C&A Modas S.A. (CEAB3) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to C&A's Quarter 4 2025 Earnings Call. Today, we have with us Mr. Paulo Correa, CEO; and Laurence Beltrao Gomes, CFO and IR Director. The slide presentation and the earnings release are already available for download at the Results Center on our IR website. We would also like to inform that this call is being recorded, and simultaneously translated into English. To listen to the English version, just click on interpretation. The replay will also be available on our IR website. [Operator Instructions] Before proceeding, let me clarify that any forward-looking statements that may be made during this conference call relative to the company's business prospects, projections, operating and financial targets are based on beliefs and premises of the company's management as well as information currently available to the company. These forward-looking statements are no guarantee of performance. They involve risks, uncertainties and premises, and they refer to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general conditions, industry conditions and other operational factors may affect the future results of C&A and lead to results that differ materially from those expressed in such forward-looking statements. Now I would like to turn the conference over to Mr. Correa to start his presentation.

Good morning, everyone. Thank you for joining us for another earnings call. We will now begin our presentation, and we will start by discussing the operational performance for quarter 4 2025. Apparel net revenue reached BRL 2.3 billion this quarter, a 0.6% increase compared to quarter 4 2024. Once again, this quarter was accompanied by an expansion in Apparel gross margin, reaching 56.7%, up 0.1 percentage point year-over-year. The Beauty category continued to deliver strong growth with an increase of 22.6% in the quarter's net revenue. As a result of our higher share of the Beauty mix in our portfolio and the consistent improvement in the Apparel gross margin, our merchandise gross margin expanded by 1.6 percentage points in the quarter, reaching 56.2%. We also closed the quarter with a free cash flow generation of more than BRL 290 million, reaching for the first time since 2021, a net cash position, totaling BRL 83.7 million in cash, and the net income reached the mark of BRL 269.8 million, nearly 8% higher than in quarter 4 2024. Now before discussing the full year of 2025, which was a strong year for C&A, it's important to address the Apparel performance in quarter 4, which came in below expectations. After a few years of sequential growth and 11 quarters of outperformance in this segment, we reported same-store sales of negative 0.3%. And it is important to note that we are on a journey towards a broad transformation with our Energia strategy, which began in 2024. And since then, we have been executing a series of initiatives across all areas of our business. C&A is a company that is currently under transformation, and one of the most important verticals of the Energia strategy is the review of our assortment and the product displays in our stores. This evolution in our products has consistently driven higher sales per square meter across all our stores, while also increasing the brand preference for C&A. Now based on the results achieved so far, we identified an opportunity to increase the assortment of higher value-added products, particularly during the end of year holiday period. And this led us to decide to increase the participation of these products within the pricing pyramid. At the same time, quarter 4 was markedly marked by atypical temperatures and a more promotional competitive environment. And this, in turn, increased the demand for entry-price products. And as a result, our product pyramid experienced an imbalance in the volume distribution, particularly in December, when our capacity to react is naturally more limited due to higher volumes committed throughout the entire supply chain. This impacted product availability and increased stock-outs in entry-price items. We quickly identified this imbalance, and still in December, shortly after Christmas, we implemented some promotions and promotional actions to accelerate the sales of top-of-the-pyramid products to capture the tail end of the holiday season. At the same time, we began adjusting the product assortment to review the base of the pyramid. This adjustment process, which began in December, is expected to be completed by the end of the first quarter. However, we are already seeing a clear improvement at the beginning of the year, driven by a better balance in our pyramid. And despite the quarter 4 challenges, it's important to highlight that 2025 was another year of strong performance for our company. Now moving on to the main highlights of the year. The Apparel net revenue increased 9.2% year-over-year, totaling BRL 7.1 billion. The Beauty category was also a standout in the year, with a 46% increase in our net revenue compared with the previous year. When we look at the Apparel gross margin, it expanded by 0.4 percentage points, reaching 56.4% in the year. Now when we look at merchant -- merchandise, the expansion in our gross margin was even higher, 1.7 percentage points higher versus 2024, driven by the phase-out of the smartphone sales. Our adjusted free cash flow generation was more than BRL 843 million in the year, 26% higher than in 2024. And we achieved record adjusted net income of BRL 470 million, which represents a more than 57% increase year-over-year. And all this evolution is a consequence of our customer perception, which also is reflected in our NPS indicator, which increased more than 8 percentage points in 2025. Also as a result of our pragmatic capital allocation and performance management, we had an expansion of more than 5.5 percentage point expansion in our ROIC in 2025 compared to '24, reaching 21.8%, which is an excellent return to our -- for our investments at the phase we're at. As we always do, I'd like to give you an update on the pillars of our Energia strategy. So let's start with the product pillar. We began the transformation of the category with women's denim. And today, this learning has been incorporated into other categories such as ACE, intimates, kids, which are clear examples of this evolution. We have renovated more than 1,400 areas in our