Azzas 2154 S.A. (AZZA3) Earnings Call Transcript & Summary

Good morning. Good Friday. A Friday that no one knows if it's a holiday or not. The fact that we're all here working with a lot of passion, determination, as always. Thank you for accepting our invite for this chat, for this communication that is so important, a step that Arezzo is taking towards building our ZZ platform. Yesterday was also a very important day for our company with the official launching of ZZMALL. I hope that you all watched our fashion director, Marina Ruy Barbosa, here with us. And now using this great stage that was used for the wired retail conference yesterday, we thought it was very interesting to be here to -- in a very well-structured, straightforward manner, share with you something that goes much beyond the acquisition with focus on the numbers and the bottom line. A strategic step that is essential, as if you were placing that piece of a puzzle that makes you start seeing the finished work. It's a very important step for our future, going into a structured way in circular economy. And when we talk about circular economy, you can think of businesses. It is a business. But most importantly, it's our vision of ESG of helping our ecosystem and fight the base of everything with an environmental mindset, which is waste, the waste. And we do waste our clothes. If we analyze the percentage of how much we use of our wardrobe, I doubt that people wear more than 10%, 15% of all the clothes you have in your wardrobe. I know that there are some emotional attachments, the clothes you wore on your wedding, on your son's baptism. You're going to keep those. But there are many pieces of clothing that you bought, you wore them for some time. And it's not your style anymore. You got tired of them. So why keep them in your closet when just catching dust? It doesn't make sense. About 2 months ago, we were with the owner of a large bank. And Aline and I asked ourselves, have you ever calculated the size of the inventory in your clients' closets? And it's something we can't even start calculating. So why not go after a way to make this product available for other people to buy? So these are my opening words. Most of you are -- know that this is a reality. It's more than a trend. It's been proven in more developed markets like the United States. And here in Brazil, it's a business that is taking its first steps. It's starting -- stopped crawling and is now walking in here at AR&Co. We are investing, accelerating. And what are the reasons for us to be here on this wonderful stage? It's a bit complex to convey to you what is behind TROC. If it were a PowerPoint or even words said by myself or by Aline because the assets of this company, such a wonderful company. I'm a fan since the beginning. When we had our trainee group of 2019 that did a great work, and we were going to launch a brand called [ Reuse ], and that was about 1.5 years ago. And we saw TROC with a business model that is completely different than other players in this segment in Brazil. So we went to see what was behind TROC, which is much better than just the business model. It's people, especially the founder. That's the reason for being here with this conference call so that you can hear and especially see eye to eye the person who started this business, Luanna. Luanna, welcome to our AR&Co. AR&Co, you have an even longer relationship with our partner, Tony. So it's a synchronicity. That's the word that we've been using. It's not a coincidence. Synchronicity, there's alignment of energy that goes beyond that. So it really is something that happened in parallel. Our negotiations with Reserva, you were already negotiating with them. And today, November 20, after almost 1 month, we were here on October 23. So we're communicating and introducing you, TROC, to our investors, to our employees that are listening to us as well. So welcome to Arezzo&Co. Tell us a little bit about this wonderful story of your life and what is your driver? Because an e-business such as yours, the true value is your mission. It's much more than just the bottom line. And we will have a positive bottom line. What matters is your vision of world.

It's an honor to be here with you being part of Arezzo&Co. My story starts with the change in career. I was a tax lawyer until 2015.

Well, you will always be a lawyer, right?

Yes, yes. I still do practice.

Yes, I saw yesterday, reading the contracts, you know everything about it.

Yes, but it was a change in career. I ask myself what I really wanted to leave as a legacy for the world. There's a moment when you start to understand who you are, how you can do something different.

Yes, there was a moment that it was a turning point, right?

