GPA Drops the Most in Six Years After Posting Net Loss on Costs

Cia Brasileira de Distribuicao, Brazil’s largest retailer, fell the most in more than six years after the company posted a larger-than-expected loss, pressured by costs from an internal probe of its online operation, along with store closings and firings amid Brazil’s worst recession in at least a century.

GPA shares fell 9 percent to 48.95 reais at 1:12 p.m. in Sao Paulo after falling as low as 48.16 reais to mark the biggest intraday decline since May 2010.

GPA posted a 276 million reais ($84.5 million) net loss in the second quarter, compared with a profit a year earlier and more than double the 124 million reais loss, according to the average of estimates compiled by Bloomberg. Operating costs rose 12 percent from a year earlier while revenue increased 3.5 percent.

The company concluded an investigation into the accounting at its online unit Cnova NV, resulting in a negative impact of 557 million reais and the restatement of three years’ results through the first quarter of 2016. The company may combine its online operations with its Via Varejo unit, which operates appliances and electronics stores, Chief Executive Officer Ronaldo Iabrudi said on a conference call.

Brazil’s largest retailer is downsizing to adapt to Brazil’s recession, now in its third year. The company has closed stores and converted some to its other formats, which range from convenience stores to medium and large-sized supermarkets and wholesale cash-and-carry stores. GPA also opened nine stores in the second quarter.

“In the last quarters, we’ve taken a defensive stance in the company,” Iabrudi said. “We now see a clear tendency of sales growth,” he said, adding that sales in some of its stores are already growing above inflation. July sales continue to confirm the growth trend, Chief Financial Officer Christophe Hidalgo said on the call.

GPA’s debt ratio rose to 1.71 times Ebitda from 0.38 a year ago, in part because of Cnova. The level of debt is “deteriorating,” Hidalgo said. Total gross debt was 6.46 billion reais, while cash and financial investments totaled 3.72 billion reais. The company also has about 1.3 billion reais in credit lines.