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Companhia Brasileira de Distribuicao (CBD) Q1 Sales Up Y/Y

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Brazilian retail giant Companhia Brasileira de Distribuicao (CBD - Free Report) or Grupo Pao de Acucar (GPA) reported sales growth in the first quarter of 2017.

In the financial statements of CBD as of Dec 31, 2016, operations of Via Varejo will be considered to be nonfunctional. The move comes after the divesture of the interest held by GPA in Via Varejo S.A. as announced in the material fact notice of Nov 23, 2016.

Results in Detail

In the first quarter, net sales, adjusted for calendar effect increased 9.5%, lower than the preceding quarter’s growth of 12.1% year over year. The improvement was backed by the recovery in Extra Hiper markets and consistent growth at Assai. Comparable store sales (comps) rose 5.6% in the first quarter, which was lower than 7.7% growth in the fourth quarter of 2016.

Adjusted EBITDA grew 15.7%, while EBITDA margin expanded 40 bps to 4.6%. The growth in EBITDA was driven by higher gross margins posted by Multivarejo and Assaí, despite unfavorable sales mix. A decline in selling, general and administrative expenses at Multivarejo as a result of efficiency and productivity projects also boosted EBITDA margin.

Segment Details

GPA’s brick-and-mortar stores and e-commerce operations are divided into three business units:

Multivarejo operates in the supermarket, hypermarket and Minimercado store formats, as well as fuel stations and drugstores under the Pao de Acucar and Extra banners.

This segment’s net sales inched up 0.4% in the first quarter, with comps same-store sales growing 2%. Sequential recovery in volumes and higher customer traffic led to improved performance in the quarter.

Assai operates in the cash-and-carry wholesale segment. GPA Malls is responsible for managing the Group's real estate assets, expansion projects and new store openings.

Net sales increased 28.8% in the first quarter, driven by comp sales. Comps grew 12.9% due to the continued double-digit growth in customer traffic and store conversion, despite inflation in the food category. In the past 12 months, Assai expanded 10 stores and converted two Extra Hiper stores, which contributed approximately R$600 million to net sales in the said period.

In the first quarter, the company closed five Extra Hiper stores and converted to Assai. Currently, eight stores are under construction; seven Assai (including five Extra Hiper conversion and two new stores) and one Minuto Pao de Acucar. These stores are expected to be converted before the third quarter of 2017.

Via Varejo’s operations have discontinued and its bricks and mortar electronics and home appliances stores have come under the Casas Bahia and Pontofrio banners. It falls under the e-commerce segment.

Net revenue improved 2.2%, driven by strong sales recovery at both the online and offline channels.

Coming to the share price movement, CBD’s shares rallied 39.9% over the past one year, outperforming the Zacks categorized Retail-Supermarket industry’s growth of 8.8%.

Zacks Rank & Stocks to Consider

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

Better-ranked stocks in the retail sector are Rocky Brands, Inc. (RCKY - Free Report) , Carter's, Inc. (CRI - Free Report) and Wal-Mart Stores, Inc. (WMT - Free Report) . While Rocky Brands sports a Zacks Rank #1 (Strong Buy), Carter’s and Wal-Mart carry a Zacks Rank #2 (Buy) each. You can see the complete list of today’s Zacks #1 Rank stocks here.

Rocky Brands posted a positive surprise of 42.86% in the last quarter, but negative surprises in the remaining three trailing quarters. Carter’s and Wal-Mart have expected long-term earnings growth of 12.2% and 6.1%, respectively, for the next three to five years.

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