Good morning, everyone, and thank you for participating in our earnings call for the results for 2Q 2026. I have with me our Director of Investor Relations, M&A, and Strategy, Bianca Faim, and our Chief Financial Officer, Eric Alexandre Alencar. Today, we will start off with the message that I have prepared for you, and then we will talk about the highlights for the quarter, a deep dive into our four business units. Afterwards, Eric will go into the financial results. Lastly, the most important part, we will be available to take your questions. In a more comprehensive manner about our second quarter, the operating results, meaning our income statement, does not fully reflect the strength of our brands. In fact, it is much different than our capability in selling and sell-out. We have always mentioned during challenging times that it is about the branding.
The positive side of our results, we had strong cash generation. That is work that we have been doing since 2Q 2025, with the company strongly focusing on that. So good working capital in inventory we had, resulting in BRL 356 million. We have clarity about our challenges, revenues, EBITDA, profitability. So we are strongly focused, looking to improve our performance for the half year. A positive highlight, I would say, or at least neutral, is our results in sell-out, even with the effects of the World Cup. In total, for the Arezzo&Co Group, we had a decrease of 1.9%, excluding basic, which I will talk more about later.
We had an increase of 0.3%, reflecting 2025, even with the internal-external challenges. When we look at the revenues with sell-in and sell-out, for the sell-in of franchisees, the result was deliberate. We have over 1,500 franchisees when we look at all the brands.
For the Arezzo brand, it is the pioneer in the fashion franchisees in Brazil. So we have a relationship of one generation after the other with them. In all moments, our focus is the long term, even though it affects our short-term results. The numbers that you can see here show how we are supporting our franchisees. Obviously, because we are correcting the course of the leftover products from the other season, and we have projects that have been implemented to improve that. So in the first half of the year, our franchisees in shoes and bags, I would say, had a sell-out of -4%, and we did not deliver summer collection in June, so the reduction was 21%. In June, the shoes and bags increased 22%. So we are really focusing on that to improve sell-in and sell-out for franchisees that had a 22% increase.
When I talk about shoes and bags, I will give you the absolute numbers on that. Obviously, the drop in sell-in, part because of franchisees and partly because of multi-brand and mainly Vans, and I will explain about that because that is not under control. So there had an operational de-leveraging of our business in this quarter. So when you look at the snapshot, it is very bad, but when we look at the film, it is a dynamic that will be overcome and in sell-in that goes fast in operational leverage. In sell-in, especially franchisees, they have a very low cost of service, so the conversion between gross profit and EBITDA margin is very high. Sales expenses are 7%-10%, depending on the brand and channel, so franchisee or multi-brand. So you have a decrease of 3.3% in sell-in channels. It has a very high impact to the bottom line.
Different when you look at sell-out. Even though the sales are high, gross margin high, but the cost of service is high. The leverage is a result of lower sell-in, as I explained. About the future, the biggest correction in the capability of increasing sell-in was already done. In the third quarter, we are balancing out the sell-out and sell-in of the franchisee network. It was painful work, but very important. The main effect that we are measuring the health of our franchisees is the delinquency rate. For bags, it is just 6.4% of the total receivables. We made some tough decisions. We decided to preserve the longevity of our franchise network. We focused on operations and obviously the partnership aspects that are public that we had some debates as of May 12.
In the beginning, it took away some of our focus and energy, but now we have a group of people that are extremely dedicated, that are engaged in that topic, so that the management is completely focused on the business. Going into the second half, focusing on growth. Obviously, it will not be stratospheric, but especially in profitability and continuing to focus on cash generation. What are the levers of our business besides the standard operation and operating cost? We have the strategic alternatives of Farm Rio as the material fact announced on July 19. We have Morgan Stanley to focus on strategic alternatives for Farm Rio. The process is still according to schedule.
All the accounting and legal aspects are well detailed, but it is worth noting that the decision was made and the operation is still in the phase of preparation as planned, so we will inform the market at the right time. The other level to generate results is the consolidation of the Hering turnaround. In this first half, we see an increase in gross margin, and especially cash generation. We have BRL 97 million in cash generation. I will talk more about that later. That was for the quarter. When we look at the consolidated numbers for the half year, that number is very positive. 2025 drained a lot of our cash flow, but now even though there is contraction in revenues, there is a drastic change in the capital employed and consequently, cash generation.
