[Foreign language]
Good morning, everyone. Thank you for participating in our video conference call for the results of Q4 2024. I have with me our CFO, Rafael Sachete, and our Investor Relations Director, Tobias Stingelin. Before I begin, I would like to thank our 24,000 employees that have embarked on this flight and are taking flight to 2154. I would especially like to thank our Board of Directors, who have been leading this company with good governance, with a new shareholder structure. A special thank you to our Chair, Pedro Parente. I'd also like to thank all our shareholders from this company for our trust, especially Roberto Jatahy and all the analysts, investors that have been with us since 2011.
We are extremely proud of playing such an important role in being the stars of a very bold movement of consolidating Brazilian fashion, one of the biggest industries of the economy, which in many developed countries are the biggest, especially in the European region. When we consider Brazil as such a creative country with a pipeline of people, suppliers of raw material, consumer market that is so big in Brazil, with the biggest shopping centers in the world, where men and women love fashion, they love to feel good. Therefore, a very wealthy industry, which up to recent times was very unstructured and even family-owned. With Azzas 2154, we have a new era of making the Brazilian fashion more professional. Our dreams are big. Our dream is to turn this industry that employs millions of people into the engine of the creative economy.
With that, the entire industry of the creative economy, where we have producers, photographers, celebrities, and artists, is playing the role that is indirect and making so many stars and celebrities well-known that have fashion as their main stage. We just had the Fashion Week in Europe, and you can see the example of a major event in the Louvre with an exhibition about fashion, with everything about that. We are talking about dreams, long-term ambition, and that is the role of the Azzas Group. Now, dreams are for entrepreneurs, but now let's get down to business for investors and analysts and talk about money. In general, our results are mirroring our strategy. Our strategy for 2024 was complied with. It is no surprise to us that in Q4, for instance, we had excellent results in growing our revenues and felt compressing our net income EBITDA margin.
That's no surprise to us. That was our plan. How would we integrate such big companies, two big companies, and let the creatives make things happen with their being free to be leaders with a leadership framework and generate synergies in such a short period of time? We are very comfortable with the results as we have great visibility that as of 2025, and even in the beginning, this vector will begin to change. Among the highlights I'd like to mention, and we've always mentioned that since Azzas' day, we have one of the biggest vectors of growth with rates greater than 17% and 20%, each one in a different time, in a different moment. Hering is rescuing, bringing back its legacy. As you can see in this beautiful picture, Farm is at its peak with international strength reverberating into Brazil.
Now let's go into the presentation. Those are my highlights. I already mentioned some of them for 2024. I have mentioned the transformation of Brazilian fashion in going into the addressable market. Here, it's worth noting we've classified A and B for bags and shoes, men and women. This is not the entire market, BRL 71.8 billion. Our results, plus our revenues and sellout of franchises and multi-brands, we have over BRL 20 billion in revenues. That means we are by far the only structured player in such an important industry in the economy, where I mentioned the structuring and autonomy of the brands with important information about growth and expediting our growth. We have from 12.2%-15.1% of growth.
As we mentioned since the beginning of our Azzas day, among our many strategies is the growth of the Hering brand, mainly focused on branding and creating desire, but not reinventing the wheel. I do not believe in a turnaround. We are just rescuing the bold essence of Hering. That was well done by Thiago Hering and the entire team. He is the one that lit the fire and brought in that spark to take in deep initiatives and work hard to really change the vector of Hering and reaching 17.8% growth in this quarter. As I mentioned, the Farm brand living its magical moment. 2025 will see many interesting things.
About our dear Reserva brand, I'd like to thank Ronnie, the founder, the visionary who had an idea of starting off a men's brand from scratch and created such a pleasant icon, which is our Woodpecker that played an essential role in creating the brand and knew how to bring in an investment fund in 2017. He knew how to sell that to Arezzo and Co., who exercised and fulfilled his contract and now decided to take a different path in his life. We wish him all the best. We do have to take an important step to show that a well-structured brand, processes that are well done, and a multitasking team that is engaged with the senior leadership is fully capable of maintaining good results, as you can see here. On the next slide, I'll talk about Reserva's priorities.
About the Azzas platform creation, our first objective was to integrate the financial areas. We started to implement revenue synergies such as the fast and bold launch of footwear for Hering and Farm that are already the best sellers at Farm. February's results are amazing. Over BRL 3 million in sell-in, BRL 4 million in sell-out. In February, we sold pretty much what was our Q4 for Farm. Their icon products make a difference. In Hering, a more democratic brand, we're still looking for that product, and that's part of the deal. Just to give you an example, when I created Schutz in 1995, it took me four years to find our icon. In Alexandre Birman brand, four years to figure out the Clarida style.
