On retailers with a strong presence in e-commerce — such as Magazin Luiza (MGLU3), Via (VIIA3) and Americanas (AMER3) — were for some time the darlings of the Brazilian stock market. Their activities were recommended by analysts, managers and influencers, and they even had their fans in the so-called FinTwit — a community that gathers financial market enthusiasts on Twitter.
But in a scenario of still high interest rates, indebted families and low consumer confidence, the challenges for these companies were obvious. As a result, the shares of the three main companies in the sector devalued on the stock market: in 2022 alone, VIIA3 suffered losses of almost 40%; AMER3 retreats close to 50% and MGLU3 is down 38%.
With third-quarter results looming, many investors want to know if Magazin Luiza, Via and Americanas will deliver good data — and, of course, if the game is near a tipping point for retailers.
However, for those betting on a turnaround, the news should not be good. In the short term, the trio of traders should still suffer and rely heavily on a better macroeconomic framework to breathe easy.
“We expect e-commerce companies to experience another weak quarter, given their high leverage and exposure to high-value products,” Santander analysts wrote in a report.
They add that these companies have focused on their margins and profitability in recent quarters – a choice that has affected promotions and operational metrics, leading to “disappointing sales figures”, particularly for Americanas, Magazine Luiza and Via.
See the bank’s projections for the results of these companies in the 3rd quarter:
|Net income – on an annual basis||Ebitda – YoY||Total GMV – YoY||Target price until the end of 2023||Recommendation|
|American (AMER3)||-15%||-23%||-8.8%||BRL 35.00 — 120.1% upside potential.||Neutral|
|Magazine Luiza (MGLU3)||4%||45%||4.6%||BRL 11.10 — 143.4% upside potential.||Buy|
|Via (VIIA3)||-4%||There is not||-8.8%||BRL 5.80 — 83.5% growth potential||Neutral|
The path of traders so far
To understand why traders are going through this bad moment, which is reflected in the quarterly balance sheets of Magazin Luiza (MGLU3), Via (VIIA3) and Americanas (AMER3), it is not enough to look only at the macroeconomic moment. It is also important to analyze how the sector has behaved since the beginning of the pandemic.
Still in the midst of low interest rates, which of course benefit companies that depend on the availability of credit, retailers have weathered the wave of the beginning of the Covid-19 crisis well. The need to combine free time and work at home has forced many consumers to buy new televisions, change household appliances, invest in better computers for work or a new cell phone for children to attend classes.
The fact is that, just over two years later – and a Selic rate of 13.75% making credit more expensive – few people need to reinvest in this type of product in such a short time. In other words: the plumes of the three companies are not in high demand.
Although the federal government put an additional R$21 billion into the hands of voters during the campaign — money that could have benefited the nation’s retail industry — a good portion of that amount ended up in food retail and debt payments.
“We will only see a change in 2023. Current results may be slightly better, but the improvement actually comes as the macroeconomic situation becomes more positive. With interest yields, long-term theses such as retail benefit, as it is a sector that is indebted and exposed to available credit ” says Bruno Damiani, retail analyst at Western Asset.
According to him, for the balance sheet of all retailers this year, the important point is how they manage working capital, as well as the level of cash.
Overall, the analyst says they are all being forced to forego sales in the name of preserving margins; fair price pass-through is also increasingly difficult, which hurts the operational side. Cash burn also deserves attention.
Magazin Luiza (MGLU3), Via (VIIA3) and Americanas (AMER3): challenges from retailers
“If you look, they all incentivize consumers less, they offer free shipping less often, we don’t have those absurd refund programs anymore. Everyone has to stick to the cash register because the short term is still challenging,” comments Lucas Ribeiro, head of variable income at Kinitro Capital.
He also points to another obstacle in the way of the trio of Brazilian retailers: competition from Mercado Livre, Amazon and Asian retailers such as Shopee and AliExpress. The first two, for example, are at the top of the list of those consumers who are looking for free delivery and extremely fast delivery.
“Online shopping has several players, because it is a competitive business with small margins. In the long term, there won’t even be room for all of them,” comments the manager when outlining the possibilities for the future of the sector.
Ribeiro does not believe that they will disappear, but that they may need to define a more specific niche of activity in order to improve their business. For him, the competitive differential of each of them will define who will be better in the coming years, with greater consolidation in the market.
“The problem is that they may not have the differentiation needed to consolidate in the market,” he says.
Today, Kínitro Capital has no e-commerce sellers in its portfolio, as the manager believes that the returns of companies such as Magazine Luiza (MGLU3), Via (VIIA3) and Americanas (AMER3) could still be threatened by this uncertainty.
Another manager, who did not want to be named, sees a tough future for the companies, with little prospect of a return to record balance sheets with historical records or outstanding valuations.
In the case of Via and Americanas, he says, the market still has doubts about the management of both companies.
“Via had a turnaround that failed and several corporate governance issues, which are still keeping investors away. Americanas could have its lifeline with the arrival of Rial,” he says.
It refers to Sérgio Rial, who will be the director-president of Americanas from 2023. Seven years ago, he led Santander Brasil. For a segment of the market, experience in the financial sector can be key to a company’s recovery and the health of its balance sheets.
Americanas (AMER3) warning light on
Americanas (AMER3) was the first to warn at the end of October that the results of traders could be weaker than expected. On October 20, the stock fell by more than 10% and sent the stock market crashing.
At the time, BTG Pactual said in a report that it expects Lojas Americanas’ gross sales volume (GMV) to fall 12% compared to the same period in 2021.
The bank also forecasts a drop in same-store sales (SSS) and EBITDA — earnings before interest, taxes, depreciation and amortization — of R$579 million compared to R$743 million a year earlier, while net income should be 14 million real. % lower on the same comparative basis.
“Following a solid second quarter for most e-commerce retailers in our coverage universe, we expect the third quarter to be impacted by the macroeconomic outlook,” BTG analysts wrote.
According to Carlos Alves, partner and equity manager at Polo Capital, if projections for Americanas are confirmed, Via’s numbers should go in the same direction. Luiza magazine is likely to show somewhat healthier numbers due to the ability to continue to offer better prices, with the exception of how much this will hurt Luiza Trajano’s margins.
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