Lojas Renner S.A. (LREN3.SA) Q2 FY2025 Earnings Call Transcript & Summary

Good morning, everyone. We will start the Lojas Renner S.A. video conference. With me today are Fabio Faccio our CEO; and Daniel Santos, CFO. Before giving them the floor, I'd like to make some announcements. This video conference call is being recorded and translated simultaneously into English. We will show here the presentation in Portuguese, so for those following the call in English, the English version can be downloaded from the chat or the IR website. Questions from journalists can be directed to our press office through the number (113) 165-9586. Before proceeding, forward-looking statements related to the company's business perspectives, projections and operating and financial goals are based on the assumptions and information currently available. They are not a guarantee of performance, as they depend on circumstances that may or may not occur in the future. During the Q&A, we will only accept live questions. With that, I turn the floor to Fabio.

Good morning, everyone. I would like to thank everyone for joining us to discuss Lojas Renner's second quarter 2025 earnings as well as our vision for the future. In this quarter, the strategic initiatives we have developed in recent years have once again benefited our results, leading to another quarter of strong performance in terms of growth, profitability and value creation. In retail operations, our sales grew 18.5% compared to the previous year. In apparel, our major category, growth was 20% with gross margin of 58.4%, an increase of 0.9 percentage points. We had another quarter in which we diluted our expenses with a reduction of 0.8 percentage points of net revenue. And we know that we still have opportunities there. Realize continued to contribute to the retail operation and strengthened its position as a tool for building customer loyalty. The actions we have implemented over the last few quarters have reduced portfolio risk, the over 90 portfolio risk by 4.9 percentage points. And leverage the results, which grew 68% year-on-year. Already excluding the positive impact of the new regulation by the Central Bank of Brazil. We executed 70% of the share buyback program we announced in February. We did so up to the current limit of reserves available at the moment. This action reaffirms our commitment to creating value for our shareholders. Improved retail operations and Realize's performance led to a 28% increase in net income and to a 34% increase in earnings per share. Our financial cycle was reduced by 12 days, and we generated a free cash flow of BRL 333 million. These results led to a 2 percentage point increase in ROIC over the last 12 months. This performance reflects the gradual efficiency gains of our business model, as we have been saying for the past quarters, which began in the third quarter of 2024 and continues to gain traction. This evolution has also contributed to our brand. We climbed 2 positions in the Interbrand ranking, which assesses the strength, resilience and the innovation capacity of Brazilian brands. We are now the 11th most valuable brands in Brazil. I would also like to highlight important recognitions of our performance in sustainability, governance and social responsibility. All of this makes us very proud. We ranked first in the sector in the FTSE4Good Index and are also first place in retail. And we are also the second best retailer in the world in Time magazine's ranking of the most sustainable companies. And it is worth noting Lojas Renner is the only Brazilian company in this ranking among the 100 best in the world, considering all sectors. I take this opportunity to mention that we were the first retailer in the world to adopt the International Sustainability Standards IFRS climate S1 and S2, an important step in the company's strategy to be a benchmark in responsible fashion, strengthening our sustainability management through the measurement of risks and opportunities to the business. We have completed as well, the final stage of the full integration of our online and offline operations. The transition of e-commerce from the Rio de Janeiro distribution centers to the Sao Paulo DC has been completed. Now all products of the new collections are being operated 100% from Sao Paulo DC. The Rio de Janeiro DC will continue to perform some secondary operations such as receiving regional suppliers, serving as a transit point for stores in Rio de Janeiro and Espirito Santo and acting as a provisional contingency plan for older digital items. We continue to streamline and make fashion execution more flexible. We have also added more precision to our supply chain. This has contributed to increase our sales and gross margin. We have made progress in technology and in creating an increasingly fluid shopping experience in stores. We have accelerated e-commerce and continue with our expansion plans into new cities. We have opened 9 stores so far this year. And as a reminder, most of the openings are scheduled for the fourth quarter. We are confident about our store openings for the year. Our current expectation is to open 30 to 37 stores throughout the year: 15 to 20 Renner stores, around 15 Youcom stores and 1 or 2 Camicado stores. Our other brands are increasingly being leveraged by our business model. One example is Youcom, as performance continues to stand out in terms of growth and profitability. The flexibility of our platform allows us to absorb the needs of our brands and of other brands that may become part of our company in the future. These initiatives have made our company more integrated and flexible to meet new consumer demands. This increased competitiveness will allow us to enjoy a long lasting cycle of growth even on a higher nominal basis with profitability and value creation and without the need for new investments in infrastructure. The performance in the first half of the year makes us even more confident in the path we have chosen. And this is just the beginning of reaping the benefits. Our priority is to accelerate gains of the model and of the investments to reach the model's full potential. I would like once again to thank you all for attending, and I hand over to Daniel.