store base. At the same time, we continue to invest in our tools, increasingly using technology and data. Dynamic assortment, for example, has already delivered some important results in our pilot categories. We have completed the implementation of this tool. It is now under production, and we will be increasingly promoting personalized assortments for each of our stores. By the end of '26, our objective is that all categories become a part of this assortment-building methodology. We will also continue to enhance our dynamic pricing model, and we have upgraded our algorithms. As previously mentioned, we completed the phase-out of smartphone sales in quarter 3, and the Beauty category is gaining relevance in our portfolio. Today, we have more than 290 stores with a beauty kiosk, and this has been a very important growth pillar for C&A. Now when we look at our omnichannel journey, one of the highlights in '25 was the new Energia store concept, which has proven to be a very important lever for C&A's future growth. Initial results were delivered above expectations, and they have also outperformed the renovation models that we had in the past. In quarter 4, we also opened two additional versions for the Energia store concept, not just to test the performance of these new versions, but also to understand the different cost format of this model in order to apply in different store profiles. We ended the year with three stores in this format. And this is, in our opinion, one of the main opportunities we have to continue to increase the sales per square meter in C&A. Now still within the journey pillar, we continue to invest in the modernization of our store base. We completed another 9 renovations in quarter 4, totaling 23 renovated stores in '25. The Dispersao project initiatives covered more than 40 stores in 2025, and all these initiatives continue to outperform the company's consolidated performance. At the same time, in quarter 4, we opened 7 new stores for a total of 10 new stores in '25, and they were inaugurated mainly in regions where C&A previously had no presence, which clearly expands our consumer base and provides us with a new growth platform for the coming years. In digital, we continue to focus on enhancing the user experience, increasingly using autonomous agents, combining technology conversion and personalization in order to accelerate efficiency and relevance of our platforms. We restructured our website, focusing on the customer, introducing a new architecture and a full revision of our fashion content, which now has greater details and definition. For example, we have included videos integrated into navigation. We also completed the integration of the shopping bag. In our app, we finalized the implementation of the AI personal shopper, driving now higher conversion to the customers using this tool. We also continue with our hyperpersonalization journey with the launch of Home for You, a personalized homepage that brings suggestions of outfits based on the individual customer preferences. All these advances are contributing to an increase in sessions and MAU throughout the year as well as higher conversion rates among customers who are using these new tools. Now on the next slide, we are advancing our brand-building journey. We consolidated C&A's repositioning and maintain consistency with the message we will meet you at C&A, which reinforces our goal of being our customers' preferred fashion brand. Also, since resuming our marketing investments, C&A has been present as the official fashion brand at high-visibility events and campaigns with well-known personalities, which reinforces our consistent positioning. In '25, we supported Lady Gaga's major concert in Copacabana. And more recently, we announced the sponsorship of Shakira's concert. Shakira is an artist that is aligned with the values that guide the relationship with our customers. For those who had been here -- those who were here before the presentation, you were listening to Shakira based on this new initiative that we implemented. All these initiatives have translated into an evolution of our brand power and improvements in the main indicators that translate customer preference, such as shopping frequency, conversion rates and NPS. Before handing over to Laurence, I would also -- I would like to highlight the impact of this transformation journey driven by the Energia strategy. In '25, we inaugurated the new concept store, and this store materializes this entire strategy. And it certainly plays a role of one of the key levers for increasing our sales per square meter and our productivity within C&A stores. In '25, we also concluded -- we finalized our partnership with Bradescard. This decision, which was made at the time of our IPO, led to the creation of our financial operation, C&A Pay, with the goal of delivering an even more seamless retail shopping experience. And results have shown that this C&A Pay journey has been based on the responsible expansion, very well-balanced expansion with good profitability. We were able to complete the phase-out of our smartphone category in quarter 3, and Beauty continues to gain increasing relevance in our product portfolio. All these initiatives are strengthening our connection with customers and delivering an increasingly interesting and relevant journey to them. At the same time, in 2025, we launched our new logistics model, which includes urban hubs, which will increase the speed and accuracy of store replenishment. And when we look at this entire evolution journey, we see a clear impact on customer perception. Apparel productivity is a reflection of that. Since the start of our Energia initiatives, Apparel revenue per square meter has increased 27% and sales still has significant growth potential. Over the same period, the Apparel gross margin expanded by 1.1 percentage point. Now if we compare with 2021, so looking at the last 4 years, sales per square meter increased nearly 60%, and our gross margin expanded by nearly 6 percentage points. And this is indeed a true transformation. All these advances have strengthened our balance sheet. We made significant progress in reducing our indebtedness and that -- cost, and the net cash position reached in the end of the year '25 reinforces our confidence to continue investing in Energia's growth levers. I will now turn to Laurence for his presentation.

