Vivara Participações S.A. (VIVA3) Earnings Call Transcript & Summary

Good morning to everyone. Welcome to the video conference of results for the fourth quarter of 2024 of Vivara. In this quarter, the company will dedicate the time of this video conference to present its results and also a question-and-answer session at the end. If anybody needs simultaneous translation, there's a tool available, clicking on the globe, that says interpretation, which is located in the center of the screen. Choose your preferred language, English or Portuguese. And for those that are here in English there is the option to turn off the original audio, clicking on mute original audio. For the analysts -- sell side analysts, who cover this -- our stock, with the participation the possibility of participating live to send your questions on the Q&A icon and afterwards we will elaborate your question in the order -- according to the order of sign up. Please give us your name so that we can make your question live and you can click on the button that will appear on your screen. Other participants, your questions be sent through the Q&A icon on the lower side of your private screen. If your question is not answered during the video conference, the RI team will contact afterwards to answer your questions. Thank you. Presenting Vivara team we have here together Icaro Borrello, Director, President; Elias Leal, CFO; and Caio Barbuto, Manager of Investor Relations. And we now start with the word Mr. Icaro.

Thank you for your words. I'm Icaro, I'm here representing the Vivara team and with great satisfaction that we -- to talk about all the results of 2024 and the fourth quarter of 2024 and also answer any questions that you might have. And 2024 was a very intense year from the standpoint of changes, but also a very significant year in results, expressive result. I wanted to point out the resilience and hard work of all the team, which delivered historic results. These results, which are the production of the highest EBITDA and the highest net profit in the historical series from the standpoint of a percentage rate. I would also like to cite the efforts of everybody on our -- of all of our collaborators, each one with pride. The team from the factory, which have done -- broken records in production and are more and more advancing into the nationalization expansion of Vivara, our office, which has been more and more efficient and agile, putting clients always in the center of our decision-making process. And finally, and perhaps the most important is the store team. This team, which has worked very hard and fills us with pride and has been fulfilling our mission absolutely to fascinate each one of our clients. We're going to start the presentation now. Let's look at the principal messages. And afterwards, we'll look at a few points. On the standpoint of 2024, the principal messages with 3 major blocks. The first is solid trajectory of growth. We had an expansion of net revenue of more than 17% compared to the previous year. This was very significant with very, very important advances of 15.5% in our physical stores, a very high number because in 2023, the same number was 7.1%. We're going to talk a little bit more about this, but it was very much driven by the migration of stocks in the Vivara stores. And the second block is a significant expansion of profitability. We reached the highest EBITDA in the history of the company since we opened our capital with BRL 657 million and also the greatest margin registered in the history of the company, reaching a rate of 25.5%, an increase of almost 4 bps year-on-year. Consequently, these results affected our net profit. Our net profit, which is also a record of BRL 653 million, a very important advance in relation to -- of 71% in relation to '23. All of this gives us great pride, and we're based basically on 3 major fronts. We had a number of initiatives during 2024 in a way that is very concise. We want to translate this for you. But basically, it was based on 3 principal blocks, 3 pillars. The first, the better allocation of stocks of inventory. In the beginning of 2024, we identified that Vivara had a concentration of inventory, which is very high in our distribution centers with more than 40% of our inventory in our distribution centers. So we did an important movement to push this inventory down to the stores. And this naturally, especially in Vivara, which is more well stocked, brought to us the possibility of increasing our sales in the same stores from 7% to 15%, a very important sales in terms of same-store sales. The second pillar, the second block was an initiative, a very robust initiative focused on redimensioning the headcount, the corporate headcount, centralizing of purchasing and renegotiation of contracts, revision of investments in marketing, maintaining the efficiency by making more with less, being more assertive in cheaper ways, correction of the commissioning in the Life stores, these Life stores, which had a very high level. And finally, and very importantly, an improved -- better tax management, especially based on the PIS/COFINS taxes. We had a lot of profitability in 2 major fronts on a more optimized structure and a tax vision that was better, which gave us more than 800 additional bps of profitability in our bottom line. The third pillar and very important, reinforced our lines of service to our clients to take away friction from our journey. Here, we're focused on 4 major fronts: logistics, SAC, technical assistance and stores. Our NPS has been reflecting this, our improvement in NPS. And there's still lots of room to grow, to improve. A retail company always has to be focused on its clients and has to always be focused and very concerned in what is the level of service that we're offering and this level of excellence. So we leave an NPS of 79 to 85. This initiative will continue in our mission in 2025 and during the coming years as well. I want to now pass this over to our CFO, Elias. He recently joined us, a brilliant young fellow. He's arrived playing hard, and we're very happy to have him here with us, and he's going to enter into some of these lines and proactively explain some of the questions of our results. After that, we're going to open up for Q&A, where we will answer any questions or doubts that you might have. Thank you all very much.