Thank you, Fabio. Good morning, everyone. In Q2 2025, retail revenue grew 18.5% and 20% in apparel. Sales were driven by higher volumes of transactions and pieces sold due to the attractiveness of the collection and temperatures appropriate for the period. Compared to a much warmer fall, the floods in Rio Grande do Sul state and the stabilization period of the Sao Paulo distribution center in Q2 '24. 40% of the growth came from volume increase. The remaining 60% comes from a combination of lower markdowns resulting from newer inventory, a higher share of winter goods and price adjustments. We will continue to carefully balance prices by monitoring the market and by monitoring product performance, focusing on the positioning of our brands and customer perception. For the second half of the year, we expect price adjustments close to inflation. Our digital channel posted 21% growth, once again gaining share and with improved profitability. We reached a record number of active customers with an increase in the share of new items in our sales and greater expense efficiency. As for Q3, we maintained the same outlook shared previously. Our 2024 comparison base is stronger. We grew 12% last year. In the second half due to the macroeconomic scenario may pose greater challenges for household consumption. Strong sales in Q2 limited winter item inventory at the beginning of Q3, a period when we normally have winter item sales. This is positive for our business. It means that the collection was successful, and it will also contribute to more adjusted inventory for the arrival of the new collection. Items of the new collection are arriving in stores and have been well received. We expect healthy sales growth, but not at the levels seen in the first quarter of the year. In any case, we remain confident that our flexible, agile and precise business model will allow us to follow a competitive growth path, gaining market share in any macroeconomic context. As for the gross margin, we continue to advance in gross margin even with inflated costs, high interest rates, and exchange rate pressure. We ended Q2 with a healthy retail gross margin of 57.1%, 0.9 percentage points higher than Q2 '24, and apparel gross margin of 58.4%, also 0.9 percentage points higher. This performance was made possible by efficient inventory management, agility and flexibility in capturing trends to develop collections and also was made possible by gains in precision and agility in supplying the stores. As a result, there was a 9-day reduction in average inventory days and lower markdowns during the period. Price adjustments and improved mix also contributed. Our imported orders are hedged until December below 6%, which combined with price implementation and efficiency gains in inventory management, give us confidence in a positive gross margin for the second half, although not to the same extent as in the first half. As regards our expenses, operating expenses grew 16% versus 18% increase in retail net revenue, which led to a 0.8 percentage point of operating leverage in the quarter. Sales expenses were diluted by 1.2 percentage points due to higher sales volumes. General and administrative expenses showed a dilution of 0.2 percentage points and grew by 16%. This growth reflected in addition to inflation in the period, the following factors: number one, higher volume of operated items, which impacts shipping, packaging and personnel; provision for the restricted share plan above expectations with an impact of BRL 22 million, 0.6 percentage point, as a result of the 61% appreciation of our shares versus a 26% decline in Q2 '24. Provisions for legal claims, mostly labor related above historical levels with an impact of BRL 12 million, 0.3 percentage points in the period. These expenses stem from a trend of increasing labor claims against the companies in the market. We expect a normalization in the coming quarters. We are reviewing our strategies, our supplement policies and our defensive strategies in line with this new reality. Provisions for the restricted share plan and legal claims together accounted for 10% of the 16% growth in G&A expenses. Lastly, expenses related to the employee profit sharing program had an impact of 0.6 percentage point compared to the previous year, when provisions were low, given the lower-than-expected results in that period. Our expense levels are not yet where we would like them to be, but we are confident that the investments made already allows and will allow us to achieve sales growth that exceeds the increase in expenses. For Q3, we expect more limited leverage levels given the calendarization of certain expenses. This is in line with our leverage expectations for the year. As regards to the results of Realize in Q2, Realize delivered another quarter with significant improvement. The result of BRL 119 million reflects the improvement in the credit profile of the portfolio and also the effect of Resolution 4966. Ex-resolution, the result is about BRL 59, with a 68% increase year-on-year. Our credit granting model remains robust and precise. And with a healthy portfolio with a low-risk profile, placing Realize in a positive position for the current credit cycle in Brazil. Our over 90 Stage 3 ex-regulation closed at 12.4%, 4.9 percentage points lower than the previous year. And our short-term delinquency remains low. As long as the macroeconomic environment remains uncertain, we will continue to offer credit cautiously, focused on less risky profiles mainly through our private label issuing support for retail sales while maintaining the quality of the portfolio. Regarding the impact of Resolution 4966, I would like to highlight some effects on Realize's results. First, the accrual of interest up to 90 days in arrears benefited revenue in the portfolio by BRL 70 million. This additional revenue is already past due and requires a proportional provision for losses. This negative effect of BRL 60 million in Q2, which is higher than in Q1, is due to the rollover of 90-day past due loans from Q1 to Q2, which requires greater provisions. Thus, the net effect was positive by BRL 10 million in Q2 '25. As for the postponement of write-offs to 540 days, the effect in Q2 '25 was positive by BRL 50 million. And this will no longer occur as of Q3. The seasonality of write-offs has also changed. Previously, the write-offs of past due payments in Q4, which were more substantial, occurred mainly in Q1 -- in the first quarters. But now they occur 6 months later. In other words, they start occurring more in the third quarters. Therefore, Q3 will show us growth in results compared with Q2, in line with our plans for the year. It is important to avoid extrapolating the effect of Regulation 4966 from the first to the second half, the latter with little relevant effect. We estimate the effect of 4966 to be between BRL 10 million and BRL 15 million in the second half year. Our EBITDA grew 33% with EBITDA margin of 24.4%, up 2.6 percentage points, by virtue of the improvement in retail and financial services segments. This comparison was impacted by nonrecurring items in retail such as deferred tax credits which benefited Q2 '24, the effect of the new Regulation 4966 a sale of a portfolio that happened last year. Net income was up 28%, reflecting this improved operating performance. Earnings per share, following the execution of around 70% of the buyback plan, grew by 34.4%. The accumulated ROIC for the 12 months rose by 2 percentage points to 14.1%. I now hand the floor back to Carla to start the Q&A.