We know that within our creative capacity and the strength of the Hering brand, shoe wear will be a relevant component of revenues, as we see that in Reserva. Now talking about 2025, given a robust area of FP&A that currently has detailed controls separating each business unit, each brand, and each revenue generator, such as franchises, multi-brand, has mapped out the fixed expenses of each brand, follows the corporate expenses of the business unit. We have developed a budget process with a well-structured approval process, four months of monthly meetings to be approved by the Board of Directors in December. We are kicking off 2025 with a roadmap that is very clear of the initiatives that we should achieve in order to have excellent results. Now, a little more about 2025. I would like to highlight our strategies. I'd like to start off with the main priority.
In a volatile scenario with very high interest rates, even though we're restless and always like something new, and we're constantly pursuing alternatives to grow our revenues that has brought us this far, this year, we require more diligence in capital allocation. We need more financial criteria to define and decide which initiatives will bring us the best IRRs to maximize our cash generation. Now, separating the main objectives in each of the business units. In shoes, our legacy established by my father, my dear father in 1972. The center of gravity is creating products, interpreting trends, and bringing them into the sales, fast turnover of store inventory, and the monobrands, multi-channels and franchises, and make it very robust and being very strong in multi-brand. We need to recover the historical growth.
Since our IPO in 2011, we have a structured CAGR of 8%-10%, and that's our target. In addition, we have some redundancies in corporate expenses that will be eliminated now in the beginning of this year. We have something new in, or as a result of benchmarking, and one of the good practices in our brands, and one of the strengths that we have, and based on what you want to know the most about how much the sales will get and the internal rate of return, but in an indirect way, it generates a lot of value. We're testing. I'm going to show you some pictures of a mega Arezzo store, and I'll give you more details later. Women's apparel. We have practically two segments.
We have one segment that we call the premium brands that has Animale and then Cris Barros as a base for revenue, and now Carol Bassi and Maria Filó that comes at an excellent momentum. These brands aim at maintaining constant evolution. We just opened a new store of Cris Barros at Iguatemi Mall. I would invite all of you to go see it. It brought a completely new experience with huge success. Congratulations to the team. We have a new concept in three stores, one in Belo Horizonte, that brought a new Anacapri façade with good perspectives. Animale launches this year a campaign called Uga Flora, and they're doing great in the media with huge events, a small retrofit of the stores, making it more appealing, more bright, and the results seem to be very positive. Now let's talk about another arm of women's apparel, which is a global case.
It goes much beyond a brand. It's almost a concept of existing. You will meet Farm's team that really understands the DNA of culture that is mirrored in products and stores. A very strong powerhouse with Katia and Marcelo's leadership and Fabio in international operations, with the team of directors that are on average at Farm for 20 years, really is a collective creative that is very powerful. We just opened in January. I'm going to show some pictures. A new concept rising the shopping experience, bringing Farm concept from global to Brazil, and the results are amazing. I'm going to show them. 50% greater than previous months. About democratic apparel, and that's Hering. I already showed the fourth quarter. It speeds up even more. A strong growth of B2B. 10,000 points of sale in multi-brand, hundreds of offices, and Tiago is spearheading this brilliantly.
The transformation consists in defining geographically and geoeconomically micro-regions, identifying our market share by zip code, identifying new points of sale and increasing capillarity, and also a sales program, a loyalty program that encourages the growth of a share of law. There is a project still under test, first opening in Curitiba at the beginning of this year, to turn the self-employed sales reps into their own office. We already did this in São Paulo, and it has been hugely successful. About the TC comments, the results of e-commerce are extraordinary. It is very healthy in margins. It is not compared to added cost expenses. It comes through a branding position of desire. You probably followed Hering's Christmas campaign, bringing two icons, Bruna Marquezine, and it was a winner. The results for Christmas were amazing. About the brick-and-mortar stores, restore that has very good economic concepts.
Since I started working with Tiago, I thought the architecture of the store really conveyed the look and feel of a small department store. We had to bring more identity of the heritage of the fish. We opened a new store at Ibirapuera Mall with a growth in revenue of 55% and revenue per square meter, BRL 35,000 per year, which is very high. We have an internal return rate around 50%. We are not going to open many stores with this concept, just a few, because we were able to develop a model for franchise for this format. Lastly, but not less important, in the succession process, Reserva has been brilliantly spearheaded by Rui, that has an entire Reserva team that is very loyal and passionate about the brand. We had a Christmas campaign created by the team that was very bold.