During the trip, yes. In 2015, my husband and I went to live in Boston. And at the time, I was going to get a masters at Boston University, was the masters of my life with the scholarship. And that's when I asked myself that what do I want to leave as a legacy to the world? How can I contribute? And it was a change when I started to understand more about numbers of the market fashion. I've always loved it, especially the negative numbers.

A lot of lawyer, I think every woman deep down loves fashion.

Yes. I think fashion as a way of communicating, you choose what you're going to wear every day. So it is a way to express yourself. And that's when I fell in love with the negative numbers, seeing that in our country, we had the opportunity to do a great change. And built a model similar to what we've been following in the benchmarks from the United States, which is a little bit different than peer to peer. It adds value for those who want to sell and for those who want to buy. So it's a little bit more.

Yes, we have a well-structured presentation for that. I have to confess that I'm not dumb, but it was hard to understand. After I did, I saw how brilliant you were.

Yes, it does add a lot of value. And I went to study marketing in Harvard. I was ready to be an entrepreneur, and especially because of subject matter called consumer behavior. So any type of entrepreneurship, you have to be driven by the purpose of generating an experience.

Yes, I have to do a sidebar here. When you mentioned entrepreneurship, yesterday was the International Day of Women's Entrepreneurship. So congratulations to you and you, Aline as well because you're very good entrepreneur here at Arezzo&Co.

And learning more about the numbers, I understood about linear economy, which is predominant in our economy today, which is produce, consume and dispose off or keep it in your closet.

Yes, exactly.

I think that's something that is true compared to circular economy. So consume -- produce, consume and reuse. So we stop being a consumer and become a user.

Yes. That's why I said we were going to launch our greenfield, which was going to be called [ Reuse ].

Yes. Reuse what already exists in the world so you don't use nonrenewable natural resources. Our raw material is finite, so it's a much more sustainable mindset and more aware.

I would like to add another thought of Hugo Bethlem. He's responsible for one of the largest courses of sustainable economy in Brazil. And he said that another purpose. And I've already applied that test coming today with the person who was driving my car of make fashion more democratic. So in addition to having less pollution, less consumption because you make available to someone else instead of keeping it in your closet, you're also making fashion democratic, the brands. Have you thought about that? I have to confess I had never thought about that. And when I got that message, that's amazing because you make a brand or a product affordable of -- that people who are less privileged wouldn't have access to. And through this swap, they can buy excellent product with -- from an incredible brand and feel good. Have you thought about that?

Yes. That's -- we have daily feedbacks of making dreams come true. People say that now I can buy certain brands. We work with premium brands. So I couldn't afford certain brands or I could only buy 1 piece and now I have a full closet full of that brand. So we have very touching stories.

Well, you're the expert here. That's why you become our partner. We are becoming partners. I had never thought about that aspect. In addition to the sustainable aspect, we also make fashion more democratic.

It's a huge market of sustainability to open. Brazil is now starting to shifting paradigms. We still have a cultural paradigm of used pieces of clothing. And now we're showing to the market that you can have quality, but what really drives the purchase is the opportunity.

We're going to show in details. So you're the entrepreneur from scratch, a start-up that is part of a listed company now. That's a huge accomplishment. Congratulations. Now speaking of entrepreneurship, I'm going to pass the floor to Aline, giving her congratulations for spearheading this department with an incredible team, changing Arezzo&Co. So it's important to make clear that this new investment on TROC came through a new arm of a Arezzo&Co. Just that's very important to make clear. Aline will give more details. But just like on October 23, when we announced the creation of AR&Co, which is our arm based on fashion, clothing and lifestyle, we're also naming officially, we could only launch what I'm going to say that without doing anything, but we're going to launch it with investments which is ZZ Ventures. ZZ Ventures, Aline will explain, is a corporate venturing capital. So we're using our own resources and investing differently, supporting start-ups and innovation and taking steps, not only providing money but also mentoring, following up for companies and ideas that are just beginning. And TROC, although it's not a start-up, is a very well-prepared start-up. It's what we were talking with Enrique. The engine is ready, it just needs some fuel to accelerate. And here I know there isn't coal, like Rony said, rockets don't go backwards. So get ready. Are you prepared? We're going to speed up this. Wonderful. Aline, I'm going to pass this presentation. Otherwise, we could spend hours here talking.

