Good afternoon, everyone. Thank you for joining us for our first quarter 2026 earnings conference call. As you saw in the results we released yesterday, it was another quarter of progress. To tell you more about our strategy and everything we're doing, we have André Farber, our CEO, Miguel Cafruni, our CFO, and Francisco Santos, the head of Midway Financeira. We'll begin with a presentation, and then we'll open for the Q&A session. To ask a question, simply click on the Raise Hand icon or submit your question in writing via the Q&A box. Before turning it over to André, I would just make a few initial remarks. This conference is being recorded and has simultaneous interpreting. The presentation will be in Portuguese, and the English version is available on the IR website. Any statements regarding projections or outlooks reflect the management's expectations, but do not guarantee future results.
Lastly, the data presented here in our consolidated results excludes the shopping malls results from the first quarter of 2025 for better comparability. I turn the floor over to André Farber.
Thank you, Isa. Good afternoon, everyone. Thank you once again for joining us today. It's a great pleasure to have you once again. We're going through a very special moment at Riachuelo. In May 2026, I am now celebrating three years at the company, and I have called this journey on the company as a major transformation process. I joined as CEO in 2023, and many things happened since then. I'll go through some of the highlights as a reminder of the process we're going through and what we're building here at Riachuelo. Back in August 2023, we started making changes to our executive board.
We created a fashion department reporting directly to me and a marketing department also reporting directly to me. That was a sign of our focus on fashion and on the Riachuelo brand. That was the beginning of something else, a declaration of what we would build over the coming years. In October 2023, we started ramping up production at our factory. We know that Riachuelo has a strategic edge in having an integrated supply chain, using the factory well makes a huge difference to our bottom line. We have been showing that over the years, that's a process that started in October 2023. That was also a period of operational discipline and investment. In December 2023, when we closed the books, we generated BRL 1 billion in cash that year, which helped us to deleverage the company. We continued making changes.
Moving into 2025, we relaunched our culture in mid-2025, and we relaunched the Pool brand. This is a brand in our portfolio that we value greatly. This is our brand for all things denim. In December 2025, we relaunched the Riachuelo brand with a pop-up store in Pinheiros, a very important moment of brand evolution where we revised our logo and our color. You can see everything in green here. These are examples that started with the appointment of the marketing department back in 2023, followed by the brand relaunch in late 2025, and all of these changes that you can see today and that are generating very positive results. During our transformation process, we stated our strong focus on fashion and on Midway. I've talked about that in the past. As a result, at the end of last year, we sold Midway Mall.
As Isa mentioned, the results you'll see today for comparability with last year exclude Midway Mall. I also want to highlight that in our focus process, we also made some trade-offs, and one of them was the sale of Midway Mall at the end of last year. We continue to evolve. There is still a lot to be done, and this is a process that has just started, so to speak. It's like we're on day one. It sounds a bit cliché, but I feel that everything we have done so far is just the first seeds of everything that Riachuelo can still achieve. In 2026, we changed our ticker, you know, valuing the Riachuelo brand so much, so we also changed the company's ticker. Last week, we opened our new store format in Curitiba.
We had already tested the format in Pinheiros at the end of last year during the brand revitalization. Now at the Barigui Shopping Mall in Curitiba, we launched the full model, I'll talk more about that later. We continue with great optimism, a major transformation process in which Riachuelo has evolved significantly and delivered very positive results. Now let me give you a summary of the results for the first quarter of 2026. It was another robust quarter. It has now been 11 consecutive quarters of same-store sales growth, once again in double digits for apparel. We're very proud of this number, which is the result of this focus on improving fashion and improving operations. We did all that while improving margins. Apparel margin reached 54.9%, up 1.2 percentage points against the first quarter last year.
We also had 10 consecutive quarters of margin expansion, so two and a half years of consistently expanding our margin. We reached a record retail EBITDA for the first quarter, BRL 135 million, up over 20% year-over-year, with an 8.1% EBITDA margin. A very significant increase as well, and this is the best ever first quarter EBITDA in the last nine years. This is a lot of progress, and we're very proud. Our financial operation remains very solid and consistent as we've been saying. Riachuelo is made up of two core businesses, the retail core, fashion, and the financial core. In Q1, they delivered similar results, BRL 135 million and BRL 133 million, with Midway growing around 6% in another very consistent quarter.
As a result, the consolidated group EBITDA was BRL 268 million, up 14%, and a consolidated EBITDA margin of 11.5%. Also an improvement compared to last year. We have achieved profitability in the first quarter for the first time since 2020. We had not posted a profit in the first quarter since then. This is another major improvement showing all these solid results. Now, next slide. I want to highlight our retail EBITDA evolution. We went all the way back to 2017 when the result was 0. We have been evolving consistently. We had the shutdown and the lockdown during COVID. From 2023 onward, we went to from BRL 39 million- BRL 135 million, an improvement from 3.1%-8.1%.
In absolute numbers, we increased from BRL 39 million- BRL 135 million, an improvement of 3.5 percentage points in absolute terms. A very significant improvement in our retail EBITDA. Let's move from EBITDA to net income. Here you can see the last four years on an LTM basis. We came from a loss in 2024, and this number, actually, a loss was in 2023, and we practically doubled our LTM over the last 12 months, reaching BRL 494 million with this combination I mentioned today. The core efficient business growing with margins and Midway, which is a part of our business with very solid results as well. I'd like to show you now the consistency of our strategy, and I will break down our strategy into the pillars for you once again.
