...Good morning, everyone, and welcome to the Alpargatas video conference results for the second quarter of 2024. I am Melina Constantino, Investor Relations Director for Havaianas, and today, in addition to the investor relations team, I'm joined by Liel Miranda, our CEO, and André Natal, our CFO. This video conference is being recorded and simultaneously translated into English. Our Q&A section will be right after the end of the initial presentation. For those who wish to ask questions, simply raise your hand by using the icon available on the Zoom toolbar and wait with the microphone muted until we instruct you to go on and ask your question.
I'd like to, before I continue, clarify that any statements that may be made during this video conference regarding the company's business prospects, projections, and operational and financial goals, constitute the board's beliefs and assumptions based on information that is currently available. I'd like now to turn the call over to Liel, our CEO, who will now begin our video conference. Liel, you may proceed, please.
Good morning. It's a big pleasure to be with you here to talk to you today. The second quarter of 2024 was one more step in our journey that has been the strategy in the past quarters, and this journey has been basically, on one side, focus on competitiveness, which are our strengths, and on the other side, the resumption of our sustainable growth in the many opportunities that the company has.
As for focus and competitiveness, one big progress that can be seen in the second quarter was our portfolio strategy. Increase in the investments in marketing, which was a decision that was taken since the very beginning of the year, and which we continued with, to resume the strength of the Havaianas brand in Brazil and in the world. Another large step, big step in this journey was the simplification of our portfolio, launching a new collection to be sold in 2024 and 2025, with 52% less SKUs items, which is a collection that is much more simplified. So we simplify our internal operations and execute better our operations in our clients.
As for Brazil, which is another element in this focus and competitiveness item, we see the growth in the volume in Brazil, and at the same time, we can see that in Brazil, we can already reach the financial results close to what were our expectations. As for our simplification, the results can be seen in the improvements of the logistics and distribution costs and manufacturing costs, in the cost of goods sold, where we are benefiting from all the simplification that we carried out in our processes and the continuation, continuous building of our capabilities, especially our S&OP and the coordination between sales and supply chain, industrial supply chain. As for our competencies, we can see that the results already show the discipline of costs, where we already see a reduction compared to the basis of the last year.
This is a discipline that is established in the business through the ZBB process, and which will be carried over in the future. All the elements of the focus and competitiveness steps have already been started in 2023, and continued in the second quarter of 2024, and they are seen in our results. As for the other side of the equation, which is the sustainable growth, we see growth in Brazil, not only in the total volume, but also in the main priority segments. We identified it as a strategy that we are going to have a smaller participation in the men's and specialized channels. In the second quarter, we already saw some improvement in those two specific segments, telling us that our strategy was correct, and we will keep working on these opportunities for growing in Brazil.
As for the international growth, we had a second quarter where the markets which are supplied through distributors, especially in Asia and Latin America, in those markets, we observed the positive result with growth of volume and destocking of the chain, which was an effort we had already started, to allow us to operate with much more integration between the demand of those markets and our sell-in, which means the sales to our distributors. So these results are positive, were positive, and we can already see development in the growth of our sales.
The other international market, which is Europe, we saw that even though we had efforts of supplying the market in advance and not leveraging prices to avoid competition to gain competitiveness, to avoid what happened in last years, and using more brand awareness, because we use the Olympics to invest more strongly, both in France and also in the other priority markets in Europe. We saw we didn't observe a sell-out, an immediate sell-out response. So the volume sold was a little bit weaker than what we had expected. We will continue with this strategy in Europe, because we have one business there that can be scaled up.
A product that is very relevant to the European consumer, and we will continue to invest in the brand, ensure competitiveness of the price, and especially improving our business execution, better distribution, better presence in all stores in the next seasons and in 2025. The summer is now going to be over in August. Our product is a seasonal product, so we continue focused on the execution in the summer of 2024, but we have already opened our conversations with our clients to sell more, to improve our volumes for 2025. So our strategy for Europe for 2025 continues exactly the same.
The last international market, the USA operation, it's a small operation, which is much smaller than the potential and the opportunity we have in that geographic space, and we keep evaluating all the possibilities, so we can make sure we can have us be decisive to deserve to be in the United States. As for the other elements of the sustainable growth strategy, we can see that the brand is much more active. As you saw, we had a great success with a collab together with a luxury international brand that had a huge demand, lots of media repercussion. This is a demonstration of the reconstruction of our brand, the strategy of offering relevant experiences to all our consumers.
And I think all of you are following the efforts of media and communication we are developing during the Olympics, not only in Brazil, but also in Europe. That and this is all part of a sustainable growth. We are planting the seeds, so the next years we are going to have the same level of relevance and the brand awareness that has always had among our consumers in Europe. So I think this is the summary of our strategy. It didn't change quarter after quarter. In this quarter was not different. And now I'm going to give you, André, to take us through the financial results.
Good morning, everyone. Talking about the finances here, I think Liel spoke well about the simplification and focus of our business.
This was one of our priorities last year, and the focus on the financial health of the business in the preservation of cash and discipline in the use of capital. I think this slide is a good summary, not only for what we have achieved in this sense, but also the permanence of these efforts as something recurring in the business, something that shouldn't, should always be our priority from now on. When we see this graph on the left side, we see that the cash generation continued to be positive after more than one year, creating cash allocation. Obviously, in the second quarter, it's worth saying, it was a quarter that is typically hit by seasonality, that consumes cash, but yet in this quarter, we managed to release cash. So this is still maybe the last step of this adjustment.