[Operator Instructions] First question from Danni Eiger with XP. Danni, can you hear me?

My question is related to gross margin dynamics. I draw my attention how you were able to deliver improvement. I think that there were many initiatives behind this. But I think it would be good to understand how much of this is sustainable and extrapolated looking forward. We talked about the mix, but perhaps there are other things that could be accelerated during the second half of the year? I'd like to understand how you're thinking about the evolution of gross margin in the future.

Thank you for the question. Actually, I think gross margin has an even better dynamic than we expected. Partly due to sales, which were slightly higher. We had a year with more normalized temperatures so considering autumn/winter which is part of Q2 and part of Q3, comparing with last year. For example, last year, we had the opposite effect, which hurt Q2 and benefited Q3 last year. And this time, it benefited Q2. So considering Q2 and Q3 together, the fact will be positive because we saw more winter items with a higher average ticket that drives sales. And then we have autumn winter before sales -- before the promotional sales. And when we look to 6 months, this brings us more sales and more margin. Last year, for example, when we sold later, we sold in a period of markdowns and sales. So the margin was benefited a little by this. It benefits the margin as a whole. And when we look at the full year, we talked about a margin that was flat, not just because of this, but also because of it, we see gross margins slightly above what we had been talking about. Another factor driving margin was the improvement in our model. We had more precision in the collections. We were able to work with more correct and high quality and more attractive and streamlined inventories. And that helps the margin. It reduces markdowns. We had lower markdowns and important reduction in markdowns and an important inventory reduction. Inventories grew a little bit in value, but in volume, they decreased. And when we look at inventory days, there was a 9-day reduction in inventory, and the aging of the inventory is a lot newer. And this is all resulting from the model and granularity of distribution. All of these factors continue to help. Perhaps the comparison factor between Q2 and Q3 is more related to that. But also, we have been more precise in our collections with more attractive collections with better distribution. All of that continues. And that is why we believe that there is an opportunity even with such a high margin to have more growth in our margin during the year.

Next question from Vinicius Strano with UBS.

You mentioned the demand that is satisfactory. Could you help quantify the impact when we were to the comparisons with Q3? If I'm not mistaken, in Q2, there was an impact of 500 to 600 bps because of the base. So how do you think this will evolve when we look at Q3? And could you help us quantify the impact of migration of e-commerce to the DC? How should we think sales, margins and inventory levels in the second half and perhaps in the longer term?

