Good morning, everyone. Welcome to our video conference call for the earnings of 4Q 2023 . Today we have with us our Strategy and IR Director, Bianca, and our CFO, Rafael Sachete. Before I begin, I'd like to congratulate all women. Today is a very important day. All women all around the world, women that really make a difference. I read something today that's very interesting, that all of us came from women, so we're all very grateful, especially our brands, that for 52 years have been worn on women's feet. In a more comprehensive manner, our year 2023, before I talk about 4Q specifically, was a striking year. Once again, it shows our capability in adapting, how fast and agile we are to understand the scenario and understand important lessons.
We have growth of 45%, the transformation of the revenues in our company, a number of interesting initiatives were implemented across 2022, and in the first quarter of 2023, we found a more complex market with a need to adapt so that the main focus would be robust growth of our top line, but even more than that, improving our operating efficiency so that we would improve our margins. I'd like to highlight that in 1Q 2023, our margin was pretty much flat compared to 2022, and 2Q, we leveraged 0.3 basis points, and in the third quarter, 200 basis points, and then 220. The company's at a different level of EBITDA margin. We lowered the working capital over net revenues, especially in accounts payable.
That's why we have very solid cash flow, BRL 275 million invested in CapEx and almost BRL 200 million in acquisitions, BRL 296 million paying dividends and interest on loan capital. So in 2023, in addition to maintaining our growth, we really focused on improving our financial performance. That was our commitment, and I'm sure that all of you remember that during all our interactions, we were very emphatic saying that the priority for 2023 was to grow operationally and execute. So that was my opening remark. After that, we'll present some more specific highlights about our brands and channels. Rafael Sachete will talk about the financial highlights, and before Q&A, we'll give you an update up to the limits of the law about the integration process of our integration and merger with the Grupo Soma.
We have the attachments if you'd like to look into the details of our brand and essence. Now going straight into our important highlights. Specifically about 4Q 2023, BRL 1.8 billion in revenues. That was our record. Almost BRL 2 billion for the quarter. In 2019, we had BRL 2 billion for the whole year. That's just a comment. So it really shows that Arezzo&Co in 2023 is completely different than our track record. Interesting leverage and gross margin, that's what helped. Top lines, less sales on sale. We had less promotions compared to 2022, and during the entire fourth quarter, we did strong work on gross margin with a leverage of 240 basis points that led to gross profit growing 2.8% more than the gross revenue.
That led on to recurring EBITDA of BRL 221 million because of the efficiency and expenses and an increase in 90 basis points that includes the U.S. operations. So the growth in the EBITDA for Brazil is 200 basis points. Net income, BRL 126 million, much more growth, and ROIC 27.4%. I won't mention all these figures, but we are very proud to have exceeded the mark of BRL 6 billion. That was pretty much a dream and thought it was unattainable. We'd like to highlight our five-year business plan, and with Reserva in October 2020, our revenues for BRL 6 billion would be for 2024. So we are one year ahead of our business plan thanks to our capability in executing with strong, a lot of power that we put into that in our performance. That's very strong at Arezzo&Co.
Recurring EBITDA for the year, BRL 801 million, net income, BRL 420 million, and our ability to have invested in CapEx and organic growth, paying the two acquisitions, in addition to that record distribution of dividends. So that shows that we have strong cash generation capability. Customers, 5.6 million active customers, distribution in monobrand stores, 1,062 points of sale, and multi-brand partners that really support the capillarity of our sales at achieving almost 8,000 points of sale and record sales, 20.6 million pairs. Now about our brands and channels, I have some highlights. Our mother brand, the brand that started everything since 2021, has been on a continuous process of strengthening its brand, making it even younger. We have guerrilla marketing focusing on this brand to ensure that the brand experience is the best as possible.