I think you probably noticed with Eduardo Dribbrich that generated a lot of good sales. The focus, Reserva already grew a lot with a CAGR of 35% in the past three years. We will streamline the employed capital. CapEx is already installed at the store. We're going to reduce overhead and streamline the profitability of the four-wall and the corporate indexes. It's using inventory and investments in technology, but also continuing with the test that was done last year at a concept called Casa Reserva Monubimal. It was hugely successful. The store grew 35% compared to the previous concept. We're going to have another one in Shopping Rio Sul. We will open some stores in this concept, not many, in the main malls in Brazil, to solidify even more the brand's position.
Capital allocation, we have three brands that we're draining energy, inventory, people. When we remove those brands from our balance sheet, the efficiency, even in SG&A, efficiency will generate better profitability. Last but not least, the focus of our group is operating efficiency, reducing corporate expenses, and there's a lot of redundancy in the BUs, creating one single distribution center for all the transactional areas that the company has, simplify processes through automation, and also continuous analysis of feasibility and return of the existing brands so that we can continue with the incorporation of our portfolio. That's our strategic efficiency for next year. Now, the highlights of 2024. Before I start, I would like to show the three concepts I mentioned.
The Arezzo store at Recife Shopping Center with a huge diversification of SKUs, separating fashion, casual, workwear, sneakers, handbags, the Breza line, so that the customer feels in a monobrand department store of Arezzo. This new concept of Farm Rio, if you know the stores outside of the country, made by the Campana brothers with an art and carpentry, it's a different type of store for Farm, 230 sq m. We want 50 new stores. This will be our highest allocation of capital. A new test, Marcello Bastos is very confident. It's a project that he's been maturing for more than three years. We will launch in Farm's positioning. It's the only brand that has leverage and size to launch any category in their concept. We will have water bottles, phone cases, handbags, backpacks, sneakers, flip-flops.
It will be a store with multiple categories and very useful. We want it has a very affordable price point, so we want to appeal to new teenage consumers. Lastly, Hering, it's just an evolution of a Hering store. It's cleaner, better identifying the brand positioning, bringing, as you see in the middle, some islands with the icon of 1880, and it makes for a cozier shopping experience. Now, I would like to go to some highlights, and they will pass the floor to Sachete. We achieved a gross revenue of BRL 42 billion, a strong growth of 50%, gross margin stable, a little bit of reduction due to getting rid of the inventory. We did promotional sales, and recurring EBITDA of BRL 443 million. We grew as part of the plan. 2025 will be different.
The net income was affected by non-recurring tax issues, BRL 241 million. We are analyzing and taking legal action that can revert this, and we're very confident. I wanted to highlight this. It's not defined that it will be recurring. The highlights for 2024, we reached the historical barrier of BRL 14 billion. This year, we will go beyond 15+ , recurring EBITDA of BRL 443 million, already reducing all the expenses with a net income of BRL 590 million. We have to do a correction, but that's part of it. In 2024, the EBITDA was at the fourth quarter, but in the year of 2024, it was BRL 1.3 billion. Sorry for this mistake on the slides. The number is much higher than this. Some of the highlights for the brands, and now I'm going to be more specific brand by brand.
Our core shoes and accessories, despite low growth, but with a high market share of BRL 1.3 billion in the quarter, BRL 4.8 billion in the year, 4.8% growth year over year. It is close to 10. Arezzo, especially in the sell-in, coming back strongly with franchise. We also had a multi-brand drop because of Vans. It already had a super distribution. I wanted to be more selective, looking at current Noli, and in the recovery of franchise, already growing 7.4%. Sell-in of winter and fall with good growth year over year. About women's apparel, gross revenue similar to shoes with greater growth, with a much higher addressable market of BRL 1.4 billion, and also for the year, very similar for apparel of BRL 4.8 billion.
Main highlight, as I mentioned, is Farm, both in Brazil and overseas, achieving rates of almost 40% overseas and a growth of higher than 20% in Brazil. Same store sales, very strong, 18% in own stores, and our main goal is also to improve working capital and find ways to supply quicker and with lower lead time and reduce cash cycle. We know it's difficult, but closer to what we have for shoes. Any capital release through efficiency and inventory, not only better sales, but also intelligence and supply. Democratic fashion, a concept still in its initial stages, but very successful. We have unique products, extremely appealing prices, high quality. Still in initial stages, talking about Hering and growth in B2B of 11.8% and even greater for multi-brand, 14.9%, and will extend across 2025.