About the highlights, we have total revenues of BRL 3.2 billion or BRL 3.4 billion, with an impact of the sell-in by -7.1%, which is negative. And in the Azzas group of BRL 3.4 billion in one single quarter. That shows the robustness in our ability. As you can see, the sell-in we had de-leverage. If it went too fast, we would have a historical positive bias of the entire business. Operating cash generation was BRL 357 million, 3x greater than 2Q 2025.
Here are some highlights, but obviously we have some lowlights as well. Highlights, gross margin as a result of lower sales and markdown, especially in the basic apparel business line. Obviously, with a change in the mix, there was an increase of 1.3 percentage points. Gross basic was 60.6%, so gross margin was very healthy, and basic was a growth margin of 40.4% and an increase of 1.2 basis points year-over-year.
Sellout channels totaled 1.7 billion BRL. We have this within our income statement. This does not include sellout from the franchises. Excluding BU basic, we had +0.3%, a reduction of 31 days in our financial cycle. Highlighting our stock days, which was 15 days less than Q2 2025, even with a large volume of summer products in our distribution centers. This happened in July. This is a highlight, because if it was not invoiced in July, the stocks would be lower. Our operational cash generation was strong. The figures are here. I will not be repeating myself. About the lowlights, as I said, nobody is in a country to have a revenue retraction, even with all the explanations that were mentioned. They are corrections from the past. We work with a company to have constant growth. We know that a company that does not grow does not have longevity.
This is what also happened in our results in this quarter. Expenses grew 5.3% with a retraction of revenue of 7.1%. Generation just deleveraging, we mentioned. Occasional expenses were very well managed. There was a saving of 6.5% compared to same period last year. Our EBITDA, Eric is going to explain this further, was BRL 379.6 million with a retraction that was big compared to last year. Of course, this figure is uncomfortable, but we have control and management over it. This is a company that is here for the future, and an occasional result from a quarter, of course, makes us dissatisfied, but also more willing to struggle to get this performance back, our history of growth. We knew that the decisions that have happened in this quarter were crucial for the longevity of our business.
I am going to highlight some issues about our four business units. Starting with shoes and bags, our gross revenue was BRL 966.5 million . Here, due to the bigger impacts of sell-in, there was a retraction of 12%. This result was positive of 12% in July, and it tends to normalize in the third quarter compared to 2025. The first quarter, the gross revenue of this unit was near BRL 2 billion . About the revenue per channel, our own stores grew 4%. E-commerce also deliberately reduced the sales with markdowns, had a retraction of 6%. Multibrand channel, we are going to explain, impacted by the Vans brand, has a retraction of 20%. The franchises, as I mentioned, a reduction of 21.5%, while sellout in the franchises had an increase as well.
We are going to the last line here of this page, so you can see how these figures in absolute numbers are strong. The total invoicing for the franchisee channel in shoes and bags was BRL 210.2 million, whereas the sell-out of this network in this period was BRL 524 million. That is, here, this coefficient that we measure so deeply, sell-out for sell-in, was 2.5x . A growth of 22% versus the same coefficient in Q2 last year. Now, about the sell-out revenue, to the first point here, first bullet point of this page, a positive highlight for our main brands, Arezzo grew 12.3%, even with the effects from the World Cup. This is a result of the better collection and a reduction in sales in markdown.
The Schutz brand, that for so many years we presented to you difficulties in finding their position and find the essence of the brand. We have talked about this for many years. It was great work done from the leadership of Rafaella Furlanetto and the team, putting the Schutz brand very positively. It has healthy growth in own stores, growing 7.7%. We are going to talk about Sarah Jessica Parker. Schutz, with this positioning that is young and connected, has Marina Ruy Barbosa as its ambassador for the summer collection, very much connected to the brand. About the work with Sarah Jessica Parker for winter this year, which was almost accidentally, I think I have mentioned, she came for a beverage brand here for Carnival, and we got one day from her. It was a great repercussion. This motto, obsessed for shoes, resonated very well with the Arezzo brand.
