Morning, everyone. Let's begin the Lojas Renner S.A. video conference call. With me today are Fabio Faccio, our CEO, and Daniel 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, so for those following the call in English, the English version can be downloaded from the chat and from our IR website. Questions from journalists should 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 targets are based on beliefs and assumptions and on information currently available. They are not a guarantee of performance, as they depend on circumstances that may or may not occur. During the Q&A, questions may be asked live.
With that, I turn the floor to Fabio.
Good morning. Thank you all for joining us. Our Q3 was more challenging than the first half of the year and much more challenging than we expected, with our consumers being even more selective, greater pressure on household income, and increasing household debt. Retail net revenue was down 1.6%, -0.7% in apparel compared to Q3 2025. Our sales performance was very positive relative to our expectations until the end of May. In June and July, we saw a sharp slowdown. I'd like to remind you that these were FIFA World Cup months. During the quarter, August and September, we saw some improvement, at least toward the end of the quarter in September, but still way below our projections.
For us to adapt to the current consumer and competitive landscape, we have adjusted our product offerings, both in terms of assortment composition and pricing, price pyramid, while preserving the brand's positioning and the attributes of fashion, quality, and differentiation we have. We have more items that are at the entry level of the price pyramid and with more competitive prices and differentiated quality. Even though sales fell short of our expectations, we continued our structural progress. Even with greater commercial intensity, we had another quarter with record gross margins for retail and apparel. Our gross profit decreased by 0.9% and earnings per share by 7.8% for the quarter, but with a 5.8% increase over the first nine months of the year. We had another quarter of sequential growth in last 12-month ROIC, which reached 14.8%, up 0.4 percentage point.
In the first nine months, year-to-date, with the interest on equity resolution and share buyback, we distributed about BRL 1.2 billion to shareholders, or 128% of our net income. We have seen significant volatility and a high degree of uncertainty in the macroeconomic and competitive landscape. In our view, this type of environment reinforces the need for a prudent approach to projections. In this context, we decided to discontinue our net revenue growth guidance, both for the year 2026 and also for the period from 2027 - 2030. It is important to highlight that all other projections remain unchanged because they are supported by our continued focus on improving operating efficiency, disciplined investments, and the structural opportunities that we have identified to strengthen profitability and returns.
Among the major highlights of the quarter, we had the launch of the spring-summer collection at Renner, the integration of fashion, culture, and influence. Our new collection brought unique materials, contemporary tailoring, premium and technical fabrics, featuring the latest fashion trends. In addition to launching the new collection, we also achieved strong brand visibility through limited editions, license, and collabs, which, in addition to visibility, generated a very high sell-through level by combining signature fashion, desired products, and affordability. These initiatives strengthened our connection with consumers and reinforced Renner's relevance as a fashion brand. Youcom also strengthened our connection with younger audiences, influencers, creators, and our community. We had in-store activations in specific stores during festival season, which generated foot traffic and engagement in social media. The Jeans Exchange campaign also reinforced the brand's positioning as a go-to destination for jeans, highlighting quality, durability, and more sustainable processes.
In our digital channels, we maintained a consistent trajectory, outperforming brick-and-mortar stores, reinforcing even more our omnichannel approach. We have an increasing number of AI-based features in our websites and apps, such as photo and content creation, product recommendations, image search, the virtual fitting rooms, and fashion assistants. These tools personalize our customers' shopping experience and drive higher conversion rates. During the quarter, we stepped up promotional activities to support product sales, as well as some one-off initiatives to drive traffic on digital channels, particularly during double-date events. We made progress also on social commerce initiatives, which are very key to drive engagement and conversion rates. Examples of these actions were activations and livestreams on TikTok Shop, with very favorable results. In fact, yesterday, we kicked off a 48-hour Renner marathon.
In August, we launched our new Realize card, which further strengthened our connection with our customers, offering a simpler, more visible, and integrated experience with integration into the main digital wallets. This is a very important evolution for Realize for our retail customers. After the pilot phase, now in the fourth quarter, we began the rollout activation to all new stores, bringing this excellence to rollout to the entire customer base. It is expected throughout 2026. We continue to make progress on our physical expansion. To date, we have opened in 2026, 13 new stores just this year, nine Renner stores, 17 Youcom stores, and four Camicado stores. We remain on track with our plan that we disclosed in the beginning of the year to open 50 - 60 stores in 2026, adding all brands, 22 - 30 Renner stores, 23 - 25 Youcom, and approximately five Camicado stores.
Most of these openings are concentrated now in Q4, and we expect to end the year of 2026 not only within the range of stores targeted that we disclosed, but most likely closer to the upper end of this range. We've also made progress on store renovations, with the completion of five major Renner stores in Q3 delivered. This year, we've renovated 23 stores across all brands. These renovated units, initially reduce sales when they're being renovated, but once they are reopened, we have seen an average increase of 5%-10% in productivity per square meter in these renovated units. In addition, we've been able to be more efficient in using CapEx, both for renovations and for new stores, which improves even further the return on these investments. All the initiatives that I've mentioned here, just as an example, are focused on gaining market share while increasing profitability.