The sell-out of 24.5% growth and 54% in e-commerce. Men's fashion still growing in 2025. The focus will be profitability, inventory, focusing on costs and strengthening the brand. That's very important. Iconic campaigns. For Brazilian Valentine's Day, we're going to do that, and we're going to have our Woodpecker that's going to grow even bigger wings. We have a very strong brand and that will focus profitability and cash generation. Those were the highlights for brands and strategies for 2025. Now I'd like to ask Rafael Sachete to go into the financial details.
[Foreign language]
Good morning, everyone. Thank you for taking part in our earnings conference call. Now about our figures and the income statement for the company in Q4. I'd like to highlight revenues.
That's one of the relevant KPIs that was developed and implemented to create Azzas 2154, and we should increase the growth levels of our brands. Highlight goes to democratic clothing that grew 17.6%, excellent growth, and that's already expected and started in Q3 and should reverberate and continue in Q1 2025. Major highlight for women's clothing, great highlight in all brands, but a highlight for Farm in Brazil and abroad. I would like to highlight men's clothing. Congratulations to Rui and everyone from Azzas 2154 with that great growth. About gross revenues, we had a drop of 60 basis points. There was a positive impact of channels mix, so B2C is growing over B2B. However, we had negative impacts, especially regarding the sales with discounts of the discontinued brands, the brands that are being discontinued, and also in clearing out inventory.
Especially in the men's clothing business unit and also adjusting our suppliers, and that's mainly accounting account adjustment. About our expenses, we had good expenses control, but still seeing the pressure from the expenses from the deal and the impact of some of the structures that were redundant in the period and someone the lack of synergies, which is normal in a merger this big. All of them have been sorted out and concluded with a very positive expectation for 2025 regarding control and reduction of SG&A based on the percentage of net revenues. About our expenses, we also had some implementation expenses for the Farm and Hering project that led to expenses without revenues that are proportionally the same or relevant, but do support our growth regarding these projects.
Lastly, higher expenses regarding B2C sales as they are proportionally high compared to B2B, given the mix of revenues in the period. On the next slide, we have the reconciliation of our accounting EBITDA compared to the recurring EBITDA. Here, it's important to add one and two. Those are the points that are relating to that are BRL 303 million that are mainly impairment of writing off the brands that were bought or the licensing, some costs in closings, and others, the provision of writing off the discontinued brand inventories, and the impact is very low compared to our cash flow. It's mainly accounting. The deal expenses, BRL 33 million, we mentioned that they would drop substantially, and for 2025, these expenses should be much lower than the numbers that we see in the fourth quarter. Maybe some residual amounts, but the year should start extremely clear.
BRL 10 million in the IOP programs, which is a long-term incentive program and should not affect the cash flow of the company. Item five is reclassification, leaving the accounting EBITDA line to net income. It does not affect the net income of the company, but it does impact the accounting EBITDA of Q4 2024. Going on to reconciliation of net income, the first bar is what we saw on the previous slide, the reconciliation of EBITDA. We have BRL 11 million in item two about the Hering worth and the credits for income tax and CSL taxes impacting 20% and BRL 22 million of these points that left EBITDA in the previous slide. Lastly, item four, these line items do not have a tax effect. They are the provisions of the write-off of 13,BRL 31.1 million, but would not materialize.
Therefore, there's no effect on income tax and CSL on the period, achieving BRL 168.9 million of recurring net income for the Q4. Lastly, net debt and cash generation. We've ended the quarter at 1.01 of net EBITDA. It's worth noting that regarding our operation, we had a relevant investment of Q4 of BRL 196 million in CapEx, some openings and renovations in Brazil and abroad. We had some changes in the Farm operation and BRL 118 million of the effects in Q4 in generating operational cash. That's the end of the financial part. Now let's open for questions and answers.
[Foreign language]
Thank you, Sachete. Thank you, Alexandre. Thank you for participating in the call. I'd like to remind you that the questions will be made in the chat, so please post your questions in the chat. The first question that we have from Danny XP, it's a question for Sachete.
She'd like to talk about profitability. She'd like to understand what are the main levers of the expenses that you see for 2025. The other part is a given because of simplification of portfolio, but she'd like to explore other levers that are done for strategy and growing the top line.
[Foreign language]
Perfect, Danny. Thank you for your question. Excellent point. We've been reinforcing in all the conversations when we explain what we've been building at Azzas 2154 regarding the level of deleveraging in the short term, which is related to the short-term investments. The merger creates complexities in the short term, and the desynergies have already been resolved that will not be repeated in 2025. We have important investments to create the shoes line in Hering and Farm, and now we've seen the results.
