Brazil Apparel & Footwear: 2Q26 Preview: Dispersion Across Our Coverage, but Overall Helped by Winter Winds; Positive CW on LREN and Negative CW on AZZA

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Brazil Apparel & Footwear: 2Q26 Preview: Dispersion Across Our Coverage, but Overall Helped by Winter Winds; Positive CW on LREN and Negative CW on AZZA

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23 Jul 2026 07:36:22 ET │ 36 pages

Brazil Apparel & Footwear

2Q26 Preview: Dispersion Across Our Coverage, but Overall Helped by

Winter Winds; Positive CW on LREN and Negative CW on AZZA

João Pedro Soares AC

CITI'S TAKE +55-11-4009-7562

We see meaningful dispersion across apparel names. LREN is our preferred joao.soares@citi.com

idea in this moment, supported by relatively resilient execution, especially Felipe Husein

when it comes to cash generation (double-digit FCFE yield 2026/2027) and

shareholder return (double-digit DY for 2026/2027). Elsewhere, we see +55-11-4009-7137

both CEAB and RIAA with interesting asymmetries at ~5x and ~6x P/E 2027, felipe.husein@citi.com

although with a more limited scope for positive surprises, in our view. In

contrast, our recent conversations with AZZA reinforce our cautious stance,

as we see risk of further negative revisions. ALPA remains a constructive

margin expansion story, though we see limited upside at current multiples.

In conjunction with the preview, we launch a Positive Catalyst Watch on

LREN and a Negative Catalyst Watch on AZZA ahead of results, reflecting

our expectations for results relative to Visible Alpha consensus.

LREN (Buy; TP of R$17.0): Strong FCF — Despite 2Q25 tough comps (~17% SSS

growth), we model SSS growth of 3.0%, broadly in line with 1Q26 and ~80bps above

consensus. We also continue to view a constructive GM trajectory, even with tough

comps as well. We keep our Buy on LREN; the main attractive feature of the case

being its DD dividend yield for 2026/2027. Our TP is now R$17.0, from R$17.50

due to higher cost of equity (higher CDS, risk-free).