But I'd like to mention the recurrence, continuity, and consistency of three people, in addition to the dozens of influencers that work for our company. The Arezzo strategy since 2022 was based on having Gisele Bündchen as the star that opens up the campaign when we switch campaigns. That was the day before yesterday here in Brazil, and for the first time globally, Gisele Bündchen is also being used in the U.S. And then we have Silvia Braz, who has the strong power of conversion. They want to wear what she wears. And Lívia Nunes , who is more about a fashion profile. So there are different profiles in each celebrity that you use. So we have BRL 433 million revenues at Arezzo, and the distribution of the Arezzo brand is B2B, and the revenues in the total generation at the end is over BRL 3 billion.
So Schutz is the brand that we're really focusing on. It's been growing, and in the fourth quarter, after the investor day, we had a conference with Itaú Bank, and I mentioned it was very clear about the Schutz moment. So there was huge growth in 2021 and 2022 in multi-brand distribution, distributing a profile. That's different. We began rebranding. We recovered the brand team. And in 2024, we're launching the winter collection with a transformation. That's still in the beginning, but we're ready with the Schutz plan. And across 2024, you'll see many changes, especially in August, when we're ready to renovate three stores in São Paulo and two in Rio de Janeiro. So we have new branding focused on lifestyle. That's a process that we really believe that in 2024 will bring on a lot of growth for Schutz, especially the brand.
In the year, BRL 1.1 billion in revenues. So over BRL 1 billion in Brazil is rare. And Anacapri, after investor day, even though there is growth, it's very much growth is very much focused on sell-in. So you can see that the brand pretty much doesn't have B2C besides the e-commerce, and there's the mono-brand store and franchise and multi-brand with a lot of orders. Orders are growing with solid growth of 21%. And AR&CO, I have to congratulate Rony and the entire team that are responsible for their legacy brands. So they achieved 174 stores in 2023, growth of 100% pre-deal with Arezzo&Co, which is mainly focusing on the franchise channel, even though revenue isn't that high. It gives you capillarity and even helps in e-commerce.
So when you open a store in a given region, e-commerce usually grows 50% more than the average of e-commerce in that region. So we know that opening stores in strategic areas also help to grow e-commerce. And in the year, AR&CO achieved BRL 1.5 billion in revenues in 2019, 200 and some BRL. So 4-5 times the growth in 2023, solid growth of 26.3%. And now our concern is to maintain the brand desire, be careful with distribution, be selective where it's sold, especially in multi-brand. Obviously, that can have an impact in what we already had in the fourth quarter and brand generation in that channel. So we have some deliberate actions in the brand. We know it's a very assertive brand on that path to 2154.
In sell-out, the sales of franchises and owned stores, and D2C, which is outside the sale of multi-brand, we had solid growth more than the total revenues, 15% for the quarter, and in the year, BRL 5 billion, so a growth of 16%. That is very interesting. It shows how our institution is very balanced in the four main channels in which we operate. So it's basically 1/4 per e-commerce, which is very relevant to consider what happens with our brand, 1/4 of owned stores, 1/4 of franchise, and 1/4 of multi-brands. So it's a multi-channel company with operating efficiency in all the channels. We have efficiency edge with e-commerce, and one of our assumptions is a relation of one company in the science of franchise that frequently is doing well, well, and our multi-brand in a B2B system that we own.
So we can have the store owner access our system and purchase, eliminating intermediates and increasing our margin and our sales cost and also speed. I would like to talk about synergies, and this is a great investment. Now I will pass to Rafael Sachete. He's going to talk about the financial highlights in our fourth quarter and the year of 2023.
Good morning, everyone. I would like to also congratulate all women, buyers of Arezzo&Co., our stakeholders and investors. Happy International Women's Day for everyone. This is our financial data. We had a great quarter record in sales, reiterating each channel, the positive performance of our brands in the B2C with a 29% growth in e-commerce, 15% growth in our own stores, strengthening the moment of the brands and direct connection with our consumers.
As mentioned at the beginning of the third quarter in multi-brand, we've been doing a selective adjustment on the base, especially AR&CO, which made the channel be flat in the fourth quarter. But this is a short-term trend, and we see a year of 2024 with good growth within the multi-brand channel. Next slide, we also have our revenue of the year, a solid growth of 16% inside the group, focusing greatly on the direct sales to consumer, B2C. Our e-commerce grew 24.7%, and our own store grew 21%. In franchise and multi-brand, solid growth in 11.9%, franchise and 29% in multi-brand, which strengthens the capillarity of our business model of Arezzo&Co according to each distribution channel. Now our financial statements. I have already talked about the revenue.
