Azzas 2154 S.A. ($AZZA3)

Good morning, everyone. Thank you for joining us in our Third Quarter 2025 Earnings Conference Call. Joining me today are our IRO and Strategy Director, Bianca Faim; and our CFO, Eric Alencar. So this is our agenda for today. We'll get started with a message that I have to convey to you. Then we're going to give you further details about our business units. We'll give you some highlights of Q4 and also full year 2025. And then Eric will talk about our financial results. And finally, the most important part when we get to hear the external perspective, our Q&A session, and we'll wrap up by sharing our priorities for the year of 2026. This has been the first full year for the Azzas Group, a year that was marked by a continuous learning and evolution process. And the foundation of everything was the historical principle of our business, the ability to act, the ability to adapt and make quick decisions in order to achieve efficiency and continuous improvement. Many decisions were made in a very detailed way, dramatic decisions but we changed the way we started the year, but the changes were possible because we have a very resilient model, and we are owners of the main fashion brands in Brazil. And that's our top asset. If we think about the 4 verticals of our business, we'll see that we are owners of the main brands, women's shoes, Arezzo, men's fashion, Reserva. Women's fashion Farm with the global expansion going way beyond fashion, it's all about lifestyle. And when we think about the universe of monobrand, Hering represents a whole universe of a women's basic wardrobe. So we are a very heterogeneous Group. And within a unique platform, we can generate synergies and generate value. However, we should also dive into each one of our business fronts. So this was a very strong year. Starting in the second half of the year, we implemented our definitive infrastructure, simplifying our operations going from 4 BUs to bringing a senior leadership in-house, a CFO that is very experienced in the market and that has been adding a strategic view, not only from the operational side, but also the financial side. So these are just some of the highlights, and I'll give you further details later. Our main focus throughout the year was on integration, and you'll see that in our statements with expense dilution, especially one-off expenses and a portfolio simplification. At the end of '24, we were making decisions about shutting down brands that had no potential. So we worked really hard on that, and we've built the operational foundation that made it possible for us to be more efficient. We grew with quality, growth revenue -- revenue growth was really good, which gave us scale, BRL 14.7 billion in revenue generated, up 7.1%, boosted mainly by the sell-out channels, which show how consumers desire our products. We had a sell-in retraction, especially in the franchise segment, but these were clear decisions we made in order to give sustainability to our partners. And evolution of profitability, excluding a process that we didn't want. We wanted to have a turnaround for the Hering brand, and we'll give you details about this evolution in a minute, but we were very diligent in capital allocation and concerns we had in the past about divergences of where to invest have been completely settled. We reduced our CapEx by 30%. And our main target, and this is something that united all of our leaders that focused on one single indicator, cash generation. And our motto was cash is king. So we were able to have a great operating cash generation, reducing our leverage from 1.34x in Q3 to 1.28x in Q4, even with a payout of BRL 500 million to our shareholders. Excluding that value, our leverage would have been reduced to 0.24x. This established a very solid foundation for the year of 2026 that starts in a very structured and efficient way with great discipline in execution. And even more now that we've been able to establish the foundation of our business, we are creating a long-term vision, a strategic vision that will make use of artificial intelligence, but not only that, also flexibility to define the best allocation and make strategic decisions to the different businesses of our company. People say the greatest indifference is to treat different businesses the same. So we're going to have different strategies, different capital allocations for each one of our business units that are at different stages, even be it in terms of market share or growth. So these were the main points of my first message. And now I'll give you more details about the highlights of our 4 or even 5 businesses given the size that Farm Rio has taken in women's fashion, going beyond clothing and actually becoming a lifestyle. Women's fashion achieved BRL 5.7 billion in revenue, up 18.7%. All brands grew, but we should highlight the Farm Rio brand. From now on, we would like to invite all of you to analyze this brand as a single operation, not only international and national separately. We had the migration of the CEO from Farm Rio that lived in London to Brazil. His goal is to integrate these operations in order to have a single vision, a company that is based in Rio, but that reaches the whole world. That's the premise of Farm, and increasingly greater independence, a line of products that complement clothing and becomes a lifestyle brand. With Farm, we have achieved an all-time record revenue of BRL 3.4 billion, BRL 1.3 billion coming from the foreign market, which accounts for around 30%. We had stores opening in very important cities in Dubai, regardless of the sensitive time the city is going through right now, but also in Mexico and Argentina. The Farm store opened in December in Buenos Aires was the top seller of our network -- of this network in December. So this shows the desire the brand. And we did not invest anything in advertising. We only opened the store with the right mix at the right place. We had a sellout, which was a driver of growth in Q4, all brands grew. But we should highlight the Animale brand that had 4 stores renewed and an internal return rate that was really high that makes us really encouraged to invest even more in this brand in '26. And the Multibrand channel had a smaller growth, which can be explained by the earlier summer collection release, which was brought to Q3. And the Multibrand growth was also very solid. Now the NV brand exceeded BRL 600,000 in revenue with an all-time record profitability of 29%. So these are the highlights. This is -- Hering is an important business unit and Farm Rio is now worth of an independent analysis so that we can raise the financial resources to make sure it keeps growing and becomes a global brand. Now for our Fashion Men business unit, whose main brand is Reserva. And this year was striking. I take the opportunity to publicly congratulate [indiscernible] and the whole leadership from Reserva that remained intact. At the end of '24, we were questioned a lot about our ability to maintain the desire and the freshness of the brand even with the decision of the Founders leaving. And our ability for branding, for investing in brand desire overcame any other issues. The brand is still fresh. We could increase -- improve sales. We generated healthy sales. That means sales at fuel price. We reduced entry price levels with low margin. We were very diligent in investing in performance media, reducing absolute sales, as you see in the e-commerce channel, but generating very bigger -- much bigger profitability and selling to those that really want to buy the Reserva brand. Besides this brand, we have the Oficina brand, which at the mid of the year had its first marketing investment, bringing [indiscernible] legends to its campaign. We generated awareness and a growth in 30% in the Oficina brand. And here, extremely important piece of information. Although it is small financially, it already brings light for a Group that the Azzas Group should invest in, which is the ability to foster men's apparel brands. The culture in this business unit was created and was proven now when we migrated the Foxton brand to this brand that has been managing this segment for more than 18 years. Then we can look at the results this team had with the same Foxton without store openings, the same team only including management methodology. It was 15% growth and an increasing 50% in EBITDA at Foxton. So maybe this will shed light to the ability of this team to manage new brands. Now going to our legacy unit -- business unit. And here, sometimes we're interpreted to bring in explanations that looks like we want to hide something. But very transparently