So we believe that this is going to go into a normality now. There is some seasonality which is expected. But this was truly a long period of relevant release of cash, because everyone know we had, accumulated a lot of capital, immobilized it. So this is a trend, and that now is going to be following over a more normalized path from our expectations. When we look at the CapEx, we also can see another business in the size of Alpargatas. When we compare with one or two years before, having reduced close to 9% the level of CapEx. At that moment, we were investing.
We are in a very strong cycle of investment, and after implementing this stronger discipline and this preservation of cash, especially to hold back the leveraging of the level of the business, we reduced it substantially, our investments, and we kept inside our investment portfolio, only what we understood that was essential, and also that could generate value for the business. So when you look at this, CapEx level today, that we had in the first and second quarter, they are even a little bit beyond what we imagine as being recurring.
But thinking of the budget, approved for the year of BRL 180 million, we believe that in the second half of the year, we are going to be able to grow a little bit these investment levels, both for the projects that are in our portfolio, but also for other projects that will go through a rigorous process to be approved before they are actually implemented. And this is what explains this smaller level of investments in this moment, in this very moment. In this green graph on the left-hand side, at the bottom, you see the expenses level, which is still under control. We reduced it substantially. What was the usual level of expenses of the company in the last quarter of last year?
So we have been in over a year in the same level that we are now. There is certain seasonality, too, in the expenses, because especially in the second quarter, when we open up the stores in the international markets, we have certain expenses associated with this opening of it, of stores, and hiring of a personnel to operate in those stores. And there is also one percentage point here was the exchange rate factor in the period. And it's important to say that this level of expenses, it's totally aligned with what we had expected for this period. So, so far, the program has been successful and aligned with our expectations, so far.
The final graph on the slide shows the consequence of all of these things I mentioned before, which is a very strong turnaround in the path that we had been in our levels of leveraging. In fact, now we reached a leveraging level. We had some write-offs of raw materials and finished goods, and without considering that, we are close to zero in the leverage. It's a deleverage company with in another level of financial solidity and in another level of possibilities ahead of us. Moving on to the next slide. We see the fourteenth consecutive month of cash generation, reverting that trend of more than 12 consecutive months of cash consumption. We have recovered already BRL 900 million, accumulated from May last year till now.
This obviously, is one of the components behind the reduction of that leveraging that you saw to this much healthier level and better solidity levels of the business right now. Moving on to the next level. Here, we introduce to you in the same format we had been showing you, our business cycle. It's interesting to look at the slide from the left, to the right to the left, starting with the sell-out. It's important to resume the scales of our operation. We have a relevant, strong manufacturing operations, and this level of sell-out growth helps us to make this happen.
The brand, a healthy and a strong brand, and our products being desired by the consumers with good execution in the stores and good support from our market investments, which was resumed, as Liel mentioned, allows us to see an expansion of our sell-out of 3% positive compared to the second quarter of the last year. All obviously, this helps. Because once this happens, we grow our sell-in, which grew 22% versus the previous quarter. This is very important for the resumption of our production volume and everything that is behind the production chain, in terms of buying raw materials and production initiatives. And even though there is some seemingly disconnection between the sell-in and sell-out, in the second quarter of last year was when we had our sell-in compressed because of the super stocking of the chain of our products.
So when we look at the green graph, we see that the chain inventory move it from one side to the other, which means that the sell-in and sell-out walked pretty much hand in hand, which is very healthy for the business, and which demonstrates that the effect of this stocking was successful in our chain, and the green graph is the proof of that. From our production levels, we are already growing our scale, manufacturing scale, remembering, reminding you that the, in last year, we reduced our production levels, especially because our sell-in was very compressed, as I mentioned before. So now we grew our production 25%, but we didn't grow our inventory levels.
Quite the opposite, our inventory levels are still very healthy and is smaller than the previous quarter, which means that we were, in fact, adjusting our own levels of inventory, which was something that took a little bit longer than the chain inventory available. And now, with the resumption of the sell-in, we can go back to healthier levels of our own inventory. And when we look at the raw material graph, we see that we had to compress our raw material purchase last year because we had inventory levels that were much higher than what we understand it to be necessary to have. And for this reason, we saw a long period of adjustments of our inventory levels.
We saw that took almost a year, from December 2022 to December 2023, to decompress the inventory raw material levels, raw materials, raw material inventory levels, and go to a level that we see as reasonable. So regardless of the opinions that we might have about price evolution, we have been respecting what we defined it as being the level of raw material levels that we want to have in-house. Moving on to the next slide. This slide is a complement of the previous slide, which shows what we lived from the beginning of 2023 up to now, which is the inventory evolution in the chain. We have two large bars, which goes from July 2021 to December 2022, 18 months, in which we accumulated in sell-in, in higher sell-in and sell-out, 23 million pairs of chain inventory.