We had a great performance with 240 basis point growth plus direct sales, which increased the value of sales and consequently our gross margin and also a cycle that we mentioned and informing our investors for the year of 2024 where we would focus on profitability of the business. Throughout the whole year, with fewer sales, fewer discounts, especially on Black Friday, where we had a robust growth with better margins than we obtained in 2022. About the gross margin, we had a drop in the U.S. operations year-over-year, and for 2024, we have a trend of consistent improvement in our U.S. operations. For SG&A, this is an important comment. This slide shows a growth of 11.9%, but in 2022, we started at a base of BRL 20 million, which migrated in expenses for depreciation and amortization of rents and leasing.
This was commented in our earnings release in 2022. Excluding this effect, the growth would be 8%, being below the gross revenue and net revenue, which shows our consistency of AR&CO and meeting one of the principles, which is to take care of SG&A and cost management and keep it growing in levels lower than our revenue. Our net income, we had good leverage, which is an important part of the company, and a cycle of high financial expenses, especially because of the interest rates, which is still higher than we imagined, but we were able to leverage this financial growth. Now our ROIC, I would like to comment that we had a growth of 34% year-over-year, and capital allocation and working capital, strong work in inventory, which has been dropping consistently quarter-over-quarter.
It's important to mention how much we have to be careful in this inventory adjustment in fashion, and we have to do this carefully aiming at the results. In 2024, we will continue working consistently to work our levels of inventory days. For our suppliers, since the first quarter of 2023, we've been mentioning that we had an adjustment in the first quarter, granting more time for the investors, and we would go back to the base compared to last year. We were able to achieve that and reduced and improved our number of days year-over-year, and this tends to be our deadline for 2024. We had a slight growth in number of days of the distribution center with a little bit more time and consumers in the B2C. This wasn't a change in policy.
So as you can see, for the year of 2024, these are the same figures that we had in 2023 with the structural analysis of working capital over revenue. So our ROIC, 17.7% in accounting. With these adjustments, working capital, we had the lowest capital allocation in CapEx in the fourth quarter year-over-year, generating great cash in the period. We reduced the leverage of the company for BRL 0.7 billion in available cash and net debt of BRL 25 million. So I would like to pass the floor to Alexandre for our association with Soma.
Congratulations, Sachete. And for the entire team of financial management that were able to use our resources the best way possible, generating a very interesting amount of cash, very well employed for our future growth. Before we go to the Q&A, I would like to update our moment of Arezzo&Co. T hat goes beyond the details of the transaction in our combination association with the Soma Group. Before I explain more broadly, I would pass the floor back to Sachete so he could give us some flavor of the regulatory implications before we talk about the consolidation of this closure.
As you all know, we signed the association contract in the beginning of February. Afterwards, we worked with our financial advisors and counsel, and we started with our request of acquisition on February 29th. The best understanding and information that we are receiving from our lawyers and assistants, this is a transaction that should be approved by the authorities in a time period of 30 days and 15 additional days for legal oppositions from third parties. So we're talking about 45 days. Our expectation based on our counsel is that by mid-April, we will have approval. Then we will have the assemblies, and after approval at the assemblies, we will start adjoining the companies. But after the approval by CADE, we can start working at a more operational level, more strategically, and even capturing synergies of revenue or operating together with strategic evolution.
Congratulations, Sachete, and Gabriel and the entire Soma Group for the efficiency for being able to start this process so quickly. I will allow a few minutes from your time to give you a more broad view of why we did this transaction. We were together on February 5th for our announcement. Since then, the company focused on its internal audit for the closure of 2023. So I would like to talk more deeply about why we're doing this. Arezzo&Co is marked by eras in the '70s. After 1972, when Arezzo was created, it was the foundation of the business.
