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

[Interpreted] [Audio Gap] Of Life products which we need to sell to increase our availability of stock in more than 110%. So we reached 23,000 units. These 23,000 units today are the units that we need to be able to sell at the level which we want to reach. This makes it possible for us to several questions which we had problems in the past which we're addressing now. The first was the increase in the availability of products to reduce the level of stock-outs. The second point, the major question was to accompany the evolution of the expansion, which is an expansion which is accelerated. And the third, as I mentioned with you, is the possibility of internalizing more and more our production lines and depending less and less from outside suppliers. As a consequence, this generates more ICMS credit and generates over the quarters a higher gross margin. I'm going to pass it over now to Elias. Elias, it's good to see you again. It's good to be with you again. And he's going to share with you some of our numbers. Thank you all.

[Interpreted] Good morning, everyone. In this first quarter, it's very intensive compared to the year, and we've seen a lot of what worked and what still needs to improve. We still have lots of room for improvement. So we've seen a better line in our commitments for excellence in seeking a better governance. We brought new contributions to bring us strategic and seeing what's best for the company. At the last assembly of the Council of Fiscal Committee, we believe that we've had lots of counselors in our council. With these board members, independent board members are very senior leaders with experience on several boards, not just in retailing, and that's a question for you. However, we have with us these questions and strategies, which are very much a great deal richer. Specifically talking about this quarter, we had 4 new Life stores, which were inaugurated. Due to these holidays we inaugurated 7 Life stores in April, a little bit after the end of the quarter. And with that, we opened 11 Life stores in 2025, reinforcing the presence of the Life brand in several cities, which already had Life stores, and in some others, the first Life stores in several cities around -- which had been very receptive to this product in the areas we [ prevented ]. We saw -- we're looking at this, analyzing where we have opportunities based on the online sales that we've seen in the regions and the sales that we have in the Life category within Vivara. Of the 11 stores we opened this, only one is in São Paulo, and 5 are in cities which had no Life stores. With that, we did 5 retrofits of stores, a very important factor to start to improve the client experience, customer experience, and have the same that we have in other stores. And also, these retrofits have brought a higher return on investment and a cost of execution which is quite low. With this program, we have delivered in quality between 40 and 50 stores over the year, which have turned into the best points and the best shopping centers in Brazil. Here going back to revenue, we look at a gross revenue which continues consistently growing with the more we invest. We see that this is about 15% of growth in gross revenue and a growth of 16% in the physical stores and 1.7% in the digital sales. We have grown by 13% while Life grew 13% in the stores which we had in this period, but also the same-store sales which grew by leaving from 9% in the fourth quarter to 10.1 in growth in same-store sales. Giving you more details. On the next page, I wanted to look at this next slide which has grown more than the gross revenue of the company with the ICMS credits which is totally related to the internal production which we're doing in our factory. In the last quarters, we made our stores in Vivara and the same-store sales at these stores and naturally, in the same quarters, there's a tendency for this to be reduced, the best purchases of gold that we've done in recent months where we've been able to invest with our inventories going forward. [indiscernible] simply what we're doing, we have looked at in the past and we're now harvesting the fruits of these investments in recent months and we have a strong gross revenue growth over the next quarters. We believe that this will be done offset by the evolution of the internalization of Life which we've done in our factory, the level of production that we have reached and then the gross margin. We expect to have a reduction in our production cost for Life and this will also, when it's sold and passed along to the consumer, the final consumer. Beyond that, we have the distribution center which should generate new presumed credits over the next years which is totally within our program of implementation and we'll be looking at that over the course of the year. This is the normalization that we expect of these credits which will give us a healthy evolution in our gross margins and generate a great deal of maturity in the manufacturing model as well as the retail model which is one of our strengths in Vivara. So now, we're seeking gains of efficiency, improving all that's been invested whether it be by capital or investments in the operation. Specifically in the different channels which are the Life stores, we see that we reached BRL 135 million of gross revenue, growth of 31%. The numbers of Life in the Life stores grew by 57.9% in the sales of this category, gaining the more maturity that Life has as its own brand, as a standalone brand and a standalone store. We do not -- in