2020 and more consistently now in 2021, and we are preparing for yet another year of accelerated growth in 2022 with new products to be added for our customers and reinforcing the availability and convenience to everyone.

The representativeness of the omni-channels will continue adding value to us, and this is going to be important for us to continue gaining relevance in the sector. We have achieved 15.3% in market share, as Paulo said, but more important than that is the consistent speed of market share expansion that we have seen in the last 3 months and will continue growing at an accelerated base due to the opening of stores. There is no other player opening as many stores as we are opening in this segment. So let's make the most of our brand and the efficiency we have in execution at the point of sales.

Thank you all, once again. Now let's open for questions.

[Operator]

[Operator Instructions] Our first question is from Thiago Macruz with Itau BBA.

[Thiago Macruz, analyst]

Congratulations on the quarter results. What have you been learning with the expansion of Life? Maybe you could tell us about the maturation speed, potential revenue per store and the impacts of cannibalization that you might be feeling in your Vivara's stores as a consequence of the expansion.

Now my second question about the informal market. We know that you have a market share of 15% in the formal market, but that should only account for half of the total, I believe. Do you have plans at the company to go after this opportunity that is not being addressed by you right now? That would be really great to hear about that.

[Paulo Kruglensky, executive]

Hello, Macruz. Thank you for your question. Life, while we have been learning a lot about the business model and the potential of these stores based on the performance, these stores are having us revenue BRL 4 million a year. And the cannibalization is what we expected, 2% to 3% compared to Vivara. And we have seen new customers coming in, customers that never bought in Vivara's stores are now buying in Life stores. So these are new customers, a great source of new customers with a different experience that has been working really well. And these stores are maturing quite fast, achieving 75% of the levels of a mature store in the second month of operations. So when we see this maturation and this income, it's very exciting, and the cannibalization levels are very low. The Life project has been very successful. That's why we want to accelerate it even further and look at it from an increasingly structured way.

Now this Life maturation also shows us our ability to manage as-is. We see how much Vivara is growing and how our same-store sales is performing really well. We had a 22% growth in same-store sales even with aggressive competition. So we were always wondering how we could guarantee our as-is and look at the to-be, but we have been performing quite well in the as-is and in the to-be.

Now when it comes to the informal market, we think this is still very large. This -- if we look at the size of the market, we would say it's like twice as big as what we have today, and that will depend on the expansion of stores and working on the omnichannel approach and grow in locations where we are not yet present with different mixes of products, prices, structured platforms and apps. We need to evolve with technology to reach the markets where we are not present yet.

If we say we have 15% market share, well, the market is much larger than that. So we see that the opportunity -- we see the size of the opportunity that Vivara, Life and the whole jewelry market has.

[Otavio Chacon Amaral Lyra, executive]

I would just like to add something to the first point about Life, just to give you a bit more flavor about other things that we have identified. I think Paulo was quite precise, this maturation has been really exciting, very encouraging. The stores achieved 75% of the sales levels of mature stores by the second month of operations. So that's quite good. And the Portalegre store was opened on July 17, and it had BRL 1 million in revenue in the first quarter.

So these stores are gaining sales representativeness really fast. We're going into excellent shopping malls, and this will make sure that the maturation is different from our average. They're gaining really fast. They're growing really fast. But the [ sample is small ]. We're gaining critical mass, and we'll be able to draw even better conclusions from now on. The 5 stores with the new format accounted for 32% of the Life stores' revenue in the third quarter with a cannibalization level that is very controlled within the range that he mentioned. That was all.

[Operator]

Our next question is by Joseph Giordano from JPMorgan.

[Joseph Giordano, analyst]

Paulo, Otavio, I would like to continue talking about Life. I would like to understand the contribution margin of 50% and the level of inventory per store, which has a value that is much lower than Vivara's stores. So what do you think about street stores? Because you're now opening stores in malls, but is that a format that you're considering to explore throughout Brazil?

Now my second question is about the competitive environment. If we go to the stores, we see many of the windows empty, which is quite sad. So what is your take on the quality and depth of inventory of the competition? And how is Vivara being positioned within this context?

[Paulo Kruglensky, executive]

Thank you, Joseph, for your question. So first, let me talk about Life and the potential of street stores. We think this is an opportunity. That would be an evolution of our business to have street stores and going into cities with a safety model that is simpler than opening a jewelry store, but Life could be a possibility. But before opening Life stores in streets -- on streets, we are opening Lifes in the best square footage of malls in the country. We're going to open Morumbi Shopping, Baha Shopping Mall, Fortaleza, Recife, Diamond Mall. So this is an opportunity that our company has to go into the best consumption square footage there is today.

I think there is an opportunity to open store on the streets. We are discussing how to have a pilot project on that so that this is yet another growth avenue, but we think we can have over 300 Life stores in shopping malls with ROIs that are quite attractive at levels we already have at the company. So that would be the first point.

Now about inventory. We see our good sales performance being reinforced by our increased inventory levels and depth of our mix. We work with a demand forecasting model, looking at SKUs, demand in stores. And our product is very giftable. A client goes into the store and if he wants to buy a cross for his wife and he can't find it in our store, they will go to the next store. And if he can't find it there, they will come to Vivara. So our conversion only increases.