These numbers are approximate because the sell-out is an estimate based on several surveys that we have. Let's say it's an informed estimate of what we saw in terms of sell-in being higher than the sell-out for that moment. 23 million pairs accumulated, and all the adjustments that we saw from the very beginning of last year, from the first quarter of this year, destocked our inventory. Again, using the same metrics, the same surveys that we used for the previous year, about 21 million pairs in this chain. It's a significant adjustment. Obviously, it compressed our margins, our scale, and it was a little bit of an issue to be resolved, but this adjustment has been finished.
So again, when we look at the number of pairs, we had a much closer difference between sell-in and sell-out of 0.4, and we expected that this is going to fall, this trend from now on. So we still might see some destocking in the chain, but not as high as we had seen in the past we saw in the past. So from now on, we have a normality of the business operations without large changes in the business operations and without large destocking of products. Now, moving on, is the second wave of priorities that we had in the second half of last year, to resolve and perfect our business in Brazil. We had large advancements in the gross margin.
When you look at the gross margin, it's already higher than what was observed in 2021, which was a period of higher volume and large manufacturing scale and higher pricing. So it is a very interesting gross margin. When we adjust it with the new margin for the new raw materials and finished products, it's even higher than 2021, and also a small growth compared to the first quarter of 2024. So there is a sequential and substantial improvement. Even though we still are producing a smaller volume than we produced in 2021. So even with the scale challenge, we can see a substantially better margin, and it's important that we are not showing in this graph the rollout scales of labor contingencies.
If we made all the adjustments, then our margin would go to 46%, which is extremely healthy, and would be probably the best margin we have ever had in the recent past. When you look at the EBITDA margin, it has the same effects as the EBITDA on the left. Making the adjustments by the write-offs, we reach a margin which is superior than the one we saw in 2021, and the same that we had had in the previous quarter. I think those two slides, those two graphs show a resumption in our manufacturing levels, but also all the effort that has been made as for our productivity, efficiency in manufacturing, in addition to the effects of the recent decrease in the price of raw material that we consume.
Moving on to the next slide, here we see the volume evolution in Brazil, who, as I said, there is an important resumption of scale compared to the second quarter of 2023, but yet it is a little bit below what we saw in 2021. Which means that our sell-out will still continue to grow, and if we grow with the market, we should see gradually a scale, this scale to grow even further, occupying our manufacturing capacity in a way that might offers us more decompression in the scale inside this margin, which is a much better margin than we used to see in the past. So this is the movement, the trend we have in Brazil, this 22% of growth that we had already, I had already talked about, in Brazil.
Now, moving on to the third component, which is the international markets, which since last year, we have been aligning with the market in the sense that this is an adjustment that uses the same bases, the same fronts of work that we mentioned before, but it takes longer to show results because of seasonality, because of the short seasons. So all of these effects and leverages that we saw in Brazil, that and which we expected, and which showed a very quick responsiveness in Brazil, and recomposition of scaling, margin, and efficiency, we also use it for the international markets, but we still haven't seen. We are maybe one or two steps before the stage we are in Brazil right now.
So we have a slight increase of the gross margin, but it's still smaller than what we used to have in 2021, 2022, of 74%. Obviously, this scale explanation is at least half of the explanation of this reduction in our gross margin and unitary EBITDA margin per pair. It's compressed compared to a year in the past, but a good explanation is the challenge of the scale, considering all the issues that we have been discussing with the market, which are compression of volume, compression of volume, operational issues, all of them having somehow a role in the explanation of the compression of our margin. It's also worth mentioning that within this EBITDA margin, we have some important effects such as the resumption of our marketing investments.
We invested about BRL 20 million more than we used to, we were investing last year in marketing in the international markets. This is also a leverage that we understand to be desirable, healthy, and necessary for the business. Obviously, it doesn't create an immediate result, but it's a very important component of our strategy, because we believe in the potential of the brand, in the markets we are in, internationally speaking, and we understand that the investment in brands over the last years were not adequate. So now we are back. We resume the growth, the investments, in marketing the brand. So this is a little bit behind this smaller EBITDA level component. In addition to that, we also saw a change in the composition of this volume.
Even though the compression of the volume was of only 2%, there is an important change in this quarter related to the geographical location. Because EMEA saw a reduction of 8% in volume compared to last year, and the distributors market, in, where we have smaller margins and smaller prices than EMEA, there we saw an expansion of about 9%. In all of those markets, last year, we were seeing relevant reductions of volume. Now we see already some markets growing the volume. Liel made a few comments at the beginning in his introduction, but we understand that while we are not able to completely recompose this scale, compared to the second level, 2021, we had 11 million pairs sold, and now we had 8 million pairs sold.
It's a substantial improvement, but it's still a smaller volume than what we saw in the past. And before we reach this scale again, we believe it's gonna happen. But as we said, this recomposition, it's not an immediate effect. So because of all of the factors we saw in the last year in the international market, but we understand this is the next steps, considering the strategy that we have in place right now. We will continue to look at distribution, adjusting our operations, but this recomposition of regaining those pairs that we used to sell will be important for the EBITDA margin per pair. I'm going to show, to give you now Melina, to talk a little bit about the profit.