Thank you, Paulo. Good morning, everyone. Thank you for attending. So let me start by commenting on our net revenue for the quarter. So as you already heard from Paulo, the net revenue in the quarter was characterized by atypical temperatures and a highly promotional environment as well as a stronger demand for entry-level items and occasional gifts with a lower average ticket. So we had a lower availability of these products at the base of the pricing pyramid. So our same-store sales in Apparel was a negative 0.3% in quarter 4 '25, which reflects a slight decline compared with the previous year. When we actually had a strong comparison base as last year, we posted growth of 14.4%. On a full year basis, the apparel revenue increased by 9.2%. In Beauty, we delivered strong growth of 22.6% in quarter 4. And in the full year, 46%, and the category remains fully aligned with our brand positioning and still complements the company's fashion journey experience for our customers. Electronics and Beauty sales in the quarter declined by 28% and 16% in 2025. In smartphones, there were no sales in quarter 4. The merchandise net revenue in quarter 4 '25 was BRL 2.4 billion, a 1.9% decrease versus quarter 4 2024. However, in the full year of 2025, the merchandise revenue increased by 6.8%. Now on the next slide, I think the most important point here is the expansion of our gross margin in the quarter and in the year. In Apparel, the gross margin increased by 0.1 percentage point year-over-year and 0.4 percentage points compared to the full year 2024, and this was driven by lower markdowns. In Electronics and Beauty, our gross margin increased by 15 percentage points in the quarter and 10.6 percentage points increase on a full year basis due to the higher share of Beauty products in the category mix. The smartphone phase-out contributed to this margin expansion over the last few quarters and also throughout 2025. As a result, our merchandise gross margin increased by 1.5 percentage points in the quarter, reaching 56.2%. For the full year, our merchandise gross margin expanded by 1.7 percentage points versus 2024, reaching 51.1% (sic) [ 55.1%. ] The merchandise margin increased by nearly 5 percentage points since quarter 4 2022. Now on the next slide, I will comment on our expense management. We had an increase of 4.1% in our expenses pre-IFRS 16 versus quarter 4 '24. This growth was below inflation despite the continued investments and the strengthening of the company structure. For the full year, our SG&A expenses increased by 7.9%, which was below the growth rate for Apparel, and this represents approximately 90% of the company's sales. Due to this decrease in our financial services revenue with a decrease of 28.6% in the quarter, and this was impacted by the phaseout of our smartphone business and the reduction in our financial services revenue, which was, in turn, driven by a lower share of interest-bearing payment plans and also the termination of the joint venture with Bradescard. And for these reasons, our total revenue decreased by 3.2% in the quarter. And this was actually the main factor for the financial deleverage -- for the operational deleverage of the company, which is what I'm showing on this slide. So as a result of the combination of the increase in operating expenses, which totaled BRL 920 million, up 4.1% year-over-year and the 3.2% decrease in our total revenue, we had a 2.6 percentage point increase in our expenses as a percentage of our net revenue on a pre-IFRS 16 basis or a 1.3 percentage point increase for the full year. Now on the next page, we have C&A Pay highlights. Our strategy in this business area will remain focused on enhancing the fashion journey. We implemented a conservative credit granting policy in light of the high interest rates that we have right now and also the high debt level of the families. Even with this conservative approach, we were able to increase customer recurrence and spending. As a result, C&A Pay's penetration in sales reached 27.5%, a 3.1 percentage point increase versus quarter 4 '24. We also saw improvements in our delinquency indicators, driven by our better rollout and stronger performance of the new cohorts. Our NPL 90 reached 13.1%, a 3.2 percentage point decrease year-over-year. And our net losses over the portfolio reached 3.9%, a 1.2 percentage point improvement versus the same period last year. Now as for expenses or on the cost side, flexible structure -- the flexible structure of C&A Pay contributed to a significant decrease of 12.5% in the quarter. So we closed 2025 with 9 million cards issued and an operating income of BRL 4.4 million for quarter 4. Now on the next page, here, we can see the evolution of our pre-IFRS 16 adjusted EBITDA, which reached BRL 431 million, an 8.1% decline year-over-year with a 0.9 percentage point reduction in the EBITDA margin of the period, and this was driven by the lower operating leverage, as previously explained in our previous slides. Now for the full year in 2025, our adjusted EBITDA increased by 10.7% year-over-year, a 0.7 percentage point expansion in our adjusted EBITDA margin. On the next slide, we see the evolution of our adjusted net income. Here, we see the evolution of our net income, which reached BRL 269.8 million in the quarter, up 7.9% year-over-year with a 1.1 percentage point increase in our net margin compared to the same period of the previous year. Now for the full year of 2025, the adjusted net income increased by 57.5%, a 2.2 percentage point expansion in the adjusted net margin, which reached BRL 471 million, an all-time record for C&A. Now on the next page, we have our capital allocation. In quarter 4, our CapEx totaled BRL 248 million, a 32% increase year-over-year. And for the full year 2025, CapEx reached BRL 546 million, up 51.8% versus 2024. The majority of these investments were steered towards store renovations and remodelings. Also, the cash conversion cycle was a highlight of the period with an improvement of 6 days. This disciplined capital allocation, combined with our operating results led to an ROIC of 21.8% in quarter -- in the last 12 months, which is a reflection of the effectiveness and discipline in the company's capital allocation. Now on the next slide, we highlight that in 2025, we finished the process of deleveraging, closing the year with a net cash position of approximately BRL 84 million. We also ended the year with a very robust cash position of over BRL 1 billion. Now on this final slide, I would like to briefly go over our recognitions and highlights for the quarter. They reinforce not only the strength of our strategy, but also our genuine commitment to innovation, responsibility and a positive impact. In 2025, we received more than 40 awards, which directly reflects the consistent work that we have delivered in all fronts. We were early adopters of the sustainability-related financial information report, which was an important step towards higher transparency and better alignment with global best practices. Another highlight was being recognized as the first fashion retailer to become an ambassador of the circular connection movement under the UN Global Compact. We also had major recognitions in experience and innovation. The Energia store case at Center Norte Shopping Mall was awarded Store Design of the Year by the POPAI Awards. Also at the regional level, we were named by the O Globo newspaper as the favorite women's fashion brand among consumers in Rio de Janeiro. Also, I cannot go without mentioning that we launched another edition of our affirmative internship program, which has delivered concrete results in developing new talents and strengthening our inclusive culture. These achievements are very important and indicate innovative, solid company aligned with the expectations of society, of our partners and future generations. So I stop my presentation here, and we can now open for questions.