Our strategy has five pillars. The first is experience. You've seen the launch of the new store, product evolution, and e-commerce experience. We've been investing heavily in this first pillar. You know, products, launches, stores, and e-commerce. The second pillar builds upon this, and we see many growth opportunities in what we call our footprint. We know that Riachuelo started in the northeast of Brazil, and it has a more modest presence in the south and southeast regions. We see opportunities to open stores and to renovate stores using this new model that comes from the experience pillar. This will allow us to extract more value and generate revenue growth through our store base, whether through new openings or renovations. The third pillar of our business is the fashion efficiency pillar.
We have an integrated supply chain and many processes that make fashion work. You know, planning, pricing, you know, overall business management, all of that. We've been investing heavily in various initiatives under Fashion Efficiency in order to make the factory more efficient and better connected to retail, pricing strategies, planning strategies. There's a lot, all of this falls under the Fashion Efficiency pillar. Our fourth pillar is Midway Financeira. As I've been telling you, Midway is very important to us, we have a series of initiatives to continue supporting Midway's growth and efficiency. This is the company's fourth pillar. The fifth pillar looks at our business as a whole. Our capital structure, you know, an efficient business with good return on assets and good return on investment. Everything we do is done with great investment discipline, always focusing on returns.
We have been discussing these pillars for some time now, and we presented our pillars to you at our Investors Day in December last year, and we continue in a disciplined and consistent manner to work on the same pillars in the company's day-to-day operations. Moving on to the next slide. Here you can see some of these evolutions, especially when it comes to the experience pillar. We evolved our store. As I told you earlier, we opened a store in Pinheiros in December last year, just a short time ago, you know, three and a half months ago, and that store has been a success. It also drew from the new pillars of the Riachuelo brand evolution. Last week, we opened a second store in this format. This is the store you can see in the picture at Barigui Shopping Mall.
I wanna give you a bit more detail so you can get to know the store. The store is located in Curitiba, and some of you haven't had a chance to go there. Let me show you a video about it. I'm here today live from Curitiba, checking out the new Riachuelo store, which is also our new concept store that we intend to take across Brazil. More than a space transformation, this is a major strategy evolution. The store values experience, product, the senses, and the feelings. There is great attention to detail, and there is a lot of history of what we have done at Riachuelo, but also stories of those who are doing it today, those that are making it happen. It fills me with pride to see the evolution of this story.
It all began last year in São Paulo with a pop-up store in Pinheiros, a much smaller store, just 250 sq m. Now it's taking shape in a much larger size, 1,000 sq m in the city of Curitiba. This is just the beginning, the beginning of a story. This is a store we intend to take to many other places in Brazil. For those of you who are in Curitiba, come and see it. I hope you like the new Riachuelo store. This is just the beginning. This is our new store. It has now gone to Curitiba, and it will go to many other cities in Brazil, as I said in the video. The store is our main stage. It's where everything happens. I tell our team that the store is the temple. That's where the magic happens.
Inside the store, we have our products. Within our experience pillar, we have been doing a lot of work and investing heavily in product evolution. We started the year at full speed with innovations and products. Let me show you another video with the highlights of what we've been doing here to support this great experience and product improvement. Riachuelo continues to evolve in fashion, focusing on what matters most, the strength of the brand and the product. We started 2026 with a historic swimwear collaboration with Triya. In April, we marked our presence at Rio de Janeiro's return to the official Brazilian fashion calendar as a sponsor of the Rio Fashion Week. The first Pool show, a collab with Pedro Andrade designer Pedro Andrade took over the runway, and we were also alongside the biggest names in Brazilian fashion.
This is the look we created with Riachuelo. The news don't stop. For Mother's Day, we launched the collab with Silvia Braz, which has broken records in the first hours of sales. It has her signature. This week, we present the partnership with uncertain on pieces that blend sophistication and original design. The Ultra line was not left out. Our tech-enhanced basics got new updates with the Ultra Conf collection. This is brand and product evolution, and Riachuelo is increasingly connected with fashion. As you can see, we have been making many moves on the product front. Collab launches with various designers and personalities such as Silvia Braz, uncertain, which we launched yesterday, and we are also invested in Ultra and working with the best fashion designers in Brazil.
We're very proud of this, we want to continue raising the bar for our products so that the Riachuelo experience gets better and better and so that we can continue to sustain that same apparel, same store sales growth we have seen for 11 consecutive quarters. Everything we do has a lot of impact. I wanna come back to this topic in a very brief way. I want to show you that everything Riachuelo does has a huge positive impact on Brazil's fashion supply chain, and Riachuelo fashion is very impactful. We ended last year with 33,000 employees, and our team is very diverse. Our C-level is 42% women, and we believe that for every job we create, we create another five to six indirect jobs. That amounts to around 190,000 jobs.
We have a very special project in the backlands of Rio Grande do Norte called PróSERTÃO. We have 94 workshops there, alone they generate around 3,000 jobs. In the cities and towns where we operate there, we are the largest source of income. This is impactful fashion in the state of Rio Grande do Norte and across Brazil because we are the largest fashion employer in Brazil. Our factory has been using 100% of renewable electrical power. This is a major business evolution for us as well. We have supported different projects across seven Brazilian states. We generate jobs in Brazil and impact with positive results, but we also believe in this positive cycle that Riachuelo generates for the entire fashion supply chain in Brazil. As a recognition of that, B3 has acknowledged us for our advances in the area.
