After frustrating Q1, market sees reaction of GPA and Carrefour
Carrefour and Grupo Pão de Açúcar, Brazil's two largest supermarket chains, are expected to post sharp sales growth during the second quarter, a period of stricter social distancing, analysts of five banks say. Their profit margins are also likely to come a little better, following disappointing first-quarter figures.
Such expectations derive in part from some good surprises that might have benefited their business. With recent behavior changes, hypermarkets may at least temporarily revive in this pandemic.
The format, criticized for years for weak performances, is rebounding as customers seek to buy everything in a single trip to the store, to avoid greater risk of infection by the novel coronavirus.
In addition, with promotions in stores reduced after March, partly to avoid crowds, hypermarkets are expected to have helped breathe some life into profitability. "The social distancing came suddenly, helping models such as hypermarkets, online sales and cash-and-carry. But the return to normality will not be so fast, so these formats come strengthened," says Gustavo Oliveira, analyst at UBS.
The performance of the two companies was assessed by five financial institutions: BTG Pactual, Genial Investimentos, Goldman Sachs, Safra and UBS. Their analysts estimate online sales took a larger share of the groups' total revenue, with higher margins because of gains of scale.
Another positive point is that expenses, which rose in March (with masks, sanitization equipment, etc.), are likely to lose traction, which may improve the EBITDA margin.
"There was a lot of expectation in the first quarter, partly from what the stores were saying at the beginning of the pandemic. But they know that profitability wasn't wonderful. If margins fall again, it could have a new negative effect on stocks," says Antonio Castrucci, an analyst at Genial.
Analysts raise some important caveats for the second quarter: they estimate the companies will have lower financial results with their consumer financing, because of credit curbs and rise of delinquency after April. They consider the crisis caused by losses of household incomes is likely to affect the medium- and long-term performance, with adjustments already in the second half.
In the next two years, due to risk of recession, Safra analysts began revising downward their estimates of sales and gross margin for GPA and Carrefour in 2020 and 2021. Goldman has not made any relevant adjustment.
Some differences between the...
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