[Foreign language]
We will start Lojas Renner SA video conference. With me today are Fabio Faccio, our CEO, and Daniel dos Santos, CFO. Before giving them the floor, I'd like to make some announcements. This video conference call is being recorded and translated simultaneously into English. We will show here the presentation in Portuguese. For those following the call in English, the English version can be downloaded from the chat and from our IR website. Questions from journalists can be directed to our press office through the number 11 3165 9586. Before proceeding, let me mention that forward-looking statements relative to the company's business perspectives, projections, and operating and financial goals are based on assumptions and information currently available to the company. They are not a guarantee of performance. They depend on circumstances that may or may not occur in the future. During the Q&A, we will only accept live questions.
Fabio, over to you.
[Foreign language]
Thank you, Carla. Good morning to all. I would like to thank everyone for joining us today to discuss Lojas Renner SA's first quarter 2025 earnings, as well as our vision for the future. In this quarter, Renner's strategic initiatives, which have been developed over the last few years, are already bearing fruits, benefiting our results. Our retail operations recorded a 12% growth compared to the previous year. If we look at apparel, apparel grew 13.5%, apparel sales. In addition, our gross margin increased by 0.6 percentage points over the same period last year. Another important point is that this is the fifth consecutive quarter in which we have managed to have expenses dilution with a reduction of 1.3 percentage points on net revenue. Still, we know that we still have opportunities here.
Part of this performance already reflects the gradual efficiency gains of our business model, which began in the third quarter of 2024 and continues to gain traction. The actions that we have implemented at RealEasy over the last few months have also boosted the performance of our consumer finance business. In our total result, our consumer finance business grew around seven times year on year, already excluding the positive impacts of the new rules of the Central Bank of Brazil. With the new rules, 14 times more, even net of this effect, operationally seven times growth. This growth was driven primarily by the reduction of losses and credit risks in the portfolio, combined with the evolution of the team and improved credit-granting tools. RealEasy is now ready to pursue its purpose of fostering retail growth.
Another important point is the execution of our buyback program, which reaffirms our commitment to creating value for our shareholders. In February in the past earnings call, we announced an 18-month buyback program. In the next cycle, right now, at this point, we have already executed 62% of the program. We intend to complete the entire program on time because we firmly believe that investing in the purchase of our shares is one of the best investments at this time. The sum of all the actions to evolve retail and the consumer finance business led net income to increase by 59% and earnings per share to go up 65%. In addition to increasing the return on invested capital, our ROIC, which over the last 12 months grew by 1.9 percentage points, we expect continued growth in EBITDA, earnings per share, and ROIC in the coming months.
I would also like to talk about where we currently are and where we are going. If we imagine Renner as a huge ship, what we have done over the last few years was change the engines of that ship in full scale. We have streamlined fashion execution, used AI to capture trends for allocation, distribution, communication with our customers, and further integrated our suppliers network. We have also integrated our on-and-off inventories, increasing the availability of our assortment, all of that in a 100% SKU fulfillment system. We invested in in-store technology, expanded into new cities, and are going digital faster. At the same time, we adjusted RealEasy to continue its role of leveraging retail through loyalty building and credit.
Our focus of an investment cycle like this was not on immediate gains, but rather on preparing our crew and our ship to make safer, longer, and more efficient voyages for many years to come. Our current model sets us up for a long growth cycle with profitability and efficiency. When you replace a ship's engines, you need periods of testing and calibration. Only then can you gradually accelerate until you reach maximum performance. What sets Renner apart in the market today is that our model is already more in tune with new consumer habits, allowing us to grow in an integrated and flexible way. It is important to remember that our percentage growth happens in very high nominal basis. So, our growth happens in other dimensions, both top line and value creation.
Even so, with our investments, we now have the potential to resume average growth similar to our best historical periods on a much higher nominal basis. The testing period ended in the first half of 2024, and it was a little longer than we anticipated initially. We are over it. Now we are at the beginning of our full performance potential that we estimate we will achieve between the end of 2026 and the beginning of 2027. Our focus is on accelerating the reaping of the benefits, and our expectation is to grow consistently and profitably over the next few years without the need for major new investments in infrastructure for that. We are sailing in that direction. I would once again like to thank you all for attending, and I hand over to Daniel so that we can look at our results in more detail.
[Foreign language]
Thank you, Fabio, and good morning to all. Very well, let's speak a little about growth. In the first quarter of 2025, retail revenue grew 12%, with apparel sales achieving 13.5% growth. Sales were driven by higher volumes of transactions and pieces sold as a result of a greater flow of shoppers and a collection composition more suited to our customers' profile. This growth was also the result of a higher average price made up of a better mix with inventory of a better quality as a result of the reduction of old inventories and price adjustments that were made. As for price adjustments, we have started a gradual adjustment, passing through part of the cost effect, a move that will continue throughout the year.
