Amazon Threat Fails to Damp Saraiva Leading Retail Rally

Saraiva SA Livreiros Editores, Brazil’s biggest bookseller, is posting the industry’s best rally as investors shrug off concern Inc. will take market share.

Saraiva gained 23 percent through yesterday, following Amazon’s Dec. 6 announcement it opened a Kindle store in Brazil after being in the country for several years. That beat the 7.8 percent drop for the benchmark Bovespa index and was the most among 13 publicly traded Brazilian retailers. Amazon rose 2.4 percent in the period.

Amazon, the world’s biggest seller of goods online, is joining foreign retailers from Gap Inc. to Topshop in seeking a foothold in Brazil, where retail sales surged 8.4 percent in 2012. Like its predecessors, Amazon may find navigating the second-largest emerging market more difficult than anticipated, said Marcelo Mesquita, a fund manager who helps oversee 650 million reais ($322 million) at Leblon Equities.

“Amazon has been in Brazil for three years trying to do business and they are still unable to have a potent presence,” Mesquita said in an interview in Rio de Janeiro. “With the logistics, the language, Saraiva is much more prepared for the Brazilian online market.”

Business Hurdles

Brazil ranks 130th out of 185 countries on the World Bank’s 2013 “Ease of Doing Business” list. In the area of “paying taxes,” one of the most complex barriers to overcome, Brazil fell to 156th place from 154th place last year.

An Amazon spokesman, Drew Herdener, didn’t return an e-mail request for comment, and a message left at the Seattle-based company’s general press line also wasn’t returned.

Saraiva rose 0.6 percent to 31.82 reais at 3:18 p.m. in Sao Paulo trading.

Saraiva has more titles in Portuguese for e-books, accessible on Apple Inc.’s iPhones and iPads, as well as other tablet computers. The Sao Paulo-based company’s library of copyrights for legal and academic titles also will help it weather increased competition, said Renato Prado, an analyst at Fator Corretora.

“They have a strong range of copyrights,” Prado, who rates the stock a buy, said in a telephone interview from Sao Paulo. “Their biggest asset in the end is exactly this and the right to sell books any way they want.”

More Titles

Saraiva offers 15,000 titles in Portuguese, compared with 13,000 for Amazon, and company sales of digital books more than doubled last year to 159,000, according to a regulatory filing.

The stock traded at 12 times trailing 12-month earnings, yesterday making it the cheapest Brazilian retailer. Rio de Janeiro-based Lojas Americanas SA, a seller of goods from electronics to toys to books, traded at 39 times earnings, while publisher Abril Educacao SA had a ratio of 105.

The market “has penalized Saraiva in excessive fear of Amazon’s entry into Brazil,” Orbe Investimentos, which manages 430 million reais of assets in Sao Paulo, said in a March report. The fund holds 193,900 shares of Saraiva, data compiled by Bloomberg show.

Amazon may have a future advantage with more Brazilians able to afford tablet computers and buy their goods online, Pedro Guasti, general director of Brazilian researcher e-Bit, said in an interview from Sao Paulo.

“Today in Brazil, we’re not sure who will be the leader yet,” he said. The future for online sales is “promising, but it will hurt publishers, especially those who have physical bookstores.”

Retail Sales

A spokeswoman for Saraiva declined to comment on the company’s rally and its advantage over Amazon.

Brazilian retail sales in February fell 0.2 percent from a year earlier, surprising all 27 analysts in a Bloomberg survey. Books and magazines were among one of the few segments to post an increase, gaining 6.9 percent from a year earlier.

Saraiva, whose market value was 858.7 million reais at the end of trading yesterday, posted a 19 percent increase in profit last year to 77 million reais. Of the three analysts who rate the stock, all recommend buying shares.

“I think it’s still a cheap stock despite peaks in recent weeks,” Fator Corretora’s Prado said. “Given their market share, the stock is trading at a big discount.”

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