the same-store sales of Life, we see a positive effect that we've had when we brought new options of collections which were released over the year, especially at the end of the year and we see this effect in the stores and we -- starting in April, the new models of products with prices adjusted. We already see that this has begun from Mother's Day and we've already seen good signs, reactions of sales of these new models, these new products with the sales that we've seen in the last few days. Looking at Vivara, we have BRL 435 million gross revenue, 30% compared to the same quarter last year. In the same-store sales, we got 11%, a very healthy number, which is already consolidated, which helps us to understand the importance that has been to have the right amount of stocks in these stores with potential for selling and doing the constant renewal, especially in the Duo in our laboratories and the principles, we see that this has come -- these sales have come once we -- these new innovations, these new ideas, new lines have been highlighted as the preferred products of our clients. Next slide. We see here in the digital channel, there's been a growth in this quarter much higher than we saw in the previous quarter, going from a growth of 3.5% in the fourth quarter of '24 to 8.6% in the first quarter of '25. This course corrections and the process of integration that we have with the site, the other sites under our management. And we've received a lot of this in this journey. We're getting more and more integrated with our clients. We see that the sales of -- which are done on the site, but sold through the stores are now representing 46% of our digital sales with more than 24% of growth in the same period compared to the period last year, is much more assertive in terms of media and integration with the media and the site. And we're talking about sales, and this has also brought a larger amount of recurring sales, digital sales with a higher sales for these clients who are much more recurring clients.  As part of these investments, more assertive investments, we see that the activation that we have done of the new ambassador, Miss Morales became -- has brought us a lot of involvement with the networks, more than 37.8% to 40% of the digital sales. We've had a growth of gross profit of 20% compared to the first quarter of last year with gross margin compared -- a similar gross margin. It's very similar to what we had last year with a small gain of -- a small change of 1% and we increased our head count of the factory, which was totally offset by the realization of the FGF where which effect that we had expected. And this is principally because Life only started to reach productivity that we expected the factory now in this first quarter. So we see that we've had to, at the end of last year, reinforce the importation to maintain the stores stocked. So now looking to the merchandise which have arrived in this first quarter and the rates of nationalization, which makes the Life stores more totally run by the -- for Valentine's Day, [Foreign Language]. In the factory, with the increase of -- which will happen over the year, which has stabilized in the fourth quarter and in the first quarter, has happened. So we see the full rate reduced and the overtime reduced and the number of pieces produced per day increased. So this reinforces the relevance of having made this investment in the factory and the return that we're seeing in scaling up very quickly and important and consistent and with less dependence on imported products.  We had growth of 54% in our EBITDA, reaching 18.8% of EBITDA compared to 4.1% with an increase of profitability, which shows greater efficiency, operating efficiency, especially in sales. The sales, we still -- we're being more efficient with our personnel and our G&A and our marketing. As I mentioned previously, we're being more assertive then in the marketing areas. And we then have continued to be very diligent to maintain the gains that we made in 2024 and always seek out new ways of increasing efficiency. In this quarter, more than tripled, reaching a new level of profitability for Vivara. This is -- they like our business, they like our factory, the integrated factory in retail and our capacity to vary this which we've been able to do with an increase in profitability.  This quarter, we've had a lower CapEx than in the previous periods due to allocation of capital. Each investment per store has been due to the efficiency of the factory and also which was within what we expected, we had a cash burn with imported products, as we mentioned for Girlfriends' Day coming up in June, Brazilian Valentine's Day and a contract that we did last year. And since last year, we have been classified as a loan, but we made new realizations to increase our period for the repayment of these purchases with our suppliers. So we've been able to see naturally that this cash consumption happens, and we've purchased less raw material, less gold and silver over this quarter, which is also coming up in April and May.  The effect of all of this is that we have a net debt increase and a net debt in the same proportion that we had the coverage, but this increase is not a structural change in the debt. It's only a change in the accounting of this debt as we did the hirings of these loans, of these advances with our suppliers with the leverage at levels that are quite healthy. So with that, I'm going to come back -- hand it back over to Icaro, who's going to talk a little bit about our perspectives for 2025 and going forward.