Hi, everyone. We brought some slides, but the idea here is to say that we had our strategic project last year and nothing changed. TROC addresses 4 or 5 items, yes, we're introducing in December at the Investors Day. So TROC brings several features that were in our map, the features in blue, circular economy, data and analytics, as Luanna said. We're going to know everything that is in the closets of our 10 million clients when they sell their products through TROC. We're going to know the brands they know, they like best and how long our shoes last in their closets. As soon as they sell, we can activate that. That's a great opportunity. It's important to explain that what TROC does. TROC is going to be connected in the ZZMALL. So all clients, although they see it as one stand-alone website, they will be connected to ZZMALL. So it's a big service for our clients.

So Aline, it's not by chance. It's synchronicity, that we officially launched ZZMALL today and today announcing TROC. But our team here, we only do things great, right? So we were able to improve, but the content has been presented in December 2019, and TROC is there to fill that space. This is the puzzle. And we still need some pieces, but TROC is here to fill an important piece of that puzzle, which is our strategic planning.

And what's great is that TROC, besides all the technology features and the data we're going to obtain, it's a great service for our customer. From classes A and B, they are mothers. They work. They don't have time to take pictures, putting price. They don't know how -- what is the price.

Luanna, she knows it.

Then getting a WhatsApp and conflicting data, my cellphone is shared with someone, you have to mail it. So the solution with TROC is for those who don't have time to advertise piece per piece. Luanna knows, a piece from Zara, Animale, how much it is worth in the market, for how much I can sell it because she has the algorithms.

Yes, from Reserva Oficina, EVA and so on.

It's because today TROC, it's still much so much for women, and now we're going to strengthen the kids and male portions.

And shoes as well, which is important that TROC has a lot to grow. We're going to have a lot of opportunity.

Also bags.

So I need to talk about this one. I hope you're patient, and I apologize for because we started a bit late, and the conversation is great here. So try to limit my time. But this slide actually brings great memories for us. You can clearly see that it's not a PowerPoint that was made yesterday on the contrary. So yesterday, we were here launching ZZMALL, and our founder, our main shareholder, Anderson Birman, was here to meet Luanna and Enrique. We were having a meeting and he said, "I'm very happy that you're now really investing in technology in the new world in 2020, in circular economy, but it's something I've been thinking and maturing and I found some barriers almost 30 years ago, -- more than 20 years. At the end of the '90s, I created the first Arezzo campaign that you would have cash back if you exchange your old shoes for new shoes. And then I looked in our files. And I identified this campaign in our files, our archives, that shows that Arezzo gives 30% of the amount of your old shoes when you purchase a new one." Also on the right, on the top, you have a communication that was done for our franchise network that time, introducing the Recycle Arezzo. And that you can't read it there, but it says it's Recycle Arezzo. [Technical Difficulty] And as today, in 2020, it makes -- this investment makes all sense.

So we brought some global data here. This presentation is public. It's available. This presentation will be available in our website. We're showing here how the market has grown in the U.S. It's a market that's going to grow from $29 billion to $80 billion in a few years. The second chart, most -- how much the intention for resale purchase and the intention of new products of some channels is dropping.

So resale grows 25% more than the regular market, which is linear economy.

Exactly. It grows a lot and here in Brazil, we're still a bit late compared to the U.S., but we're investing because we see that very soon, this is going to happen here in Brazil as well. We expect a lot of growth of 2029, and that's why we want to invest together with Luanna and in more people for our operation and more technology to innovate even more.

