Pague Menos sees stronger store opening pace in second half
At the height of drugstores' expansion between 2014 and 2017, when sales were up 20% per year while retail as a whole was in crisis, Pague Menos was churning out new units. A retailer founded in Ceará in 1981 by the Queirós family, the chain opened a unit every three days throughout 2016 - a pace only slower than Raia Drogasil's, whose revenue numbers triple that of Pague Menos.
After General Atlantic's (GA) departure in June 2018, the plan was to grow and file an IPO, as Valor reported last year. But things got complicated in the past two years.Pague Menos's expansion lost momentum and its debt-to-EBITDA ratio reached six times at the end of 2019, according to rating agency Fitch, a number the drugstore chain does not confirm. A slower economy, the more aggressive competition, management mistakes and the founder's departure after being arrested in 2018 created an adverse environment, sources say.
The chain says it expects to resume same-stores sales growth, which would help to improve the company's cash. With more cash generation, the company would see a stronger store opening pace in the second half - in 2019, it inaugurated seven units per quarter on average, 20% of the previous year's pace. The lower pace of store opening helped to sustain the company's cash.
"What happened is that we opened almost 500 stores since 2016, then stopped to correct mistakes in 2019. We're going to resume this, but slower than in past years," says Luiz Renato Novais, administrative and financial vice president.
In general, sources say the chain's situation mirrors a series of factors. "The higher tolerance to underperforming stores for a few years just to keep the point of sale was a mistake. The decision to exceed 100 days of sales in stock in 2018 did not increase revenues so much and forced the company to accumulate low turnover products," a source says. "Early 2019, they had to incinerate almost R$20 million in expired products."
In macroeconomic terms, the crisis that affected the industry after 2017, a reflection of the drop in employment, and the higher competition in the Northeast region caused the company to lose sales in the same stores (existing for over one year). In 2018, these units had a 4% drop in sales. In 2019, the company will likely report another drop, sources say.
The company struggled during the competition for Northeast region cities and went into a price war to protect its market. As a result, from July to September it lost 1.6...
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