Lojas Renner Drops as JPMorgan Cuts to Hold on Sales Outlook

Lojas Renner SA, Brazil’s biggest clothing retailer, fell as JPMorgan Chase & Co. cut its recommendation on the stock to the equivalent of hold from buy on prospects of a decline in sales as consumption decelerates.

The shares declined 1.9 percent to 63.95 reais at the close of trading in Sao Paulo, the lowest since August 9. The benchmark Ibovespa lost 0.3 percent.

JPMorgan cut its estimates for Renner’s 2013 sales by 2.8 percent to 4.35 billion reais ($1.98 billion) and reduced the 2014 estimate by 4.6 percent to 5.031 billion reais, according to a note to clients today. The company’s sales rose 20 percent in 2012 to 3.86 billion reais.

“The rapid deterioration in consumer sentiment and expectations for lower disposable income should pose a strong headwind to sales growth, slowing down margin expansion and earnings growth,” Andrea Teixeira, an analyst at the bank, wrote in the note.

Consumer prices in Brazil jumped 6.5 percent in the 12 months through May, reaching the upper end of the country’s target range for inflation. The central bank has raised its benchmark interest rate to 8 percent, from a record low 7.25 percent earlier this year, in a bid to curb price increases.

Consumer sentiment declined 0.4 percent in June from May, according to a survey by the Getulio Vargas Foundation.

The Brazilian economy expanded 1.9 percent in the first quarter, less than the 2.3 percent median forecast among analysts surveyed by Bloomberg, as President Dilma Rousseff’s lending surge, tax cuts and electricity-cost reductions failed to stoke output.

Lojas Renner has declined 20 percent this year, while the Ibovespa fell 22 percent during that same period.