This is the path, the guide, and the journey we have now and ahead of us for the coming years. Now, I will turn the floor over to Daniel, who will give us more detail on the third quarter.
Thank you, Fabio. Good morning, everyone. This quarter saw Renner's revenue decline by 1.6% and apparel revenue by 0.7%. This reflects a reaction to the impact of the World Cup, which we mentioned in our last earnings call, but also a more challenging competitive environment and consumers who are now much more price-sensitive. The competitive environment also remains challenging, primarily due to cross-border platforms. Given this consumer and competitive landscape, we have taken a series of initiatives related to product assortment and pricing strategy, seeking to expand our range of entry-level items and to adjust our core offering toward a more versatile and accessible concept.
We have also strengthened our commercial initiatives, such as progressive offers and bundled deals. All of these activities aim to tailor our offerings to this more challenging consumer environment while respecting our strategic brand positioning and our fashion attributes in our collection. As for our other business units, Youcom posted 14% growth. This is significant growth given an increasingly competitive environment in the youth segment, and I would like to highlight the contribution of the expansion of new stores to this growth. They contributed a lot to Youcom's growth in this period. Camicado grew by 1.5%, which, for this category, a home decor category, is a strong commercial performance. Of particular note is the increase in market share for the Home Style brand, which was key for this growth. It is also worth highlighting our growth in the digital channel.
It continues to grow at a rate above the company's average, posting 27% growth and a total market share of 17.5%. As for our gross margin performance, we closed the Q3 with a 0.4 percentage point increase. The retail gross margin, which reached 55.5%. The 0.3 percentage point increase in the apparel gross margin, which achieved the mark of 56.5%. The expansion in total margin, as well as in apparel margin, is the result of the efficiency of our operating model, coupled with a positive impact of exchange rates, which allowed us to balance all of these promotional initiatives and commercial activities which I mentioned earlier. Even in this more challenging sales environment, we acted quickly to adjust our product assortment. We managed to end the third quarter with total inventory growing 6% in value and just 2% in pieces.
The average age of inventory was higher than in Q3 2025, but still at healthy levels in our view. This shows that the company was able to respond and adapt to this more difficult sales period. Youcom recorded gross margin of 58.7%, an increase of 1.6 percentage points year-over-year, and this was largely due to the promotions and markdowns necessary to balance the total inventory levels of Youcom. Camicado, meanwhile, reported a gross margin of 58.3%, an increase of 2.1 percentage points. This increase reflects the success of the company strategy and commercial execution, which was focused on its private label, Home Style, which now accounts for about 90% of Camicado's sales. As for our expenses, in the third quarter, our operating expenses decreased by 1.1% and increased by 1.3% when we exclude the effect of the lower provision for the profit sharing program, PSP.
It is worth noting that if the company had grown considering inflation plus expansion of area, Renner would have increased expenses by approximately 6%. Thus, the 1.3% increase reflects our disciplined approach to expense management, as well as the progress made in implementing our efficiency plan, whether through initiatives on various fronts, including renegotiating contracts with suppliers and achieving productivity gains in store operations, logistics, and administrative functions. I would also like to highlight that 75% of our stores are equipped with self-checkout. This initiative enables greater productivity in our brick-and-mortar stores, while also providing a much smoother and satisfactory shopping experience for our customers. The company reaffirms its commitment to achieving cost reduction of 2.5 percentage points - 3.5 percentage points by 2030. As for our total retail EBITDA, total retail EBITDA was BRL 530 million.
This represents a 3.2% growth, resulting in an EBITDA margin of 17.5%, up 0.8 percentage point. Specifically this quarter, our operating revenues contributed a positive non-recurring impact from the recovery of PIS and COFINS tax credits. Moving to Realize. As for Realize's earnings, we ended the quarter with an operating result of BRL 40.7 million. This figure is 49% lower than the previous year, but in line with our expectations for Q3. This result reflects stable revenues, driven primarily by a higher quality portfolio with lower overdue revenues. Expenses growing at a rate below inflation and a 13% increase in losses, but this is largely due to a shift in the seasonality of the portfolio write-off, which shifted from 360 days to 540 days after we complied with the new resolution of the Central Bank, Resolution 4966.
There was a 1.9% sequential increase in the share of past due loans and a 1.7% increase in Stage 3 loans. The behavior of Stage 3 loans reflects both a 1.5% drop in the loan portfolio, and secondly, the maturation of previous loan cohorts compared to lower origination of forming loans. This next slide aims to reinforce our trust and confidence regarding the quality of our portfolio. On the left, we have the evolution of short-term delinquency of Realize. We can see that it remains at healthy levels with little change over the period shown. The chart on the right reflects the quality of our new loan origination. The over 30 M3 indicator shows that new originations continue to have low delinquency rates, reflecting what we expect, a more selective credit granting process focused on medium and low-risk profiles, and that's why we are operating this way.