In 2024, the revenues were very low compared to investments, but in 2025, they're already covering the levels of costs and operating expenses that it creates, and then we have leverage on that. A number of synergies about knowledge and revenues by transferring the know-how from multi-brand franchises and own stores will support our revenue growth, which is very good for 2025, and that will help us substantially in the percentage of revenues and expenses on net revenues. Talking about our expenses in SG&A, we have a number of projects that have already been implemented that are starting to bring us results in the fourth quarter. I'll mention a few. About shipping expenses, we have savings by the group negotiations, marketing expenses, reduction negotiations with big accounts where we're capturing important synergies, eliminating redundant structures in corporate.
We started off 2024 with a level of structure in corporate, and 2025, that structure is smaller, excuse me, so we'll have important levers in that sense. All the costs regarding the integration of the consulting that was hired for the integration. The levels of expenses on net revenues should drop across 2025, and obviously, the revenues will increase substantially. We feel comfortable that leverage will come from a mix of growing revenues and SG&A, which will be lower compared to what we saw in 2024.
[Foreign language]
Thank you, Sachete. Second question is for Alexandre. She'd like to talk about people. Talking about people, given the frequent news flow in that sense, and for being a key point for the company, as you say, how has the dynamic been between managing the business units and also the succession process of creatives?
[Foreign language]
Considering the succession in the Reserva brand, the process, the brand, the team, and leadership that's very capable is very important, such as under Rui. We have Joana, Pedro, Marquinho at Reserva, Fabinho. We have Anaiana. We have an amazing team. Reserva is really taking off. I've been having monthly meetings with the team. The brand is very well planned. Reserva is very well structured. With the absolute leadership of Tiago Hering, we have Vic, Carol Schuler. We have an incredible team. The business is working well. Shoes, we have a transition process. Obviously, I used to work strongly in that. That was the legacy. I grew up in the shoe box, so to speak. We have a great pipeline in that.
All of these, the Director of Anacapri, Dani Bilero, she used to be the model of shoes and now leader of the brand, Carsey Perez in shoots. We have a very strong team. At Soma, we have leadership of Roberto, incredible people for each brand, Ativaz, Cris Barros, and Bell, excited with great leadership together with Leo. I am very happy to receive the shoes teams here and Pedro, who will put in Animali shoes and multi-brand, and from Farm, Vanessa, the whole entire team is here. We are in Campo Bom receiving them here. Katia and Marcelo, who are even more motivated and fully committed to this movement and Farm. Really excited to receive the capital, substantial capital to reinnovate the stores. Fabio in the international operations, in the consolidation operations with the Brazil area.
We have a huge pipeline of people, even cross business units. We have not done that yet, and we are starting to map that out. Now we are all at home. We are not stealing from each other, right? We have a rich pipeline to run our brands and a lot of adherence and commitment from everyone. It is worth noting that we had the first formal leadership meeting on the 23rd and 24th of January at Hilton in Rio de Janeiro. A lot of engagement workshops, tough work, motivational talks given by former volleyball coach Bernardinho. Living and breathing what we are building with Azzas 2154.
[Foreign language]
Thank you, Alex. This is from Gastin from BBA for Sachete.
I'd like to understand how much the impact of the margin of the 120 basis points that you had in Q4 was in anticipation or in advance of integration expenses and how much it's structural for the quarter. So I can understand the structural margin of the business. Perfect.
[Foreign language]
I should segment the gross margin. Gross margin priority was impacted by cleaning up inventory, as we mentioned, especially brands that will be discontinued. It makes sense for this moment, and it's not operational, non-recurring, but we recognize it. We acknowledge it as recurring. For the 60 basis points of pressure, we can say that half of that is non-recurring because these are projects that aren't generating proportional revenue as they should. We have some pressure of Schutz.
As Alexandre said, we're doing some important work of restructuring some of the expenses so we can balance the levels of growth of revenue with the growth of expenses.
[Foreign language]
Thank you, Sachete. Another question from Gastin is how much of the growth of Azzas 2154 was boosted by markdowns and in which channel this helped the most.
[Foreign language]
Gastin, these cleanups of the inventory are sales below cost of some materials, and we have three brands that will be discontinued in the BU of men's apparel. We're talking about inventory, not just of Reserva. We have an important, in fact, a vow and Simple in Reserva. We foresaw this for these brands and some impact. Answering very straightforwardly, the impact is very low compared to the growth of the top line of the brand.
[Foreign language]
Can I add something?
[Foreign language]
Yes, of course.
[Foreign language]
It's worth mentioning that in e-commerce, especially for Black Friday, we know that we had excess inventory. We did a higher promotion on Black Friday that helped, and it contributed negatively for the gross margin. The inventories are not at the levels that we want them to be January. We're still reducing these points. When you answered which channel made that, it was e-commerce. That's where we had the most markdown with sporadic flash sales and promotions that generated this impact on gross margin. We prefer to generate cash than have inventory that can become obsolete. This is something Rui already did. It's an important and a brave decision with the team. The good news is it's going to be over soon.