These price adjustments have been made carefully by monitoring the market and the performance of the products, with a focus on the positioning of our brands, and have not affected the perception of our customers or their intention to buy. This, in a way, gives us confidence in the price dynamics for the rest of the year, which should be close to inflation. Our digital channel achieved 15% growth, once again gaining share and with improved profitability. We have improved our search tools and the display of products by trend hubs, which has improved the assertiveness of customer browsing and conversion. As concerns Q2, we continue to see good consumption dynamics so far, and we have good expectations for the quarter.
Our comparison base for 2024 is weaker due to the impact of extreme climate events, the floods, as well as the longer lead time for fulfillment in the final stabilization phase of the São Paulo D.C. that happened in the second half of last year. Back then, these effects impacted us by around 500-600 basis points versus market performance. This year, temperatures have normalized, and we have made progress in our supply and fulfillment. We know that the second half of the year, due to the macroeconomic scenario, may bring greater challenges for household consumption, and our comparison base here is stronger than in the first half. We remain confident that our business model, which is more flexible, agile, and precise, will allow us to follow a competitive growth path with gain in market share.
As for the gross margin, we continued to make progress in gross margin even against the backdrop of inflated costs and foreign exchange pressure. We closed Q1 with a healthy gross margin of 55.1%, 0.6 percentage point higher than Q1 2024. Apparel sales gross margin grew by 0.2 percentage points, reaching 56.2%. Despite the negative impact of 0.3 percentage point of NPV, a similar impact to that of Q4. This performance was possible thanks to efficient inventory management, agility, and flexibility in capturing trends and developing collections, as well as gains in precision and agility in store supply and fulfillment. These actions allowed us to achieve the lowest markdown levels in the last 10 years. We ended the quarter with a 13% increase in the financial volume of inventories, both due to higher acquisition costs and to higher volumes purchased to supply Mother's Day period and the second half.
For Mother's Day event, we have well-stocked inventories and well-prepared store teams. We have also started a new marketing campaign, which was activated on several channels. At Youcom, the 0.8 percentage point increase in margin reflected better commercial and inventory management. Camicado achieved record gross margin levels for a first quarter, with an increase of 5.4 percentage points as a result of the greater share of private label products with greater differentiation and competitiveness. As for the full year, we continue to expect healthy and stable gross margins compared to the previous year. This expectation reinforces our confidence in being able to resume and even surpass pre-pandemic gross margins. However, 2025 will be a more challenging year given the level of inflation and exchange rate volatility.
As for our exchange rate exposure, it is important to highlight that our imported orders are already hedged until September and below BRL 6, which added to the implementation of prices that took place on schedule and improved efficiency in inventory management, gives us more peace of mind about gross margins in 2025. Regarding our expenses, operating expenses grew by 8.6% in the quarter, growing less than the 12% expansion in net retail revenue, which allowed for 1.3 percentage point of operating leverage in the quarter. General and administrative expenses showed a dilution of 0.6 percentage points and grew by 7.3%. This growth reflected, in addition to inflation in the period, a higher volume of operated items, which impact the line items of freight, packaging, and personnel. We also had project expenses related to systems, platforms, and regulatory adjustments, which impact personnel expenses and third-party services.
These expenses were already expected and will still have a bearing during Q2. For the second half of the year, we expect these expenses to lose relevance. In the second half of 2025, the migration of the digital operation to the new Cabreúva D.C. will allow us to be more efficient in terms of expenses. We acknowledge that the expenses level remains high, and we continue to seek efficiency in our operations, and we are certain that the investments we have made in the business brought us structural efficiency gains and will continue to do so even more with sales outgrowing expenses. Now let's speak about our consumer finance business, RealEasy. RealEasy has delivered another quarter with significant improvements.
The result of BRL 190 million reflects lower net losses recognized in the period as a result of the improvement in portfolio profile, but also the effects of applying Resolution 4966, which impacted the deadline for recognizing interest on arrears and write-offs of past due portfolios. Excluding these effects, the result was approximately BRL 95 million. Still a very positive evolution, as mentioned by Fabio, mainly on account of the improved quality of the portfolio. Our credit-granting model remains robust and precise, the result of a healthy portfolio with a low-risk profile, placing RealEasy in a positive position for the current credit cycle in Brazil. It is important to mention that our over 9-60, an important delinquency indicator, even excluding the impact of the regulation, closed at 14.1%, a 4.3 percentage point reduction over the previous year. Our short-term delinquency remains at low and controlled levels.
As long as an uncertain macroeconomic context persists, we will continue to offer more cautious credit with gradual movements and focused on less risky profiles, mainly through our private label, thus guaranteeing continued support for retail sales while maintaining the quality of our portfolio. Regarding the impact of Resolution 4966, I'd like to take this moment to perhaps give you a little more detail on this, given that the impact was substantial in the period, and it is important for RealEasy in the coming quarters. The first concept is the accrual of interest up to 90 days in arrears. Previously, RealEasy booked past due interest in up to 60 days. Now, it will be 90 days. This benefited the interest income line item by BRL 50 million. As this is revenue in arrears from the start, it requires a provision for losses according to the percentage of expected recoverability.
