C&A Modas S.A. ($CEAB3)

[Interpreted] Good morning. Welcome to C&A's First Quarter 2026 Earnings Conference Call. Joining us today are Paulo Correa, CEO; and Laurence Beltrão Gomes, CFO and IRO. This presentation and the earnings release materials are already available in the results center on our IR website. We would also like to inform you that this event is being recorded and simultaneously interpreted into English. [Operator Instructions] The recording of this conference will also be made available on our IR website. [Operator Instructions] Before proceeding, we would like to clarify that any statements made during this conference call regarding C&A's business outlook, projections and operational or financial targets constitute beliefs and assumptions of the company's management and are based on information currently available to C&A. Forward-looking statements are no guarantee of performance and involve risks, uncertainties and assumptions as they refer to future events and therefore, depend on circumstances that may or may not occur. Investors and analysts should understand that general economic conditions, industry conditions and other operational factors may affect C&A's future results and may lead to results that differ materially from those expressed in such forward-looking statements. Now I'll turn the floor over to Paulo, who will begin the presentation.

[Interpreted] Thank you. Good morning, everyone, and thank you for joining us in another earnings conference call. I will start with the highlights of the quarter. We started 2026 with a same-store sales of apparel of 4.8%, which represents a 22% growth in net apparel revenue over the last 2 years. At the same time, we also delivered a significant improvement in apparel gross margin, which reached 55.5%, an expansion of nearly 1 percentage point. The beauty category continues to gain relevance and is growing at a faster pace. posting an increase of approximately 16% in Q1. This dynamic of apparel margin expansion, combined with a higher share of the beauty mix in the company's portfolio resulted in a 2.3 percentage point expansion in merchandise gross margin for the quarter. Digital growth was also a highlight with a 29.2% increase in website and app sales year-over-year. This led to an increase of 1.5 percentage points in penetration, which reached 7% of total sales in the quarter. We also continue to invest in our main growth levers. And as a result, CapEx for the quarter was 51% higher year-over-year, totaling BRL 61.2 million with a primary focus on technology, logistics and a higher number of store renovations. Our financial discipline characterized by efficiency in our investment strategy and continuous deleveraging also contributed to a 77.7% increase in pre-IFRS 16 adjusted net income for the quarter, reaching BRL 12.6 million. Finally, we ended the quarter with an ROIC of 20.9%, 2.8 percentage points above Q1 '25. Now on the next slide, I want to share a bit more detail on our performance for the quarter. But in order to do that, it's important to provide some context. Like we discussed in our last earnings release, we had a temporary imbalance of our product pyramid, particularly in the volume of entry-level products in Q4. So in December, we identified the problem, and we mentioned this in our earnings conference call, and we moved quickly to rebalance the assortment. The goal was to rebuild our product structure, and we executed this process with great agility. At the same time, we accelerated merchandise receipts due to an earlier Carnival and sped up our collections renewal process. As a result of this rebalancing and specific anticipation, we saw a gradual increase in product availability in stores month after month, which was accompanied by a progressive improvement in sales performance. Furthermore, Test & Learn, combined with our commercial intelligence hub and dynamic pricing models contributed to greater collection accuracy. This set of initiatives allowed us to once again improve our gross margin for the quarter, achieving an expansion of nearly 1 percentage point in apparel. More importantly, these results reinforce our confidence in the execution of the Energia C&A initiative. And we remain convinced that there are still many significant opportunities in-house to continue this journey of increasing our productivity per square meter. About our transformation journey, I want to share with you our main achievements under Energia, which has now entered its final year of execution. Starting with the product pillar. We continue to evolve consistently in the company's key categories with technology playing an essential role in collection development. Product development is no longer exclusively a creative decision. It now incorporates the use of market data and customer behavior with tools that use this information to guide our professionals from creation to the final assortment planning process. This allows C&A to have an even greater relevance for our customers, increasing the accuracy of our collections. For example, we have consistently adopted the Test & Learn model, which means testing smaller capsules, learning quickly from customer response and scaling only what works well. And that is exactly what happened in Q1. We accelerated collections and scaled to stores what we tested in the past and achieved great results. As a consequence, we had good performance in key women's categories as well as in our first winter collections, which came in March. Another important advancement is dynamic pricing 2.0, which continues with the maturation of