Azzas 2154 (AZZA3) Q3 2024 earnings summary

Executive summary

• Completion of the merger between Arezzo & Co and Grupo Soma, forming AZZAS 2154, the largest fashion company in Latin America, with a focus on execution, efficiency, and simplification.

• Pro forma results provided for historical comparison, with integration targets achieved and focus shifting to cost synergies and efficiency for 2025.

• Three business units posted double-digit revenue growth, with strong brand performance and diversification across products, brands, and channels.

• Hering prioritized post-merger, achieving 13.1% revenue growth and 14.9% SSS increase versus 3Q23.

• Value creation initiatives and detailed controls are nearly complete, with the 2025 budget to reflect these opportunities.

Financial highlights

• 3Q24 pro forma gross revenue reached R$3.7B, up 12.2% year-over-year; 9M24 gross revenue totaled R$9.9B (+9.1%).

• 3Q24 recurring EBITDA was R$477M, up 4.2% year-over-year, with a margin of 15.7% (down 1.2p.p.); 9M24 recurring EBITDA was R$1.3B (+5.2%).

• 3Q24 recurring net income was R$163.8M, down 28.6% vs. 3Q23, mainly due to new tax impacts and extraordinary merger-related expenses.

• Gross margin was 54.4% in 3Q24, down 0.5p.p. year-over-year, impacted by fiscal fees, inventory clearance, and tax provisions.

• Net debt/EBITDA at 1.1x, with R$766M in cash and net debt of R$1.69B at 3Q24.

Outlook and guidance

• 2025 will focus on efficiency, cost reduction, margin improvement, cash generation, and capital allocation, with synergies expected to be included in the budget.

• Expense synergies and integration costs are expected to decrease significantly in Q4 2024 and 2025.

• Guidance includes R$54M incremental 2024 revenue from new footwear, handbags, accessories, and Hering GTM; Democratic Clothing targets 55 megastores and R$400M in e-commerce sales.