And also more marketing because when you learn about TROC, and I became an ambassador, I have my woodpecker here on my chest. From here, obviously, I've been talking for 10 days. You don't know what Luanna -- when you get -- when people go to your website, they are enchanted because I think I have a vision that is of aesthetics that is very demanding. And the site -- website looks great. Let's continue the presentation. Otherwise, I'm going to give spoilers.

So here Luanna can talk a bit about the bigger purpose of the company, right, Luanna?

So our purpose is to be a reference in circular fashion and in awareness and consumption in Brazilian market. We're going to make this happen together. As you said, many people do not know it so we went through a validation of our start-up. Then regards our product market fit, we have all these figures validated as we followed in the past months. And now it's the time to grow, become exponential, time for growth. And your help is going to be crucial. We believe we do this from our culture, and our values are very much aligned. Somehow, what made us want to be together was the synergy in the values that we saw. What is within our team? We're made from people for people such as Arezzo. And looking at your values, they fit perfectly with us.

Our values now.

That's right. Great, great. Great.

So now actually for some time for questions as well. We have a great player of reference in the market that opened their stocks in the market. So what differentiates TROC?

It brings added value. As we said in the beginning, myself, Aline, we have a bag of products that I don't use anymore. There is an estimate of that people do not wear 30% of their closets. Actually, we use from 20% to 30%.

Yes. That's -- so there's a lot of space in the closets of our 10 million clients in our platforms is full. So TROC receives those products and we'll catalog, create price. We write -- taking pictures, there's a studio, distribution center. It is a complete solution. So it's important to say that in the current warehouse, where Luanna has their operations, there is space to grow with 3x. We can also invest more in a bigger space. TROC will remain in Curitiba. The idea is to be independent. We're going to be together in synergy and best practices, but we want to keep it independent in Curitiba, where it is well established and grow to other parts of Brazil. So this services added value for the client, being able to monetize their closets without having that much work. In São Paulo, Curitiba, we get -- we go and pick up the clothes in your home and are going to expand to other capitals. So this is the fun. And to have this service, the commission is a bit higher, is a take rate as the market calls it between 40% and 50%, the value that TROC retains. The rest is the clients. And what's nice is that within ZZMALL, the customer will have the option. Well, I've sold 15 pieces, it's BRL 1,500. This BRL 1,500 will be a better value at ZZMALL. So we can foster the purchase of new products and making the economy turn around. We're going to have another feature aligned with social that I eventually do not want to get the money or to buy new pieces. I want to donate that. We're going to work with institutions and NGOs and that you want to give your money.

It's worth saying the involvement that TROC -- Rony is going to have within TROC. And the vision that Rony always brought both from Reserva from ESG issues will be exponential here at TROC.

Here, we talked a bit about what TROC does. The idea is to expand this capacity of pieces to be processed.

I don't want to mix up anyone, but it says there what TROC does. It doesn't say well what it's going to do because people -- this brand is amazing. The brand is great. The brand has space to -- within the circular economy business to grow a lot. Because today, there are also industrial scraps and leftover products and raw materials that are disposed of, and this is something that is disposed of. And so the name TROC itself opens a series of opportunities for future investments. And we started -- we kicked off very well. So the whole organizational structure of the company, operations, the website, the brand, the people, everything is a very nice fit. So we have a great path for us to follow here within AR&Co under ZZ Ventures, under Aline's leadership.

And besides providing service for our 10 million clients, we're going to offer service to the ZZMALL seller. If I'm a ZZMALL seller, I can offer a reverse collection within my stores as well and send them to TROC.

Yes. In TROC, what I saw as well, there's a big website called Privalia that is also the sale of new pieces from new collections that is leftover from big brands, which is also something that can grow.

Yes. Besides resale, when you talk about resale fashion, if you think about the inventory that is idle, we know that there are positive and negative practices with that. TROC can also work with off-price to solve that for new parts, from older collection, which is a port of entry for resale. We have many new pieces, which can be an entry and transport for resale. People buy something and never use it.