Thank you, Vinicius. I think that we continue to see satisfactory demand. I don't think that there has been any change regarding our expectations. Absolutely, like you said, we have different bases. Q4 '24 was more impacted. We had warmer temperatures in the beginning of autumn. And of course, that gave us a weaker comparison basis in the second quarter. And then the sales happened in the subsequent quarters, Daniel mentioned in the presentation. So we had a weaker base in Q2, but a stronger base of comparison in Q3. So when we have just a quarterly comparison, we have a more positive effect in Q2, and we will have a little pressure at the beginning of Q3. That's our expectation. Because the sales, when we look at the period as a whole, happened better earlier at full price. So when we look at the full picture, it helps in total sales and total margin. We sell more in the period before the markdowns and the promotions. And you don't sell at lower prices, which is positive for the whole. So I think, yes, there is an effective comparison base. But I think that we have a slightly higher demand than we expected when we look at a longer period. And I think that this greater demand is not just related to the comparison base or a normalized weather this year. I think it has a lot to do with what we built with our model. This 500 to 600 bps of weaker base last year, we are talking about a scenario that all players faced. So we think that scenario impacted everyone. And we can compare with the more normal Q1. So we mentioned that compared to Q1 quarter-on-quarter with the same base, we would have a pretty good idea of what normal behavior would be. So we have a weaker -- the effect of a weaker base in Q2 but a stronger comparison base in Q3. Not at the same order of magnitude, but similar. For the full year, it is very much in line with our expectations, slightly higher sales and margin. The impact of the DC migration is a positive one. As we announced, we would complete the migration in this quarter. And this provided a reduction in lead time, improved level of service and a great assortment available. So we reduced stock out, we improved availability, we improved level of service and lead time. And of course, that has a positive impact on conversion and sales.

Next question from Luiz Guanais from BTG.

I think I have 2 questions. The first is if you could comment on the effect of an increase in ticket. You mentioned a 16% ticket increase in the quarter. My question is, is there additional room in terms of mix and price for this indicator to increase even further? My second question is, one of the highlights of the quarter -- and you have been talking about this over the last few months was higher productivity at the stores, double digits, as you reported. So what could be the drivers for us to think, about greater productivity increase looking forward?

Thank you for the question, Guanais. I think that the ticket increase this quarter has some components involved. The smaller part came from cost pass-through, and that was related to inflation. It is important to say that this continues. We have seen room throughout the market in all sectors to have pass -- cost pass-through in line with inflation. But a part of the increase comes related to the mix because we have products being sold at full price. And we have winter goods with higher tickets and also the aging of the inventory. We have products with a higher ticket, and we have a reduction in markdowns. Every quarter, we have seen a reduction in markdowns. With more normalized temperatures, this helps. But I think that a lot of this comes from the model as a whole. Our inventory grew 4% in value and reduced in volume, coupled with sales that grew significantly, and we expect more growth in the future. So we are selling more with less inventory. That's why we had a 9-day reduction in average inventory, and that's why it is significant. With this, we bring in new inventory all the time. By doing this, there is a continuous positive impact on attractiveness, sales and gross margins. And that's why we understand that this will continue in the future. What we did not have in the other quarters is this part of the equation related to winter goods. Because then, we will start having in the future, collections with more normalized tickets. Winter goods are the ones that tend to be -- to have higher tickets. So productivity increase, we have been working on it. I think that higher sales and the opportunity we have to increase sales even more will have an important same-store sales. And same-store sales shows increase in productivity, with online sales growing more and more. Of course, we have an important opportunity to expand -- of expansion, and that will start happening more in Q4, but an even greater opportunities to have continuous productivity gain in same-store sales increase, given all of the investments made that bring sales gains and margin gains. And Daniel, do you want to add anything?

Perhaps Fabio, talking about productivity Guanais, when we look at our new supply model, the fact that we can supply by SKUs, this model brings us an opportunity for productivity increase. We're going to have better supply to the stores, an assortment which is more personalized. So when we mentioned our model gaining more and more traction, this will be an opportunity for us. That's our ambition to see this evolution in the coming quarters.

Next question from Vinicius Pretto with Itau BBA.