its algorithms, bringing even more value within the life cycle of our products. Finally, the beauty category continues to gain relevance in our portfolio with a value proposition that complements our apparel core. This category grew by almost 16% year-over-year. Now moving on to the omnichannel journey. I will start by talking about the offline part of the journey. We strongly believe in the potential of our store base. It is now a strategic asset for productivity gain. As you know, we opened the new Energia store concept, which continues to see significant growth above the company's average. The highlight has been the consistent increase in customer traffic. This new concept is now being implemented in all new store opening and renovations of the existing store base. Our focus is on elevating customer experience through a clearer, more inspiring fashion presentation with an even more seamless journey. This approach has consistently shown productivity improvements with a higher conversion rate and better brand and product perception. As disclosed in our CapEx budget for 2026, we expect to carry out 20 to 25 renovations in 2026. To date, we have already started the renovation process in 12 stores with grand reopenings expected between the second and third quarters of the year. Regarding new stores, we continue prioritizing the quality of locations to ensure a higher success rate for those investments and new stores. The strategy remains focused on high-traffic locations that align with our brand profile. For this year, our forecast is to have between 10 to 15 new stores opened. And in Q1, we had four stores under construction, two of which have already been opened in the state of Santa Catarina. Now moving on to the online journey, which has been a highlight of the quarter. We believe that digital is not just a sales channel, but a key part of our customers' omnichannel journey. We continue our digital evolution based on three fronts: first, better customer experience; second, greater operational efficiency; and third, greater integration with the physical stores. and we continue to make continuous progress in navigation experience, speed and personalization of the journeys. Last year, we made great advances in usability through the implementation of new tools and the intensive use of AI. For example, product search and recommendation have had an impact on conversion and customer experience. The app also contributes to a closer relationship with our customers, not just in a transactional way. For this reason, it concentrates more engaged consumers with a higher purchase frequency and greater repeat rates. We continue to consistently advance the development of new digital functionalities. A highlight is the Home for You feature the personalized virtual storefront that increases offer relevance for customers. Another important tool is the AI personal shopper, which enables a more contextual search and a more efficient conversational journey that leads to higher conversion rates and a stronger integration with brick-and-mortar stores, we are intensifying the shift from store model, an initiative that has contributed to expanding assortment, greater efficiency in inventory usage in stores and increased sales conversion. Furthermore, the increasing use of data, AI and automation has strengthened our operations as a whole, not only through more precise product recommendations, but also through greater agility in customer service, elevating the clients' experience with the brand. And we are now working hard on the payment step on the website and app. Our focus is to streamline the purchase journey and reducing friction at the point of conversion. Moving on to brand and relationship. We continue working to strengthen our brand positioning, highlighting our connection with the customer as a brand that is connected to our consumers' real life. And this consistency is key to strengthening brand recognition and emotional identification with our customers. It's worth noting that we have been part of the lives of millions of Brazilian women for 50 years now. And precisely for this reason, we chose to start our celebrations with jeans, which is one of C&A's most iconic and recognized products. And we started strong. We were present on the red carpet of the 2026 Oscars. Yes, the Academy Awards, one of the most influential stages in global culture with a dress created from jean pieces from our collections in an event that marked the start of our Jeans Week. As part of the celebration, we continue with an innovative approach by placing the intelligence of an editorial perspective at the center of our product creation through an initiative that values the role of fashion editors as curators that can translate trends and cultural repertoire into relevant collections for our customers. And just like we did last year, we were also one of the supporters of Todo Mundo in Rio, which took place this past weekend with Shakira in one of the largest music events in the country, gathering over 2 million people in Copacabana, all in contact with the C&A brand. This is how we enter the third year of the Energia C&A cycle with clarity on the continuity of our growth journey. And we are already looking ahead to the next strategic cycle. We are mapping out opportunities, assessing strategies and formats that allow us to advance on a journey of consistent growth. Spoiler. In this context, we will launch in May our new athleisure brand, ACE with a store in Sao Paulo that will serve as a pilot for this new business model. Now I turn the floor over to Laurence.

