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Companhia Brasileira (CBD) Results Impress in Q1 Earnings

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Companhia Brasileira de Distribuicao (CBD - Free Report) or Grupo Pao de Acucar reported first-quarter 2018 results, wherein net income from continuing operations came in at R$108 million ($33.3 million), up 40.1% (in local currency) from R$77 million ($23.7 million) recorded in the year-ago period. Increased sales and higher adjusted EBITDA led to the upside.

Notably, this Zacks Rank #3 (Hold) stock has rallied 11.6% in a month’s time, surpassing the industry’s gain of 1.1%.

 



 

Results in Detail

Net revenues in the quarter came in at R$11,343 million ($3,494.4 million), compared with R$10,552 million ($3,241.5 million) in first-quarter 2017. Net revenues increased 7.5% year over year in local currency.

Gross profit jumped 5.3% in local currency to R$2,547 million ($784.6 million), whereas the gross margin contracted 40 basis points (bps) to 22.5%. Adjusted EBITDA advanced 14.6% to R$546 million ($168.2 million), with the adjusted EBITDA margin expanding 30 bps to 4.8%, courtesy of higher margins at both segments.

Segment Details

Multivarejo gross sales came in at R$6.8 billion, which was hurt by food deflation as well as shut down of Extra Hiper stores that were converted to Assai stores. Further, same store sales dipped 2% excluding calendar effect, while gross same store sales inched up 0.7%. While the segment began the quarter on a dull note, the scenario improved in March, wherein trends reversed with same-store sales growth of 11.8% (up 3.9% excluding calendar effect).

Notably, the company implemented several new commercial actions in early March, including relaunch of the company’s Collect & Win campaign, launch of “My Rewards” in the same app as “My Discounts” which reinforced the company’s loyalty program. Also, the segment benefited from greater promotional activities.   

SG&A costs at this segment dropped 4.9%, courtesy of reduced selling costs which stemmed from productivity gains from employee multi-role program and measures undertaken last year. Also closure of Extra Hiper stores for conversion to Assai stores contributed to the fall in selling costs. These factors also benefited adjusted EBITDA margin expand 30 bps to 5.5%.

Net sales at Assai surged 25% in local currency to R$5.5 billion. The sturdy growth was driven by higher comps and 20 store openings. Markedly, Assai’s comps jumped 9.9% (up 5.1% excluding conversions), on the back of 8% jump in sales volume and 12 % growth in customer traffic. These also led to a rise in market share.

Gross margin grew 90 bps to 15.4%, courtesy of store expansion efforts and favorable taxation, somewhat offset by food deflation. SG&A costs (as a percentage of sales) remained flat year over year as solid performance from mature stores was countered by food deflation and speed of expansion. However, adjusted EBITDA margin grew 80 bps to 4.8% on account of gross margin growth and the other aforementioned factors.

Under the Assai banner, the company introduced one store in Sergipe, alongside having seven under construction and two under conversion. Further, four Extra Hiper stores were shut down for conversion under the Assai banner. Companhia Brasileira operates 127 Assai stores across 19 states.

Financial Details

The company ended 2017 with cash and marketable securities of R$1,701 million ($514.4 million), net debt (adjusted for balance of not discounted receivables) of R$3,121 million ($943.9 million) and total shareholders’ equity of R$13,271 million ($4,013.6 million).

During the quarter, the company spent R$330 million ($101.7 million) toward expansion of Assai and renovations of Pao de Acucar stores.

Outlook

Companhia Brasileira’s performance in the first quarter remained solid, owing to continued strength at Assai and reversed trends in Multivarejo. Management also stated that it regained its leading position in the Brazilian food space, which in turn was a result of its strategic plan to focus on the cash-and-carry segment. That said, the company remains confident of strengthening this position, courtesy of continued strength in Assai and expected enhancements at Multivarejo.

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 on par with food inflation. Both segments are anticipated to witness continued market share gains.

Further, EBITDA margin for Multivarejo and are likely to come in a range of 5.5-5.6% and 5.8-5.9%, respectively.

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