Q2 2026 Azzas 2154 SA Earnings Call

August 13, 2026

Speaker #1: A decrease of 1.9%. If excluding basic, which we'll talk more about later, we had an increase of 0.3% reflecting 2025, even with the internal-external challenges.

Speaker #1: When we revenues with selling and sellout, for the selling of franchisees, the result was deliberate. We have over 1,500 franchisees when we look at all the brands.

Speaker #1: For the Arezzo brand, it's the pioneer in the fashion franchisees in Brazil. So we have a relationship of one generation after the other with them, and in all moments our focus is a long-term.

Speaker #1: Even though it affects our short-term results, the numbers that you can see here show how we're supporting our franchisees obviously because we are correcting the course, the leftover products from the other season.

Speaker #1: And we have projects that have been implemented to improve that. So in the first half of the year, our franchisees in shoes and bags I would say had a sellout of minus 4%, and we didn't deliver summer collection in June.

Speaker #1: So the reduction was minus 21%. In June, the shoes and bags increased. 22%. So we're really focusing on that to improve selling and sellout for franchisees that had a 22% increase.

Speaker #1: When I talk about shoes and bags, I'll give you the absolute numbers on that. Obviously, the drop in selling part because of franchisees and partly because of multi-brand and mainly Vans, and that's I'll explain about that because that's not under control.

Speaker #1: So there had an operational deleveraging of our business in this quarter. So when you look at the snapshot, it's very bad. But when we look at the film, it's a dynamic that will be overcome.

Speaker #1: And in selling that goes fast in operational leverage. In selling, especially franchisees, they have a very low cost of service so the conversion between gross profit and EBITDA margin is very high.

Speaker #1: Sales expenses are 7 to 10 percent depending on the brand and channel. So franchisee or multi-brand. So you have a decrease of 3.3% in selling channels.

Speaker #1: It has a very high impact to the bottom line. Different when you look at sellout. Even though the sales are high, gross margin high, but the cost of service is high.

Speaker #1: So the leverage is a result of lower selling. As I explained. About the future. The biggest correction in the capability of increasing selling was already done.

Speaker #1: In the third quarter, we can balance we're balancing out the sellout and selling of the franchisee network. It was painful work, but very important.

Speaker #1: The main effect that we're measuring the health of our franchisees is the delinquency rate. So for bags, it's just 6.4% of the total receivables.

Speaker #1: So we made some tough decisions. We decided to preserve the network. We focused on operations and obviously the partnership aspects that are. Public that we had some debates as of May 12th.

Speaker #1: In the beginning, it took away some of our focus and energy. But now we have a group of people that are extremely dedicated that are engaged in that topic.

Speaker #1: So that the management is completely focused on the business. Going into the second half, focusing on growth. Obviously, it won't be stratospheric, but especially in profitability and continuing to focus on cash generation.

Speaker #1: So what are the levers? Of our business. Besides the standard operation. And operating cost. We have the strategic alternatives of Farm Rio as the material fact announced in on July 19th.

Speaker #1: We have Morgan Stanley to focus on strategic alternatives for Farm Rio. The process is still according to schedule. All the accounting and legal aspects are well detailed.

Speaker #1: But it's worth noting that the decision was made in the operation is still in the phase of preparation. As planned. So we will inform the market at the right time.

Speaker #1: The other level to generate results is the consolidation of the herring turnaround. So in this first half, we see an increase in gross margin.

Speaker #1: And especially cash generation. We have 97 million in cash generation. I'll talk more about that later. That was for the quarter. When we look at the consolidated numbers for the half year, that number is very positive.

Speaker #1: So 2025 drained a lot of our cash flow. But now, even though there's contraction in revenues, there's a traffic change in the capital employed and consequently cash generation.

Speaker #1: About the highlights. We have total revenues of 3.2 to 4 billion BRL with an impact of the selling by 7.1%, which is negative. And in the assets group of 3.4 billion BRL in one single quarter.

Speaker #1: Yokohama is ample.

Speaker #1: Sure. So the reduction was minus 21% in June. The shoes and bags increased 22%. So we're really focusing on that to improve sell-in and sell-out for franchisees that had a 22% increase.

Speaker #2: Falando então sobre o nosso segundo trimestre, o nosso resultado operacional, que vale o nosso DRE, ele não espelha, não reflete a força das nossas marcas.

Speaker #1: So that shows the robustness in our ability as you can see the selling we had deleverage. If it went too fast, we would have a historical positive bias of the entire business.

Speaker #2: É, realmente, ele é muito diferente do que a nossa capacidade de venda no sell-out, e a gente sempre falou em momentos que a gente teve mais desafio, não temos nenhuma marca com posicionamento de branding, tá?

Speaker #1: So cash operating cash generation was 357 million, three times greater than to Q25. Here's some highlights. But obviously, we have some lowlights as well.

Speaker #1: When I talk about shoes and bags, I'll give you the absolute numbers on that. Obviously. The drop in sell-in part because of franchisees and partly because of multi-brand and mainly vans, and that's I'll explain about that because that's not under control.

Speaker #2: Do lado positivo do nosso resultado, a gente teve uma forte geração de caixa, é trabalho que a gente vem fazendo desde o segundo semestre de 2025, com foco muito grande na empresa.

Speaker #1: Highlights. Gross margin. As a result of lower sales. And mark down, especially in the basic apparel business line. Obviously, with the change in the mix, there was an increase of 1.3 percentage points.

Speaker #2: Com isso, então, através de uma melhor gestão do capital de giro e redução de estoques, nós tivemos uma geração absoluta de 356 bilhões de reais em caixa, bem 3 vezes superior ao que foi ano passado.

Speaker #1: So there had an operational de-leveraging of our business in this quarter, so when you look at the snapshot, it's very bad. But when we look at the film, it's a dynamic that will be overcome.

Speaker #1: X-basic was 60.6%. So gross margin was very healthy. And basic was a growth margin of 40.4% and an increase of 1.2 basis points year over year.

Speaker #2: Mas nós temos clareza dos nossos desafios, de receita, de EBITDA, de rentabilidade, e estamos, de uma forma, muito focada e dependente de qualquer questão.

Speaker #1: And in selling that goes fast in operational leverage. In sell-in, especially franchisees, they have a very low cost of service, so the conversion between gross pro fit and a bid margin is very high.

Speaker #2: Buscando melhorar a nossa performance no segundo semestre. Destaque positivo? Eu diria pelo menos neutro. Foi o nosso resultado no sell-out, mesmo com todos os efeitos de Copa do Mundo, nós tivemos no total do Grupo Azzas recuo de 1,9%, excluindo a unidade Basic, a qual nós iremos falar mais profundamente sobre ela, nós tivemos resultado de mais de 0,3.

Speaker #1: Sellout channels totalized 1.7 billion. We have this within our income statement. This not include sellout from the franchises. Excluding BU Basic, we had plus 0.3%.

Speaker #1: Sales expenses are 7 to 10 percent depending on the brand and channel, so franchisee or multi-brand. So you have a decrease of 3.3% in sell-in channels.

Speaker #1: A reduction of 31 days in our financial cycle. So highlighting our stock days with which was 15 days less than Q2 2025. Even with a large volume of summer products in our distribution centers, this happened in July.

Speaker #1: It has a very high impact to the bottom line. Different when you look at sell-out. Even though the sales are high, gross margin high, but the cost of service is high.

Speaker #2: Ou seja, flat em relação a 2025, mesmo com todos os desafios internos e externos. Olhando então a nossa matriz, né, de receita, ela é composta sempre pelo sell-out e pelo sell-in, especificamente o sell-in de franquias, esse resultado que nós apresentamos aqui, ele foi dele.

Speaker #1: So, the leverage is a result of lower sell-in, as I explained. About the future, the biggest correction in the capability of increasing sell-in was already done.

Speaker #1: This is a highlight because if we was not invoiced in July, the stocks would be lower. Our operational cash generation was strong. The figures are here.

Speaker #1: I won't be repeating myself. About the lowlights. As I said, nobody is in a country to have a revenue retraction. Even with all the explanations that were mentioned.

Speaker #1: In the third quarter, we can balance we're balancing out the sell-out and sell-in of the franchisee network. It was painful work, but very important.

Speaker #1: They are corrections from the past. We work with a company to have constant growth. We know that a company that does not grow does not have a longevity.

Speaker #1: The main effect that we're measuring the health of our franchisees is the delinquency rate. So for bags, it's just 6.4% of the total receivables.

Speaker #1: So this is what also happened in our results in this quarter. It was expenses grew 5.3% with a retraction of revenue of 7.1. Generation just deleveraging.

Speaker #1: So, we made some tough decisions. We decided to preserve the longevity of our franchise network. We focused on operations, and obviously, regarding the partnership aspects that are public, we had some debates as of May 12th.

Speaker #1: We mentioned. Occasional expenses were very well management. There was a saving of 6.5% compared to same period last year. So our EBITDA Eric is going to explain this further was 379.6 million reals with a retraction that was big compared to last year.