This negative effect amounted to BRL 20 million. Therefore, we have a net positive effect of BRL 30 million on the results for Q1 2025. This effect of higher interest income and greater provision for losses is a recurring effect that will be observed in every quarter. The second impact refers to the write-off of portfolios overdue after 540 days. RealEasy used to write off a portfolio when it was 360 days overdue. Now, this write-off will happen when we reach 540 days. This impact in Q1 2025 was BRL 65 million and will only be felt in Q1 and Q2 2025, not necessarily at the same proportion, but it will impact both quarters. As of Q3 2025, we will no longer have an impact on the write-off of the portfolios. Thus, if we exclude the effects of Resolution 4966, these two impacts I've just described, RealEasy's operating result was BRL 95 million.
It's important to remember that portfolio indicators are also affected because the outstanding portfolio is now 540 days. We will keep the 360-day indicators available on our fundamentals spreadsheet and our IR website so that you can follow this evolution more adequately, being able to compare the indicators now versus the past. It is also important to understand that the impact of this resolution on Renner's Q1 and Q2, we have to understand the impact of this resolution on Renner's operating result, avoiding extrapolation of this result in the same proportions to the other quarters of the year. The effects of the changes vary according to the behavior of the portfolio in each period. Total EBITDA grew 55% with EBITDA margin of 21.2% by virtue of the improvement in the retail and financial services segments.
Undoubtedly, this comparison was impacted by non-recurring items in retail, such as tax credits, and in the case of RealEasy, the new regulation that I've just explained. On a recurring basis, adjusted EBITDA grew 56% to BRL 470 million, with EBITDA margin of 17%, up 4.9 percentage points compared to Q1 2024. Net income was up 59%, reflecting this improved operating performance. On a like-for-like basis, recurring net income grew 71%, reaching BRL 151 million. Just as Fabio mentioned, earnings per share, following the 62% execution of the buyback plan, which reduced the outstanding shares by around 4%, grew by 65%. Accumulated ROIC for the 12 months rose by 1.9 percentage points to 13.3%. I hand the floor back to Carla to start the Q&A section.
[Foreign language]
Let us begin the Q&A session. To ask a question, please click on the raise hand icon.
In order to give more attendees a chance to participate, we kindly request that each analyst only asks one question at a time. If necessary, please return to the queue for additional questions. First question from Danny Eiger with XP.
Hi Danny, how are you doing?
[Foreign language]
Hello, good morning. Thank you for taking my question and congrats on the results. My question is related to gross margin. You talked about passing through prices and doing that more gradually. We saw IPCA for apparel. It accelerated a lot compared to the levels of February and March. Perhaps you have room to continue this move. You said before that you were planning to pass through price increases below inflation, now more in line with inflation. Combined with probably a better mix, these are positive drivers in terms of the gross margin.
How should we think the gross margin dynamics for the year, considering these drivers of price, perhaps mix? Perhaps we see a great exposure of private label. I know this is small, but perhaps in the cosmetics part. If you could give us more color in terms of the drivers that could sustain the results for the year, that would be very much appreciated. Thank you.
[Foreign langauge]
Danny, thank you for the question. As you said it yourself, there are many components to the gross margin. I would say that yes, at this moment, what we saw in the quarter, best in the past quarter, we said that we could have started to make price adjustments. We did not do it in the fourth quarter, and I guess that we missed an opportunity. We did this over the first quarter, and we reviewed some prices.
For the average of the quarter, our average price adjustment was below inflation, as we had indicated. We monitored this day by day, product by product, category by category, to see what is the correct price point for our customers, and also considering competition from the market. When we look at the end of the quarter, we have pricing, which is very much aligned with inflation. I guess that the big margin increase will also come from the fact that we have newer inventory. I think that this is the main point about growing the margin. We have been able to have a newer inventory coming in with new collections all the time, bringing new products. A good part of this brings a higher average price, not due to price adjustment, but due to lower markdowns.
We actually mentioned that we had the lowest markdown level in a quarter for the last 10 years, and that contributed a lot to gross margin. Undoubtedly, as the adjustment is slightly above what we expected, this will contribute in the future. Your question was, how do we see gross margin in the future? It is kind of hard to affirm because there are many variables. We have price adjustments, that is one component. We have the component of newer inventories selling faster. We also have the exchange component. We are hedged, but that is also variable. There is also adjustment to present value, NPV, 8.3 percentage points of our margin. It would have been 0.9 and not 0.6. It really depends on the interest rate cycle, whether it stabilizes and whether and when it will start dropping.
Putting it all together, I'd say that our expectation is to have at least a stable gross margin vis-à-vis last year, perhaps with a slight upside of growth. Daniel, would you like to add?