and clearly, I'd like to invite everyone to understand that within this business unit, where we report results in a unique format, there are 2 different units. We have our legacy founded in 1972 that throughout these 5 decades had the ability to reinvent itself and putting Arezzo brand as a desired brand and, of course, generate growth. Of course, throughout this path we've made some adjustments. There are some points when you need to give a hand to the franchisees. Some issues do not work as forecast. But to have a long-lasting franchise network, the franchise owner has to know when to give help. We didn't have the results for the winter collection in '25 that we wanted to. There were more leftovers than what was forecasted, but we were there side-by-side with our franchisees, showing that we are their partners, accepting product evolutions and opening stocks so that we could quickly place fresh products and full price sale products. And therefore, we could focus the attention of our Arezzo business solely in sell-out, reaching in our own channels 9.7% growth, showing that the Arezzo brand is synonymous with Christmas presence. This -- our motto says, Arezzo is always a gift and always present. So we've been -- that's how we've been managing this. However, I need to say that and without mentioning the Vans problem, but we have the ability to do better, but it's inevitable to say that the Vans brand globally is going through a sales reduction and a change in behavior. And you believe it, but we're not just giving empty explanations. We are aware that the moment that the sneaker market is going through within the Athleisure segment, very specifically bringing brands that use expanded EVA soles, which are much more athleisure, much lighter. And I bring clear examples of the ON and HOKA brands. These are the types of casual sneakers that are selling. Unfortunately, Vans has as their position, streetwear and this has been felt. A question that you see, when is this going to give a return? And I have to be honest, we're doing our best, but it's something that goes beyond our control. We're working together with Vans to improve the product mix and try to bring the strength of the Vans brand to another segment of the population, which is not like the famous sneaker-heads. We have a great capacity of distribution with this brand, which is multichannel. We have the best stores. We have great e-commerce. We're distributing great Multibrand sneaker partners, but we cannot deny that there has been a relevant reduction of 14.8% in Vans brand in Q4, which affected the growth of this business unit. But I ask that you please to exclude this result and focus our energy in looking at the female shoe business was flat compared to '24. But if you exclude sell-in, we had a strong growth. And we started '26 with the right foot. We started investing in communication and advertisement, bringing more attention to Arezzo with Sarah Jessica Parker with strong sales in the beginning of March. So we have -- we're very confident that this unit is going to grow again. And with the Vans brand, it depends a bit more on the medium-term. But such a result will not happen again. Now lastly, our business unit that I as investor, I am a shopper. I am inside -- I'm here working with the team 24 hours a day. I'm sure that the actions that are being carried out are good. I'll mention some. I'll start with actions that sometimes for the investor makes a difference. The investors want to see figures. They don't want to see the date for the recovery. And you're right, you have to be careful with the return of the money that you are investing. But behind that, there is the most important locomotive, which is people and engagement and also planning. So now in our leadership team, we are 100% dedicated to make Hering brand, again, be a brand that is desired and that brings to the population an equation of cost benefit in products that has never been seen before that brings brand freshness, but that acts as Class C that brings product categories that go beyond the T-shirt. There was a great launch for the jeans, the denim products. We had a goal of 40% in the past 2 weeks. It was -- denim was 7% of Hering. It can come to 20% because we've reached 11% in this season. So what did the Hering brand do? The whole C level has been higher, the whole administration, some former Arezzo&Co people that have affinity with this area. This whole team is based in Blumenau. The whole product development team is based in Blumenau. We made important change, and I congratulate and thank Fernando Porto and the whole style team that had to develop 3 collections simultaneously so that once and for all, we could establish a cycle of first sale to then produce. We eliminated intermediary stock that also appeared here as positive results, generating BRL 112 million in cash, even with the drop in EBITDA compared to BRL 4 million in cash in the Q4 '24. So here, we have indications and conviction that we need like 2 quarters. This is the figure so that we can, again, grow in sell-in. The sellout is already growing now in March so that we can readapt the level of the inventory and have the ambition to open in Hering stores and grow in Hering. And I assure that 2027 Hering will have a fantastic year, but we will already be able to see results in the second half of this year. So now our highlights. We reached a sell-out channels growth of 5.2%, especially with our own stores that grew 8%, reflecting the desire for our brands. We reached recurrent EBITDA of BRL 501 million, a slight contraction that we have here, excluding the Hering brand, there was an expansion of 10 basis points from the EBITDA margin. Here, an important aspect. We shift sell-out and sell-in. As was mentioned here, there was a growth in sell-out and a retraction in sell-in. Everybody knows that the sell-out channels, the impact of SG&A on net revenue is much bigger. And even with that change in the increase in DTC versus B2B in the fourth quarter, we had a reduction of SG&A of 0.5% and also with occasional expenses that were reducing 30%. All of this caused operational cash generation of BRL 838 million, the largest since the merge. We have mentioned selling channels, affects that deliberately we reduced those so that the franchisee could have -- we do not accept franchisees that are at default. We want them confident to invest. We reduced sell-in 7.2% with Multibrands, franchisees reduced even further. Excluding the Hering brand, our EBITDA margin was 16.8% with an expansion of 170 basis points. We also had even paying BRL 500 million in dividends to our shareholders, a reduction for the third quarter to the fourth quarter of 1.37x our leverage to 1.28x. If we do not consider the dividends paid, and it's not included here, BRL 160 million of repurchase, which is returned to the shareholder, our leverage would be 1.94x which puts us in a very comfortable position. We have BRL 1.3 billion in credit cards. To wrap up a brief summary of 2025, and then I'll give the floor to Eric. The revenue from sell-out channels throughout the year grew 9.3%, way above inflation. We gained market share highlighting our women apparel -- premium women apparel, especially the Farm brand that had a growth of 15.5%. Our recurrent EBITDA totaled BRL 1.941 billion with a margin of 16.4% and an expansion of 60 basis points due to expense reduction, which was what we introduced in the first quarter of '25. It's worth mentioning that in the moment of globalization, when it's increasingly more important to distribute our eggs in several baskets. The Farm brand today has a strong growth in the international market with 21% has been consolidating as a lifestyle brand. We recently launched the swimwear brand that some department stores in France and the Farm brand today represents Brazilian swimwear. It is clear that it is a very -- a category that is connected to Farm in Brazil. We had to grow within this category of product. We had an operational cash generation of BRL 1.2 billion and a conversion of 71% of our EBITDA pre-IFRS. The revenue from selling channels presented consolidated despite the drop in Q4 of 1.5%, impacted mainly by the reduction in sales deliberately to the franchise channels. Excluding the Hering brand, the EBITDA margin for the year was 18.5%. We have here, we dream high of reaching 20% of EBITDA margin. And we had in total between repurchase and dividend payments, BRL 667 million returned to our shareholders. These were my opening remarks. And now I give the floor to Eric Alencar, who is going to present more details about our financial performance. Thanks, Eric.