I'm very proud to be here. It's the first time that I'm presenting about the results of Vivara. And here, speaking about, as you mentioned, historical numbers. As you spoke about some of the numbers, I'm going to comment on the presentation. I'm going to talk a little bit more in detail some of those numbers and 2 accounting changes, which have helped our results in this fourth quarter and consequently for the year. They're already well detailed in the release, but I'm going to give a little more color during this presentation. So going forward, 2024 was a year beyond the revenue and EBITDA. We have a guidance of 72 stores, 9 are Vivara and 72 Life. We have 170 stores -- we opened our first Vivara store in Panama state. These are the stores that are in full growth, reaching the level we've increased our maturity, and this operation is being very important so that we can adjust our process of export process with clients that we have growth outside of Brazil and also the long-distance operations, other languages, other countries, which is very important for us to model going forward. As you know, we have a presence in all the states in Brazil. Nonetheless, we see potential growth here, especially in Life, but also in several shopping centers where we have a possibility of locating Vivara stores as well. So now we're going to open up our revenue by channel here. Next slide, please. Excuse us one moment for a slight technical issue. Okay. Here we go. So you can see a little bit more our revenue per channel, channel by channel, we had growth of 14% in gross revenue quarter-over-quarter. Giving more -- in the 3 principal channels, the Vivara, the Life stores and the Digital channel. In Vivara, we had a gross revenue of BRL 2.1 billion for the year, a growth of 13%, very important. These are stores that already mature stores, 266 stores in Brazil and even with -- able to sell same-store sales of 12.7% in 2024. Life stores, which is our category with more potential for growth, we see a rhythm of growth, which continues very strong. We closed the year with BRL 646 million in gross revenue, a growth of almost 56% and same-store sales of almost 30%. Life already represents 26% of our revenue in the physical channel and brick-and-mortar channel. And beyond that, it only represents 56%. The Life stores only represent 56% of the sales that we did in the whole category. And the third channel, the digital channel, which I want to talk about is the digital channel. We had almost BRL 470 million in gross revenue, 14.7% growth and a growth in the omnichannel usage, which is something that we're working on a great deal. Going into the details of our numbers, we bring our gross margin. We closed the fourth quarter with 74% of gross margin, a very substantial increase compared to '23. And the first change -- the accounting change that we did here in the fourth quarter of this year, we started to do the allocation of these credits, which would be [ GGF ] and these other -- we're going to hear a lot about this going forward, [GGF] within the unit cost of our products. Until 2023, the value of this cost hit the results in the company in the period in which it was occurred in that year or not. But with the increase in production in 2024, we started to allocate these costs into our product costs in a way that it will affect the results only when that product is effectively sold to the final consumer. So the effect for 2024 was absolutely recognized in the fourth quarter. For comparability, we're presenting here also the gross revenue on the same base, excluding this change in accounting. Looking at the comparative base, we had a pressure of personnel, which is something that we had been speaking about of 1.5%. And this pressure was partially offset by the increase in margins and an increase in markups, which we've been able to include in our stores, generating a good percentage of gains in our gross margins. In 2024, the whole for the full year, we closed with gross margin of 70.2%, a growth of 0.9% compared to '23 and impacting positively by the [CMV] line and negatively by the personnel costs. We closed the year, as Icaro said, with the highest EBITDA in the history of the company, BRL 650 million of EBITDA in '24, a margin of 25.5%, growth of 37% compared to '23. And also on a comparative basis, including the effects of the CGF, which affects our gross margin, we also have an increase in EBITDA margin for the quarter as well as for the year. And this increase came from the equation that we did between sales and this percentage with sales and also the greater efficiency that we have in the marketing investments, optimizing G&A of the office and all of the structure -- corporate structure and centralizing our purchasing processes and other contracts. Even taking out the effects of the GGF, our margin increased by 2.2% in -- and 2% for the year, 2% for the year. So that's very significant. We also see that the net profit also was a record number, BRL 650 million in 2024, a growth of 71% compared to '23. And we also look at the second accounting change that we did this year because of the deferred income tax, which we have in the intercompany operations, the company applied a rate -- an effective rate, which we expected from those operations. For the CPC 32, we started to apply the nominal rate which was in the 34%. This effect was all done in the fourth quarter of 2024, but it was a tactic that we will now apply going forward in the results that are coming. Also for comparability, taking out these effects of this, not only by the GGF, but also by the increase of the rate, which was deferred income tax rate, looking at these impacts going forward, we calculated a comparable net profit to '23. And this would have been BRL 558 million, a growth -- a significant growth of 51% compared to '23. And then in the perspective of cash, they have CapEx of BRL 129 million, almost 30% less than in 2023, principally due to greater discipline in the CapEx -- use of CapEx and the operation of investments in a new -- in the change of the factory, which was done principally, which affects the CapEx of 2023. We also had a generation of operating cash of BRL 86 million and a net debt of BRL 400 million, which gives us 0.2x a very healthy level of leverage. I'm going to pass it back over to Icaro, he's going to speak a little bit about the perspective for 2025 and our closing and open up for closing for questions and answers. I want to also thank all the receptivity I've had in Vivara. I've had an opportunity to visit several stores to visit our factory. And I was very impressed with everything I've seen both in the stores as well as in the factory and the offices here. People are motivated, knowing where we want to go, and this makes me very confident that this will be even better in 2025 that the future is very promising. Icaro?