[Foreign language]
Fabio, I guess you said it all, but we have a number of variables, as Fabio mentioned. On one hand, we are hedged, as I mentioned, on below BRL 6, but the exchange rate is higher than last year. There are still some cost pressures. There is also the interest rates component, which can impact NPV. We don't know exactly when the interest rates will change. Today, the margin will be at least flat, as Fabio mentioned. We'll have to wait and see how the variables will evolve so that we can bring you a different outlook, perhaps more positive than what we are seeing now.
[Foreign language]
Excellent. Thank you very much.
Again, congrats on the results.
[Foreign language]
Thank you, Danny. Next question from Ruben Couto with Santander. Hi, Ruben. How are you doing?
[Foreign language]
All good here. Thank you for taking my question. Fabio mentioned that one of Renner's differentials today, after all the investments and adjustments made, is the company's ability to suit changes in consumption habits of the shoppers. In this context, regarding your strategy and view about the online channel, how is it doing today? What do you think you can do differently looking forward? Just yesterday, we had the launch of TikTok Shopper, and you have a very assertive presence at the platform. I would like to hear how you see the potential of this new channel. The online channel as a whole, to what extent is it an important lever for growth to achieve the growth that you mentioned along 2026 and perhaps 2027? Thank you.
[Foreign language]
Thank you for the question, Ruben. You mentioned online. We made a very strong investment in improving collections, in granular inventories, but we also invested in the digitalization of the stores and on the online journey. One of the important benefits we have when we bring online and offline to an omnichannel is the back office. Because we see investments for the shoppers, what is happening at the brick-and-mortar stores and other functionalities, but having a 100% integrated inventory allows us to have 100% of the inventory available to our customers. That improves the assortment available, it improves the delivery lead time, and it reduces operating costs and the costs to serve online. I guess that we are better positioned at the moment to better serve the online shoppers with a good customer journey, lead times, and availability of products.
More than that, when we look at the shareholders, we have to do all that in a profitable way. If we look at recent years before the pandemic, we had 3% online market share. It grew to 15%-16%. This was painful growth over the years. When we posted this growth, it came with a dilution of earnings. We had a cost to serve and an online conversion, which were more difficult, and that diluted our earnings. Right now, we are positioned to grow both online and offline, both operationally and with our P&L level. If online grows a lot more than offline, it will be positive for our results. I know that this is not so for most of the operations.
We are very confident that we are prepared to grow in our brick-and-mortar stores offline, bringing the results as we have always had and online, generating even more results than we had before. I guess that this is very positive for us. This was hard investment over the years, but we are happy because we are prepared for that. In terms of conversion, cost to serve, we have, for example, 70% of our online sales over our app. Our app is downloaded because we have embedded services in the app to help in the brick-and-mortar stores. This works really well for our customers and for our results alike.
[Foreign language]
Thank you. Next question from João Soares with Citi.
[Foreign language]
Can you hear me, Carla?
[Foreign language]
Yeah, we can hear you. Go ahead.
[Foreign language]
Excellent. Good day, everyone. I have some brief questions.
Fabio, what are you thinking regarding expansion for this year, next year? Do you see any room to expand opening of brick-and-mortar stores? I'd like to hear what you're thinking about expansion. In your opening remarks, you spoke about having room to improve expenses. So you're working on SG&A and looking forward. I know that this is a recurring question, but I would like to understand the benefits of the Cabriuva D.C. We understand that you're going to downsize the other D.C. I want you to give us guidance, but perhaps elaborate on the opportunities because that would be important. Lastly, how should we think the RealEasy results? The results, excluding the effects of Resolution 4966, came exceeding the expectations. What are the drivers we should consider this year, considering that the portfolio is lower? How should we consider, how should we expect RealEasy results to be?
[Foreign language]
I'll answer the first question about expansion. Daniel will speak about RealEasy and expenses. Regarding the expansion, as we said in the beginning of the year, we are very confident in our expansion model, particularly Renner stores in other cities. Youcom with a lot of potential as well. Right now, we're estimating we'll be open between 10-15 Youcom stores in the year, 15-20 Renner stores, and one or two Camicado stores. We'll resume the opening of Camicado stores. At this point, it is hard to promise to accelerate the expansion plan this year because, again, we are looking for the best locations. We're very demanding in terms of where we are going to open the stores.
We know the cities and the markets, but we always have to look for the best location to have a good project. We have a much greater number of projects for the coming years. Our intent is to accelerate because the potential is there and the performance is very good. For this year, we should have this range that I just mentioned with potentially expediting the plan. As for expenses, João, when we speak about expenses, I think that the first part to keep in mind, it's kind of what Fabio answered in Ruben's question. The company 2025 is different from Renner in 2019. When we look at digital penetration, this becomes very clear. It's a very clear and evident example. We had a company with 2%-3% online penetration. Now we are operating at 16% penetration.
To be successful in an omni world with the online and offline worlds, we had to make a number of investments in structures, in studios, in investments in the way in which we can be successful in social media and on the digital environment. When we think about the investment made in the D.C., a part of the investment is related to bringing success in this omnichannel world. These investments made brought in more expenses. These investments were made in order for Renner to be more competitive. This competitiveness is what will allow us to gain more efficiency over time. We recognize that the levels are high, the levels of expenses are high. We acknowledge that, we know that.