[Interpreted] Thank you, Elias. Just the seasonality what we've seen here in the second quarter. We did a live special for Mother's Day, where we got together our almost 4,000 employees. It was a day that was very special for us. We've been preparing strongly for this Mother's Day. It starts now -- it didn't start now, it started way back with our process of production, innovation, our marketing campaign and our production in parallel. We produced quite a bit to attend our needs, the needs of volume. Put it with this perspective, what we've seen up until now up until the 8th of May is a month very, very satisfactory, very satisfactory and a quarter independent of the disconnection between the holidays, which is also quite satisfactory.  So we're very happy with what we've seen with the evolution of the second quarter. For 2025, I'm going to give you a little bit of the pillars that we have been commenting on our 5 pillars, which are the pillars on which we're focusing our operation for the year. The first is the continuing increase of service, which is one of the most relevant things that we worked on to increase our level of satisfaction of our client satisfaction. And this has also had an effect on all of the areas of contact with the clients: technical, the SAC, the client service, logistics, which is a reflection of the e-commerce and the digital, and also the stores. Coming back to physically present training with salespeople and managers, this has given us a lot of fruit in our customer satisfaction numbers. The second main pillar is the operational levers, and we break this into several activities. The first is the control of expenses. We've done a lot of [indiscernible] focus to maintain our gain scale and gain efficiency and scale and efficiency in our expenses. The other one is increase of our manufacturing capacity to increase the verticalization of our production. Especially in the Life segment in this first quarter, we see it as a brand that has become very important, which is our 23,000 pieces produced per day in Life. And I thank all of our workers in the factory who have worked very hard to get to this level. We lowered our levels of waste, which will increase our level of productivity, which is very, very important. And the third large, major lever is the utilization of our tax planning. As we mentioned, we are here very, very advanced in our plan to be able to start to put this into practice. And in the next quarters, we're going to see a benefit, which is very important, coming from this lever. The third pillar, which is innovation of our portfolio of products, and I want to break this into 2. First is the products to be more adequate to the purchasing power of our customers. Over the last 60 years, the price of the commodity has evolved greatly from the standpoint of the gram of gold as well as of silver. And we've done basically a design, and this makes it easier for our consumers to be able to afford these pieces. What we shared with you is our intention to increase the collections, the relevance of these collections of the Duo, which is the gold and [indiscernible] and silver and the laboratory diamonds, which we've seen. In the middle of March we started to intensify the communication of these campaigns and the way in which we expose this in our stores, displays in our stores. In recent days, we've seen the relevance of these products double in the category of jewelry. It was a real goal, it was a gigantic win for us, and we understand that this will increase and make it more potential and will grow even more by the end of the year.  Next question within the accessibility of [ attenuating ] the purchasing power, which is the Prata Vivara, which we know it's natural to suffer a cannibalization in the category Life, inside the Vivara stores when we open another Life store in the same shopping center. To attenuate this, we are intensifying the release of more collections of Vivara silver collection that have a very similar ticket and a high level of acceptance, a very high level of acceptance, especially from the standpoint of volume for us. So over the next quarters, we will be starting to see the benefits of this attenuation of the cannibalization effect. The second activity in this area of innovation in the portfolio is the renewal of our current portfolios. As we mentioned, collections of Life, which we've already been doing since the end of last year, much more strongly in the first quarter of this year. We opened up a very important space in Life of practically 15% between collections and Moments between the 2 when compared to the previous year. It was very, very successful, this release of Moments in the collections. It's already started to work with Moments, the Moments collection. We've seen in the second quarter a very satisfactory sales, both in the jewelry as well as in the Life area pillars that – before we open up for questions, in our park of stores, we're in line with our guidance for the year between 40 and 50 stores. What we've seen here is have a level of use of the shopping is very adequate. We opened 11. We're going to continue this during the next quarters. So looking at our last pillar, which is the management of stock, we have a specific slide for that, just to give you a better idea. The stocks management, we're breaking into 2 major fronts. One is the -- we've already seen from the purchase of raw materials in recent months, so we have an increment in raw materials as a percentage much lower than to finished goods. So we're transforming this raw material into finished products. The reflection of this is that we get more ICMS credits as to how we address the optimization of our stocks up until the end of the year, a very important point for us. So the first is the reduction of the purchase of raw materials. We have a very healthy level of stocks on hand. The second talks about the finished products.  Last year, during the last 2 quarters, especially in jewelry, we stocked up on certain stores, which had a very strong reflection, very positive in same-store sales. But even so we had some of high-carat sales, some stores did not have a diversity for a good turnover. So the same jewelry are very relevant in other stores. So we're doing a redistribution of these products between the stores, and we're seeing a sales velocity increase, which happened at the end of March. So it's also a positive effect explaining our second quarter, our good performance for the second quarter. And also in our plan of optimization of stock is the removal of slow-selling products, but those which we have overstock.  So in general, we have 8% of our stock is in this category of products which are overstocked and slow sellers. And we're going to do the -- melt down the material and do a production of more high turnover products so that we can generate more value for the company over the next quarters. So in general perspectives, we think we're very satisfied with this first quarter. We're above the plan we have designed. And we understand that the next quarters will continue with this expansion both of profitability as well as results compared to the previous year. I'm going to close here our perspective. I'm going to pass the ball over to you if you have any questions.

