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Strong Units Fuel Companhia Brasileira's (CBD) Q1 Earnings

Zacks Equity Research

Companhia Brasileira de Distribuicao CBD or Grupo Pao de Acucar delivered first-quarter 2019 results, wherein it continued to witness solid performance in the Multivarejo and Assai units. Further, the company is on track with store expansion and renovation plans, including prudent digital transformations.

In the quarter, net income from continuing operations of the food business amounted to R$189 million ($50.1 million), which increased significantly (in local currency) year over year. We believe that higher sales and adjusted EBITDA led to the upside.

Results in Detail

Gross sales in the quarter amounted to R$13,827 million ($3,666.7 million). The Zacks Consensus Estimate was pegged at $3,348 million. Gross sales increased 12.4% year over year in local currency, backed by growth in the Assai and Multivarejo units. Moreover, gains from the company’s multi region, multi-channel and multi format businesses were an upside.

Gross profit improved 9.5% in local currency to R$2,788 million ($739.4 million), whereas gross margin contracted 60 basis points (bps) to 21.9%. Adjusted EBITDA in the food business advanced 15.2% to R$680 million ($180.3 million), with the adjusted EBITDA margin expanding 20 bps to 5.4% on higher revenues.

Companhia Brasileira de Distribuicao Price, Consensus and EPS Surprise


Companhia Brasileira de Distribuicao Price, Consensus and EPS Surprise | Companhia Brasileira de Distribuicao Quote


Segment Details

Multivarejo gross sales rose 1.8% in local currency to R$6,921 million ($1,835.4 million), while same-store sales grew 4.8%. The segment gained from growth in all banners including food e-commerce and private label brands. Moreover, the Extra Supermarkets and Pao de Acucar stores gained from optimization and renovation efforts.

Gross margin expanded 30 bps to 28.6%, driven by gains from Easter. SG&A expenses increased during the period owing to higher personnel and sore expenses. Adjusted EBITDA margin expanded 20 bps to 8.4%.

We note that the segment benefited from digital-transformation efforts, especially across platforms such as the My Discount app, Click&Collect and Express. The company is also progressing well with partnerships with Get Ninjas and Cheftime as well as the roll out of James Delivery in Sao Paulo. In fact, the company plans to expand James Delivery to 10 more cities by the end of 2019.

Gross sales in the Assai unit were strong and increased 25.6% in local currency to R$6.907 million ($1,831.7 million). The upside was backed by strong performance of stores opened in 2018, enhanced traffic and market share gains. Further, Assai’s same-store sales jumped 10.7%,

Gross margin declined almost 10 bps 15.3%. SG&A expenses as a percentage of sales increased on higher sales as well as expenses stemming from store expansion. Also, adjusted EBITDA margin grew 30 bps to 6%.

During the quarter, the company converted one hypermarket store to Assai. This takes the total Assai store count to 145. The company plans to open 20 additional stores this year. Additionally, the company issued almost 100,000 Passaí cards in the first quarter.

Financial Details

Companhia Brasileira ended the quarter with cash and marketable securities of R$ 2.359 million ($625.6 million) and total shareholders’ equity of R$ 13,680 million ($3,627.9 million).

Further, net debt during the quarter amounted to R$4,079 million ($1,081.7 million). Investments in the food segment were R$463 million ($122.8 million), up almost 40.2% year-on-year.  

Other Developments

During the quarter, this Zacks Rank #3 (Hold) company opened a drugstore, while two Mini Extra stores were converted to Minuto Pao de Acucar. Also, seven Extra Super stores were converted to Mercado Extra.

Price Performance

Shares of the company declined 9.5% in the past three months, against the industry’s 4.7% rise.

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