This is the best results we had since we created Rothy's became a stake of Havaianas. From top line to the bottom line, overall, all the results were positive. The revenue grew 10%, EBITDA of $7 million, with a sequential improvement of a gross margin. If we look at the LTM in EBITDA, we already see a very interesting recovery. At the end of the day, the results that supported Havaianas was of $11 million in our consolidated results. And to end, looking at this slide, we saw that we, in the consolidated of Alpargatas results, we delivered a $23 million of net profit, which was benefited from the equivalence of Rothy's and from Havaianas results, which was also positive for the business as a whole. The adjusted net profit would be of $31 or $32 million positive, following the lines of simplification discussed before.
Now, we finish the presentation, and we are moving on to the Q&A session now. I would just like to remind you that in order to ask your question, you have to use the Raise Hand function at the bottom of your screen, and I will release your microphone as we ask you to ask your question. I will name who is going to ask the question, and then release your microphone to open. Let's start with Vinicius Strano from UBS. Vinicius, we're going to release your microphone so you can ask your question.
Good morning, everybody. Good morning, Liel, André, Melina. Thank you for taking my question. I think that after a cycle of deleveraging that we have seen in your business, could you make a few more comments about growth vectors in the longer term? Could you talk a little bit about the positioning, position of prices of Havaianas in the main markets? And also about the USA market, could you make a few more comments about a diagnosis of the operation in the United States? What do you see as the focus of the, the business there, like, to gain, to gain volume and leverage these operations, or, would you be willing to make adjustments in the costs? Or how and how do you see the investments in marketing in the US?
Thank you, Vinicius, for your question. There are three questions. I will start with the easiest one, which is the pricing. The way we look at pricing right now in the several markets is that we are resuming, we are regaining our competitiveness considering price. You, who followed the company for some time, saw that in 2022 and 2023, we were caught in the opposite direction of the market because we had a higher price than the market accepted. What we see now is that our prices are aligned with what we'd like to see, considering the competition, and also considering the possibilities of consumers in our market. So nowadays, we don't see pricing as a problem to be resolved, but we also don't see pricing as a leverage by increasing the prices to leverage our operations.
What we want, as André said, is to gain scale in the business. So we will continue to manage pricing aligned to inflation, aligned to the possibilities of acquisition of consumers. It's important mainly to mention that some of the competencies and capacities that we are building right now in the business is that now we have a Revenue Growth Management area to manage margin, pricing in the entire world. That was one area that previously it was fragmented within the each one of the markets. So now it is concentrated in the overall the main financial team to develop the competency of managing this in a more theoretical and certain way. As for the U.S., I would say that the main point about the U.S. is the scale that we have not been able to regain, even though the efforts we have been making.
We have tried several different strategies in several different years in the U.S., and yet we have not been able to burst the bubble and gain the scale that we believe to be necessary to be a good operation in the U.S. So what we are doing right now is to seek the alternatives so we can have a higher penetration in the United States. How we can amplify our distribution, how we can grow brand awareness, how we can expand our presence in the daily lives of our consumers, especially in the locations where products have a higher fit with consumers' lifestyles, such as in Florida, California, and other centers in the U.S. So we are looking for those business model alternatives to gain the scale that we would like to have in the U.S. operation.
As for the long-term operations, obviously, we cannot give you any kind of guidance. You know that. But the strategy that we showed you today is not a short-term strategy; it's a long-term. Because our expectation is that Brazil will continue to grow in the markets where we have more opportunities. We said several times, we have a much higher presence in the grocery store, such as Cash and Carry supermarkets, and a much smaller presence in the specialized channels. And both channels are equivalent in terms of importance in Brazil. So we have a strong strategy to continue to grow in our specialized channels in Brazil. And as for the categories, we have more opportunities in the men's, and we want to grow in there.
This is a strategy for the short and long term that we can see for Brazil, and we will keep pursuing this strategy. The international strategy, I think it's also very clear, clearly defined. We have three geographies, which are our priorities. One of them, we have already regained our growth, so now we need to have focus because we are present in many markets. The big potential of growth in the markets which are supplied by distributors is about, probably about 10 markets, where our brand has a good brand awareness, and this is where we are going to keep investing and seeking to grow among Asia, Middle East and Africa, and Latin America. As for Europe, we need to rebuild the brand. This is about it. It is about rebuilding the brand.
We all, Brazilians who go to Europe, realize that Havaianas there is a relevant brand in Europe. So we have to keep growing, keep building this brand as we started by investing in markets in the necessary levels, ensuring that we have the distribution that the brand needs, especially during the summer season, or exclusively during this summer season, when the seasonality of our products happen, and also considering our capacity of execution in the stores where we already have a presence of Havaianas. So our strategy continues the same, remains the same: focus in the distributor's market, which our priority, focus in building our brand in Europe and in the U.S. to seek out this scale that we haven't found yet through a business model that we are still assessing to define. This is the strategy, and this continues to be the strategy for the business.
Thank you very much, Liel, for taking my question.
Let's move on now. Let's move on now, right now, with our Q&A. And we are going to take the question from Guilherme Vilela. ...J.P. Morgan.
Good morning, everyone. Thank you for taking my question here with J.P. Morgan. When you look at cash generation, especially in the past 12 months, it has been very high, but especially because of the destocking process. The company had an inventory, so now you have a somehow artificial high inventory levels. How should we think about the cash generation from now on, especially considering that the company is more efficient in terms of costs? How could you think about the free cash flow, normalized free cash flow from now on? My second question is about portfolio simplification over the past 12 months. In the past 12 months, the company reduced it a lot, the portfolio of items, what could we expect in terms of portfolio from now on?
