Magazine Luiza: third quarter profit drops almost 90%; e-commerce accelerates

• Magalu’s online sales reached BRL 10 billion, up 22% year on year;
• The retailer’s operating expenses rose to 20.6% of net revenue.

Brazil’s retailer Magazine Luiza presented on Thursday the results of the third quarter and reported a sharp drop in profit, reflecting the slowdown in sales after the boom recorded in the first months of the COVID-19 pandemic. Between July and September, the retailer’s profit was R$22.6 million, a drop of almost 90% from the BRL 215.9 million achieved in the same period last year.

“The company remained on the sustainable growth path, despite the period being marked by deteriorating macroeconomic conditions and a very high comparison base, considering the record performance recorded between July and September 2020,” the company said in a statement.

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In the report, Magalu highlighted the performance of its e-commerce arm. Magalu’s online sales reached BRL 10 billion, up 22% year on year. For comparison purposes, the Brazilian market was up 17.9% according to Neotrust data.

The company associates the good e-commerce result to the performance of the company’s super app, which has 37.9 million active users per month. The marketplace has 120 thousand sellers, which together sold BRL 3.5 billion in the third quarter, a high of 67% compared to the same period last year. With this, the marketplace already represents 35% of the company’s online sales.

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Total sales – including physical shops, e-commerce with own stock and marketplace – grew 12% year on year and reached R$ 13.8 billion. The result was impacted by the drop in sales of physical shops, which had a reduction of 8%. “The performance of physical shops was impacted by the worsening of macroeconomic indicators such as rising inflation and interest rates,” Magazine Luiza said in the report.

The retailer’s operating expenses rose to 20.6% of net revenue; high marketing expenses in e-commerce also pressured this result.

The group’s operating result measured by adjusted earnings before taxes, interest, depreciation and amortization (Ebitda) fell 37.5% year-on-year, to 351 million reais. The company ended the third quarter with an adjusted cash balance of BRL 9.1 billion.