February 8, 2023

Magazine Luiza (MGLU3) and Via (VIIA3) stocks have had a day to recover, but have lost 50% this year

In line with the stock market rebound, Magazine Luiza shares (MGLU3) and go (VIIA3) Have a nice day, both are up about 2.5% on Friday afternoon (3).

Some sectors that were heavily consumed are starting to recover. It happened with companies goods And now it’s also coming to local consumption companies,” says Carlos Carvalho Jr., CIO of Kínitro Capital.

The drop in interest futures contracts also helps retail traders recover. The move reflects the perception that interest rate hikes must slow in the country, which is a good thing for these companies’ margins.

“A lot of people have underestimated their retail exposure. What could happen is that investors reallocate resources into these companies and provide more liquidity to companies,” says Angelica Marofuji, variable income analyst at Meraki Capital.

In this year’s cumulative result, Magazine Luiza’s shares posted a 72% loss, while Via’s shares fell 50%. Thus, it is a collapse of more than half of the market value of both.

In other words, the second half of this year was a difficult period for retailers as a whole.

Why are Magazine Luiza shares dropping?

In the case of Louisa, the case of newspapers got worse After the company released its third-quarter results on November 11. Just after the balance sheet, the papers fell by 18%. Since then, however, the shares have moved from the R$13 level and started trading below R$7.

NS Luiza magazine’s net profit fell 89.5% between July and September of this year to R$22.6 million. The company was hit by lower sales and lost profitability, with a 2.5 percentage point drop in the company’s Ebitda margin. Most indicators, including same-store sales, underperformed market expectations.

At the time of the balance sheet release, XP considered results “mixed,” with strong online performance, but compressed profit margins – and it was Luiza’s highest margin in the world. Offline online, where costs are higher and the macroeconomic effects are also.

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There is no specific problem with the company itself — it’s a sector issue, says Pietra Guerra, equity specialist at Clear Corretora.

Why are VIA shares going down?

Thus, like Louisa’s journal, VIA’s actions reflect macroeconomic problems. Although the, The market panicked when he read the balance sheet lines of the parent company of Casas Bahia and Ponto, due to a net impact of R$810 million due to labor claims.

The content was minimized by recognizing R$254 million in tax credits – without which the provisioning expenditure would have had a negative impact of R$1.2 billion. In addition, the company expects more impacts in the fourth quarter, expecting something in the range of R$100-200 million.

in this way, It even showed a development in some numbers on its balance sheet, focusing on market growth (3P), the VIA result ended up being heavily clouded by business claims provisions. The day after the balance sheet, shares fell 12.5%.

Competitive scenario and more interest

Thus, the decline in the market capitalization of companies during the year is the result of a movement towards selling shares of retailers, especially in the Internet sector, where the outlook is not very positive with the resumption of personal activities.

This movement was accompanied by the possibility of higher interest rates, affecting the company’s business in various ways. In addition to reducing depreciation, by making credit more expensive, it also raises corporate finance costs.

“Because the industry is closely linked to the economic landscape (particularly interest rates) and consumer confidence, industry roles have had a challenging dynamic,” says the XP analysis team.

Analysts say in a report that e-commerce and technology companies suffer the most in coverage, due to greater exposure to long-term value.

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Henrique Esteter, investment specialist at InfomoneyAlthough it is a large and consolidated company, Magazine Luiza has been growing at a very high pace. This means that the company needs resources to finance its expansion, and as interest rates rise, it becomes more expensive to finance that growth.

It is important to remember that interest rates have risen because inflation is accelerating and higher prices reduce the purchasing power of consumers. Inflation reduces the propensity to consume and has a very large effect on the margins of retailers. This can be clearly seen in the results.

Remember that Magazine Luiza and Via are in a sector where competition is intense. This is because retailers of the shop Gaining strength, as in the Mercado Livre and more recently Shopee, as well as the strong presence of the American Amazon region in Brazil.

Black Friday numbers came in slightly below expectations, with expectations that this date could improve the performance of retailers.

Now, with GDP declining 0.1% in the third quarter, and new indications that the economy is deteriorating, the market is already beginning to anticipate more well-behaved interest rates, predicting that the central bank will not make such drastic adjustments to the negative interest rate. from now on.

Retail stocks have been rising every time DI’s interest rate contracts are down. It remains to be seen whether, in the real economy, these companies, including Luiza Magazine and Via, will also benefit from a softer monetary policy.

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