Azzas 2154 (AZZA3) Q3 2024 earnings summary

Executive summary

• Q3 2024 marked the first consolidated results post-merger of Arezzo & Co and Grupo Soma, forming the largest fashion company in Latin America, with a focus on integration, efficiency, and multi-brand, multi-channel growth.

• Pro forma gross revenue reached R$3.7 billion in Q3 2024, up 12.2% year-over-year, with double-digit growth in three of four business units and strong e-commerce performance.

• Integration milestones included aligning accounting, tax, treasury, and FP&A, with detailed controls by brand and channel, and fully integrated cash management and financial planning.

• Value creation initiatives focused on cost and expense optimization are nearly complete, with 2025 budget to reflect these opportunities.

• Short-term focus is on strong holiday sales, with 2025 expected to emphasize simplicity, efficiency, and margin improvement.

Financial highlights

• Q3 2024 pro forma gross revenue was R$3.7 billion, up 12.2% year-over-year; 9M24 gross revenue reached R$9.9 billion (+9.1%).

• Recurring EBITDA for Q3 2024 was R$477 million (pro forma), up 4.2% year-over-year, with a margin of 15.7% (-1.2p.p.), impacted by integration and operational expenses.

• Recurring pro forma net income was R$163.8 million, down 28.6% year-over-year, mainly due to new tax law and higher financial expenses; excluding tax impact, net income would be R$250.4 million (+8.9%).

• Gross margin was 54.4% in Q3 2024, down 0.5p.p. year-over-year, impacted by lower margins in men's and women's apparel and tax provisions.

• Cash position at quarter-end was R$766.4 million, with net debt at R$1.69 billion and Net Debt/EBITDA (LTM, pre-IFRS-16) at 1.1x.

Outlook and guidance

• 2025 budget will incorporate cost and expense optimization and further synergies in revenue, costs, and expenses.

• Guidance for R$54 million incremental 2024 revenue from new footwear, handbags, accessories, and Hering GTM.

• Management expects margin and cash flow improvements, with no major restructuring expenses anticipated.

• Democratic Clothing unit targets 55 megastores and R$400 million in e-commerce sales.

• Projections in the Reference Form remain unchanged.