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

[Interpreted] Good morning, everyone. Thank you for participating in our video conference call for the results of Q4 2024. I have with me our CFO, Rafael Sachete; and our Investor Relations Director, Tobias Stingelin. Before I begin, I would like to thank our 24,000 employees that have embarked on this flight and are taking flight to 2154. I would especially like to thank our Board of Directors who have been leading this company with good governance, with a new shareholder structure. A special thank you to our Chair, Pedro Parente. I'd also like to thank all our shareholders from this company for our trust, especially Roberto Jatahy and all the analysts, investors that have been with us since 2011. We are extremely proud of playing such an important role in being the stars of a very bold movement of consolidating Brazilian fashion, one of the biggest industries of the economy, which in many developed countries are the biggest, especially in the European region. And when we consider Brazil as such a creative country with a pipeline of people, suppliers of raw material, consumer market that is so big in Brazil, with the biggest shopping centers in the world where men and women love fashion, they love to feel good, therefore, a very wealthy industry, which, up to recent times was very unstructured and even family-owned. With Azzas 2154, we have a new era of the -- of making the Brazilian fashion more professional, and our dreams are big. Our dream is to turn this industry that employs millions of people into the engine of the creative economy. And with that, the entire industry of the creative economy, where we have producers, photographers, celebrities and artists in playing the role that is indirect and making so many stars and celebrities well known that have fashion as their main stage. We just had the Fashion Week in Europe, and you can see the example of a major event in the Louvre with an exhibition about fashion, with everything about that. And we're talking about dreams, long-term ambition, and that's the role of the Azzas Group. Now dreams are for entrepreneurs, but now let's get down to business for investors and analysts and talk about money. So in general, our results are mirroring our strategy. Our strategy for 2024 was complied with. It's no surprise to us that in Q4, for instance, we had excellent results in growing our revenues and without compressing our net income, EBITDA margin. That's no surprise to us. That was our plan, how would we integrate such big companies, 2 big companies, and let the creatives make things happen with their being free to be leaders, with leadership framework and generate synergies in such short period of time. So we're very comfortable with the results as we have great visibility that as of 2025 and even in the beginning, this sector will begin to change. So among the highlights I'd like to mention, and we've always mentioned that since Azzas Day, we have one of the biggest vectors of growth with rates greater than 17% and 20%, each one in a different time, in a different moment. Hering is rescuing, bringing back its legacy. And as you can see in this beautiful picture, Farm is at its peak with its international strength reverberating into Brazil. So now let's go into the presentation. Those are my highlights. I already mentioned some of them for 2024. So I've mentioned the transformation of Brazilian fashion in going into the addressable market. And here, it's worth noting we've classified A and B for bags and shoes, men and women. This is not the entire market, BRL 71.8 billion in our results, plus our revenues and sell-out of franchises and multi-brands, we have over BRL 20 billion in revenues. That means we are by far the only structured player in such an important industry in the economy, where I mentioned the structuring and autonomy of the brands with important information about growth and expediting our growth. So we have from 12.2% to 15.1% of growth. And as we mentioned since the beginning of our Azzas Day, among our many strategies is the growth of the Hering brand, mainly focused on branding and creating desire, but not reinventing the wheel. I don't believe in a turnaround. We're just rescuing the bold essence of Hering, and that was well done by Thiago Hering and the entire team. He's the one that lit the fire and brought that -- brought in that spark to take in deep initiatives and work hard to really change the vector of Hering and reaching 17.8% growth in this quarter. As I mentioned, the Farm brand living its magical moment, 2025 will see many interesting things. About our dear Reserva brand, I'd like to thank Rony, the founder, the visionary, who had an idea of starting off a men's brand from scratch and created such a pleasant icon, which is our woodpecker that played an essential role in creating the brand and knew how to bring in an investment fund in 2017. He knew how to sell that to Arezzo&Co., who exercised and fulfilled his contract and now decided to take a different path in his life, and we wish him all the best. And we do have to take an important step to show that well-structured brand, processes that are well done and a multitasking team that is engaged with the senior leadership is fully capable of maintaining good results, as you can see here. On the next slide, I'll talk about Reserva's priorities. So about the Azzas platform creation, our first objective was to integrate the financial areas. We started to implement revenue synergies such as the fast and bold launch of footwear for Hering and Farm, that are already the best sellers at Farm. February's results are amazing, over BRL 3 million in sell-in, BRL 4 million in sell-out. In February, we sold pretty much what was our Q4 for Farm, and their icon products make a difference. In Hering, a more democratic brand, we're still looking for that product, and that's part of the deal. Just to give you an example, when I