[Foreign language]
Thank you, Alexandre and Sachete.
A question that some people have asked, a little bit of feedback of the company at the beginning of the year. We know January was slower, February better for the calendar effect, but if you could talk about these first few months.
[Foreign language]
The beginning of the year has been exceptional, especially B2C. Hering with extraordinary results. We're talking about 30% + Reserva since we're holding markdown to with the lower growth of single digit and shoes. Same pace, a little bit better than the fourth quarter. Yes, January did have Carnival, so it was strong. On March 1st was Saturday of Carnival, so the first day of March was actually the 10th. I got the reports this morning. We are zero same-store sales considering 11 days of the month. Ten were Carnival, so a lot of stores were closed, especially in Rio de Janeiro.
Yesterday, we launched shoes brands very strongly. We're here talking about brands. We brought Fernando Torres at the Oscar with Arezzo. Was great. You can check Instagram. More than 1,000 comments, high engagement. An amazing job done by the team with excellent results. Expectations for the next month is very positive. We have the positive effect that 2024, the last week of March, we had Easter, so now we have the 31st. We'll count positively for the month. I imagine that in the consolidated, we will have similar results to what we had in the fourth quarter.
[Foreign language]
Perfect. Thank you. Thank you. Now, the question for Sachetti about cash generation in the quarter. We estimate a cash generated of BRL 30 million. It seems low due to the sazonality of the business. I would like to understand the non-recurring effects.
What higher investment in brand and if these effects will dissipate in time.
[Foreign language]
Thank you for your question. Non-recurring effects in the quarter, we have expenses that in cash flow impacted BRL 80 million. When we talk about not business effect with this JCP, BRL 18 million, and specifically about operations, what really affected the cash was BRL 195 million in CapEx and working capital. We had a reduction in inventory in the third quarter to the fourth quarter, but it went to accounts receivable. When we compare with the periods of sales in the previous quarters, we grew sales and accounting receivable grew in the quarter. When we dropped the inventory to BRL 90 million, we have working capital and accounts receivable has around 75 days to receive. The first quarter, it starts with a high cash conversion. I would like to add to some points.
That was the main topic in the topic of the turn of 2024 to 2025, starting with the leadership, with a lesson on economy, explaining those who are focused on sales have to pay attention to what sales to cash conversion means. The good news, it was a bit controversial, but we will set up controls and all the benefits in the short term of 2024 will convert to cash. We have very focused control per BU, and every month shows the generated a bit of what was working capital, CapEx, and cash generation of that BU. That will be our assumption. It is a panel that is very easy to understand. It will be our strategic driver and the priority of the entire company to generate free cash flow, and that is our focus, as I mentioned at the beginning.
[Foreign language]
Perfect. Thank you. Sachete, last question from João.
He wants to know in terms of thinking about sustainable gross margin, both negative and positive effects, and discontinued brands.
[Foreign language]
It's important for the year of 2024 to have a third-quarter cycle that we were cleaning up the inventory in the two apparel BU set pairing, but that impacted our third quarter. In the fourth quarter, we're bringing that issue in the discontinued brands and a little bit in R and Co. When we think about the future of 2025, these impacts should not be recurring. Except for a change in the mix of channel, we will have growth in B2C compared to B2B with the elimination of these non-recurring effects in the third and fourth quarter. All in, we will have some leverage of gross margin.
[Foreign language]
Perfect. Thank you. The next question is for Alexandre. It's about shoes.
In the shoes BU, how should we think about the multi-brand channels in 2025? How is the selling in the beginning of the year?
[Foreign language]
The fourth quarter was not good. We're not happy with the results. Our high summer season was launched in August with the right pricing point that we worked throughout the second half to bring fast fashion products to support the results. Still, the multi-brand did not grow. The good news is that the winter launch started in November and January, and all the sale is made to deliver until the end of May. It was a positive growth with a highlight for Anacapri that grew the most. They really got the product right, which is the A25 sneakers that is at the store with Influencer Virginia. To summarize, the multi-brand reception is already happening for the first half of 2025.
[Foreign language]
Perfect.
This next question for Irma is for non-recurring expenses. How should we think about the non-recurring expenses for 2025? Because we might have one-off attached expenses like multi-brand from Hering and support for shoes.
