Companhia Brasileira de Distribuicao (CBD - Free Report) or Grupo Pao de Acucar delivered third-quarter 2019 results, wherein it continued to witness a solid performance by the Assai unit. Further, the company is on track with store expansion and renovation plans, including prudent digital transformations. However, a decrease in food inflation and a fragile economic landscape were headwinds.
In the quarter, net income from continuing operations of the food business amounted to R$233 million ($58.8 million), which increased 22.5% (in local currency) year over year on strong Assai performance along with higher revenues and adjusted EBITDA.
Results in Detail
Gross revenues in the quarter amounted to R$14,570 million ($3,674.3 million). The Zacks Consensus Estimate was pegged at $3,442 million. Gross revenues increased 9.5% year over year in local currency, backed by continued strength in Assai.
Gross profit improved 5.8% in local currency to R$2,883 million ($727 million), whereas gross margin contracted 90 basis points (bps) to 21.3%. Adjusted EBITDA in the food business advanced 10% to R$995 million ($250.9 million), with the adjusted EBITDA margin flat at 7.4%.
Multivarejo gross revenues rose 0.8% in local currency to R$6,982 million ($1,760.8 million). The segment gained from an impressive performance at the refurbished Pao de Acucar stores. It also benefited from the stores converted into Compre Bem and Mercado Extra formats. Enhanced Proximity store performance fueled results at this unit further. Moreover, food e-commerce sales surged more than 30%. However, store closures for conversions and a fragile economic landscape were hurdles.
Segment gross margin contracted 180 bps to 26.3%, due to increased promotions in a cautious consumption scenario. SG&A expenses decreased during the period, thanks to cost-saving measures. However, the adjusted EBITDA margin shrank 70 bps to 7.6% due to weak gross margin.
Notably, the Multivarejo segment benefited from digital transformation efforts, especially across platforms such as the My Discount app, Click&Collect and Express. The company is also progressing well with partnerships with Get Ninjas and Cheftime as well as the continued roll-out of James Delivery in new regions.
Gross revenues in the Assai unit were strong and increased 18.9% in local currency to R$7,587 million ($1,913.3 million). The upside was backed by solid store expansions and same-store sales growth.
Gross margin expanded 80 bps to 16.6%, thanks to store expansions in regions where Assai already operates along with speedy store maturations. SG&A expenses as a percentage of sales increased 10 bps on expenses stemming from store expansion. Adjusted EBITDA margin grew 70 bps to 7.1%.
During the quarter, the company opened five Assai stores, which keep it on track with its plans to open 20 stores this year. Also, the company inaugurated a Minuto Pao de Acucar store in the third quarter. Furthermore, Companhia Brasileira converted 39 Extra Super stores into Mercado Extra formats and refurbished two Pao de Acucar stores.
Companhia Brasileira ended the quarter with cash and marketable securities of R$12,656 million ($3042.1 million) and total shareholders’ equity of R$10,862 million ($2,610.9 million).
Shares of this Zacks Rank #4 (Sell) company have declined 13.8% in the past three months against the industry’s 7.6% growth.
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