Thank you, Elias. Okay. Connecting a little bit what we did in 2024 was very much focused on profitability of SG&A and profitability and NPS. We continue looking at the initiatives focused on the level of service. We focus also greatly on the productivity -- productive capacity since 2024, this growth in production. And finally, we bring an agenda, which is very important from the standpoint of innovation, innovation, which is divided into 2 major boxes here. First, technology and the second, products. These products which are an initiative which is very important for the -- improve the allocation of our capital in our inventory. We have several fronts. First, the factory, 2 initiatives. One, to conclude the journey of nationalization of Life. We reached good levels in 2024, but a great deal of evolution of 55% to 80% of our production is now done nationally. In 2025, we want to finalize this journey. The second major step in the factory and the biggest mission is to continue gaining more and more productivity being less expensive and producing more and more so that we can follow the expansion in the life cycle. Our inventories, very important for us to address this. First is the optimization of the management of our capital -- allocated capital. We did a change last year for having a larger -- higher inventories, which made it possible for us to have same-store sales, which was very important improvement in same-store sales, especially in Vivara, it was an important move given the level of orders that we have today. We have an inventory priced of BRL 480, BRL 490 Today, it's BRL 550. So we have a competitive advantage, which is very important. And finally, talking about Life, an increase in stops of inventories in the stores, prioritizing a refreshment, both from this question of collection as well as we did an important movement in positions and it has been giving us very important results. And over the next few months, we can do the same thing with the [indiscernible] line. The third major pillar is about operational efficiency. Everything that we've planted, we're going to harvest everything we planted in 2024, continuing the same levels of efficiency. And here, more -- 2 more initiatives. The first is optimization of the logistics network, which will give us the right to do a better execution of tax planning, which will be better executed. The very important thing for us, you're going to see -- we'll be feeling this in the second half of this year. These initiatives have been moving forward well for us to be able to put this into place. And finally, beyond that is our teams of engineering, principally, our engineering teams have effort -- a great deal of effort to reduce our level of expenses per square meter in our store. We had a CapEx of BRL 12,500 per square meter, and now we're down to BRL 10,500 per square meter, an initiative which is very important, which permits us to enter more and more into places that are -- into markets that are smaller. Two more pillars, the level of service, as I commented to you, we're going to focus this on a great deal. This will be part of our goal for the payment of bonuses in the principal areas of the friction with the clients, technical assistance, SAC and store care and also the -- improve and go back to our training, our on-site training in the stores, the digital -- the digital training has helped us a great deal, which is a very good contact, more permanent with the stores but the live training is also very important. So we're going to go back to having these local teams to be -- to impact more and more our salespeople and our managers. This is very important because a manager who is well trained or a salesperson, which is very well trained and well applied, naturally, increases our conversion rate and also increases our sales. And finally, our pillar of innovation and expansion. Innovation, the 2 major points here to increase the production of our collection of the 2, which is the silver and gold and also the Lab Diamonds. These 2 initiatives are very important for the management of our allocated capital because it has to be less at a price -- an entry price for the clients, which is better and makes it more possible for us to bring more and more people into our base. And the second major focus is a road map for technology focused mainly on increasing our audience, our public, which is also already very relevant, but also increasing our rate of conversion. We're going to have a launch in our app in the next few months and also our new version of the website. And finally, our expansion, which as we mentioned to you yesterday at the end of the day, we're going to focus on expansion of 40 to 50 stores and expansion, which is still very fast. We have a pipeline already very robust pipeline with points that are very interesting and which helps us to manage our money and the money of our stockholders more and more, shareholders more and more so that we take better decisions with this pipeline with this robust pipeline. I also think I'm going to pass it over to -- just one more thing, one more new thing. This year, we -- it's important for us to mention that one of the strongest points was our brand, which is very strong. And due to that, we brought one more ambassador. And I'm very proud to mention here that we have the best team of ambassadors in Brazil with Gisele focused on Vivara, with Marina already continuing our relationship -- our long-term relationship with her and also Larissa Manoela, she's been giving us a great deal of pride, a person who is super involved with our brand and who has come to -- has come very connected with the new generation, the younger generation, which has consumed a great deal in our lifeline of stores. Once again, thank you all. Thank you to our collaborators, our employees. And I'm now going to open up the question and answers.