How could this reflect in the gross margin, which is something that we already saw in the second quarter? Thank you very much.
Guilherme, good morning. Thank you for your question. You're right about what you said. Over this period, we had a cash generation that was much higher than the EBITDA levels, and this is because of the reasons you mentioned. In the company, we have a very high allocation of resources concentrated on working capital. It was inventory that we had produced at both in that strategic purchase of raw material that we did in 2022. That took our inventory levels much higher than it should be, as well as that big bets that were made in slides and sandals.
Which is a little bit connected to your next question, because that large quantity of portfolio generated mistakes in the forecast and more accumulated inventory that didn't actually reach the sales levels that were expected for those products. So all of that generated a bubble of resource allocation in inventory. And we compare that, just to give you an idea, if we get a very large inventory, we used to see 8%-10% of inventory in terms of net sales. This reached even 30% of our net sales. So obviously, it was something that had to be attacked, handled. It was handled, it was addressed, and. But it also came from a smaller allocation of capital from investments. The company made large acquisitions and a lot of investment, organic investment in technology, factory expansion, and several business, in several business lines.
So we understand now that the business can grow without large requirement for capital allocation from now on. So this is a component that in your, I cannot give you a guidance, because we don't give guidances, but in your consideration of cash generation from now on, you should consider that these adjustments of inventory and raw material and finished products is completed, so it should have normal fluctuations from now on. But obviously, you also imagine CapEx levels compared with the older numbers, you know, old record numbers. So when we think about our cash cycle, it's interesting because we saw our cash cycle almost to double in a certain period.
When we get two or three periods behind, when we look at what happened up to the beginning of 2023, our cash almost doubled in duration, which was the reflex of everything that I mentioned here. So now we are back pretty much in everything to this normal. We still have some inventories, sandals, slides or previous collections, but as we release it, cash from those inventories, we're going to have a much more normalized cash flow, much more comparable to what we used to see 2, 3 to 4 years ago. I think that's a good reference for you to imagine for the future. If this is not yet completed, it's probably about to be completed. So it's a process of cash generation that from now on, should be more compatible with the EBITDA.
Less artificially inflated, as you mentioned, because it was, it has been, you know, artificially inflated, as you said, for the reasons you mentioned. But I believe that from now on, it's going to be accommodated much closer to the EBITDA than it was in the past 12 months. Liel, you can take the second question, please. The second part of the question.
Guilherme, I think that the simplification of portfolio came to stay because, in fact, we didn't need all of those items to reach the growth that we are observing right now, and the growth that we aspire from now on. I think it's quite the opposite. The smaller number of SKUs allows us to have a better levels of on time, in full service levels.
The OTIF in Brazil now is above 75%, which is a number still below what we expect, but decent considering the industry, considering that we used to have 30% of OTIF levels in the past. This demonstrates the level of the simplification of portfolio. When we look from the point of view of channel and execution in the stores, like, it's no good to have thousands of items, and the consumers always see the same items in the stores they go to. The capacity we have right now is to have, for each one of the channels and for all of the regions, USA, you see that in the USA, Europe, distributors, distribution markets, and Brazil, the SKUs that are the most sold in those channels and only ensure the communication, distribution of those items in those channels.
So our reduction of portfolio was strategic, and it is here to stay, and this open up and open up space to release innovation. This is another problem. When we had too many items and we innovated too much and nothing was well executed, we couldn't give the importance we wanted to in the media and in the point of sale, to the big bets or the big innovations in the business. We had a better execution now when we launched what we call the Point, when we managed to make a 360 campaign activation. We managed to distribute, to have activations in our franchise store, own stores and online. And now we are going to have the expansion of this innovation into other channels.
So simplification of the portfolio is strategic, creates improvement in all indicators, and gives us room to have more relevant items in each one of the channels, rather than having them cannibalizing each one of them in all the channels.
Moving on now, we are going to take the question from Dani XP. Dani, I'm going to open your microphone.
Good morning. Thank you for taking my question. I have two questions from my side. The first one is a little bit of a follow-up on the inventory adjustment. I'd like to understand a little bit more how you see the normalization of the write-off effect. So when do you expect that we can see the normalized margins that you bring that are already at a very healthy levels in the P&L, so as to say?
I'd like to understand how much is still you still have of phase- out of the write-offs. And the second question, maybe a little bit more, you know, maybe going back to some of the Points you have already touched on. Looking ahead, in terms of value generation, you know, unlocking value potential, you did a great homework. We can see that. You adjusted portfolio, now you are going back to handling innovation. So for me, it seems to me that the main lever for you is even though you say that there is still more space for some adjustments, nowadays, the large focus, the large levers for the company in terms of generational value in the short term, let's say by the end of 2024, what do you see?
Do you see it's going to be the revitalization of the brand in terms of marketing investment or investment in innovation, or if there are other relevant things to be done in-house from now on and until the end of 2024?
Hi, Dani. Good morning, and thank you very much for your question. I'm going to tell you the first one. To start with the second one, and Liel answered the first one. You know that the normalization, we made big bets along the years of 2021 and 2022. There were large inventories that were assembled to address apparel, new categories, sandals, sneakers, and so on. And you know that these ended up generating much more inventory than actual sales. And what we have been trying to handle, these are decisions and consequences of those decisions.