We had a deal with her, multi-structured, to have a mini-series with her for the second semester of 2026. We recorded it in New York. The results at the beginning of summer in August have been surprisingly positive. Now about the turnaround from the Vans brand. Vans is under new leadership. Thiago Markus, he has been working in the company since he was 15. He has this entrepreneurship project together with David and Fernando. Great experience in the sneakers segment. He is in charge of the Vans brand, and he has been very efficient in his work, focusing on reviewing the production cycle, using what we had in the past with a bigger participation in sourcing done in Brazil, which gives us more flexibility and better margins. Of course, we are increasing the purchasing and the furnishing of the brand and commercial activities to accelerate sell-out.
We will have a second semester with challenges from the Vans brand results. We are aware. Our project forecasts that for December, results are going to be positive. The actions are very well implemented, and 2027 in Vans brand is going to start growing again. Some highlights about the campaign that I mentioned with Sarah Jessica Parker. We had the first seven days of the campaign since its launch last week. More than 6 million views in digital channels, 70 organic articles. I think everybody was somehow impacted with very aggressively in São Paulo, in Iguatemi. This generates very strong brand awareness, especially these shoes. The black and white had sold over almost 100%, so this campaign was very successful. Continuing this process of recovering our sell-in, this week we had on Monday and Tuesday, we were in Campo Bom.
We had the biggest launch in the history of our franchisees. We had the honor to count with the presence of our founder, Anderson Birman, from Arezzo brand in Campo Bom, talking to our franchisees that have been with us for 20 years, 30 years. The trust in the brand is positive. The initial results from sales is strong. In parallel here in São Paulo, in a large event in Paulista Avenue, we had more than 500 multi-brand store owners. If you are in São Paulo, it is still set up. You can schedule that with our team to see the strength of our brand, Arezzo Shoes and Anacapri and Vicenza. Here are some of the pictures of the great events. Congratulations to the team. I am sure that with this energy, our sell-in in 2026 will be positive for the next semester. Now about our business unit, Fashion Women.
Our gross revenue was very expressive, BRL 1.4 billion, despite a slight contraction compared to last year. Absolute figures are huge. We had, in the semester, revenue of BRL 2.7 billion. Growth in this Q2 of our own stores. This shows health in our sell-out. Slight retraction in e-commerce, as mentioned also for shoes and bags. We are in a process that expects selling with discount. This is positive for reduction of stocks. So the health of our business regarding sales at full price, stock, and cash generation is positive. The retraction with multi-brands, the store owner profile is more sensitive to macroeconomic variations. Interest rates impact our store owners. We have very small sales deadline, so we work with a very low level of default is a prerequisite. So here we had credit restrictions for several clients, deliberately aiming at our low level of default.
In the international market, this retraction is due to exchange issues in USD. Farm Rio operations, as I mentioned in the third bullet in this slide, grew 4.3%. We are going to show highlights about strong branding and sales work with opening of four pop-ups that Farm had in June and July. Highlights here for the sell-out brands, for Cris Barros, with a very expressive growth of 20%, Carol Bassi 14%, the other brands also growing, and multi-brands as mentioned. Here is a small taste of the pop-up stores from Farm, large events, moving $1.5 million in this period, overcoming in 100% our goal. So this made at the European stores, London and Paris, they had a sell-out of 41% in this period. So we are still to measure the current branding effect.
It is hundreds of thousands of people worldwide that are still visiting these stores till the end of summer, now in August. They are going to have a very positive impact in the expansion and the global branding for the Farm Rio brand. Now for Fashion Men, we had a revenue of BRL 420 million, flat compared to last year. We had in our own stores growing 2.6%, e-commerce, for the same reasons mentioned before, retraction of 4.2%.
Multi-brand here growing due mainly to the continuous improvement of the Reserva Go brand. The sneakers business for Reserva grew, boosting multi-brands, and for the same reasons mentioned for shoes and bags, deliberate retraction for the improvement in the health of our franchisees, which caused a retraction of 18.6%. The Oficina Reserva brand is a highlight in the base of 30% of growth in Q2, keeping a growth of 7.6% in this second semester.
And now lastly, about our basic business unit. Continuous process that is going to be deeper here in what are the performance KPIs that we are measuring today at Hering. In absolute figures, a revenue of BRL 559 million, retraction of 12% year-over-year, and an improvement compared to the first quarter that had a drop of 18%. Although, of course, there are some seasonal aspects that impact sell-in. The sell-out channels with a reduction equally for our own stores and e-commerce, around 14%, due to a strong reduction of sales in markdown. This increase in gross margin for Hering is totally explained by a great control of stocks that brought great cash generation and healthy sales for our clients. The selling channels in a continuous process to normalize the stock for the network. We had a positive highlight here for the improvement in gross margin.
