SAO PAULO, Nov 12 (Reuters) - Three of Brazil's highest
flying retailers during the pandemic were cut down to size this
week, revealing that spiking inflation and weaker demand slammed
margins, shaving some 25 billion reais ($4.58 billion)off their
collective market value.
The worst performers on Friday, after the release of results
of most retailers, were Magazine Luiza and cosmetics
maker Natura & Co Holding.
Magazine Luiza, whose shares soared in recent
years as it became one of Brazil's best-performing e-commerce
companies, suffered with rising pressures on discretionary
income, and had a sharp drop in third-quarter profit.
This week's selloff, which comes against the backdrop of a
weaker-than-expected Brazilian economy, was the latest blow to
hopes that the country's improving COVID-19 outlook would lift
consumer demand and corporate profits.
Magazine Luiza's CEO Frederico Trajano said that
lower-than-expected third quarter sales boosted its inventories
to 100 days, above the company's ideal benchmark of 70 days.
"We weren't expecting this drop in store sales," he said,
adding the company may use some promotional sales to reduce
In a report to clients, Bank of America analysts said the
retailer's consumers are suffering with real wage declines, high
debt levels, and employment rates that are struggling to return
to pre-pandemic levels.
"Disappointed, but not surprised," said Credit Suisse
analysts Victor Saragiotto and Pedro Pinto in a note to clients.
Common shares in Magazine Luiza were down 16% in afternoon
trading, at 11.61 reais. The company lost 13.9 billion reais in
market capitalization on Friday.
One of its main competitors, Via Varejo, was performing well
on Friday after a sharp fall on Thursday after its earnings
release that came with a surprise provision for payments in
labor disputes. On Thursday, Via Varejo lost 1.4 billion reais
($257.4 million) in market capitalization.
Cosmetics maker Natura's shares also tanked after the
company slashed its outlook and reported weaker earnings, with a
47% drop in EBITDA in the third quarter, affected mainly by
weaker profitability in Latin America. The company, which owns
London-based Avon Products, pushed from 2023 to 2024 its
guidance to hit a 14% to 16% EBITDA margin, citing inflationary
pressures and supply chain problems.
In early afternoon trading, shares in Natura were down 16%,
at 33.58 reais, despite having announced a share buyback program
and the intention to change its main listing venue from Sao
Paulo to New York. The company's market capitalization dropped
9.3 billion reais ($1.7 billion) on Friday.
The only exception to Friday's bloodbath was retailer Lojas
Americanas and sister company Americanas SA
, which enjoyed higher growth in online sales than
Magazine Luiza and Mercado Libre. With a larger
offering of cheaper products, Americanas seems to better weather
the drop in disposable income, Bradesco BBI analysts led by
Richard Cathcart said in a note to clients.
"The diversification of Americanas' online mix is likely to
be an advantage as we head towards Black Friday this year, given
the weakening of demand for larger-ticket, discretionary items",
the report said.
Shares in Americanas SA, formerly known as B2W
Digital, were up 7% in mid afternoon trading, at 37.78 reais.
($1 = 5.4392 reais)
($1 = 5.4639 reais)
(Additional reporting by Alberto Alerigi, writing by Tatiana
Bautzer; Editing by Christian Plumb and Chizu Nomiyama)