created Schutz in '95, it took me 4 years to find our icon in Alexandre Birman brand, 4 years to figure out the Clarita style. So we know that within our creative capacity and the strength of the Hering brand, shoe wear will be a relevant component of revenues as we see that in Reserva. And now talking about 2025, given a robust area of FP&A that currently has detailed controls separating each business unit, each brand and each revenue generators such as franchises, multi-brand has mapped out the fixed expenses of each brand, follows the corporate expenses of the business unit. We've developed a budget process with a well-structured approval process, 4 months of monthly meetings to be approved by the Board of Directors in December. So we're kicking off 2025 with a road map that is very clear of the initiatives that we should achieve in order to have excellent results. Now a little more about 2025. I would like to highlight our strategies. I'd like to start off with the main priority. In a volatile scenario with very high interest rates, even though we're restless and always like something new, and we're constantly pursuing alternatives to grow our revenues that has brought us this far, this year, we require more diligence in capital allocation. We need more financial criteria to define and decide which initiatives will bring us the best IRRs to maximize our cash generation. And now separating the main objectives in each of the business units. In shoes, our legacy established by my father -- my dear father in '72. So the center of gravity is creating products, interpreting trends and bring them into the sales, fast turnover of store inventory. And the mono brands, multi-channels and franchises make it very robust and being very strong in multi-brand. So we need to recover the historical growth. Since our IPO in 2011, we have a structured CAGR of 8% to 10%, and that's our target. In addition, we have some redundancies in corporate expenses that will be eliminated now in the beginning of this year. And we have something new in -- or as a result of benchmarking and one of the good practices in our brands and one of the strengths that we have. And based on what you want to know the most about how much sales we will get and the internal rate of return, but in an indirect way, it generates a lot of value. So we're testing. I'm going to show you some pictures of a mega Arezzo store, and I'll give you more details later. Women's apparel. We have almost practically two segments. We have one segment that we call the premium brands that has Animale and then Cris Barros as a base for revenue, and now Carol Bassi and Maria Filo that comes at an excellent momentum. These brands aim at maintaining constant evolution. We just opened a new store of Cris Barros at Iguatemi Mall. I would invite all of you to go see it. It brought a completely new experience with huge success. Congratulations to the team. We have a new concept in three stores, one in Belo Horizonte that brought a new [indiscernible] with good perspectives, Animale launched -- launches this year a campaign called [indiscernible], and they're doing great in the media with huge events, a small retrofit of the stores making it more appealing, more bright. And the results seem to be very positive. Now let's talk about another arm of women's apparel, which is a global phase. It goes much beyond a brand. It's almost a concept of existing. You will meet Farm's team that really understands the DNA of culture that is mirrored in products and stores, a very strong powerhouse with Katia and Marcello's leadership and Fabio and international operations, with the team of directors that are on average at Farm for 20 years really is a collective creative that is very powerful. We just opened in January, I'm going to show some pictures, a new concept rising the shopping experience, bringing Farm concept of -- from global to Brazil, and the results are amazing. I'm going to show them 50% greater than previous months. About Democratic Apparel, and that's Hering, I already showed the fourth quarter. It speeds up even more, a strong growth of B2B, 10,000 points of sale in multi-brand, hundreds of offices, and Thiago is spearheading this brilliantly. The transformation consists in defining geographically and geoeconomically micro regions, identifying our market share by ZIP code, identifying new points of sale and increasing capillarity and also a sales program, a loyalty program that encourages the growth of share of [ love ]. And there's a project still under test, first opening in Curitiba at the beginning of this year to turn the self-employed sales reps into their own office. We already did this in Sao Paulo, and it's been hugely successful. About the [ TC comments ], the results of e-commerce are extraordinary. It's very healthy in margins. It's not compared to added cost expenses. It comes through a branding position of desire. You probably followed Hering's Christmas campaign, bringing 2 icons, Bruna Marquezine, and it was a winner, and the results for Christmas were amazing. About the brick-and-mortar stores, restore that has very good economic concepts, since I started working with Thiago, I thought the architecture of the store really convey the look and feel of a small department store. We had to bring more identity of the heritage, of the finish. We opened a new store at Ibirapuera Mall with a growth in revenue of 55% and revenue per square meter, BRL 35,000 per year, which is very high. So we have internal return rate around 50%. So we're not going to open many stores with this concept, just a few because we were able to develop a model for franchise for this format. And lastly, but not less important, in the succession process, Reserva has been brilliantly spearheaded by Ruy that has an entire Reserva team that is very loyal and passionate about the brand. We had a Christmas campaign created by the team that was very bold. I think you probably noticed with Eduardo