In the '80s, we were able to implement our production phase with 1 million pairs of shoes produced in the company that started from scratch. In the '90s, 1991, we opened the first Arezzo store where we call the era of retail. After that opening, we opened many franchises, and we were pioneers in franchising for fashion in Brazil. After a few years, Schutz started in parallel to Arezzo. In 2007, we started the corporate era. 25% of this new company, Schutz, combination with Arezzo, aiming at having more capital for growth and also learning about strategy, a better structured budget, meritocracy, and governance. This was very positive. After our IPO in 2011, we started consolidating the shoes industry in Brazil.
We started with a market share below 15%, and during the decade of 2011 - 2019, we called the era of consolidation of the shoes industry with acquiring more than 30% of market share. Right after a few months after the challenges that the pandemic caused in the companies, and we were able to adapt very quickly to that scenario, we started our organic growth. So we tested our capacity of integrating with Vans. And after our association with Reserva, we were able to join with a company that had a very good awareness with young people. So Arezzo&Co, with Rony from Reserva, implemented this new era. We're one year ahead of our strategy, which generated very good results. Since then, we've tested acquiring smaller brands with a very good positioning and a very clear positioning with the consumers.
But the scalability of these brands has a much longer timeline than we needed to continue this inorganic expansion era. And we wanted to bring the best company of congratulations, Roberto, and the Soma team, which were able to build a platform of brand that is excellent, generating a lot of value. So instead of continuing with these small acquisitions, we were excellent leveragers of Reserva. So that's why we joined with Soma Group. When they asked me about this movement, it reminds me of our roadshow in 2011 where investors asked us, "Why are you going public?" And my answer was, "Well, I would like you to redo we ask your question." We have 25% for the investment fund, and the IPO was a consequence of a movement. When you bring investors to your company, you not only want to grow that invested capital.
The IPO in 2011 was a consequence. 2007 was the decision that led us to the IPO. Our decision to grow new markets, expanding the entire addressable market, first in men's apparel. We have to think why Arezzo&Co decided to do that. We're creating this new base, this new company in these almost four years of Arezzo&Co. And now, we're giving continuity to this movement. It really is a continuity of market that is the wardrobe of a couple. We have a percentage of less than 15% of SOMA. It really focuses on men's apparel. I think this gives you a little bit more flavor. Now, about the transaction, I think it's worth saying that, of course, we have this separation of the companies, and two of them, we can highlight the leadership in shoes and handbags.
So people from the Birman family, 27 years with us, and we started in 1991, and Rony from Vertical of men's apparel and Thiago Hering for apparel with this brilliant family that knows everything about clothing. So this shows that the cultures and the foundation of the companies will be preserved. And in parallel, we have four C-levels that support our business: a head of operations, a head of technology, of management, e-commerce, and our strategic CFO. So all this was communicated. We have Graciano, Rafael, Maurício, Marco, and an amazing team that will work together with the best processes so that we can operate the most efficient way possible. So we're very confident of the brand we design. And since the announcement, we are structuring the dream team. We have a consulting firm diagnosing all these levers to generate value, and we want to generate revenue for the business.
Roberto says this a lot, both in gross margin. We're going to focus on revenue, and we're not that much concerned with operating efficiency and generating cash. But the Grupo Soma wants a desire to be best in class in women's apparel. They don't sell shoes and handbags. All the fashion brands in the world have a minimum revenue of 25% in shoes and handbags. So we know that the day we have this approval from CADE, we will have a dream team ready for handbags, shoes, and a new unit to manage products that is ready to work with the Grupo Soma brands. And we know this will be our first play.
In addition, the Hering that was brilliantly included in the Soma Group, creating levers and support for the business to improve sourcing and improving distribution processes, improving store format layout, and Thiago focusing on that movement as a CEO and using all the legacy and learning from his father, Fábio, that was great for Hering. Together with Arezzo&Co, I've been working together with him and using the expertise that Arezzo has in franchises, more verticalized and supply. It's important about the new plant that we're going to have in Serra. We're going to have 21% of sourcing. So in our origin, as an industry, we are ready to support customers and adding more value and speed for our consumers and to continue that brilliant work that Soma has done with Hering and get even more value out of that.