As for the net income for the period, the company reported net income of BRL 246 million. This is 11.8% lower than the same quarter of the previous year, while earnings per share was 7.8% lower year-over-year. It is important to note that this quarter, the company distributed BRL 415 million, constituting interest on capital and share buybacks. For the first nine months of the year, the total reached BRL 1.2 billion, representing approximately 128% of net income accumulated for the period. To date, the company has executed 50% of its share buyback plan announced in December of last year. It is worth reiterating that the company maintains its capital distribution guidance unchanged at between 50% - 80% of net income for the 2026-2030 period. As for capital allocation, the company is proceeding with its store expansion plan.
Over the past 10 months, we have opened 30 stores, including nine Renner, 17 Youcom, and four Camicado stores. As a reminder, as previously mentioned, just as an example, the 2024 cohort of new store openings, that is a period that marks the start of a more concentrated expansion into new markets in the case of Renner. This cohort is already showing operating margins slightly above the company's average. This is an indicator of the success of the strategic capital allocation choices made in this new expansion plan. While 12-month ROIC increased by 0.4 percentage point, reaching 14.8%, it continues above the cost of capital. This continued growth in ROIC is driven by margin gains, profitability gains, and higher asset turnover fueled by inventory productivity, as well as working capital discipline and management. All these factors reinforce the company's confidence in achieving an ROIC target of approximately 20% by 2030.
With this, thank you very much, and I will turn the floor back to Fabi to move to the Q&A.
Let us begin the Q&A session. To ask a question, please click on the raised 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, and if necessary, return to the queue for additional questions. First question from Luiz Guanais, BTG. Guanais, go ahead.
Good morning, Fabi, Fabio, and Daniel. I would like to follow the theme you mentioned in the beginning, Fabio, about initiatives to recover sales throughout the quarter. Could you give us more color on what has been done? So that we could see the end of Q3 slightly better than in the first of Q3.
I know that there is a calendar effect that had an impact, but I would like you to elaborate more on these initiatives. Do you see any room to continue to improve the gross margin, which again, was a positive highlight? Can we expect a further improvement in gross margin looking ahead after everything you have captured so far? Thank you.
Thank you, Guanais. As regards initiatives to recover sales, I think that there are two factors explaining this improvement throughout the quarter. One is more external. At the beginning of Q3, we still had the World Cup effect. The other effects continued. The second effect is related to some initiatives that we adopted as well throughout the quarter. One of them was that we reinforced higher demand items. We have seen a greater demand for basic items and a greater demand for entry-level items.
We have been making some adjustments, and I want to make this clear. We are performing well in both high and low. I think fashion items are selling well, but with a lower volume and lower seasonality. Lower entry-level items are performing better as well. I think that we saw also a less opportunity for intermediate items that were performing a little less, so we made a fine-tuning, bringing more of these entry-level items, and I think the strategy worked. We still see opportunities there. Adjustments will continue throughout Q4. We do not want to compete in prices with the international platforms because that is their game. They have a fiscal situation that we do not enjoy, but we compete with quality, fashion, renovated products, and bringing our value proposition to a more attractive price so that we can be more competitive at this moment. The actions continue in Q4.
We made some additional adjustments to perform a little better in the months of November and December. As for room to grow the gross margin, I think that structurally, we do have room to grow the margin if we look to the medium term and long term. At this specific moment in Q4, we do not have an expectation to grow the gross margin. We believe that we are dealing with a more promotional moment. The month of November has many promotions. In addition to these initiatives, we are being more promotional now in the month of November. There is Black Friday coming up and all of the related events, and this is all in our expectation for Q4. In Q4 of last year, we had a significant gross margin, so our expectation is the gross margin will remain in line with last year.
Now, structurally, looking ahead, we do have opportunities, but it depends on many variables. We have to see what is going to happen in terms of inflation and costs. Other than Q4, which is more near term, in the future, we do see some opportunities to improve the gross margin.
Super clear, Fabio. Thank you very much.
Thank you, Guanais. Next question from Eric Huang with Santander.
Good morning, Fabio, Dani, and Fabi. Thank you for taking my question. My first question is considering sales. You talked about some improvements and so on and so forth, but if you could help us understand, looking at the stores, where we started the quarter, where we ended to get to this average of 2.5%, have we actually become positive? I just want you to help us think about future expectations.
My second question, looking at capital allocation and actually capital structure, given that 2027 is expected to be a more challenging year for retail and consumption in general, how should we think about payout? Given that the market is a little more difficult, and at least the expansion part of the guidance was maintained, we should see a payout close to the lower range, or if there is some room over to be comfortable to pay close to the top of the range, as has been the case throughout this year.