Naturally, we have the duty to find the best monetization for those products that were manufactured and which are still in inventory. From an accounting perspective, I'd like to separate what is the sales and what is the accounting point of view. From the accounting point of view, we follow the usual criteria that the company has been following for many years. These are the criteria that are related to the aging of each collection, and as the collections get old and we reach the deadline of those collections, we have to make the write-offs of those inventories, which doesn't mean that this necessarily is going to take us to disconsider the monetization of these products.
So it's always a need of, first of all, looking at that specific product, understanding what we can do, what are the priority markets for those products, where we can get the best return for that products without damaging the brand or by giving discounts which are too aggressive in markets which are priority and critical for us. So there is a whole of thought about how to monetize those products without generating a new problem of contaminating the sales of new products at full price and the sale of current collection. So gradually, we're trying to place those products in market, considering those guidelines. And we have plans, detailed plans, I should say, being implemented right now to seek this monetization of products that I mentioned.
Obviously, if those plans don't work for any reasons, or if they take much longer than we think they will take and we get to the aging, if the accounting criteria arise first, then we need to make a write-off. That's why the write-offs have been part of the recurrence of our numbers, but we always open that to you. So eventually. So you can see what is a reflection of the current margin and what is only the recognition of a former effect, a effect of a former decision that was cash one day, but now it doesn't have any connection to our current capacity of cash generation of the business. I believe, Daniela Eiger, that we have made a very good hygienization of our write-offs. The write-off levels were very elevated.
We also were successful in monetizing. It was not only all write-offs. Part of the results that we have been having is through the products, including those products from past collections that are part of the results. So we were successful in that, and we have a structured plan right now with deadlines and steps to reach this monetization. I believe that a long part of this plan is going to be implemented along 2024. It's not, this inventory is not going to get much, much older. But as we execute, we put these plans into place, and we are not able to commercialize those products, they will become write-offs in our results.
And after that, we are going to have, obviously, cleaner results, and without, of course, reflecting the levels of the size of write-offs we have been seeing, which are the results of those past decisions. But we believe that a part of those plans are going to be executed still in the second half of 2024, and depending on the success of these initiatives, and we are going to make the write-offs of whatever we have not been able to monetize in the market over this period. I'm going to give the floor now to Liel to talk about to complement.
Only complementing what André said, Danny, about write-offs and inventory. The most important thing to look at is that we attacked the root cause, so this won't happen again in the future.
As I said, the reduction in the number of SKUs, half of the SKUs, or having half of the SKUs only, has an impact on this of this inventory that we eventually find it difficult to sell and eventually brings financial impacts in the future. So this reduction will, we implement it now in the collection that is going to the market now. So from now on, we should have a smaller number of SKUs of items to of the portfolio to manage and a smaller risk in the inventory to have write-offs in the future. Obviously, what, also what I mentioned between the integration of supply chain and manufacturing is completely aligned. So our sell-in and sell-out, they are pretty close.
The sell-in is a consequence of the sell-out, and that's because we implemented an S&OP, very strong S&OP process, and we are still working on that for its automatization. But nowadays, we are, in fact, capable of managing the chain to move what we have in inventory and to ensure that our inventory is not going to accumulate. That's another big impact. And the third is the example I gave about this new product, the Point, which means that all the new big bets we are going to make are not going to be made by producing millions of pairs to see whether customers will want to buy that or not. We have channels where we can try that out. We have 60 stores in Brazil. We have 300 stores in Europe.
We can test, we can try out in our stores with a smaller scale, realize the results, the absorption and acceptance of our consumers, and then move on into expansion, rather than starting producing huge scale, which could generate an inventory that will have to be written off in the future. So as André said, we are managing an inventory that was generated in the previous years, the best we can, we can do to get the best result out of it, and at the same time, we were attacking the root causes, so we are not going to have this problem again in the upcoming years. As for value generation, you mentioned the second half of the year. There are two dimensions here.
In Brazil, it is the most important moment in Brazil of the business, because we are building the inventory for this Brazilian summer, so the value generation in Brazil is the execution we are doing right now. We have to ensure that we are going to have to keep our OTIF, which is at 75%. We want to grow that level of service. We have to keep the levels of reliability and accuracy to make sure that we supply the Brazilian market in the highest demand level season, which is the summer, and which is arriving. We are very focused on that to ensure that we're going to have a strong second half in Brazil and in Europe. Europe is the second. The summer is gone. It's almost over. It will be over now in September.
Now, what we want to do there is to correct everything we did, the distribution, pricing, rationalization of portfolio, brand investment, to build the summer 2025 to be a stronger, to have stronger results than we saw in this year. So the composition of, value generation is going to come from the outcomes of our capability of, building working on those two different fronts. Daniela, André, here, one thing that I forgot to tell you about it, which is a good evidence that, of what Liel mentioned, this S&OP, much better planned, cycle. Nowadays, 80% of our inventory is composed of the current collection, either the current collection, 2023, 2024, or the future collection, or actually a bigger part of that, our 2024-2025 collection that we have just released.
So this is an inventory, the inventory that we have. When you look at the quality, intrinsic quality of this inventory, the largest majority of items has very little phase- out inside it. We still have some from the past collections, but it's a different profile of this inventory, and certainly is the consequence of this better alignment between the commercial and logistics area and manufacturing areas.