[Interpreted] [Operator Instructions] Our first question comes from Danniela Eiger.

[Interpreted] I have 2 from my side. I wanted to know a little bit about the dynamic of gross margin. If we can talk about the dynamic looking at the comparative situation so we can have this flow of continuity and see how that will evolve when you question as well as in the release, you've done a pass to prices. You've been more agile than the company historically has been and collections doing better in Life than in moments. And from my side, this should help quite a bit here. I understand that the factory is improving as much as you expected. So I want to understand what we think about these moving parts and when we'll be able to see, in fact, this translating into an improvement in margins going forward. And then a second for me, maybe this is for Elias. This movement that you're doing of the prepayment. I wanted to understand how you're going to do to advance this money, what's -- how this works out for your financial costs? And if you're going to open, how much this will -- is not affecting your costs and how this will be reflected on your final results, so we can understand a better understanding of this evolution of gross margin, comparative gross margin. These 2 questions.

[Interpreted] I'll start with the gross margin, and then please feel free to add. It's a mix of several questions. The first is that we saw that some have a markup that are lower, we've seen an expansion almost 3x higher from the standpoint of the acceleration of sales other than enjoys for jewelry and Life and other categories. This pes our gross margin, but it's benefited by the bottom line. As we've explained to you in the recent quarters, we've been able to see this as an offset of the GGR. And we've had to increase our head count to reach these levels of production, which we needed, especially in the Life category. And today, 3000, 2500 pieces per day. So over the next quarters, we're going to see 2 effects. Second is that you're going to see in our DRE in our financial statements, the products cheaper products. This is true so much so that our ICMS credit is coming upfront when you increase your production. I think I answered that question. I think that's true. The line of personnel is clear. This was expected, it was foreseen. This pressure exists in the first quarter and the second quarter. And from the third quarter on, it will be 100% normalized. We're going to have more benefits, in fact, going forward. What we had in this quarter, the impact of importation realized last year because we had a period of lower productivity in the factory.  So now to bring these in product, we have passed that, which hurt our margins in the first quarter. But now we're now drawing out these effects. So with this -- when you take out the importation, then we see an advantage. What's the size of the advance? In the mix that we have now, the current mix of growing as there are growing, it's all inside these numbers. And just to design for the plan for this year, the expectation is exactly that. The dynamic of evolution of gross margin is gradual. However, the productivity is there certain correct and the number of personnel and the mix of Life accelerating, which is an important factor. We're going to have Life with same-store sales as the collections are delivering and with the Life category growing and this in our plans will help. In the closing in the next quarters, we'll see. But we're designed in our plan, built into our plan for the coming quarters. A new factor in your analysis from outside, the importation that we did to be able to keep our stores stocked and this starting now will decline. In our presentation how we have evolved our production of pieces per day in Life. Last year it was 11,000 14,000, 16,000 and so forth. So we've been gaining scale with our production. And now we reached a level of -- which we believe is enough to attend the demand of our internal demand in our stores.