All the initiatives for growth that are in the women's apparel business, especially Farm Rio, I had an opportunity to learn more about on-site operations. What they did with Farm Rio is amazing. Now Roberto is going to have more time to allocate in women's apparel verticals. We know that they will have very fast growth and notable growth. You can see all the work that they have done through the desire that consumers have for the brand and operating efficiency that's also being considered. So all processes are well mapped out. We have three waves to implement. The first one that goes till the end of 2024, and then 2025, 2026, we have the third wave that aims at a deeper change in the supply model for the apparel business.
In that case, already had learned more from that chain, from cotton up to textiles and creating the apparel so we can decrease the employee capital and inventory levels. That's much higher, actually, in shoes. That's a future wave, but we don't see any technical barriers that would hinder us from improving that efficiency. So now I'd like to begin our Q&A session.
Perfect. So the first question is from Thiago Macruz from Itaú Bank. He's asking, "We see a positive dynamic of gross margin in this quarter. I'd like to understand that dynamic better. How much was a mix, and how much was a change in the promotional dynamics?"
Thank you, Thiago, for your question. We have three priority effects regarding gross margin. First one is an increase in gross margin. I can say 55% of that increase came from multi-channel and 45% because of the improvement in the discount performance and support to franchises regarding the gross margin. We also have the U.S. operations and a drop in gross margin there. The mix is 55%, 54% coming from a mix, 45% less discounts, not only in B2B but also B2C, and also the U.S. operation.
Thank you, Sachete. Next question is from João Soares from Citi. He has a couple of questions. I'll read the first. "I'd like to hear your outlook for 2024, particularly the perspective for footwear and handbag volumes. I imagine that the volume would be the main driver for revenues in 2024. How do you expect to expedite that metric? Do you have any expectations of changing the price in any of the brands, or are you comfortable with the current levels?"
Thank you, João. This is Alexandre. Thank you for your question. I'll talk about volume. So in 2023, was it affected by the closing of My Shoes operations? That was a strategy because in footwear, we didn't want to go into that class of C. So it was a 50% drop in volume. In addition, I'd like to highlight, when you have an improvement in full-price sales, you need less volume because there's no use to grow volume and then sell at a higher rate of discounts. So I'd like to say it's interesting that concern from analysts. Since our IPO in 2011 showing our volume has the industrial track record, most of the companies that operate with brands in our industry, I don't have to mention the names here, they do not disclose their volumes. No luxury brands talk about volume.
So we're not a beverage industry that has efficiency. So if volume drops, you will increase the cost of goods sold and then the margin. So I'd like to say that our concern in terms of efficiency in full-price sales and decreasing leftover products and the improvements, going into your other question, that won't have any price changes for 2024. The prices are flat in the sell-in list, but the important thing is in sell-out because you have less discount. Your average ticket goes up, and that's our objective. February was marked by high or less sales in markdown, and we had a growth at the end of 10%. So that dynamic of disclosing volume, I don't think you should consider that it's something that would change the performance and market share and consequently the financial performance of Arezzo&Co.
Perfect. Next question from João is from AR&CO. He's asking, "DTC is clearly doing well. It'd be interesting to explore the drivers in this case. You've shown relevant growth in the number of pieces sold, and I imagine that that has been one of the important drivers for the quarter. Is that correct? How do you see the growth in DTC for 2024?"
Perfect.
And he's also asking about multi-brand.
Yes, step by step. Let's take it on a step-by-step basis, Bianca.
Okay. I'll start off with AR&CO. João, once again, thank you for your question for AR&CO. So DTC growth is strongly supported by e-commerce growth. E-commerce is very strong in AR&CO, thanks to operating efficiency, especially the Omni aspect, which almost 40% of the sales generated in e-commerce are delivered by the store. Rony's excellent, and his team was excellent to implement that idea. The Reserva sales team is modeling the digital sales that are delivered by e-commerce. Like I mentioned, when you open new stores in locations where the brand was not seen, consequently, e-commerce will grow a lot in that region. So that's about DTC for AR&CO.