Speaker #1: In the beginning, it took away some of our focus and energy. But now we have a group of people that are extremely dedicated, that are engaged in that topic, so that the management is completely focused on the business.

Speaker #1: Of course, this figure is uncomfortable. But we have control and management over it. This is a company that is here for the future. And an occasional result from a quarter, of course, makes us dissatisfied.

Speaker #1: Going into the second half, we're focusing on growth. Obviously, it won't be stratospheric, but especially in profitability, and we'll continue to focus on cash generation. So, what are the levers?

Speaker #1: But also more willing to struggle to get this performance back. Our history of growth. And we knew that the decisions that have happened in this quarter were crucial for the longevity of our business.

Speaker #1: Of our business. Besides the standard operation. And operating cost. We have the strategic alternatives of Farm Rio, as the material fact, announced in on July 19th.

Speaker #1: I'm going to highlight some issues about our four business units. Starting with shoes and bags. Our gross revenue was 966.5 million reals. Here, due to the bigger impacts of selling there was a retraction of 12%.

Speaker #1: We have Morgan Stanley to focus on strategic alternatives for Farm Rio. The process is still according to schedule. All the accounting and legal aspects are well detailed.

Speaker #1: This result was positive of 12% in July. And it tends to normalize in the third quarter compared to 2025. The first quarter, the gross revenue of this unit was near 2 billion reals.

Speaker #1: About the revenue per channel, our own stores grew 4%. E-commerce also deliberately reduced the sales with markdowns, had a retraction of 6%. Multibrand channel, we're going to explain, impacted by the events brand has a retraction of 20%.

Speaker #1: And the franchises as I mentioned. A reduction of 21.5% while sellout in the franchises had an increase as well. And we're going to the last line here of this page.

Speaker #1: So you can see how these figures in absolute numbers are strong. The total invoicing for the franchisee channel in shoes and bags was 210.2 million reals.

Speaker #1: Whereas the sellout of this network in this period was of 524 million reals. That is, here, this coefficient that we measure. So deeply sellout for selling was 2.5 times.

Speaker #1: A growth of 22% versus the same coefficient in Q2 last year. Now about the sellout revenue. To the first point here, first bullet point of this page.

Speaker #1: A positive highlight for our main brands Arezzo grew 12.3%. Even with the fact from the world cup. This is a result of the better collection and a reduction in sales in Markdown.

Speaker #1: And the shoes brand that for so many years we presented to you difficulties in finding their position and find the essence of the brand.

Speaker #1: We've talked about this for many years. It was great work done by the from the leadership of Rafaela Forlanetto and the team putting the shoes brand very positively it has healthy growth in own stores growing 7.7%.

Speaker #1: We're going to talk about Sarah Jessica Parker shoes with this positioning that is young and connected. Has Marina Weber Bossa as its ambassador for the summer collection.

Speaker #1: Very much connected to the brand. About the work with Sarah Jessica Parker for winter this year, which was almost accidentally, I think I've mentioned, she came for a beverage brand here for carnival.

Speaker #1: And we got one day from her it was a great repercussion this motto obsessed for shoes. Resonated very well with the Arezzo brand. So we had a deal with her multi-structured to have a mini series with her for the second semester of 2026.

Speaker #1: But it's worth noting that the decision was made in the operation is still in the phase of preparation. As planned. So we will inform the market at the right time.

Speaker #1: We recorded it in New York. The results in the beginning of summer in August have been surprisingly positive. Now about the turnaround from the Vans brand.

Speaker #1: The other level to generate results is the consolidation of the herring turnaround. So in this first half, we see an increase in gross margin.

Speaker #1: Vans is under new leadership. Thiago Marcos he was has been working in the company since he was 15. He has this entrepreneurship project together with the V and Fernando.

Speaker #1: And especially cash generation. We have $97 million in cash generation. I'll talk more about that later. That was for the quarter. When we look at the consolidated numbers for the half year, that number is very positive.

Speaker #1: Great experience in the sneakers segment. He's in charge of the Vans brand. And he has been very efficient in his work focusing on reviewing the production cycle.

Speaker #1: So 2025 drained a lot of our cash flow. But now, even though there's contraction in revenues, there's a drastic change in the capital employed and consequently cash generation.

Speaker #1: Using what we had in the past with a bigger participation in sourcing done in Brazil, which gives us more flexibility and better margins. Of course, we're increasing the purchasing and furnishing of the brand.

Speaker #1: About the highlights. We have total revenues of 3.2 or 3.24 billion BRL with an impact of the sell-in by 7.1%, which is negative. And in the Azzas group of 3.4 billion BRL in one single quarter.

Speaker #1: And commercial activities to accelerate sellout. We'll have a second semester with challenges from the Vans brand results. We are aware. But our project forecasts that for December results are going to be positive.

Speaker #1: The actions are very well implemented. And 2027 in Vans brand is going to start growing again. Some highlights about the campaign that I mentioned with Sarah Jessica Parker.

Speaker #1: So that shows the robustness in our ability as you can see the sell-in we sell-in we had de-leverage. If it went too fast, we would have a historical positive bias of the entire business.

Speaker #1: We had the first seven days of the campaign since its launch last week. More than 6 million views in digital channels. 70 organic articles.

Speaker #1: So cash operating cash generation was 357 million, three times greater than to Q25. Here are some highlights. But obviously, we have some lowlights as well.

Speaker #1: I think everybody was somehow impacted with very aggressively in São Paulo, in Iguatemi. This generates very strong brand awareness. Especially these shoes, the black and white.

Speaker #1: Had sold over almost 100%. So this campaign was very successful. Continuing this process of recovering our selling. This week, we had on Monday and Tuesday, we were in Campo Bom.

Speaker #1: X Basic was 60.6%. So gross margin was very healthy. And Basic was a growth margin of 40.4% and an increase of 1.2 basis points year over year.

Speaker #1: We had the biggest launch in the history of our franchisees. We had the honor to account with the presence of our founder Anderson Birma from Arezzo brand in Campo Bom talking to our franchisees that have been with us for 20, 30 years.

Speaker #2: Invoice? Yes, 8 is fine. Is that final sell-out?

Speaker #1: Sell-out settled totaled $1.7 billion. We have this within our income statements. This does not include sell-out from the franchises. Excluding BU Basic, we had plus 0.3%.

Speaker #1: The trust in the brand is positive. The initial results from sales is strong. And in parallel here in São Paulo in a large event in Port Paulista Avenue, we had more than 500 multi-brand store owners.

Speaker #1: A reduction of 31 cycle. So highlighting our stock days with which was 15 days less than Q2 2025. Even with a large volume of summer product products in our distribution centers, this happened in July.

Speaker #1: If you were in São Paulo, it is still a setup. You can schedule that with our team. To see the strength of our brand Arezzo shoes and a Capri and Vicenza.

Speaker #1: This is a highlight because if we was not invoiced in July, the stocks would be lower. Our operational cash generation was strong. The figures are here.

Speaker #1: Here's some of the pictures of the great events. Congratulations to the team I'm sure that with this energy our selling in 2026 will be positive for the next semester.

Speaker #1: I won't be repeating myself. About the lowlights. As I said, nobody is in a country to have a revenue retraction. Even explanations that were mentioned.

Speaker #1: Now about our business unit, fashion women. Our gross revenue was very expressive. 1.4 billion reals. Despite a slight contraction compared to last year. Absolute figures are huge.

Speaker #1: They are corrections from the past. We work with a company to have constant growth. We know that a company that does not grow does not have longevity.

Speaker #1: We had in the semester revenue of 2.7 billion reals. Growth in this Q2 of our own stores. This shows health in our sellout. Slight retraction in e-commerce as mentioned also for shoes and bags.

Speaker #1: So this is what also happened in our results in this quarter. It was expenses grew 5.3% with a retraction of revenue of 7.1. Generation is de-leveraging.

Speaker #1: We are in a process that expects selling with discount. This is positive for reduction of stocks. So the health of our business regarding sales at full price stock and cash generation is positive.

Speaker #1: We mentioned occasional expenses were very well managed. There was a saving of 6.5% compared to the same period last year. So our EBITDA—Eric is going to explain this further—was 279.6 million reals, with a retraction that was big compared to last year.

Speaker #1: The retraction with multi-brands the store owner profile is more sensitive to macroeconomic variations. Interest rates impact our store owners. We have very small sales deadline.

Speaker #1: So we work with very low level of defaults. Is a prerequisite so here we had restriction credit restrictions for several clients. Deliberately aiming at our high low level of defaults.

Speaker #1: In the international market, this retraction is due to exchange issues in dollars. Farm Rio operations as I mentioned in the third bullet in this slide grew 4.3%.

Speaker #1: We're going to show highlights about strong branding and sales work with opening of four pop-ups that farm had in June and July. Highlights here for the sellout brands for Chris Barros with a very expressive growth of 20%.

Speaker #1: This result was positive at 12% in July, and it tends to normalize in the third quarter compared to 2025. In the first quarter, the gross revenue of this unit was nearly 2 billion reais.

