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Lojas Americanas Website Erodes Results: Corporate Brazil

Lojas Americanas SA (LAME4) is betting 1 billion reais ($505 million) that analysts who recommend selling its online unit, B2W Cia. Global do Varejo, are wrong.

The investment by Brazil’s third-biggest retailer will help B2W build 10 distribution centers nationwide after logistics problems and delivery delays triggered customer complaints and made it 2011’s worst performer among stocks on the benchmark Bovespa (IBOV) index. Americanas, which bought control of B2W in 2006 and boosted its stake last year to 63 percent, is doubling down on a bet that online shoppers will fuel growth as internet sales grow faster than traditional retail sales.

Investors agree with Americanas: B2W, which has more sell ratings than any other retailer on Brazil’s main stock index, is now posting the Bovespa’s best 12-month gain at 71 percent. That’s more than twice Rio de Janeiro-based Americanas’ 31 percent rise and three times the 23 percent increase posted by analysts’ top-rated retailer, Cia. Brasileira de Distribuicao Grupo Pao de Acucar.

“The worst has passed for B2W,” said Sandra Peres at brokerage Coinvalores, one of only two analysts who rate the stock a buy. “With this capital injection, we have to believe the company will build something better.”

Nine analysts rate the stock a sell and seven say hold.

Sales Surprise

B2W, Brazil’s largest online retailer and operator of the Blockbuster and Americanas.com websites locally, reported quarterly sales that topped analysts’ estimates after opening four distribution centers in Sao Paulo, Rio de Janeiro, Pernambuco and Minas Gerais states. Previously, Rio-based B2W used a single distribution center in Sao Paulo, causing bottlenecks as well as late and missed deliveries during the 2010 and 2011 holiday seasons.

Sales in the fourth quarter rose 35 percent to 1.59 billion reais, topping the average 1.39 billion-real estimate from 10 analysts surveyed by Bloomberg. That was the best positive sales surprise among the six retailers included in the Bovespa.

“If B2W can really improve its results like it did in the fourth quarter, its performance could be much better than in previous years,” Peres said by telephone from Sao Paulo. “In 2013, we will start to see better results because of the strategies being implemented.”

Holiday Stockpiles

In addition to expanding its distribution network, B2W also amassed the world’s second-largest stockpile among retailers ahead of the holiday season last year. The company had $354.5 million of goods in inventory in the fourth quarter, the most of 161 Internet-only retailers after Amazon.com Inc., according to data compiled by Bloomberg.

A press official for both Americanas and B2W declined to comment.

“The company is fully engaged in continually transforming its processes and investing in the necessary infrastructure to expand its competitive edge so as to capture the endless opportunities of growth for electronic commerce in the coming years,” Fabio da Silva Abrate, investor relations director at B2W, said on a call with analysts on March 8.

Stronger sales were driven by promotions and extended repayment terms and so far haven’t translated into improved earnings, according to Julia Monteiro, an analyst at CGD Securities.

‘Losses, Losses’

“Because the company has operational bottlenecks and is still delivering goods over longer periods of time, it has to offer other incentives,” Monteiro said by telephone from Rio de Janeiro. “The company has only been presenting losses, losses, losses.”

B2W posted the biggest slide in earnings last year among Brazilian peers. For every $10 in profit Lojas Americanas generated from $100 in revenue, B2W shaved about $4 off the bottom line, according to data compiled by Bloomberg. B2W said this month that its net loss almost doubled to 170.7 million reais ($86 million) in 2012, while Lojas Americanas profit rose 20 percent to 410.2 million reais. Americanas sells clothing, appliances, electronics and household items.

Americanas’ “strong top-line growth” was supported by its brick-and-mortar stores, Bradesco BBI SA analysts led by Ricardo Boiati wrote in a note on March 15. The outlook for B2W remains “uncertain considering the still-tough competitive environment and cash flow outlook,” the analysts said.

B2W is benefiting from optimism about growing online sales as more Brazilians gain access to computers and retailers convince shoppers it’s safe to buy over the internet. Online sales in Brazil, the world’s second-largest emerging economy, rose at five times the pace of traditional sales in the first half of 2012, the latest figures available, according to data compiled by E-bit, a Brazilian researcher.

“It’s an interesting channel because you don’t need stores, physical space or as many employees -- the cost is much lower than selling the product in the store,” Thiago Gramari, an analyst at Banco do Brasil SA (BBAS3), said in a phone interview. “It’s in Lojas Americanas’ interest to make B2W a success.”

To contact the reporter on this story: Christiana Sciaudone in Sao Paulo at csciaudone@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Jessica Brice at jbrice1@bloomberg.net

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