We just moved up 24 positions in the B3 ranking. We are now in the top 30. We're very proud of this market recognition of Riachuelo's impact and all the potential that we believe Brazil is doing things the right way, which is what Riachuelo has always done and will continue to do. Let me keep going. I would like to wrap up by talking about our ambition, our ambition in numbers, our measure of success. I have already mentioned this at our Investor Day, but I would like to reaffirm this to you. We wanna continue delivering positive apparel same store sales quarter after quarter, and we'll continue working on that with a strong focus on fashion and experience. And we also believe in a significant revenue growth potential, whether through renovations or new store openings. We'll keep track of that.
We've been working on our supply chain so that we can continue expanding apparel gross margin. We always get the question: How much more room is there to grow? As you can see, the journey is long. We've been working on this for three years. We started planting the seed in August 2023, which led to the results we see now with the stores, the same applies to everything we do. Things take time to mature, we already see margins improving significantly. Within our strategy and our numbers, we continue working to improve apparel margins. Midway is also very significant to us. Our numerical ambition is that Midway accounts for 30% of our EBITDA and net income results. Midway is very important. We'll keep track of that.
We also see an opportunity at the company to grow through improvements in our capital structure, capturing efficiencies and growing net income faster than EBITDA. While we'll continue growing EBITDA, we see potential for even greater growth for net income. Last but not least, we'll continue evolving our capital structure. There are opportunities here so that the company's returns can keep improving. Translating that into numbers, these are the numbers of our ambition. These are the metrics we track. With that, I finish my presentation, and I will return for the Q&A session. Now I turn the floor over to Miguel, who will go into a bit more detail into our numbers and talk about our first quarter performance. Thank you very much.
Thank you, André Farber. Good afternoon, everyone. It's a pleasure to be here once again. Thank you, André Farber, Isa, and Fran. Starting with our retail performance, I want to talk about apparel same-store sales first. As André Farber mentioned, that is 11 consecutive quarters, another quarter of double-digit growth, 10.1% growth in apparel same-store sales, an important and robust increase reinforcing our consistency and our value proposition. Looking at the recent first quarters, we see that for the third consecutive year, we have delivered over 10% growth. 2024 against 2023, we grew by 10.5%. The following year, we grew by 12.8%, and now 10.1%. If you stack the growth over the last three years, that's nearly 40% cumulative apparel same-store sales growth.
This shows our focus on fashion and our very consistent operations. Apparel gross margin, also a very relevant historical trend. 10 consecutive quarters of apparel gross margin expansion.
We have reinforced the importance of the factory and the work of our integrated supply chain. Our factory processes are very important and consistent. In the first quarter of 2026, we had almost 55% in apparel gross margin, up 1.2 percentage points year-over-year. On the next slide, we also show you a breakdown of these first quarters. We can see that we have over 5 percentage points of apparel gross margin expansion. Compared to the beginning of this transformation back in 2023, like André Farber said, in 2024, we delivered 2 percentage points of apparel gross margin expansion in Q1 2024 versus Q1 2023. In 2025, another 2 percentage points of margin expansion, and now again, 1.2 percentage points, reaching 55% margin. That makes us very proud. Very consistent top line and gross margins. Now let's look into retail EBITDA.
I like to provide a lot of clarity and transparency on how we've been achieving the sequential gross margin expansion. This 1.2 percentage point expansion year-over-year comes from a significant capture of internal levers, better use of the factory, an increasingly well-oiled supply chain process that further integrates our operating model, and we continue to benefit from our focus on core fashion apparel categories and from lower markdown levels and improvements in our pricing process. This results in a record retail EBITDA for the first quarter. At the beginning of our transformation journey in Q1 2023, we were at around BRL 40 million and 3.1% retail EBITDA margin, and we have ramped up significantly, delivering almost 5 percentage points of retail EBITDA margin expansion.
Quarter-over-quarter, there's also significant growth and expansion of over one percentage point, and we have now reached BRL 135 million in retail segments operating income. Now, financial services. We're also very proud of the track record and quality of our financial arm. Net revenue from our financial services grew 7% in Q1 2026 against Q1 2025, reaching BRL 660 million. An important EBITDA growth as well, BRL 133 million in Q1 2026, up almost 6% year-over-year when we achieved BRL 126 million back in 2025. This is driven by portfolio expansion. Our portfolio grew by 13% in the quarter. We've been talking a lot about responsible, disciplined growth in our two main businesses within the financial arm.
You know, the credit card portfolio grew 11%, reaching just over BRL 5 million in the quarter. There's also been growth in personal loans, reaching almost BRL 1 billion in Q1 2026, up 23% year-over-year. We continued with good and healthy delinquency indicators. We are now showing you the breakdown of short-term delinquencies, you know, the gray lines, and the long-term loans due in credit cards, or the orange line. You see we are at healthy levels. There is some seasonality in the first quarter, we see controlled levels both in short-term credit card delinquencies, which went from 7.6% in 2025 to 7.1% now in Q1 2026. Very well controlled. In loans, we went from 20.9 in Q1 2025 with good short-term control, coming in at less than 10%.
9.8% versus 12.1% last year. The next indicator is also very important and critical for credit quality. We've been telling you about the performance of loans in recent quarters, the gray line here, and the cards, the light orange line, and we see that both are very well controlled. For cards, it has remained at 4.1% in recent quarters and much more efficient than what we did in Q1 2025, which was at 5.5%, a good and well-recognized level. These curves have some natural seasonality, but we go from 5.7%, 6.25%= 2% in March 2026. Last year we had 8% FTP, and this is within our guardrails, but that has fallen to 7.2% with these lines also trending lower.