Thank you, Alexandre. Good morning, everyone. It's great to be here with you and Bianca for our Q4 2025 earnings conference call. In Q4, continuous brand gross revenue was BRL 4.1 million, up 0.7% year-over-year, a highlight for our own stores with growth of 8%, like Alexandre said earlier, and international operations of 9%. Gross revenue had a drop of 2.3%. In Q4 '25, net revenue totaled BRL 3.3 billion, down 4.1% year-over-year. From gross revenue and net revenue, we have an increase in the tax line due to a more greater generation of ICMS credit due to the impact of import tariffs from the U.S. and a greater volume of returns from sell-in because of the reduction of inventory levels of the franchisees of [indiscernible] and e-commerce of Farm Rio in the countries, I mean, in Brazil and abroad. Recurring gross profit achieved BRL 1.8 billion, a decrease of 40 basis points in gross margin because of a contraction of 490 basis points in the basic unit because of the actions to sell our inventory. And compared to Q3 '25, this has been a positive trend with an improvement of 340 basis points in gross margin. If we disconsider this unit, which is going through a moment of transformation, the gross margin of our company is in line with that of the previous year. In Q4 '25, recurring EBITDA totaled BRL 501 million, a decrease of 350 basis points year-over-year. EBITDA margin grew 10 basis points. This is due to the discipline in expense management, which improved our SG&A in 540 basis points. 0.5 percentage points compared to the net revenue. And we had a reduction of 30% in one-off expenses. Excluding the basic unit, we would have had a gain of 170 basis points in our recurring margin, as Alexandre mentioned in the beginning of our conversation. On the next slide, you can see that the company had financial expenses of BRL 214 million versus BRL 157 million the previous year. This is because of interest over financing and CDI in our gross debt level. Net profit totaled BRL 168 million in the quarter, stable year-over-year and a margin of 5.1%. About cash and working capital, I'd like to highlight a positive result of this work that we've been doing and that we've been sharing with you in recent quarters. Since the merger, we've been focused on having an efficient operational cycle with lower inventory, SG&A growing below inflation and smart capital allocation. As a result, in Q4, the company had operating cash generation of BRL 838 million, excluding BRL 145 million of nonrecurring additional cash generation. That's 4x the amount we achieved in the same period of 2025, the largest operating cash generation of the company since the merger and a cash conversion in the quarter of 197%. Compared to '25, the operating cash generation achieved BRL 1.17 billion, representing a cash conversion of 71% of the recurring EBITDA pre-IFRS. In the post-CapEx vision, cash generation achieved BRL 786 million, excluding recurring effects. The focus on CapEx discipline was also one of the reasons for that. Now you can see the factors that contributed to improved cash. Financial cycle achieved 96 days with a significant improvement of 13 days year-over-year. That is structurally speaking, without considering seasonal issues. The improvement in cycle can be explained by the decrease in inventory levels by 9 days, a reflex of our operational efficiency with a highlight of the reduction of inventory days in fashion, women and basic. Supplier days were reduced in 2 days and accounts receivable days had an improvement of 6 days. In the next slide, you can see our debt level. At the end of Q4 '25, the company had a cash position of BRL 1.1 billion and net debt of BRL 2.1 billion. The net debt indicator, I mean, net debt over EBITDA is at 1.28x. The company reduced its leverage compared to September '25 when it was 1.37x, even with a payout of BRL 500 million in dividends in the quarter. If we exclude that payment, the net debt over EBITDA in the last 12 months would have been 0.98x. The company closed the quarter with a relevant balance of BRL 1.3 billion in capital receivable with BRL 180 million of early payments in the recent quarters. This shows the operational liquidity of the company and the short-term operational financing abilities. This is a wrap-up of my presentation, and now we can open for questions.

