Strong Units Drive Companhia Brasileira's (CBD) Q3 Earnings

Companhia Brasileira de DistribuicaoCBD or Grupo Pao de Acucar reported third-quarter 2018 results, wherein the company continued to witness solid performance in the Multivarejo and Assai segments. Further, the company is on track with store expansion and renovation plans. We note that shares of the company rose 9.3% in yesterday's trading session.

Clearly, this Zacks Rank #2 (Buy) company's robust plans to improve performance through store improvements along with efforts to augment digital presence and strengthening private label products have been yielding. Such efforts combined with the solid quarterly performance as well as a positive view for 2018 are expected to boost the company's price performance. Well, shares of the company have declined 2.8% in the past three months, against the industry 's 10.1% gain.

During the quarter, consolidated net income from continuing operations came in at R$188 million ($47.7 million), which increased nearly 18.8 times (in local currency) from R$10 million ($2.5 million) recorded in the year-ago quarter. Increased sales and higher adjusted EBITDA led to the upside.

Results in Detail

Gross revenues in the quarter came in at R$13,307 million ($3,377.1 million) compared with R$11,791 million ($2,992.3 million) in third-quarter 2017. The Zacks Consensus Estimate is pegged at $3,094 million. Gross revenues increased almost 12.8% year over year in local currency, backed by growth in the Assai and Multivarejo units.

Gross profit jumped 11.2% in local currency to R$2,714 million ($688.8 million), whereas gross margin contracted 30 basis points (bps) to 22.1%. Adjusted EBITDA advanced 24.3% to R$670 million ($170 million), with the adjusted EBITDA margin expanding 60 bps to 5.5%, courtesy of higher margins in the segments.

Companhia Brasileira de Distribuicao Price, Consensus and EPS Surprise

Companhia Brasileira de Distribuicao Price, Consensus and EPS Surprise | Companhia Brasileira de Distribuicao Quote

Segment Details

Multivarejo gross sales came in at R$6,925 million, while same store sales grew 6.1%, excluding calendar effect. This was backed by enhanced sales across all banners (especially Extra Hiper and Proximity formats), which led to market share growth of 140 basis points (bps). Also, the segment benefited from successful promotional activities and greater commercial actions, which drove sales volumes across all banners. The segment also benefitted from growth in food e-commerce.

Gross margin remained nearly flat at 27.9%, as success from promotions was countered by competitive pricing. SG&A costs in the segment increased 2%. As a percentage of sales, SG&A costs declined 10 bps, reflecting strong sales and successful cost discipline measures. Further, adjusted EBITDA margin expanded 20 bps to 5.7%.

The company renovated 6 Pao de Acucar stores under Generation 7 concept in September. Further, it is on track with renovating three more stores under this banner and expects to complete the same by fourth-quarter 2018. Also, during the third quarter, the company revitalized 6 Extra Super stores, converting them to Mercado Extra.

Gross sales in the Assai remained strong, surging 25.5% in local currency to R$6,382 million. This also led to a 190 bps increase in market share. Markedly, Assai's same-store sales jumped 8.3%, excluding calendar effects.

Gross margin grew 80 bps to 15.9%, courtesy of store expansion efforts. SG&A costs for the segment increased 23.9%. As a percentage of sales, SG&A costs reflects dilution of 10 bps, owing to solid performance from mature stores that were partially countered by expenses related to increased store count and stores under construction. Nevertheless, adjusted EBITDA margin grew 90 bps to 5.7% on account of gross margin growth and higher sales.

During the quarter, the company opened four Assai stores, including one that was converted from Extra Hiper to Assai. The company plans to open 20 stores this year, including new and the converted ones.

Financial Details

The company ended the quarter with cash and marketable securities of R$2,625 million ($647.6 million), net debt (adjusted for unsold receivables) of R$3,260 million ($804.3 million) and total shareholders' equity of R$13,762 million ($3,395.3 million).

During the quarter, the company spent R$488 million ($123.8 million) as capital expenditure in the food segment. This was allocated toward land acquisition, store expansions and renovations as well as other infrastructural developments.

Also, the company is on track with its pilot projects (Compre Bem and Mercado Extra) for the Extra Super banner, to raise penetration in its targeted customer base. During the quarter, the company made significant progress in the conversion of 13 Extra Super stores. These stores are expected to be opened by the fourth quarter. Also 6 Extra Super stores were converted to Mercado Extra.


Companhia Brasileira's performance in the quarter was solid, owing to continued strength at Assai and improved trends at Multivarejo. That said, the company is confident of attaining the stated goals for 2018.

For 2018, management continues to envision same store sales at Assai to be more than the inflation level, while that in Multivarejo is expected to be at par with food inflation. The segments are anticipated to witness continued market share gains.

Further, EBITDA margins for Multivarejo and Assai are projected in the range of 5.5-5.6% and 5.8-5.9%, respectively.

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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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