This shows that we've been very disciplined in our origination and the performance of the new vintages reinforce this behavior. Let's move to our consolidated results, EBITDA, net income, and cash generation. These numbers are comparable without the effect of the shopping mall sale last year. We reached in Q1 2026, BRL 268 million, 11% EBITDA margin, up almost 1 percentage point in EBITDA margin year-over-year. When we do a breakdown here, we go from a margin that was below 10%, actually 9.7% in 2024 to 11.5% in 2026. What makes us very proud is this change in the level of our bottom line.
In Q1 2025, we expected it to be a loss-making quarter for the company, so we focused heavily on these bottom lines, and we have now delivered BRL 46 million. Actually, we went from BRL 50 million in losses in 2025 to BRL 5 million in net income in 2026. We know that there is some seasonality, but the first quarter, which is more challenging, we are above the green line here with a profit. First quarter of profits after six years of losses in the first quarter of the year. Now moving on to cash. This is a quarter that is more challenging and burns more cash. We generated BRL 100 million more in operating cash than last year. We worked hard on the use of capital. Operating cash flow was BRL 34 million lower in Q1 2026 than in Q1 2025.
Now financial leverage. We continue very responsible and controlled in maintaining a healthy leverage level for the company. We told you that 0.3x- 0.8x is a healthy level for a balanced capital structure for the company. Here, excluding the mall effect and the additional effect at the end of 2025, in which we anticipated a resolution and made significant profit payment in December 2025. For better comparability, our net debt of BRL 1 billion comparable to previous cycles is BRL 747 million. BRL 353 million in anticipated dividends. Part of that we would pay in April 2026. These were dividends allocated to be mandatory minimum dividends from the prior year. We anticipated them in December.
Adjusted and comparable leverage came in at 0.4 times post IFRS and 0.6 times pre-IFRS EBITDA, which maintains a very consistent track record. I wanna close by reinforcing the message of our ambition. That's what we work for, and that's why we're so focused on continuing to translate this ambition into numbers, and we expect to continue achieving good results for the company. We are working to be increasingly consistent, and we want to continue growing apparel same-store sales, opening stores, renovating and expanding margins, keeping Midway strong, and we expect to see this very positive cycle at the company to continue for a good stretch. I'd like to wrap up and hand the floor back to Isa so we can start our Q&A session.
Thank you, Miguel. We'll now begin the Q&A session. To ask our first question, we invite Rodrigo Gastim with Itaú BBA. Go ahead, Gastim . Please ask your question.
Hi, everyone. I have two questions on my side. The first is, André, can you please tell us about the winter dynamics last year? Because this is a topic investors have been talking a lot about for Q2 and Q3, you know, the baseline for comparison and a strong winter last year. I want to hear your take on this. Is that a harsh baseline for you? You know, winter last year, I think you didn't have any growth in winter products last year. Is that actually a hard baseline or? More than that, can you now use the factory during the winter season to react fast? Can you tell us about your plans for the winter season? That's my first question.
On the second, about gross margin evolution. I really enjoyed seeing the grid that you shared, but can you tell us about the 80 basis points. You know, when you talked about your factory processes and improving your operating model, what does that mean in practice? What were the main adjustments to the model that have brought this efficiency improvement, and how much of that has already been captured? Have you slowed down in Q1, but do you expect in some coming quarters of consistent growth, or you have already captured most of it, and what is it that you expect moving forward? Thank you.
Thank you, Gastim . I will answer the first question and then turn the floor over to Miguel. Well, it's always been like that, but with all of the climate changes, we've seen things changing quite a lot.
Last year, the winter season came early, and that helped us in the end of March, April and May. We faced problems in the end of June, July and August with a shortage of winter products. This year, we've seen, you know, some warm temperatures. Winter hasn't arrived yet. Next week, the southeast is probably going to face a cold spell. I think we have to look at the whole picture rather than the snapshot. If we look at each month, we will see a strong April last year because we know we were having lower temperatures, and this year April has been warmer, so we sold fewer winter products. In spite of that, our sales continue very solid and consistent, so we're very optimistic for next quarter's results.
We've been evolving our experience and our products quite a lot, and we expect to continue achieving good results. About reactiveness. Yes, we have prepared better this year. Part of our products still come from abroad, but part of them now comes from Brazil and another part from our factory. We have more flexibility when we see demand fluctuations, we are quicker to adjust, so we feel prepared for winter this year. We started with warmer temperatures, but we see so much product movement that the non-winter products are doing really well. We are optimistic about the results. I turn over to Miguel to speak about margins and the opportunities we have ahead of us.
Thank you, Gastim , for your question. In margin evolution, there are many levers and initiatives that reassure us, and we track them from up close. We started back in 2023 with the first stage at the factory to bring in more volume to our factory. Compared to where we are today, we are now at a very healthy level with very low idleness at the factory. This led to an important gross margin evolution. We're now at the second stage of another project that clearly defines the entry effect and the margin effect, what we are doing at the factory, what we'll continue importing or buying from suppliers. We're focused on margins, and there's also a matter of responsiveness, which is very important to us. Last year, we launched a product called Fast Response, which makes the factory more responsive.
We go into the collections with a good part of the procurement to be made during the season, and so we can be more precise in the inventory we send to the stores, you know, both in cluster allocation and collection timing, so we don't need as many markdowns as a result. There are many initiatives as part of this integrated supply chain led by supply chain, but also sponsored and supported by the whole organization. We feel confident that this will continue at a consistent pace, expanded gross margins, and we think there is still a lot to be done in addition to what we've done in the last two to three years. We think this is still promising, and we can continue evolving gross margins at consistent and significant levels.