Speaker #1: Carol Bassi 14%. The other brands also were growing. And multi-brands as mentioned. Here is a small taste of the pop-up stores from farm. Large events.

Speaker #1: About the revenue per channel, our own stores grew 4%. E-commerce also deliberately was reduced the sales with mark downs had a retraction of 6%.

Speaker #1: Moving 1.5 million dollars in this period. Overcoming in 100% our goal. So this made that European stores London and Paris they had a sellout of 41% in this period.

Speaker #1: The multibrand channel, as we’re going to explain, was impacted by the Vans brand, which had a retraction of 20%. The franchises, as I mentioned, had a reduction of 21.5%, while sell-out in the franchises had an increase as well.

Speaker #1: So we are still to measure the if branding the current branding effect. It's hundreds of thousands of people worldwide that are still visiting these stores to the end of summer.

Speaker #1: And we're going to the last line here of this page. So you can see how these figures in absolute numbers are strong. The total invoicing for the franchisee channel in shoes and bags was 210.2 million reals.

Speaker #1: Now in August. They're going to have a very positive impact in the expansion and the global branding for the Farm Rio brand. Now for fashion men.

Speaker #1: We had a revenue of 420 million reals. Flat compared to last year. We had in our own stores growing 2.6%. E-commerce for the same reasons mentioned before.

Speaker #1: Whereas the sell-out of this network in this period was of 524 million reals. That is here, this coefficient that we measure. So deeply sell-out for sell-in was 2.5 times.

Speaker #1: Retraction of 4.2%. Multi-brand here growing due mainly to the continuous improvement of the goal brand. The sneakers business for Reserva grew boosting multi-brands. And for the same reasons mentioned for shoes and bags.

Speaker #1: A growth of 22% versus the same coefficient in Q2 last year. Now about the sell-out revenue. To the first point here, first bullet point of this page.

Speaker #1: A positive highlight for our main brands Arezzo grew 12.3%. Even with the facts from the World Cup. This is a result of the better collection and a reduction in sales in markdown.

Speaker #1: Deliberate retraction for the improvement improvement in the health of our franchisees which caused a retraction of 18.6%. The Oficina brand is a highlight based of 30% of growth in Q2.

Speaker #1: And the shoes brand that for so many years we presented to you difficulties in finding their position and find the essence of the brand.

Speaker #1: Keeping a growth of 7.6% in this second semester. And now lastly about our basic business unit. Continuous process that is going to be deeper here in what are the performance KPIs that we're measuring today at Herring.

Speaker #1: We've talked about this for many years. It was great work done by the from the leadership of Rafaela Forlanetto and the team putting the shoes brand very positively.

Speaker #1: It has healthy growth in own stores growing 7.7%. We're going to talk about Sarah Jessica Parker shoes with this positioning that is young and connected.

Speaker #1: An absolute figures a revenue of 559 million reals. Retraction of 12%. Year over year. And an improvement compared to the first quarter that had a drop of 18%.

Speaker #1: Marina Weber is Bossa’s ambassador for the summer collection and is very much connected to the brand. Regarding the work with Sarah Jessica Parker for winter this year, which happened almost accidentally—I think I've mentioned—she came for a beverage brand here for Carnival.

Speaker #1: Although of course there are some seasonal aspects that impact selling. The sellout channels. With a reduction equally for our own stores and e-commerce around 14%.

Speaker #1: Due to a strong reduction of sales in markdown. So this increase in gross margin for Herring is totally explained by a great control of stocks that brought great cash generation and a healthy sales.

Speaker #1: And we got one day from her. It was a great repercussion. This motto, 'obsessed for shoes,' resonated very well with the Arezzo brand. So we had a deal with her multi-structure to have a mini series with her for the second semester of 2026.

Speaker #1: And for our store for our clients. The selling channels. In a continuous process to normalize the stock for the network. We had a positive highlight here for the improvement in gross margin.

Speaker #1: We recorded it in New York. Their results in the beginning of summer in August have been surprisingly positive. Now about the turnaround from the Vans brand.

Speaker #1: Vans is under new leadership. Thiago Marcos he was has been working in the company since he was 15. He has this entrepreneurship project together with Davi and Fernando.

Speaker #1: And on the next page more specifically about the main KPIs for the Herring brand. Our main goal is to recover profitability. Expansion margin. Cash generation.

Speaker #1: Great experience in the sneakers segment. He's in charge of the Vans brand. And he has been very efficient in his work focusing on reviewing the production cycle.

Speaker #1: Based on stock reduction. And an improvement of the capital. Employed. Therefore we had a reduction of 25% in the sales of products at discount prices.

Speaker #1: This is very positive for the business. Not only for cash generation but also for branding. For you to have faithful clients at full price.

Speaker #1: The reduction in stocks is very relevant. It goes from a total of 214 days in Q2 25. And it drops to 149 days. Our goal is to get to 130 days.

Speaker #1: And commercial activities to accelerate sell-out. We'll have a second semester with challenges from the Vans brand results. We are aware. But our project forecasts that for December results are going to be positive.

Speaker #1: So it's very very close to this goal. Actually some products were at fault. But we chose that we cannot want great bonus. We chose to be more conservative in our purchases.

Speaker #1: The actions are very well implemented. And 2027 in Vans brand is going to start growing again. Some highlights about the campaign that I mentioned with Sarah Jessica Parker.

Speaker #1: Several Herring products. Especially winter puffers and others had a reduction of purchase that was deliberate. And they were missing it the stores. We know that.

Speaker #1: We had the first seven days of the campaign since it's launched last week. More than 6 million views in digital channels. 70 organic articles.

Speaker #1: I think everybody was somehow impacted with very aggressively in São Paulo. In Iguatemi. This generates very strong brand awareness. Especially these shoes, the black and white.

Speaker #1: So to find the ideal level is a process. It is the first semester in our new management for Herring. And this process is part of it.

Speaker #1: But in doubt we chose for a drastic reduction of stocks as you see here. That led to cash generation of 160 billion for the half year.

Speaker #1: Had sold over almost 100%. So this campaign was very successful. Continuing this process of recovering our sell-in. This week, we had on Monday and Tuesday, we were in Campo Bom.

Speaker #1: And a reduction of 163 million in the same period. Year over year. So the delta is 326 million BRL for Herring. And that's very important.

Speaker #1: We had the biggest launch in the history of our franchisees. We had the honor to count with the presence of our founder Anderson Birma from Arezzo brand in Campo Bom talking to our franchisees that have been with us for 20, 30 years.

Speaker #1: The team is very much set up with high level of confidence. So next week we'll have a kickoff for Christmas sales. So a big convention on August 19 with our internal team.

Speaker #1: The trust in the brand is positive. The initial results from sales is strong. And in parallel here in São Paulo in a large. Event in Port Paulista Avenue.

Speaker #1: And I'm absolutely sure that we're prepared to have a second half with better results. But specifically the fourth quarter. There's a milestone in September on the third.

Speaker #1: We had more than 500 multi-brand store owners. If you are in São Paulo, it is still a setup. You can schedule that with our team to see the strength of our brand Arezzo shoes and a Capri and Vicenza.

Speaker #1: Launching the Brazil t-shirt. It's replacing the one that has had a historical name in we believe this fits better with Brazil calling it Brazil.

Speaker #1: Here's some of the pictures of the. Great events. Congratulations to the team I'm sure that with this energy our sell-in in 2026 will be positive for the next semester.

Speaker #1: It used to be called Pronto. And here are some highlights. In product engineering that's very deep. Very detailed. Practically nine months of work. Over 18 different sewing processes.

Speaker #1: Now about our business unit fashion women. Our gross revenue was very expressive. 1.4 billion reals despite a slight contraction compared to last year. Absolute figures are huge.

Speaker #1: From the label to other aspects. Improving the fabric. Label. And lowering the price drastically in sellout. It'll be sold at 49 reais. 99 cents.

Speaker #1: We had in the semester revenue of 2.7 billion reals growth in this Q2 of our own stores. This shows health in our sell-out. Slight retraction in e-commerce as mentioned also for shoes and bags.

Speaker #1: And improving the gross margin. So I'm absolutely sure that how this t-shirt is bringing B2C consumers into the base. So with a huge share of the market in Brazil that Herring had lost in the past year.

Speaker #1: So this process was a lot of engineering. And predictability and demand. So the t-shirt. Is made completely internally. We decided to focus the entire production Herring production chain on basic products.

Speaker #1: The retraction with multi-brands the store owner profile is more sensitive to macroeconomic variations. Interest rates impact our store owners. We have very small sales deadline.

Speaker #1: So that we can have productivity and high scale. So when you visit you can see that our plants are more productive because they have less variations.

Speaker #1: So we work with very low level of defaults. Is a prerequisite so here we had restriction credit restrictions for several clients. Deliberately aiming at our high our low level of defaults.

Speaker #1: And the products are would be made outside the company. In Brazil or abroad. This is about Father's Day at Herring. It was very strong.

Speaker #1: In the international market, this retraction is due to exchange issues with the dollar. Farm Rio operations, as I mentioned in the third bullet on this slide, grew 4.3%.