[Interpreted] Great. Thank you, Paulo. Good morning, everyone. I will continue now with the presentation focusing on our financial performance for Q1 2026. Starting with net merchandise revenue. Net merchandise revenue reached BRL 1.5 billion, a 2.1% increase year-over-year. In apparel, we delivered same-store sales of 4.8% in spite of the high baseline level of Q1 '25. On a 2-year basis, net apparel revenue grew 22.7%. As Paulo already mentioned, net beauty revenue increased 16% year-over-year. Now moving on to merchandise gross margin. We continue to consistently expand apparel gross margin, which increased 0.9 percentage points this quarter due to a more efficient sales management. Additionally, the quarter had an important component of collection renewal that contributed to this margin expansion. It's worth noting that throughout the quarter, we used dynamic pricing as well as targeted promotional initiatives to ensure inventory renewal while preserving profitability. As a result of the dynamics from telecom went down and the consequent higher share of beauty products, our merchandise gross margin expanded 2.3 percentage points year-over-year. Moving on to the next slide. Let's now talk about operating expenses. In Q1 ' 26, pre-IFRS 16, SG&A totaled BRL 770 million, up 4.6% year-over-year. I'd like to highlight that despite the execution of the Energia initiative and the strengthening of our structure, we managed to keep expense growth in line with inflation and below the growth of net apparel revenue which is our core category and which accounts for over 90% of our merchandise revenue. On this slide, what I would like to remind you is that the company still has two significant comparative base effects that are likely to continue in the coming quarter and that will impact expense dilution. First, the end of the revenue from the Bradescard partnership, which ended in Q2 '25. And the second effect relates to the lower revenue resulting from the completion of the telecom category wind down that occurred in Q3 2025. About C&A Pay now. We continue to position C&A Pay as a relationship lever focused on supporting retail sales. As a result, we delivered 6.1% growth in the portfolio up to 360 days and reached 9.4 million cards issued. Its share of retail sales reached 26.7%, which is 2.5 percentage points higher than in Q1 '25. At the same time, we have maintained a more selective credit policy given the current environment and high interest rates. As a result, delinquency indicators such as NPL 90 and net charge-offs on the portfolio continue to improve. NPL 90 reached 14.2% on the portfolio up to 360 days, an improvement of 4.3 percentage points against Q1 '25. At the same time, net charge-offs on the portfolio up to 360 days reached 2.9%, a reduction of 0.3 percentage points in the quarter. Regarding C&A pay expenses, we continue with tight control, which allowed a 21.8% reduction in the segment SG&A year-over-year. As a result, operating income reached BRL 23 million in the quarter, up 18% year-over-year. Now I'll briefly talk about the delinquency indicators. The idea here is just to share with you that the main indicators such as NPL 90, net charge-offs and coverage continue to show improvement and are quite healthy. Now let's talk about adjusted EBITDA. Our adjusted EBITDA for the quarter reached BRL 116 million with a margin of 7.2%, which represents a 6.3% decrease year-over-year and a 0.5 percentage point decrease in adjusted EBITDA margin due to the operating deleverage we have explained earlier. Next slide, we'll focus on pre-IFRS adjusted net income, which reached BRL 12.6 million in Q1 '26, up 78% year-over-year. The adjusted net margin grew 0.4 percentage points, mainly due to the financial deleveraging caused by the reduction in the company's debt level. Moving on to the next slide, capital allocation and investments. Total CapEx for Q1 '26 was BRL 61.2 million up 51.5% year-over-year. And this reflects the execution of our 2026 investment plan. Investment in renovations grew by 37%, reflecting the start of the Energia concept rollout with 12 renovations currently underway. We also began investments in the Northeast DC and in automation processes for the Sao Paulo and Santa Catarina DC. It's important to note that in spite of this CapEx acceleration, LTM ROIC reached 20.9% in Q1 '26, up 2.8 percentage points compared to Q1 '25. This reflects the company's discipline in capital allocation. About working capital, we had an 8-day increase in the cash conversion cycle, mainly due to the early receipt of stock. We have a different product mix now without telecom. And we have a recomposition of entry-level product assortment and also early receipt of winter products, which contributed to this effect. It's also worth highlighting that inventory aging is healthier than last year. The cash consumption in Q1 is mainly explained by the performance we had in Q4 '25, given that approximately 70% of Q4 sales are collected in Q1 of the following year. All right. To wrap up the financial data, -- we'll now move on to the last slide in which I will comment on the evolution of our debt and liquidity position. We continue our process of financial deleveraging. And as a result, we delivered another reduction in the company's financial leverage, which reached 0.1x compared to 0.5x net debt-to-EBITDA ratio in Q1 '25. We also informed the fourth share repurchasing program, adding up to approximately 5% of the current shares. And the goal is to add additional value to shareholders and optimize the company's capital structure. With that, I finish my comments on the financial performance, and we can now move on to the Q&A session.