And about future growth for AR&CO, I'd say that we're one year ahead of the business plan, and we have a growth that's mainly focusing on health and growth, looking at the long term, what would be structured growth for 2024. So the brand really focuses on the Reserva brand, which is the mother brand.
You've probably seen many cases, especially when you have iconographic brands and symbols that represent the brand. When you see everyone wearing that brand in the midterm, it lowers sales. We don't want to lower our Reserva sales. Therefore, we have to limit the growth for the long term, and that's fundamental. We have Oficina, and that has a huge potential for growth, a pipeline of 30 stores that will open in the next 2-3 years. We also have an important initiative that's already mature, and we're defining the best multi-brand model, which is Reserva Go. Today, it's mainly focused on sell-in and sell-out. The monobrand Reserva Go have to fit the format or in the mix model through accessories, backpacks, and adding to the shoe universe. That said, the focus of AR&CO is efficiency in operations.
In 2024, the growth will not be the same because we're reaching the limit for the brand. That's part of any brand. It's not that we're slowing down sales. It's that we have a market share that's already bringing in what's enough, what we deem is enough. Then having the freedom to focus on men's apparel in 2025, we can focus on new brands that would be a part of men's fashion: Oficina, BAW, and even Reserva.
Okay, perfect. Still about AR&CO. He's asking about the multi-brand channel. At what point are you in the strategic review process? Are you comfortable expediting the channel? Can you imagine a great balance of the multi-brand mix with AR&CO?
Yes, we are comfortable. We're still not focused on growth. We're focusing on stability. We're selling to some marketplaces and online retailers. According to our objective, we didn't have the profile for continuity for the brand. We've reduced some cases in multi-brand and opening franchises for the brand to encourage the monobrand desire. And in 2024, maybe the first quarter, the multi-brand Reserva sales won't be like the first quarter of 2023, but for the year of 2024, we will see stability in that. But it's not the growth that we expect in that channel.
Perfect. Last question from João is about taxes. So about the potential tax increase given the Provisional Measure 1185, what's the current company position?
We see some companies obtaining in court order that will preserve the presumed credit. That's an interesting point. Let's go into the details for Arezzo&Co. There's no more appeal that would remove the social contribution tax, and those were judged in 2019 and 2020 by the Supreme Court. We have an ongoing conversation in reading that environment with our legal advisors about that provisional measure. So they're following that closely on how courts will behave in that based on case law because companies that have presumed credit and companies that no longer are entitled to appeal, they shouldn't have to include the income tax and social contribution tax, the amounts relative to those benefits.
So the company is monitoring and analyzing that on a continuous basis until we believe that our actions are valid and they should be greater than the new regulations. So we'll continuously monitor the evolution in court of those actions or file new claims or new claims on behalf of our company.
The next question is from Irma from Goldman Sachs. She's asking, "Could you mention more details about how you see the evolution of the shoes brand in 2024? As of when, can we count on more growth, and how would that impact margins? And what are the learnings that you're leveraging to avoid any cannibalization against any brands?"
Thank you, Irma, for your question. I have an invitation to look at the details in that. So I'd invite you to come over to Arezzo&Co and talk to me and Luciana and the Schutz team because there are a lot of details in that. So I'll just give you a high-level vision of the moment that the Schutz brand is going through right now. And as the Schutz founder, I'm the person that's most interested in having the brand being the fashion desire that it has always been. And in the past years, it's been losing that because of growth.
When you think of Coach brand in the U.S., that happened, and now it's a case of a comeback. The Tapestry Group, for instance, brought Michael Kors into the Coach group, and that's very much based on using the logo to sell products. Schutz grew a lot based on some products that make the logo very vocal on products and a lot of desire in multi-brand. It's essential in that market, but it can be done in a more sophisticated manner. The improvement and the evolution of the brand desire of Arezzo was through this deliberate strategic plan. The year that we started in 2021, 2022, with the evolution, we had an objective of also improving the brand desire for Schutz, taking it to the lifestyle concept.