Hello. Good morning, everyone. I just would like to understand more, this dynamic you mentioned about Q3 comparison base. You explained the 500, 600 basis points, and that helped a lot. But I'd like to understand in more detail. My perception, July was one of the most difficult comparison basis the last year when it started getting cold. So when you look at the month of July and beginning of August, last year, we had the cross border change. So how happy are you with this Q3 dynamic? I think that in Q2, you were helped. So -- and that's my first question. And my second question is about credit. We're in August already. And we were afraid that the economy in the second half of the year. So what have you seen in terms of dynamic of the loan book, your expectation regarding the loan book growth for the second half of the year? These are my two questions.

Well, thank you for the question. I think I will start with the first one, and then Daniel will answer the second one. To try to help everyone understand, when we look at Q2, Q2 gets the full autumn and winter. So last year's comparison base was low because we had very warm temperatures in autumn and in the floods in the month of May. So that was atypical. And that's why we have this idea of 500 to 600 basis points difference compared to a normalized quarter. Now when we look at Q3, it's kind of harder to have this breakdown because we don't have a full autumn or winter collection. As you said it yourself, July is a stronger comparison base because since we had a poor second quarter last year. We had sales stretching to July. So we had a strong comparison base in Q3 last year when we had more promotional sales. But in the consolidated period, it's positive this year because we sold earlier at full price at a higher margin. Last year, we sold later with markdown prices. So we understand that there is an opportunity for a slight margin increase even considering our stronger Q3 base. But Q3 has many components at the beginning. We have this period of promotional sales, the end of the previous collection. So sales came earlier. So we might have lower sales in the beginning of Q3. That's our expectation, but at a higher margin, which is positive. And then we have Father's Day. We cannot talk about this. The event is happening, and then we have the arrival of the new collections, which is the most important part of Q3. So it's kind of hard to affirm what the dynamic of Q3 will be. But undoubtedly, Q2 had this dynamic of a weaker comparison base, and that's why we had a higher increase. Q3 has a stronger comparison basis. But I wouldn't say that we would have the same proportion from Q2 to Q3. I don't know if it's clear. If not, I can explain more. Or else, Daniel can talk about credit.

No, It was super clear.

Talking about credit, talking about the loan book and Realize. We always have to remember the impact of 4966 when they get the specific portfolio of second quarter. Net of 4966, the portfolio is stable. But the portion of the portfolio that is paying on time, increasing 4% to 5%. So we continue in this scenario that requires caution. We have been navigating originations of loans by Realize with caution and being selective regarding risk profiles. And this will continue. Originations today happen more with our private label. When we look at the customer base, we actually had a slight growth in our private label portfolio. And this is the dynamic to be expected looking forward. We don't expect the portfolio to grow, but we mentioned that the size of the private portfolio can post a slight growth as a result of this more selective and more careful origination. And we do not expect this to change it during the year. We'll continue to wait and see how the market will evolve in the second half of the year. And of course, we see Realize as an opportunity when the macroeconomic situation improves, when market conditions become more positive. We have the possibility of working with different risk profiles than what we are operating now. And that will definitely be an opportunity, not only for Realize, but also for retail, which is the biggest target of Realize in terms of trying to drive retail growth.

Next question from Pedro Pinto with Bradesco BBI.

I'd like to ask two quick questions. The first is in the expenses front. Daniel on the opening remarks said that the expenses levels are not at the optimal level that you would like. So what are your internal expectations looking forward in more structural terms? 2019 is the benchmark for the company. Do you think that in very little time, you will achieve your goal? How long for this order of magnitude of margins, thinking specifically about expenses? And my second question is kind of related to that. the DC plays an important role in your thesis? We talked about this in recent years. And this quarter, we spoke about the transition of e-commerce. So I would like you to quantify the ramp-up. If we can have some KPIs, an impact on inventory turnover, that could help precision of inventory and perhaps the impact on expenses so that we can have a more tangible idea of the evolution.

Well Pedro, thank you for the questions. When we look at the expenses, Pedro, I think that the first point to remember is our commitment to have leverage being reduced quarter after quarter. And we are doing that sequentially. In expenses, we know we have opportunities to be more efficient. I would say that in an evolution process, when our goal is to get to expenses level close to those of 2019, I think that 25% of that process would be efficiency gains with the new structures that we put in place and the continuous work of trying to gain productivity in our structure, administrative expenses and selling expenses at the store level and at the DC level. Another portion of that comes from the investments we made. We have an installed capacity that will allow us to grow without necessarily increasing expenses. So most of the expenses evolution would come from that. So we have -- we are committed to continue in this evolution, and this talks directly with our new business model. Whose full potential has not been yet to change. The moment that we get close to full potential, we're going to have a level of expenses as a percentage of revenue that will be very close to what we had in 2019. As for the KPIs, you mentioned that DC has a leading role. The big leading role comes from the supply model. And the DC is a great enabler of that. How do we see this evolution? On one hand, when we talk about inventory turnover, this is definitely an important indicator. And we have been pleased, our inventory turnover, 9 days. That is an example of that, as Fabio mentioned. And as for expenses, in this evolution, when you talk about efficiency gains and growth potential without increasing expenses, the DC is a big enabler of that. With the migration of digital to the operation in Rio de Janeiro. That will bring us an efficiency gain in digital. So the supply model, of which the DC is part, well, the DC has a leading role for a gradual evolution of our expenses as a percentage of revenue, bringing us closer to the levels of 2019.