And if I look at the competition, I suppose they have been using a stock with a lower gold value to generate cash. And now they find it hard to recompose their inventory with the higher cost of gold, but that was something we did really well. And the opportunity in our inventory that was increased in commerciable and rings and collections made all the difference. Like earrings, over 50 different models of earrings, rings as a solution for customers. This has been very successful, and this has been supporting our growth.

Do you have anything to add, Otavio?

[Otavio Chacon Amaral Lyra, executive]

No, I think you said it all, Paulo. The messages that we have received from our salespeople monitoring the competition make us excited about the short term and especially about the Life opportunity that we have, which is huge, to gain representativeness and independence and the additional profitability enables us to generate a lot of value. And we see that the competition is still suffering, closing stores. Our main competitor continues to close a store quarter after quarter. So this is an exciting moment for us.

[Paulo Kruglensky, executive]

But when we talk about competition, we're not talking about only jewelry but giftable. When you think about finding the perfect gift, our competitors are shoes, fashion, perfumes, electronics. And we want to compete with all of this market. If you think about a gift, you will think about Life and Vivara. So we're working with our media to compete not only with jewelry stores, but with all giftable market as a whole. So giving a jewel as a gift is fantastic, and we have to make the most of that.

[Operator]

Our next question is by Dan Eiger, JP -- it's actually XP.

[Danniela Eiger, analyst]

Otavio and Paulo, I have 2 questions actually, one still about Life, but from a different perspective, about Life Lovers. You disclosed how much this represents in your customer base today and the revenue, I think, it was about 50%. And I remember that this program was still quite limited, was not available to everyone. So can you tell us about the rollout of the program? It seems to have great potential.

And now about the margin dynamics, you said that the pressure happened because of the base, which makes sense. But from now on, with this acceleration, what do you see in terms of margin dynamics from now on? Do you expect to see an improvement of margins with the mix of Life increasing in your total numbers?

[Paulo Kruglensky, executive]

Okay. I'll start by answering about Life Lovers, and then Otavio will answer your question about margins. Life Lovers has been evolving quite well. We're very excited about it. A Life product is a product for a woman's life. We want it to be a product that a woman will wear for like 10 years. And when after 10 years she looks at the bracelet, she sees how much it has evolved, and the frequency of purchase is really important for us to work on the events and the successes of the customer that will buy new pieces of jewelry. So I have a bracelet and now I got married, I'm going to buy a little ring to put in my bracelet. Or if I go to Paris, I'll buy the Eiffel Tower. Or if I had a baby, I will buy something else to put in my bracelet. And no bracelet will be like another because no woman's history is like another woman's history.

So we need to tell this to women to evolve in this business. We were very successful in doing that in the past, and now we're working with Life Lovers again to do that. They now represent 14% of the active sales and 50% of the Life sales, 167,000 customers that are active in this program. But the idea is not only to have it active right now but to keep it in the coming years, working with tools, with the buying journey, with communication and with recognition, which is really important. We have to recognize customers as Life Lovers and see what their experience is like in the buying journey.

Otavio, can you answer the question about margins now?

[Otavio Chacon Amaral Lyra, executive]

Of course, Well, I think that you were very precise, Dani, when you said that this is more a short-term pressure that we're experiencing. And we had already predicted that from the beginning of the year, considering the size of the price adjustments we saw, especially in gold and silver, and the exchange rate also affects us on our imported inputs, and we had to absorb part of that in terms -- with cost efficiency, which was a major challenge for us. And on top of that, we had the representativeness of the additional factory expenses that I mentioned in my presentation, which is something isolated. And as we evolve, this pressure will be diluted.

The company has had over 3,400 employees in total by the end of September. So we have been growing a lot. So we added personnel, especially in our Manaus factory. We have over 600 workers there. And this heated environment in the factory will continue by mid-2022. And even after the growth cycle that we are preparing for, this is not only the heated production environment to increase our inventory levels, we'll continue growing after that. After seeing the return of this additional production, the pressures will be eliminated, this pressure that we saw not on the quarter but on the year.

Now from now on, in medium and long terms, Life will gain representativeness with the acceleration we see in the return profile of Life in our business, so it makes sense to accelerate more on Life than Vivara. So as a result, Life will gain share and the margins will continue to be relevant. So it makes sense to think about enhancing the margins throughout the years. As we gain profitability with Life's representativeness that is increasing, we have seen a growth in the representativeness of jewels. Watches have stabilized, 13%, 14% of our sales, and we focused on profitability. We have 3 to 4 points more profitability than a year ago for these products, which is quite interesting. And then after that, I'd say that the margin expansion that we see in-house is due to the mix and not other efficiency gains.

The efficiency gains are happening continuously. We're always enhancing our factory, adding technology, but there is also an increase in the prices of raw material, which is also continuous if we consider BRL prices. This is a recurring challenge we face, and we're making investments in order to be able to face all of that by gaining efficiency in the coming quarters and coming years.

[Melina Afonso Rodrigues, executive]

Well, if there are no further questions, I would like to turn the floor back to Mr. Kruglensky for his closing remarks.

[Paulo Kruglensky, executive]

Thank you all for joining us this morning for our earnings conference call. I would like to state once again how excited and confident we are for the coming season with Black Friday, Christmas and all of that. Thank you very much, and see you next time. Have a great day, everyone.