Thank you very much for taking my question.
Moving on to the Q&A, we are going to take now the question from João Soares with Citibank. João, you can proceed.
Good morning, all of you. I think there are three quick points I'd like to understand a little bit better. First, understand this comment of Europe's sell-out, which was below what you expected.
First, understanding what is the regional effects that caused this unexpected sell-out, maybe the pre-order for 2025. I don't know if you already have any kind of understanding of the pre-ordering for 2025. And the second point I would like to explore is about Brazil. Looking at the SG&A, except for marketing, is it already normalized, or are there more efficiencies to be gained? We have seen some hires. Maybe it would be interesting to hear a little bit more about these new hires. And last, how sustainable is Rothy's result that you had right now?
Well, thank you for your question, João. I will start by tackling two of your questions. André will take the other two questions.
Starting about Europe's sell-out, as we said before, Europe is a market where the brand is strong, it's relevant, there is good brand awareness. We have a good presence. We have stores that open up during summer, and stores that actually are open throughout the entire summer. We also have good distribution in department stores and sports stores across Europe. So it's a brand that is living, present, and alive in Europe. But maybe you have followed. In previous years, we reduced our investments in marketing in Europe, and as many other businesses did, we allocated this in performance marketing, trying to bring traffic into our website to generate price promotion, rather than trying to develop a marketing to build to build brand awareness. I think many companies suffered with this problem in recent years.
So now, this year, we increase it by investing in the Olympics. We open up a flagship store on Champs-Élysées, before, even before the Olympic Games. This is a demonstration of our resumption of market investments in Europe, accompanied by the best allocation of resources in the brand awareness generation, rather than investing in marketing that doesn't generate consequential good results with consumers. I would say that the results are much more a collateral effect of the previous years' smaller investments in marketing, that we started to correct, and which we'll continue to correct.
The correction is not immediate, because those marketing investments, the same way that takes a long time to reduce, to feel that's a reduced marketing investments impact to the brand, also takes time to understand that, to make the brand investment marketing gain momentum, right? So we already imagined that we would have a smaller sales, but the sell-out was slightly smaller than we had already imagined. The second is that once the demand falls, we lost the distribution compared to 2021, 2022, so we need to rebuild this distribution. So I'd say that the sell-out is the consequence of the strength of the brand, and we are working in all fronts to rebuild the brand through marketing, through execution and point of sale, distribution.
So we understand that from now on, it's going to be better, because in Europe, the cycles are annual. Because in Brazil, we can execute things almost monthly. In Europe, we need it longer. So our understanding of Europe sell-out is that we, we will continue to understand and using the same levers that we have to grow the volume. We don't have any visibility on the pre-ordering for 2025. We have just launched the collection. We are speaking to our clients in Europe right now. Usually, this happens after summer, and which means September, October, when we are going to have, visibility of the pre-ordering for 2025. And speaking of the hires, what we did is, we simplified the, the company a lot, and we changed the management model.
Before, the company was more decentralized, at each business unit, USA, Brazil, Europe, distributors, they had a complete structure. And what we came to the agreement that this was not the most efficient way of doing that. We centralized it globally, the business in Brazil, the most strategic structures, and this way, we simplified the business unit structures. One example was the price management. We had structures in the other markets and people, each one of the business units, managing pricing. We gained efficiency, we gained more effectiveness, and now we can be much more scientific, because we can invest in tools here in a global scale in Brazil. This is just one example. We did this in several departments of the company, several areas.
This opened room because reduced the level of investments in those the level of costs, but also gave us room to hire more people. So the hires that we have made in Brazil and Europe are people in the sales, so we can be even more effective. We announced it six months ago, the hiring of the commercial head in Europe, which came from Nike and had many years of experience in the market. And this is the kind of competencies and talents that we believe that are going to be able to execute our strategy of rebuilding the brand in Europe. In Brazil, we announced this week the hiring of Fernando Rosa, the current CEO of Kraft in the past four years, and he's going to take command, to step up for the business unit Brazil.
We believe he has an ideal profile to lead this operation, to ensure the competitiveness in the grocery channel, and also to grow in the specialized channels in our direct-to-consumer channel, the 600 stores, direct stores we have in Brazil. So the hirings are, in fact, the repositioning, the replacement of people that we used to have in other parts of the business and in the reconstruction we are focused on from now on.
João , André, thank you for the questions. I will follow on answering the other questions. You mentioned the SG&A, selling, general, and admin expenses. We made it very clear that we needed one first adjustment, but also that this would become a recurring discipline in the business. So the answer is no, we are not where we want to be at. We will keep on seeking new opportunities.
In addition to all the discussions, workshops, and all the work we have, we are already working with the budget. We're starting to work with the budget for 2025, and obviously, in the building of our budget, we are going to go through this journey of opportunities to simplify and to do something more efficiently and more intelligently in the application of our budget, in a way that we can make those reconnections that we are we have already, we have been making, like compressing the SG&A, where we have opportunity, so we have more resources to invest in the business, and this way, leverage the top line of the business.