Speaker #1: That's giving the essence that the brand has. With Tiaguinho. A very strong personality. That has a big outreach in our country. Those are my opening points.

Speaker #1: We're going to show highlights about strong branding and sales work with opening of four pop-ups that farm had in June and July. Highlights here for the sell-out brands for Chris Barros with a very expressive growth of 20%.

Speaker #1: About the second quarter. And business perspective. Now Eric Alencar our CFO. Floor is yours. Thank you. Alexander. Good morning everyone. It's a pleasure to be here with you and Bianca.

Speaker #1: Caro Bassi 14%. The other brands also were growing. And multi-brands as mentioned. Here is a small taste of the pop-up stores from farm. Large events.

Speaker #1: For our earnings results for Q2 26. So starting off with the financial results. On slide 16. In the second quarter. Of 26. Gross revenues of continue brands was 3.4 billion BRL.

Speaker #1: Moving 1.5 million dollars in this period. Overcoming in 100% our goal. So this made that the European stores London and Paris they had a sell-out of 41% in this period.

Speaker #1: A decrease of 7.1%. Year over year. With specific dynamics between the channels. The sellout channels. Totaled 1.7 billion BRL. It was 1.9% drop. With own stores growing 0.9%.

Speaker #1: So we are still to measure the if branding the current branding effect. It's hundreds of thousands of people worldwide that are still visiting these stores to the end of summer now in August.

Speaker #1: Own stores. The highlight goes for goes to Orezo with a 12% growth. Schutz. 8% growth. And Chris Barros with strong growth of 42%. In selling.

Speaker #1: They're going to have a very positive impact in the expansion and the global branding for the Farm Rio brand. Now for fashion men. We had a revenue of 420 million reals flat compared to last year.

Speaker #1: Dropped 13.6%. Reflecting the priority of covering the inventory of the franchisee network. And conservative purchasing from multi-brand channels. Given high interest rates. Scenario in the country.

Speaker #1: We had in our own stores growing 2.6%. E-commerce for the same reasons mentioned before. Retraction of 4.2%. Multi-brand here growing due mainly to the continuous improvement of the goal brand.

Speaker #1: So the lower particip lower share of summer and shoes and bags in Q2 26 been. More representative in June this year. In abroad revenues dropped 4%.

Speaker #1: Reflecting the depreciation of the real compared to the dollar. A 12.9% drop. And a lower share in revenues of the spring and summer collection.

Speaker #1: The sneakers business for Reserva grew boosting multi-brands. And for the same reasons mentioned for shoes and bags. Deliberate retraction for the improvement improvement in the health of our franchisees which caused a retraction of 18.6%.

Speaker #1: In Q2 26. In Farm Real. I had just seen the effects effects. The international revenues would have grown 5.9%. Net revenues total 2.7 billion BRL.

Speaker #1: The Officina brand is a highlight in the base of 30% of growth in Q2. Keeping a growth of 7.6% in this second semester. And now lastly about our basic business unit.

Speaker #1: A drop of 8.2%. The deductions account for 20.6% of gross revenues. An increase of 0.6 percentage points. Year over year. In line with the first quarter of 26.

Speaker #1: Continuous process that is going to be deeper here in what are the performance KPIs that we're measuring today at Herring. An absolute figures a revenue of 559 million reals retraction of 12% year over year.

Speaker #1: The variation is essentially from better generation of tax benefits in the fashion women and men business units with the 1% point increase in gross revenues.

Speaker #1: And taxes increased 0.4 percentage points. Increase in the tax is mainly explained given the higher share of the sellout channels. And the incidence of ISS on royalties in 2026.

Speaker #1: And an improvement compared to the first quarter that had a drop of 18%. Although of course there are some seasonal aspects that impact sell-in the sell-out channels.

Speaker #1: These factors were partially offset by a 0.8 percentage point improvement resulting from the decrease in returns in shoes and bags and basic. And that's something we've been talking about for a while now.

Speaker #1: With a reduction equal equally for our own stores and e-commerce around 14%. Due to a strong reduction of sales in markdown. So this increase in gross margin for Herring is totally explained by a great control of stock.

Speaker #1: That in this quarter finally brought on positive results that we were mentioning. Recurring gross profit reached 1.5 billion BRL. Which is an increase of 130 basic points in gross margin.

Speaker #1: Stocks that brought great cash generation and a healthy sales. And for our store for our clients. The selling channels in a continuous process to normalize the stock for the network.

Speaker #1: And ending at 56.2% in the quarter. By excluding the basic business unit gross profit was 1.6 billion. And 130 basis points over the second quarter of.

Speaker #1: We had a positive highlight here for the improvement in gross margin. And on the next page more specifically about the main KPIs for the Herring brand.

Speaker #1: 25. Gross margin is explained by the lower markdowns. And higher participation of the sellout channels in revenues. Overcoming the impact of the increase in the deductions of gross revenues.

Speaker #1: Our main goal is to recover profitability expansion margin cash generation based on stock reduction. And an improvement of the capital. Employed therefore we had a reduction of 25% in the sales of products at discount prices.

Speaker #1: In the basic unit gross profit was 40.4%. With an increase of 1.2 percentage points. Reaching 105 basis points. Even with the higher share of sellout channels in the quarter.

Speaker #1: This is very positive for the business. Not only for cash generation but also for branding. For you to have faithful clients at full price.

Speaker #1: The increase in the basic gross margin shows the better quality of Herring. And decrease in the pressure to flow the off inventory in the previous year as expected according to our plans.

Speaker #1: The reduction in stocks is very relevant. It goes from a total of 214 days in Q2 '25, and it drops to 149 days. Our goal is to get to 130 days.

Speaker #1: Recurring expenses X depreciation totaled 1.1 billion BRL. An increase of 5.3%. Year over year. Representing 43.3% of net revenues. These expenses increased 9.5%. Reflecting mainly or in the fixed expenses in the net opening of stores.

Speaker #1: So it's very very close to this goal. Actually some products were had were at fault. But we chose that we cannot want great bonus.

Speaker #1: We chose to be more conservative in our purchases. Several Herring products especially winter puffers and others had a reduction of purchase that was deliberate.

Speaker #1: In recognizing the increase. The variable expenses increased 3%. Recognizing bad debt in the multi-brand channels in this quarter. Being offset by better management of shipping and commissions.

Speaker #1: And they were missing it in the stores. We know that. So, to find the ideal level is a process. It is the first semester in our new management for Herring.

Speaker #1: And this process is part of it. But in doubt, we chose a drastic reduction of stocks, as you see here. So that led to cash generation of $160 billion for the half year.

Speaker #1: So we have decrease of 6.4% in the annual comparison. Expenses. So on slide 17. No actually next slide is 22. Recurring EBITDA totaled 330 million.

Speaker #1: And a reduction of 163 million in the same period year over year. So the delta is 326 million BRL for Herring. And that's very important.

Speaker #1: A drop of 29.1%. Year over year. With a margin of 14.2%. And a decrease of 430 basis points. Even though you have a gain in gross margin.

Speaker #1: The team is very much fed up with the high level of confidence. So next week we'll have a kickoff for Christmas sales—a big convention on August 19 with our internal team.

Speaker #1: The decrease in net revenues shows the leverage. Operational deleverage. And EBITDA margin decreased 430 basis points. The recurring EBITDA is 39% under the second quarter of 25.

Speaker #1: And I'm absolutely sure that we're prepared to have a second half with better results, but specifically in the fourth quarter. There's a milestone in September, on the third, launching the Brazil t-shirt.

Speaker #1: Net financial expense totaled 187.6 million BRL. Compared to 199.5 million in Q2 25. That is mainly a reflection of the lower impact of the FX rate.

Speaker #1: It's replacing the one that has had a historical name in we believe this fits better with Brazil calling it Brazil. It used to be called Pronto.

Speaker #1: As a contract were determined with lower rates in the previous year. Decreasing the interval between the higher or the contracted FX rates. So recurring net income was 106.5 million.

Speaker #1: And here are some highlights in product engineering that's very deep very detailed. Practically nine months of work over 18 different sewing processes from the label to other aspects.

Speaker #1: 4% under year over year. Income tax and social contribution have the positive impact. And recurring net income for the quarter 106 million. With a net margin of 4%.

Speaker #1: Improving the fabric label and lowering the price drastically in sell-out. It'll be sold at 49 reais and 99 cents, and improving the gross margin. So I'm absolutely sure that this t-shirt is bringing B2C consumers into the base.

Speaker #1: Now moving on to the following slide about cash generation and working capital. Once again these items were the highlights for the quarter. As Alexander already mentioned for us to us today.

Speaker #1: The operational cash generation achieved 356 million BRL. Over three times the 106 million in Q2 25. With the conversion of 105% of EBITDA in cash generation.

Speaker #1: So, with the huge share of the market in Brazil that Herring had lost in the past year, this process required a lot of engineering and predictability in demand.

Speaker #1: In the post CAPEX vision we have 100 point 1.6 billion BRL. Conversion of 105% of the EBITDA to IFRS. In the past months we achieved 1.3 billion in cash generation.

