What happened to AZZA3 in the second quarter of 2026?
Azzas 2154 — the Brazilian fashion group behind Arezzo, Schutz, FARM Rio, Animale, Reserva and Hering — posted R$3.35 billion in gross revenue for the April-to-June quarter, a 7.1% decline. Recurring EBITDA fell 29.1% and recurring net income came in at R$106.5 million, down 62.5% year on year. In the same three months the company generated R$356.5 million in cash, 3.4 times the level of Q2 2025.
The figures were filed with Brazil's securities regulator (CVM) on the evening of August 12, alongside the quarterly financial statements, with the analyst presentation following on the morning of August 13. What follows walks through both documents in the order that matters to anyone holding the stock.
Where did the R$106.5 million profit come from?
Start with the line above the profit line. Recurring pre-tax income (EBT) — what the operation produced after every expense and after interest — was just R$45.7 million. Net income ended up larger than pre-tax income because income tax and social contribution added R$60.8 million instead of subtracting anything.
On a reported (non-adjusted) basis, which is what feeds the balance sheet and the dividend base, the picture is harsher:
| Reported basis (R$ millions) | Q2 2026 | H1 2026 |
|---|---|---|
| Pre-tax income (EBT) | -70.5 | -112.6 |
| Income tax and social contribution | +100.3 | +181.0 |
| of which: deferred | — | +203.6 |
| Net income for the period | 29.8 | 68.4 |
In plain terms: Azzas posted a pre-tax loss in both quarters of 2026 and reported a profit in both. Across the first half, the pre-tax loss was R$112.6 million, and the R$68.4 million of reported profit exists because the company booked R$203.6 million of deferred tax.
What deferred tax means here. A company that loses money earns the right to offset that loss against taxes it would owe in future years. Accounting rules let it recognise that right as an asset — and as income on the tax line, which pushes reported profit up. No cash moves. It is a promise of paying less tax later, and it only materialises if the company returns to taxable profit.
The size of that promise is worth tracking. Deferred tax assets on the balance sheet climbed from R$1,655.2 million in December to R$1,846.8 million in June — an increase of R$191.6 million during a half-year that ran a pre-tax loss. The asset depends on future earnings at a company that withdrew its guidance in March 2026 and has not issued a new projection since.
The genuine improvement: cash
If the profit is an accounting figure, the cash is not. This is the strongest part of the quarter:
| Cash generation (R$ millions) | Q2 2025 | Q2 2026 | LTM |
|---|---|---|---|
| Operating cash flow | 106.0 | 356.5 | 1,618.3 |
| After capex | 11.8 | 280.1 | 1,275.2 |
| EBITDA-to-cash conversion | 3% | 90% | 91% |
For the half-year, operating cash flow reached R$504.3 million against R$55.7 million in the same period of 2025. Capex fell 18.9% in the quarter to R$76.4 million. Over twelve months, R$1.27 billion was left after all investment — at a company whose market capitalisation sits near R$3.2 billion.
The source was working capital. The cash conversion cycle — the gap between paying suppliers and collecting from customers — dropped from 132 to 93 days. Inventory days fell by 20, receivable days by 6, and supplier payment terms stretched by 13 days. Less stock sitting still and more time to pay adds up to cash released.
The fine print on that improvement. The 39-day reduction becomes 31 days once you strip out two provisions taken in the same quarter: R$67.3 million for inventory losses and R$11.0 million for an unpaid international receivable. Management changed its policy and began provisioning footwear and raw materials that had sat in stock for more than two years. So part of the inventory reduction was not merchandise sold — it was merchandise written down. The company discloses both figures, headline and adjusted.
The paradox: debt fell, leverage rose
Net debt ended June at R$2,127.2 million, R$39.9 million below the March figure. Leverage nonetheless rose from 1.40x to 1.52x.
Both can be true because leverage is a ratio: net debt over trailing twelve-month EBITDA. The numerator shrank a little; the denominator shrank more. With recurring pre-IFRS-16 EBITDA at R$1,400.9 million and falling, the metric deteriorates even as the company pays debt down. This is the third consecutive quarterly increase: 1.28x in Q4 2025, 1.40x in Q1 2026, 1.52x now.
The maturity profile, though, leaves room to breathe. Of R$3,267.9 million in gross debt, 82.3% matures beyond twelve months. Only R$579 million comes due within a year, against R$1,136.2 million of cash and R$964.0 million in credit-card receivables.