[Interpreted] Just a quick follow-up. Just to make it more clear, we see this evolution, which is very evident in the release, but it's not so much in the gross margin. So that's a point that even though productivity is increasing. The mix of products, what's the gap of collections in moments between Life and moments in terms of margin? This should be helping both collection as well as Duo. These are things that help. The margin should be better. It's true that the margin we're is gaining representativeness, gaining importance in our numbers, even though it's working from a smaller base. To give you an example, what Hellogis is growing compared to Duo and Momentos, it's growing as fast as the market in terms of representativeness. The margin, the watch section, which has the best margin among the other categories, I think it's very important, but it's an important cross-selling. We're not just discussing margin, we're discussing the sales overall.  So it's a combination that we've done over time. To understand about the little of the dynamic of the advances that we -- from our suppliers to improve the capital situation of the company. So in the last year, we made several purchases of gold and silver -- relevant purchase of gold and silver. And then since last year, with the use of our capital and with better spreads with the advantage of the banks and the question that come for the company. So we understood that this was very good for us to bring this increase of time at rates that were quite very healthy rates to be able to finance this increase in stock, which we did last year, which has been happening since last year and what's been produced in this quarter in the presumed profit. How many months we have of stock? It's not just a material. We're going to study this to see if there's any better way, any improvements to be made.

[Interpreted] Our next question is Rodrigo from Itau BBA.

[Interpreted] Two questions from me. First, I would like to listen to your comments about satisfactory sales, which you talked about for the second quarter to understand better if my understanding is correct. During the presentation, this question of stock management, which is helping with sales. In my perception, my reading, obviously, without any numerical guidance, but an improvement in sales in the second quarter compared to all the stock management and products which you're doing. So I wanted to understand if it makes sense, my understanding that this is satisfactory is in line with this line of acceleration.  The second question is in gross margin. When we put all of this in the blender, improvements of the factory personnel, changes of credits and subsidies. How do you see your margin growing over the year in a comfortable way? Are you comfortable in working with this first quarter with this margin pressure? I think it should be better, a better dynamic in the second quarter and how that will be? How do you think about that compared to your budget for this year with these first 5 months of the year, the first 4 months of the year already gone by?