[Foreign language]
We have two groups of non-recurring expenses, the ones that we acknowledge as one-off, especially from Deal and others, and discontinuing activity of brands like what happened last quarter. This should drop this quarter. We do not have anything to be acknowledged as the brand discontinuity for 2025. The expenses one-off are also minimal at low levels, much lower than we saw in 2024. We have a group of expenses that are one-off, but we classify them as operating, like Farm and shoes and Hering shoes, internal projects to improve Hering multi-brand. These projects already start to bring proportional revenue and cover the expenses for implementation.
We will continue to invest in operating projects inside the company. The impacts of these projects, about the percentage of SG&A and net revenue, should be lower in 2025 compared to 2024, which was a year of rate restructuring.
[Foreign language]
I have a question from Rena about gross margin. The evolution of normalizing inventory and the sales of discontinued brands will have an impact in the first quarter.
[Foreign language]
Yes, all the impact of discontinued brands was already written off and provisioned in the fourth quarter, and it will become material in 2025. There is no accounting impact in 2025 for these discontinued brands.
[Foreign language]
Another question about efficiencies. Within the context of streamlining structure, how should we consider the potential economy with the distribution center? Are you also thinking about structuring people? Do you see any potential change through 2025?
[Foreign language]
The answer is yes. It's mapped, as I said.
It's a process that is internal. It's hard. A lot of negotiation. If you go to Campo Bom, our headquarters, most of the distribution center and the labor costs is lower than cities like Rio and São Paulo, and the brick-and-mortar structure is ready for that, and we need to hire people. Our greatest challenge is the systems. For an effective distribution center, it's so used to have five people, one in Rio and one in Campo Bom, having two Campo Bom operating different systems. I have to have one operating both systems. Now it's the mediation of system and mediation of the corporation. This should happen in the next five months. It's all mapped out. We have a team that has been with us for the past 20 years that were responsible for implementing SAP perfectly.
This is an ongoing process, and we're going to see this more in the second half. About people, the brands are intact. They have some benchmark to do. Among themselves, there is in the corporate use of BUs with the creation of the distribution sector one guideline of becoming leaner and reducing expenses, focusing on people and other operating expenses like traveling, cost of communication, training. There is a project that is well-defined in place, and it's at the final stages of defining the calendar to implement.
[Foreign language]
Thank you. Thank you. A question from Ruben about our decision to discontinue five brands and sell BAO. Which criteria will be used to evaluate the portfolio performance, and what are the clear thresholds of performance that the brand should have?
[Foreign language]
Could you repeat?
[Foreign language]
Considering the decision of discontinuing BAO, what criteria will be used to evaluate the remaining portfolio performance?
Is there clear thresholds of performance that the brand should achieve to stay in the portfolio?
[Foreign language]
The question might be politically incorrect, but yes. We're doing a diligence work and capital allocation. We have a percentage of brand that's very clear, recommendation of areas. We have four brands that have a percentage above our revenue and brands that can grow in the future. This is a process not only here in Azzas 2154, but you can follow the global fashion groups. It's a process for 2025 that will be implemented throughout the year. Several KPIs should be achieved, and the opportunities that we have today for transforming assets into liquidity is an alternative to be pursued because we want a higher internal rate of return. We do love the brand and the people, but the brands have to become profitable and generate an IRR above our EBITDA.
In a nutshell, that's it. We have to be mathematicians, and I'm sure the team of the brands know that they have to be creative for the result. We're not in the business of changing money for raw material and have the same money back. We need more money to pay the cost of capital. This is a process that we have.
[Foreign language]
It is 11:00. We're almost done. Oh, that's the last question. Kind of repetitive, so we have a time limitation. I believe this is more interesting given the moment. I like these two. Okay. How do you see the potential to grow Hering in 2025 that has very strong performance boosted by the multi-brand channel, and how sustainable will that growth path be moving forward?
[Foreign language]
Tiago is here with us in the meeting. I'll answer for him, though.
Multi-brand and Hering is a theme park for every new collection that we have. Rafa, congratulations on—he's a Commercial Director. Congratulations on your work. Unique synergy, all the work done by events in micro-regions according to even zip codes. Being well done. We have an example of the Northeast, especially Salvador, right, Tiago? It is 100% in the region, 150% growth in the region. Obviously, it is a smaller region, but we did identify many options to sell. It is a brand among the basics that is very democratic. In the points of sale, total of 5,000 assets, we can grow that and grow the share of wallet, especially in bigger chains. In addition, it is about internalizing the sales force. First quarter, we already have growth of approximately 15% in multi-brand.
There is ongoing work in that sense with a huge potential for the Hering brand. The potential of the ideas.
[Foreign language]
You want me to give the answer? Back to you. Pursues the mega store for Arezzo, if it delivers the result expenses, do you think you can have Hering mega stores?