I think we always have more opportunities, and this effort needs to become a mindset and be part of our culture, to seek of more efficiency on a daily basis. As for Rothy's, I think it's important mentioning that some of the effects that we saw since last year, leveraging the business costs, like freights, they are, in its majority, sea freight, so this is very important in the expansion of the gross margin. We did some SG&A decompressions at Rothy's, and we have been opening stores, and all of them are performing very well above the threshold of volume that we understand them to—that they need to be to make those stores profitable. So all the stores right now are profitable.
We have seen the business much more disciplined, and also a higher efficiency of their marketing investments. Maybe up to the beginning of last year, Havaianas had been making some marketing investments which were large, but not necessarily resulting in top-line expansion. So we started to see, after a few adjustments made, higher efficiency and higher connection between investments and top-line results. We have 10% more revenue now than we had a year before, so the collection is performing very well. The opening of new stores is doing well. So I think there are several fronts which are recurring. Obviously, it's important to call your attention for the fact that there is a strong seasonality in the stores, where the third and fourth quarters are stronger. The second quarter is usually worse in terms of seasonality.
Just to make you understand that it's not going to be a monotonic results, but we do see substantial increase in results, and we think that in average, you know, thinking of the average of the seasonalities over a window of a year, yes, we do see the results of the company improving. We cannot give you any guidance to tell you any expectations that we have for the figures. But we do see that we are having good performance. The company is performing much better and obviously yielding much better results than before. So we are excited about what we see for the results in 2024 and what we will have for 2025.
Moving on. Let's go now to the question by Vitor Pini with Banco Safra. Vitor ?
Thank you for taking my question. Most of the things I think have been answered. I just would like to explore a little bit more the marketing investments in Europe. Those BRL 20 million, additional BRL 20 million in marketing investments, was it going to happen in quarter that is going to be weaker, such as in the winter, this level of investment, since we had very little investment in the previous years, or we should see some more seasonality in the investment or in the size of this investment, which is necessary in Europe to have higher return and higher sales in Europe?...
Hi, Vitor . André here, I'm going to take your question. First of all, just to clarify, when I told you about the BRL 20 million, this is the additional marketing, additional in the entire international, not only Europe, European market. Obviously, Europe had a strong weight because we participated in the Olympics fully, which was a strong campaign and obviously puts us in the spot because the world, the entire world is watching the Brazilian team, for example, wearing Havaianas and our products. So it was an important action. We also had the campaign actions for the Dolce & Gabbana collab, which generated interesting buzz for the branding, aligned with our expectations for the collaboration. So obviously, it had a higher concentration. Naturally, in the third and fourth quarters, they are weak seasons in Europe.
So naturally, we're going to have the same level of marketing investments that we had in the peak of summer, European summer. So the natural trend is that there is going to be a phase- out and reduction in the levels. I cannot give you the number we are going to be investing each one of the quarters. This is sensitive information, of course, but you shouldn't expect the same level of expenditures in market investment in the peak of the summer, especially one that has Olympics in it and the other quarters in Europe.
Thank you very much. It's very clear. Thank you, André.
Moving on, we are going to take the question from Gustavo Fratin with Bank of America. Gustavo, go ahead.
Good morning, everyone. Thank you for taking my question.
From our end, we would like to understand a little bit more about higher marketing investments focused in Brazil. So your sell-out improved. We saw a sequence of improvements still in single digits. What do you think could be the impact of in sell-out with the marketing investments that exist right now, and why it has not yet grown as much as it could have grown? And what have been the marketing return metrics that you have made so far?
Gustavo? It's always very hard to predict and associate marketing investments and sales growth. There's many other variables involved, like distribution capacity, pricing, economic situation of the country. But what we have seen is the health of the brand. We accompany, obviously, the sell-out, obviously, our market share in the channels where we can have access to those figures and the health of the brand.
What we have observed is that the brand in Brazil is recovering its strength, its relevance, and especially with a more strategic audience, which is a younger audience. Maybe this was one of our weaknesses. With the investments we have been making since the end of last year, a TV campaign, very strong TV campaign, starred by Sabrina Sato and all the continuation of that campaign, the collab with Dolce & Gabbana, which generated a lot of buzz in the digital channels, and now the Olympic Games. All of that has been directly impacting the relevance and the strength of the brand. The brand is again realized, perceived as one of the brands that is part of the everyday of lives of Brazil.
So we start to become top of mind, and as such, we can convert this and consumers will go to the store, and they will remember they would like to buy a pair of Havaianas. And also there is another element, which is the impulse. As we improve our distribution and as we avoid that the consumers don't find the products they want, the items they want, the numbering they want when they are at the point of sale, we ensure that the impulse these consumers have is converted into sell-out. So these are all levers that we have been working on, but they are not directly necessary. It's impossible to make a correlation, direct correlation, and they are not short term, but we already see results. The indicators of brand health are improved and better.
This is one of the most important attributes for us, and we see that our presence, our market share, is stopped falling. You are going to remember in previous years, especially in 2023, we suffered, we struggled with market share in the grocery channel. This year, we are more stable. Our participation is more stable in the grocery channel, so we expect to see growth in that regard from now on. It's super clear.
Thank you, Liel, for taking my question.
Without any further questions, we are going to close our video conference, thanking all the participation, and as usual, our investors relation is open to receiving any additional concerns that you might have in the future. Thank you all very much. Have a good day.