[Operator Instructions] Our first question is from Vinicius Pretto, Itau BBA.

Paulo and Laurence, you mentioned that the Apparel performance in quarter 4 was slightly below expectation. What has improved [ since your ] growth? And is it as simple as having more [ entry-price ] products? Or is there anything else that you identified you needed to improve? And how do you see the success of these initiatives in terms of sales performance so far? And how can we see your gross margin dynamics in the first quarter? You mentioned that there were more promotions in the top of your pyramid. So is this going to linger during the first quarter? Or should we expect a more normal dynamics in quarter 1 this year?

Thank you for your question, Vinicius. I went over this in my presentation. So when we see the imbalance in our pyramid like we saw in quarter 4, you have to rebalance it. And rebalancing means -- well, first, we had that initial action. We had a little bit too much on the top of the pyramid. So we started -- as early as December, we started adjusting so that we could have a better turnover at the top of the pyramid. But despite these efforts, and we had -- despite the very positive response we had, the gross margin was preserved in Q4. And in quarter 1, we have this natural traditional period of sales and promotions, but we are starting to adjust as our supply chain resumes its activity after the break in the end of the year, we are starting to receive our base-of-the-pyramid products again with higher intensity and higher speed. And as they get to our DCs and are distributed to the stores, we will start better managing stock-outs. We have a decrease in stock-outs and the sell-through starts to take place more intensively. So what we see in practice is that in January, January was already totally different than December. It is a journey. It's not an on-off button. This should continue until the end of Q1, this normalization of our assortment. But we have enough expertise and knowledge to adjust and do this as fast as possible. So we expect quarter 1 to be better than quarter 4 last year. However, the return to normal levels will probably be seen in the start of quarter 2. This is our goal. This is what we are working towards, but we will already see some reaction in quarter 1. And as for Q1 gross margin, we continue on this journey. We have a lot of opportunities, and we are not expecting any ruptures in our gross margin in quarter 1. Margin will continue to be steady and resilient during the period. So what we want is to progressively resume growth throughout the quarter while maintaining our gross margin like we have done throughout our journey.

Next question is from Felipe Rached, Goldman Sachs.

