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How to Analyze Arezzo&Co

Financial Statements – Basis of Consolidation

The subsidiaries are fully consolidated as per their acquisition date, which is the date when the Company obtained their control, and continue to be consolidated through the date when such control ceases to exist.

A change in ownership interest in a subsidiary that doesn’t result in loss of its control is accounted as a transaction between shareholders, in equity. Net income for the period is fully attributed to the controlling shareholders given that ownership interest held by non-controlling interest holders correspond to 0.0001% of the consolidated.

All intercompany balances, revenues and expenses as well as unrealized gains and losses are eliminated.

The financial statements of the subsidiary are prepared for the same reporting period of the Company, using accounting practices that are consistent with those adopted by the Company.

Sources of Revenue

Sale of Products: The sales revenue consists specially of revenues from the sales of footwear, bags and accessories of Arezzo&Co’s brands: Arezzo, Schutz, Alexandre Birman, Anacapri, Fiever, Alme and Vans®. Our revenue comes from the sale of products and services to our franchisees, from the sale of products to multi-brand clients and from the sale of products to the consumers of our owned stores.

The Company suggests the same store price for the products to all the distribution channels. Therefore, the owned stores obtain higher gross margins on sales to end-consumers compared to the gross margins obtained from sales to franchisees and multi-brand clients.

Within the franchise model, the price the franchisee pays to Arezzo&Co for the product has a total value composed by the goods’ cost and royalties, which involves, among others: services provided to the franchisees, training, specialized consulting and assistance on the layout and construction of the stores. The franchisee also contributes to an advertising fund, which has the objective to invest in branding. The initial price of the product in the stores is on average 2.3 times higher than the price the franchisee pays to Arezzo&Co.

The Company values the partnership with the franchisees, whose mono-brand stores are totally dedicated to the Group’s brands, following rigid image and communication standards. Therefore, the price asked by Arezzo&Co to the franchisees is normally lower than the price paid by the multi-brand stores.

Costs and Expenses

Costs of Goods Sold: is basically formed by the purchasing of shoes, bags and accessories from various producers, or by the costs related to the in-house production of shoes.

Normally, the cost structure of the products developed by our brands is mainly formed by the following items: labor and raw material acquisition, especially leather. Arezzo&Co is guided by the cost-plus price policy, in which the market price reflects the production costs.

This model is based on the integration between the R&D, sales and production teams, which ideally enables the manufacturing of the models for a cost that ensures a 3.7x global mark up (between the production cost and the retail price) predetermined for the business.

Another important aspect within the cost structure is that Arezzo&Co coordinates, together with the independent producers, the negotiation of the raw material price used in-house and by the independent producers, ensuring lower costs to the entire value chain in which the Company operates.

Operating (Revenues) Expenses:

Selling Expenses: The Company’s selling expenses can be split in two main groups:

Owned Store Expenses: Features only the expenses related to the owned stores (sell out) operation. The main expenses of this group are the stores occupation rate, especially rental, as well as salary, sales commission and other personnel expenses.

Selling, Logistics and Supply: Comprised by the selling expenses related mainly to sell-in operation and, to a lesser extent, to other expenses of our sell out operation. The main expenses in this category are: logistics and supply expenses, the sell-in team salaries and sales commission to independent sales representatives.

General and Administrative Expenses (including R&D): Especially related to disbursements of Company’s management, salaries and labor taxes of various departments, R&D, technology, human resources, among others, as well as product and sample development.

Other Operating Revenues (Expenses): Consists mainly of the refund of reverse logistics, recovery of expenses, franchise tax and eventual provisions.

Financial Result

The Company’s financial result consists of (i) financial expenses, including the payment of debt interest and charges of credit and debit cards accepted in the owned stores, (ii) financial revenues, as interest on cash investment, as well as other investments and assets, and (iii) gains or losses from FX rate on debt and receivables denominated in foreign currency.


The Company’s main investments are comprised by the opening of new stores, and also in the expansion and refurbishment of the current ones. Normally it is necessary to pay for the key money (does not depreciate) which is money paid to an existing tenant who assigns a lease to a new tenant for the new store or area to be expanded, as well as, investments on refurbishment and furniture (does depreciate).

The Company also invests in systems and information technology, besides a variety of smaller investments.