Speaker #1: So the t-shirt is made completely internally. We decided to focus the entire production Herring production chain on basic products. So that we can have productivity and high scale.

Speaker #1: 1.6 I'm sorry 1.3 billion post CAPEX. And the conversion of the EBITDA for the period. In the quarter the investment activities were 26 million BRL.

Speaker #1: So, when you visit, you can see that our plants are more productive because they have less variation. And the products are items that would be made outside the company.

Speaker #1: So that resulted in the cash generation increase of 122 million. In the next slides you'll see the factors behind the high cash generation. The financial cycle ended the quarter at 93 days.

Speaker #1: In Brazil or abroad, this is about Father's Day at Hering. It was very strong, rescuing the essence that the brand has, with Tiaguinho—a very strong personality.

Speaker #1: A reduction of 39 days year over year. With a better with an improvement in all steps of the cycle last 12 months. By excluding the provisions in inventory loss.

Speaker #1: That has a big outreach in our country. Those are my opening points about the second quarter and business perspectives. Now, Eric Alencar, our CFO, the floor is yours.

Speaker #1: The impacts that were adjusted and recurring EBITDA. An improvement of the financial cycle will adjust it from 31 days to 29. And an improvement in inventory days 15 days.

Speaker #1: Accounts receivable 5 days. And an improvement of supplier days by 11. So basic achieved a reduction in inventory as well. And post CAPEX 97 million BRL.

Speaker #1: Thank you, Alexander. Good morning, everyone. It's a pleasure to be here with you and Bianca for our earnings results for Q2 '26. So, starting off with the financial results.

Speaker #1: With a consumption of 56 million in the first quarter last year. Now we're moving on to the last slide to talk about company indebtedness.

Speaker #1: On slide 16. In the second quarter of 26 gross revenues of continue brands was 3.4 billion BRL. A decrease of 7.1% year over year.

Speaker #1: And ended the quarter with a cash position of 1.1 billion BRL. And net debt of 2.2 million. A reduction of 39.9 million year over year.

Speaker #1: With specific dynamics between the channels. The sell-out channels totaled R$1.7 billion. It was a 1.9% drop, with own stores growing 0.9%. For own stores, the highlight goes to Orezo with a 12% growth.

Speaker #1: So we had a leverage of net debt EBITDA. Recurring of last 12 month. Reflecting it. Even though there was cash generation. The gross debt ended at 3.3 billion BRL.

Speaker #1: Schoetz 8% growth. And Chris Barros with strong growth of 42%. In selling dropped 13.6% reflecting the priority of covering the inventory of the franchisee network.

Speaker #1: And the complex situation in the country this year. We extended the profile of our debt concentrating 82% of them in the long term. So 43% of what it was in second quarter last year.

Speaker #1: And conservative purchasing from multi-brand channels. Given high interest rates scenario in the country. So the lower particip lower share of summer and shoes and bags in Q2 26 being more representative in June this year.

Speaker #1: In addition to 964 million in credit card receivables. Reinforcing the liquidity and the financial flexibility of the country. Company in the short term. That's a summary of my presentation.

Speaker #1: In abroad revenues dropped 4% reflecting the appreciation of the real compared to the dollar. A 12.9% drop. And a lower share in revenues of the spring and summer collection in Q2 26.

Speaker #1: Now we'll open up for Q&A. Thank you very much. Thank you Eric. Thank you Alexander. Good morning everyone. Let's move on to the first question.

Speaker #1: It is from Luis Guanize from BTG. It's about Celine. He's asking be interesting to hear. The inventory cleanup that you've done with the franchisee and multi-brand channels in the past quarters.

Speaker #1: In Farm Real. By adjusting the effects effects the international revenues would have grown 5.9%. Net revenues total 2.7 billion BRL. A drop of 8.2%.

Speaker #1: Not only in herring but also others. And how do we go into the second half for these channels? Luis good morning. Thank you for your question.

Speaker #1: The deductions account for 20.6% of gross revenues. An increase of 0.6 percentage points year over year. In line with the first quarter of 26.

Speaker #1: So this work started at the end of 2025. We had sell out and Celine that was historically at healthy levels of two times. However in the beginning of 2025 end of 2024 it reached 1.8 times.

Speaker #1: The variation is essentially from better generation of tax benefits in the fashion women and men business units with the 1% point increase in gross revenues.

Speaker #1: So that's a coefficient that's part of the main KPIs that our team analyzes. Because the health of our franchisees is essential for a long lasting company.

Speaker #1: And taxes increased 0.4 percentage points. Increase in the taxes mainly explained given the higher share of the sell-out channels. And the incidence of ISS on royalties in 2026.

Speaker #1: So that work was done. And you can see the results in the second quarter. No less than minus 4% in sell out. And a decrease of 21% in Celine.

Speaker #1: These factors were partially offset by a 0.8 percentage point improvement resulting from the decrease in returns in shoes and bags and basics. And that's something we've been talking about for a while now.

Speaker #1: So now you can expect that balancing out. The performance of sell out and performance of Celine. Thank you Alexander. Next question is from Vinícius Drama from UBS.

Speaker #1: He has two questions. The first one is about Farm Brazil. Can you give us some more flavor about the farm performance in Brazil? How do you see sell out Celine?

Speaker #1: And ending at 56.2% in the quarter. By excluding the basic business unit gross profit was 1.6 billion. And 130 basis points over the second quarter of 2025.

Speaker #1: And what's the evaluation about the level and quality of inventory for the brands? Thank you Vinícius for your question. I'll start off with the second part.

Speaker #1: Inventory level. I would say is extremely healthy. It's the lowest level that we've had in apparel for our group. By far very fast sales that it.

Speaker #1: Gross margin is explained by the lower markdowns and higher participation of the sell-out channels in revenues overcoming the impact of the increase in the deductions of gross revenues.

Speaker #1: Farm has. Even in some specific categories. I would say that it's very optimized and according to our assumption for the group is strong cash generation and inventory reduction.

Speaker #1: In the basic unit gross profit was 40.4%. With an increase of 1.2 percentage points reaching 105 basis points. Even with the higher share of sell-out channels in the quarter.

Speaker #1: And we also have opportunity to review the quality and intensity of the farm stocks. As far as sell out performance too high. Worth highlighting that the 24 26 cycle in farm doubled in size.

Speaker #1: Virtually. So it's a very strong expansion cycle that we knew that in this time. Period in 2026. Especially in the second semester. What we had invested the seeds had been planted.

Speaker #1: Recurring expenses plus depreciation totaled R$1.1 billion, an increase of 5.3% year over year, representing 43.3% of net revenues. These expenses increased 9.5%, reflecting mainly on the fixed expenses in the net opening of stores.

Speaker #1: And it is being the fruits were being coming. So when we started this process to analyze and how to maintain this growth with farm and at the same time with the premise from the outsource group of the reduction of inventory reduction in Capex.

Speaker #1: In rec no recognizing the increase. The variable expenses increased 3%. Recognizing bad debt in the multi-brand channels in this quarter. Being offset by better management of shipping and commissions.

Speaker #1: It's a bit contradictory. So this work that Morgan Stanley was hired to carry out is here to bring a new cycle that is very well designed.

Speaker #1: Our strategic planning is very well designed. But we are at this transition moment. From a very virtuous cycle with strong investment in the past two years in this brand.

Speaker #1: So we have decrease of 6.4% in the annual comparison. On expenses. So on slide 17. No actually next slide is 22. Recurring EBITDA totaled 330 million a drop of 29.1% year over year.

Speaker #1: And a plateau in this growth due to actually being very high values. It's the biggest brand in the women's apparel in Brazil by far.

Speaker #1: Farm alone this year is going to have as revenue globally 3.5 billion BRLs. And now it is going through a reinvestment. It is the actions are fantastic.

Speaker #1: With a margin of 14.2%. And a decrease of 430 basis points. Even though you have a gain in gross margin the decrease in net revenues shows the leverage operational deleverage and EBITDA margin decreased 430 basis points.

Speaker #1: The brand thing is strong. You will have collapse with farm from the second semester. From Stanley I don't know if I'm allowed to say it.

Speaker #1: The recurring EBITDA margin is 39%. For the second quarter of 2025, net financial expense totaled R$187.6 million, compared to R$199.5 million in Q2 2025.

Speaker #1: I'm not. Okay. A partnership. An international collab. That will be launching in the second half of 2026. I think we can say it. We can say it.

Speaker #1: There is a collab with farm with Real Madrid and Diesel. It's going to be very strong. So we are very confident that in terms of awareness distribution the brand is doing well.

Speaker #1: That is mainly a reflection of the lower impact of the FX rate, as the contracts were determined with lower rates in the previous year.

Speaker #1: Decreasing the interval between the higher or the contracted FX rate. So recurring net income was $106.5 million, 4% under year over year. Income tax and social contribution had a positive impact, and recurring net income for the quarter was $106 million with a net margin of 4%.

Speaker #1: But it needs a new cycle of investment that is being well designed and well matured. About selling the brand has a distribution that is very that covers all of Brazil.