[Operator Instructions] Our first question is by Rodrigo Gastim with Itaú BBA.

[Interpreted] I have two questions on my side. The first is about sales. I think that there's been a lot of discussion among investors about the winter dynamics this year, considering what happened last year. So can you please tell us -- I know this is only the first month of Q2. But based on what you've seen so far and on your expectations for Q2, considering the high baseline last year of a very strong winter, we would like to understand your take on sales evolution. And Laurence, I would like to hear from you about the gross margin dynamics. drew our attention in Q1, but you also have a high inventory. So will you need more markdowns to reduce inventory? Will that hurt your margins in the coming months? So if you can tell us a bit more about your gross margin dynamics and how structural gains can help with this turnaround?

[Interpreted] I will start by speaking on the winter dynamics. This is an expected discussion for this time of the year. I usually say and you're probably tired of hearing that winter as a movie and not a picture, not simply a snapshot. We start the assortment in March, and we work with higher volumes till September. So it's a journey. And of course, we are constantly comparing the journey with last year's season, whether it's warmer or colder, which will impact the dynamics and the results. So what is our take on this? We are actually quite confident. I understand that our winter collection is probably the best winter collection of all time. And it didn't come out of the blue. It came from a strong work on the Test & Learn methodology, which we started doing last year. So there are many things that you see in stores today that are lessons learned at the end of the 2025 winter season. So an example, last weekend in the south of Brazil, the level of sales explosion in times like this is really strong. So I'm very confident, and I believe that we're going to have a second quarter that can be just as good as or even better than Q1. But of course, the temperature has an impact. Of course, there are forecasts that are flexible. Of course, it's not written in stone, but this will influence the short-term numbers. But I'd like to look at the whole picture. And when we look at Q2 plus Q3, I would say we are very prepared for this story. We started Q2 with an exceptional inventory level. We have many campaigns that are underway like we did last week with Todo Mundo no Rio. This strengthens the visibility and clarity of the C&A brand to consumers. So we are optimistic. Of course, we are aware of what's happening in the market with this whole discussion on debt levels, but we are very prepared to play this game. And based on the experience we had in recent rounds, we can have a great performance at the level we've been achieving so far.

[Interpreted] Great. That's very clear. Now Laurence, can you talk about gross margin and what actually happened in Q1 and the recurring structural gains from now on?

[Interpreted] About gross margin, I think Paulo commented on that briefly. This inventory freshness, the recomposition of inventory in Q1 with the positioning and the confidence we have as well as the signals we saw when the temperature dropped reassures us that we can maintain our consistency of gross margins in Q2.

[Interpreted] Our next question is by Vinicius Estrano with UBS.

[Interpreted] I have two questions here on my side. First, about FX. I think that the Brazilian real has appreciated and you talked about your winter season inventory. Can you tell us about the FX impact on your gross margin from now on? What about pricing elasticity? Does it make sense to be a bit more aggressive in prices and absorb gains of a more favorable FX rate so that you can capture more gross margin. Now can you break down the sales performance by warmer and colder regions? If you look at the South and Southeast compared to the Northeast or north of the country, is there a great difference in performance among those regions?

[Interpreted] Yes, about FX, there are two things I'd like to comment on. The FX rate right now is facilitating the margin of imported products. However, we do have hedging policies that end up giving us more stability throughout the process. Regardless of whether it's going up or down, we have more stability when it comes to this. Now you saw what happened in Q1. At the end of the day, we understand that gross margin is very much connected to how accurate and precise the collection is. And when it comes to this, I would say we are in a good position to have a resilient gross margin pathway forward. Now about the breakdown of performance by region, warmer or colder regions. Again, when there is a cold spell when the temperature dropped in a colder region like Sao Paulo or the South region, the sales performance explodes. And this can completely change the performance of the quarter. So in warmer days, these regions face a bit more challenge, especially when we compare to the previous year because temperatures impact performance, there is no doubt about that. But in the Midwest and the Northeast, the influence is not so great. And when we hold campaigns like we did in March, the Jeans Week or the fashion editors campaign that we held with the editors working as curators, this really boosts performance of warmer regions. So it all depends. I cannot see any upward or downward trend in those regions. If we focus only on this early winter season. I think it's too early to talk about major change. But I feel reassured that we have had a positive response when there is a cold spell in colder regions, and there's also resilience in the all year collection in warmer regions.