[Foreign language]
I would not say lucky, but I think it is the right timing that some important chains and the other concept of mega store did not work. Hering found these points of sale available at an interesting size, 400 square meter stores, and the shopping malls needed that. That was great. They found the points of sale with low occupation costs. That was fast, that was Roberto's plan. Congratulations on those to have those mega stores. Even restriction of point of sale because the cost of occupation has to—math has to be well done.
Translating that into a summarized manner, we have currently mapped two shopping malls for the first quarter. That is Morumbi Mall and BH Shopping Mall. Not the same potential for Hering, but at least 20 stores with that concept and a different experience. The main change is the segmentation given the space and different uses, occasion uses. We have a line that is for the classic and workwear where you need to sell that separately. The bags are currently displayed together with the shoes. We want that separate. The fashion islands, which are the basis of the 70 sq m stores, they continue. The sneakers category currently at Arezzo has a very low share. Only 8% of Arezzo is sold in sneakers. Schutz is 18%.
There is a product development exercise, but also an exercise for the sales space to have the complete mix of sneakers and casual sneaker and athletic sneakers. They want to wear Nikes and Adidas for work, and we have to bring in that. We know that the space in stores to display that makes a huge difference. Congratulations to our franchisee that believed in that process. Their sales results were not expressive yet because it is a small traffic area, the shopping mall, but the average ticket is double than a regular store because of the time the customer stays in the store and because of the assortment. It is a very important driver, and it is a main strategic initiative for Azzas 2154 for 2025.
[Foreign language]
Perfect, Alex. Thank you. Last question. Oh, there is a Schutz question. We are running out of time.
[Foreign language]
No, you can ask that. No worries.
[Foreign language]
What was it again? It's on the piece of paper. With the restructuring process for Schutz, could you give us specific KPIs that you're monitoring to measure the product's success, and how do you expect that brand to resume growth?
Given the positioning for 2024 that didn't really work, we revisited the boulder, and now we have a more structured collection and better. We repriced Schutz. It was very expensive. We brought it to the Delta Historical Orzo price. There's the fashion side, but more wearable, strengthened the bags line, and the own stores have expressive growth, and we can control assortment better in those. We finally defined the design for the store for Iguatemi in the first quarter. We also have strong growth in multi-brands for the first quarter of 2025.
Now what we need is to improve our e-commerce sales because it's still based on promotions and sales. We need to bring back our full-price customers at Schutz and improve qualitative sales in e-commerce. We have a new team with clear leadership from Tati Paris, very engaged leadership, and I really trust that in 2025, Schutz will go back to positive growth.
[Foreign language]
Perfect. The last one from Bob Ford from Bank of America. Alexandre, can you talk about the culture that you want to create at Azzas? What are the best parts of Arezzo and others that you're trying to preserve?
[Foreign language]
In summary, Bob, on one side, we have a culture that was born in the process, and by separating the plan of accounts, KPIs, and recurring analyses in the first meeting and one in 2025 last year, those are monthly meetings that we have.
In addition, daily sales reports for all stores and revenue targets with more precision, deviations based on tickets or conversion. There is well-structured management of the process. On the other hand, more freedom in a way for the creatives to, instead of not only having KPI management, but also more time to implement their strategy. In summary, that is the ideal. That is what we want for Azzas 2154. Always focused on high results and cash generation. That is for 2025. I would like to say a few words. Thank you, everyone, for taking part in the call, especially the team and the Board of Directors and ensuring that governance is implemented. In the beginning of the presentation, I made our priorities clear. They are recorded if you want to listen to that again. In addition, we have a team that is very aligned, dedicated, and exclusively focused on delivering a historical year for 2025.
I just mentioned that the Board of Directors and the Chair, Pedro Parente, has had a very important role in guiding this new company, allocating capital, focusing on projects that have a high rate of return. This project, in many different fronts, has been a priority. Something that I did not mention, which is our focus by generating cash, is to hold back on CapEx. We want to hold back on other expenses as well so that we can start off the processes, even though with all these coefficients of market, our leverage is still low and our very high receivables for credit cards, we haven't discounted that. We want to start on a process of deleveraging. Those are the messages. Thank you for taking part in our call, the first for 2025. We're almost at the end of the Q1, and we're really strong.
Our focus moving forward now next quarter is Mother's Day in Anacapri, in Arezzo, selling Tiago and Rafa and all the team good sales, the Drigo Priscilla, Arezzo. They'll sell a lot in Sell-in. The big launch of shoes for Mother's Day so that we can have an excellent Q2. Thank you, everyone. Let's do it on the path to 2154. Thank you.