[Interpreted] Thank you for the question, Gastim. From the standpoint of sales, satisfactory sales, we're very satisfied. Yes. We have delivered above what we planned. And here, across the 3 major categories of jewelry, Life and watches. It's been very satisfactory in Life. especially due to the combination of releases in moments and a small pass-through of prices that we did in the category as well and the launch of the collections that we did last year. Jewelry continues to do very well, very much based on the level of stocks that we have brought into the company over the recent quarters. So we prepared very well from the standpoint of quantity. We passed through the prices as was necessary due to the price increases in the commodities. And we add all this together, we've been launching collections which are very, very -- which have been very well received by the market. So the tendency is very satisfactory. without any numerical guidance, but we're very happy [indiscernible]... the first quarter.  The second question in relation to the gross margin. The tendency here, what we've seen here in relation to our plan is that we're a little bit above our planned amount. We see the next quarters, we're going to stop suffering the pressure from the standpoint of increase in head count, which is 1.4 percentage points of increase in this quarter. In the second quarter, we still didn't have a base of comparison. We shared that number. But in the third and fourth quarter, we will have a base that is 100% comparable with the much higher level number of products being produced in-house. and also gaining more and more productivity. So we're going to open up for you the -- the level of waste, and we've shared with you the number of hours necessary to do this production. But the number of overtime hours that we had has been reduced by 3x compared to the last quarter of last year.  We've gained efficiency, and this will be reflected over the next quarters. And obviously, our plan contains expansion of margin as well as absolute numbers compared to last year, and we're very satisfactory -- very satisfied with the numbers. We're above that, which we had estimated internally. This effect on the margin winds up being more based on the strong growth that we had the factory.  Over the next quarters, when we have this seasonality arriving at sales, we expect that this effect of the moments in the factory will be reduced by presumed profit and the changes within the net revenue will be reduced over time. And consequently, the gross margin will increase over the next quarters.

[Interpreted] Our next question comes from Eric Huang from Santander.

[Interpreted] We have 2 questions here from our side. The first is looking more at these comments which you made about the Life and looking at the comment in the release about how much better it has been the same-store sales and collections in the first quarter. I think we can understand that the moments at that time was still slower. Just to understand better, when do you expect or perhaps you already are seeing the closing of this gap between same-store sales in the 2 due to these operational adjustments which have been coming, the new collections and moments. And also based on that, looking at the Life, how we -- when we expect to see potentially a closing of the gap of same-store sales that we've seen, especially in this quarter between Life and Vivara.  And the second question, heading in direction of the gap between gross revenue and net revenue, we had an expectation that it would be relevant, and it came a little bit higher than expected. But looking at the next quarters, we expected that there might be a closing -- a full closing of this gap due to the basis, which are more comparable. We still see the maintenance... It's a little bit higher than we expected. This is reflected in the rest of the P&L due to the higher volume of benefits.

[Interpreted] Thank you, Eric, for the question. I'm going to start here with the question about the sales of Life. We saw a difference in space between collections and moments. Collections is 60% of our sales in Life. It had a performance which was very important performance based largely on the new collections and the new launches. and this continued a positive tendency moments.  We have 2 large opportunities. Looking forward, we started this moment at the end of March, this movement at the end of March, which is the bringing the prices -- bring our prices up to level. We had to raise our prices a little bit.  And the second is that the arrival of the new portfolio in the stores, which has started to arrive at the end of April, only at the end of April. April was a month in which we had different basis from last year due to the holidays. But even so, we had the results that were in line with our plan. And what May has shown us is that a very satisfactory results. So the -- putting these 2 together leaves us very happy until now from the standpoint of same-store sales and Life.  We see a gap of collections and moments closing that gap will be narrowing. The tendency is that it will close this gap. And we see same-store sales Life as a toll benefiting from this movement, but also there will be an opportunity to -- by the end of the second quarter and the starting of the third quarter, a tendency to even improve even more because we don't have only moments working, but the probability that we reached at the end of the first quarter helps us to do a moment to increase the stocks in our Life stores, which had not been able to execute due to the -- at the end of last year, we had not yet reached this level of production.  And we see same-store sales Life as a toll benefiting from this movement, but also there will be an opportunity by the end of the second quarter and the starting of the third quarter, a tendency to even improve even more because we don't have only moments working, but the probability that we reached at the end of the first quarter helps us to do a moment to increase the stocks in our Life stores, which had not been able to execute due at the end of last year, we had not yet reached this level of production.  At the level of production we reached will permit us to reach a corner change in the next quarter with some increases in stock and the stock of live stores, perhaps not total, but it will help us to be more to these movements to bring same-store sales, which tend to be better. And as far as the difference between gross and net profit, you see a discrepancy of the growth much higher than the net and in the gross, as we've been commenting, this tends over the year to diminish this difference, and the dynamic of net revenue higher than gross revenue, but we've seen that already. And since we're internalizing more and more of this production, the percentage is higher, than it was in the past.  Even so, the effect of the second and third quarters of last year changed this dynamic. At the same time that we have this road map, which we've been following according with the plan. This is the dynamic. It's not going to be necessary in investments much more than what we have already done, due to this moment that we have to see a conclusion of these processes.