Thank you, Eric. About the trend in Q3, I would say that it was a growing trend, like I told Guanais. It was not just the actions we had. We also had a different comparison basis.
June still had the effect of the FIFA World Cup, and the other effects, market, the economy, consumption, well, these effects, as they remain, they intensify more or less every month. But since July had the additional effect, given the FIFA World Cup, it was the worst month. After that, we saw a gradual improvement during the quarter, but our expectation was that recovery would be even greater. We wished to have a stronger quarter, but it did post a growing trend with the positive month of September. Regarding sales growth, we mentioned some points in the earnings release, but I want to make it clear there are some non-recurring factors there. We mentioned the tax replacement. The fiscal tax regime for beauty items in the state of São Paulo did have an effect of 0.4% to each point impact on revenue growth over the quarter.
As we mentioned, we executed many store renovations throughout the year, specifically in the quarter, considering closed areas while renovating the stores. Plus one major store that we closed because of a fire at the mall, not at our store. If you put together these two factors, that adds another 0.6 impact on quarter sales. So 1% of our sales were impacted by the tax change in the state of São Paulo, does not impact the gross profit, and also those closed off areas due to renovation or due to that fire in the mall. These are one-time effects. Next year, we will have a comparable base regarding the taxes and the renovations. We have practically finished that part, and we have many stores to open over Q4. I will turn the floor to Daniel to speak about the payout.
Eric, thank you for the question. Now, speaking a little about capital allocation, I think there are two important points to remember. First, when we looked at what we have done so far until September, we have distributed BRL 1.2 billion, BRL 500 million related to share buyback, BRL 700 million in interest on capital. This distribution practically exhausted the results we had for distribution, and they were comparable given the cash position, which remains strong because we are cash cow, and a cash cow so far.
Looking forward, let us talk about capital allocation. The general capital allocation strategy remains the same. We are talking about the expansion, I mean, stores, that continues to be an adequate allocation of capital. We have store openings, the renovations, and some digital investments. We will be making some special investments related to automation and some productivity gains to save time by working hours or working days.
Of course, for 2027, that is expected to be a challenging year, and we will define the pace with which we will open the stores and renovate stores. As for capital distribution, during the call and also in the advisory to the market last night, we are reaffirming that we are maintaining the range of 50%-80% range, reminding you that 80% is not a cap. We can operate higher than that, but it will depend on our ability to maintain a strong cash generation, as has been the case so far.
We are confident in our ability to manage working capital and to be able to maintain the company in the strong working capital management discipline. So it is possible we will operate above 80%, but we will see how 2027 will unfold.
Perfect. Thank you very much for the answers.
Thank you, Eric. Next question from Vinícius Strano with UBS. Vini?
Good day, Fabi, Fabio, Daniel. I would like to speak about customer finance Realize. We see slight increase in the past due portfolios, so I would like to understand what you are thinking about the coverage ratio today. Are you considering reinforcing coverage in the future? I would like to understand the shift in seasonality for Realize. Does it make sense to think that Q3 should be a little lower, and because of the seasonality, we could expect an improvement in Realize, if you could elaborate on that. If I might ask another question about e-commerce, there was a deceleration, a slowdown. How are you thinking about investing in digital marketing, online price strategy? What has been the TikTok Shop experience, and how can you use e-commerce as a sales driver and as a way to compete with cross-border platforms? Thank you.
I will start with Realize, okay?
Fabio will speak about e-commerce. Well, thank you for that question. Think about Realize. Here's what I think is important for us to observe, and this is related to what I said before. Realize earnings came lower quarter-on-quarter, but kind of in line with our expectations. Why? Because we mentioned before, even in individual one-on-one calls with you and in the last earnings calls, that we have a phasing theme. When we migrated from a 360 to 540-day portfolio, the write-offs did not happen between Q1 and Q2, and started happening in Q3. So from now on, Q3 will be a quarter where the result will be lower when we look across the year. This is exactly what happened. Even Q1 was much stronger than it normally is.
So there was a shift in the phase, in the timing, but this will be the rule from now on. As for coverage, first let's talk a little bit about the delinquency, okay? Default. We see that despite the over 90-day past due loans having increased, this is the result of a portfolio that is reducing 1.5%, and also result of the maturation of the former or the old cohorts, because origination pace is slower than in the past. So the portfolio changes because of these reasons. Looking specifically at coverage, we see coverage at adequate levels. We don't see a fluctuation. We don't see the need to reinforce our provisions. We follow the same criteria as in prior years that takes into account expectation of recovery of each one of the loans, depending on their stages of delay. Every quarter, we review this compared to recoverability.
When we do that analysis, the level of provision we have today is adequate. There is no need to reinforce our provisions.