[Interpreted] Our next question is by Eric Huang with Santander.

[Interpreted] Looking at consumers, despite the improvement in assortment and mix throughout the quarter, I would like to understand the traffic dynamic in stores. How are consumers behaving? And how much of the sequential improvement comes from execution and how much comes from a better flow dynamics or traffic flow? And now about inventory, thinking about the qualitative part of all this, are you prepared for a less intense winter season. I want to understand your reactiveness when it comes to inventory dynamics and inventory building throughout the winter season?

[Interpreted] Okay. I will start with consumer dynamics. Q1 was not characterized by an increase in flow. There has actually been some stability in customer flow. What boosted our growth more? Was it traffic flow or our commercial evolution -- commercial proposal, which evolved. I would say it was our commercial proposal. And we have to understand what happened in Q4 and Q1. When the macro economy starts to make pressures on consumers' income, they go after more versatility and promotions. And so this is a very characteristic combination that has been happening now in early '26. We continue to see consumers who are conscious about price and value and very interested in promotions. So if you go into the stores, you'll see -- and if we took a picture of the stores compared to 1 year ago or 2 years ago, you will see a more intense price communication, drawing consumers' attention, saying like, oh, look at what a great deal you have here or look at this very versatile item. So this is a more intense conversation we've been having with consumers, and we don't see any changes in the short term. We believe this will continue to be a reality while interest rates are at this level and families' debt levels continue high. So I think we've had a good performance, and this was very welcomed by customers with a good perception of the value of our collections. Now about reactiveness to the winter season. We started doing this last year. And I would say we have two main factors impacting here. The first is very short term, which is the understanding of what the cold style is. And we know that for each location, we have a preorganization for each store depending on where they are located and also based on temperature forecast. So the way we display the collection to consumers to consumers may vary depending on this. So when we know there is a cold spell coming in the South, we prepare the store for that cold spell. The way we display our products in store changes, and this makes all the difference in conversion. So going back to your first point, less dependence on a higher shopping malls traffic. And the second point is related to the collections reactiveness per se. So in the all year products that have a higher turnaround because of warmer temperatures that may happen sometimes, we now have in our chain and systems prepared to trigger new orders or deliver previous orders faster so that we can react in the different cities where we operate. So winter products reactiveness is lower because the winter base is imported. So the cycles are longer. However, for the first time, I'd say we've been able to react faster. Of course, the cycle is longer, but with the test and scale methodology, we've been able to test some products last year, and we scaled them in '26. And this has increased our confidence in the precision of our winter collection. So this is what I have to say about winter season reactiveness for now. That was very clear. Congratulations on results, Paulo.

[Interpreted] Our next question is by Danni Eiger with XP.

[Interpreted] Congratulations on your results. I have two questions. First, thank you for your spoiler about ACE concept store. Can you tell us more about the idea of this concept? You tried this movement with the double doors a few years ago, 3 years to 4 years ago, even earlier than this whole health and wellness movement -- so can you tell us more about what you are planning? Are you going to test in one store and then try to scale? Is that going to be connected to the C&A brand? Or is that a more separate brand? So can you tell us more about that? And my second question is about the product pyramid. You made some adjustments. I know this is quite clear, but I want to understand your take on a longer horizon about brand positioning because you focus very much on product improvement and quality improvement to keep pace with the price readjustments -- and you also tried to continue with this in Q4. We saw some restrictions, but to complement the sales evolution by square meter, what can we consider in terms of the product pyramid and the strategy between the different categories? What will be the main levers to sustain this productivity improvement in stores?