Where the revenue fell — and the distinction that changes the reading
The consolidated number hides the most useful fact of the quarter. Azzas sells through two routes:
- Sell-out — what the end consumer buys in the brand's own stores and websites.
- Sell-in — what Azzas sells to franchisees and multi-brand retailers, who then resell it.
| Channel (R$ millions) | Q2 2025 | Q2 2026 | Change |
|---|---|---|---|
| Sell-out (consumer) | 1,781.3 | 1,748.1 | -1.9% |
| Own stores | 1,128.9 | 1,139.2 | +0.9% |
| E-commerce | 652.4 | 608.9 | -6.7% |
| Sell-in (retailer) | 1,293.5 | 1,117.4 | -13.6% |
| Franchises | 483.7 | 404.6 | -16.4% |
| Multi-brand | 809.8 | 712.8 | -12.0% |
| International | 498.3 | 478.6 | -4.0% |
Consumer demand barely moved: -1.9%, and +0.3% excluding Hering. The collapse was in the channel, at -13.6%. Management says part of that cut was deliberate — shipping less to franchisees in order to clear the network's inventory. The August 13 presentation quantified the effect in the Shoes & Bags unit: franchise sell-out fell 4% while sell-in fell 21%, improving the ratio between what the network sells and what it buys by 22%.
A second factor was not a choice. Multi-brand retailers buy on credit, and Brazil's benchmark rate (Selic) stands at 14.00% a year. The shopkeeper cuts orders before the consumer cuts spending, so the effect reaches Azzas amplified and with a lag.
The counterweight is gross margin, which rose 1.3 percentage points to 57.2%. Selling less at a better margin points to fewer discounts, not lost pricing power. What crushed EBITDA was the expense line: fixed costs grew 9.5% in a quarter when net revenue fell 8.2%, and total expenses went from 37.7% to 43.3% of net revenue. Management calls it operating deleverage — the cost base did not shrink alongside sales.
The four business units
| Unit | Brands | Q2 2026 revenue | Change |
|---|---|---|---|
| Shoes & Bags | Arezzo, Schutz, Anacapri, Vans | R$966.5m | -12.4% |
| Fashion Women | FARM Rio, Animale, Cris Barros, Maria Filó | R$1,404.4m | -2.8% |
| Fashion Men | Reserva, Oficina, Foxton | R$420.2m | -0.3% |
| Basic | Hering | R$559.5m | -12.1% |
Shoes & Bags took the steepest fall, driven by the 21% sell-in cut and by Vans, still in decline. Own stores told a different story: Arezzo grew 12.3% and Schutz 7.7%. On Vans specifically, management was precise on August 13 — the recovery plan started in Q1 2026, but the effects are expected from Q4 2026 onwards, with more consistent progress through 2027.
Fashion Women slipped 2.8% against a base that had grown 20.1% a year earlier. Unit sell-out rose 1.5%, led by Cris Barros (+19.9%) and Carol Bassi (+13.9%). FARM Rio's international arm grew 4.3% in dollars over a base that had itself jumped 25%; for the half-year the figure is 10.4% in dollars. In June the brand opened four European pop-ups — Marbella, Capri, Saint-Tropez and Ibiza — which have taken US$1.5 million since opening, double the target, with same-store sales up 41% in the period.
Fashion Men was essentially flat. Reserva held positive sell-out (+7.6%) while cutting discounts and digital media spend; Oficina grew 7.6% over a base that had risen 30%; the Reserva Go line advanced 17% in multi-brand.
Basic (Hering) is the most consequential story for anyone following the turnaround. Revenue is still down 12.1%, but that is a 6.4-point improvement on the -18.5% of the prior quarter — and the operating metrics have turned:
Across the half-year, Hering swung from consuming R$163 million of cash to generating R$166 million. The company also announced the September launch of the "Camiseta Brasil" basic tee at R$49.99 — 38% below last year's price on an item accounting for 6% of the brand's sales — expecting a 45% volume increase from the repricing alone.
The margin that settles the valuation
For a retailer, the most honest gauge is pre-IFRS-16 EBITDA margin. IFRS 16 moves store rent out of operating expenses and into depreciation and interest, which flatters any retailer's EBITDA. The pre-IFRS-16 view puts rent back where it economically belongs — it shows what is genuinely left after paying to keep the doors open.
| Pre-IFRS-16 EBITDA margin | Q1 25 | Q4 25 | Q1 26 | Q2 26 | H1 26 |
|---|---|---|---|---|---|
| As a share of net revenue | 13.3% | 13.0% | 10.4% | 11.7% | 11.1% |
That is two consecutive quarters below 12%, after a 2025 that ran at roughly 13%. Those two percentage points are what separates the possible paths from here — which is why this line, rather than reported profit, is the one to watch in the next release.