Sterblitch that generated a lot of good sales. But the focus -- Reserva already grew a lot with a CAGR of 35% in the past 3 years, and we will streamline the employed capital. So CapEx is already installed at the store. So we're going to reduce overhead and streamline the profitability of the 4 wall and the corporate indexes using inventory and investments in technology, but also continuing with the test that was done last year at a concept called Casa Reserva Morumbi Mall. It was hugely successful. The store grew 35% compared to the previous concept. We're going to have another one in Shopping Rio Sul, and we will open some stores in this concept, not many, in the main malls in Brazil to solidify even more the brand's position. Capital allocation, we have 3 brands that were draining energy, inventory, people. And when we remove those brands from our balance sheet, the efficiency -- even in SG&A, efficiency will generate better profitability. And last but not least, the focus of our group is operating efficiency, reducing the corporate expenses, and there's a lot of redundancy in the BUs, creating one single distribution center for all the transactional areas that the company has, simplify processes through automation and also continuous analysis of feasibility and return of the existing brands, so that we can continue with the incorporation of our portfolio. So that's our strategic efficiency for next year. Now the highlights of 2024. Before I start, I would like to show the 3 concepts I mentioned. So the Arezzo store at Recife Shopping Center with a huge diversification of SKUs, separating fashion, casual, workwear, sneakers, handbags, the Brizza line so that the customer feels in a mono-brand department store of Arezzo. This new concept of Farm Rio, if you know the stores outside of the country made by the Campana Brothers with an art and carpentry. It's a different type of store for Farm, 230 square meters. We want 50 new stores. This will be our highest allocation of capital. And a new test, Marcello Bastos is very confident. It's a project that he's been maturing for more than 3 years. We will launch in Farm's positioning. It's the only brand that has leverage and size to launch any category in their concept. So we will have water bottles, phone cases, handbags, backpacks, sneakers, flip flops. So it will be a store with multiple categories and very useful. So we want -- it has a very affordable price point. So we want to appeal to new teenage consumers. And lastly, Hering, it's just an evolution of Hering store. It's cleaner, better identifying the brand positioning, bringing, as you see in the middle, some islands with the icon of 1880. And it makes for a cozier shopping experience. Now I would like to go to some highlights and then pass the floor to Sachete. We achieved a gross revenue of BRL 42 billion, a strong growth of 50%. Gross margin, stable, a little bit of reduction due to getting rid of the inventory. We did promotional sales and a recurring EBITDA of BRL 443 million. We grew -- as part of the plan, 2025 will be different. And the net income was affected by nonrecurring tax issues, BRL 241 million. We are analyzing and taking legal action that can revert this, and we're very confident. I wanted to highlight this. It's not defined that it will be recurring. The highlights for 2024, we reached the historical barrier of BRL 14 billion. This year, we will go beyond BRL 15 billion plus, recurring EBITDA of BRL 443 million, already reducing all the expenses with a net income of BRL 590 million. We have to do a correction, but that's part of it. In 2024, the EBITDA was at the fourth quarter, but in the year of 2024 was BRL 1.3 billion. Sorry for this mistake on the slides. The number is much higher than this. Well, some of the highlights for the brands, and now I'm going to be more specific brand by brand. Our core shoes and accessories despite low growth, but with a high market share of BRL 1.3 billion in the quarter, BRL 4.8 billion in the year, a 4.8% growth year-over-year. So it's close to 10%. Arezzo, especially in the sell-in, coming back strongly with franchise. We also had multi-brand drop because of Vans. It already had a super distribution. I wanted to be more selective, looking at current nearly and in the recovery of franchise already growing 7.4%. Sell-in of winter and fall with good growth year-over-year. About women's apparel, gross revenue similar to shoes with greater growth with a much higher addressable market of BRL 1.4 billion. And also for the year, very similar for apparel of BRL 4.8 billion. Main highlight, as I mentioned, is Farm, both in Brazil and overseas, achieving rates of almost 40% overseas and a growth higher than 20% in Brazil. Same-store sales, very strong, 18% in owned stores, and our main goal is also to improve working capital and find ways to supply quicker and with lower lead time and reduce cash cycle. And we know it's difficult, but closer to what we have for shoes. So any capital release through efficiency in inventory, not only better sales, but also intelligence in supply. Democratic fashion, so a concept still in its initial stages, but very successful. We have unique products, extremely appealing prices, high quality. So still in initial stages. Talking about Hering and growth in B2B of 1.8% and even greater for multi-brand, 14.9%, and will extend across 2025. The sell-out of 24.5% growth and 54% in e-commerce. So men's fashion, still growing in 2025. The focus will be profitability, inventory, focusing on costs and strengthening the brand. That's very important. So iconic campaigns. So for Brazilian Valentine's Day, and we're going to do that, and we're going to have our woodpecker that's going to grow even bigger wings. We have a very strong brand and that will focus profitability and cash generation. Those were the highlights for brands and strategies for 2025. So now I'd like to ask Rafael Sachete to go into the financial details.