Speaker #1: The growth that we have with farm last year was very strong. It was beyond our expectation in the first year. So it's normal that it stabilizes this year.

Speaker #1: Thanks Alexander. Vinícius second question is about the scenario of expenses and point of efficiency. The question is how do you see the scenario of expenses for the future?

Speaker #1: Now moving on to the following slide about cash generation and working capital. Once again these items were the highlights for the quarter as Alexander already mentioned for us to us today.

Speaker #1: And what do you see as potential points of efficiency that can be captured? Hi Vinícius. Thank you for your question. We know we grow 5.3% in our SG&A breaking this down.

Speaker #1: The operational cash generation achieved R$356 million, over three times the R$106 million in Q2 '25, with the conversion of 105% of EBITDA into cash generation.

Speaker #1: We go to fixed expenses a bit over 9.5%. Especially in CTO which is occupation in lease. And lots of investment in the expansion of farm internationally that Alexander mentioned is one of our pillars for growth in the company now.

Speaker #1: In the post capex vision we have 100 point 1.6 billion BRL conversion of 105% of the EBITDA to IFRS. In the past months we achieved 1.3 billion in cash generation 1.1.6 I'm sorry 1.3 billion post capex.

Speaker #1: In the variable expenses we grew less than inflation. We grew 3%. And the main growth came from PDD which we have 13 million that we recognize as losses from doubtful debtors.

Speaker #1: And the conversion of the EBITDA for the period. In the quarter, the investment activities were BRL 26 million. So, that resulted in a cash generation increase of BRL 122 million.

Speaker #1: Even with our default dropping. We are conservative in the more in the older accounts receivable. Recognizing that the chances are that these numbers going down.

Speaker #1: In the next slides, you'll see the factors behind the high cash generation. The financial cycle ended the quarter at 93 days, a reduction of 39 days year over year.

Speaker #1: But yeah the others consultancy travel that we were diligent in the job 6.4%. About the future we talk a lot about this. We are negotiating with high growth margins.

Speaker #1: With a better with an improvement in all steps of the cycle last 12 months. By excluding the provisions in inventory loss the impacts that were adjusted and recurring EBITDA and improvement of the financial cycle will adjust it from 31 days to 29.

Speaker #1: So we need to sell. We made the decision to hold Celine. Once we go back the relation the ratio between SG&A and sales is going to normalize.

Speaker #1: And an improvement in inventory days by 15 days, accounts receivable by 5 days, and an improvement of supplier days by 11. So, basically, we achieved a reduction in inventory as well.

Speaker #1: So this being said the SG&A work it continues. We see lots of opportunity. People commissions marketing freight and storage. We have a plan ongoing that is going to have impact more to the end of the of 2027.

Speaker #1: Post-capex was 97 million BRL, with a consumption of 56 million in the first quarter last year. Now we're moving on to the last slide to talk about company indebtedness; we ended the quarter with a cash position of 1.1 billion BRL.

Speaker #1: Because it's execution takes some time. I hope it was helpful. Next question from Daniela from XP. She asks about gross margin and working capital.

Speaker #1: In the quarter cash generation and gross margin especially working capital were positive highlights. But both end up being strongly related to the situation of stock adjustment where you're not growing.

Speaker #1: And net debt of $2.2 million, a reduction of $39.9 million year over year. So we had a leverage of net debt to EBITDA, recurring, last 12 months reflecting it.

Speaker #1: How should we consider the dynamic for working capital and gross margin with when you recover growth? It's Eric again. Daniela I'm going to speak and then maybe Alexandre wants to contribute.

Speaker #1: Even though there was cash generation, the gross debt ended at R$3.3 billion. Given the complex situation in the country this year, we extended the profile of our debt, with 82% now concentrated in the long term.

Speaker #1: Thank you for your question. It's an important point. I think from this vision from the time that you were getting away with inventory you're working with the worst scenario for gross margin.

Speaker #1: So 43% of what it was in second quarter last year. In addition to 964 million in credit card receivables reinforcing the liquidity and the financial flexibility of the country company in the short term.

Speaker #1: This is the nature of the industry. So the trend for the gross margin in the channel has to be positive. Which contributes for the margin ahead.

Speaker #1: We want you reducing stock and working on that. This is how you're going to reduce. And we manage to have an expansion in margin even in this scenario.

Speaker #1: That's a summary of my presentation. Now we'll open up for Q&A. Thank you very much. Thank you, Eric. Thank you, Alexander. Good morning, everyone.

Speaker #1: Of course how did we manage to do that? We could with a biggest mix of sellout and Celine with a bigger gross margin. And also a lower level of markdown in our brands as Alexandre mentioned.

Speaker #1: Let's move on to the first question and this from Luis Guanize from BTG. It's about Selin. He's asking would be interesting to hear the inventory cleanup that you've done with the franchisee and multi-brand channels in the past quarters.

Speaker #1: When we talk about the cycle of working capital with the reduction of inventory we manage it was an energy shock to reducing the cycle in 31 days.

Speaker #1: Not only in herring, but also in others. And how do we go into the second half for these channels? Luis, good morning. Thank you for your question.

Speaker #1: So we adjust inventory to look at our working capital cycle. It was one of the best in the market today. Then we have the cash generation that we have of 280 million.

Speaker #1: So this work started at the end of 2025. We had sell out and Selin that was historically at healthy levels of two times. However in the beginning of 2025 end of 2024 it reached 1.8 times.

Speaker #1: 50 million came from reducing sales. You reduce sales you don't need working capital Celine. But to 220 30 came from this structure improvement that we're doing.

Speaker #1: So going forward we believe that most of the working capital is gone. It has been mostly captured. What we need going forward is to ensure the maintenance of this level of working capital and recovery of Celine now that the relationship between Celine sellouts are healthier.

Speaker #1: So that's a coefficient that's part of the main KPIs that our team analyzes. Because the health of our franchisees is essential for a long lasting company.

Speaker #1: So that work was done. And you can see the results in the second quarter: no less than minus 4% in sell-out, and a decrease of 21% in sell-in.

Speaker #1: What's interesting for you to get to know is we work a lot with working capital over net revenue. Today about 25%. The goal for the future is to reduce this number drastically but not that but to grow that indicator keeping this healthy level that we reached.

Speaker #1: So now you can expect that balancing out—the performance of sell-out and the performance of Selin. Thank you, Alexander. Next question is from Vinicius Tremma from UBS.

Speaker #1: He has two questions. The first one is about Farm Brazil. Can you give us some more flavor about the farm performance in Brazil? How do you see sell out Selin and what's the evaluation about the level and quality of inventory for the brands?

Speaker #1: Erica. Eric. Excellent actions. Danny thank you for the question. I don't have anything to add. But to say Danny that on Monday on the 17th I adjusted my agenda.

Speaker #1: I don't think Bianca even knows it. I'm going to be able to participate in the XP conference in Rio de Janeiro. With a restricted time frame.

Speaker #1: Thank you, Vinicius, for your question. I'll start off with the second part—inventory level. I would say it is extremely healthy. It's the lowest level that we've had in apparel for our group by far.

Speaker #1: But it's going to be a pleasure to be with you. Danny has a second question Eric about the change in the stock provisioning rules.

Speaker #1: Very fast sales that the farm has. Even in some specific categories, I would say that it's very optimized, and according to our assumption for the group, it is showing strong cash generation and inventory reduction.

Speaker #1: She wants to understand what the change was and if this stock has been mostly sold or it's going to benefit the margin in the next quarter.

Speaker #1: Danny let me clarify what we do. We made a decision in the company to try a change in our perspective about how we see inventory and how we're going to to translate that in our statement.

Speaker #1: And we also have the opportunity to review the quality and intensity of the farm stocks. As far as sellout performance, it's worth highlighting that the '24-'26 cycle in farm virtually doubled in size.

Speaker #1: We reviewed the provisioning rules to increase the adherence in the profile of aging of our inventory and the new premise is to recognize the loss of shoes and other raw materials as zero.

Speaker #1: So it's a very strong expansion cycle, and we knew that in this time period, in 2026—especially in the second semester—what we had invested, the seeds had been planted, and they are being, the fruits were being, coming.

Speaker #1: We've always recognized it. Whatever is over than two years we've always done this since 2223. So it had a one-off impact of 70 million reals 15 million is raw material that we believe we're not going to be using for our clients.

Speaker #1: So when we started this process to analyze and how to maintain this growth with farm and at the same time with the premise from the Azzas group of the reduction of inventory reduction in capex.

Speaker #1: And this generates a huge improvement from now on in how we're going to see the business. Zero improvement in gross margin of course. Because the central point here it's because this inventory is going to be discarded.

Speaker #1: It's a bit contradictory so this work that Morgan Stanley was hired to to carry out is here to bring a new cycle that is very well designed our strategic planning is very well designed but we are at this transition moment.

Speaker #1: We're not going to use it. It's mostly from now on. We haven't no margin gain because of that. But we're going to be more aligned between what we provision and what we use in the day to day in our business.