[Interpreted] And just one more follow-up on the comment of the price increases, the pass-throughs of prices in the moments collection. In the past, we talked about this, looking at this equilibrium of pass-through and increases of prices, and how do you see that in terms of volume? I think perhaps you've had in some specific products, I'm going to have to go back in terms and how is this balanced today? And how do you see this from the client side, the receptivity in relation to this price increase?

[Interpreted] We made this movement in Vivara had a good reflection on the category in the fourth quarter. And in Life, we saw that as we commented to this part in the Moments collection, we saw that there was space there to permit this, which also in volume. But I also think that it's more or less this trajectory. Basically, our exercise was looking at Vivara. And then we saw the performance in the volume, the dynamic in the first quarter was better than in the fourth quarter of last year.

[Interpreted] Our next question is from João Pedro from Citi. Jo, we're going to send you a link to open up your microphone.

[Interpreted] I think that people addressed the principal points that I had. I just wanted to make it clear, if I understood, if you exclude the effect, the mix effect, what was the impact? How much did your gross margin vary year-on-year? What we did was including in the mix and getting rid of the import effects. If I get rid of this mix effect, that the margins would have grown more. We don't open up this mix effect on purpose. But if you look at Vivara 68%, 69%, Life is about 70%.  When I look at the watch effect, I think that these numbers, you're able to extrapolate. But even if I take out the import costs in relation to our factory, as we mentioned, we make it generate these efficiencies. It tends to generate more efficiency going forward because it effects the production and the people that have come in to help, and so forth. This is all happening so much so that we've worked with the pricing a very assertive way. The orders have been coming through a quick trade-off. In other quarters, we looked at the gross margin that tends to be more better and better. And in that case, looking at these subsidies, I mentioned about this revenue, if I understood correctly, we're going to see this diminishing over time until you get totally set up your distribution center in Minas. Is that correct?

[indiscernible] Sorry about that. I was just my question to the wrong person. Okay. Let me point out, as far as the subsidies, when we compare, let's talk about December, the fact where production, if I look at October, September, November, the volume we're looking about BRL 100 million. If I look at the first 3 quarters of '25, it was approximately BRL 80 million. So you had the factory reached its level of productivity. It relatively speaking, starting now to produce less and less than it did in the last year, which means that this gap will be as big as it was in the first quarter. From the standpoint of the second quarter of this year, the dynamic will be the opposite.  The relevance of production in the second half of the year will be much higher than it was last year. So at this current moment, as we had programmed. We're still setting up this plan. We're going to give you more details when it's all set to offset this inversions. So we're going to gain in our gross margins without losing the subsidies.  As we mentioned, we're going to sell to this guy in the future, and this production at home is cheaper than the production and importation. This will benefit the gross margins. It's going to lose these subsidies, and look at the gross margins since we had additional operations, will be reduced by production, relatively speaking. I'm not sure if that was clear.  One thing is that the higher production in the Life, we're producing double what we produced last year, and this is a permanent change. It's production which continues to generate credits and generates also better numbers. If you look at both the credits in the CMV and the cost of material, it improves our gross margin. And this difference has come to stay. It's a permanent change. We need this. We're not overstocking. We're not overstocking or anything. If we ever need more, we even need more, but we're not able yet to increase, but we're on the way an accelerated route to increasing our production. So if you continue, one follows the other. We're trying to think to isolate the effects of these subsidies from your gross margins. At the same time, the dynamic of production itself will accompany this. So it's hard to isolate the effect of one from the other. If you can expand, the question is, if you can expand what will be the trajectory of gross margin without the effects of this subsidy. But I'm not sure if it's relevant that one is accompanying the other. Increase in gross profit and margins... Over here.