Good morning, everyone. Thank you for taking part in our earnings conference call. So now about our figures and the income statement for the company in Q4. I'd like to highlight revenues. That's one of the relevant KPIs that were -- was developed and implemented to create Azzas, and we should increase the growth levels of our brands. Highlight goes to democratic clothing that grew 17.6%, excellent growth, and that's already expected and started in Q3 and should reverberate and continue in Q1 2025. Major highlight for women's clothing, great highlight in all brands, but it highlights the Farm in Brazil and abroad. And I'd like to highlight men's clothing. Congratulations to Ruy and everyone from AR&Co with that great growth. About gross revenues, we had a drop of 60 basis points. There was a positive impact of channels mix. So B2C is growing over B2B. However, we had negative impacts, especially regarding the sales with discounts of the discontinued brands, the brands that are being discontinued and also in clearing out inventory. So especially in the men's clothing business unit and also adjusting our suppliers, and that's mainly accounting -- account adjustment. About our expenses, we had good expenses control, but still seeing the pressure from the expenses from the deal and the impact of some of the structures that were redundant in the period and someone -- the lack of synergies, which is normal in a merger this big. All of them have been sorted out and concluded with a very positive expectation for 2025 regarding control and reduction of SG&A based on the percentage of net revenues. About our expenses, we also had some implementation expenses for the Farm and Hering projects that led to expenses without revenues are proportionately the same or relevant, but do support our growth regarding these projects. And lastly, higher expenses regarding B2C sales as they are proportionately high compared to B2B given the mix of revenues in the period. On the next slide, we have the reconciliation of our accounting EBITDA compared to the recurring EBITDA. Here, it's important to add 1 and 2. Those are the points that are relating to that are BRL 303 million that are mainly impairments of writing off the brands that were bought or the licensing, some costs in closings and others, the provision of writing off the discontinued brand inventories. And the impact is very low compared to our cash flow. It's mainly accounting. So the deal expenses, BRL 33 million, we mentioned that they would drop substantially. And for 2025, these expenses should be much lower than the numbers that we see in the fourth quarter, maybe some residual amounts, but the year should start extremely clear. BRL 10 million in the ILP programs, which is a long-term incentive program and shouldn't affect the cash flow of the company. And Item 5 is reclassification, leaving the accounting EBITDA line to net income. It doesn't affect the net income of the company, but it does impact the accounting EBITDA of Q4 '24. Going on to reconciliation of net income. The first bar is what we saw in the previous slide, the reconciliation of EBITDA. We have BRL 11 million in Item 2 about the Hering [ work ] and the credits for income tax and CSLL taxes impacting 20% and BRL 22 million of these points that left EBITDA in the previous slide. And lastly, Item 4, these line items do not have a tax effect. They are the provisions of the write-off of BRL 31.1 million (sic) [ BRL 33.1 million ], but weren't materialized. Therefore, there is no effect on income tax and CSLL on the period, achieving BRL 168.9 million of recurring net income for the Q4. Lastly, net debt and cash generation. We've ended the quarter at 1.1 of net EBITDA. It's worth noting that regarding our operation, we had a relevant investment on 4Q of BRL 196 million in CapEx, some openings and renovations in Brazil and abroad. We had some changes in the Farm operation and BRL 118 million of the effects in Q4 and generating operational cash. That's the end of the financial part. Now let's open for questions and answers.