[Interpreted] Danni, okay. I'll start with the spoiler. Yes, like I said, it's a spoiler. So I won't be able to answer all your questions right now, but we're working to get together with investors at a certain point in time this year to give you further details about this. But like you said, we've had an evolution and a highlight in this category since the beginning of the Energia journey. And as part of this evolution, the collection evolved and the value perception evolved as well as the product development evolved. And so the category perception improved as a whole, sales per square meter. And based on that, we ran a few tests with double door. And the test started with one store and then we expanded, and we now have some stores with a double door concept, and we learned even more about the athleisure dynamic. And we are now undergoing a third phase, which is a more independent pathway for C&A. So we have a new format. In May, we will invite you all to come and visit to see this new format. And we believe there is a significant opportunity here to -- based on the lessons we learned and the responses we got from our consumers, explore this journey. And so we are going to have this pilot. And in our test and scale philosophy, we'll see what works well, make adjustments if need be, and then we'll scale if the potential that we believe is actually there. So this is only the beginning of the conversation. I wanted to incite your curiosity, but that was on purpose, and we will invite you all to the opening of the store now in the month of May in Sao Paulo that as soon as we have more details, we will get in touch with our investors and analysts to tell you more about our ambition with this business. Now you talked about the product pyramid. Well, first, I would say that since the beginning of the Energia strategy, our goal was to have an evolution in our brand perception, collection perception and value perception. So in the last 2.5 years, we explored the possibility to change the assortment strategy in different categories, and this was very successful. Of course, the macro context was harsh as a consequence of the high interest rates that we're seeing, but we saw a change in consumer behavior, and that's what happened in Q4. We rebalanced the offer. And now we are pretty much thinking about versatility and value perception and the reaction came right away. We knew how to correct this, and we made the corrections needed, and we are now much more precise in our offers. Now looking ahead, the opportunities in terms of value perception, they continue. So we will continue to explore and expand these possibilities. And we will adapt this to the different store profile. So the concept stores will have more assortment of these products, whereas stores in more popular locations will have a bit less. This is part of the dynamic assortment concept that we've been working on. We want to have different assortments by store based on the needs and preferences of that customer base, that specific location. So the opportunity is there, and we will continue to take that into account. But of course, we adapted our strategy to the macroeconomic environment.

[Interpreted] Great. That's very clear. Looking forward to visit the new store.

[Interpreted] You will get an invite.

[Interpreted] Our next question is by Felipe Rached with Goldman Sachs.

[Interpreted] Can we talk about cost looking ahead, second half of '26 and first half of '27. The FX rate is helping, as was already mentioned in the previous question. But with the macroeconomic condition, we saw the prices of some raw materials, especially polyester and cotton under pressure. And we also have pressures on logistics that can impact the cost of imported products. So do you expect cost pressures in the medium term? And what can be done to offset that and maintain gross margins?

[Interpreted] Well, the cost dynamic per se, just like I said, this is all very recent with the crisis in Iran, this led to an increase in oil prices and the synthetic materials that our byproducts of oil are now -- is now impacting readjustments. But this is all very recent, very new, and we don't know how long this is going to last. But we've had good conversations with our suppliers, and we don't see any major impact or major threat to margins right now. Of course, we'll keep track of this over time. But right now, our margin at the end of the day doesn't suffer much because the FX rate helps, but the polyester cost goes up. So this one offsets the other. But the coming months will be decisive in the understanding of how resilient the FX is or the prices of synthetic materials.

[Interpreted] Our next question is by Nicholas Marvan with JPMorgan.

[Interpreted] I have two questions here. The first is about Q1. Can you please tell us about the different months of Q1? Did it start slowly and then accelerated in March? Or how did it go? And the second question is about digital. I would like to understand the profitability of this channel and how it evolved in the last 12 months?

[Interpreted] All right. Well, in our earnings conference call, we don't talk about the monthly numbers, but I think it's important to talk about our reality here. We ended Q4 with some homework to do, which was to rebalance the product pyramid, especially our entry-level products. And that's what we did starting in December, but that was intensified throughout Q1. So of course, this had an impact on our growth curve which was progressively growing throughout the quarter. That's the greater clarity we have when it comes to the sales evolution throughout Q1. Now about digital. I think this is something we can also see in our gross margins. This is not growth at all costs or at the expense of buying traffic. This growth was a consequence of a better experience level and greater integration with physical stores as well as customer experience evolution with more personalization and technology embedded with more seamless journeys, which have impacted the conversion rate directly. This is the main factor boosting our performance in Q1, and we're very confident it will continue in the coming quarters. About profitability, we had zero impact. We did not fund this growth with margins. This is a personal belief I have. We want this channel to be a channel that adds value to C&A rather than just attracting flow. So we want sales with margin.