I want to talk about digital. Do you believe that due to the higher consumption at lower price points in quarter 4, usually associated with more basic products with a higher digital penetration, do you think this could have caused the migration -- the higher migration to digital sales in quarter 3? And still about digital, and maybe this is not a top priority right now, considering all the levers that you still have to capture under Energia C&A in your brick-and-mortar stores, but maybe there's an interesting opportunity here for the mid and long term. So I want to know what are your thoughts about digital? And what is the difference in profitability between the channels?

Thank you, Felipe, for your question -- actually, your questions, you have a few. Let me start by your first hypothesis. Yes, indeed, this higher interest in the entry-level products, if this leads to migration to digital. I do think it does lead to some migration because it's easier for consumers to shop for basics online. However, our greatest strength is the integration of our channels. This omnichannel view of our business is where we stand out. If we fight only for lower prices, we won't make ends meet. So our strategy is to have a very broad assortment, an assortment that can provide an increasingly interesting experience on our digital channels. That's why I talked about the Home for You initiative and our autonomous agents. These initiatives are aimed to ensure an increasingly interesting and appealing story on our digital channels. I also talked about the fashion content, the videos. We're trying to strengthen this experience for our customers. And I totally agree with you with what you said about this being a good strategy for the mid- to long term. It is natural that the evolution of our agents will increasingly facilitate the omnichannel journey and omnichannel shopping because there is a high relevance in our business, which is the tryout of the products. So the tryout of the products, the fitting of the product is very important in our business. So that's why we think this omnichannel integration is our greatest opportunity for growth going forward. If we look at brick-and-mortar, yes, we have a lot of opportunities. We are exploring a lot of them, and we're capturing this evolution and growth. However, our focus on digital is just as strong or even stronger in terms of the number of opportunities, not just for the expertise in omnichannel and all the innovation that we are implementing in order to support this growth, but also the increasingly fluid, personalized integrated journey that we want to provide between our brick-and-mortar and digital channels. So yes, we want to further strengthen this journey. And your question about profitability, I think this is a very tricky question because within the omnichannel philosophy that I'm talking about, you'll never know where the journey starts and where it ends. If you have a separate P&L for the different channels, you will end up making erroneous decisions because let's think about someone who visits our website, and they have an initial contact with our products and with our collection, then they get screenshots and they go to the brick-and-mortar stores. Where do we put this in the P&L? If the sale occurs in the brick-and-mortar store, but everything else happened on the digital channel. So it's always more challenging to try to look at these two channels separately. I know this is a very common discussion in all different companies, but we are trying to have a more omni vision of the process. So despite the separate P&Ls to try to understand what's happening, we are trying to more and more look at this journey in an integrated manner because that is how customers see this journey. So this is just to try to summarize all the answers to your questions.

Next question is from Joseph Giordano, JPMorgan.

Paulo and Laurence, I want to further explore your productivity initiatives, particularly your renovations. You mentioned the new store concept. So how should we expect this to evolve, the delivery of renovations and new openings in 2026?

Let me start with the renovations. We completed 23 renovations in '25. We -- they were very concentrated in the end of the year, and this somehow also impacts the store dynamics in this period. So we have a clear expectation of starting to capture the impact of the renovations completed in '25 throughout the year 2026. This is one point. The second point is that the vector for 2026, we're planning about 20 to 25 renovations in '26. And the difference is that in this coming year in '26, almost all of these stores will already be in the Energia model, which has an even higher performance than our past models. So yes, we want to see the impact of these new renovations being captured as early as -- starting this year in addition to the capture of the impact of the renovations that we've completed in '25. Yes, this is certainly one of the most important levers to improve the productivity and the sales per square meter in 2026, and we will be exploring and having a very strict and close governance of these investments and to see this increase in our productivity. Now about new openings, we want to speed up new openings. We had 10 last year and what we want is 10 to 15 in '26. We need to carefully choose the locations. We want 100% hit rates. This is our goal. We need to ensure that we will be opening these new stores in a very good location, very strong location, not just for the sake of being present in a shopping mall or a specific location. We are coming to new locations as a new option for a store, and this has immediate impact on the total sales growth of the company. So in '26, we want to open 10 to 15 new stores following the same principle of having the highest assertiveness in the locations that we choose.

Our next question is from Danni Eiger, XP.

I have two questions. My first question is about your sales per square meter. I remember that a while ago, you started giving some guidance that you wanted to reach a level close to BRL 15,000 per square meter this year. And then you mentioned renovations as an important driver in addition to your journey in assortment, product and et cetera. So based on the reference that you gave for 2025, this looks like a relevant delta. So does it still make sense to follow this path? Or do you think that the target will only be reached later in the future? So how do you see the evolution of your productivity per square meter? And my second question is about the competitive dynamics. We are seeing the other players in your industry starting to renovate their stores following a similar path in terms of adjusting their assortment and products and brand positioning. So how do you see the competitive dynamics? You talked about a highly promotional environment, and I believe this is more related with the channel itself than the apparel dynamics itself. But I want to hear from you, how do you see the competitive environment?