Okay, let me add something to what Daniel mentioned. He had it clear, but just to have it even more clear, the write-offs that used to happen in Q1 now happen in Q3. This is related to a higher volume of sales that we have, which happens in Q4 of every year. In Q4, that's where we sell the most. So we sell at 30 or 60 days. So when we write it off at 360 days, the greater volume of write-offs would happen in Q1. Now it's happening in Q3. That's why there was a shift in seasonality. So Q1 was stronger, Q3 came lower and weaker. That was expected.
From now on, we'll start to have a comparable basis, and that seasonality as it was remains. Q1 will tend to be stronger than in the past, and Q3 weaker in historical comparisons, but then we will have a more comparable basis. As for e-commerce, I think that we have been investing a lot. We have seen an improvement in conversion. Conversion rates have improved. Foot traffic was lower than we expected. So we are adapting our actions. We are calibrating these actions all the time to bring in more foot traffic. Some actions are related to one time of investment, like we mentioned, social media, social commerce, having more and more actions there, and they're giving good results. This is a matter of deciding where to invest and how to be more assertive.
It's not more investment, it's more assertive investing to attract more foot traffic and increase conversion rates. Many of the actions in general, products, for example, some more promotional products and sell some products that did not sell that well. November is a very important moment for this, particularly on e-commerce. The actions we talked about in terms of investing in the platforms, AI, reinforcing conversion, greater assertiveness, and attracting foot traffic, and all actions applied to products, well, they apply for brick and mortar stores and for online. It's an omnichannel approach, and our goal is to increase conversion rates.
Excellent. Thank you, Fabio and Daniel.
Thank you. Next question from JPMorgan, Joe Giordano. Joe, go ahead.
Good morning, Fabi, Fabio, and Daniel. I'd like to explore the theme of capital allocation and understand what you expect in terms of return. My question is, plus, I want to understand how you think the results of the new store openings, plus the renovations, as you mentioned. I would like to understand the regional performance of these stores. I want to understand small cities, larger cities, to understand how store openings will continue looking forward as you maintained the store opening guidance. Thank you.
Thank you, Joey. The results of the new stores, we're very happy with that. Very pleased. I think that the total result of the company is below what we expected, but when we look at the new stores on average, they are outperforming the average, particularly in terms of profitability. There's some dispersion.
Yes, there's some dispersion among the stores, and this is not really related to this or that region. Most of the stores are opening in the south, southeast, and midwest of Brazil. There are some specific projects, but I think that we have learned from these dispersions and are always looking for the best options. We've been having good capital allocation. We should meet the store opening target for this year. It's a range, of course, because opening stores entails licenses and several works, so the process can be delayed. But at this moment, our expectation is to have all openings as of between 30 - 60, 30 - 60. There are many stores in the operational stage. I'm not sure we spoke about that, but the areas that we will be adding to the stores, and they will start flowering.
In Q3, they were just putting pressure on our expenses. Still, we see expense management efficiency, although we have an important volume of stores at the stage of pre-opening and in the stage of being pre-operational. Fabio, we treat every store as a project. When we explain the rationale of these stores, we always say there is a CapEx, which is a store model that has a CapEx that matches the size of the store and the cost to operate the store, leasing and labor. Leasing normally is cheaper than the base that we have, and there is another effort that we do, for example, with Realize. When we are going to open a store, we do a campaign together with Realize. Fabio kind of touched on this before, we have the new Renner card that is being offered at the new stores.
All new stores that we are opening now between November and December, they are already offering the new card, and we see the card with a higher-than-average share. We see that the volume ramp up of these stores, because the store is in a new store, there is lower competition, the store becomes almost like a fashion mall in the city. The store matures faster. We are pleased. When we look at the profitability, and we follow that periodically, the 2024 open stores operate with an EBITDA margin slightly above the company's average, which means that two years after, we can already have an EBITDA margin slightly above the average. In previous renovations, we could not achieve that level of EBITDA margin so quickly. The stores are giving us the expected return, and that is why we will maintain capital allocation to expand the footprint.
We will calibrate the pace, because you see, it will surely be continuous success, but we will execute this over the five-year period, respecting our analysis. In the end of February, when we announce the Q4 earnings, we will make it more clear the level of CapEx and the pace of store openings that we will execute in 2027.
Perfect. Thank you very much.
Thank you. Next question from XP, Pedro Caravina. Go ahead.
Hello. Good morning. Just a quick follow-up on store openings. If you could give us more visibility about store openings in the quarter. For instance, in general, you opened 30 stores, so you are expecting about 18 new ones. We understand that the concentration will happen mid to the end of the quarter. You also mentioned competition across border platforms. What have you seen in terms of the competitive landscape with local players?
It drew my attention, both you and one of your competitors reported earnings, expenditure growth, margin, even in a more challenging competitive landscape. Both, given that your competitor mentioned you were offering promotionals in some points of the price pyramid. I would like to understand local competition as well. Thank you very much. Pedro, thank you. You have studied yourself that we look at the number of store openings. Until Q3, we opened 22 stores across the brands. We opened another eight so far, so 30 stores opened during the year to achieve our target. Of 50 - 60, we still have to open 20 - 30 stores, and we will be opening 20 - 30 stores over November and December. The projects are ongoing. Again, the expectation is it will get closer to 60 than 50.