Next question from Ruben Couto with Santander.

A follow-up question on my side regarding the supply model. Could you give us more color on how the stores in smaller cities are performing compared to the average store base after all of the benefits of the new supply capability by SKU? I remember that specifically in smaller stores, there was an even greater benefit. They made it all possible in some regions. There were some benefits for those street front stores that will not be seen in shopping mall stores. So are you more excited about accelerating this profile of store in the coming years?

Thank you for the question, Ruben. Yes, we have felt some benefits because we have been saying this is -- benefits that come gradually because we have the learnings of the model. As a reminder, a year ago, we did not have this model at work. So we were supplying the stores in a granular way and getting some lessons learned in terms of what kinds of products we could sell and at what amounts. That feeds back to the algorithms of the software, and we improve even more. And that's why we understand the gains are gradual, both in terms of productivity of the teams and of data that will populate the system and improving the system everyday. So yes, we have been feeling the effects. As Daniel mentioned, part of inventory management improvement comes from that. A good portion comes from that. Sales improvement comes from that, margin improvement comes from that at a certain extent. I wouldn't say that some stores are not benefiting. All stores are benefiting. What we say is that the smaller stores are benefiting even more because they have restricted selling space. So having more granular and precise assortment is even more important for those smaller stores, but this process benefits everyone. They were performing above average. The expansion plan will be more for the Renner brand. And this model of store had been performing before the investment slightly above the same cohort of previous stores, but now it's improving even more. So this gives us even more confidence for us to continue with our expansion plan. And we'll progress during the year. And in the beginning of the year, we would say a range of stores -- of new stores, between 25 and 37 stores. Now we are talking about 30 to 37 stores because we are getting closer to the openings of the stores so we can be more precise in the number of stores. Why do we provide a range? Because for the Renner brand, the works can happen a few months before or later. And sometimes, the stores can -- the store openings can be left for the following year. For Renner, the range is 15 to 20 stores. We will be within this range. Depending on the progress of the civil works, we'll be perhaps in the middle range. But the stores will open, either this year or in the next. Next year, we intend to open even more stores because the model is performing even better. For Youcom, there are some benefits. Since these -- the works are shorter, we should be opening about 15 stores, and Camicado, 1 or 2 stores this year. Most of the stores will be opening between November and December of this year. So they will be appearing more in Q4 results. We have opened 9 stores in total so far, I think, 6 Youcom, 2 Renner, and 1 Camicado. And we have some more stores to open to achieve the range we mentioned most of them to be opened in November and December.

Next question from Joseph Giordano with JPMorgan.

Good morning. I would like to explore the continuous improvement of capital. How could you improve even more, looking forward? Does the integration of e-commerce -- I'm trying to understand what would be the potential leverage for growth in this channel. The second point is a discussion that is very much a hot topic and that has little visibility. What do you expect as change in the retail business regarding a change in imports? This was an important change last year. And now we're having this discussion of having imports in packages of $50. What are you thinking about this? And we don't talk too much about the operation in Argentina and Uruguay. What do you see as opportunities? In Argentina, the economy is stabilizing after a difficult macroeconomic scenario. So what is the potential there?

I'll comment on working capital, and then the other two will be answered by Fabio. So Joe, as regards to working capital. Where we have a big opportunity is in inventory. Like I said before, our new supply model, we think about fashion execution with more precision regarding what we're bringing, more agility in our suppliers chain. So this gives us an opportunity. Our inventory turnover is at around 3 days. So this would happen 3 to 4 times a year for the next 3 years. That is our ambition. So in terms of working capital, the big change would be at the level of the inventories.

