Will retailers’ inventories rise? – Market – Estadão E-Investidor – Main news about the financial market

  • Three consecutive months of deflation and stabilizing interest rates have brought optimism to retailer stocks.
  • In the face of this recovery, some companies should benefit from a sequence of events, such as Black Friday and the World Cup.
  • However, the earnings outlook must face an obstacle: the level of indebtedness of Brazilians, which requires caution from investors when positioning themselves in this asset.

After a tough start to the year in the face of a string of high interest rates in Brazil, retailer shares gained momentum during the second half of the year and should remain at high levels for the rest of the year.

With inflation falling and the interest rate stabilizing at 13.75% per year, it is expected that Black Friday, scheduled for November, and the festivities at the end of the year will manage to sustain the recovery movement.

According to data from the Brazilian Association of Electronic Commerce (ABComm), the period should transfer around R$6.05 billion in Brazilian e-commerce alone and exceed the limit of 8.3 million online order numbers. This year’s Black Friday, an event where stores promote deals, will take place on November 25.

For the first time, the date coincides with the period of the World Cup, which is being held from November 20 to December 18 due to the covid-19 pandemic. As with Black, projections show that the sporting event should bring about a significant shift in the economy. According to projections by the National Confederation of Retailers and SBC Brasil, the games should generate R$20 billion in the Brazilian economy.

Economic projections for these events suggest that retailers should continue to ride a “tide” of gains in the final three months of the year. According to TradeMap data, sent to E-Investorpublicly traded companies in the cyclical and non-cyclical spending sectors, more closely related to economic developments and which include retailers, had even stronger returns during the third quarter than in the first two quarters of 2022.

Taking into account all consumption-related shares of companies, 73 showed gains in the accumulated period from July to September due to signs of improvement in the macroeconomic scenario. The same effect was no longer seen in previous periods. In the first quarter, only 57 companies recorded gains, while in the second quarter that number fell to 12.

Looking at the major retailers, the stocks of these companies have taken a turn with their impressive gains. Luiza magazine stock (MAGLU3), for example, was the one that showed the biggest appreciation among major traders, posting a 91.5% gain over the third quarter as a whole. The good results contrast with the results of the first two quarters of the year, in which the company suffered a devaluation of up to 65.7%.

The same situation is visible in the actions of Via (VIIA3). During the third quarter, the shares accumulated a gain of 66.2%, and in July, the company was the one that gained the most among Ibovespa shares. See details in this report.

On the other hand, the same performance was not recorded throughout October. Of all the traders selected in the survey, only three have accumulated gains until trading this Wednesday (26).

“Companies have already had a positive response, as we are coming off a quarter with deflation data plus interest rate stabilization. With these events in sequence, this financial movement is expected to benefit consumer companies more, whether in cyclical or non-cyclical sectors,” says Heitor de Nicola, variable income advisor at Acqua Vero.

However, the World Cup and the level of indebtedness of the Brazilians may limit high spending. Although there is such a perspective on the volume of financial transactions, Danniela Eiger, head of retail at XP, says that the benefit of this sequence of events will not be equal for the whole sector.

According to her, the World Cup should only create demand for TV because of the games, which can benefit companies that sell devices, such as Magazine Luiza, Via and Lojas Americanas.

The problem is that inflation, along with high interest rates, should curb the consumption of other product lines. “We’re seeing another benefit for food retail because of the high demand for bars and restaurants as people get together to watch the games and still have the holidays to help out,” says Eiger.

In addition, the spending boost expected to be triggered by the World Cup in November could “steal” some of the purchasing power of consumers that would be intended only for Black Friday or the festivities towards the end of the year.

“It may have a small effect and may reduce the appetite a little. It is worth remembering that, despite the slowdown in inflation, we still have high prices for basic products,” says Pedro Serra, head of research at Ativa Investimentos.

For this reason, analysts recommend that investors exercise caution before positioning themselves in the retail sector in the face of economic uncertainties still hovering over the Brazilian scenario. “We have to be careful with market volatility because it is usually exaggerated,” says Felipe Moura, an analyst at Finacap.

In addition, the outcome of the election after October 30 could also change projections about the direction Brazil’s economy should follow from 2023 onwards.

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