Magazine Luiza was the darling of investors for almost five years. From 2016 to early 2021, the retailer’s shares rose by no less than 35,000%. This means that those who invested BRL 100 in the company that year had BRL 35,100 in their account – a high comparable only to very high-risk investments, such as cryptocurrencies. Not even the pandemic was able to take the mood out of shareholders, who increased their bet on the business amid the release of emergency aid.
But everything started to change last July. The continuous increase in inflation, the raising of the basic interest rate to levels not seen in the last four years and the still high unemployment in the country dealt a severe blow to the company.
In the last 12 months, Magalu shares have fallen by more than 75% and reached a level below that seen at the worst moment of the Brazilian stock exchange during the pandemic.
Sought, the retailer did not want to give an interview, but, in its disclosure of results for the third quarter, the company’s own board defined the moment as a “perfect storm”. And he admitted that the scenario should not improve in the short term, despite trusting that “the storm will pass”.
Even with an adverse scenario, does it make sense for a company that was worth more than BRL 125 billion to drop to less than a third of that?
In the view of analysts and specialists, the macroeconomic scenario is mainly responsible for the fall of Magalu, as well as that of its main competitors on the Stock Exchange, such as Via, owner of Casas Bahia and Ponto, and Americanas.
But there is also some blame on the optimism of the market, which did not count on variables that had appeared since the beginning of 2021, such as the spike in inflation.
Lívia Rodrigues, equity analyst at Ativa Investimentos, notes that the market predicted very strong growth in retail, especially in e-commerce, and Magalu proved to be a company with a solid execution track record to stand out in this context. “But the outlook changed very fast,” she says.
And that was clear in Magalu’s results for the third quarter of 2021. The company’s total sales grew by 12%, and adjusted profit fell by almost 90%, to R$22.5 million.
For comparison purposes, in the second quarter, sales had grown by 60% and the company had reversed a loss of R$64.5 million to a profit of R$95.5 million.
Marketplace
However, some factors began to enter the accounts of the market. The first is that the company remains dependent on its own sales. Today, own business still represents 65% of Magalu’s sales. In other words: if the sales of the “mother brand” are not doing well, there is still not such a representative slice to compensate for these losses.
The company also began to receive market scrutiny over its acquisition appetite. In the last two years, there have been more than 20, from the AiQFome meal app to content and advertising businesses.
Among the choices, one is seen by analysts as especially risky. The company paid more than BRL 3.5 billion for KaBuM!, which is focused on selling computer and video game items.
In the view of Alberto Serrentino, a partner at consulting firm Varese Retail, part of the sector saw it as an acquisition more focused on commerce, which is also important, but less on the purchase of a technology that could differentiate it.
“It was a very big deal at a difficult time”, says Serrentino.
In addition, according to the expert, competitors have also moved a lot in recent years. Via has reorganized itself and has a larger store base than Magalu itself.
Americanas, in turn, merged the operations of its digital arm, B2W, with Lojas Americanas – having shown a strong result in the last quarter of 2021.
Still on the competition side, Brazilian retail has seen an increasing appetite from Chinese, such as Shopee and Alibaba, for the local market.
This has even generated movements in the sector so that imported purchases have a tax, something that does not occur up to certain values.
herd effect?
According to experts, there are problems to be observed in retail and especially in Magalu, but there may be a “herd effect” in the sale of shares. Something that, according to Serrentino, may have happened earlier at the time of purchase, which made Magalu’s shares rise more than they were actually worth.
No wonder, several investment banks are recommending the purchase of Magalu shares. BTG Pactual sees an upside potential of more than 200% in the retailer’s shares. Obviously, it won’t be enough to recover the size of the drop.
For Ana Paula Tozzi, partner of the consultancy AGR, there was an exaggeration in the expectations created previously and in the current pessimism.
Retail may see some recovery in the coming months with the payment of more installments of Auxílio Brasil, with the resumption of the service sector and even a wave of tax cuts – on Friday, the federal government published a decree that reduced by up to 25% the Tax on Industrialized Products (IPI) of various products.
Is it possible to regain optimism? “I think optimism is an exaggerated word, but I believe it can be hopeful”, says Ana Paula. The information is from the newspaper. The State of São Paulo.
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