Companhia Brasileira de Distribuicao
) reported second quarter 2013 earnings of R$0.16 (8 cents per
share) compared with R$1.00 per share (51 cents per share) in the
year-ago quarter. The year-over-year decline in earnings reflects
sluggish retail industry and eroding consumer confidence.
However, the company managed to deliver positive results in
the four business segments of food retail, cash and carry,
electronics and home appliances retail (bricks and mortar),and
e-commerce. These segments are further grouped into two large
categories, namely GPA Food and Viavarejo.
GPA Food comprises supermarkets, hypermarkets, neighborhood
stores, cash-and-carry stores, gas stations and drugstores while
Viavarejo includes household appliances and e-commerce operations
through Nova Pontocom.
Quarter in Detail
In the second quarter of 2013, consolidated gross sales,
comprising GPA Food and Viavarejo, increased 11.2% year over year
(in local currency), driven by solid improvement in Viavarejo.
Consolidated net sales climbed 12.1% during the quarter.
The company posted same store growth of 7.3% in the reported
quarter, driven by strong performance of Viavarejo in the past
The company opened 33 new stores in the quarter which fueled
growth. The company was however forced to shut certain stores for
some hours in specific periods in the second half of June due to
unrest in Brazil but it did not significantly impact sales and
the overall performance of the company in the quarter.
For 2013, the company plans to open more than 150 stores,
targeting northeast and mid-west regions.
Gross profit climbed 13.4% and gross margin expanded 30 basis
points to 26.5% from the prior-year quarter, reflecting the price
repositioning in food retail along with a reduction in
Adjusted earnings before interest, tax, depreciation and
amortization (EBITDA) increased 37.6% benefiting from lower
operating expenses at Viavarejo. EBITDA margin increased 140
basis points to 7.2% in the second quarter of 2013 owing to
operational efficiency. The company managed to reduce Viavarejo's
selling, general and administrative (SG&A) expense ratio by
160 basis points to 21.5% in the second quarter, which fueled
GPA Food's gross sales increased 8.8% in the quarter, driven
by 4.8% growth in gross same store sales. The growth in same
store sales was driven by both retail and cash and carry sales
growth. However, it was less than the prior quarter due to an
early Easter in 2013. Net sales increased 10.6% in the
Viavarejo's gross sales increased 14.2% in the quarter, driven
by growth of 9.5% in gross same store sales owing to effective
marketing campaigns. Net sales increased 14.0% in the
Management expects further reductions in operating expenses
over the year. Management intends to convert the resultant
savings into lower prices for consumers to increase store
traffic. With such a strategy, the company's market share is
expected to increase over the next quarters.
We are impressed with CBD's strong market position and
economies of scale that have helped the company deliver strong
results despite continued weakness in consumer expenditure. The
company's cost savings in its Viavarejo appliance and home
furnishings unit are also encouraging.
The company has been focusing on its food business instead of
other categories of appliances and electronics, as consumers find
it difficult to purchase these items in the current economic
scenario. However, inflation in Brazil is denting CBD's food
business and the company is struggling hard to keep prices down.
The company is thus counting on a turnaround in its appliance
division to make up for the shrinking profit margins in its
Currency translation headwinds and tough employment
conditions, particularly in Europe remain a threat. We expect
slow recovery in the U.S. and therefore consumer sentiment will
recover at a mild pace.
CBD holds a Zacks Rank #5 (Strong Sell). Retail companies that
warrant a look are
Ingles Markets Inc
The Fresh Market Inc
). While Ingles holds a Zacks Rank #1 (Strong Buy), Kroger and
Fresh Market carry a Zacks Rank #2 (Buy).
COMPANHIA BRASL (CBD): Free Stock Analysis
INGLES MARKET A (IMKTA): Free Stock Analysis
KROGER CO (KR): Free Stock Analysis Report
FRESH MARKET (TFM): Free Stock Analysis
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