We are confident that all investments made and that these expenses will allow us to, on one hand, continue to pursue efficiency and will continue to do that, to do what we already do even better. Also, we need to be able to grow generating leverage. This is what we saw over 2024 and what we saw in Q1. This is our commitment for the coming quarters. We believe that 2025 is going to be a chapter. 2026 will be a second chapter. Over this period, we will be able to get sequentially some leverage gains. Regarding RealEasy, first, when we broke down the impacts of Resolution 4966, the goal was to make it clear that the structural result of RealEasy continues to evolve positively. We believe that RealEasy can potentially continue to improve on a comparative basis.
Last year, we already had an evolution over the quarters. The trend is that this evolution will continue. As we have a better comparative base of last year, this improvement will be reduced. The effect of Resolution 4966, like I said, a part of this is recurring. This will need to be modeled considering the evolution of the portfolio. Another part is non-recurring, like I mentioned. It happened in Q1, and the effect will happen, will be felt in Q2. I think that this will allow us to have a good modeling. Like I said, regardless of Resolution 4966, we believe that RealEasy results will evolve positively over the coming quarters. Daniel, just to make clear, this result improvement, would it come from any specific line item? Perhaps cheaper funding? Anything we should think about?
[Foreign language]
No.
When we compare with, since last year, we've been having improvement in losses over the year. One of them is losses. There's also the funding portion, which you commented and which is important. We highlighted this. Since now we have funding directly from Renner, it's an intercompany funding. This generated a benefit in Q1 that did not exist last year. We'll have a benefit in Q2 and in Q3, but we had part of that in last year. It will also generate an effect in Q4, but part of that already existed. You will see this kind of evolution over the period. An evolution of funding, like I've just mentioned, and the sequential improvement of losses. In Q4 2024, when we get to Q4, we will have a more likely basis of comparison because in Q4, we already had a very positive basis.
[Foreign language]
Thank you, João.
Next question from Luis Guanais with BTG.
[Foreign langauge]
Hi, all good. Here, Carla, good morning, Fabio. Daniel, I have two questions on my side. First, regarding gross margin in Q1. If you could break it down for us, what was the exchange rate effect on the gross margin? Because this was one of the big highlights for Renner and the effect of the D.C. contribution in the quarter. The second question is about credit. Perhaps you could elaborate on the elasticity of demand for loans at RealEasy. How you saw this in Q1. Daniel, you said that you intend to evolve this gradually over the year. How do you expect this elasticity to evolve?
[Foreign language]
Thank you, Guanais. Thank you for the questions. As for the gross margin, kind of difficult to say what came from what.
A good part of the gross margin improvement came from the quality of our inventories. We always have new collections, and we can send a higher part of the collection at full price. This is what has been the biggest factor increasing gross margin. Looking at Renner and Youcom, there was a reduction in markdown. The lowest markdown level in the last 10 years. We are selling more at full price, selling less with markdowns, and this is what drives up the gross margin for Renner and Youcom. Still, we have to add that this growth would have been 0.3 percentage point higher because NPV, given the increase in interest rates, ate up some percentage points. Since this is included in the gross margin line item, the real operational gain is even higher. Looking at Camicado, the effect is different.
We said it in our investor day in 2023 that we were moving towards a very strong strategy of having Camicado score business very similar to Renner's and Youcom score business, which is development of collections, development of our private label. At the time, we had about 10% of our product mix coming from our own development. Now, this has gone up to 80%, and that's why we posted such great growth. This has been happening along 2024, but even comparing with 2024, we posted a relevant increase in gross margin of Camicado, a reflection of a greater share of products developed by our team and also by a newer inventory and reduction of markdown. The same effect. Would you like to add anything about the margin, Daniel?
[Foreign language]
No? It's perfect for me, Fabio.
[Foreign language]
Would you like to speak about the credit environment?
[Foreign langauge]
I can speak about RealEasy.
To address your question about RealEasy, the question was quite interesting because let's look at Q1. In Q1, when we look at our customer base, it's stable vis-à-vis last year. Obviously, we have a stable portfolio, a reasonably stable customer portfolio or customer base. Of course, we have originations, but the portfolio is performing stable. The point you mentioned about the elasticity, I see this as an opportunity. Of course, we are in a credit moment that presses for more caution, but in a credit moment like this, when that is more restrictive and we have our private label tool, there might be an opportunity there for us to work granting credit, giving more time to pay in our private label tool, to have maintenance of tickets at the same level for the portion of the population that is facing more difficulties.
Just to allow people to shop at Renner with access to credit. Of course, we have to observe how this will unfold over the year, but this might be an opportunity. However, I am sure that in the coming years, this will be an opportunity. How much elasticity we'll have? This is something we'll need to test. The RealEasy team has new loan granting tools, and as the environment allows, we'll increase our originations. I have no doubt that this will help our retail performance, which is the core goal of RealEasy.