Thank you, Alexandre, thank you, Eric. Our first question comes from Rodrigo Gastim with Itau BBA about the sales of the first quarter of '26. What is the sales dynamic like in the first quarter of 2026? Can you give us some light about the different business units? What can we expect in terms of Shoes & Bags and Hering?

Thank you for your question. In Q1, the behavior of sales is quite heterogeneous. In the month of January, we had a reasonable level of sales. But in the month of February, because of the Carnival dates there in the beginning of the month, we were impacted. However, as soon as the month of March started, we had a great level of same-store sales, the best in the last 12 months. The winter collections were very well accepted. The Arezzo brand with that boost of the campaign with Sarah Jessica Parker brought in a 2-digit growth, which is something we hadn't seen in a while throughout the whole network. And we also had a great winter collection sales. Women's apparel is growing, especially the premium brands in early March. So the results of these first 12 days of the month were very positive. Of course, we still have a long way to close the month of March when it comes to sell-out. The Hering brand, we have reduced dramatically the markdown sales, especially in e-commerce, excluding the sales of the brand in marketplaces. And this had a major impact on the brand's sales. But the main KPI that we're measuring here is the fall collection sales. And these sales have been having a great result in our business. But of course, we cannot deny that the balance of the summer collections and the inventory carried by Hering throughout the first half of the year will affect the consolidated numbers of the Hering brand. And we will report Hering sales and sell-out full price from winter collection separately from the summer sales because this is going to have a major impact on the numbers, and this will hinder our ability to see the health of the brand in our business. So when it comes to the company earnings, the sell-in channels from Hering brand, will recover, and this is deliberate. Just so you know, for this year, the month of November, we'll have an average coverage of 7 months of inventory in our franchisees. But our goal is to reduce that to 4 months of inventory. So if you do the math, you'll see that this will impact -- will lead to a sell-in reduction, but that's a deliberate decision. We want to open up space to have a healthy mix, renewed mix for the summer season. So this is part of the plan for the Hering brand. Now for the Arezzo brand, the inventory level is already at a much healthier level. The turnaround of our winter collection is much better than we expected, and we'll continue with our plan with a target of sell-out growth for the Arezzo brand. For the Reserva brand, growth is within the expected levels, just like what we included in our budget, in line with Q4 '25. And for the [indiscernible] brand, our growth has been below that of last year, but that was part -- was already predicted in our budget. And we expected the sales to be below the percentage of the past, but this is still very healthy and in line with our procurement. For Farm Global, we had results above 30%. So in the consolidated numbers, considering the weight of Hering, our growth as a Group will be similar to that of Q4, but the health of the winter collection is what matters the most for our business, and it has been extraordinary.

Our next question is about inventory. Gastim once again says, inventory drew our attention. How much of the structural gain that you wanted is already included in this result? Was this virtually all from Hering?

Okay. I'll get started. Hering had a massive inventory level decrease, but it's -- we're only halfway through this process. We're going to close '26 with 153 days of inventory, and we closed '25 with 210 days. So we're only halfway through this process. This has been a very positive work, and this is going to free up working capital for the Hering brand. For Shoes & Bags, the Vans brand is at 132 days, and this is going to drop to 110 days. For women's shoes, we still have inventory coming from the returns that we accepted from our franchisees at the end of last year, and this is going to impact our balance of obsolete inventory. We want to find alternative sales channels in the foreign market to sell that. However, our inventory for the winter collection are in line with what we expected. For the Reserva brand -- Reserva brand, the inventory had a slight drop. And in the Farm brand, inventory is very low. For women's apparel, deliberately, especially in NV, we chose to increase inventory levels because the sales are really strong. We had same-store sales at high double digits, and that's our goal overall and the balance sheet of the Azzas Group should close Q1 with similar inventory levels with which we closed Q4.

