Here's Why Companhia Brasileira (CBD) Seems to be in Solid Shape
Companhia Brasileira de Distribuicao CBD appears to be on a robust footing, with its shares having gained 38% in the past three months compared with the industry’s growth of 1.7%. Also, this operator of hypermarkets, supermarkets and department stores has comfortably outpaced the Zacks Retail – Wholesale sector and the S&P 500’s respective increase of 0.6% and 8.6%.
The Zacks Rank #2 (Buy) company has been benefiting from its robust digital transformation endeavors, given consumers’ increased preference for online shopping. Other retail giants like Walmart WMT, The Kroger Co. KR and Target TGT, to name a few, are also gaining on their efforts to bolster online operations, especially delivery. Meanwhile, Companhia Brasileira’s focus on store expansion is also noteworthy. Like other supermarket retailers, this company also got a boost from increased demand for essentials amid the pandemic-led higher at-home consumption and stockpiling trends. The stock hoarding trend, however, is moderating with things getting back to normal.
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Growth Efforts Underway
Companhia Brasileira is on track with its digital growth efforts. Notably, food e-commerce played a significant role in 2020 for the company, driven by the expansion of its logistic solutions. In fact, food e-commerce remained a major driver in the first quarter as well, rising 137%. E-commerce sales surged 142% in the quarter, with online penetration more than doubling to 8.2% (on a consolidated basis) from 3.7%. Certainly, the company has been benefiting from its delivery models, including same-day delivery with Express and Click & Collect; Traditional or next-day delivery; and Last Mile or next-hour delivery with James Delivery and Open Platform. Moreover, the company’s loyalty program and app development efforts have been yielding results.
Additionally, GPA Brazil and Grupo Exito are focused on strategic goals for 2021. To this end, the company’s segments are committed to lifting the digital platform across all countries they operate in. Further, the strategic priorities include organic growth of Pao de Acucar and Minuto Pao de Acucar formats in Brazil, restructuring the hypermarket model, rollout and maturation of new supermarket concepts and deleverage at the consolidated company.
Additionally, Companhia Brasileira is gearing up to expand its stores and thereby its market share. The company has been putting greater emphasis on renovating Extra banners, as it has been performing better than the non-renovated stores over the last three years. These renovations include not only the layout, but also new assortments and improvements in customer service, which will, in turn, drive sales. During the first quarter of 2021, the company converted four Extra Super stores into Mercado Extra, opened one Minuto Pao de Acucar store and converted one Exito Wow store in Colombia. Management plans to open more than 150 new Pao and Minuto stores countrywide over the next three years.
Q1 Results Impressive
Companhia Brasileira delivered solid first-quarter 2021 results, backed by robust online performance and strength in Grupo Exito. The company saw considerable growth in EBITDA and income on the back of its efforts to curtail SG&A expenses, along with portfolio changes and evolvement of digital efforts across all nations it operates in. In the first quarter of 2021, Companhia Brasileira’s net income from continuing operations amounted to R$113 million ($20.7 million), which increased significantly from a net loss of R$246 million ($45 million) in the year-ago period. The upside was backed by solid increases in revenues and adjusted EBITDA.
Gross revenues in the quarter amounted to R$13,722 million ($2,509.6 million) that rose 4.8% year over year in local currency, backed by robust online sales and remodeling or conversion of physical stores. Adjusted EBITDA increased 36% to R$935 million ($171 million), with the adjusted EBITDA margin growing 170 bps to 7.5%. Adjusted EBITDA was backed by commercial efficacy and solid SG&A control at GPA Brazil, among other factors.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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