Speaker #1: We've experienced a very virtuous cycle, with strong investment in the past two years in this brand, and are now seeing a plateau in growth due to actually reaching very high values.

Speaker #1: Therefore the vision of putting this as 2223. Thanks Eric. We have a lot of questions I'll try to get one or more from each analyst due to our time.

Speaker #1: It's the biggest brand in women's apparel in Brazil by far. FARM alone this year is going to have global revenue of R$3.5 billion.

Speaker #1: Next question comes from João from City and about the growth in. The store stores for the shoots area. What was the most relevant factor that generated this improvement in a challenging macro environment?

Speaker #1: And now it is going through a reinvestment. It is the the the actions are fantastic. The branding is strong. You will have collabs with farm from the second semester from Stanley I don't know if I'm allowed to say it.

Speaker #1: And this is going to bring a broader recovery soon. Thank you for your question. This is a process that started at the end of 2025 when we had a big change especially in the management of product with a growth under the leadership of Rafaela Furlanetto.

Speaker #1: I'm not. Okay. A partnership with an international collab. That will be launching in the second half of 2026. I think we can say it.

Speaker #1: We can say it. There is a collab with farm with Real Madrid and Diesel it's going to be very strong. So we are very confident that in terms of awareness and distribution the brand is doing well.

Speaker #1: And a big adjustment in the mix of products especially in the areas of brand. I remember at the XP conference last year I talked about this.

Speaker #1: So we managed to bring a consumer that we had lost that looked for a product that shoes that looked like shoes more casual and besides we had a great improvement about the perception of cost benefits from our products.

Speaker #1: But it needs a new cycle of investment that is being well designed and well matured. About Selin the brand has distribution that is very that covers all of Brazil.

Speaker #1: The growth that we have with farm last year was very strong. It was beyond our expectation in the first year. So it's normal that it's stabilizes this year.

Speaker #1: This is something that we also talked about for the areas of brand and for the shoots brand. It was an issue of positioning and branding.

Speaker #1: Thanks Alexander. Vinicius second question is about the scenario of expenses and points of efficiency. The question is how do you see the scenario of expenses for the future and what do you see as potential points of efficiency that can be captured?

Speaker #1: It was a work that we solidified this first semester. Exceptional results from the shoots brand. Especially for boots which dominate in the winter. So we managed also to set a reduction in the sneakers category that reduced worldwide for casual sneakers and the shoots brand grew a lot in boots.

Speaker #1: Hi, Vinicius. Thank you for your question. We know we grew 5.3% in our SG&A. Breaking this down, we go to fixed expenses, a bit over 9.5%, especially in CTO, which is occupation and lease, and lots of investments in the expansion of farm internationally that Alexander mentioned is one of our pillars for growth in the company now.

Speaker #1: And today it has a very good positioning that is for their core consumer. The bags category has opportunity for growth especially with the improvements of international sourcing.

Speaker #1: So I know it's consistent work that we're doing that is very well executed and the second quarter second semester you're right we're being conservative in our assumptions we have a capacity when we do well that we can react quickly and grow.

Speaker #1: In the variable expenses we grew less than inflation. We grew 3%. And the main growth came from PDD which we have 13 million that we recognize as losses from doubtful that debtors.

Speaker #1: We had a very great sellout positive for the crews in July. And now in August when we turn the campaigns we're very confident that we'll have a Q4 of very successful in the legado areas and coal.

Speaker #1: Even with our default dropping, we are conservative, especially in the older accounts receivable, recognizing that the chances are that these numbers are going down.

Speaker #1: But yeah the others consultancy travel that we were diligent and it dropped 6.4%. About the future we talk a lot about this. We are negotiating with high growth margins.

Speaker #1: A question from Morgan Stanley. Alexandre. What about the health of the Eric brand? I understand the impact of the reduction of discounts in the sellout.

Speaker #1: So we need to sell. We made the decision to hold Selin once we go back. The ratio between SG&A and sales is going to normalize.

Speaker #1: But do you see any issues as for the health of the brand? The growth in the orders for the summer. Collection seems to be.

Speaker #1: Positive indication of recovery. But is there any data that makes us more convicted that this recovery will be sustainable going forward? It's a great question.

Speaker #1: So, this being said, the SG&A work continues. We see lots of opportunity—people, commissions, marketing, freight, and storage. We have a plan ongoing that is going to have impact more toward the end of 2027, because its execution takes some time.

Speaker #1: Alexandre. Thanks for your question. And the answer I have to you is a strong conviction that we have because in the past we didn't have a branding problem at Eric.

Speaker #1: I hope it was helpful. Next question from Daniela from XP. She asks about gross margin and working capital. In the quarter cash generation and gross margin especially working capital were positive highlights.

Speaker #1: But there was a deviation from there. It's core audience. The Herring brand became premium and it was losing the share in the B2 and C classes.

Speaker #1: But both end up being strongly related to the situation of stock adjustment, where you're not growing. How should we consider the dynamic for working capital and gross margin when you recover growth?

Speaker #1: So a well done work done by the team from maintaining great quality in terms of images and product. But bringing. A communication that is more accessible more democratic.

Speaker #1: Bringing products at an entry point P0 for example the Brazil t-shirts. Because branding is not just marketing. It is product with it. So Herring is coming with in the moments that it's going to reaffirm its leadership in the segment of basics.

Speaker #1: It's Eric again. Daniela, I'm going to speak and then maybe Alexander wants to contribute. Thank you for your question. It's an important point. I think from this vision, from the time that you were getting away with inventory, you're working with the worst scenario for gross margin.

Speaker #1: This is the nature of the industry. So the trend for the gross margin in the channel has to be positive. Which contributes for the margin ahead.

Speaker #1: And it's worth saying that from 2027 some important levers of growth for the Herring brand. One of them is Herring Sport that has been having a great performance.

Speaker #1: You want your reducing stock, and working on that, this is how you're going to reduce. And we managed to have an expansion in margin even in this scenario.

Speaker #1: We have expanded the number of stores that distribute Herring Sports. It was low percentage from the total of the brand but with great sellout results.

Speaker #1: Of course how did we manage to do that? We could with a biggest mix of sellout and Selin with a a bigger gross margin and also a lower level of markdown in our brands as Alexander mentioned.

Speaker #1: We're developing new formats for stores as well for the Herring brand. But we're sure that we're on the right track. The great adjustments. We also applied due to an access and reduction of inventory in some specific items in the first quarter.

Speaker #1: When we talk about the cycle of working capital, with the reduction of inventory we managed, it was an energy shock to reduce the cycle by 31 days, so we adjusted inventory.

Speaker #1: But for positioning and brand positioning we are aware that the work is being done. Thank you. Now we have two questions related to multi brands.

Speaker #1: If you look at our working capital cycle is one of the best in the market today. Then we have the cash generation that we have of 280 million 50 million came from reducing sales reduce sales we don't need working capital Selin but to 220 30 came from this structure improvement that we're doing.

Speaker #1: The first from Bob from Bank of America. Related to the adjustment of the inventory. Of these clients multi brands. There is a work to do.

Speaker #1: Another from Felipe Rochelle is about our conservative approach that we have few from the multi brand clients. Is it related to the macroeconomic scenario or is there any other factor?

Speaker #1: So, going forward, we believe that most of the working capital is gone; it has been mostly captured. What we need, going forward, is to ensure the maintenance of this level of working capital and the recovery of Selin, now that the relationship between Selin sellouts is healthier.

Speaker #1: The second question from Felipe from Goldman Sachs. Thank you for your question. The multi brand channel is very important for our business. The origin of footwear was from multi brand.

Speaker #1: So we're very close to that. When we talked about per business unit an expressive reduction in footwear that's a result of events. And in the women's shoes that reduction is small.

Speaker #1: Erica, Eric, excellent actions. Danny, thank you for the question. I don't have anything to add, but to say, Danny, that on Monday the 17th I adjusted my agenda.

Speaker #1: And it's given not because of buying less but because of some points of sale that were closed in Brazil. So the capillarity of that channel is very big.

Speaker #1: And during sensitive moments in the economy with higher interest rates that's a channel that has higher exposure and volatility in that sense. In apparel be it women or men we were more selective in granting credit on purpose.

Speaker #1: I don't think Bianca even knows it. I'm going to be able to participate in the XP conference in Rio de Janeiro. With a restricted time frame but it's going to be a pleasure to be with you.

Speaker #1: Danny has a second question Eric about the change in the stock provisioning rules. She wants to understand what the change was and if this stock has been mostly sold or it's going to benefit the margin in the next quarters.

Speaker #1: And we decided to focus on the health of our customers. In terms of share wallet we haven't seen any new entrants that have been taking away share in all product categories.

Speaker #1: Danny, let me clarify what we do. We made a decision in the company to try a change in our perspective about how we see inventory and how we're going to translate that in our statement.

Speaker #1: Revenues in multi brand is very expressive in our business. It does it is responsible for driving our gross profit and margin. So we pay a lot of attention to that channel.

Speaker #1: We reviewed the provision provisioning rules to increase the adherence in the profile of aging of our inventory and the new premise is to recognize the loss of shoes and other raw materials at zero.