Yes, Alexandre. The company had overall 147 days of inventory, a drop of 9 days. Like Alexandre said, basic had a major drop, but it accounts for 18% of sales. So the good news is that cash generation did not come exclusively from inventory level reduction. And Hering actually generated a bit over BRL 100 million in cash, and the cash of the Group was BRL 138 million. So this gives you some sign of what we are talking about. And the elements, I mean, our goal is to have a leaner company in terms of the financial cycle, and that is maintained. So positive news for '26. Yes, and we have great control of inventory. That's right.

Our next question by Gastim is about one-off expenses. One-off expenses dropped 30% year-over-year. This new level as a percentage of revenue, is it recurring? Is there room for improvement here?

No, there is no room for improvement here, but this is indeed recurring. Throughout the year of '25, we said that many expenses from Rio would come in our statement as recurring revenue -- recurring expenses. And it was really hard for us to allocate all of the expenses that had happened from conventions and trainings and consultancies in an excluding way. So today, the company has established a planning execution and expenses base that is at a normal level, and there is no room to keep on dropping by 30%. However, the ratio of SG&A over net revenue and one-off factors will keep on dropping, but not at the same pace we had in Q4. Please correct me if I'm wrong.

Well, Alexandre, there is a motto that says that there is no structural drop of SG&A in a company because if you are not paying attention, it will grow again. The highlight this time was one-off expenses, but we're working really hard on an expense that we were not able to reduce like we wanted, which is fixed expenses. So we're opening up new work fronts in order to achieve efficiency in fixed expenses to offset any other expense that might grow and the company with SG&A actually dropping in real terms.

Perfect. The next question comes from Danni from XP. She asked about gross margin. How can we think about the effect of the channel mix and BUs in the ex-basic gross margin having the quarter looking forward as Shoes & Bags recovers growth.

So -- the gross margin of the Azzas Group is made up of percentages of very different brands between apparel and shoes. And besides the margins, B2B -- DTC and B2B vary a lot. So starting with something that's more stable, which is gross margin for B2B for shoes. Here, it remains stable. We had throughout the years, returns, commercial discounts that affected the gross margin, but they were one-off. They are not part of our business model. And all that adjustments with franchisees was already presented in our financial statement in 2025. So here, gross margin of the famous cost-plus system that we have are going to prevail, and they are very predictable. Gross margin for the DTC and Shoes & Bags markets is the same. Full prices within the level that we believe. We do not have a large inventory. We're going to operate within the forecast. Within male apparel, where we have the largest gross margin. We're working strongly in e-commerce. It was a channel that brought our gross margin down from DTC. We are confident that with the result for gross margin achieved in men's apparel is going to be sustained for '26. For women's apparel, there were some cases and some brands that deliberately had higher sales at discounts so that we could sell older inventory. This affected gross margin. There is a possible growth of the channel that we call Off Premium. However, the winter collections that are coming out now are already at a more balanced sales level, and we're going to maintain a very healthy margin. This said, where we have the biggest gross margin challenge is in [indiscernible]. We had despite the growth of the gross margin in Q4, the percentage of sales in B2B affected Hering's gross margin and also with commercial concessions for franchisees. So in physical stores for Hering, DTC was positive. However, in the e-commerce channel due to the marketplace, we had very low gross margins. This type of sales is being eliminated from our matrix now. So the Hering brand that ended up, if I'm not mistaken, at a gross margin of 38.5%. Correct me if I'm wrong, in the Q4 coming for a low gross margin of 34% in the Q3. Check, please, [ Fabio ], if this is at 37.7%. Yes. Thank God I have -- I know the numbers and we have a budget for 2026 within 41% consolidated. Is that correct, Eric?

So there is growth in gross margin due to the off-price elimination of sales for the B2B channels. So this is well controlled. It is part of a weekly control. It is the goal for lots of people here to have the gross margin under control.

Thanks, Alexandre. Next question from Danni is about tax provisions. She asks, I'd like to understand which led to tax provisions from ISS over royalties and ICMS in PIS/COFINS.

Danni, it's Eric here. ICMS is a provision of placing in the modulation that we did in '17 from using ICMS as the basis for PIS/COFINS which since then we've been using the benefit of that. But what was done between 2012 and 2017, we did not participate in this process, and we have to provision that loss. So it's a process that from 2012 to 2017, it's an old process, but we are getting to the execution phase and we don't have to provision that. So a bit less than BRL 40 million here. It was not a cash, but it's going to happen because that's the best expectations. The other about ISS, 1 point of royalties in Shoes & Bags and in the 5 past years, we had a very clear students of not collecting at the municipal level. And this changed, and we had to correct that in the current year. This is going through the current results. Thinking about 5 years ago, it does not belong of the recurrent results of the company. It's not there anymore. So basically, these are the 2 items that we placed there for provisioning.

Next question from Luiz Guanais from BTG, and it's about Hering, more specifically the channel from the Hering brand. I'd like to ask about the adjustments in Hering. What do you believe is the right balance of sales and channels between own stores, franchises and Multibrand? And where within these channels, is there more space to evolve margin?

