Business

Driven by e-commerce boom, Magazine Luiza net revenue increases 70% year-over-year

Magalu announced on Monday that its adjusted net profit from July to September reached BRL 215.9 million, a jump of 69.6% over a year earlier

Photo: REUTERS/Paulo Whitaker
  • In the quarter, the group’s net revenue totaled BRL 8.3 billion, an increase of 70.8% year on year;
  • In the past few months, Magazine Luiza bought six startups that provide services.

Hitchhiking in the e-commerce boom triggered by the COVID-19 pandemic, the Brazilian retailer Magazine Luiza saw its profit rise sharply in the third quarter, supported by the reopening of brick-and-mortar stores and cost dilution.

According to Valor Econômico, Magazine Luiza (Magalu) surpassed and distanced itself from B2W, controlled by Brazilian Lojas Americanas, in GMV, the gross merchandise value, in the third quarter. Magalu announced on Monday that its adjusted net profit from July to September reached BRL 215.9 million, a jump of 69.6% over a year earlier.

READ ALSO: AliExpress bets on a festival with reality show celebrities to leverage 11.11 purchases in Brazil

The 148% jump year-over-year in the company’s digital sales, to BRL 8.2 billion, made the channel account for two-thirds of sales, an increase of 18 percentage points.

Valor reports the amount is just over BRL 920 million higher than that recorded by B2W in the period – BRL 7.3 billion, an increase of 56%. With Magazine Luiza’s surpassing B2W in digital sales, it consolidates itself as vice-leader in e-commerce in the country, after Mercado Libre, says the media outlet.

Magazine Luiza estimates that it still had a gain of 5.4 percentage points year on year in its area of ​​operation, reflecting, among other factors, the integration of online sales and physical stores, which gained traction with the reopening of physical points, due to the flexibility quarantine adopted to contain the pandemic.

According to the company’s chief executive, Frederico Trajano, Magazine Luiza also benefited from the integration of startups acquired in recent months, which helped to expand the base of third-party sellers in the retailer’s marketplace, also dictating margin gains as expenses grew at a slower pace than revenues.

READ ALSO: Brazilian retailer Via Varejo acquires 16% of the parent company of Distrito, an innovation platform

In the quarter, the group’s net revenue totaled BRL 8.3 billion, an increase of 70.8% year on year. Meanwhile, operating expenses rose 52.7%, to BRL 1.68 billion, representing 20.3% of revenue, compared to 22.7% a year earlier.

“With the integration of the startups we bought, we can dilute costs even more,” said Trajano.

In the past few months, Magazine Luiza bought six startups that provide services from logistics to business education, to expand and improve the salesperson base in the marketplace, which was 40,000 at the end of September.

READ ALSO: Amazon expands in Brazil, riding e-commerce boom set off by COVID-19 distancing

Operating income measured by adjusted earnings before taxes, interest, depreciation, and amortization (EBITDA) increased 41% to BRL 561.2 million.

One point that was out of step with the positive balance sheet was the drop in the Ebitda margin, from 8.2% to 6.8%, reflecting higher spending on improving the service level.

According to Trajano, with the growth of e-commerce much higher than expected, some levels of service quality have decreased, and the company realized that this could be aggravated by the resumption of brick-and-mortar store activities.

READ ALSO: Brazilian retailer Magazine Luiza buys e-learning platform ComSchool

“For this reason, we expanded vehicle travel routes and hired more people,” said the executive, referring to an increase of 3,000 employees in the period.

In the quarter, Magazine Luiza resumed full operation of all of its approximately 1,100 stores and opened another 81 units, including convenience stores, kiosks, and virtual stores.

According to Trajano, sales dates at the end of the year, including Black Friday and Christmas, should help maintain the pace of sales in the third quarter, with support from factors such as the Brazilian financial emergency aid.

READ ALSO: Millions of Brazilians will return to poverty if emergency aid is suspended, shows study

“For 2021, we would like the aid to be maintained, but I think that in any case, we will have growth in our physical stores because the comparison base with this year will be good.”

(Translated and co-written by LABS)

Get the best insights about Latin America market in your inbox