[Operator Instructions]The first question comes from Eric Huang from Santander.

I think starting here on our side, we have 2 questions from our side. One is with respect to the comment you made about the -- in the release where you said accelerated a bit your -- the purchase of raw materials in the fourth quarter to protect yourselves from future increases in price. When we look at 2025, what should we think about in terms of this additional buffer that you've done? How much will this impact the dynamic of average costs for you during the year? This would be the first question. And the second question is that I think looking a little bit more at the side of optimization, especially looking at the mix of stores. If you could comment a bit on how you see this evolution, especially on the Life side, where we see results that are a little bit more encouraging in Life. If you could give us a little more color about how this has, in fact, been translated at the point. And jumping on how you've seen the performance in this beginning of the year when you can speak with a little bit more about your projects and inventories, both in Vivara and in Life running at a rising sea.

Thank you for your question, Eric. Let's go to the first answer. Commenting a little bit more wide ranging from the strategy of stocks. We've stocked a lot in the beginning of last year. Projecting an increase, which is a very successful strategy. From the standpoint of retailing, we stocked up so that we can make some commercial bets, which have come out. We've done very well, especially in Vivara, where we increased our same-store sales. And in Life, when we increase our inventories of collections, it has also been working very well in this first quarter. What is the direction of this? Our direction is, in fact, aimed at the historical levels in numbers of days of inventory. And more and more, we're going to be selling our inventory, which have a higher speed -- have a slower speed of sales and stay with these products, which are on the ABC curve. How we're going to treat this, how we're going to address this of allocated capital? The first is the allocation of stocks. Everything that we have in-house, we made a few bets. A lot of things went well. We got -- we went up the same-store sales, went up to 15 from 7 to 15 and something that didn't work as well as we would have liked. This is what retail -- that's the way it is with retail. The good news is that we have already returned these stocks of these inventories of things that did not work very well back to our distribution center. And in March, we're going to be pushing these down to the stores who sell a lot of those products, these SKUs. The second point, which will help a great deal to address this question is the increase of the Duo lines, which is our silver and gold price line is -- the price is lower because this will help us a great deal to be able to do this management and also a great deal on the top line to bring a new client base to us. And the third largest point is the stocks. Today, we see internally the opportunity for us to sell out these things, especially on a seasonal basis, which is something very important for our business. So these 3 major fronts, which are going to take us to a level which is much more adequate from the standpoint of days of stock. I'm going to pass this over to Elias, who also has some very good information about raw material, which is where your question was aimed. Looking at your question, I think that we see very clear to Elias this change which happened about in raw material, which happened in the fourth quarter. When we look at the full year, we posted an average in the first half of the year of 70 kilos of gold. In the second half of the year, this went to 140 kilos of gold. I'm talking about gold because it's what really makes a difference in our inventory. The other things have a much less an effect. So we doubled the amount of gold we were purchasing per month in the first half and the second half of last year. In this first quarter, our average per month is below 60 kilos of gold. We do not expect that this will increase during the year. So there's a significant reduction which is the levels of purchases of gold in the first semester of last year. This strategy, as he mentioned, is to allocate better our stocks, our inventories in our stores, less purchase of gold, which should mean that our days of inventory will decrease in the next few quarters. The optimization of the mix of stores, we're going to address these 2 subjects here, which we focused on Life. We mentioned that at the end of last year, we came with an increase, which is very important from the standpoint of the quantity of new items in these collections, which has given us results, very important results for us here in this first quarter. We've had a turnover between the collections in the different categories of Life. It's worked very well. This refreshing of our stocks. And from the standpoint of store mixes and the allocation of inventory, we've made a bet to increase the Life inventories, which will bring a very important return to us from the standpoint of top line and has hurts very little in the question of inventory. It doesn't have much inventory cost, and it brings an important top line increase for us. So that's our bet on these inventory questions right now.

Our next question comes from Bob Ford from Bank of America.

I want to know what are you thinking about the -- and how much time you need to make these adjustments? And what has been the initial return from the market and the Lab diamonds as well?

