Today’s trading session is proving to be a ‘black friday’ for retail – unfortunately, not in the sense that the sector is used to.
Results from retailers reporting today led to double-digit declines in some of the stocks, reinforcing market fears regarding the sector’s fragility amid a slowing economy.
The results add to the weak Petz numbers reported in recent days, and show the damage that the 13.75% Selic continues to do to retailers.
“Only food retailers and pharmacies are holding back this wave, and even so, in food consumption is concentrated in the first days of the month, when people have just received their salary,” said an industry veteran. “If this yield curve doesn’t reverse, there won’t be much left.”
Via fell 13% following a weak result in several lines and fears regarding its capital structure; Arezzo&Co, on the other hand, drops 13% amid a market reading that even the players that were consistently delivering are now under pressure from the macro environment.
At Magazine Luiza, an anonymous complaint overshadowed results that the market considered generally positive.
The stock dropped more than 8% in early trading following the company said in a material fact that it received an anonymous tip citing “irregular practices involving suppliers and distributors.”
But as the conference call with the market progressed, the stock narrowed the decline to 1%.
Magalu delivered revenue and EBITDA above market projections friendshipas well as a lower-than-expected net loss, boosted by non-recurring earnings.
Net revenue was R$ 11.2 billion, an increase of 19% in the annual comparison and 6% above consensus. EBITDA came in at R$674 million, with an expansion of 3.4 percentage points in the margin.
The adjusted loss was R$ 15 million, while analysts expected losses of around R$ 75 million.
“The result was good in relative terms, compared to Via Varejo and the low expectations of the market. Still, it’s a bad result,” said an analyst at buyside.
But what caught the market’s attention in this post-American world were the so-called ‘irregularities with suppliers’.
“At this moment in the market, talking regarding ‘research’, regarding ‘suppliers’, is very complicated,” said an analyst at friendship. “And it was not clear what these irregularities are and what impact they might have on the company. It’s kinda one gray area of accounting if these bonuses come as a cost reducer, expense…”
Magalu said it received an anonymous report pointing to commercial practices that violate its code of conduct and ethics. The complaint cites “irregular” operations involving the payment of bonuses to distributors and suppliers on purchases of goods. The relevant fact said that the three distributors targeted by the complaint represent only 3.5% of the total products purchased by the retailer.
Magalu said its risk and compliance committee will look into the allegations, and said it had hired a advisor independent external party to investigate the matter.
In the call with analysts, CEO Fred Trajano said that “an anonymous complaint not yet investigated should not tarnish the fourth quarter result.”
“It was a year that we carried out a series of actions to increase the company’s profitability in a difficult economic moment, with high interest rates and retail hangovers,” said Fred.
In Via, the situation seems more critical. The company saw its adjusted EBITDA drop by 42%, and its debt level lit a warning sign regarding the capital structure.
One investor noted that the owner of Casas Bahia and Ponto had financial expenses of BRL 698 million in the fourth quarter and has a debt of BRL 1.6 billion maturing in the short term, with BRL 1 billion already in the next six months.
An analyst from buyside, however, said he does not see an immediate liquidity risk. “They have a lot of cash, card receivables… But the banks must certainly be more apprehensive. I think she can get through, but it’s a difficult moment, a very complicated environment.” Most of Via’s debt is bank, and concentrated in a few institutions.
To complete the flow of negative news, the vp of technology, Helisson Lemos, who spent years at Mercado Livre before taking over at Via three years ago, resigned without explanation.
At Arezzo&Co, the result also weighed on the stock, despite having been practically in line with the market.
“The quality of the result was not the best. Core brands have slowed down as well, and the volume of pairs and handbags sold has dropped,” said an analyst at buyside. “Profitability was also low, under pressure, despite being in line with the market.”
This analyst notes that the stock may have also plummeted for a technical factor, as there were many managers bought in the thesis. “Any news a little worse, people sell and have few marginal buyers.”
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