In terms of what we can control, the pace will continue. Of course, there are many variables, civil works, licenses, contractors, and there might be some delay. I would say that between 50 and 60 stores, that is, we trust that this will happen. The expectation today is that we are closer to the upper range, closer to 60. There will be many store openings in the coming two months, which is a positive expectation for us as well. You also asked about gross margin and competition. Of course, every competition concerns us. We are always looking at our peers. Some small competitors are reducing their market share, other larger competitors are increasing their market share a bit.
The big change in the competitive landscape, which is really biting more market share, is the cross-border platform, because they enjoy a fiscal regime which is different than the other competitors in the industry. These are more concerning to us, because they do bite a greater part of market share. We do not compete with them in pricing, because we have a differentiator of quality, fashion, level of service, and that is where we will continue to compete. Of course, we have to adapt and adjust our pricing so that we can be more competitive and have this relationship between quality, fashion, and service level, and still better prices. The same product at a slightly lower price or a better product. These are the two efforts we are making to gain market share from these competitors as well. Gross margin growth comes from structural initiatives.
Even being more promotional, even having to make some product adjustments, we were able to grow the gross margin. Why? Because we were efficient in our model. We were more assertive, even selling much less than what we expected, but we were able to make inventory adjustments. This allows us to be more competitive, more promotional, and still growing the gross margin. What we see in this quarter is greater promotions, particularly greater promotions in the month of November. Our expectation is that for Q4, gross margin will be kind of stable compared to last year. We are not expecting much growth there, but we expect to compete, to be more competitive, preserving or structurally slightly growing our gross margin looking forward.
Perfect, Fabio. Thank you.
Thank you. Next question from Itaú. Gastin, you can proceed.
Hello. Two points.
First, Fabio, I would like to discuss this macroeconomic dynamic, because this is the main concern of investors, this macroeconomic slowdown that we see month after month. In the case of apparel, there is one indicator that helps a lot, and it is the correlation with apparel companies as a whole. We have a similar dynamic with what you mentioned over Q3, but there is a big concern, which is this October that got worse. We do not know whether this worsening has to do with foot traffic or what, but the fact is, the main retail categories, not just apparel, but including apparel, they posted a quite significant worsening. I would like you to share with us, of course, not the number of your company, but your macroeconomic perception that you are feeling at the stores with the consumers. That would help a lot. This is my first question.
My second question then, in terms of capital allocation, you talked about micro levers. In other words, as you maintain cash generation and working capital control, et cetera, that will define the range of dividend payout. My question is focused on the macro level, because distribution decision is a combination of both. What are you thinking about the macro factors? Interest rates, inflation. In other words, how do these variables impact your decision-making within this proposed range? This is important for us to know where we stand. Thank you very much.
Thank you, Gastin. With regards to what you saw in IDAT in October is an atypical month, just like June and July were atypical. Macroeconomic variables, consumption variables are present throughout the year, more or less intensely, but they're present. in June, July, we had the FIFA World Cup.
That was an additional factor, and that's why those months were worse overall. October has an additional factor that you mentioned. We had the elections. We had two weekends when people went out to vote. Throughout the month, we had a lot of people demonstrating out on the streets, and that diverts the attention of consumers. People had more concerns. People were going to vote or going to protest on the street, and that reduced foot traffic. So October, in our view, is not an example of what we should expect for November and December. Of course, some other factors do continue, but this one did impact October. October became kind of an outlier. I'd like to remind you, October, in the quarter, October is the least important month.
The two most important months are November and December, particularly end of November and mid to end of December. So I would look at October from a different lens. You can speak about distribution.
Well, Gastin, thank you. Thank you for the question. Undoubtedly, the macroeconomic environment is a factor, but it can impact our micro level. If we imagine that 2026, which was a challenging year, even being a challenging year, the company was able to maintain profitability and generate cash and had this capital distribution that we've had so far. We discontinued the revenue guidance, and this has to do with uncertainties of the current landscape and all of the uncertainties expected next year. That's why we discontinued the revenue guidance, but we maintained the other guidance indicators, because those are more under our control.
As I had answered in the prior question, the company has a solid discipline of working capital management and profitability, and we believe that even with a more challenging macroeconomic landscape, which might remain like this, we don't really know how 2027 will behave, but we believe in our potential for profitability, to manage working capital, and generate cash, because this has allowed us to maintain the guidance of 50%-80%. Will this happen? Well, it will depend on how the year will unfold, whether we will remain in the range of 50%-80%, or whether we're going to be even above 80%. We have to understand the dynamics of the year so that we can decide.
Super clear. Thank you very much. Thank you for the answers.