That was very clear. Miguel and André, thank you for your answers.
Our next question is by Dani Eiger with XP. Hi, Dani.
Hi, everyone. Thank you for taking my question. Congratulations on your new store. It looks amazing. I have two questions here on my side. The first is connected to the new store, but I wanna hear from you. Can you tell us about the strategy, not only short-term, but the way forward when it comes to this repositioning, so to speak, of the brand? Can you connect that to your product mix strategy, you know, categories, pricing? Because the store you showed, I understand this is not going to be like that, you know, in all stores, but I think it's bringing a different identity, a bit more sophisticated, focusing on brand and fashion. Do you have a to, from for pricing and product pyramid? What are your goals and how do you intend to get there?
We still see a price-sensitive consumer with pressure on their incomes. Can you talk about the optimization of electronics and homeware as well, how this connects to the product pyramid? My second question is about capital structure improvement. Where do you see room for improvement there? Can you tell us about the opportunities in capital structure? Thank you.
Sure. Thank you, Dani. We are also very excited about the new store. It looks amazing indeed, and it has achieved positive results so far. The transformation process at Riachuelo started by focusing on the brand. Back in 2023, we understood that the brand had to evolve, but respecting everything that the brand has always been. You know, a Brazilian brand with local creativity and collabs celebrating Brazil and the national fashion.
Now we're reaching a stage in which we've been able to create a store that is inspired by these values and attributes, and it looks amazing, like you said. This has been the process. The store was made to improve customer experience and to make sure our products are visible so that consumers can buy more and can see the story behind our products. Right now, our goal is not to increase the average ticket. Of course, that's welcome in the medium and long terms. Riachuelo wants to be democratic. Our footprint is across the country, and we think that we can continue as a democratic store with a better-looking store. As our products evolve, I think that we have the optionality of increasing the average ticket of our products.
That's not compulsory for us because the store has shown positive results maintaining the same average ticket. All companies with a strong brand and good experience have the optionality of increasing the average ticket, but that's not in our plans for now. About the other categories, we are very much focused on fashion. We've been making some choices. We've stopped focusing on electronics, and we've been increasing our focus on fashion. We are analyzing this on a store-by-store basis. We still see potential in homeware, but we want fashion to come first. About capital structure, I turn the floor over to Miguel so that he can answer the question.
Thank you, Dani, for your question. We still see some important pathways for us to go through in our capital evolution.
Taking a step back, looking back at what we've done in recent years, we de-leveraged the company. We went from 2.5x EBITDA to about 0.5x, as we said earlier. We sold the mall, which was a very important asset that contributed to almost all line items in our balance sheet, revenue, EBITDA, profit, and cash flow. We thought it made sense to do this so that we could focus more on our core businesses to continue expanding EBITDA, profit, generating cash, and evolving our business without this important asset. We still have other assets, you know, some stores that we are analyzing, but priority, I mean, is capital advance, especially when it comes to Midway. We launched the FIDC of personal loans last year.
All the quotas are still in-house, and we're being very diligent to make sure that this portfolio will perform like the rest. We see the opportunities of other FIDCs to have been launched in the future as, you know, consigned loans. In 2027, we have the first installment of the debentures that we issued late last year, going from BRL 240- BRL 0.95. We also see opportunities in this new exchange window and debt renegotiation, maybe some lines that are more competitive and that can bring additional benefits to our capital structure.
Great. That is very clear. Congratulations on your results.
Okay. Next question is by Luiz Guanais with BTG. Please go ahead and ask your question, Guanais.
Good afternoon, everyone. I have two questions on my side. André, can you explore a bit the initiatives and the brand build-up that you've been doing? Do you see more opportunities for store expansion? I want to understand what you're thinking in terms of expansion moving forward, in addition to the new store model that should attract productivity gains. This was a positive highlight in the quarter in terms of growth and credit quality. Can you tell us about the product opportunities at Midway Financeira, Francisco? Within your current product portfolio, do you expect any growth considering the macroeconomic scenario in Brazil? Thank you.
Thank you, Guanais . I'll answer the first question about store availability. We always see the returns we need in order to open a new store. We expect a return of 25%, not considering the Midway business. When we include Midway in return, that is actually over 30%.
We always have to make sure that in our projections we get returns of at least 25% for retail only and over 30% if we include Midway. In early last year, we carried out an analysis that showed an opportunity for Riachuelo to open around 150 stores in Brazil, especially in malls. We decided to open from 15 to 20 stores a year. That's the intended base. That's what we did last year. We talked about that in other opportunities, and we continue with this execution. This year, we continue with our opening guidance of 15 to 20 new stores this year. Many of them are under construction. We continue confident in this process. We think this will help create a very positive top-line layer diluting fixed costs. I apologize.
Now I turn the floor over to Fran, who will answer your question about Midway.
Hi, Guanais . Thank you for your question. Yes, the macroeconomic scenario is a bit challenging, and we've been talking about that in recent quarters. In spite of that, we've been able to navigate this scenario well. If you look at our indicators, the portfolio is growing at 13%. We are growing and decreasing the provision for bad loss over portfolio. We've been able to select customers well and price better. As a result, we've been able to continue growing in spite of the harsh macroeconomic scenario. When you look at our product shelf and our portfolio, you see that the personal loan business is gaining share. It has a equated ROI for us now. We've been exploring the possibility to grow our personal loan business.
