Magazine Luiza buys ultra-fast delivery company Sode
Photo: Magazine Luiza/Courtesy

Brazilian retailer Magalu's marketplace sales exceed those of physical stores for the first time

Despite this direct result of investments in digitalization, the company recorded a loss in the last quarter of 2021 and will need to review benefits to sellers in the face of inflation.

Ler em português

In February, Brazilian retailer Magazine Luiza saw the value of goods sold online (GMV), via its marketplace, surpass physical store sales for the first time. The company, however, recorded a loss in the last quarter of 2021, mainly caused by the worsening of the inflationary scenario, not exactly expected before. Nevertheless, in a conference with analysts, the company’s president, Frederico Trajano, said that Magalu should present a gradual improvement in its results in the coming quarters, amid adjustments that include a reduction in inventory volumes and the withdrawal of part of the benefits given to over 160,000 sellers of the company’s marketplace.

On Monday night (14), the company announced that its profit margin before interest, taxes, depreciation, and amortization (Ebitda) was negative by 0.1% in the fourth quarter, compared to a positive 5% in the same period 2020. As a result, Magalu had an adjusted loss of BRL 79 million from October to December, compared to a profit of BRL 232.1 million a year earlier. The company’s shares fell more than 10% at the opening on Tuesday.

We weren’t expecting all this economic downturn (from the end of 2021), and we are prepared now. This year, margins will gradually improve

Frederico Trajano, president at Magazine Luiza.

“In the first quarter, we still have adjustments to make, capacity adjustments, but we are seeing an improvement compared to the fourth quarter, especially from March, and this will continue over time, as we succeed in the initiatives,” he added.

READ ALSO: Brazil’s Nubank arrives in e-commerce with a marketplace within its app

Magazine Luiza performed below market expectations in the fourth quarter, as its sales decelerated sharply in a more adverse macroeconomic scenario in the country, with high inflation, in addition to rising interest rates putting pressure on its financial result.

In net terms, the company had a profit of BRL 93 million, influenced by extraordinary tax credits.

The company’s total sales in the quarter, measured by the acronym GMV, amounted to BRL 15.5 billion, an increase of about 4% over a year earlier when the expansion over the same stage in 2020 had been 66%. Last week, Magalu’s rival Via reported a 7% drop in GMV. Other competitor Americanas posted a 28% increase in GMV in February.

Magazine Luiza’s adjusted operating result, measured by earnings before taxes, interest, depreciation, and amortization (Ebitda), dropped by around 53% in the fourth quarter, to BRL 243 million. The average forecast of analysts consulted by Refinitiv was an Ebitda of BRL 304.5 million. The Ebitda margin fell by half, to 2.6%.

READ ALSO: “Next month is always the best month. E-commerce never stops growing in Brazil,” says LatAm’s unicorn Nuvemshop CMO

One of the sources of pressure on the bottom line of the balance sheet was the deterioration of the company’s adjusted financial result, which was negative by BRL 304.7 million, a 156% jump over the same period in 2020, reflecting, among other factors, the effect of the increase in the Selic rate on the debt.

In November, Trajano had already warned that Magazine Luiza had ended September with an excessive level of inventories, which made the company record a provision of BRL 395 million.

After an explosive sales growth two years ago, driven by social isolation measures, e-commerce portals began to suffer the effects of high inflation and rising interest rates in mid-2021.

As a result, the shares of companies in the sector underwent a substantial correction. In the last 12 months until last Friday, the company’s share accumulated a 76% devaluation.

READ ALSO: PIX will make bank transfers grow in Brazilian e-commerce, says FIS report

According to Business Vice President of Magazine Luiza, Eduardo Galanternick, the company continues to invest in technology and logistics to expand the product shelf and engage customers despite the change in the macro scenario.

At the end of 2021, around 45% of the group’s online sales were in categories considered new, of products such as fashion and sports, beauty and video games, as a result of the acquisition of businesses such as Netshoes and KabuM!, in addition to the Época Cosméticos beauty products division. The company opened 182 new stores in 2021.

Translated by LABS