And on the next page, more specifically about the main KPIs for the Hering brand. Our main goal is to recover profitability, expansion margin, cash generation based on stock reduction, and an improvement of the capital employed. Therefore, we had a reduction of 25% in the sales of products at discount prices. This is very positive for the business, not only for cash generation, but also for branding, for you to have faithful clients at full price. The reduction in stocks is very relevant. It goes from a total of 214 days in the Q2 2025, and it drops to 149 days. Our goal is to get to 130 days, so it is very close to this goal. Actually, some products were at fault, but we chose that we cannot want a great bonus. We chose to be more conservative in our purchases.
Several Hering products, especially winter buffers and others, had a reduction of purchase that was deliberate, and they were missing at the stores. We know that. To find the ideal level is a process. It is the first semester in our new management for Hering, and this process is part of it. But in doubt, we chose for a drastic reduction of stocks, as you see here.
So that led to cash generation of BRL 160 billion for the half year and a reduction of BRL 163 million in the same period year-over-year. The delta is BRL 326 million for Hering, and that is very important. The team is very much set up with a high level of confidence. Next week, we will have a kickoff for Christmas sales. A big convention on August 19 with our internal team, and I am absolutely sure that we are prepared to have a second half with better results, but specifically the fourth quarter. There is a milestone in September 3rd, launching the Brazil T-shirt. It is replacing the one that had a historical name, and we believe this fits better with Brazil calling it Brazil. It used to be called Pronto.
Here are some highlights in product engineering that is very deep, very detailed, practically nine months of work, over 18 different sewing processes, from the label to other aspects, improving the fabric label and lowering the price drastically. In sell-out, it will be sold at BRL 49.99, and improving the gross margin. I am absolutely sure that how this T-shirt is bringing B2C consumers into the base. With a huge share of the market in Brazil that Hering had lost in the past year. This process was a lot of engineering and predictability and demand. The T-shirt is made completely internally. We decided to focus the entire Hering production chain on basic products so that we can have productivity and high scale.
When you visit, you can see that our plants are more productive because they have less variations, and the products would be made outside the company in Brazil or abroad. This is about Father's Day at Hering. It was very strong. Rescuing the essence that the brand has with Thiaguinho, a very strong personality that has a big outreach in our country. Those are my opening points about the second quarter and business perspectives. Eric Alencar, our Chief Financial Officer, floor is yours.
Thank you, Alexandre. Good morning, everyone. It is a pleasure to be here with you and Bianca for our earnings results for 2Q26. Starting off with the financial results on slide 16. In the second quarter of 2026, gross revenues of continued brands was BRL 3.4 billion, a decrease of 7.1% year-over-year, with specific dynamics between the channels. The sell-out channels totaled BRL 1.7 billion.
It was 1.9% drop, with owned stores growing 0.9%. Owned stores, the highlight goes to Arezzo with a 12% growth, Schutz 8% growth, and Cris Barros with strong growth of 42%. In sell-in, dropped 13.6%, reflecting the priority of covering the inventory of the franchisee network and conservative purchasing from multi-brand channels, given high interest rate scenario in the country. The lower share of summer and shoes and bags in 2Q26 being more representative in June this year. In abroad, revenues dropped 4%, reflecting the depreciation of the real compared to the dollar, a 12.9% drop, and a lower share in revenues of the spring and summer collection in 2Q26 in Farm Rio. By adjusting the effects, the international revenues would have grown 5.9%. Net revenues totaled BRL 2.7 billion, a drop of 8.2%.
The deductions account for 20.6% of gross revenues, an increase of 0.6 percentage points year-over-year, in line with the first quarter of 2026. The variation is essentially from better generation of tax benefits in the fashion, women, and men business units, with a one percentage point increase in gross revenues and taxes increased 0.4 percentage points. Increase in the tax is mainly explained given the higher share of the sell-out channels and the incidence of ISS on royalties in 2026. These factors were partially offset by a 0.8 percentage point improvement resulting from the decrease in returns in shoes and bags and basic. That is something we have been talking about for a while now, that in this quarter finally brought on positive results that we were mentioning.
