Will Companhia Brasileira de Distribuicao (CBD) Beat Sales Ests? - Analyst Blog

Companhia Brasileira de Distribuicao CBD commonly known as Grupo Pão de Açúcar (GPA) is set to report its first quarter 2014 results on Apr 29 after the market closes. Last quarter, Pão de Açúcar delivered profits of R$864 million ($403 million) compared with R$503 million ($259 million) in the year-ago quarter. Consolidated gross sales increased 14.9% year over year, while net sales climbed 16.2% during the fourth quarter. Let's see how things are shaping up for this announcement.

Factors to Consider this Quarter

Pão de Açúcar is on an expansion spree and has been cutting down on costs in the face of a tough retail environment to boost sales and retain market share. We expect this strategy to enhance sales and thereby earnings in the upcoming quarter.

Recently, Pão de Açúcar posted its first quarter sales results, where consolidated gross sales increased 10.8% year over year (in local currency), 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. Net sales increased 11.9%, owing to comparable store sales growth of 7.5% in the first quarter.

The company also 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.

However, currency translation headwinds and tough economic conditions will remain a threat in the second quarter as well. We expect slow recovery in the U.S. and therefore consumer sentiment will recover at a mild pace.

Earnings Whispers?

Our proven model does not conclusively show that Pão de Açúcar is likely to beat earnings this quarter. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 to surpass earnings estimate. However, that is not the case here due to the following factors:

Zacks ESP:Pão de Açúcar's Earnings ESP is 0.00%.

Zacks Rank #2 (Buy):Pão de Açúcar's Zacks Rank #2 (Buy) when combined with an ESP of 0.00% makes surprise prediction difficult.

We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.

Other Stocks to Consider

Here are some other companies in the retail/apparel sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Skechers USA Inc. SKX with Earnings ESP of +12.20% and a Zacks Rank #1 (Strong Buy).

Nike, Inc. NKE with Earnings ESP of +1.32% and a Zacks Rank #3 (Hold).

Citi Trends Inc. CTRN with Earnings ESP of +4.00% and a Zacks Rank #3.