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Credit Suisse: Brazil’s E-commerce Firms May Have a Slow Start in the First Quarter

Credit Suisse analysts expect a difficult first quarter for Brazilian e-commerce companies Americanas, Magalu, and Via, in light of macroeconomic challenges and poor results in core categories

Magazine Luiza's brick-and-mortar store in Brazil.
May 04, 2022 | 05:43 pm

Bloomberg Línea — Credit Suisse views Brazilian e-commerce companies’ first-quarter results as “somewhat difficult.” In a report, analysts Victor Saragiotto and Pedro Pinto say categories such as electronics and appliances, which are important to Magazine Luiza and Via, continue performing poorly, in light of macroeconomic challenges and hard comparable company analysis compared to peer’s metrics.

Analysts recall that Americanas suffered from a cyber-attack that brought down its websites for a few days, harming sales growth. “Accordingly, we should see results in the e-commerce space still below optimal levels. The relatively more favorable outlook remains in place for Americanas, which will likely show good performance in its brick-and-mortar channel, allied with decent online sales despite the above-mentioned technical problems. By and large, we don’t expect the results to be stock movers for e-commerce this quarter.

Americanas harmed by cyber-attacks

According to the report, Americanas’ quarter started with a good performance in the e-commerce channel with growth above 30%, despite the hard comps of the first quarter of 2021 (Americanas’ online GMV was up 89% year over year in that quarter). However, the cyber-attack that took their websites offline diminished the sales performance’s shine, say analysts. First-party sales were off by one week, while the marketplace resumed after, but gradually. Saragiotto and Pinto estimate growth of 21% and 12% in first-party sales and marketplace, respectively.

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The physical stores, in turn, likely delivered a decent performance, according to Credit Suisse’s view. “There are two contrasting vectors in this quarter. The temporary shutdown of stores in the first quarter of 2021 makes the comps easier, but it is partially offset by Easter, which fell in the very beginning of April last year (vs. mid-April this year).”

Regarding profitability, Saragiotto and Pinto expect to see a flattish year-on-year growth in gross margin, but an expansion of roughly 165 bps in Ebitda margin, partially explained by synergies in marketing and logistics and lower losses in its fintech arm Ame. “The bottom line should also be similar to that of the first quarter of 2021 since most of the Ebitda margin expansion should be offset by higher financial expenses. We estimate net revenue of BRL6.4bn, growth of 22% year over year, and Ebitda of BRL618mn, which leads to a margin of 9.6% (growth of 48% year over year), and a net loss of BRL198mn,” they said.

Magalu also harmed: poorly results from core categories

One of the most valued e-commerce companies in LatAm, Credit Suisse analysts say Magazine Luiza’s first quarter of 2022 looks like a tough transitioning quarter. “The company started the year with an inventory level that was roughly BRL1bn higher than normal, which, combined with still quite challenging momentum for the sales of electronics and appliances, led to a lackluster sale dynamic with still poor profitability.”

According to the report, Magazine Luiza’s brick-and-mortar stores started showing some signs of improvement, especially in the second half of the quarter, which was boosted by the easier comps of 1Q21 (temporary shutdown of stores). ‘While physical stores started showing promise, e-commerce sales were challenged by harder comps of March last year and Magalu’s increasing focus on profitability. As a result, we expect first-party (already incorporating KaBum!’s acquisition) and third-party GMV to grow by 5% and 45% year over year, respectively.”

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Analysts also see profitability likely remaining low. “We expect Ebitda margin to sequentially improve to 4.3%, which remains a fairly low level for Magalu. Finally, the bottom line should be negative, harmed by an important increase in net financial income.”

On the other side, Saragiotto and Pinto expect to see a gradual improvement in margins from the second quarter of this year onwards, since Magalu’s focus moved towards profitability to the detriment of growth. “All in all, we estimate net revenue of BRL9bn, growth of 9.4% year over year, and Ebitda of BRL386mn, which leads to a margin of 4.3% (reduction of 9.5% year over year), and a net loss of BRL105mn.”

Via is pressured by expenses

Credit Suisse analysts say that Via suffered from challenges similar to those of Magazine Luiza, especially in physical stores, as it had lackluster momentum for core categories such as electronics and appliances.

“The company should also post substantial deceleration in the growth of the online channel. We estimate roughly 1.8% growth in the first-party, despite the somewhat hard comps of the first quarter of 2021, while the marketplace is likely to be a negative highlight, growing c.13% year over year to BRL1.2bn. This is a result of the increasing focus on long-tail categories and especially on profitability to the detriment of growth,” they said.

Credit Suisse sees Via likely delivering a good quarter on the operating level, with a gross margin above 30% and an Ebitda margin of 8%. “Nevertheless, the bottom line should remain in negative territory, since the decent level of operating profitability will not be enough to meet the spike in financial expenses in light of the rise in interest rates. We estimate net revenue of BRL7.5bn, reduction of 0.5% year over year, and Ebitda of BRL604mn, growth of 3.3% year over year, and a net loss of BRL51mn.”