Shares of Companhia Brasileira de Distribuicao CBD dropped to a 52-week low of $10.15 on Dec 21 after the company initiated a legal review of issues related to inventory management. Share price of this Brazilian retailer eventually closed at $10.44 on Dec 21.
Inventory Issues
On Dec 18, CBD’s subsidiary Cnova announced that it has involved its legal advisors and accountants to investigate issues of employee misconduct related to inventory management. The issues primarily relate to the handling of product returns and damaged product inventory at distribution centers of the company’s Brazilian subsidiary, Cnova Comércio Eletrônico S.A. (Cnova Brazil).
The review process will also assess if there would be any accounting or financial impact, though it is too early to predict when the investigation will be complete.
Overall, Companhia Brasileira de Distribuicao has been reporting year-over-year decline in profits since the past three quarters of 2015, reflecting a rise in expenses and thereby margin contraction. A difficult macro-economic environment in Brazil also led to soft results. Net sales increased in the period, only due to new store openings. CBD’s comp sales growth was significantly impacted due to same store decline in Viavarejo.
Nevertheless, the company is impressed with the performance of the food segment, which has been growing despite declining consumer spending environment, owing to renovation of Extra stores and continued growth from Assai stores. Going ahead, the company has expansion plans for both Extra banners and Assai.
Companhia Brasileira de Distribuicao has a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the industry include Wal-Mart Stores, Inc. WMT, Ross Stores, Inc. ROST and The Kroger Co. KR. All of them carry a Zacks Rank #2 (Buy).
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