Pao de Acucar Reports Q1 Sales - Analyst Blog

Companhia Brasileira de Distribuicao CBD also known as Grupo Pão de Açúcar (GPA) has been expanding its stores and market share by cutting down on costs in the face of a tough retail environment. This Brazilian retailer recently reported its first quarter 2014 sales results, which were benefited by expansion of stores.

GPA posted an increase of 10.8% year over year (in local currency) in consolidated gross sales, benefiting from comparable store sales growth of 6.3%. However, sales growth suffered a negative impact of 130 basis points (bps) due to the calendar effect. Pão de Açúcar opened 21 new stores in the first quarter, which also fueled sales growth. The company opened 124 stores in the last one year. Net sales increased 11.9%, owing to comparable store sales growth of 7.5% in the first quarter.

The company operates through the food retail, cash and carry, electronics and home appliances retail (bricks and mortar),and e-commerce business segments. These segments are grouped into two large categories, namely GPA Food, Nova Pontocom and Viavarejo.

GPA Food comprises supermarkets, hypermarkets, neighborhood stores, cash-and-carry stores, gas stations and drugstores while Viavarejo includes household appliances and e-commerce operations through Nova Pontocom.

Category Details

GPA Food: GPA Food's gross sales increased 9.1% in the quarter, driven by accelerated growth across all Food Retail banners, especially Assaí, which posted strong sales growth of 38.2% in the quarter driven by solid same-store sales growth and store expansions. The company opened 6 Minimercados Extra, 2 Assaí, 3 Extra Hiper and 2 drugstores, totaling 13 stores in the quarter. The company witnessed same-store sales growth of 2.6% in the quarter, which was adversely impacted by the calendar effect.

Nova Pontocom:The category's gross sales surged 54.1% on the back of higher customer traffic, better conversion rates and higher sales owing to the marketplace business. Increased sales of smartphones and air conditioners and fans drove sales in the category.

Viavarejo: Viavarejo's gross sales increased 6% in the quarter, driven by same-store sales of 3.6% and 8 new stores openings under the Casas Bahia banner.

Overall, we are encouraged with the performance of Pão de Açúcar, which is gearing up to expand its stores and market share. The company expects to open 400 new food stores by 2016, which includes 360 new convenience stores in its Mini Mercado format. The company also has expansion plans for its wholesaler, Assai, which has been posting solid results in the last few quarters. The company is expected to open 12 to 15 stores per year through 2016 under the Assai banner, particularly in the fast-growing Northeast region. In addition, Pão de Açúcar plans to open 210 stores by 2016 in the ViaVarejo unit.

Companhia Brasileira de Distribuicao currently holds a Zacks Rank #1 (Strong Buy).

Other Stocks to Consider

Other stocks worth considering in the retail sector include Macy's Inc M, The Kroger Co. KR and Foot Locker, Inc. FL, all with a Zacks Rank #2 (Buy).