We addressed this question a little bit in Eric's answer. So we understand that by the end of this year, we'll be at levels -- historic levels from the standpoint of levels of days of inventory. And the second answer is about lab diamonds in the duo line. We see growth here of more than triple-digit growth, which is very relevant from the standpoint of Duo. In March, which will be in the next few days, next week, we're going to start to publish this in a more clear in a more wide-ranging way for our consumers. We've never had this doctrine with our consumers. So it's something new that we're going to start to communicate, and we believe that this thing is going to start to take off. It's already selling a lot, but it's going to be more and more relevant from the standpoint of share of Vivara sales, both from the standpoint of duo, which is gold and silver as well as live diamonds to increase the number of items, SKUs and increase this proposition and exploit this in a more significant way in the Vivara stores. So we're going to have a very important penetration, and we hope to arrive at a level which is much more important than it is today by the end of the year. I think it's very much in line with the trajectory of the company over the years, which has always been able to adapt to the increase in commodity prices and take into account the taste of the consumers and has given a good answer for our clients, how beautiful, how interesting. The lab diamonds has been a very pleasant and relevant surprise, and we've had very positive results from that, and we hope to improve that communication going forward.

One more question. How do you feel about your cost structure? Do you have a need for adding more muscle in certain areas? Or do you think -- are you happy with your current levels in your opinion?

We made an important adjustment, especially in corporate structures and our expenses in marketing. As we communicated to you in the third quarter, our marketing expenses were close to 2.5% or 2.6% of net revenue. And naturally, we need to take some of that, but it's not even close to being the level that we had in 2023. We're going to continue to maintain this level of efficiency in our marketing expenses. The second major question is the corporate structure. We've added people, key people and people on a timely basis, very much focused on sales. Somebody who thinks about sales 24/7. This naturally will generate an important increase. We're not going to -- we're not going to make a prediction, but it will make an important improvement in our day-to-day over the next few quarters. And this will help us to unlock a lot of value. So summarizing, in marketing, we maintain a level which is a little bit higher than we've seen in the third quarter, but still with important gains compared to what we had in 2023. And in personnel, it's an increase, but it makes a small but makes a huge difference in our day-to-day, which will help us to prepare for the next steps to be a company 3 or 4x the size of our current size in the medium to long term.

Continuing our next question comes from Guilherme Vilela from JPMorgan.

Can you hear me?

Yes.

I have one about the flexibility of your business model. We talk a lot about the -- at the end of the day, a collection. If one collection doesn't work or gold, you can return that to the factory, melt it down and redo it, turn it into new collections. And how does that work in the day-to-day of the company? Is this an alternative? You commented a lot about testing products, which have low turnover in other regions. And how would this effectively make this flexibility since we're talking about gold, which is a flexible raw material? My second question is about the stores. If you can give us a little more visibility of how this should be divided between Life and Vivara and how this should be divided between -- in the different geographies and states to have better visibility on these new frontiers.

Also thank you for the question. And the question on flexibility. If you compare this with other retailing, it's an advantage -- competitive advantage that's huge because we're still able to return to the finished products to our cycle of manufacturing. Our choice from the standpoint of melting down a part is always the last when you have an inventory with a good and relevant markup without having a dynamic -- a promotional dynamic, which is very large because this is not interesting from the standpoint of our brand and desire. We're able to play with this markup so that we can more and more sell off this inventory, which doesn't sell so well, slower-moving inventory, which is not interesting for us. On the other hand, we have that inventory, which eventually where a stuck stone fell out or something broke and you can no longer sell it. And it's no longer available from the standpoint of the store, but it's a stock. It's an inventory, which naturally we address for melting and it goes back to our factory for remanufacturing. This is our first answer about flexibility. From the standpoint of guidance. I'm going to pass it over to Elias here. He's going to help us.

We brought some guidance at the end of the day yesterday to bring a lot of clarity of what we're thinking about for this year, a little bit less stores than we had last year. We want to increase the quality of the business plan that we have been approving. The stores from the past were doing very well. We have stores that answer more quickly, some that are more slow. But when we pick up the whole picture of stores, we have more than 60% or 70% of positive results, close to what we projected and that makes us comfortable that our business plan is going forward in reality. What do we see for this year? We've seen a prioritization in longs. So we covered all the shopping players in Brazil. We did a study, a very detailed study of the potential of sales in each one of those points and the mix and quality of the shoppings and the localization, what other stores are in those shopping centers, how many stores we have in that region. So taking all that into consideration, we've done a prioritization. We have more than 300 opportunities mapped out for new stores. Obviously, all of this will be divided. The center of the question here is, are there certain potential -- shopping center has a potential for our stores. And we've had 2 good negotiations. We've been well received by the directors of these shopping centers that we see in the system because Vivara and Life are stores important for the majority of shopping centers in Brazil. So we expect these stores, which we're going to open this year, will have good returns even better than they were last year with a metrics to be very clear if that available point is a good point, if the shopping center is a good shopping center and if the quality of the business plan of Vivara. So we have -- we don't have the final definition of where these shops will be opened because in this first wave, we're looking at shopping centers in all of Brazil. The points that we think are the best points in the shopping centers, which are available. We only go to the best places in shopping centers, and if we're able to get good negotiations, which will bring a good return for the investments of the company. Another point here, our velocity of expansion is still very fast. And we're very focused on increasing our level of service. When we look at our service levels, we can observe that it's already at a good level, but that doesn't mean that we can increase our expansion -- our speed of expansion because we have this pipeline, which is very robust. So it's still a very fast rate of growth, and we have lots of work to do, but we're preparing the teams to execute more if we understand that it's the correct moment for that.