[Interpreted] [Operator Instructions] The first question that we have from Danni, XP. It's a question for Sachete. She'd like to talk about profitability. She'd like to understand what are the main levers of the expenses that you see for 2025. And the other part is a given because of simplification of portfolio, but she'd like to explore other levers and -- that are done for strategy and growing the top line.

[Interpreted] Perfect, Danni. Thank you for your question. Excellent point. We've been reinforcing in all the conversations when we explain what we've been building at Azzas regarding the level of deleveraging in the short-term, which is related to the short-term investments. So the merger creates complexities in the short term.. And the desynergies have already been resolved. That will not be repeated in 2025. We have important investments to create the shoes line in Hering and Farm, and now we've seen the results. So in 2024, the revenues were very low compared to investments. But in 2025, they're already covering the levels of cost and operating expenses that it creates, and then we have leverage on that. A number of synergies about knowledge and revenues by transferring the know-how from multi-brand franchises and own stores will support our revenue growth, which is very good for 2025. And that will help us substantially in the percentage of revenues and expenses on net revenues. And talking about our expenses and SG&A, we have a number of projects that have already been implemented that are starting to bring us results in the fourth quarter. So I'll mention a few. About shipping expenses, we have savings by the group negotiations, marketing expenses reduction, negotiations with big accounts where we're capturing important synergies, eliminating redundant structures in corporate. So we started off 2024 with a level of structure in corporate. In 2025, that structure is lower -- is smaller, excuse me. So we'll have important levers in that sense and all the costs regarding the integration of the consulting that was hired for the integration. So the levels of expenses on net revenues should drop across 2025. And obviously, the revenues will increase substantially. So we feel comfortable that leverage will come from a mix of growing revenues and SG&A, which will be lower compared to what we saw in 2024.

[Interpreted] Second question is for Alexandre. She'd like to talk about people. So talking about people, given the frequent news flow in that sense and for being a key point for the company, as you say, we -- how has the dynamic been between managing the business units and also the succession process of creatives?

[Interpreted] Well, considering the succession in the Reserva brand, so the process, the brand, the team and leadership that's very capable is very important, such as under Rony. We have [ Joanna Pedro Martinho ] at Reserva, [ Fabinho ] . We have [ Anayana ]. We have an amazing team. Reserva is really taking off. I've been having monthly meetings with the team. The brand is very well planned. And so Reserva is very well structured. And with the absolute leadership of Thiago, we have [ Vic Carol Schuler ], we have an incredible team. So the business is working well. Shoes, we have a transition process. Obviously, I used to work strongly in that. That was the legacy. I grew up in the shoebox, so to speak. So we have a great pipeline in that. And all of these, the Director of Anacapri, [ Danni Delero ], the -- she used to be the model of shoes and now leader of the brand, Paris and Schutz. And so we have a very strong team. At Soma, we have leadership of Roberto, incredible people for each brand, [indiscernible] Cris Barros and [ Bell ] excited with great leadership together with Leo. And I'm very happy to receive the shoes teams here, and Pedro will put in Animale shoes in multi-brand and from Farm, Vanessa, the entire team is here. We're in Campo Bom receiving them here. And [ Captain ] Marcelo, who are even more motivated and fully committed to this movement in Farm. Really excited to receive the capital -- substantial capital to renovate the stores. And Fabio in the international operations and the consolidation operations with the Brazil area. So we have a huge pipeline of people, even across business units. So we haven't done that yet, and we're starting to map that out. So now we're all at home. We're not stealing from each other, right? So we have a rich pipeline to run our brands and a lot of adherence and commitment from everyone. It's worth noting that in the -- we had the first formal leadership meeting on the 23rd and 4th of January at Hilton in Rio de Janeiro. A lot of engagement, workshops, tough work, motivational talks given by former volleyball coach Bernardinho. So -- and living and breathing what we're building with Azzas.

[Interpreted] This is from [indiscernible] from BBA for Sachete. I'd like to understand how much the impact of the margin of the 120 basis points that you had in Q4 was in anticipation or in advance of integration expenses. And how much is structural for the quarter, so I can understand the structural margin of the business? Perfect.

[Interpreted] Segmenting gross margin, so gross margin priority was impacted by cleaning up inventory, as we mentioned, especially brands that will be discontinued. So it makes sense for this moment, and it's not operational, nonrecurring, but we recognized it -- we acknowledge it as recurring. For the 60 basis points of pressure, we can say that half of that is nonrecurring because these are projects that aren't generating proportional revenue as they should. And we have some pressure of Schutz. As Alexandre said, we're doing some important work of restructuring some of the expenses, so we can balance the levels of growth of revenue with the growth of expenses.

[Interpreted] Another question from [indiscernible] is how much of the growth of AR&Co was boosted by markdowns? And in which channel this helped the most?

[Interpreted] [ Gustine ], these cleanups of the inventory are sales below cost of some materials, and we have great brands that will be discontinued in the BU of men's apparel. So we're talking about inventory not just of Reserva. We have an important impact of [indiscernible] and Reserva. So we foresaw this for these brands and some impact. So answering very straightforwardly, the impact is very low compared to the growth of the top line of the brand.

[Interpreted] Can I add something else?

[Interpreted] Yes, of course.