As for the import rate, we have been growing for 8 consecutive quarters, if I'm not mistaken. Cross border rates came in, in the end of last year, so we invested a lot in the evolution of our business model to improve our competitiveness. We have increasingly better and more attractive products with more competitive prices. So it's not just about the rate. I think that we have a much more competitive outlook for the company, actually for any scenario. And as regards to rate, we have to remember that this competitiveness comes, and we are paying now double taxes than the cross-border platforms pay. So we think that one next step that the associations are pursuing is that we'll achieve some kind of tax justice, tax equal conditions. Ideally, our rates would be reduced so that we would pay the same taxes. So that everyone would pay what the established companies in the country pay. Ideally, our rates would be reduced or everyone paying the same rate, but we are prepared for any scenario. Oh, and you asked about Argentina and Uruguay. I almost forgot. Well, we spoke a little about Argentina, I spoke more about Argentina in the beginning of the year because there was a strong tourist -- a strong movement of Argentinian tourism. That had an impact in Q1, and that's why you mentioned that. But the Argentina and Uruguay operations are performing well. So it's like our operations in Brazil. And you asked about the future potential. I think that in Uruguay, we have a very relevant operation for the size of the country. But yes, there is a potential for growth, just like we have potential for growth in Brazil. And in Argentina, Argentina has been performing well. The country is improving a lot. I think that there is an opportunity for expansion in Argentina. But we are waiting so we can wait and see and understand what will happen in the country, waiting for geopolitical stabilization to invest. Because we have so many stores to open in Brazil that we are leaving an opportunity to open stores in Argentina for later. The country is improving, and our operations are very pleasing there.

Next question is from Joao Soares from Citi.

I have two questions. Fabio, I would like to hear about products. You talked about competitive prices. but I find it a little hard to understand the position because there were some price adjustments. Not just by you, but the competition also made significant price adjustments. So today, how do you see when we think about the Renner product versus the others? You spoke about ticket increasing 6%. Is there room for price increase given the differentiated quality of the products? And I know about customer perception, we end up comparing prices with Zara. So how do you see the positioning of Renner products and prices and how can this resonate on revenue per ticket? And another question about Realize. The provision came a little higher than expected. Daniel, I don't know if the model is capturing more risk? Any aspects related to origination in private label? Is there any different dynamic driving provisions up?

I will start with the first part, and then Daniel will speak about Realize. As regards competitiveness, if we look at our growth, in this quarter, it came 40% from volumes, 60% from price. But it is important to say that the 60% related to price is not price adjustment. A smaller part of the 60% is price adjustment. Our prices, if we look at a period of 2 to 3 years, our prices have grown way below inflation. In the 2 previous years, we actually reduced prices. So prices are very much in line with inflation this year. The amount of growth coming from price is very much in line with inflation. And when we look at the competitive landscape, I think our prices are the ones growing the least. We have seen some competitors with more aggressive prices. So yes, we do see room to continue to pass through inflation rate to our prices. So the gain in margin and the most relevant part of prices is related to the mix. Newer products so that full price with a reduction in markdowns. This is what brings the price portion up more than price adjustment itself. And this gives us an even more competitive price for newer products for our customers with a higher margin for us given the reduction in markdowns. So we have less products being sold at a sale price and more products sold at full price. Could you speak about Realize?

And first of all, there was no change regarding criteria for provisions. They continue unchanged. I think that we're living a kind of complicated moment because of the effects of Resolution 4966. I'm going to give you one situation which is clearly interesting, which I mentioned in my initial remarks. When we get additional revenues generated, 60 to 90 in Q1, they were provisioned at a level of provision considering a short-term delinquency or payment delay. But when we get to Q2, that portion is that is more in arrears, that leads to greater provisions. Perhaps this is what might have given you the impression that we had higher levels of provisions. But when we exclude all of the impacts of 4966 and we look at the provisions we had, they are in keeping with what we were expecting. So much so that when we look at portfolio indicators, over 90 past due, the short-term or longer term portfolio, these indicators year-over-year and also quarter-on-quarter, continue to evolve positively. So I think it's the specific impact of Resolution 4966. In Q1 and Q2, these impacts were greater. In the second half, like I said, the impact will be lower. And then we look at back to a portfolio that starts posting a more regular behavior quarter after quarter.

I tried to exclude the fact of 4966. Perhaps my number was a little bit off. I understand the rationale, Daniel.

Next question from Irma Sgarz with Goldman Sachs.