Danni, thank you for your questions. As for our goal to reach close to BRL 15,000 per square meter for this year, we still follow the same direction. The initiatives and the impact that we expect, the governance, everything is still aiming at the same size of an opportunity. Of course, the speed and the baseline could make a difference and maybe anticipate the target for some categories and for others, this could be postponed a little bit. So there's a dynamic involved here. When we are looking at this as a target that we are still pursuing, and we will continue to pursue just like we have always done because the opportunities and the foundations in order to reach this goal and pursue these opportunities will continue the same. And we believe the opportunities still have the same size. So we still have the same size of opportunities. Of course, there could be adjustments to one size or the other, but we are following the same direction and we're still pursuing the same opportunities and the same target. Now you mentioned the competitive dynamics and similar initiatives from other companies. I think this is very interesting. I think in the end of the day, this is helpful to everyone. When we see that some of the elements that we are choosing as strategy that there are other players that agree with us and see the same opportunities. I think this is our proof that our market is maturing. I think it will end up strengthening all the players in the end of the day, and it will raise the bar for everyone as well. So the competitive dynamics will be even stronger and more interesting in the future, which further motivates us to improve further and improve the quality of our experiences to our consumers. I think it's only natural. I see this as a market that is healthily maturing and becoming more competitive and more challenging to all the players. You, who work in retail, I think it's an extra challenge always makes things more interesting.

The next question is from Joao Soares, Citi.

Paulo, I would like to understand what happened in quarter 4. I think the company had been gaining share steadily with all your initiatives in the Energia project. And I see these dynamics of the demand for entry-price products and the restriction in the credit environment, I think this is all related, interconnected. So within this context, how do you see this restricted appetite for risk? We saw [ Brades' ] team implementing the project about the concession model. You understand your client very well, private label. Wouldn't it be worth increasing the risk, increasing installment payments to be able to pay for a higher risk levels? So what are the plans considering the results in quarter 4? Will this change your strategy somehow?

Well, I will answer and Laurence as well. But I think in the end of the day, the dynamics that we saw in quarter 4 was a result of a larger movement. When we look at the macro environment and what is happening with the country and the base interest rates in the country, the fashion retail market perhaps was one of the last retail markets that suffered this strong impact. And this translated into what we said because in our surveys, we heard a quote from a customer that was very interesting. She said, this was the Christmas of small gifts and not big gifts. And this is new to us in this macroeconomic context of Brazil because we know the macro in Brazil, macro context in Brazil undergoes fluctuations and sometimes we will see situations like this. When I look at 2026, I have a more positive outlook because we have election years. But at the same time, we are expecting the interest rates to drop. So there will be a normalization of the competitive dynamics. We expect a normalization of the competitive dynamics in 2026. But I see this as something natural. This is part of the Brazilian reality. We have these fluctuations. We always joke that Brazil is not for amateurs. And I do think we will have plenty of opportunities to advance in our productivity and our results this year. Laurence, would you like to comment on the credit dynamics.

Yes. I would just like to add, and I think it's worth mentioning that since the C&A Pay implementation in 2021, we have been discussing with you how we are building predictive models and credit recovery. So I think this arsenal or this architecture of models is still very well segmented. And I think this has evolved as we get to know our clients better, our portfolio matures, and we know more and more about the behavior of these customers in our portfolio, how -- their payment behaviors, their shopping behaviors. So you're right, this has evolved. I think the operation is now very mature. And the result of this good performance in our delinquency indicators translate -- and starts with good credit policy. And I think this model has been working really well for us, and it is a technical model. We always highlight, we always stress that C&A Pay, particularly in the last few years, is acting as a relationship channel to boost customer recurrence and frequency -- shopping frequency and also communication with customers. We are studying more and more how to get closer and closer to our customers through communication and through C&A Pay. So what I mean is that there is some level of independence here, both technically and operationally. Our credit granting policy, our credit granting model follows a set of models that guide us about the risk appetite that we should have. Yes. And we want to continue working with a lot of discipline and consistency in terms of the use of this set of credit granting models that were built by us and that have done really well so far and have shown a lot of efficiency.

Yes. But looking forward, the plan is to maintain this restricted appetite for risk? Or do you see any room for revisiting this policy considering exactly what you mentioned to increase the touch points, that you now have a mature model?