So the plan is still the same, meaning bringing in apparel, decreasing the product offer and average price more 15%, and increase sales through the categories. So the plan is the same, and we're executing the same plan from 2022 and 2023, but it wasn't enough to achieve what we wanted in a faster way. We've reviewed the entire execution. We've had important changes in management. And today, what do we expect for 2024? We've hired an Italian branding agency, which is a result from the learning experience with Paris Texas. We started that out in January. In February, we had an immersion with the entire Schutz team in Milan. So rescuing the DNA because Schutz is Schutz. We don't really have to change much. It's about bringing back the essence from the brand from 2010, a bold, sexy brand.
Sexy and not sexy, for a while, some said it was vulgar, and that came back in style. You see the international brands that have this product profile are growing a lot, and you see a lot of transparency now in February and March and bringing back femininity. Schutz is great at that type of positioning. So it's been designed for the summer of 2024. The architectural project was not successful that we inaugurated and started in the first quarter of 2024. So now we trust that what we're designing, also by the Italian studio, will give us an incredible brand experience and inaugurate five stores on the same day in August 2024. So you'll see that. The winter campaign, you can check out Instagram. You'll see a younger brand, a more feminine brand. We have the biggest international model called Amelia Gray.
She's a model for the biggest fashion brands in the world. She's from the U.S. originally. So there's a long-term maturity process. And 2024 will be brilliant for Schutz, but it's going to be on a step-by-step basis. You asked for some more details, but if you could visit us, we can give you some even more details.
The next question, still from Irma. She's asking, "Already considering the future and with the merger with Soma in mind, are there any projects or brands for which you're studying a potential simplification or even closing to reduce com plexity?"
Yes. Small brands we're studying doing that, but that's an ongoing project. But we have to know where to focus energy. So Roberto can talk more about the brand, what is happening with some of the brands. We had changes in the brand's creative for the 2024 collection, so it's a very important synergy there. Arezzo, Farm, and Reserva are the precursors of crescimento. So markets that are very big brands that will drive growth. These are the brands that we need to continue growth. Hering has a very solid base today with very efficient operations.
You will see for the winter a change in Hering to be more fashion, a cleaner brand to drive desire for the brand. The brands that I didn't mention are those brands and the Anacapri I had mentioned, but our business unit of the brand and the head of the brand, we need the executives from the brand to pull growth. The levers are the ones that I will be focusing on. But it's very clear that our capacity of managing a large brand portfolio is only possible because of the organizational structure with the teams, leadership, and marketing teams. And that's how we expect to keep and foster growth in general.
Perfect. Next question from Thiago Macruz from Itaú. He's asking, "A very good job was done with expenses in 2023. How much space do you still see for this type of initiative in 2024?"
Broadly speaking, Sachete can give you more details. We reduced almost BRL 100 million in our budget for SG&A for 2023, and this does generate efficiency. We think that the most part was already done. We're creating a new strategy that will include this giant in fashion in Latin America. So for 2024, we will create this holding. Although, obviously, we do have synergies in the short term. We will have a duplication of expenses, which is part of it, and also investments with the branding company to create this identity. So it's all part of that process. We're ready for those expenses. But in general, our due diligence for operations and gaining efficiency in expenses is very extensive, and it will continue to evolve.
Excellent point, Thiago. The expenses evolve in time, and we have a team that continuously takes care of that. As Alexandre said, the main part and adjustments that we have to do in the structure and the brand portfolio was already done. We have a very confident vision of our growth and revenue of the company. So with this merger, this is a huge driver that will bring value and revenue.
We are doing all the due diligence so that this growth doesn't increase the growth of structures and expenses in the same proportion. So we will have important leverage on SG&A due to this growth of revenue and doing some reduction and demobilization of our structure. It's what happened with AR&CO. It grew 5 times its revenue and consequently had a reduction of expenses over net revenue that was very significant, and we can generate value for our shareholders with that.
