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Companhia Brasileira de Distribuicao Posts Weak Q1 Sales - Analyst Blog

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Brazilian retail giant Companhia Brasileira de DistribuicaoCBD or Grupo Pão de Açúcar (GPA) reported a year-over-year decline in profit and sales in the first quarter of 2015, mainly due to a weak economic scenario in Brazil.

In the first quarter of 2015, CBD delivered adjusted net income of R$311 million (*$109.2 million), which decreased 14.3% (in local currency) from the year-ago quarter. The year-over-year decline in profits reflects a rise in expenses and thereby margin contraction. A difficult macro-economic environment also led to the soft results. In the preceding quarter, the company posted growth of 21.3%.

Results in Detail

In the first quarter of 2015, consolidated gross sales increased 15.4% year over year (in local currency) to R$16.637 billion ($5.84 billion), driven by improved performance of the Food and Viavarejo businesses.

Consolidated net sales climbed 14.8% during the first quarter to R$17.237 billion ($6.05 billion), driven by strong organic growth and new store openings. Sales were worse than the preceding quarter's growth of 16.2%. Excluding the effects from the Cdiscount consolidation, net sales growth was 5.9% in the quarter.

The company posted net same-store sales growth of 4% in the reported quarter, driven by strong same-store sales growth in the Food Business (Multivarejo and Assai) and Cnova, which offset the same store decline in Viavarejo. The company's strategy to focus on price competitiveness also drove same-store sales growth in the food category. Net same-store sales growth was worse than 4.3% growth in the preceding quarter.

The company opened 20 new stores in the quarter, of which 14 were opened by Multivarejo, 3 by Assaí and 3 by Viavarejo.

Gross profit increased 10% in the quarter, which was much lower than the preceding quarter growth of 19%. Gross margin declined 100 basis points to 24%, mainly due to Cnova and Assaí mix effect. Except this, all the business segments registered gross margin expansion in the quarter. On a comparable basis, which excludes Cnova results (Cnova Brasil and International operation), gross margin improved 50 basis points from 26.6% to 27.1%.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) decreased significantly by 9.6%. Adjusted EBITDA margin declined 150 basis points to 5.5% in the first quarter. Adjusted EBITDA growth in the preceding quarter was 21.7%.

Category Details

The company operates through the food retail, cash and carry, electronics and home appliances retail (bricks and mortar), and e-commerce business segments. These segments are grouped into two large categories, namely Food Business (Multivarejo and Assai) and Non-Food Business (Viavarejo and Cnova).

The Food Business comprises supermarkets, hypermarkets, neighborhood stores, cash-and-carry stores, gas stations and drugstores while the non-food business includes the e-commerce business segments and household appliances. The e-commerce segment, Cnova, was formed after the completion of the corporate reorganization in July by combining the operations of Cnova Brasil and Cdiscount in France, including its specialized websites and international websites. Cnova is indirectly owned by CBD, Via Varejo and certain founding shareholders of Nova Pontocom, which hold participation of 53.5%.

Food Business

Food Business' net sales increased 8% in the quarter, with store expansions and same store sales growth of 3.7%. The company opened 128 new stores in the last 12 months, with 105 convenience stores (86 Minimercado Extra and 19 Minuto Pão de Açúcar), 10 Assaí, 8 Pão de Açúcar, 3 Extra Super and 2 drugstores. Sales growth was better than the preceding quarter growth of 5.8%.

Sales in this category were driven by continued solid performance at Assaí, which posted sales growth of 26.3% year over year, driven by solid same-store sales growth and expansion in the store network. At Multivarejo, performance improved in the reported quarter owing to the initiatives taken to improve price competitiveness and commercial dynamics. This also resulted in positive same-store sales in the quarter, driven by improved sales performance in food categories at hypermarkets, with recoveries in both sales volume and customer traffic at stores.

Non-Food Business

Net sales of the Non-Food Business increased 23.5% in the quarter. However, it was weaker then the preceding quarter's growth of 29%.

Cnova: The category's net sales surged 125.6% on the back of same store sales growth of 19.5%. Sales growth in the preceding quarter was 144.8%.

Viavarejo: Viavarejo's net sales declined 1% in the quarter, driven by same-store sales decline of 2.3%, which was due to store closures. Net sales growth was much weaker than the preceding quarter's positive growth of 2.7%. While smartphone and white line categories performed well in the quarter; the television category declined significantly, mainly as a result of the strong year-over-year comparisons for this category as a result of the World Cup in the first half of 2014. During the quarter, 3 new Casas Bahia stores were opened.

Companhia Brasileira de Distribuicao has a Zacks Rank #3 (Hold).

Stocks to Consider

Better-ranked stocks in the industry include Gordmans Stores, Inc. GMAN , Roundy's, Inc. RNDY , and The Kroger Co. KR . While Gordmans Stores sports a Zacks Rank #1 (Strong Buy), Kroger and Roundy's Inc. carry a Zacks Rank #2 (Buy).

*1R$=$0.3512 for the quarter ending Mar 31, 2015

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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