Zacks Investment Research upgraded
Companhia Brasileira de Distribuicao
) also known as Grupo Pão de Açúcar (GPA) to a Zacks Rank #1
(Strong Buy) on Mar 29. The stock has witnessed strong momentum
ever since company announced strong fourth quarter and full year
2013 results last month, despite tough macroeconomic
Why the Upgrade?
On Feb 13, this Brazilian retailer posted fourth quarter 2013
results and delivered profits of R$864 million ($403 million)
compared with R$503 million ($259 million) in the year-ago
quarter. The year-over-year increase in profits reflects growth
in all its business segments - food retail, cash and carry,
electronics and home appliances retail (bricks and mortar),and
e-commerce. These segments are 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.
Consolidated gross sales increased 14.9% year over year (in
local currency), benefiting from double-digit comparable store
sales growth. Pão de Açúcar opened 50 new stores in the quarter,
which also fueled sales growth.
Adjusted earnings before interest, tax, depreciation and
amortization (EBITDA) increased 23.8%. Adjusted EBITDA margin
increased 60 basis points to 9.5% in the fourth quarter, owing to
a significant decline in the selling, general and administrative
expense ratio from 19.0% in the year-ago quarter to 16.8% in the
fourth quarter of 2013.
During the year, Pão de Açúcar focused on implementing a
competitive pricing strategy in the Food Retail segment,
especially in the Extra banner segment, which helped it to gain
market share and increase customer traffic.
The ViaVarejo segment strengthened its presence in the capital
markets by carrying out an IPO at the end of 2013. The IPO
fortified the financial structure of GPA, helping it to reduce
its net debt position. The company launched Extra Marketplace, a
new sales model at Nova Pontocom in 2013 that brings together in
a single website offers from multiple stores in a variety of
segments thus offering a better product assortment.
Pão de Açúcar is gearing up to expand its stores and market
share by cutting down on costs in the face of a tough retail
environment. The company expects to open 400 new food stores by
2016, which includes 360 new convenience stores in its Mini
Mercado format. The company also has expansion plans for its
wholesaler, Assai, which has been posting solid results in the
last few quarters. The company is expected to open 12 to 15
stores per year through 2016 under the Assai banner, particularly
in the fast-growing Northeast region. In addition, Pão de Açúcar
plans to open 210 stores by 2016 in the ViaVarejo unit.
This retailer witnessed upward estimate revisions after the
announcement of its fourth quarter 2013 results. Estimates for
2014 and 2015 increased 0.9% and 1.3%, respectively over the past
Other Stocks to Consider
Other stocks worth considering in the retail sector include
Etablissements Delhaize Fr.
The Kroger Co.
Fortune Brands Home & Security, Inc.
), all with a Zacks Rank #2 (Buy).
COMPANHIA BRASL (CBD): Free Stock Analysis
DELHAIZE-LE (DEG): Free Stock Analysis Report
FORTUNE BRD H&S (FBHS): Free Stock Analysis
KROGER CO (KR): Free Stock Analysis Report
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