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Companhia Brasileira de Distribuicao (CBD) Q3 Profits Fall

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Brazilian retail giant, Companhia Brasileira de Distribuicao (CBD - Free Report) or Grupo Pao de Acucar (GPA) reported a decline in profits in the third quarter of 2016. However, sales increased year over year.

In the third quarter, adjusted net loss of CBD was R$27 million, as against net profit of R$108 million in the prior-year quarter. The decline was due to a deterioration of the economic scenario during the year, which resulted in lower demand and consumer confidence.

Adjusted net loss margin was 0.2%, down 90 basis points (bps) from the year-ago quarter profits.

COMPANHIA BRASL Price, Consensus and EPS Surprise

 

COMPANHIA BRASL Price, Consensus and EPS Surprise | COMPANHIA BRASL Quote

Results in Detail

CBD posted improved third-quarter 2016 sales despite a weak economic environment and restricted spending.

In the third quarter, consolidated gross sales grew 5.5% year over year (in local currency) and compared favorably with the preceding quarter’s growth of 4.7%.

Net sales of this retailer increased 4.4% year over year, comparing favorably with sales growth of 3.5% in the preceding quarter. The growth was backed by the recovery in sales at Multivarejo and Viavarejo, and acceleration in sales growth at Assai.

Comparable store sales rose 1.9% in the third quarter compared with 3.2% growth in the preceding quarter.

Pao de Acucar opened four stores in the quarter (three Assai and one Casas Bahia), bringing the total store openings in the last 12 months to 40. At present, 14 stores are under construction: eight Assai stores, including two conversions from Extra Hiper, one Pao de Acucar and five Minuto Pao de Acucar stores. For 2016, the company plans to maintain its focus on higher-return formats (Assai and Proximity).

Gross profit grew 5.1% in the reported quarter, lower than 9.8% growth in the preceding quarter. Gross margin expanded 20 bps to 25.1% in the quarter, but was sluggish compared with 25.4% margins in the preceding quarter.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) decreased 9.7%, wider than the preceding quarter’s decline of just 1%. Adjusted EBITDA margin contracted 60 bps to 4.1% in the third quarter. Adjusted EBITDA margin was 4.6% in the preceding quarter.

The company operates through the food retail, cash and carry, electronics and home appliances retail (bricks and mortar), and e-commerce business segments. These segments are grouped into two large categories, namely Food Business (Multivarejo and Assai) and Non-Food Business (Viavarejo and Cnova).

Food Business

Food Business’ net sales increased 14.0% in the quarter, up from the preceding quarter’s growth of 11.3%.

Despite the economic slowdown, same-store sales in the Food category grew 8.9%. Sales growth was driven by solid performance of Assai stores and improved sales volumes at Multivarejo. It was higher than 7.1% growth in the preceding quarter.

Non-Food Business

Net sales of the Non-Food Business decreased significantly by 10.1% in the quarter. The decline was wider than the preceding quarter’s decline of 2.8%.

Cnova: Category net sales fell 38.3% in the quarter, much wider than the preceding quarter’s decline of 7.9%.

Viavarejo: Viavarejo’s net sales grew just 0.4% in the quarter, still bearing the brunt of store closures in the second half of 2015 and the first quarter of 2016. However, the figure improved from 0.3% growth in the preceding quarter.

Same same-store sales were up 1.8% compared with 2.6% growth in the preceding quarter, due to a challenging macroeconomic scenario, and a still sluggish electronics and home appliances market.

Zacks Rank

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

Some well-positioned retailers include Tilly's, Inc. (TLYS - Free Report) , American Eagle Outfitters, Inc. (AEO - Free Report) and Fossil Group, Inc. (FOSL - Free Report) .

Tilly’s sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Tilly’s has an average positive earnings surprise of 73.74% in the trailing four quarters. It also has a long-term earnings growth rate of 15.50%.

While American Eagle has a long-term earnings growth rate of 11.80%, Fossil has a growth rate of 3.83%. Both these stocks hold a Zacks Rank #2 (Buy).

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