[Foreign language]
Let me add to that, Daniel. Elasticity and demand do exist. It's just that we are being more cautious given the scenario that we're expecting. We are being more cautious in granting credit, but the demand is there.
The moment that we see a safer outlook, a safer scenario, of course, this will be a potential driver for us.
[Foreign language]
Excellent. Thank you, Daniel and Fabio.
[Foreign language]
Thank you, Guanais. Next question from Melissa Byun with Bank of America.
[Foreign language]
Hi, Melissa. How are you doing?
I'm well, thanks. Hi, Fabio, Daniel, Carla. I wanted to ask a little bit about Argentina. First, how much of an impact is spending by Argentine tourists having on sales in Brazil? And then how are your stores in Argentina performing? Are you reassessing your growth or expansion strategy given the improved outlook?
[Foreign language]
Happy that I made you saw. I will quickly summarize your question. The first part of the question is related to the contribution from Argentine tourists in our sales in Q1.
The second part of the question is more about our performance, performance of our operations in Argentina and what we are thinking regarding the strategy to expand there.
[Foreign langauge]
Hi, Melissa. Thank you for the question. I think that yes, Argentina, both the operation of our Argentine stores and Argentine tourists in Brazil were both positive, okay, in the quarter. I think that the economic recovery of Argentina has been helping everyone, and it was no different for us. We have a positive impact of Argentina operations in this quarter of about 0.4 percentage points in our growth. The operations are performing well. Tourism from Argentinians in Brazil, that is kind of more difficult to calculate precisely because we have a lot of foreign tourists coming. This has a seasonal nature. This year, we have had more tourists.
We did an estimate of the impact, and we believe it is between one and 1.5 percentage points of positive impact from Argentinian tourists. Regarding expanding the number of stores in Argentina, this is real, the success. We only have four operations in Argentina so far. We could have at least 10 times more. Right now, we are not expanding or making this expansion now. We want to be cautious. We want to understand whether the geopolitical scenario in Argentina will continue to positively evolve. That is another potential future driver for growth. If we understand that Argentina continues on the right track, on a good track, in one or two years, that could be another line for store expansion.
[Foreign language]
Next question from Rodrigo Gastim with Itaú BBA.
[Foreign language]
Hi, Gastim.
Hi, all good here. How is it going over there? Two questions here.
Fabio, you could go back to your comment about Q2 outlook. I'd like to understand what is happening. If we look at the proprietary data, we see an acceleration of apparel sales happening in Q2. There's also the comparative base that you mentioned, Fabio, but I'd like to understand two things. What is the sales dynamics performing according to your initial expectations in the first six weeks of the second quarter? My second question is just out of curiosity, in your perception, what explains this resilience of apparel sales at the start of the year? Four to five months of great resilience in a discretionary sector. What are the macro variables? Is it an income increase? Is it payroll deductible loans? What's helping apparel? That's my first question. Second question, going back to expenses. Retail expenses and RealEasy expenses.
In your perception, with four and a half months of the year elapsed, what is the pace of expenses dilution that will give you comfort for the year? Similar to what happened in this quarter, 1.1, 1.5 percentage points? Should we see an acceleration over the year? How are you thinking about expenses dilution over the year for RealEasy and retail?
[Foreign language]
Thank you for the questions, Gastim. I'll answer the first one. Then Daniel will speak about expenses. I would say that our expectation for the second quarter is, as Daniel mentioned in his remarks, we have a lower comparative base when we compare to Q2 last year. We had April and May as the warmest months in Brazil, and we have the autumn-winter collection. That is what happened last year. This year, we have temperatures that are helping us.
Since we have a somewhat weaker comparative base, we expect slightly higher growth. That is the calculation Daniel made in terms of what we think was the impact of both extreme temperatures and the floods in the state of Rio Grande do Sul that happened in May of 2024. Net of these effects, as Daniel said, last year, we should have performed 500-600 basis points better. The expectation is that this year, we will recover that, or at least part of that, and that we will post a good. The expectation is we will post a good performance in Q2. It is according to our expectations so far. We have a good expectation for Q2 so far. It is in line with our expectations, but it is too soon to say. Today and tomorrow are the two main selling days because of Mother's Day.
We will be selling a lot today and tomorrow. We still have more than half of the quarter ahead of us. We were also asked about what explains a good first quarter and a good second quarter so far for apparel sales. It is the characteristic of the sector, not so high average tickets. It is discretionary purchasing, all right, but it is a more affordable ticket for shoppers with fewer installments. It is a sector that historically is suffering less during crisis moments. This is natural if we think about past crises. Another point is that, yes, we do have some negative points in the outlook, inflation rate, high interest rates, but there are also positives. We have loans being granted, good employment rate. I guess that there are some pros and cons.
Maintaining consumption at a good level, particularly for our sector, for the kind of product we sell.
