Brazilian retail giant Companhia Brasileira de Distribuicao (CBD) or Grupo Pão de Açúcar (GPA) reported strong second quarter 2014 results with double-digit profit and sales growth, despite tough macroeconomic conditions.
In the second quarter, CBD delivered profits of R$407 million (*$183 million), which increased 26.3% (in local currency) from the year-ago quarter. The year-over-year increase in profits reflects sales growth in the period and operational improvements in all its segments.
Results in Detail
In the second quarter of 2014, consolidated gross sales, comprising the Food Business (Multivarejo and Assaí), Nova Pontocom and Viavarejo, increased 12.8% year over year (in local currency) to R$16.869 billion ($7.58 billion), driven by improved performance of the Food businesses and Nova Pontocom. Sales beat the Zacks Consensus Estimate of $6.68 billion.
Consolidated net sales climbed 13.4% during the second quarter, driven by new store openings and positive same-store sales growth.
The company posted net same store sales growth of 9.5% in the reported quarter, driven by same store sales growth of 8.3% in Food Business, 6.8% in Viavarejo and 35.1% in Nova Pontocom. The company opened 25 new stores in the quarter, which fueled growth. A positive calendar impact of 110 basis points also benefited the quarter.
Gross profit increased 11.8% but margin contracted 30 basis points from the prior-year quarter to 26.0% due to higher share of Assaí and Nova Pontocom in the sales mix.
Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) increased 21.1%. Adjusted EBITDA margin increased 50 basis points to 7.6% in the second quarter of 2014, driven by strong margin gains at Via Varejo and Multivarejo.
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 three large categories, namely Food Business, Nova Pontocom and Viavarejo.
The Food Business 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.
Food Business: Food Business’ net sales increased 14.5% in the quarter, with store expansions and same store sales growth of 8.3%, which benefitted from the positive calendar effect. Excluding this effect, same-store sales grew 6.3% in the quarter. The company opened 16 neighborhood stores (including 15 Minimercados Extra and 1 Minuto Pão de Açúcar), 1 Pão de Açúcar, 1 Assaí and 1 drugstore, totaling 19 stores in the quarter.
Sales in this category were driven by extraordinary performance at Assaí, which posted sales growth of 35.8% year over year, driven by solid same-store sales growth and expansion in the store network. At Multivarejo, Pão de Açúcar and Minimercado Extra banners continued to capture market share in the reported quarter.
Nova Pontocom: The category’s net sales surged 35.1% on the back of higher business volume. Business volume grew approximately 41% in the second quarter, driven by a significant increase in the number of access in the sites, better conversion rates and higher contribution of the marketplace.
Viavarejo: Viavarejo’s net sales increased 8% in the quarter, driven by same-store sales of 6.8% and 6 new store openings under the Casas Bahia banner.
Overall, we are encouraged with the performance of Pão de Açúcar, which is gearing up to expand its stores and market share. 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 under the ViaVarejo unit.
Companhia Brasileira de Distribuicao currently holds a Zacks Rank #3 (Hold).
Other Stocks to Consider
Some better-ranked stocks worth considering in the retail sector include The Fresh Market Inc. (TFM), J. C. Penney Company, Inc. (JCP) and The Kroger Co. (KR). All of them carry a Zacks Rank #2 (Buy).
*1R$=$0.44927 for the quarter ending Jun 30, 2014
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