All right. We have great growth in the Multibrand channel. Throughout the past years, there has been a deterioration of the profile of the Multibrand channel due to large inventory. The sales team tried to distribute the Hering brand so we lost brand awareness besides a drastic reduction in gross margin. So we have a sales team that is totally new with mapping of distribution with the goal of exponential growth in the sales with a high gross margin. There is today a very clear product segmentation at Hering. We're developing product in P0 for the entry of Hering in B2C classes through great product engineering. So to give you a teaser, there is a project of a T-shirt that will have [ PVL ] of BRL 49 with intact gross margin, thanks to lots of product engineering and the distribution profile phasing in case pack with prepack. So there's a great growth in Multibrands. The franchise channel goes through an adjustment. First of all, we had to stop the bleeding of closing the franchises, which were dozens in the past years. For the next semester, we plan to open 10 franchises. So recovering the confidence of franchises has been great. And I expect through David and Bruno, Brazil's leadership to again, light the flame of growth in the franchise market for Hering. Our own stores, we are -- we want to maintain the biggest and best stores and stores outside of the commercial centers here in the Southeast are in the process of being passed over. We've done with 8 of them in 2025. Hering e-commerce is going through an improvement process, closing sales in subchannels from marketplaces and an improvement of the omni experience at Hering, which is still very bad. And besides that, we intend to grow constantly mainly in the monobrand stores. So there's a lot of work being done as a new commercial team, we have a new commercial team in place, very close to our franchise network. The second part of the question, can you repeat?

It was about gross margin in the different channels where there is more space to grow. I think you've mentioned it.

Yes, I mentioned that gross margin is for the Multibrand channel because it was greatly affected by a percentage of more than 30% of sales done to retailers.

The next question, Felipe Rached from Goldman Sachs. He asks about expenses. I'd like to explore a bit more the optimization of marketing expenses this quarter. I understand that part has been due to a reduction of performance marketing in the context of fewer markdowns. Besides, is there another relevant source of savings? If so, is there a reduction of structural expenses or was it just something one-off in this quarter, something focused on one segment or a specific brand?

Felipe, I will start and Alexandre can add if he wants to. As you said, I'm going to put it into a broader context. The drop that we said was in one-off was a drop in the expenses where the company has more flexibility to make decisions like trips, consultancy and also marketing. Besides marketing, there's a structural decision. It's a context of markdown, but it's a bit over that. We want to be more rigorous in the return we expect from these investments, both in offline performance as events as well as online. Performance marketing, you pay a percentage of how much you're going to give from your revenue once this business is closed. If you start paying a lot and it's being very promotional, the marginal sales do not make sense for in the ROIC. But many of our brands are working more rigorously in the return of this investment. This is structural. This is a new way of thinking that is part of the planning, especially to having a higher return over each sale made. But to structure a drop, it's not only market. We see SG&A drop in general terms. Marketing is always a good investment because it gives positive ROIC, but we need to go beyond in all these points. We need to find new sources of savings. So the efforts are not only there. We are focused on fixed expenses, focusing on some variable expenses that although they are related to sales, we can marginally work on them. And it's an effect that does not go back and it's structural.

Exactly. We have a bigger diligence. Eric has bringing great science about marketing. We still have not been able to implement and the goal, which is to centralize the purchase from indirect, especially for marketing. There is a customization in the desire of each brand in negotiations. However, several providers are common and are treated differently between the different BUs and the different brands. So it's not only a matter of investment, but the quality of our investments and better planning. So here due to several changes that happened in 2025, we haven't been able to implement what we wanted, which was a bigger centralization of the market service that could negotiate jointly many of the marketing packages so that we can not only reduce but also invest more and invest better for our brands. So this is a very relevant point that we are going to work on so that we manage to implement this vision of centralizing those areas, especially for marketing.

Next question comes from Vinicius Strano from UBS, and he asks about growth in the women's apparel BU. What are the drivers for growth in this BU, especially in Farm? And how do you envision growth in 2026?

So we started the strategic planning process for the Farm brand to understand its full potential for the next 5 years globally. This process is coming to its end, and the figures are very encouraging. They are totally outside the pace of growth in our business. However, they demand allocation of capital that is different, a big higher risk to get into markets where we haven't penetrated yet. It's an exposure to retail brands at DTC in the international market, where there is a learning curve for location versus CapEx and consequently, ROIC. We know about the value of these stores for the brand so there is a working Group here now that when you look at Farm reaching BRL 3.4 billion in revenue, it is a relevant percentage of the whole. And we don't talk about the women's apparel BU and the brand consolidating as lifestyle brand. There is a movement for strategic studies of how to generate resources and managerial attention in a way that is more customized so that Farm generates value to the shareholders and that it has the managerial attention and the necessary resources to consolidate as a global brand. So here, there is something deep being studied. I don't have much more to share with you because there is not much more that has been done. However, it is something that we start 2026 with 0 priority for us to study because Farm needs to be treated more independently as in customized manner due to the great potential that it has for growth and of becoming a global brand. Now for the other women's apparel brands, we have a renovation of the Animale brand, a brand with a great history, NV with a low number of stores and sales per square meter with a good possibility of growth. Maria Filo is resuming growth and with a better assortment and positioning of the brand. And the [indiscernible] brand is going through a transition of its positioning and portfolio. The Cris Barros brand has a great customer base. This is an ultra-premium brand with an operational model that is quite sophisticated with an interesting growth potential. And they serve a more niched market and they cannot -- do not have the ability to generate great revenue for our business as a result of that.

Next question from Vinicius is about accounts receivable. He asks, the accounts receivable line improved by 6 days. Do you believe this is a sustainable number? And how can we think about the accounts receivable terms policies from now on?