Well, the result from our appetite for risk is actually based on a set of variables, and one of them is the interest rate -- interest rate, inflation rate, the level of debt of the Brazilian households, the behavior of our cohorts, the approval rate. This all combined. And we need these variables to change in order for us to change our appetite for risk. And this is not what we are seeing right now.

Our next question is from Mr. Alexandre Namioka, Morgan Stanley.

I was not here for the start of the call, so I don't know if you already addressed this. And if you have, I apologize, and I can watch the replay later. But I want to talk about competition, but now focusing on the entry of some international players in Brazil. Can you share with us what your performance is in some of the marketplaces where these international players are entering versus the rest of your store base?

Alexandre, thank you for your question. I know it sounds counterintuitive, but this has already happened in the past. So this is shown in our gray hair. And we have -- we see the same old story now. The entry of a new international player in a shopping mall where we have a brick-and-mortar store is actually a traffic accelerator. And consequently, a sales accelerator for C&A itself. I know it sounds counterintuitive, but this is what happens. And we have seen this consistently happening. The of -- the international player that you mentioned, all the stores they're opening in shopping malls where we have brick-and-mortar stores. In all of our stores, we saw an increase in our sales compared with the rest of the stores. So it's always a good thing because we have higher traffic. We have more people interested in shopping. People are -- they always go to all stores. People don't go to a shopping mall to visit one store and then go home. No, they will walk around and visit many stores. And when they are attracted by a new store, a new international brand, they will still visit our store. And we -- that's how we make -- take advantage of it and increase our sales. So as I said, I know it sounds counterintuitive, but each new store they open, it's higher traffic for us.

Our next question is from Eric Huang, Santander.

Paulo and Laurence, going back to your investment agenda for '26. So you mentioned a higher number of new openings and investments in your logistics model. We know that the CapEx will naturally increase. But looking at the OpEx, what does this represent in terms of increased OpEx? Looking, for example, at quarter 4, your G&A line had a lower increase. So how can we expect your expenses to evolve this year because these are possibilities for adjustments in case you don't see the evolution that you expect for your sales this year?

I will answer this one. So if we look at the context we're living in, I mean, internally, the context of the implementation of the Energia initiatives, this places us, as you heard from Paulo, in a moment of transformation. We have several initiatives being rolled out in different areas. So we are reinforcing the work of the different areas. And of course, this will entail higher expenses. However, many of these initiatives aim to review our processes and review our structure with a productivity agenda, looking at adoption of process intelligence and improvements. So this is happening in parallel with the initiatives to strengthen the different areas. Now having said this, I think it's also important to highlight that we were able to improve our capacity to react, and we are seeing good agility in the adjustment of our structures, establishment of priorities and selectiveness about what we should do and what we shouldn't do. We're having a lot of diligence in defining the scope of the projects, the cadence of our initiatives. This is also a very important move, the way we are conducting these initiatives within C&A. And also in '26, our agenda is not only larger, but it also covers not just the strategic initiatives, but also productivity-related initiatives. So our ambition for this year despite the increase in expenses and the strengthening of our areas, we -- our objective is to still be able to deliver expense dilution in the year 2025. So this is our ambition to start capturing opportunities and be able to dilute our costs in '26, [He corrects himself] for the year 2026.

Our next question is from Isabella Lamas, UBS BB.

Paulo and Laurence, I want to go back to the entry-price products. This is a very important point to clarify your performance and the expectations looking forward. So how do you plan to operate your assortment throughout the year? You can correct me if I'm wrong. But you said there were stock-outs for entry-price products or lower-priced products, but you are solving the problem of the stock-outs now in quarter 1. But does this mean there will be a change in the structure of your pyramid? I mean, throughout the year or even in the mid- to long term, will you be focusing on basics more so we could expect a reduction in your average ticket? And also, what is your price positioning compared with your competitors? When we look at the added value, if the base of the pyramid will have a higher representativeness, what is more important? What will become a differentiator so that consumers choose buying with you and not with your competition? And also, I have another question about Beauty. In quarters 3 and 4, we saw a significant increase in your margin due to the phaseout of fashiontronics. But you also mentioned that the Beauty line itself is doing really great, that it has a naturally higher margin. But do you still see room for improvement maybe in subsegments of the Beauty category? Have you -- you are showing this in your layout in the Energia model with highlight to Asian products. So do you still have room to evolve in beauty in addition to the phaseout of fashiontronics to further help the results for the year?