[Interpreted] It's worth mentioning that in e-commerce, especially for Black Friday, we know that we had excess inventory. So we did a higher promotion on Black Friday that helped, and it contributed negatively for the gross margin. So the inventories are not at the levels that we want them to be. January, we're still reducing these points. But when you answered which channel made, that was e-commerce. That's where we had the most markdown with sporadic flash sales and promotions that generated this impact on gross margin. And we prefer to generate cash than have inventory that can become obsolete. But this is something Ruy already did. It's important and a brave decision with the team. The good news is it's going to be over soon.

[Interpreted] A question that some people have asked, a little bit of feedback of the company at the beginning of the year. We know January was slower, February better for the calendar effect. But if you could talk about these first few months.

[Interpreted] The beginning of the year has been exceptional, especially B2C. Hering, with extraordinary results. We're talking about 30% plus Reserva since we're holding markdown to -- with a lower growth of single digit. And shoes, same pace, a little bit better than the fourth quarter. But yes, January did have Carnival, so it was strong. On March 1 was on Saturday of Carnival. So the first day of March was actually the 10th. I got the reports this morning. We are at 0 same-store sales. Considering 11 days of the month, 10 were Carnival. So a lot of stores were closed, especially in Rio de Janeiro. Yesterday, we launched Shoes brands very strongly. We're here talking about brands. We brought Fernanda Torres at the Oscar with Arezzo was great. You can check Instagram. More than 1,000 comments, high engagement, an amazing job done by the team with excellent results. So expectation for the next month is very positive. We have the positive effect that 2024, the last week of March, we had Easter. So now we have the 31st will count positively for the month. So I imagine that in the consolidated, we will have similar results to what we had in the fourth quarter.

[Interpreted] Now the question is for Sachete about cash generation in the quarter. We estimate a cash generated of BRL 30 million. It seems low due to the seasonality of the business. I would like to understand the nonrecurring effects. What higher investment in brand and if these effects will dissipate in time?

[Interpreted] Thank you for your question. Nonrecurring effects in the quarter, we have expenses that in cash flow impacted BRL 80 million. When we talk about not business effect with this JCP, BRL 18 million. And specifically about operations, what really affected the cash was BRL 195 million in CapEx and working capital. We had a reduction in inventory in the third quarter to the fourth quarter, but it went to accounts receivable. So when we compare with the periods of sales in the previous quarters, we grew sales, and accounting receivable grew in the quarter. When we dropped the inventory to BRL 90 million, we have working capital, and accounts receivable has around 75 days to receive. So the first quarter, it starts with a high cash conversion. I would like to add to some points. That was the main topic in the topic of the turn of '24 to '25, starting with the leadership with a lesson on economy, explaining those who are focused on sales have to pay attention what sales to cash conversion means. And the good news, it was a bit controversial, but we will set up controls, and all the benefits in the short term of 2024 will convert to cash. We have very focused control per BU, and every month shows the generated EBITDA what was working capital, CapEx and cash generation of that BU. That will be our assumption. It's a panel that's very easy to understand. It will be our strategic driver and the priority of the entire company to generate free cash flow. And that's our focus, as I mentioned at the beginning.

[Interpreted] Sachete, last question from [ Joel ]. He wants to know in terms of thinking about sustainable gross margin, both negative and positive effects and discontinued brands.

[Interpreted] Well, it's important for the year of 2024 to have a third quarter cycle that we were cleaning up the inventory in the two apparel BU, except Hering, but that impacted our third quarter. And in the fourth quarter, we're bringing that issue in the discontinued brands and a little bit in AR&Co. When we think about the future of 2025, these impacts should not be recurring. So except for a change in the mix of channel, we will have a growth in B2C compared to B2B with the elimination of these nonrecurring effects in the third and fourth quarter. So all in, we will have some leverage of gross margin.

[Interpreted] The next question is for Alexandre. It's about shoes. In the shoes BU, how should we think about the multi-brand channels in 2025? How is the sell-in in the beginning of the year?

[Interpreted] The fourth quarter wasn't good. We're not happy with the results. Our high summer season was launched in August with the right pricing point that we've worked throughout the second half to bring fast fashion products to support the results. And still, the multi-brand didn't grow. The good news is that the winter launch started in November and January, and all the sale is made to deliver until the end of May. So it was a positive growth with a highlight for Anacapri that grew the most. They really got the product right, which is the A25 sneakers that is at the store with influencer Virginia. So to summarize, the multi-brand reception is already happening for the first half of 2025.

[Interpreted] This next question for Irma Sgarz for nonrecurring expenses. How should we think about the nonrecurring expenses for 2025? Because we might have a one-off attached expenses like multi-brand from Hering and support for Schutz.