Next question from Goldman Sachs. Irma, go ahead.
Good morning. Thank you for the opportunity. I have two questions about expenses. If you can elaborate, I think in the release you mentioned you are making progress in the consulting project, which helped you identify additional opportunities. I understand that in a landscape of relatively weak sales, that kind of limits to what extent you can dilute expenses. I would like to understand how you are thinking about next year with the potential inflation rate, a potential backdrop in demand. With that landscape, how should we think about expenses and what are other opportunities to capture efficiency you have? My second question is about the beauty segment at Renner stores.
I understand that there is an effect of tax replacement, but I think that sales came quicker. Perhaps they improved a little this quarter, but this was more related to fragrances, a category where you had a consumption trend which did not help you so much. In the previous earnings call, you spoke about some initiatives to get adapted and to bring this to more adequate levels. If you could elaborate on that would be great.
Thank you, Irma. Talking about expenses, we had a quarter where there is a clear demonstration that either in management discipline or in kicking off efficiency gain actions, it is all underway. The work we did with the consulting firm, which is ended, allowed us to confirm a number of hypotheses and quote-unquote "projects," initiatives that we can implement and that we are implementing in a timeframe of 6 - 18 months, which means that these initiatives will help us maintain a rhythm and pace of expenses that will allow us to achieve the target of 2.5%-3.5% cost dilution by 2030.
We still have some challenges. One challenge is, on one hand, 2026 growth and the challenge to grow in 2027. Of course, these increase the challenge even further, but we are working on discipline and also to accelerate the deployment of these initiatives so that we can navigate 2027 towards the target of 2.5%-3.5% dilution of expense. About the beauty segment, I think that we have seen greater and greater competition in the sector. When we look at our competencies and what we know to do well, we have an opportunity, as we said in the previous earnings call, of intensifying the share of our private label. You mentioned fragrances, for example. We did not have our own private label fragrances, and now we do. We start at a smaller scale, and we increase the scale over time.
I mean, this is what we know how to do in fashion. We have a signature fashion, our own development, and this is a differentiator vis-à-vis the competitors. We have a healthy gross margin. We went through this at Camicado two years ago, with a greater commercial intensity, with comparable products, a price war. But we followed that path, what we know to do well, our signature products, our private label.
Camicado posted a significant gross margin growth, and it is gaining market share. Since the combination of a number of things, but 90% is our private label, with a reflection on profitability and margin. This is also the path we are going to follow in beauty items. We are intensifying our own private label products, and with that, we expect to win back a part of the market share that we are losing due to same products with lower prices.
And we want also to have a gain in gross margin. What we expect is a gradual upturn looking ahead. We will have both the more important brands, yes, but with an increasingly higher share of our own brands, private label brands.
Understood. Thank you very much.
Next question from Citi Ross . Go ahead.
Hello. Good morning. Two points I would like to explore with you. First, I want to understand why the 2027- 2030 guidance dropped. You mentioned macroeconomic factors. You mentioned some regulatory changes. But we want to understand what a sustainable growth rate should be despite the macroeconomic landscape. I know it is kind of hard to make that analysis, but I think it is important that we understand the expected mid-term growth for the company.
Secondly, when you do the math, earnings per share adjusted to the effects of other revenues, you have recognition of DTAs, there was a reduction of around 2%. I might be wrong in my math, but I would like to understand from you, how do you see this KPI of earnings per share? Because you understand that sales have been volatile. But I do not know, how should we look at this KPI excluding these non-recurring events? Is there a greater sense of urgency perhaps to adjust expenses? And then how are you looking at this KPI? Thank you.
Thank you, João. I think that first strategy, in terms of discontinuing the sales guidance, what did we discuss internally? Just like when we gave you the first revenue guidance and all of the others were maintained, that was in the end of 2025.
Since then, the assumptions we used for this calculation and for projections changed a lot. And this has been changing. In the market, we also look at market assumptions. If you think about December 2025 and now, GDP estimates for 2026, 2027 were reduced, inflation rate projections increased, interest rates are expected to increase, household debt that was supposed to be decreasing is increasing. This is a totally different scenario than when we made our forecast.
In addition, looking ahead, there will be a change now after the elections, and we still do not have a clear definition of the fiscal and economic policies of the country, which will impact the consumption environment. So given all of these changes that happened over the year, which were very significant, combined with a lack of definition, it is too early. We do not really know what is going to happen in the future.
We think it is much more prudent on our end to discontinue the sales guidance, which is the most affected by all of these conditions. Of course, the relevant part of it, which is under our control, but consumption, the environment, and revenue suffer a lot more in this landscape of uncertainties. We cannot say whether it is going to be higher or lower than what we expect. I think we have a high level of uncertainty. We understand it is a lot more prudent on our part not to give you guidance, not to give you a projection or forecast given this level of uncertainty.