In absolute terms, it's growing a bit more, but that's because loans have been gaining representativeness. We designed the quarter, and it is within our guardrails. We started operating with consigned loans now. We've been doing that since last, late last year. This is still preliminary. We still haven't broken down the numbers, but we're testing customer acceptance and channel distribution in the app and in stores. The performance has been satisfactory. We're happy with what we got so far. Also for consigned, we see a significant opportunity to grow our top line at Midway with a lower risk. Even with this macro scenario, we continue optimistic. The first quarter was very much aligned with our budget, and we continue optimistic to continue implementing this growth avenues at Midway throughout the year.
Okay, thank you so much for your answers. Thank you.
Our next question is by Vinícius Strano with UBS. Hi, Viní .
Hi, Isa. Good afternoon, everyone. I have two questions here on my side. Can you tell us about store renovation opportunities? What are you planning in terms of uplift, in terms of store renovation and CapEx? Now about costs. The 6-by-1 scale change, is this going to impact your factory? Also, when you hire your factory personnel, is that at an appropriate level to meet your volume demands? What about the efficiency gains implemented at the factory? 1 last question. Looking at Midway, it's growing in penetration in retail sales. Can you tell us whether this is because consumers are now asking for more credit and being accepted at your acceptance criteria, or are you now more open to financing retail sales? Thank you.
Thank you, Viní . I will take your question about renovations and also the Midway question. I will start with the Midway question briefly, and then I'll move to renovations, and Miguel can talk about the 6-by-1 scale and costs. Midway, we haven't been opening more credit. This penetration is not related to a higher credit appetite, but actually about the value proposition of our card and the connections we've been doing between financial business and the fashion retail business. We've been operating this machine better. This is actually related to our value proposition and not with an increase in credit appetite. Now, about renovations. What are the opportunities we see? Like I said earlier, we started this process with the pop-up store in Pinheiros in December last year. Two weeks ago, we opened the store at Barigui Mall, and we have two stores.
We're going to renovate the first level, and the second level will be renovated later. We're still understanding this new format, but the first impressions are very positive. We're waiting for the numbers to settle to do the math, but we believe that the results confirm one of the pillars of growth for the future as store renovations. We continue with the same parameters that we have for store opening. We demand a high tier above the cost of capital to approve any renovation because we've been very disciplined. We expect double-digit growth because that's what's going to offset the cost of capital for the renovation. A renovation costs less than a new opening.
We are still working on the finishing materials to make sure that before we scale the renovations, we make sure it's within a good cost basis to preserve returns. I turn the floor over to Miguel, who will talk about the 6-by-1 scale. I don't even remember if there was another question.
Yes, thank you for your question. About the 6-by-1 scale, we are tracking these movements closely, and we've been implementing initiatives at the factory and at our store operations since last year so that we can prepare and test some new models, starting with operations and then going into factory. In operations last year, we implemented a project in which we transitioned the fixed work hours of our store teams to flexible working hours.
We don't have to start a Friday with 20, 30, or 40 people at a store because, you know, they get in at 10 A.M. and leave at 2 P.M. We can start with a smaller team early in the morning, and then at the end of the day, when we have more volume, especially in malls, then we want to adapt our scale to make sure that we have more people at the store at peak hours. We started the workforce management project in the registers to align with the volume of customers at the stores and decrease waiting lines. We started with this pilot in the registers last year, and now we are doing a pilot in the sales lobby. We've been implementing a 5-by-2 scale, 44 working hours a week.
Rather than going in at 10:00 A.M., they will start a bit later and leave later as well. At the factory, we've been working to reinforce the partnerships we have and the beautiful work we've been doing for some time now with the sewing factories and the PróSERTÃO program. We've been working with government organs in the state of Rio Grande do Norte, and we've been investing in machinery that make the productive process lighter and increases productivity. You know, when you're sewing shirts and things like that, we've been investing to mitigate this impact so that we don't lose productivity. We're keeping track of all of that from up close.
That's very clear. Thank you, Miguel and André.
Thank you, Viní . Our next question is by João Soares with Citi. Hi, João. Please ask your question.
Thank you, Isa. Hi, André, Miguel, and Fran. I would like you to explore two points. The first, pricing. We have not been seeing an aggressive movement, so to speak. At the same time, in our surveys with consumers of apparel, we noticed that price has been a problem, especially with local players. We know that there is an inherent risk of the government lifting the federal taxes to cross-border players. What is your take on the pricing movement today? Is there any need for adjustments? The FX rate is helping, so do you see room to be more aggressive or you think this, that this can impact the Riachuelo product quality perception? Can you tell us a bit more then about pricing? The second question, personal loans. Okay, that increases profitability and ROI, but the environment is very competitive with fintechs and the payments market.
Is your product competitive today, and what is the value proposition of your product? Can you tell us a bit more about personal loans? Thank you.
Hi. Thank you for your question. Well, actually, the landscape is quite competitive, but we have a small share of the market only. When we see the addressable market, you know, of customers that come to our stores and are buying with our cards, our penetration is still low with those customers. We believe we have a competitive edge because our cost of customer acquisition is very low because customers are already there in stores or on the app. Since we already have a relationship with the customer, we can price our loans better.
It's now 0.8%-1% credit card market share that we have, and Riachuelo is at 4%-5%, and our personal loans business is at 0.3%. We have a huge addressable market. You know, when customers come to the store to buy a product, we can grow our loan business there with a good customer selection. When we open the credit portfolio, we grow even in lower risk customers for whom we can offer better prices. Yes, this landscape is very competitive, but we have the customers already in our stores buying from us for a long time, so this has enabled us to increase our penetration with those customers and to do that with great profitability.