[Interpreted] We have two groups of nonrecurring expenses, the ones that we acknowledge as one-offs, especially from deal and others and discontinuity of brands like what happened last quarter. And this should drop this quarter. We don't have anything to be acknowledged as the brand discontinuity for 2025. The expenses one-off are also minimal at low levels, much lower than we saw in 2024. And we have a group of expenses that are one-off, but we classify them as operating like Farm and Schutz and Hering shoes, internal projects to improve Hering multi-brand. These projects already start to bring proportional revenue and cover the expenses for implementation. So we will continue to invest in operating projects inside the company, but the impacts of these projects about the percentage of SG&A and net revenue should be lower 2025 compared to 2024, which was a year of great restructuring.

[Interpreted] I have a question from [ Rena ] about gross margin. The evolution of normalizing inventory and the sales of discontinued brand will have an impact in the first quarter.

[Interpreted] Yes. All the impact of discontinued brands was already written off and provisioned in the fourth quarter, and it will become material in 2025. There is no accounting impact in 2025 for these discontinued brands.

[Interpreted] Another question about efficiencies. Within the context of streamlining structure, how should we consider the potential economy with the distribution center? Are you also thinking about structuring people? Do you see any potential change through 2025?

[Interpreted] The answer is yes. It's backed, as I said, it's a process that is internal. It's hard, a lot of negotiation. If you're going to go to Sul, our headquarters, most of the distribution center and the labor cost is lower than cities like Greater Sao Paulo. And the brick-and-mortar structure ready for that, and we need to hire people. Our greatest challenge is the systems. For an effective distribution center, Sul used to have 5 people, 1 in Rio and 1 in Campo Bom. Having 2 Campo Bom operating different systems, I have to have 1 operating both the systems. So now it's the mediation of system and mediation of the corporation, and this should happen in the next 5 months, and it's all mapped out. We have a team that has been with us for the past 20 years that were responsible for implementing SAP perfectly. So this is an ongoing process, and we're going to see this more in the second half. About people, the brands are intact. They had some benchmark to do among themselves. There is in the corporate use of BUs with the creation of the distribution sector, one guideline of becoming leaner and reducing expenses, focusing on people and other operating expenses like traveling, cost of communication, training. So there's a project that is well defined in place, and it's at the final stages of defining the calendar to implement.

[Interpreted] A question from Ruben about our decision to discontinue 5 brands and sell Baw. Which criteria will be used to evaluate the portfolio performance? And what are the clear thresholds of performance that the brand should have?

[Interpreted] Could you repeat?

[Interpreted] Considering the decision of discontinuing Baw, what criteria will be used to evaluate the remaining portfolio performance? Is there clear thresholds of performance that the brand should achieve to stay in the portfolio?

[Interpreted] The question might be politically incorrect, but yes, we're doing a diligence work and capital allocation. We have the -- a percentage of brand that's very clear recommendation of areas. We have 4 brands that have a percentage above our revenue and brands that can grow in the future. So this is a process not only here in Azzas 2154, but you can follow the global fashion groups. It's a process for 2025 that will be implemented throughout the year. So several KPIs should be achieved, and the opportunities that we have today for transforming assets into liquidity is alternative to be pursued because we want a higher internal rate of return. So we do love the brand and the people, but the brands have become -- have to become profitable and generate an IRR above our EBITDA. So in a nutshell, that's it. And we have to be mathematicians, and I'm sure the team of the brands are -- know that they have to be creative for the result. We're not in the business of changing money for raw material and have the same money back. We need more money to pay the cost of capital. So this is a process that we have.

[Interpreted] Well, it's 11:00. We're almost done. I'll ask the last question. Well, kind of repetitive. So we have a time limitation. I believe this is more interesting given the moment. But I like these two. Okay. How do you see the potential to grow Hering in 2025 that has very strong performance boosted by the multi-brand channel? And how sustainable will that growth path have to be moving forward?