Well, Vinicius, this is quite simple. There hasn't been any structural change. But actually, in late '25, we saw the possibility of running some fixed campaigns. And we did some renegotiations about early pay for delinquent customers in the case of selling, and that led to a positive result. So we see stability. This is hard. In Brazil, 1/3 of the population is in debt and has a bad credit, but we'll see from now on. When it comes to credit collection and accounts receivable policies, we do not expect major changes. We are not expecting improvements or worsening in this line.

Thank you, Eric. Last question from Vinicius about CapEx. What are the company's main CapEx projects for 2026? Do you consider the 2025 CapEx level as sustainable? What about store expansion? Do you consider opportunities to shut down specific stores from now on?

Well, okay, many questions in one. Let me tell you about our philosophy. We believe the level we achieved in '25 is sustainable. The levels in '25 were 30% lower than in '24. And since we believe this is sustainable, that's our target for '26. And we are sure that we made the right movement. So we are going to keep that for '26. When it comes to CapEx, I mean, any retailer today needs to think about technology. But what makes us excited are opening new stores and retrofitting stores. we have a CapEx committee, and I see this quite a lot in the retail market in other earnings calls. We're making efforts to open new stores, and we have franchisees that have their own stores. And I mean, the retrofits are also giving us great return. Animale has 10 stores to be renovated because of the high return that we see with these renovations. So that's what we're trying to do. And there are some structural CapEx increases because not being able to invest in CapEx would be a problem. but we're focusing on that separately.

Next question is by Eric with Santander about the fall sell-in. He asks about the fall sell-in, how has the company seen the indicators? And how did you see the non-advanced payment by the franchisees? What's your take on that?

I'll be very straight. On the one hand, the franchisees were very happy to postpone the payments. They started the accounts payable in '26 at a lighter level because they did not get products at the end of December. However, the Brazilian logistics network from Christmas to New Year's by nature, has a huge delay. Truck drivers stop working, the roads are quite busy. So there is a natural delay. So it was a good beginning of the year when it comes to the operational part of having the right product at the right time in the first 10 days of January, when we should have new products ready at the end of our DC in December to bring novelty to our business, which is one of the main growth drivers. I mean, they were not there. So the stores felt that there was a lack of new collection from January 10 to January 20, and that led to a certain delay. And if we had built those products in December, it would have been better. So yes, this has generated a financial relief for them. But on the commercial part, we did lose some sales in early January because it took some time for the products to get to the stores because it's a slow period of time. The transportation from the distribution center to the stores took some time to resume. Now the products were very well-planned and well-received in terms of shoes. We believe that in the winter, the boots are going to sell really well. The campaign with Sarah Jessica Parker is going to bring us an amazing product turnaround, and that leads to an increase in the average ticket. If the person buys a pair of shoes, I mean, pair of shoes can cost 50% more than other products and female brands had excellent numbers, the collection -- the fall collection and now in the last week of May, we had a great sell-in at Hering. We had a very positive week for shoes. We have a pre-summer launched on March -- to be launched on March 24. So the sellout schedule is looking great. If you look at all brands, all launches and all SKUs, this is our locomotive to generate value in our fashion business. So we're very confident about the winter season. We are preparing for Mother's Day. It's going to be a strong Mother's Day, and we try not to contaminate with external problems and try to bring the best product at the best time, the right product at the right time to generate excellent sales.

Next question is from Danni with XP. Her question is about the sustainability of the cash generation from now on, looking ahead.

Danni, this is Eric. I will start and Alexandre may add to my answer if need be. We had a very great cash generation, BRL 138 million of returning cash generation and 200% cash to EBITDA conversion. Our cash was 4x higher year-over-year. We know there is a seasonality of the industry in Q4. But I'd rather talk about the future and sustainability on an annualized base. All of the structuring elements implemented in 2025 led to this great cash generation, and they are all going to be maintained. Internally here at the company, we see the value being generated and our aim is to have good return on capital invested -- invested capital. The procurement of nonproductive and the CapEx investment, always considering the return on investment, and these are structural changes. And it's worth noting that even with a very strong cash generation, we started the year of '26 with accounts payable levels lower than in '25, which is already good news for the year. The cash generation for '26 will not come from delayed payments, but from a structural change that will pave the way for the coming years.

Next question is about Hering franchisees. It's from Nicolas with JPMorgan. He asks, can you comment on how Hering franchisees have been welcoming the changes that the company has been implementing in this business unit?

Sure. Thank you for your question. I have a personal testimony to give. Since early September, when we were through a dramatic change in leadership and when I decided to take over for a whole month, that relationship with the franchisees, I try to establish a personal link with them. At Hering, we have the franchisee Board or committee and they have a voice and diligence. And our relationship with them has been very positive. David when he joined the company, he went on a roadshow in 5 cities in Brazil to hear from the franchisees. And that was a very deep kind of work he did. And last week, I had a convention with the franchisees and 61% of them were present. And I've never seen this level of adherence in a franchisee network and this level of trust either. So I know that you talk to the franchisees, and there might be one or another that doesn't agree. But on average, I'd say that our adherence, trust and satisfaction level among our franchisees is really high. They're all really excited about this new momentum Hering has been going through. They're happy with the team and the commercial policies and products. Even after we removed some concessions that benefited them, they were able to understand all of them, and they knew about this new commercial relationship to be implemented. And David Python has now taken over as the executive leader of the Shoes & Bags business unit. And in the franchising practice, it's very similar, and I'm sure that he'll be able to define a state-of-the-art model and in a short period of time, will be a major example of fashion franchiser like we have Boticario in cosmetics, Azzas Group, Hering, Arezzo and Reserva will be a great reference in the franchisee channel management. And this is not only a channel. This is a business model. We firmly believe in the way we work with our franchisees. The goal is for these franchisees to complement our business, and we will be state-of-the-art. But in a nutshell, our relationship with them is now excellent.