Most of the questions have been asked. Perhaps I want to go back to Camicado. If you could comment on the performance of Camicado, which was a little weaker compared to the beginning of the year. And how do you see your expectations for the second half of the year?

Camicado, apparel is the sector that performed the best. And it accounts for the greater part of our business. So we have lower tickets. Camicado also performed well when we compare with the rest of the sector. It grew more than the average for the sector. I think that the only apparel and fashion have performed better than Home & Decor. Proportionally in the Home & Decor sector, I think that Camicado is gaining market share at a very high level of margins. In Q1, it was not so comparable because we have had a stronger markdowns to end older inventories. This year, we had a model of our private label more evolved. We had a considerable gain in the gross margin. So looking forward we understand that Camicado is a healthy level of gross margin. Just like Renner and Youcom, in Camicado, we can expect a slight increase in gross margin as well. For Camicado, we were not opening stores. We actually ended some operations, but recently. We opened another store with a new model. Just like Renner has its more updated model at Morumbi mall. That's not a test. We've had the new Renner model for 3 years, and the model has been evolving over 3 years. Our most updated model is at Morumbi mall. For Camicado, we have the most updated model in the Victoria Mall in the state of Espírito Santo and Shopping Galleria in Campinas. And for Youcom, we have a newer model in Barigui Mall Curitiba City. So all 3 with important models that have been adding performance and productivity. This is important to point out because these are tested models that are bringing in results in addition to expansion of investments in new stores and Camicado will resume store openings. We also have an investment line item for renovations. Looking at Camicado, Youcom and Renner, we have more than 70 renovations and refurbishments in the year. And with the renovated stores, bringing in more performance. But as for Camicado, it is doing quite well.

Next question from Andrew Ruben with Morgan Stanley.

Maybe if you could just give some more detail on performance between your store types, whether that's one in neighborhoods that you see as higher versus lower socioeconomic demographic, also anything between maybe your street versus mall stores? So just trying to understand if there's any trends, divergences you're seeing within the base.

Andrew's question is related to the performance of different types and demographics of stores, neighborhoods and street stores and shopping mall stores.

Thank you for the question, Andrew. I'd say then when we look at store sizes, we've posted good performance in all formats of stores and sizes with the potential to leverage the smaller stores. Newer stores opening in new cities, some of them are street stores because these are smaller cities. And they are always -- they're also performing well. We're pleased with their performance. If you think about clusterization by consumption profile and potential consumption according to income brackets, all stores are performing well but of course, profile of consumption of higher-income bracket consumers are posting higher performance. Also due to the macroeconomic scenario. If the macroeconomic scenario improves, this could potentialize the results.

And our last question from Melissa Byun with Bank of America.

Most of my questions have been answered, but I just wanted to follow up on the credit portfolio. What would make you feel more comfortable accelerating origination and how will you incentivize credited adoption? And there have been a lot of moving parts over the last few years and certainly more recently, what are your expectations for underlying profitability? Sort of what is the sustainable level of return that you see for this portfolio?

Melissa's question is when do we feel more comfortable to grant more loans, more credit and what are our expectations of return from our credit portfolio.

Well, thank you, Melissa, for the question regarding the credit portfolio. I would say that we are waiting for the moment when general NPL levels of the economy and when the interest rates start dropping, give us more peace of mind for us to work with different risk profiles, perhaps more or less restrictive than the ones we are operating with at the moment. We believe that this can happen more towards the first half of next year. So that's our expectation. And as for the underlying profitability of Realize, well, first, I want to reaffirm that we do know to believe that it is possible to get back to that level of profitability. We had in the pre-pandemic period in 2019. There were changes in competitiveness, regulatory changes. But Realize continues to be an important tool to drive retail sales. Credit origination continues to be important for the profile of customers that we sell to as Renner, but Realize is also important to build relationship and customer loyalty. And I think that, that's where we have a great opportunity. We still have some activities to enjoy this full potential. And as for the profitability we have a metric that we call percentage of share in the total EBITDA of the company. In the past, it was between 20% and 25%. We believe that even in this new scenario and working with this new potential that I mentioned earlier, we have a potential to be working between 10% and 15%. That's kind of our ambition.

With this, we are ending the Q&A session, and I turn the floor back to Fabio.

Well, again, I would like to thank you all for joining today and reinforce our confidence in our growth strategy and value creation as well as our confidence in the performance of our teams and partners. Thank you very much. And we remain available if you have any... [Statements in English on this transcript were spoken by an interpreter present on the live call.]