[Interpreted] Well, Thiago is here with us in the meeting. I'll answer for him though. Well, multi-brand and Hering is a theme park for every new collection that we have. And Rafa, congratulations on -- he's the Commercial Director. Congratulations on your work. So unique synergy, all the work done by events in micro regions according to even ZIP codes, so being well done. We have an example of the Northeast, especially Salvador, right, Thiago? So it's 100% in the region, 150% growth in the region. Obviously, it's a smaller region, but we did identify many options to sell. And it's a brand among the basics that's very democratic. So in the points of sale, total of 5,000 assets, we can grow that and grow the share of wallet, especially in bigger chains. So in addition, it's about internalizing the sales force. So first quarter, we already have growth of approximately 15% in multi-brand. So there is ongoing work in that sense with a huge potential for the Hering brand. And about the potential of the ideas, you want me to give the answer back to you versus the mega store for Arezzo, if it delivers the result expenses, do you think you can have Hering mega stores? Well, I wouldn't say lucky, but I think it's the right timing that some important change in the other concept of mega store didn't work. So Hering found these points of sale available at an interesting size, 400 square meter stores, and the shopping malls needed that. So that was great. They found the points of sale with low occupation cost. That was fast at Roberto's plan. Congratulations on those -- to have those mega stores. And even restriction of point of sale because the cost of occupation has to -- math has to be well done, so translating that into a summarized manner. We have currently mapped 2 shopping malls for the first quarter, that's Morumbi Mall and BH shopping mall, not the same potential for Hering, but at least 20 stores with that concept and a different experience. The main change is the segmentation. Given the space and different uses, occasion uses, like we have a line that's for the classic and workwear where you need to sell that separately. And the bags are currently displayed together with the shoes. We want that separate. The fashion islands, which are the basis of the 70 square meter stores, they continue. But the sneakers category currently that at Arezzo has a very low share, only 8% of Arezzo is sold in sneakers, so it's 18%. So there's a product development exercise, but also an exercise for the sales space to have the complete mix of sneakers and casual sneaker and athletic sneakers. So they want to wear Nike and adidas for work, and we have to bring in that. And we know that the space and stores to display that makes a huge difference. So congratulations on our franchisee that believed in that process, and their sales results were not expressive yet because it's a small traffic area of the shopping mall. But the average ticket is double than a regular store because of the time the customer stays in the store and because of the assortment. So it's a very important driver, and it's a main strategic initiative for Arezzo for 2025.

[Interpreted] Last question -- there's a Schutz question. We're running out of time. No, you can ask that. No worries. What was it again? From a piece of paper. So with the restructuring process for Schutz, could you give us specific KPIs that you're monitoring to measure the products? And how do you expect that brand to resume growth?

[Interpreted] Well, given the positioning for 2024, that didn't really work. We revisited the Boulder and now we have a more structured collection and better. We repriced Schutz. It was very expensive. We brought it to the Delta historical Arezzo price. So there's the fashion side, but more wearable, strengthened the bags line, and the own stores have expressive growth. And we can control assortment better in those. And we finally defined the design for the store for Iguatemi in the first quarter. We also have strong growth in multi-brand for the first quarter of 2025. So now what we need is to improve our e-commerce sales because it's still based on promotions and sales. We need to bring back our full price customers at Schutz and improve qualitative sales in e-commerce. We have a new team with clear leadership from Tati Paris, very engaged leadership. And I really trust that in 2025, Schutz will go back to positive growth.

[Interpreted] So the last one from Bob Ford from Bank of America. So Alexandre, can you talk about the culture that you want to create at Azzas? What are the best parts of Arezzo and others that you're trying to preserve?

[Interpreted] So in summary, Bob, on one side, we have a culture that was born in the process. And by separating the plan of accounts, KPIs and recurring analysis in the first meeting and one in 2025 last year, those are monthly meetings that we have. In addition, daily sales reports for all stores and revenues targets with more precision, deviations based on tickets or conversion. So there's well-structured management of the process. And on the other hand, more freedom in a way for the creatives to -- instead of not only having KPI management, but also more time to implement their strategy. So in summary, that's the ideal. That's what we want for Azzas and always focused on high results and cash generation. That's for 2025. I'd like to say a few words. Thank you, everyone, for taking part in the call, especially the team and the Board of Directors and ensuring that governance is implemented. In the beginning of the presentation, I made our priorities clear. They are recorded if you want to listen to that again. In addition, we have a team that's very aligned, dedicated and exclusively focused on delivering historical year for 2025. I just mentioned that the Board of Directors and the Chair, Pedro Parente, has had a very important role in guiding this new company, allocating capital, focusing on projects that has a high rate of return. And this project in many different fronts has been a priority and something that I did not mention, which is our focus by generating cash is to hold on -- hold back on CapEx. We want to hold back on other expenses as well, so that we can start off the processes, even though with all these coefficients of market, our leverage is still low. And our very high receivables in for credit cards, we haven't discounted that. So we want to start on the process of deleveraging. Those are the messages. Thank you for taking part in our call, the first for 2025. We're almost at the end of the Q1, and we're really strong. So our focus moving forward now next quarter is Mother's Day, in Anacapri and Arezzo, sell-in, Thiago and Rafa and all the team, good sales. Rodrigo, [ Priscilla ] Arezzo, they'll sell a lot and sell-in. And the big launch of shoes for Mother's Day, so that we can have an excellent Q2. Thank you everyone. Let's do it on the path to 2154. Thank you.