Recurring gross profit reached 1.5 billion BRL, which is an increase of 130 basis points in gross margin and ending at 56.2% in the quarter. By excluding the basic business unit, gross profit was 1.6 billion BRL and 130 basis points over the second quarter of 2025. Gross margin is explained by the lower markdowns and higher participation of the sell-out channels in revenues, overcoming the impact of the increase in the deductions of gross revenues. In the basic unit, gross profit was 40.4%, with an increase of 1.2 percentage points, reaching 105 basis points, even with the higher share of sell-out channels in the quarter. The increase in the basic gross margin shows the better quality of hiring and decrease in the pressure to flow the off inventory in the previous year as expected according to our plans.
Recurring expenses, ex depreciation, totaled 1.1 billion BRL, an increase of 5.3% year-over-year, representing 43.3% of net revenues. These expenses increased 9.5%, reflecting mainly or in the fixed expenses in the net opening of stores and recognizing the increase. The variable expenses increased 3%, recognizing bad debt in the multi-brand channels in this quarter, being offset by better management of shipping and commissions. We have a decrease of 6.4% in the annual comparison of expenses. On slide 17. No, actually next slide is 22. Recurring EBITDA totaled 330 million BRL, a drop of 29.1% year-over-year, with a margin of 14.2% and a decrease of 430 basis points. Even though you have a gain in gross margin, the decrease in net revenues shows the operational deleverage, and EBITDA margin decreased 430 basis points. The recurring EBITDA is 39% under the second quarter of 2025.
Net financial expense totaled 187.6 million BRL compared to 199.5 million BRL in 2Q 2025. That is mainly a reflection of the lower impact of the FX rate, as the contracts were determined with lower rates in the previous year, decreasing the interval between the hired or the contracted FX rates. Recurring net income was 106.5 million BRL, 4% under year-over-year. Income tax and social contribution have the positive impact and recurring net income for the quarter, 106 million BRL with a net margin of 4%. Now moving on to the following slide about cash generation and working capital. Once again, these items were the highlights for the quarter, as Alexandre already mentioned to us today. The operational cash generation achieved 356 million BRL over 3x the 106 million BRL in 2Q 2025, with a conversion of 105% of the EBITDA in cash generation.
In the post CapEx vision, we have BRL 1.6 billion , conversion of 105% of the EBITDA to IFRS. In the past months, we achieved BRL 1.3 billion in cash generation, BRL 1.6 billion, I'm sorry, BRL 1.3 billion post CapEx in conversion of the EBITDA for the period. In the quarter, the investment activities were BRL 26 million , so that resulted in a cash generation increase of BRL 122 million. In the next slides, you'll see the factors behind the high cash generation. The financial cycle ended the quarter at 93 days, a reduction of 39 days year-over-year, with an improvement in all steps of the cycle the last 12 months.
By excluding the provisions in inventory loss, the impacts that were adjusted in recurring EBITDA and improvement of the financial cycle were adjusted from 31 days to 29, and an improvement in inventory days, 15 days, accounts receivable, five days, and an improvement of supplier days by 11. So basic achieved a reduction in inventory as well, and post CapEx BRL 97 million with a consumption of BRL 56 million in the first quarter of last year. Now we are moving on to the last slide to talk about company indebtedness and ended the quarter with a cash position of BBRL 1.1 billion and net debt of BRL 2.2 million, a reduction of BRL 39.9 million year- over- year. We had a leverage of net debt EBITDA recurring in the last 12 months reflecting it, even though there was cash generation.
The gross debt ended at BRL 3.3 billion , and the complex situation in the country this year, we extended the profile of our debt, concentrating 82% of them in the long term, 43% of what it was in second quarter last year. In addition to BRL 964 million in credit card receivables, reinforcing the liquidity and the financial flexibility of the company in the short term. That is the summary of my presentation. Now we will open up for question-and-answer. Thank you very much.
Thank you, Eric. Thank you, Alexandre. Good morning, everyone. Let us move on to the first question, and this from Luiz Guanais from BTG. It is about sell-in. He is asking, "It would be interesting to hear the inventory cleanup that you have done with the franchisee and multi-brand channels in the past quarters, not only in Hering, but also others. How do we go into the second half for these channels?"