And that is why we are discontinuing the revenue guidance. Why did we not discontinue the other ones? All of the others, of course, feel an impact, a huge impact from revenue, of course, but there are other things that are in our hands.
that we can manage the company, the inventories, the portfolio, the expenses. Depending on the level of revenue, we can adapt the company to the level of ROIC, the level of profitability, and profit distribution to our shareholders. We can manage that. Now, revenue, well, we can improve it, but it is difficult to affirm what the level of revenue we will have, and that's why we chose to discontinue it. As for earnings per share, it is one of the main KPIs for us. We focus a lot on operational improvements, and I think that they are very much linked on, at least to how to improve our sales, how to preserve or improve our margin, and then how to knock down our expenses. This is our primary focus, as well as making investments that will bring higher and higher returns.
This is our main focus, to improve our earnings per share, and particularly earnings per share, improving earnings per sales with operational results. I would only add, João, that when we think about the share buyback plan that we are executing, allocating capital to buy back the shares, that's also a driver of earnings per share. It is, as Fabio mentioned, a very important KPI, and one which we monitor closely. When we do this capital allocation, the rationale is that we believe that our share price does not reflect what we believe is the intrinsic value of our shares. Of course, this allows us to increase earnings per share. Year to date, we have a 6% growth. Of course, this is an indicator that we follow, of course, because it is very important in our view.
Is there any commitment of level of earnings per share?
No, we haven't got a guidance for this KPI as well. But if we take into account that we have an EBITDA indicator and an ROIC indicator, of course, this translates into earnings per share. If we triangulate, it means that this will happen over time. We have a target for 2030, but this will happen as an evolution over the period of 2026 - 2030.
Okay, perfect. Thank you very much.
Thank you . Next question from Morgan Stanley. Andrew, you may proceed.
Hi. Thanks very much for the question. I know you've touched on the topic, but the combination of removing sales guidance but keeping the expense guidance, I'm just curious because my sense was part of the expense reduction was driven by operating leverage. Just to really understand how you have the confidence on expenses in a less certain sales environment. Then just a quick follow-up, to refresh us on how to think about the impacts to your business from the changes in the FX recently, how and when that can flow through. Very much appreciate the color on both and all the comments. Thank you.
Thank you, Andrew. [Non-English content ]
Thank you, Andrew. I will start. I think that there is one point to mention. You are probably right, Andrew. Expenses are related to sales, and we are talking about diluting expenses as a percentage of revenue. See, there are a number of actions. We adapt the company to the size of revenue, so we have many actions related to productivity gains, structural gains of the company, that we can intensify more or less, depending on the volume of revenue that we expect. That is one substantial part.
But another important part is that we removed revenue growth guidance, but it does not mean that we do not expect to grow the revenue, okay? Your question is actually very good. It gives me an opportunity to make this very clear. We removed this guidance for revenue growth because it is harder at this point to affirm the range of growth that we will have.
But we do have an expectation to gain market share, to grow more than the market. Now, whether the market is growing to grow more or less, that is the hard part to affirm at this point. But I would say that in this trajectory until 2030, we do have our growth expectations. We just do not think at this point that it is prudent to share these expectations with you as a guidance. But it is implicit that we are going to be managing expenses even more, and there is an implicit expectation of revenue growth. We are just not disclosing the forecast. Coupling this with expenses, Andrew, stay assured that growth will allow us to dilute expenses. As Fabio mentioned, we removed the guidance because this 2026 reality has been challenging, and 2027 brings a lot of uncertainty.
But that does not mean that by 2030, we are not going to have a growth resumption. But like I said before, yeah, of course, everything becomes more challenging. We have this range of 2.5%-3.5% of expense dilution. We will have to intensify our work to accelerate the efficiency gain plan and even make investments to increase productivity. This is all part of the dynamic for us to achieve this target. You also asked about the FX. For the exchange, we work with hedging. The short term, we have hedging positions until the first half of the year, so we can navigate with more predictability during the first half.
We have to understand how the FX position will evolve over the next few months, and if there is a change, a structural change in FX, we will have to do an income analysis to understand what the price pressure will be. As I mentioned, structurally, we have been able to operate more efficiently. More efficiently in what sense? Managing the life cycle of the product, selling more products at full price. This is a structural change, and we will need to analyze that, see the FX pressure, and balance that with pressure on materials. And financially, we will need to understand how much freedom we have in the price pyramid. It will depend on consumption, interest rates, dynamics, delinquency of our consumers. So that decision will be made along the year of 2027.
Very helpful. Thank you both.
Obrigado, Andrew.
Thank you, Andrew. Well, we are now ending the Q&A session for the third quarter of 2026. I would like to thank everyone for joining us. I turn the floor back to Fabio for his closing remarks.
Thank you, Fabi. Thank you all. I would like to thank the dedication of our full team, and I would like to stress that we continue our journey with a focus on gaining market share and growing in a profitable way. Thank you very much, and I will see you in the next earnings call.