Azzas 2154 (AZZA3) Q1 2026 earnings summary

Executive summary

• First quarter 2026 results were below expectations, with significant revenue and EBITDA declines mainly due to underperformance in Vans and Hering, while most other brands, especially Arezzo and FARM Rio, showed strong growth.

• Excluding Vans and Hering, group revenue was stable, indicating challenges are brand-specific, not structural.

• Operational cash generation rebounded to R$148 million, reversing a prior cash consumption, with a 57% EBITDA-to-cash conversion rate.

• Strategic focus on sell-out channels, inventory reduction, and franchisee health, with deliberate actions to optimize inventory and improve working capital.

• Strong international growth, especially for FARM Rio, and positive sell-out trends in premium women's fashion and Arezzo.

Financial highlights

• Gross revenue was R$3.12 billion, down 4.4% year-over-year; net revenue declined 8% to R$2.48 billion; gross profit fell 8.6% to R$1.35 billion, with a stable gross margin of 54.5%.

• Recurring EBITDA was R$328.5 million, down 23.2% year-over-year; EBITDA margin decreased by 2.7 percentage points to 13.2%.

• Recurring net income dropped 45.7% year-over-year to R$63.9 million, with a net margin of 2.6%.

• Operational cash generation reached R$148 million in Q1, with a 57% EBITDA conversion rate; 12-month cash generation was R$1.5 billion.

• CAPEX was R$61.6 million, a reduction of 27% year-over-year, focusing on high-return projects.

Outlook and guidance

• Expectation of margin recovery in the second half of 2026, with gradual acceleration in Hering franchise sell-in and strong Q4 growth.

• Hering's turnaround expected to show results from Q3 with new collections and product launches, especially in basic T-shirts.

• Vans brand expected to return to growth by Q4 2026 following strategic and operational changes.

• Positive outlook for cash generation and EBITDA conversion for the year, with further working capital improvements targeted.

• Continued international expansion, especially for FARM Rio, and operational restructuring for brands like Vans and Hering.