Luis, good morning. Thank you for your question. This work started at the end of 2025. We had sell-out and sell-in that was historically at healthy levels of 2x . However, in the beginning of 2025, end of 2024, it reached 1.8x . That is a coefficient that is part of the main KPIs that our team analyzes, because the health of our franchisees is essential for a long-lasting company. That work was done, and you can see the results in the second quarter, no less than -4% in sell-out and a decrease of 21% in sell-in. Now you can expect that balancing out, the performance of sell-out and performance of sell-in.
Thank you, Alexandre. Next question is from Vinicius Trema from UBS. He has two questions. The first one is about Farm Rio Brazil. Can you give us some more flavor about the Farm Rio performance in Brazil? How do you see sell-out, sell-in, and what is the evaluation about the level and quality of inventory for the brand?
Thank you, Vinicius, for your question. I will start off with the second part. Inventory level, I would say, is extremely healthy. It is the lowest level that we have had in apparel for our group by far. Very fast sales that Farm Rio has. Even in some specific categories, I would say that it is very optimized, and according to our assumption for the group is strong cash generation and inventory reduction.
And we also have opportunity to review the quality and the intensity of the Farm stocks. As for the sell-out performance, worth highlighting that the 2024, 2026 cycle in Farm doubled in size virtually. So it is a very strong expansion cycle that we knew that in this time period in 2026, especially in the second semester, what we had invested, the seeds had been planted, and the fruits were coming. So when we started this process to analyze and how to maintain this growth with Farm, and at the same time with the premise from the Azzas Group of the reduction of inventory, reduction in CapEx, it is a bit contradictory. So this work that Morgan Stanley was hired to carry out is here to bring a new cycle that is very well designed.
Our strategic planning is very well designed, but we are at this transition moment from a very virtuous cycle with strong investment in the past two years in this brand and a plateau in this growth due to actually being very high values. It is the biggest brand in women's apparel in Brazil by far. Farm alone this year is going to have as revenue globally 3.5 billion BRL. And now it is going through a reinvestment. The actions are fantastic. The branding is strong. You will have collabs with Farm from the second semester from Stanley. I do not know if I am allowed to say it. I am not. Okay, a partnership with an international collab that we will be launching in the second half of 2026. I think we can say it. We can say it. There is a collab with Farm with Real Madrid and Diesel.
It is going to be very strong. So we are very confident that in terms of awareness and distribution, the brand is doing well, but it needs a new cycle of investment that is being well designed and well matured. About sell-in, the brand has a distribution that covers all of Brazil. The growth that we have with Farm last year was very strong. It was beyond our expectation in the first year, so it is normal that it stabilizes this year.
Thanks, Alexandre. Vinicius' second question is about the scenario of expenses and points of efficiency. The question is, how do you see the scenario of expenses for the future, and what do you see as potential points of efficiency that can be captured?
Hi, Vinicius. Thank you for your question. We know we grew 5.3% in our SG&A. Breaking this down, we go to fixed expenses a bit over 9.5%, especially in CTO, which is occupation, in lease, and lots of investments in the expansion of Farm internationally that Alexandre mentioned is one of our pillars for growth in the company now. In the variable expenses, we grew less than inflation.
We grew 3%, and the main growth came from PDD, which we have 13 million BRL that we recognize as losses from doubtful debt debtors. Even with our default dropping, we are conservative in the older accounts receivable, recognizing that the chances are that this number is going down. But the others, consultancy, travel, we were diligent, and it dropped to 6.4%. About the future, we talk a lot about this. We are an industry with high gross margins, so we need to sell. We made the decision to hold sell-in.
Once we go back, the ratio between SG&A and sales is going to normalize. This being said, the SG&A work continues. We see lots of opportunity, people, commissions, marketing, freight, and storage. We have a plan ongoing that is going to have impacts more to the end of 2027 because its execution takes some time. I hope it was helpful.
Next question from Daniela from XP. She asks about gross margin and working capital. In the quarter, cash generation and gross margin, especially working capital, were positive highlights, but both end up being strongly related to the situation of stock adjustment where you're not growing. How should we consider the dynamic for working capital and gross margin when you recover growth?