I agree with what you said, Fran. The profit pool of financial services in Brazil is huge.
If we capture a bit of that share, it can be worth a lot. The number of companies that can find this niche and do this well can generate a lot of value. Our competitive advantage is something that many people cannot see, which is the very low customer acquisition cost. Many companies have to attract customers on the digital platforms or with other suppliers, and our CAC is almost zero. When we combine these two elements, we have a strong competitive advantage at Midway. Now talking about price, our mission is very aligned with the democratization of fashion. When we look at surveys and our price evolution in recent years, we haven't been increasing prices much, and we've been very competitive. You know, we improve fashion, we improve our products, and we continue competitive.
You might think, "Oh, you're improving the product, but you're not increasing prices, so how does that affect your margins?" We also see a margin expansion 10 quarters in a row. Having said that, looking ahead, I see that regardless of what happens in the competitive market, we'll continue working on those levers. A margin increase and a better use of our factory will allow us to navigate a worse competitive scenario in case it happens. On one hand, with margin expansion, we can be more aggressive in prices, and the integrated supply chain protects us. On the other hand, improving product and experience also protects us from different types of competition. 11 quarters in a row of growth. You know, everyone talks about the tax for taxes on cross-border players.
Of the 11 quarters, only 6.5 of them had taxes on those cross-border players. That shows that we're not reliant on this to grow. We've been growing double digits in apparel, and we continue confident about our mission. We know that if we improve fashion, improve products, and continue working on the levers to improve margins, we will have great robustness, and we will be more and more prepared to face all kinds of competition.
Amazing. Just a follow-up here. When you look at personal loans and all this growth, I understand there is an issue of ROI, but what is the result of this on your retail sales?
Well, we do not operate personal loans thinking about this part of the ecosystem.
In other cases, of course, we have products aimed at boosting retail, but not in the case of personal loans. Personal loans is supposed to generate value on its own.
Okay. Thank you so much.
Thank you, João. Next question is by Pedro Pinto with Bradesco. Hi, Pedro.
Hi, Isa. Thank you for taking my question. I also have two questions. The first, can you tell us about your capital allocation agenda? Logistics is gaining space, and we saw that happening also with the CapEx this first quarter. Maybe Miguel can give us an idea of the magnitude, either in nominal numbers or percentage numbers, of how this logistics CapEx can impact you. More than that, what impact can we expect on the business? What are the milestones and KPIs that we can track when it comes to logistics CapEx? My second question.
André talked about fashion as at the center of everything you do, then homeware at the expense of electronics and other products. Within this context in which gross margin continues to be a strong highlight, how the different categories have helped here? Can you tell us about telecom phase out? In the subcategory of apparel, is there anything boosting margins a bit more than others? Thank you. These are my questions.
Okay. Hi, Pedro. Thank you for your question. I'll start with your first question. Our DC was created back in the 2010s, and it's, you know, highly automated. It's great to go around the DC because it was very well done back then.
When we projected the growth of the company in terms of revenue and volume, we understood that in a few years' time, we would have the opportunity to have an even more efficient business and even more automated business. Also responsiveness in the integrated supply chain is key. I mean responsiveness not only in the factory, but actually throughout the whole supply chain, which has to be very well-oiled, allocating products in store quickly and precisely to prevent, avoid reverse logistics. We have ramped up our digital channels, which have been growing at a stronger pace and with consistency for some time now. We see that most of this better channel experience requires us to unify the picking and packing at the distribution center.
A 1.5 years ago, we made the decision to start significant investments in logistics in our Guararapes DC. We started doing that in the second half of 2025, and another part of this will be done in 2026, and the last part in 2027. The magnitude is manageable considering the general or overall CapEx level that we consider healthy. Historically speaking, we used to invest 7%-8% of revenue in our company's CapEx lines. In recent years, we have suspended that to reduce our leverage from 2.5%- 0.5% or 0.3x now. We were using 4.5% of revenue in CapEx, and now we're closer to 6%, 7%. With the new stores and renovations, we can get closer to 7% or 8%.
We think that CapEx will not impact our financial robustness. This is all very well managed at the ideal debt levels. We'll start to see impact on the result starting in 2028, second half of 2027 or 2028, when we complete the automations that we started in late 2025. In 2028, we expect to see significant gains in the company's SG&A because we're gonna have more automated lines. Part of the DC is now operated manually, we expect the levers to generate gross margin gains as well, because we'll be able to supply the stores more efficiently and more precisely, avoiding markdowns and inventory accumulation. These two lines of P&L should benefit starting in 2028 with the automation running in a leaner company when it comes to SG&A and logistics, that will lead to incremental gross margin gains.
We expect to see a ramp-up in gross margins in the long run because we'll be more responsive and more agile with our DC, which accounts for over 95% of the supply of our stores. Our business has four main product lines: fashion, homeware, beauty, and technology. The margin order is, follows the same order, starting with fashion. We decided to discontinue technology to do this phase out. 50%-60% of them have already been phased out, and this will improve the overall margins at the company. We've been focusing on fashion as a major growth lever. We've been talking about that quite a lot. What will make a difference in the long run is to keep on sustaining fashion growth and the levers within the fashion business, which will keep expanding margins.
We just showed you 1.2, but in three years we grew 5.2, and we believe that in fashion, we still have the pricing lever, the promotion lever, or category planning lever that will allow us to have a greater turnaround of the pieces. When you add the mix effect with greater share in margin and the margin effect that will continue to expand, this is going to generate a very positive economic effect on our numbers. I could also try to go into the different fashion subcategories, but there are too many details and some internal dynamics. We're also working on that to expand margins. This is what gives us great opportunities to continue looking ahead. Our third mission among our ambitions is to continue increasing apparel gross margin in the coming quarters.
