Magazine Luiza profits, increases margin and reduces debt in the quarter

Magazine Luiza reported an adjusted net profit of R$29.8 million in the first quarter of 2024, reversing the loss of R$309.4 million it had recorded in the same period last year.

Net revenue increased 1.9% to R$9.2 billion in the period. Total sales were above R$16 billion. In relation to Ebitda, the increase was 53.5% in the quarter to R$ 687.8 million and the Ebitda margin rose 2.5 percentage points (pp), going from 4.9% to 7.4% in the period 12 months.

According to Roberto Bellissimo, the company’s CFO, the quarter is “historic”. “It’s a very difficult combination, because we had a higher EBITDA margin in the first quarter than that recorded in the fourth quarter, in addition to managing to reduce financial expenses”, says Bellissimo, when NeoFeed.

Regarding expenses, in fact, there was a reduction in financial expenses, which fell 39% to R$462.8 million. But operating expenses, which totaled just over R$2 billion, increased by 3.1% in the quarter over the 12-month period.

Debt, in turn, fell to R$3 billion as the company paid R$900 million in debentures in January and another R$2.1 billion in promissory notes in April, eliminating its short-term debt . Cash remained stable at R$9 billion.

Magalu also highlighted the 8% increase in physical store sales. This yielded a gain of market share of 0.7 pp. “We are growing at a faster pace than the market, but we only have 20% of market share”, says Bellissimo.

Even so, the financial director ruled out the opening of new stores, stating that the park today “is already very robust” with around 1,300 physical stores. “The majority have a positive contribution margin or are in the process of maturing,” says Bellissimo. “The plan is to maximize the use of the stores.”

In e-commerce, sales totaled R$11 billion in the period, an increase of 1% compared to the first quarter. Magalu reported that sales with its own stock were affected by the transfer of DIFAL made last year and that contributed to the expansion of gross margin at the beginning of the year.

The results exceeded the expectations of analysis houses. Itaú BBA, for example, predicted in a previous report that the retailer would report more timid numbers of adjusted net profit and Ebitda. The only indicator that did not exceed the bank’s expectations was net revenue, which grew less than expected.

Magazine Luiza’s shares have traded with a 13% drop on the stock exchange since the beginning of 2024. The company is valued at R$12.2 billion.

Look at services

In recent years, Magazine Luiza has been increasing its participation in services to diversify its sources of revenue. In a movement that gained strength in retail after Amazon consolidated the model, the Brazilian retailer appears to be on track to reap results from its bets.

In its balance sheet, Magalu reported that the revenue obtained from the provision of services increased by 7.3% to R$878.8 million. The increase with the resale of goods, in turn, was only 1.4%. Gross profit grew 6.9% with services and 13.7% with resale of goods.

The mismatch between the increases is related to the investments that the company has been making to boost services in areas such as cloud and ads, which have been explored by the company in recent times. In the first, the company will compete against giants such as AWS, Google and Microsoft.

The company also highlighted the increase in private capital, concluded in March this year, in the amount of R$1.25 billion. The idea is to use resources to accelerate investments in technology.

In the last two years, Bellissimo states that Magalu invested between R$600 million and R$700 million to expand its service front. The capital increase could mean an increase of R$200 million per year in investments for this division.