The next question comes from Danniela Eiger from XP.

My first question, back to the question of profitability. You made it very clear that the question of the dynamic of gaining on products at the factory. I wanted to look at both in the question of the factory, this focus on productivity and understand if there's any points, which are being addressed or which will be addressed, where we should see any gains over the first quarter in terms of the factory, if you're already seeing this evolution in productivity, which is being done so that it can happen. And the second point in products, since you've already had an expansion of 100 bps, you see the size of the magnitude, there are many factors, which seem to be favorable to your product margins, such as e-commerce, which is more profitable. You focused on the profitability to focus on your growth, the pass-through of prices that you've done with more force in the end of the quarter. And also there's the mix, which may be an offender. So if you could help us a little bit how we should think about these gains going forward, especially looking at the moment -- the strategic moment that you said in the side of inventories. So if you could bring us a little bit more color on the moving parts of this calculation. And also the second question is on the question of expansion to understand how we can think about the mix between the 2 brands and how much -- what has brought you to rethink about this expansion rate since the macro is challenging, the macro situation and when I look at the KPIs in same-store that you have, especially in the Vivara accelerating and the sales in mature stores doesn't seem to be changing much, and that it shouldn't make much a big impact on ROIC, marginal ROIC.

Okay. From the standpoint of profitability and productivity on gross margins, we've seen a very good performance in this first quarter in the factory -- in the Life factory, which is where we've been concentrating this effect of labor -- this negative effect of the cost of labor, and we've had a gain -- important gains there. In the last quarter of last year, we had a rate of reworking in the Life factory. When you have to take up a piece and you have to redo it when you're going through this process of manufacturing. And in the middle of the process, you have to go back some steps, naturally, you need more hours or more people to make the same number of pieces. So we had a rate of overtime, which was very high, and we see this rate falling off in a relevant way in the first quarter of '25. This difference will not be felt in the first or second quarter because the bases are very different. In 2024, in the first and second quarter, we didn't have the number of people to diagnosis that we did enough people to be able to attend the production that we need, both from the standpoint of expansion of life to reach the numbers we wanted as well as the level of nationalization. So we increased our headcount. They increased our productivity. We made adjustments in the processes and our rate of reworking, which was 35% in the fourth quarter fell to the level of January and February to 8%. So naturally, this diminishes greatly the number of extra hours that we need to make the same number of pieces. So we have a policy of discounts, which is a little less aggressive. As you can see, it impacted very little from the standpoint of top line in the digital, but also it was something that was very well asserted, very assertive and then we have space to grow in the digital world as well. The digital, which was not only impacted by this change in strategy, we saw a better cash margin, but we also have an occasional problem with integration of inventory and availability of products in November and December and even the middle of January, this problem has been corrected. So we now have the inventory is working at the level which we believe is from the standpoint of growth, which is necessary. We see in this quarter, in the fourth quarter, an increase -- an important increase in gross margin and CMV and the reduction of discounts and pass-through of prices, and things that we'll start seeing going forward. But all of this will be partially offset by the [ GGR ]. We're going to see an increase in stocks and in costs. All of these effects that we have been talking about here will be much more clear when we effectively go out as far as the sales for the final consumer. And your second question about the lines of growth, the growth this year in new stores should be essentially in Life, principally in Life. The majority will be Life stores because it's where you have more opportunities, where we're able to -- we have much more shopping centers in Brazil, which do not have a Life store. We have some stores that have Vivara, but they don't have life. But we've been proactively sought out by various shopping center companies and individual shopping centers wanting Vivara. So if we have good negotiations to be able to put Vivara stores in attractive conditions, then we're going to do that as well. I would say that more than 80% will probably be Life stores, but we're attentive to look at the Vivara stores as well because the Vivara stores are also doing very well. Two more points. In fact, we have opportunities to expand a little bit more Vivara, even though the same stores are doing very well. But to bring a little bit of color, Brazil has 600 shopping -- a little bit more than 600 shopping centers, and we're present in 180 of them. So there's still lots of opportunities for expansion for the next few years. The next -- the decision was to reduce a little bit from the standpoint of the increase in stores very much to be able to grow in a sustainable way. We still have an expansion, which is quite accelerated for our level of services. We have several other 450 stores beyond the expansion plan, which also have been very well cared for, our NPS has increased greatly. And so basically, that was the center of the question when we distributed the distribution of our stores when we looked at the distribution of stores.

