Back to top

Image: Bigstock

Food Deflation Hurts Companhia Brasileira (CBD) Q4 Results

Read MoreHide Full Article

Companhia Brasileira de Distribuicao (CBD - Free Report) or Grupo Pao de Acucar reported fourth-quarter 2017 results, wherein adjusted net income from continuing operations came in at R$159 million ($48.9 million), down 18.4% from R$195 million ($60 million) recorded in the year-ago period. Results were impacted by soft EBITDA margin that in turn was hurt by food deflation. However, sales grew year on year, driven by continued strength at Assai and the ongoing recovery at Extra Hiper.

While this Zacks Rank #3 (Hold) stock has rallied 14% in a year, it underperformed the industry’s 40.5% surge.





Results in Detail


Net revenue in the fourth quarter came in at R$12,510 million ($3,849 million), compared with R$11,740 million ($3,612.1 million) in fourth-quarter 2016. Net revenues increased 6.6% year over year in local currency.

Adjusted gross profit climbed 2% to R$2,755 million ($847.6 million), whereas the adjusted gross margin contracted 100 basis points (bps) to 22%. Adjusted EBITDA slumped nearly 20% to R$582 million ($179.1 million), while EBITDA margin shrank 150 bps to 4.7%, due to softness in both segments, largely stemming from food deflation.

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 same-store sales dipped 0.6%, on account of increased deflationary pressure in food-at-home categories. Management stated that deflation was particularly strong in Christmas seasonal products. Also, tough economic conditions led consumers to shift preferences to other channels, which marred same store sales.

Delving deeper, we note that the performance of Extra Hiper remained sturdy, with same-store sales growing on the back of non-food categories like electronics, apparel and general merchandise. Pao de Acucar also witnessed higher sales volume for the second consecutive quarter despite bearing the brunt of food deflation and soft sales during the renovation phase. Notably, Extra Super banner was most affected by food deflation, particularly in basic perishables.

While Multivarejo continued undertaking endeavors to enhance efficiency and also generated savings in personnel and electricity costs, the segment’s SG&A increased as a percentage of sales. This was a result of food deflation on sales, inflated costs, expenses associated with renovations at Pao de Acucar and some costs related to the fire at the Osasco DC. These factors also weighed on adjusted EBITDA margin that fell 190 bps to 4.7%.

Net sales at Assai surged 28.2% in the quarter, adjusted for the calendar effect. The sturdy growth was driven by higher comps and contributions from new stores. Despite major food deflation in Meat, Staples and Dairy categories, Assai’s comps jumped 10.7%, on the back of greater sales volume. Sale volume was backed by improved customer traffic and continued rise in market share even amid stiff competition. Notably, sales from Assai constituted about 43.5% of the company’s total sales in the fourth quarter, marking 730 bps growth year over year.

Operating costs rose to 10.7% of net sales, on account of expenses related to accelerated organic expansion and conversions. Adjusted EBITDA increased 16.5%, whereas the adjusted EBITDA margin came in at 5.3%, down 50 bps year over year.

The company operated 126 Assai stores by the end of 2017, including 20 new stores. These new stores included 5 organic expansions and 15 Extra Hiper conversions. The company plans to open 20 Assai stores in 2018, including conversions. Also, it remains on track to renovate nearly 20 Pao de Acucar stores.

Financial Details

The company ended 2017 with cash and marketable securities of R$3,792 million ($1,144.3 million), net debt of R$767 million ($231.4 million) and total shareholders’ equity of R$13,292 million ($4,011 million).

During 2017, the company’s capital expenditure for the Food segment increased 9%, due to 15 Extra Hiper conversions into Assai stores and the opening of five new Assai stores, three Pao de Acucar stores, six Minuto Pao de Acucar stores, two Extra drugstores and two gas stations.

2017 Outlook

The company faced a tough economic environment in 2017, with major food deflation, persistently high unemployment level and sluggish consumer spending, all of which were headwinds for the retail industry. Despite a challenging landscape, GPA performed well with increased market share at Assai and Extra Hiper. Also, market share at other banners remained more or less stable.

In 2018, the company remains focused on its strategy for 2018-2020, which aims at delivering solid food segment. The company plans to achieve this by utilizing its multi-network and multi-format existence in order to offer consumers the innovative services and products. Apart from this, the company also remains on track with digital transformation, as highlighted by the launch of My Discount platform at Multivarejo, which garnered considerable success over the last seven months. Management stated that focus on digital development will remain a major priority in 2018, give consumers’ evolving shopping patterns.

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

Further, EBITDA margin is envisioned to increase in both segments, with Multivarejo expected to witness 50-60 bps growth and Assai to witness 20-30 bps. Well, food deflation is likely to persist in the first half of 2018, with expectations of some recovery in the second half. Moreover, the company targets generating synergies of more than $85 million from Latin America.

3 Retail Stocks You Can’t Miss

Buckle (BKE - Free Report) has an impressive earnings surprise history. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Foot Locker (FL - Free Report) , with a Zacks Rank #1, has witnessed positive estimate revisions over the past 30 days.

Children's Place (PLCE - Free Report) with a Zacks Rank #2 (Buy), has a splendid earnings surprise history and a long-term earnings growth rate of 9%.

Can Hackers Put Money INTO Your Portfolio?

Earlier this month, credit bureau Equifax announced a massive data breach affecting 2 out of every 3 Americans. The cybersecurity industry is expanding quickly in response to this and similar events. But some stocks are better investments than others.

Zacks has just released Cybersecurity! An Investor’s Guide to help Zacks.com readers make the most of the $170 billion per year investment opportunity created by hackers and other threats. It reveals 4 stocks worth looking into right away.

Download the new report now>>

Published in