Thank you, Isabella, for your questions. These are very good questions. So let us start with the entry-price products. C&A has a long-standing tradition and strength in the entry-price product category. We were always very good and robust in our capacity to create value to our customers, the value perceived in this line of products. So regarding the quarter 4, the opportunity that we saw and not just for this specific moment, but something we have been doing in the Energia strategy is to revisit each of the categories and understand how to strengthen our assortment and the value proposition as a whole. And very often, when looking at our categories, we thought that the greatest opportunity or one of the greatest opportunities was precisely related with strengthening the top of the pyramid due to the strength and tradition -- long-standing tradition that we had at the base of the pyramid. So when we're talking about the adjustment that we're making, what we're doing is resuming the strength that we always had, and we're covering, restoring the strength that we always had. It's not about broadening our assortment or staying with basics only or limiting our collections. This is not what we mean. Not at all. We are talking about restoring the balance because somehow in quarter 4, this balance was harmed by two verticals. First, and perhaps both have the same origin, not just the atypical temperatures. So we had cooler temperatures, so there was less interest for high summer items than we usually have at this time of the year. And the other one has to do with this macroeconomic scenario, the occasional gifts in Christmas that we talked about with a higher conversion or orientation of our conversions to entry-price products. So this is more of a one-off adjustment to what happened, one-off in this quarter 4 than a strategic change in the pyramid. It's very important to clarify this. Now in terms of the price positioning, will there be any change? No. This is just an adjustment, an adjustment as a consequence of the movement that we undertook in the end of the year. The price positioning will remain the same. We will keep monitoring category by category and all the price levels of all our competitors. And that is why we are seeing clearly this market condition and this opportunity. So no, there will be no changes, no strategic changes looking forward. This is just an adjustment, and we want to restore the strength that we always had. And this is happening at a quick pace because we know how to do it. We know how we can recover our strength in this area. What's important to share with you in this dynamic about the base of the pyramid is that we started provoking in the market a revision of the basics themselves. If you look at our Peruvian cotton lines, which have been a huge hit, a huge success in customer preference, that's exactly what we see that as you bring a higher quality tone to your basics, you open room to start working with new price levels and then you make your pyramid even more robust in middle products. So from entry price to middle-price products, you start to see more opportunities. And this is what we are talking about here. This is the story that we want to tell. Now in respect to Beauty, yes, the FT comparative margin, we still have a comparison margin until quarter 3 this year. So by quarter 3 this year -- until quarter 3 this year, we will still have a problem with the comparison with fashiontronics. We still have some remaining comparisons with fashiontronics. But if you look at Beauty, of course, there are subcategories within the Beauty category, and they have different margins. They have different turnover rates. So working on this mix of subcategories within the Beauty category will certainly be a driver and an opportunity to keep expanding our margin in Beauty. But of course, you have to improve your assortment, your value proposition and customers need to see this improvement. So it's a journey that we need to build. As I said, it's a journey, but we are paying close attention, and we're very focused in increasing our sales per square meter within the category and then how can we further expand our margin, not just by gaining scale, but also by managing the different categories.

The next question is from Joao Soares, Citi.

Sorry, I just have a follow-up question. Looking at your cash position today and monetization for 2026, how do you see the capital allocation? Any acceleration in your CapEx, rebuy, anything like that?

Laurence, would you like to answer this one?

Yes. Well, we have the Energia plan, and I believe this could be a possibility. Since the required CapEx will be funded with our cash, we will try as much as possible to maintain our indebtedness at very low levels, particularly if the interest rates remain high. And the excess cash, yes, it could be distributed in the form of a larger payout or maybe buyback. But the main priority, considering the context and the current journey we're on to recover and strengthen the company, strengthen our business model and the large -- the important major opportunities that we have to continue improving our sales per square meter, as you heard from Paulo, our top priority now will be the -- to carry out our very robust CapEx plan and follow the same direction. And if we have any excess cash, yes, that could be distributed to our shareholders. Sorry?

Is there any guidance for CapEx?

Maybe we're expecting a 15% to 20% increase. So an increase of 15% to 20% in 2026 versus 2025.

This question-and-answer session is now closed. Now I'd like to turn the conference back to Mr. Correa for his final remarks.

First, I would like to thank you all for attending one more call with us. I believe the results of 2025 result from a very profound transformation that we are carrying out with a lot of discipline, a lot of confidence and a lot of focus on our customers. 2025 was yet another year of our company standing out, and I would like to recognize and thank our team because this wouldn't be possible without you. We will continue to follow our purpose of impacting people so that they can be who they want to be through fashion. I send you my heart, and I will meet you at C&A. Thank you.

For unanswered questions, you can contact the IR team directly. This conference call is now over. Thank you all for attending, and have a great day. [Statements in English on this transcript were spoken by an interpreter present on the live call.]