Okay, good. That's quite helpful. Thank you so much.
Our next question is by Nicholas with JP Morgan. Hi, Nico. Go ahead, ask your question.
Thank you, Isa. Good afternoon, everyone. I have one question about expenses. On the one hand, we see that the top line and same-store sales is quite strong, but you also mentioned that there has been an increment in marketing and personnel expenses. Can you tell us about the expense trajectory for the year, considering the sales level? Do you see room to dilute expenses thinking about the full year? Thank you.
Hi, Nico. Thank you for your question. We've been talking a lot about this. We started capturing operating leverage to reposition the company at a healthier level. At the beginning of the journey, we captured 1.5% gain in operating leverage, reducing our SG&A levels.
We now think that we are at a healthy level, so this enables us to make good decisions to continue investing and planting the seeds to make sure we will reach our targets of same-store sales growth and to continue improving our product development and innovation in basics like the D-Ultra and fashion and the collabs we've been doing that have been very well accepted. We've also been investing in internal areas of the company. We talked about our supply chain department, but also marketing with the relaunch of our brand and the new point of sales experience with our pop-up store in Pinheiros and now at the Barigui Mall. We made a decision in the past to reposition our expense level at a competitive and sound level with guardrails and making intentional decisions to reinvest in the long run.
Our commitment is to continue accelerating the company, ramping up EBITDA and profit, and this requires us to make investment decisions. As a consequence, we'll see some dilution, but we'll continue planting the seeds so that the company can continue growing in the future. About specific quarters. Well, I spoke about this at different occasions. In one quarter or another, expenses vary because you may dilute your cost of sales a bit less. Like this quarter, we had an SG&A over revenue of 39.3% or 39.4%, so 0.2% above last year. The G&A grew less than inflation, only 4%. What grew more was Sales expenses, and we've been investing in the business front and marketing, which will generate value for the future.
We believe that throughout the full year, we should keep a leverage level in line with what we have been doing since we made the decision, which has been quite precise, which helped us gain results and EBITDA margins and keeping expenses under control.
That was very clear, Miguel. Thank you so much.
Our next question is by Eric with Santander. Hi, Eric. How are you?
Hi, Isa. Good afternoon, everyone. Thank you for this opportunity. I have two quick questions. First, looking at your focus on qualifying your product mix, you have a history with great collabs, so can you tell us how these more innovative products have contributed to your top line growth? Can we see new things happening here, like the relaunch of Pool? I want to understand the levers you have or the pipeline you have in mind for new initiatives there.
The other question is about working capital. What is the size of the opportunity? What can we expect moving forward, considering your integration level with the factory? What can we expect in terms of gains moving forward? Thank you.
Hi, Eric. Thank you for your question. Well, our business is moved by products and innovation, I firmly believe that our growth depends on our ability to offer high-quality products to our customers and our innovation capacity. What we've been doing now has been quite fruitful, and we are now oiling the machine to be even more creative and so that we can innovate more and more. I see us as a fashion company with retail and not a retailer that has undifferentiated products just fighting for price in a price war.
On the contrary, our innovation capacity will allow us to offer different innovative products with stories to tell, and then we'll be able to differentiate and to be more competitive to sustain the numbers that we have been achieving for some time now. Yes, we'll continue focusing on that. That's something that the company and I firmly believe in, and yes, they are all very important. About working capital. This is very much related to our management capacity and also the comparison between expectation and reality, because the more we bet in the future, the more pressure we have to sell. We're always trying to balance expectations and reality, how much we'll be able to sell, how much we're planning to sell and to buy. We see that we have evolved quite a lot in this management, and this helped us to improve the margins.
Yes, I still see some opportunity. As the company becomes more mature and the new supply chain processes come up and the integration with our factory matures, we tend to work with a percentage working capital over revenue levels that are lower. About working capital. This is actually something similar to what we said in expenses, but with some important points moving forward. Just like in the beginning of the journey, we worked hard on expenses, and we had also done some important work on working capital, generating BRL 1 billion in cash back in 2023. Part of this came from working
Just like in expenses, we believe that in order to invest in quality products, we have to invest, you know, the D-Ultras and jeans and Pool and collabs, so you must prioritize, and that's what we've been doing intentionally and capturing efficiencies here. If you look at our working capital over retail revenue in the last three years, it has reduced from 18%-19% to actually 12%, 13%. We see this efficiency, and just like André Farber said, we wanna be more responsive. As we become more efficient in this chain as a whole, we start the season with fewer finished products, you know, in our collections, and so we can react faster, and we can have inventory efficiency. We have an internal pool of initiatives, and we expect to have another lever of value generation there. That's very clear.
Thank you, André and Miguel.
Thank you. All right. This wraps up our Q&A session, and I turn the floor over to André Farber for his final remarks.
Hi, everyone. Thank you once again for joining us today, and we continue working hard. We've done a lot, and we're very happy with the results. You know, 11 quarters in a row of double-digit growth in apparel same-store sales, margin expansion, and all of that. Like I said in the beginning, I think we are halfway through this journey, and whenever we open a new door, we see more and more opportunities, so I feel more and more motivated with the opportunities offered by Riachuelo. Our plan continues the same. We want to come back here and show you growth and margin expansion as well as improved customer experience. Thank you so much. It's been a pleasure.