RIAA3

Guararapes Confecções S.A. is the company that leads Grupo Guararapes, one of the largest fashion groups in Brazil, with common shares traded on B3 under the ticker RIAA3. The group’s history begins in 1947, when brothers Nevaldo and Newton Rocha opened the fabric store “A Capital” in Natal (RN). Expansion to Recife (PE), with the implementation of a fabric manufacturing operation and the acquisition of retail points, led to the formal incorporation of the company in 1956. Over the following decades, the company went through cycles of industrial growth, retail expansion and corporate reorganization, including an IPO in the early 1970s, construction of new factories in the Northeast and the acquisition of regional retail chains. A major milestone was the acquisition of Lojas Riachuelo and Wolens in 1979, which cemented the company’s entry into fashion retail and redefined its business model, gradually shifting its focus from simple garment manufacturing to an integrated platform of industry, retail and financial services.

Guararapes Confecções’ business model is characterized by a high degree of vertical integration, combining three main pillars: merchandise (fashion industry and retail), financial services (Midway Financeira) and real estate operations (Shopping Midway Mall). In the merchandise segment, the company operates a large garment factory in Natal (RN) and a brand platform that includes Riachuelo, Casa Riachuelo, Carter’s and FANLAB, with 425 brick-and-mortar stores across all regions of the country, in addition to e-commerce and marketplace operations. Logistics is treated as a strategic element, with three distribution centers in Guarulhos (SP), Natal (RN) and Manaus (AM), as well as Transportadora Casa Verde, which is responsible for a relevant portion of distribution between the factory and the stores. In 2024, the merchandise segment accounted for 74.9% of consolidated net revenue, showing that most of the company’s economic value is tied to retail and the sale of fashion items.

At the operational level, the merchandise segment encompasses the entire chain of design, production and distribution of women’s, men’s and children’s clothing collections and home fashion items. Product development combines industrial know-how with trend research, analysis of consumer behavior, monitoring of fashion shows, social media and reference brands. The design team defines, collection by collection, the assortment that will be produced in-house at the Natal factory or outsourced to domestic and international suppliers, including through a trading company in Shanghai (China), which intermediates imports from Asia. The company-owned factory, with 219,100 m² of built area and 402,000 m² of total area, produces knit fabric and a relevant share of knitwear, woven fabric, denim and twill garments, using manufacturing cells to provide agility and flexibility. In 2024, the industrial unit billed R$ 1.6 billion to Riachuelo with the production of 41 million pieces, all destined for the group’s retail chain since 2008, underscoring the integrated nature of its industry and stores.

From a channel perspective, Guararapes Confecções, through its subsidiaries, operates physical stores and e-commerce within an omnichannel strategy. In 2024, the network had 333 Riachuelo stores, 73 stand-alone Carter’s stores, 12 stand-alone Casa Riachuelo stores and 7 FANLAB stores, in addition to Casa Riachuelo and Carter’s shop-in-shop formats. The Natal and Guarulhos distribution centers operate in an integrated manner for both physical and digital channels, with stock management by SKU and automated picking and shipping systems, especially at the Guarulhos DC, which has operated on a push and pull model since 2016. The company also offers solutions such as endless aisle, self-checkout, mobile POS, buy online pick up in store, ship from store and a marketplace with curated brands and complementary categories, forming a multichannel service proposition that integrates logistics, technology and shopping experience.

The financial arm, Midway Financeira, is another significant component of the Guararapes model. Although it accounts for a smaller share of net revenue (23.9% in 2024), the segment was responsible for 73.2% of the group’s net income that year, showing its importance in profit generation. Midway offers private-label and co-branded cards, with specific installment payment conditions for physical stores and e-commerce, as well as personal loans, cash advances, insurance and assistance services. Midway’s digital account provides features such as Pix, bill payments and an interest-bearing account, integrating with Riachuelo’s apps and digital channels. This financial services structure is used as a tool for customer loyalty and to boost retail sales, while at the same time diversifying the group’s revenue sources. Midway’s operations are regulated by the Central Bank of Brazil, whose authorization is essential for consumer credit activities.

Beyond retail and financial services, the group also operates in the Midway Mall segment, responsible for leasing stores, managing spaces and operating parking at a shopping mall located in Natal (RN). In 2024, this segment represented 1.2% of consolidated net revenue, serving as a complementary activity focused on monetizing the group’s real estate assets. Midway Mall manages store and kiosk leases, merchandising, event areas and other common spaces, aiming for operational efficiency and recurring income generation. Although less relevant in financial scale compared to merchandise and Midway Financeira, the mall reinforces the group’s local presence in Rio Grande do Norte and broadens the conglomerate’s business scope.

Geographically, Guararapes Confecções maintains a strong foothold in the Northeast, mainly in Rio Grande do Norte, where its headquarters, main industrial hub and Midway Mall are located. The administrative head office, in turn, is in São Paulo, the center of corporate decision-making and close to the country’s major consumer markets. The store network is spread across the entire national territory, and the Shanghai office, opened in 2013, strengthens its negotiating and sourcing capabilities with Asian suppliers. No individual customer accounts for more than 10% of total net revenue, indicating a fragmented consumer base, a typical feature of large-scale retail operations.

From a regulatory and governance standpoint, the company does not operate in a traditionally regulated sector, but maintains a set of licenses and authorizations necessary for its operations, including environmental licenses, certificates from IBAMA, water-use permits, licenses for controlled chemicals, business permits and fire department inspection certificates. Migration to the Novo Mercado listing segment at B3, formalized in 2022, strengthens its commitment to more robust governance practices. There is also a structured effort in data protection, with compliance to the LGPD, the creation of a privacy department led by a certified DPO, internal and external privacy policies, process mapping and interaction with the National Data Protection Authority, reflecting the importance of handling customer, supplier and employee data for the business.

The sustainability (ESG) agenda is presented as a cross-cutting axis of Guararapes Confecções’ strategy. Since 2021, the company has had formal policies on sustainability, environment, diversity and inclusion, social investment and risk management, integrating environmental, social and governance factors into its business plan. In 2024, it reorganized its ESG strategy under the “Moda que Transforma” (“Fashion that Transforms”) platform, structured around four pillars: fashion that transforms fashion (environmental focus: climate, water, circularity, regeneration and innovation), fashion that transforms lives (social topics such as decent work, diversity and inclusion), fashion that collaborates to transform (governance, value chain, ethics and transparency) and fashion that invests to transform (economic aspects and financial compliance). The company reports progress such as certifications in the Brazilian GHG Protocol Program with Gold Seal, improved CDP scores in climate change, water security and forests, validation of emissions reduction targets by the Science Based Targets initiative (SBTi) and inclusion, for the third time, in the B3 Corporate Sustainability Index (ISE) portfolio. These initiatives form a context in which Guararapes seeks to align its integrated business model in fashion, retail and financial services with long-term climate risk management, resource efficiency and social responsibility practices.

For individual investors following RIAA3 shares on B3, the FRE shows a vertically integrated company centered on fashion retail, highly exposed to discretionary consumption dynamics, but with complementary pillars in consumer financial services and shopping mall real estate operations. The integration among factory, logistics, physical stores, digital channels and Midway Financeira, combined with an explicit governance and sustainability agenda, forms the backdrop against which segment results — particularly the predominance of merchandise in revenue and financial services in profit — should be analyzed when assessing the group’s economic performance and risk profile.