Companhia Brasileira De Distribuicao (CBD) Q4 Sales Rise

Brazilian retail giant Companhia Brasileira de Distribuicao (NYSE:CBD) or Grupo Pao de Acucar (GPA) reported sales growth in the fourth quarter of 2016. However, profits declined year over year.

In the financial statements of GPA as of Dec 31, 2016, the operations of Via Varejo will be considered to be nonfunctional. The move comes after the divesture of the interest held by GPA in Via Varejo S.A. as announced in the material fact notice of Nov 23, 2016.

Results in Detail

In the fourth quarter, adjusted net income of CBD declined 39.5% due to lower gross margin and EBITDA. Adjusted net margin was 1.7%, down 140 basis points (bps) from the year-ago quarter profits. Challenging economic scenario in Brazil also resulted in lower demand and consumer confidence.

Looking at the present scenario, the company is thus focusing on store assortment, improving product mix and procurement and attractive promotions to customers.

In the fourth quarter, gross sales increased 12.5%. Net sales of this retailer increased 12.1% year over year, backed by higher sales at Multivarejo and Assai. Comparable store sales rose 7.7% in the fourth quarter.

Gross profit grew 2.0% in the reported quarter, but declined 230 bps to 23.0% in the quarter, due to the higher share of Assai in sales mix and changes in commercial policies at Multivarejo.

Adjusted earnings before interest, tax, depreciation and amortization (EBITDA) decreased 17%, and adjusted EBITDA margin contracted 220 bps to 6.2% in the fourth quarter, due to lower gross margins.

Coming to the share price movement, CBD’s shares have increased 75.5% in the past one year, higher than the Zacks categorized Retail-Supermarket industry’s growth of 5.9%.

Segment Details

Food Business

This represents the combination of the results of Multivarejo and Assai, excluding the result of equity income of Cdiscount, which is not in the operating segments as reported by the company.

Food Business’ net sales increased 12.1% in the quarter, up from the preceding quarter’s growth of 14.0%. Same-store sales in the Food category grew 7.7%. The growth in sales was driven by solid performance of Assai stores and improved sales volume performance at Multivarejo. However, it was lower than the 8.9% growth recorded in the preceding quarter due to the economic slowdown.

In the fourth quarter of 2016, 18 new stores were opened, with 9 Minuto Pao de Acucar, 1 Pao de Acucar and 8 Assai, including the two first conversions from Extra Hyper.

In the last 12 months, it opened 30 new stores (including 13 Assai, 14 Minuto Pao de Acucar, 2 Pao de Acucar and 1 Minimercado Extra). As part of the process to optimize the store portfolio, the company closed these stores in 2016 – 5 Extra Super, 3 Extra Hyper (including two conversions to Assai), 42 Proximity stores, 2 Pao de Acucar and 1 Assai, as well as 7 gas stations and 2 drugstores.

Full-Year Results

Adjusted net income declined 51.5% in 2016, while adjusted net margin contracted 120 bps to 0.9% in 2016.

Food Business’ net sales increased 11.4% in the year, driven by same-store sales growth of 6.7%.

Zacks Rank & Other Stocks to Consider

Companhia Brasileira de Distribuicao currently has a Zacks Rank #2 (Buy).

Other well-positioned stocks in the retail sector are Francesca's Holdings Corp. (NASDAQ:FRAN) , Zumiez, Inc. (NASDAQ:ZUMZ) and Genesco Inc. (NYSE:GCO) . All three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

While Francesca's Holdings has expected long-term earnings growth of 13.75%, Zumiez and Genesco have expected long-term earnings growth of 15.0% and 9.5%, respectively, for the next three to five years.

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