[Interpreted] Our next question is by João Soares with Citi.

[Interpreted] I will talk about something you have already mentioned, but I would like to have a different perspective. Looking at Q2, we're used to seeing a C&A outperforming the rest of the market. You had a good recovery compared to Q4 because you had a route adjustment. But looking ahead, what are the main levers that reassures C&A to regain share? Is that your reactiveness or is that related to credit origination. We see a higher penetration of C&A Pay this quarter. So with the Desenrola 2.0, will that actually help your strategy? What gives you confidence about share gain? Now about expenses, we saw the SG&A per square meter accelerating compared to last quarter. And considering that you're opening new stores and you talked about AI and automation. So what can we how can these moving parts impact the expenses for the rest of the year? Do you have any guidance to give?

[Interpreted] Okay. João, I'll talk about Q2 and the levers and then Laurence will talk about expenses. Well, at the end of the day, our growth playbook remains the same. We are focused on the Energia initiatives. And we still have many opportunities here in the category element. There are categories that have had their assortment expanded and their participation in physical stores expanded, and that is increasing the sales per square meter -- and our productivity. So this will continue to be a growing focus for us this year. Now about reactiveness, that's another key element in our game, especially in turbulent times. The more turbulent the times are, the less we can make mistakes and the more we have to be able to react. And this will bring consumers closer to us so that we can Test & Learn, test and scale and offer consumers what they want. So C&A reactive level will increase. That's a fact. Now another element is the experience dynamic. And I would like to focus on two factors. First, renovation. Renovation will be an important driver for growth in Q2. The Energia stores have been bringing a clear leverage to us. So this will be an important lever. And the other one is digital. The advances we saw in Q1 were not by chance, and this is not going to stop. It will continue throughout the coming quarters, and this will bring another growth driver. And the third element is that we are celebrating 50 years of C&A in Brazil in 2026. And we've been communicating this to our audience. Communication is another key driver for '26. And we had fashion editors, the jeans campaign at the Oscars, Toda Mundo no Rio, and we have other surprises, including Rock in Rio, which we have already announced. So the brand will be more top of mind for Brazilians, always focused on the celebration of 50 years of C&A in Brazil. So that's a very important third element. So if we face some headwinds because of the macroeconomic environment, we focus on Energia to offset all that and boost C&A's performance. And Q1 was a small sample of everything that we'll see in the future.

Right, João, I will start by talking about SG&A. We talked about this briefly, but the main issues related to G&A in Q1 was the greater volume of products processed in logistics. And that was mainly due to the recomposition of the pyramid base, P1 and P2. So this normalization process that we saw throughout Q1 and the commercial strategy to bring winter products earlier. And so P1 and P2, this base recomposition required more processing and the push and pull cost that was a bit higher as well. So these are the main factors here. And of course, when you look at dilution, the baseline for the Bradescard revenue last year and also the revenue cell phones last year and that wind down of telecom also impacted expense dilution in the quarter. An important point here in the study that Paulo mentioned and that we've been talking to you about seeing a moment of having strategic awareness and clear initiatives with Energia, strengthening several areas of the company, strengthening product journey, both physical and digital journeys. At the same time, we've been working hard to review structures, processes, adopt technology. So we've been working a lot to improve productivity. while we build something new. So I think it's only natural to see expense control aiming to have a positive impact on the bottom line. But here at C&A, we go beyond expense control will make it feasible for us to have top line levers and other initiatives. So that's our mindset right now when it comes to this line item. And yes, we believe that even with the advance in new stores this quarter, we have seven new stores that were opened in Q4 '25. But even with the new initiatives, strengthening all of these different areas and all of that, we still believe it's possible to have some expense dilution for 2026 as a whole. So that's our aspiration and our goal.