It's Eric again. Daniela, I'm going to speak and then maybe Alexandre wants to contribute. Thank you for your question. It's an important point. I think from this vision, from the time that you are getting away with inventory, you're working with the worst scenario for gross margin. This is the nature of the industry. The trend for the gross margin in the channel has to be positive, which contributes for the margin ahead.
Once you're reducing stock and working on that, this is how you're going to reduce. And we managed to have an expansion in margin even in this scenario. Of course, how did we manage to do that? We could with a biggest mix of sell-out and sell-in with a bigger gross margin and also a lower level of markdown in our brands, as Alexandre mentioned. When we talk about the cycle of working capital with the reduction of inventory, we managed, it was an energy shock to reducing the cycle in 31 days. So we adjust inventory.
If you look at our working capital cycle is one of the best in the market today. Then we have the cash generation that we have of BRL 280 million, BRL 50 million came from reducing sales. You reduce sales, you don't need working capital sell-in. But to what, BRL 220 million, BRL 230 million comes from this structural improvement that we're doing. Going forward, we believe that most of the working capital is gone. It has been mostly captured. What we need going forward is to ensure the maintenance of this level of working capital and recovery of sell-in now that the relationship between sell-in, sell-out are healthier. What's interesting for you to get to know is we work a lot with working capital over net revenue. Today, about 25%. The goal for the future is to reduce this number drastically.
But not that, but to grow that indicator, keeping this healthy level that we reached.
Eric, excellent actions. Danny, thank you for the question. I don't have anything to add, but to say, Danny, that on Monday, on the 17th, I adjusted my agenda. I don't think Bianca even knows it. I'm going to be able to participate in the XP conference in Rio de Janeiro with a restricted timeframe, but it's going to be a pleasure to be with you.
Danny has a second question, Eric, about the change in the stock provisioning rules. She wants to understand what the change was and if this stock has been mostly sold or it's going to benefit the margin in the next quarters.
Danny, let me clarify what we do. We made a decision, the company, to try a change in our perspective about how we see inventory and how we are going to transit that in our statement. We reviewed the provisioning rules to increase the adherence in the profile of aging of our inventory, and the new premise is to recognize the loss of shoes and other raw materials as zero. We have always recognized it, whatever is over two years. We have always done this since 2022, 2023.
It had a one-off impact of BRL 70 million. BRL 15 million is raw material that we believe we are not going to be using for our clients, and this generates a huge improvement from now on in how we are going to see the business. Zero improvement in gross margin, of course, because the central point here, it is because this inventory is going to be discarded. We are not going to use it.
It is mostly from now on, we have no margin gain because of that, but we are going to be more aligned between what we provision and what we use in the day-to-day in our business. Therefore, the vision of putting this as non-recurrent, because it is things from 2022, 2023.
Thanks, Eric. We have a lot of questions. I will try to get one or more from each analyst due to our time. Next question comes from João from Citi about the growth in own stores for the Schutz area. What was the most relevant factor that generated this improvement in a challenging macro environment? This is going to bring a broader recovery soon.
Thank you for your question. This is a process that started at the end of 2025, when we had a big change, especially in the management of product with a growth under the leadership of Rafaella Furlanetto, and a big adjustment in the mix of products, especially in the Arezzo brand. I remember at the XP conference last year, I talked about this. We managed to bring a consumer that we had lost, that looked for shoes that looked like shoes, more casual. Besides, we had a great improvement about the perception of cost benefits from our products. This is something that we also talked about for the Arezzo brand and for the Schutz brand. It was an issue of positioning and branding. It was a work that we solidified this first semester, exceptional results from the Schutz brand, especially for boots, which dominate in the winter.
We managed also to set a reduction in the sneakers category that reduced worldwide for casual sneakers, and the Schutz brand grew a lot in boots. Today it has a very good positioning that is for their core consumer. The bags category has opportunity for growth, especially with the improvement of international sourcing. I know it is consistent work that we are doing that is very well executed in the second quarter.
Second semester, you are right, we are being conservative in our assumptions. We have a capacity when we do well, that we can react quickly and grow. We had a very great sell-out positive for the cruise in July. Now in August, when we turn the campaigns, we are very confident that we will have a Q4 very successful in the Legado, Arezzo, and Co.