Next question comes from João Soares from Citi.

Can you hear me? Let's -- I have 2 questions here, 2 quick questions. I wanted to look a little bit more at the comment about Icaro about the beginning of the year. You spoke about the beginning of the year and how things are performing very well. I wanted to hear a little bit more how you've seen -- better understand this -- not only the performance of Life in a more wide-ranging way, but how do you see the performance of these collections, both Vivara as well as Life, it would be interesting. And also a question, which is just a timely, more timely question about the lengthening of the useful life of certain fixed assets, what generated this change? It would be good to hear that as well.

Okay. The first one, and Elias can take the second one. The first one, we launched a lot of collections, and we've been able to make these collections be in the stores and get them to the middle of January, let's say, 100% focused on Life. We've seen that the share of these collection recently launched has been more and more important, more expressive from the standpoint of sales compared to the older collections. It's clear to us that we had to update our portfolio, and this has been doing very well. And we think that it was a strategy that was successful, and we have been able to sell off the collections in the other categories that we're still in the process of updating. So from the standpoint of the first quarter, it's a little bit confusing in the first quarter with changes of [ Carnival ] in different months. So we saw a tendency -- a growing tendency over the quarter, and we have to project a solid growth -- solid top line growth. And in relation to the useful life of our assets, we have several contracts, 5-year contracts. When we see that at the time of the renewal, we'd have to do a renovation of the stores. Many stores don't need a complete renovation. They're not completely depreciated. So we reevaluated that subject and look at all the stores and those that are obsolete, some which need to be renovated, some which are not depreciated. And with that, we increased in a few cases, on a store-to-store basis. And now it's going to be much easier closer to the reality, looking at the rate of fiscal. In terms of impact on the P&L, this would have a higher impact. We'll have assets higher impacts. How will this affect your P&L over time? We should have a depreciation a little bit slower, more length -- more stretched out and then a lower depreciation, but it shouldn't have any significant effect on our results.

Next question is from Rodrigo Gastim from Itau BBA.

Can you hear me? Two questions here from my side. The first is going back to the subject of inventories. I want to understand the dynamics of the inventory with gross margin. You spoke about this during the call, but looking at the importance of reducing this level of inventory and how much of your gross margin have you've seen over this first quarter and this dynamic of gross margin over the year, how much comfort are you able to have to reduce your level of inventories by a normalized level at the end of the year? How much investment or if there will be any investment of gross margin to do that? And secondly, we're talking about gross margin if CPV did not pressure your gross margins that we had your factory costs. So looking at a comparative basis without doing an adjustment of the accounting numbers, how should we see this dilution of factory costs over the year? Is it only at the end of the year, the sales are coming? Or how do you expect this to shake out during the year over the next few months? So these 2 questions.

I'll take the second and then Nick can take this. We're going to see in the first quarter based on the comparative base, some pressure. Important to say that we see following this, we adjusted several processes in the factories in the silver factory and so forth, which is very healthy and very controlled. You have to have a comparative basis. And then later, we -- in the first half of the year for a comparative base and in the second half of the year and delivering what we expect, diligently controlled over all the months of the year. You can piece that on here. We understand that the work that we have to do, we have an important position, and we have mechanisms to do that to manage this allocated capital, transferring products. And this does not translate into cannibalization of our gross margins. To do this better management of allocated capital, we have to continue a positive trajectory of gross margin delivering. We're going to still have this trajectory increasing our pricing, lower amount of discounts. And over the year, we expect that will continue. We always have routes between the stores. So nothing significant to do this transition from one moment to the next. We have no significant investments to do here to do this increase in days of inventory. And from the standpoint of how we're going to address these inventories, there's a normal dynamic in retailing. We don't see any penalty from the standpoint of gross margin. And even we have to diminish a markup to address this. We see it as something simple because at the end of the day, it helps to dilute our fixed costs and generates more results for us. I would say it's a natural effect. Historically, it happens.

Very clear. One quick one, if you allow me, that part of the logistics network, you have a deficiency in the logistics of the DC with the loss of certain subsidies. This may be a relevant point for you this year.