[Foreign language]
Talking about expenses, Gastim, to talk about expenses. Gastim, our commitment is to deliver leverage in all quarters of the year. Of course, when we talk about higher or lower than the coming year, I prefer to say that we have this commitment. It is kind of what I explained before regarding the investments we made and the ability to grow without the need to have more expenses. This is what ensures that we can get there. According to Q2 sales performance, is it possible that we will do better than last year? Yeah, it is possible. We need to see how Q2 will evolve.
What we can confirm is that, yes, we will pursue leverage, and it can be done through expense dilution or the level of growth that we can achieve. Also with a calendar effect.
[Foreign language]
Excellent. Thank you.
[Foreign language]
Thank you, Gastim. Next question from Joseph Giordano with JP Morgan.
[Foreign language]
Hi, Joe.
[Foreign language]
Hi, good morning, Carla, Fabio, Daniel. Thank you for taking my question. I'd like to explore again the expansion plan and renewal of stores. You were rolling out renewal of the stores. I'd like to see, I'd like to understand how you see the performance of these stores that were renovated and what is the percentage of the store park that you have under this new concept and what is the same store differential of these more modern stores versus the previous model. Second point, you mentioned that expansion will take place in smaller cities with perhaps less competition.
How do you see the performance of these smaller stores and how the new fulfillment model has been helping make these assets more profitable? Lastly, you're accelerating expansion. I would like to understand what you're thinking about street stores for Youcom because we still have stores in shopping malls, but I would like to understand the opportunity for other brands given the success you're reaching with Youcom.
[Foreign language]
Thank you, Joe. I will not be able to answer everything because I think that some variables are still difficult to quantify because this movement towards renewal, renovation of the stores is kind of new. We have different results. As they are very recent, we tend to compare with periods when the stores were being renewed. It is hard to give you an actual number of what more growth we are having vis-à-vis the other stores.
I can say that the number is always positive, and that is why we are accelerating the renovation of some of the stores. What matters is that we are able to do this with a lower cost per square meter in every renovation that we start. We are doing the renovations faster. We are being assertive. We are spending less, knowing what to change and interfering less time in the store. Sales loss are lower during the renovation period, and we have some pluses. We are investing in this. In all of the stores, the main stores that we need to renovate, we will renovate them this year. We invested in many of them being renovated last year. Many of them will be renovated this year and so on and so forth. The performance is positive. I cannot just give you a firm number, okay?
As for stores, random stores in smaller cities, again, we are posting a positive performance. This gives us more confidence to accelerate this plan. Performance has been good, and the new fulfillment model is even more important for this type of store. Our expectation is that in addition to good performance, that performance will increase even further looking forward. That is why this is the good moment to accelerate. We chose to invest more CapEx in transforming the model. Once stabilized, we are confident to invest more CapEx in opening more stores. This is our mindset. I think that it's all paying fruits. As for Youcom, we have an important potential to open Youcom stores. For Youcom, we have two important potentials, as we have mentioned.
One, to practically double the number of stores still in shopping malls, because Youcom is not present in all of the shopping malls where Renner is. There is an important opportunity to open Youcom stores in existing malls. There is an important opportunity to increase the square meters of existing stores that are asking for more. This is very important because it helps us gain scale, diluting expenses. To your question about the possibility of having street stores, just like we have Renner stores in some cities, that is a potential that exists. It is possible, but we have an opportunity to double the park in the current model. That would be a future level of growth that can be unlocked in the future.
[Foreign language]
Perfect, thank you very much.
[Foreign language]
Thank you, Joe. Next question from Andrew Rubin with Morgan Stanley.
[Foreign language]
How, Andrew?
Hi, Andrew at Morgan Stanley here.
Thanks very much for the question. Most have been answered, but maybe just on capital allocation. We know you have the buyback in an 18-month program, but you've already done a substantial amount of it already. So I'm curious how you're thinking about the timing of the remaining buyback and going forward, how you see your capital return policy between perhaps dividends and if buybacks could be a more sustainable part of this approach. Thanks very much.
[Foreign language]
Very dangerous question. It's related to capital allocation. He mentioned our share buyback program that has been partly executed. So what we are thinking regarding the execution of the rest of the buyback program and based on that, how we are thinking about dividend payout policy and capital return policy.
[Foreign language]
Thank you, Andrew, for the question. There are two points.
Yes, we have executed a good deal of the share buyback program, and our goal is to execute the whole program as our reserves allow us. We will continue with the distribution of interest on capital, and given the tax advantage, we'll always choose this as the number one option. The company continues to generate a lot of cash. Everything we mentioned regarding our model talks to profitability and cash generation that will continue to be strong. Just like in the questions we had before, we have opportunities for expansion, and these will be enjoyed. We are going to have a CapEx to take advantage of these expansion opportunities. If we have an opportunity to accelerate expansions, we will do so, as well as the opportunities to renovate stores.
Still, with all of that, we agree that we might have a cash balance, and we can use it for one of two things. Perhaps a new buyback program or an incremental dividend payout. Perhaps you use that for some strategic investment that we see fit. That is kind of our mindset and our expectations in terms of capital management looking forward.