A question from Morgan Stanley, Alexandre, what about the health of the Hering brand? I understand the impact of the reduction of discounts in the sell-out, but do you see any issues as for the health of the brand? The growth in the orders for the summer collection seems to be a positive indication of recovery. But is there any data that makes us more convicted that this recovery more sustainable going forward?
It's a great question, Alexandre. Thanks for your question. The answer I have to you is a strong conviction that we have because in the past, we didn't have a branding problem at Hering, but there was a deviation from its core audience. The Hering brand became premium, and it was losing the share in the B2 and C classes.
A well-done work done by the team from maintaining great quality in terms of images and product, but bringing a communication that is more accessible, more democratic, bringing product at an entry point, P0, for example, the Brazil T-shirts, because branding is not just marketing, it is product with it. Hering is coming with in a moment that it's going to reaffirm its leadership in the segment of basics. It's worth saying that from 2027, some important levers of growth for the Hering brand. One of them is Hering Sports that is having a great performance.
We have expanded the number of stores that distribute Hering Sports. Still has low percentage from the total of the brand, but with great sell-out results. We're developing new formats for stores as well for the Hering brand. But we're sure that we are on the right track. There are great adjustments. We also applied due to an excess and reduction of inventory in some specific items in the first quarter. But for positioning and brand positioning, we are aware that the work is being done.
Thank you. Now we have two questions related to multi-brand. The first from Bob from Bank of America. Related to the adjustments of the inventory of these clients, multi-brands, there is a work to do. Another from Felipe Rached is about our conservative approach that we have feel from the multi-brand clients. Is it related to the macroeconomic scenario or is there any other factor? The second question from Felipe Rached from Goldman Sachs.
Thank you for your question. The multi-brand channel is very important for our business. The origin of footwear was from multi-brand, so we're very close to them. When we talked about per business unit, an expressive reduction in footwear, that's a result of Vans. In the women's shoes, that reduction is small, and it's given not because of buying less, but because of some points of sale that were closed in Brazil. So the capillarity of that channel is very big, and during sensitive moments in the economy with higher interest rates, that's a channel that has higher exposure and volatility in that sense. In Apparel, be it women or men, we were more selective in granting credit on purpose, and we decided to focus on the health of our customers.
In terms of share of wallet, we haven't seen any new entrants that have been taking away share in all product categories. Revenues in multi-brand is very expressive in our business. It is responsible for driving our gross profit and margin, so we pay a lot of attention to that channel. For in shoes and bags, you can see the energy at the event. It's worth visiting. In that collection, we want to sell BRL 170 million in multi-brand, and here in São Paulo during these days, we'll be working together with our store owners to grow share of wallet.
Thank you, Alexandre. Last question from Santander. It's about the rate of recovery of growth margin of Hering. The growth margin has increased 120 basis points, but what makes you believe that there's still a representative inflection that would come in the second half, and it won't be postponed? What are the specific levers that support our schedule?
The growth margin of Hering is 4.4%. It's positive growth. It's worth knowing about the mix. We had a reduction in the sell-in owned stores greater than in sell-in. So when you look at the margin, it's consolidated in the channels. The variation is very big in the sell-in channels. Currently doing assertive pricing plan, so that will grow in the half year, and it'll be positive in growth, but not with main levers. We've been working a lot full price sales. That's been helping to lower inventories and lower the sales in markdowns, and a lot of work in international sourcing. So we've been focusing on having new suppliers, better negotiations. It's not a silver bullet. It's constant work with a gradual change and absurd control of our team in that important KPI.
Perfect. Thank you. Is that it? Okay, we've reached the end.
I would like to thank and recognize our entire team. Even during important moments in making difficult decisions in external environment that's very challenging, we were able to preserve what's most important, which is the strength of our brands and retaining our team, even during times of a lot of transition. That is very important. With a lot of dedication and passion of our team for the brands that they operate. Financial information, we mentioned that we were very effective in cash generation. I'd like to recognize the commitment of our team, of leadership, of all our business units, all our brands. We have clarity of the challenges that we face, that we have to improve, and above all, absolutely focusing on execution so that we have a second half with better results.
Priority is to stabilize inventory for our franchisees, grow sales, and consequently, operational leverage. Thank you very much, and we wish to have a very successful