[Interpreted] Let me just add something here. I forgot to talk about C&A Pay. We are not going to risk credit more than we do today. We've been very conscious in our operations here, and we have seen evolution in all of our delinquency indicators and quality of our portfolio. And the increase in C&A Pay penetration has come mainly due to the loyalty of our consumers. We see more use of C&A Pay in the transactions with C&A and repeat purchases from our C&A Pay customer base, and we will make even more efforts to make sure that this share increases, but credit will not be granted just to increase sales. That's not part of our equation right now.

[Interpreted] And can I also add something here? We continue with great technicality when it comes to credit granting. So we're very loyal and coherent to our credit granting models. We do not intend to abandon this. We want to continue with our loyalty to our architecture of tools for credit printing and credit recovery. Another part of the question is we do not have very high expectations about Desenrola 2.0. There are renegotiation channels that are already working at Ferrara and Boa Vista. So there are channels already available for this type of renegotiation. And we take part in all of these initiatives. And of course, we'll take part in Desenrola 2.0 as well, but we have low expectations when it comes to this.

Okay. Great. Now it's great to see customer repeat rates at C&A Pay. What about the average ticket of the group? Can you tell us about that?

[Interpreted] Well, it's clearly higher. That's the beauty of our C&A Pay model.

[Interpreted] Our next question is by Luiz Guanais with BTG.

[Interpreted] I have two questions. You mentioned several aspects related to Energia and how this has driven store productivity gain, which has been a highlight in recent years and also in Q1 '26. So can you tell us about the difference in productivity of the new stores compared to the older stores that are still to be renovated? That's my first question. Now about C&A Pay, I know it's a loyalty tool, but do you have any other initiatives there in addition to the credit products like cash back, increasing in penetration to increase customer loyalty, increasing frequency and also average ticket prices?

[Interpreted] Well, about productivity. we are actually talking about three stores with different profiles. And the goal is that we could learn from how each profile would react. And in all three of them, we reached double digits some a bit more, others a bit less, but all of them double digit. And this is above C&A's average. So everything we've seen so far is very exciting. And this is what makes us feel very confident about this lever moving forward. Now about C&A Pay products. So using promotions to boost C&A Pay is something we've been doing. Cash back is something we announced sometimes, not 100% of the time. But yes, we've been trying to find ways to make the consumer benefit portfolio better if you use C&A Pay than if you don't. So it has to be better to use C&A Pay than any other payment method whenever you come to C&A. That's the philosophy behind us. And the team has been testing different dynamics, and we've been able to advance and increase the penetration of our card in these purchases because of the test and scale.

Our next question is by Andrew Ruben with Morgan Stanley.

Most have been answered, but I guess given that you announced the share buyback program to take the opportunity here how you're thinking about capital allocation. This buyback is bigger than the ones you've done in the past. So how you're thinking about the sizing versus other potential areas of returning capital? And along the same lines, any updated thoughts on what you see as the right capital structure leverage levels for the business over time?

[Interpreted] For your question, Andrew, well, I think that the buyback program has a very clear goal, which is to increase the value or create added value to shareholders with the buyback and canceling of those shares. This is very clear considering shareholder return and capital structure adjustment, considering the clarity and definition of the value needed for investments in 2026 and also given what we will do in '26, the plan that was approved for '26 and the expected cash generation for '26. So given the opportunity and the minimum return required for all of the capital allocation projects, we understood that it was the ideal moment for capital allocation, and we decided to launch this buyback program because of that. Paulo also mentioned that we are already working on a new strategic cycle. And we believe that from now on, cash generation will be enough to execute our investment plan in the coming years. So we will keep a close eye on capital allocation and mainly capital structure at the company from now on.

[Interpreted] Okay. This concludes the Q&A session. I'd like to turn the floor over to Paulo for his final remarks.

[Interpreted] Thank you all for joining us. We are starting the year of 2026 confident and supported by consistent work with significant advances that will strengthen our strategy more and more. We're starting the cycle with a stronger foundation and a clear view of our priorities, and we will focus on execution, operational discipline and working closely to our customers. I would like to recognize the hard work of the C&A team, which is key to sustain this growth trajectory and to capture the opportunities that we see ahead of us. We continue committed to our purpose to have a positive impact on people so that they can be who they want to be through fashion. Thank you so much for your confidence, and we'll continue working together throughout the year. See you at C&A. Thank you, team.

[Interpreted] If you have any further questions, please get in touch with the IR team. This concludes C&A earnings conference call. Thank you all for joining, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]