Very helpful. Thanks again.
[Foreign language]
Thank you, Andrew. Next question from Irma Sgarz with Goldman Sachs.
[Foreign language]
Thank you for the opportunity. I'd like to ask about Youcom. It is clear that you're feeling more confident about this format. Growth this quarter was very positive. I'd like to hear, perhaps you could give us more color on what is working and the total potential of this store format and also the incremental stores that you're opening up, perhaps on average a little bigger.
Perhaps you have opportunities to expand existing stores. I would like you to elaborate on Youcom stores. Going back to a point about RealEasy, to me, it's not 100% clear if you think there's room for the portfolio to grow this year. We had very modest growth this quarter, like 1%, I believe. Looking at the year as a whole, do you expect growth? This is important to extend this recovery curve in the results of the company.
[Foreign language]
Thank you, Irma. Actually, for Youcom, we are very confident about Youcom. I think that it is the most loved youth brand in Brazil. We have the Youcom lovers. Shoppers who love the brand, love our products. It's a brand that makes us very proud, just like all of our brands. Youcom is performing really well, posting very good growth with great margins and efficiency gains.
Given the maturity we have in this brand, the brand is 12 years old. Given this brand maturity, given our customer base and maturity of the brand, we're feeling that we can expand the assortment. This has allowed us to have slightly larger stores. When we do that, we change the level in terms of cost per square meter and the illusion of operating expenses. We also increase the cross-selling of shoppers who are shopping at the store. We increase opportunities online. It is a virtuous cycle when we start having this slightly larger format and still specialized store. We live an average size of 250 square meters to 400-500 square meters. This brings a very important gain both in sales and in the financial results. Yes, the new stores tend to be bigger.
We also have a lot of opportunities to expand the existing stores. We are very confident about Youcom. It is an operation that we estimate will have final margins even better than Renner's. The more it grows, the more it will help the total P&L of our group. As for RealEasy, I would say that the demand for credit exists. The portfolio increase potential exists, but we are not exploring that potential at this point. We prefer to be more cautious, more conservative right now in terms of granting credit. We do grant credit, by the way, but we do it very rigorously given the macroeconomic scenario, which is slightly more risky. We do not have the expectation of growing our loan book at this point.
We have an expectation of using the available credit better with our loyalty program, with our customers being able to use the credit better without increasing the loan portfolio and generating results by reducing losses. Would you like to add anything, Daniel? I guess the only thing to add is that our portfolio has co-branded and private label. It is possible to have a private label with a slight growth towards the end of the year and co-branded retracting a little. It is a little bit of this dynamic that Fabio mentioned. When we are more cautious, we focus on private label. The trend is that we will favor private label. With that, perhaps private label will outgrow co-branded and co-branded products will perhaps grow marginally.
Very clear, thank you.
[Foreign language]
Given that we are running out of time, we will accept one last question.
Questions that are not answered here, the IR team of Renner will be available. Last question from Vinícius Strano with UBS.
[Foreign language]
Hi, Carla, Daniel, Fabio, thank you for taking my question. I'd like to explore the price volume dynamic in the quarter. Do you think there's any room for us to have gains in average ticket, price increases, mix of products looking forward to optimize the nominal gross profit? Perhaps you can comment on the performance, breaking down stores in areas with lower income and higher income population.
[Foreign language]
Thank you, Vinícius, for the question. I would say that in Q1 2025, the price volume dynamic, we grew 60%. 60% of the growth came from volume. The remaining 40% came from prices, but it was not price adjustments.
I would say that 60% was volume and 30% was a mix of products, the assortment, new products sold at full price and lower level of markdown that accounted for 30% of the increase. The 10% remaining was price adjustments that happened along the quarter. Since we were growing prices below inflation and now we are ending the quarter with price increase somewhat closer to inflation rate in keeping with inflation, I would say that in Q2, we will have a slightly higher price increase helping our nominal gross margin. Oh, there is another part to your question, right, about the performance per store profile. We have been seeing a better performance in the stores with a consumption profile from middle to high income brackets. I would say that comparing with prior quarters, the difference between high income and low income stores has shrunk.
We have kind of the same performance, but with higher income shoppers performing a little better. Thank you very much.
[Foreign language]
Thank you, Vinícius, with this. We are closing the Q&A session. I'll turn the floor now to Fabio for his closing statements.
[Foreign language]
I would like to thank everyone again for joining us today and reinforce our confidence in our growth strategy and in the performance of our teams and partners. I would like to thank our teams for the dedication and thank our partners. We are very much engaged and committed to the purpose of enchanting our customers and creating even more value for our shareholders and stakeholders. I'd like to add that this is a very special year for us. If you joined us since the beginning, you saw a video of our 60 years.
We're celebrating 20 years as Renner stores as a corporation and 60 years of Renner. We're very proud of our history, and we are confident that we can honor our history even more in the coming years. Thank you very much, and happy Mother's Day.