What management said about the second half
In the August 13 presentation, executives made claims that the next results can verify:
- That "the bulk of the channel correction has already been made".
- That Shoes & Bags expects sell-out growth to resume in the third quarter.
- That franchise sell-in is already approaching stability versus Q3 2025.
- That, despite the shareholder dispute, executive focus remains entirely on operations.
On FARM Rio, the company repeated its July 19 material fact disclosure: Morgan Stanley has been hired to assess strategic alternatives for the brand, the process "remains within the expected timing", and no decision has been taken, no transaction approved and no structure defined. FARM is the group's fastest-growing international operation.
The governance backdrop remains unresolved: the arbitration between the controlling shareholders at Brazil's CAM-B3 chamber, opened in May 2026, has not concluded. The quarter carried R$7.1 million in severance from executive departures. And on August 6 the company answered CVM Official Letter 160/2026, clarifying that press-reported projections for one of its brands had not been reviewed by its investor relations department.
What about dividends?
Data providers still display a double-digit dividend yield for AZZA3. That figure traces back to two payments made in November and December 2025 (R$0.89 and R$1.58 per share) out of the strong first full year after the merger. Through August 13, 2026, the company has declared no distribution at all — the most recent shareholder notice on file dates from December 2025.
The half-year arithmetic explains the caution: mandatory dividends come out of the year's profit, and reported first-half profit was R$68.4 million — roughly R$0.33 per share across 206.5 million shares. Since the displayed yield refers to payments made last November and December, it drops out of the trailing twelve-month window at the end of this year.
What the business is worth on fundamentals
Our full AZZA3 analysis was updated today with the Q2 2026 figures. The method starts from cash-generating capacity and cost of capital, never from the share price, and produces three references depending on the margin the company delivers:
| Pre-IFRS-16 EBITDA margin scenario | Value per share |
|---|---|
| 10.5% — the Q1 2026 pace becomes permanent | R$15.23 |
| 11.1% — the margin delivered in H1 2026 holds | R$17.51 |
| 13.0% — a return to the margin delivered in 2025 | R$24.71 |
| 15.0% — full margin, with Hering neutral | R$32.28 |
| Balance-sheet floor (tangible equity ex-deferred tax) | R$13.31 |
As a derived figure: with the stock at R$15.49 on Thursday, August 13, the market is paying 16% above the balance-sheet floor and below the value implied by the margin the company has just delivered. Shareholders' equity stands at R$8,040.3 million, or 0.40 times book value — bearing in mind that R$3.45 billion of that equity is intangible (brands and merger goodwill) and R$1.85 billion is the deferred tax asset described earlier.
Analysis score: 5.5/10 · UNDER REVIEW. The dated report with the full methodology, the sensitivity matrix and the scenarios is available as a PDF, and the browsable version sits on the stock page.
What to watch from here
- Q3 2026 results, due in November. Three claims are testable: did Shoes & Bags sell-out return to growth? Did franchise sell-in stabilise? Did the pre-IFRS-16 margin climb out of the 11% range?
- Whether the cash holds. The conversion cycle fell from 132 to 93 days, but inventory can only be cut once. When the cycle stops shrinking, cash generation goes back to tracking EBITDA. Watch EBITDA-to-cash conversion rather than the absolute figure.
- The R$1.85 billion deferred tax asset. Notes to upcoming filings will show how the company and its auditor assess recoverability of an asset that grew R$191.6 million during a loss-making half-year.
- Any material fact on FARM Rio: whether a deal happens, at what price, under what structure, and where the proceeds go.
- The first distribution of 2026, which will reveal the board's stance on preserving cash.
- Brazil's central bank meeting on September 15-16. Selic has been at 14.00% since August 6, with the market consensus (Focus survey) at 14.00% for end-2026 and 12.00% for end-2027 — credit cost is what constrains the multi-brand retailer.
- The Camiseta Brasil launch in September, the first test of Hering's new pricing and assortment model.
All figures here come from the Q2 2026 earnings release and quarterly statements filed with the CVM on August 12, 2026, and from the results presentation released on August 13, 2026, except where another source is indicated. The quoted share price is from the August 13, 2026 session.