CBD to Expand Supermarket Business

According to Reuters, Companhia Brasileira de Distribuicao ( CBD - Analyst Report ) has announced plans to open 100 new Minimercado Extra stores by 2013 to expand its supermarket business.

The company has been focusing on its food business, instead of other categories of appliances and electronics, as consumers find difficult to purchase these items in these uncertain economic times. Further, the company is targeting northeast and center-west regions for expansion. This Brazilian retailer is expected to invest nearly $860 million in 2012 and meet all the financial goals set for the year.

Companhia Brasileira de Distribuicao reported its third quarter 2012 results in October with earnings of 69 cents, up from 31 cents reported in the third quarter of 2011. The year-over-year increase reflected the continuing operational improvements in the two business segments, namely GPA Food and Viavarejo.

Consolidated gross sales, comprising GPA Food and Viavarejo, increased 8.7% (in local currency) driven by same store sales growth owing to improved product mix and addition of new stores. Consolidated net sales climbed 9.7% during the quarter. Though gross profit climbed 3.9%, gross margin contracted 140 basis points to 26.4% from the prior-year quarter, pressured by increased logistics costs in the electronic segment.

The company has acquired many supermarket chains since 1981 in order to increase its market share. The acquisitions include Coopercitrus, Lourenção, Barateiro, Peralta, Paes Mendonça, ABC Supermercados, Sé Supermercados, Sendas, São Luiz, Nagumo and Rosado.

We are optimistic about the company’s position in the retail sector. Companhia Brasileira de Distribuicao is a leading player in the global food retail sector based on both gross sales and number of stores. The company carries a Zacks #3 Rank (a short-term Hold rating), just like its peer Wal-Mart Stores, Inc. ( WMT - Analyst Report ) . On a long-term basis, we have a Neutral recommendation on the company.