It's a very relevant point. It's evolved well. We've already -- we're in this process of hiring the necessary labor shortages. I understand that this is going to start to impact more in a more relevant way in the second half of the year. And yes, it's very important from the standpoint of results. Once we've defined all of these evaluations, we'll share more details for space, investments and eventual gains.

Alexandre Namioka from Morgan Stanley.

The biggest part of my question was already answered. However, a few quick follow-ups. Icaro, you mentioned that about the CapEx per square meter was improving in the new stores. If you could share a little bit more about the detail about that and also perhaps link it to the ROIC, marginal ROIC of these new stores? And the second question also quickly, the question about expansion. I understand that it might be difficult to share the mix of geographies. But if you could talk a little bit about the mix of types of malls, types of shopping centers where you're going to be opening these stores, that would be interesting as well.

I'll take the first one, and Elias can take the second one about the expansions. From the standpoint of CapEx, Alexandre, we have 2 initiatives. The first is purchasing in large scale. We have guaranteed to our suppliers a larger purchase so that they can prepare for that and give us an important discount to us. The second major front is the reutilization of -- especially of air conditioning and electric boxes, which are very expensive in our CapEx and which do not impact from the standpoint of customer experience. Obviously, we're only going to take advantage of those things, which are still good and which still has a useful life. So these 2 levers have permitted us to have a more relevant CapEx. And at this exact time, we're redoing our economic studies to understand how much this will impact our profitability. And so this what we have in our release about the roles or expansion. In shopping centers in large cities and shopping centers, which have a large potential of sales, but we have shoppings with the major groups. Shopping centers have good potential sales, which attend the A class public in several cities in Brazil. So we're addressing and seeking to open, first of all, in these shopping centers, the first item in the prioritization that I said is the potential of sales, the highest sales potential. And obviously, the other important items are important as well. But we have -- we have to go to those places that have the highest potential sales in shopping that are A, B so we can get -- first get to stores in the stores and shopping centers that have the highest potential sales. And then later, we can go to other shopping centers that have lower potential sales, but due to discounts on rents and stuff, it might still be interesting.

The next question is from Isabella Lamas from UBS.

Can you hear me? I now wanted to get into a little bit from the standpoint of prices. Danny mentioned this in her question, but I wanted to focus a little more on understanding in this last quarter, you had some pass-throughs, especially in Vivara, to catch up with the dynamics of the price of gold. But just to understand if this gap still exists and if there's anything that needs to be done in the first quarter and in the first half of the year. And if you've seen this dynamic having any insignificant impact in volume, how do you see this trade-off between the 2 brands, Vivara and Life, and also entering into the Life strategy, I want to understand a little bit how do you see the price point of that brand. We know it's a brand that's more younger and with this movement of Larissa Manoela as an ambassador, who is very important for the Generation Z and Generation Alpha. How do you see this range of prices? If this becomes less important for presence and becomes something more premium line, if it's still in line with this category of presence that is significant and which brings a great deal of attractivity in the comparative dates. And so the question is of these 2 brands and these pass-throughs and the strategy of Life.

Thank you. I'm going to address this on 2 different fronts. First, we're not 100% updated from the standpoint of pricing since gold has been going in price, going price over the year. We have monthly looked at these quotes and checked our prices, so we can only pass through if we have a choice to gain share. In Vivara, we're a little bit behind this curve, but it's still very healthy. And what we've seen the category of collections, these are less elastic. They don't suffer so much from the increase in prices because it has design and the perception of price by the consumer. When we look at more commercial items such as wedding rings and chains, yes, these are more sensitive to gold increases. And so in January and February, and we understand that it's a category, which is very elastic, each 1% in price, it changes 2% to 3% in volume. And so we've expanded these tests to find a level which is a correct level from the standpoint of top line as well as margin. For Life, the second question here, the strategy of pricing, we have 2 principal levers, 2 major ambassadors. [ Marinas ] speaks much more about collections and Larissa talks a lot about the generation, the younger generation. With no doubt, the strategy as you brought of these present type of pieces, this is going to work more internally. We understand that even though there's a fight that we have with the other jewelry stores, we also have to look at the consumers and with other brands. So more and more, we're going to intensify this journey of these pieces that are adequate for presence, for giving for gift giving. And so we don't have the intention of making the brand the most -- make life into a premium level. I think we're at the correct level. And we're going to work between 2 principal groups of clients, the 30-plus and the younger clients, who are buying -- people that are buying for the moment. Due to the time of this call, we are now closing the call from Vivara. The Department of Relation with Investors is at your service to answer any other questions. Thank you to the participants, and please have a wonderful day. Thank you.