[Interpreted] Our next question is from Vinicius Strano from UBS. [Audio Gap]

[Interpreted] Just following up on this theme of gross margins. You made a big change in stock levels with things increasing recently. I wanted to if this is a lever to help your gross margins and passing this through to prices, perhaps a little better than you imagined. And just to confirm if this effect of 60 bps in the importation in the second quarter this will be a null and the question of additional personnel costs, it will be comparable. I just want to confirm that this understanding. And also about the subsidies, when we look at 2024 with the percentage of gross revenue, close to 8%, this would be a level that you see annualized, normalized in terms of efficiency in the area of fiscal efficiency, as you mentioned.

[Interpreted] Talking about the products that are produced internally. So this will accompany the evolution. It's very much in line with our plan. It's not above what we expected. And looking at the dynamic of the subsidies as a percentage more than we've had historically. So to give you a number, imagining that as a percentage, it's more representative than the historical numbers of the company structurally over the next Import volume. You can see that, that was quite a number of importation, if that was still. In the third quarter, we attended the demand that's necessary to support Life. We've had to make a choice between purchasing and putting this up. We chose to import rather than run out of stock in the short term. So a diminishing of our -- in the following quarters.

[Interpreted] Our next question is from Alexandre M from Morgan Stanley. Seems to be a little technical difficulty there on the part of [ A ] and seems to have a problem there. So we'll go to the next question. Next question is from Joseph Giordano from JPMorgan. Joseph has left the conference. So our next question, which is from Gustavo Fratini from Bank of America.

[Interpreted] I wanted to understand a little bit more what you see in this dynamic of the repass the pass-through of prices and volumes. You put in the release that the price of commodities continues to increase year-to-date. And we know that you have made some pass-throughs along the year. You had even commented about thinking about making one in April. I wanted to understand how was this pass-through of prices and how this was reflected in volumes? If you could comment a little bit more specifically, both for Vivara as well as for Life.

This is a management of pricing that we do. What we do -- what we accompany here in item by item what are the items which are gaining velocity and which are the items which are flat or losing sales velocity from the standpoint of volume. we do this management to maintain our level of markup, very healthy markup. We have already passed through 2 prices in these items, which are the -- which have space for that. we've seen a good level of acceptance by the market. And again, on the other hand, on those that we've seen falling off, those which are slower sellers and the other things which are for us are commodities, which are solidas and wedding rings and chains.  We've seen these categories to combine with the profitability with volume. It's always important to maintain the volume -- maintain our volume strong. From the standpoint of pricing of these commodities, the price of the commodity is not our price. It's not our average cost in our stock. We've made -- we built up our stocks less in the past. So we have space, especially for -- compared to our competitors. We believe very firmly in that. So we don't have this need for pass-throughs -- immediate pass-throughs of prices. This is very clear when we look at the evolution of our market share. We've been gaining more and more relevance based on that.

[Interpreted] If I could just make one follow-up. In the first quarter, can you say what was the breakdown of the growth of jewelry between volume and ticket -- or is it just ticket? Or is it ticket and volume?

[Interpreted] What I can tell you is that the dynamic of the first quarter was better than in the fourth quarter. My trade-off price volume in the fourth quarter was a little worse. And in the first quarter, it improved. Exactly this process of evaluation and calibration of the prices that we used at the beginning of the year, the relationship between jewelry and gold, which has helped us. Thank you.

[Interpreted] Due to the time, we're going to close the video conference of results for Vivara. The Department of Investor Relations is at your service for answering any other questions that you might have. Thank you very much to the participants, and have a great day. Thank you all.

[Interpreted] Thank you all very much. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]