Perfect, Sachete. Thank you. Next question, Vinícius from UBS. He's asking, "How are you thinking about passing on prices regarding the potential increase in taxes for investment subventions?"
Well, talk about presumed credit. So we're monitoring very closely and seeing a more favorable scenario for those companies that have assumed profit. This is something that we've been working on. We know that some jumps in price is something we would never do, but we might have a line of product or a specific brand in which we will adjust pricing. We've done this in the past two years in one way or another. So these price adjustments will be monitored, and we will monitor the impacts of these tax changes in our financial statement and propose some actions of small price adjustments in other brands. But in the short term, we don't see the need for the Arezzo&Co brands for the moment.
Perfect, Sachete. Thank you. Next question is from Pedro Pinto from BBI. "I would like to listen in more details how the operations in U.S. will work in 2024. How much of the fourth quarter should be impacted on the following quarters? What are the operational adjustments that still need to be done?"
Alexandre here. Thank you for your question, Pedro. The adjustments were made. We closed two stores that were reducing our bottom line and reduced the structure on site in the U.S. Synergy with some other areas of AR&Co in Brazil that were pretty much separate last year. A reduction of investments. So you can expect a slight drop in sales. It might even grow the fourth quarter, but will have some impact in the first quarter of 2024. A change in the bottom line, which was our focus, and trying to reach break-even and even positive results in the next quarters, and strong maintenance of e-commerce, which is where we have the best margins of better management. We're very close to the department stores. According to the sales in February and the collection that will be delivered in August, already showing growth.
So we know that this year is a year of instability. It was my fault. I invested a lot in the past years in the U.S. operations so that I can have time in this new movement with the Soma Group. Our allocations for the U.S. operation will be reduced. Just some more information. The closing of these two stores alone reduced our occupation cost to $2.3 million per year. So it is one of the ways that will help us to pave the way for the break-even in the second half of 2024.
Perfect. To respect time, I will only take two more questions. Next question from Eric from Santander. "Looking at the leverage, it follows a very comfortable level, but we see a more relevant volume in 2024. What are the plans for these due dates?"
Arezzo&Co always had a profile of low leverage. We've been working short-term for lower costs, but now, after the merger, we have to structure better and look at a long-term leverage of the combined company, which would also be comfortable, but maybe three to five years of debt. And we know from the media that Soma just issued a longer CRI. So I think that that's not something that concerned us. Credit conditions of Arezzo&Co are excellent, and the credit market is still very open for us, and the costs are very competitive. So we're very comfortable with this.
Thank you. Last question from Pedro from Safra Bank. "What are you thinking about allocation capital and time between the brands? Is it the business as is or AR&CO with Soma's merger? Could you please answer us?" Pedro.
Well, I'll talk about both. About Arezzo&Co post-merger. Okay. Considering my time and energy, Roberto, not having Hering under him, he will be able to dedicate time to the women's apparel brands. So we have this rebranding moment of Animale and also Farm. Allocating capital is still being analyzed. And we just opened a store of Farm in London with excellent results. The second one will be opening in Paris so we can explore and benefit from the Olympic Games. A franchise also opening in Dubai with a local group that brings international brands to the Emirates. So a greater allocation with that. About the total of the company, the Arezzo brand is opening a new architectural concept at Iguatemi Mall for Mother's Day, going beyond BRL 24 million in sales per year, which is a huge success. We believe in this architectural concept, and it will be very positive.
We have an important allocation at Schutz stores and continue to expand other brand stores. So if I put capital, I need to invest time so these two run hand in hand, as I mentioned before. So in a nutshell, allocation Farm Rio, Schutz, renovating Arezzo architecture. And that will increase sales so we can roll it out. And those are the main players to allocate capital. Thank you.
Thank you, Alexandre. Thank you, everyone, for your questions. The ones that we didn't answer, we will answer afterwards.
Thank you, everyone, for being here for such an important moment. The year of 2024 will be one that will go down in our history. The stores are amazing. The results in February and March are amazing. So I'm sure that you will fall in love with our products. Happy International Women's Day for all of you on behalf of Arezzo&Co. Let's go towards 2054.