Great, Alexandre. Next question comes from Gustavo Fratini with Bank of America. He's asking about expenses and PPR. I would like to understand the changes in variable expenses and one-off expenses. You talked about that already. But at the same time, why would you increase PPR in a difficult year?

Well, PPR -- and '25, we didn't have that, and we have clear targets based on cash generation and those targets were hit. So that was the goal of the company, cash generation, and we were able to get there. This is [indiscernible] with our cash generation budget. So this led to a PPR payment that we considered fair compared to the biennium of '24, '25. That's my view. But I'd like to turn the floor over to Eric for his more technical view.

Yes. My view is a bit different. As a company with 23 brands, 4 business units and the Farm brand, the worst thing we can do is to divide the collections and performances. Yes, we had a tough year and some of our business units achieved really good results, and we need to acknowledge that. I must emphasize that we professionalize the man brand with good results and cash generation in all of our units, like Alexandre said, and the amazing result of the several [ Duma ] units. And the company sees execution not only based on the statements, but also cash and how you prepare for the future because we always think about the long run. So of course, not everyone can see the whole picture, but this has been a year that in spite of the great difficulties, structuring aspects were achieved by the company. Thank you for your question.

The next question comes from Joao Soares from Citi about the corporate structure. He asks, how is the top of the company as in ways of unlock the value potentially through spin-offs and which -- what would be the potential ideas?

Joao, it is a deep question. It is a strategic question. It is a question for which -- it's not because I cannot, but I do not have clear information to give to you, but I can give you our rationale. Throughout the past 2 years, we work a lot and went through difficult moments, especially in the first Q1 '25. And from Q2, we went into making difficult decisions, which was made in some business units, changing leadership or the results, although it was not demonstrated here, they have great signs of a company -- a strong company. However, we can't deny that the degree of maturity, the stage of growth in some of our business units are completely different than others. And the Azzas Group is increasingly more clear as a great leader in the ability to identify opportunities and generate value in these opportunities. And until then, we have just generated this value to improve our financial demonstration. We haven't had a movement where we buy a brand for X, make it worth X times and then we talk -- think about its monetization. This is a modern view that help us in any international fashion group that happens in any other groups in Brazilian economy and that we start to study this very clearly here in our strategic committee. And we know that we are able -- now it's an important sentence I learned from my father. Since 2007, we know how to earn money from below, which is buying leather, making shoes, selling and getting some margin, but that we can also earn money from the top, being strategic with capital allocation in their portfolio, investing in the company. So there is today some important points and important discussions going on. Our company is very solid from governance to our results and our cash situation. And we are being harassed here to unlock value, as you mentioned. So this being said, it's just part of analysis and discussions. However, we are here to make money and generate value -- continuous value for our stakeholders. This is what I can say.

Going to our last question from Alexandre from Morgan Stanley. And he asks about the franchise model for the Shoes & Bags BU. The question is, can you mention a bit more about the adjustments in the franchise model for the Shoes & Bags BU?

Great. We started a pilot in January, 2 months in 7 franchise operators. We placed easy management systems that with clear dashboards to be used. The first 2 months were very positive. They generated in the short term, a reduction in ROIC for our franchises, but bringing some lightness in accounts payable to franchisees and a clear increase in the interest to maximize sellout. And with this, increase the profitability for the franchisees. But I positively saw the results last Wednesday and yesterday, they are very positive. So we are prepared. So from the systems I mentioned, they are still in test mode, but they can easily become our delegated systems within our SAP. And maybe it's an interesting path for change for sell-in to sellout that are going to create strong interest from franchises and franchisees, which can be a good path forward.

So to this, we get to the end of our questions. I give you the floor, Alexandre to talk about the priorities for 2026.

Thanks. I thank you all for your participation. We have almost 1.5 hours here together. Thank you for being involved and the questions were great. I'd like to make it clear that 2026 is a year to stabilize and simplify. It's a year where we are very confident and have clarity that we have in our management agenda, points that are very well defined and that we are focused on the Hering turnaround, and we are very confident that Hering has value to be generated here for our business. So it's priceless, Hering. We know it's going to be worth much more in the future, and we are working diligently and the first signs are very positive. The execution of our business calendar, sell-in, sellout and planning well with excellence, which is going to be the base of our growth in a healthy and profitable manner. So we need to remove the noise and have focus on our operations. And we, together with cash generation, a KPI that is going to be evenly distributed for alignment and for the payment of bonus for our team, which is ROIC. Everybody will have a lot of accountability in efficiently manage our working capital and their investments in CapEx and in adapting the expenses according to what's really important for our business. So our model is increasingly clear. Our team is working very well together. And I thank you all, especially the Board of Administration, everybody for the partnership throughout 2025. And I wish a 2026 filled with success, joy regardless of any external scenario, we'll be here with our heads up high with our focus towards 2154. Thanks, everyone.