Speaker #1: For in shoes and bags you can see the energy at the event. It's worth visiting. In that collection we want to sell 170 million in multi brand.

Speaker #1: We've always recognized it—whatever is over two years, we've always done this since '22-'23. So, it had a one-off impact of 70 million reals; 15 million is raw material that we believe we're not going to be using for our clients, and this generates a huge improvement from now on in how we're going to see the business.

Speaker #1: And here in São Paulo during these days we'll be working together with our store owners to grow share of wallet. Thank you Alexander. Last question from Santander.

Speaker #1: It's about the rate of recovery of growth margin of Herring. So the growth margin has increased 120 beats. But what makes you believe that there's still a representative inflection that would come in the second half and it won't be postponed?

Speaker #1: Zero improvement in gross margin, of course, because the central point here is that this inventory is going to be discarded. We're not going to use it.

Speaker #1: It's mostly from now on. We haven't had any margin gain because of that. But we're going to be more aligned between what we provision and what we use in the day to day in our business.

Speaker #1: What are the specific levers that support our schedule? So the growth margin of Herring is 4.4 percent. It's positive. Growth. It's worth noting about the mix.

Speaker #1: Therefore, the vision of putting this as non-recurrent is because it's things from '22-'23. Thanks, Eric. We have a lot of questions. I'll try to get one or more from each analyst due to our time.

Speaker #1: We had a reduction in the sale in own stores greater than in selling. So when you look at the margin it's consolidated in the channels.

Speaker #1: Next question comes from João, from City, and it's about the growth in all the stores for the Shoes area. What was the most relevant factor that generated this improvement in a challenging macro environment?

Speaker #1: The variation is very big in the sellout and selling channels. Currently doing assertive pricing plan. So that will grow in the half year. And it'll be positive in growth but not with main levers.

Speaker #1: And is this going to bring a broader recovery soon? Thank you for your question. This is a process that started at the end of 2025 when we had a big change, especially in the management of product, with growth under the leadership of Rafaela Furlanetto and a big adjustment in the mix of products, especially in the areas of brand.

Speaker #1: We've been working a lot all price sales. That's been helping to lower inventories and lower the sales in markdowns. And a lot of work in international sourcing.

Speaker #1: So we've been focusing on having new suppliers. Better negotiations. It's not a silver bullet. It's constant work with a gradual change and absurd control of our team in that important KPI.

Speaker #1: I remember at the XP conference last year I talked about this so we managed to bring a consumer that we had lost that looked for a product that shoes that looked like shoes more casual and besides we had a great improvement about the perception of cost benefits from our products.

Speaker #1: Perfect. Thank you. Is that it? Okay. We've reached the end. So I would like to thank and recognize our entire team even during important moments in making difficult decisions in external environment that's very challenging.

Speaker #1: This is something that we also talked about for the areas of brand and for the Shoot's brand. It was an issue of positioning and branding.

Speaker #1: We were able to preserve what's most important which is the strength of our brands and retaining our team even during times of a lot of transition.

Speaker #1: It was a work that we solidified this first semester. Exceptional results from the Schutz brand, especially for boots, which dominate in the winter. So, we also managed to set a reduction in the sneakers category, which reduced worldwide for casual sneakers, and the Schutz brand grew a lot in boots.

Speaker #1: That is very important. With a lot of dedication and passion of our team for the brands that they operate financial information we mentioned that we were very effective in cash generation.

Speaker #1: I'd like to recognize the commitment of our team of leadership of all our business units all our brands we have clarity of the challenges that we face that we have to improve and above all absolutely focusing on execution so that we have a second half with better results.

Speaker #1: And today, it has a very good positioning that is for their core consumer. The bags category has opportunity for growth, especially with the improvements in international sourcing.

Speaker #1: Priority is to stabilize inventory for our franchisees gross sales and consequently operational efforts. Thank you very much. And we wish to have a very successful.

Speaker #1: So I know it's consistent work that we're doing, that is very well executed, and in the second quarter, second semester, you're right—we're being conservative in our assumptions. We have a capacity, when we do well, that we can react quickly and grow. We have a very great sellout, positive for the crews, in July.

Speaker #1: And now, in August, when we turn the campaigns, we're very confident that we'll have a Q4 that is very successful in the Legado areas and coal.

Speaker #1: A question for Morgan Stanley, Alexandre. What about the health of the Eric brand? I understand the impact of the reduction of discounts in the sell-out, but do you see any issues as for the health of the brand? The growth in the orders for the summer collection seems to be a positive indication of recovery.

Speaker #1: But is there any data that makes us more convinced that this recovery will be more sustainable going forward? It's a great question, Alexandre. Thanks for your question.

Speaker #1: And the answer I have to you is a strong conviction that we have, because in the past we didn't have a branding problem at ERIC, but there was a deviation from there.

Speaker #1: Its core audience—the Hering brand became premium and was losing share in the B2 and C classes. So, well done work by the team on maintaining great quality in terms of images and product, but bringing a communication that is more accessible, more democratic, and introducing products at an entry point, like P0. For example, the Brazil t-shirts—because branding is not just about price.

Speaker #1: So Herring is coming within a moment where it's going to reaffirm its leadership in the segment of basics, and it's worth saying that from 2027, some important levers of growth for the Herring brand will emerge.

Speaker #1: One of them is Herring Sports, which has been having a great performance. We have expanded the number of stores that distribute Herring Sports. C was a low percentage of the total for the brand, but had great sellout results.

Speaker #1: We're developing new formats for stores as well for the Herring brand. But we're sure that we are on the right track. The great adjustments.

Speaker #1: We also applied this due to an excess and reduction of inventory in some specific items in the first quarter. But for positioning and brand positioning, we are aware that the work is being done.

Speaker #1: Thank you. Now we have two questions related to multi-brands. The first is from Bob at Bank of America, related to the adjustments of the inventory.

Speaker #1: Of these multi-brand clients, there is work to do, and the other comment from Felipe Rochelle is about our conservative approach that we have felt from the multi-brand clients.

Speaker #1: Is it related to the macroeconomic scenario, or is there any other factor? The second question is from Felipe, from Goldman Sachs.

Speaker #2: Thank you for your question. The multi-brand channel is very important for our business. The origin of footwear was from multi-brand, so we're very close to that.

Speaker #2: When we talked about, per business unit, an expressive reduction in footwear, that's a result of Vans. And in the women's shoes, that reduction is small, and it's given not because of buying less, but because of some points of sale that were closed in Brazil.

Speaker #2: So, the capillarity of that channel is very big. And during sensitive moments in the economy with higher interest rates, that's a channel that has higher exposure and volatility in that sense.

Speaker #2: In apparel, be it women or men, we were more selective in granting credit on purpose, and we decided to focus on the health of our customers.

Speaker #2: In terms of share of wallet, we haven't seen any new entrants that have been taking away share in all product categories. Revenues in multi-brand are very expressive in our business.

Speaker #2: It does. It is responsible for driving our gross profit and margin, so we pay a lot of attention to that channel. For insurance and bags, you can see the energy at the event.

Speaker #2: It's worth visiting. In that collection, we want to sell $170 million in multi-brand. And here in São Paulo, during these days, we'll be working together with our store owners to grow share of wallet.

Speaker #2: Thank you Alexandre. Last question from Santander. It's about the rate of recovery of growth margin of Herring. So the growth margin has increased 120 beats but what makes you believe that there's still a representative inflection that would come in the second half and it won't be postponed.

Speaker #2: What are the specific levers that support our schedule? So, the growth margin of Herring is 4.4 percent—it's positive growth. It's worth noting the mix.

Speaker #2: We had a reduction in sales in our own stores that was greater than in other selling channels. So, when you look at the margin, it's consolidated across the channels.

Speaker #2: The variation is very big in the sell-out and selling channels. We're currently doing an assertive pricing plan, so that will grow in the half year. And it will be positive in growth, but not with main levers.

Speaker #2: We've been working a lot on full-price sales. That's been helping to lower inventories and reduce the sales in markdowns. And there's also been a lot of work in international sourcing.

Speaker #2: So we've been focusing on having new suppliers and better negotiations. It's not a silver bullet—it's constant work, with gradual change and close control by our team on that important KPI.

Speaker #2: Perfect. Thank you. Is that it? Okay. We've reached the end. So I would like to thank and recognize our entire team, even during important moments, for making difficult decisions in an external environment that's very challenging.

Speaker #2: We were able to preserve what's most important which is the strength of our brands and retaining our team even during times of a lot of transition.

Speaker #2: That is very important. With a lot of dedication and passion of our team for the brands that they operate financial information we mentioned that we were very effective in cash generation.

Speaker #2: I'd like to recognize the commitment of our team of leadership of all our business units all our brands we have clarity of the challenges that we face that we have to improve and above all absolutely focusing on execution so that we have a second half with better results.

Browse all earnings call transcripts

Q2 2026 Azzas 2154 SA Earnings Call

Request TrialDemo

Azzas 2154

Earnings