- Analysts say that Magazine Luiza’s results showed an improvement in profitability
- 0.1% decline in Magalu sales was a negative point
- Magalu’s role may encounter volatility due to the retail sector
O Magazine Luiza (MGLU3) released on Monday night (18) the balance sheet for the fourth quarter of 2023. For analysts at XP Investimentos, GTF Capital, Ativa Investimentos, Monte Bravo and Genial Investimentos, the company reported a solid result and with a positive evolution , even with headwinds in the retail sector.
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The Trajano family company reported a net profit of R$212.2 million in the fourth quarter of 2023, a reversal of the loss of R$35.9 million in the same period of 2022. On an adjusted basis, the result was a net profit of R$101.5 millionanother improvement compared to the adjusted net loss of R$15.2 million.
In the view of XP Investimentos analysts, the big highlight of the quarter was the growth in profitability, measured by the adjusted gross margin, which went from 27.8% in the fourth quarter of 2022 to 30.3% in the fourth quarter of 2023, an increase of 2.5 percentage points on an annual basis.
“This improvement reflects the impact of the transfer of the difference between the internal and interstate tax rates (DIFAL) on sales of goods together with the greater penetration of services, which boosted the company’s results”, say Danniela Eiger, Gustavo Senday and Laryssa Sumer, who sign the XP report.
Artur Horta, investment specialist at GTF Capital, comments that the result was in line with expectations. She regrets that the company’s revenue, measured by GMV (Gross Merchandise Volume in English), had a slight decline of 0.1% on an annual basis.
GMV went from R$17.95 billion in the fourth quarter of 2022 to R$17.94 billion in the fourth quarter of 2023. “The year 2023 was weak from a revenue point of view. However, the numbers show that the company is on the right path to positive profitability”, points out Horta. He reinforces that the growth in adjusted gross margin by 2.5 percentage points was the highlight of the balance sheet.
Bruno Benassi, a stock specialist at Monte Bravo Corretora, says he believes that the slight reduction of 0.1% in the company’s revenue was already something to be expected, given that the basis of comparison for the previous year is with the World Cup, a period in which the company sold many televisions. He reports that the fourth quarter numbers show that Magalu is indeed turning the game around. “The fourth quarter of 2023 really is an inflection point for Magazine Luiza, which went through strong turbulence in the last cycle of rising interest rates”, reports Benassi.
Genial Investimentos also recognizes that the result showed a positive evolution for the company over the last few quarters, despite the adversities in the retail segment, which is experiencing a highly competitive scenario with Mercado Livre and Amazon gaining ground in sales volume.
However, analysts comment that the company left something to be desired at the 1P level. This level is known as first-party ecommerce. In this case, Magalu buys products, stocks them, determines prices, sells them in its online store and takes care of all delivery logistics.
In this regard, the company presented a 7.8% drop in sales in the comparison between the last quarter of 2023 and the last quarter of 2022. For Genial, this happened in the midst of a still challenging scenario for the consumption of durable goods, which have larger tickets and make up core categories of Magalu’s 1P offer.
“Although we are more pessimistic about 1P sales growth in the next 2 years – which should happen more slowly than previously expected –, we understand that the company has done a great job in terms of profitability, quarter after quarter”, they say
Iago Souza, Vinicius Esteves and Nina Mirazon, who signed the Genial report.
What to expect from Magalu and its shares in 2024?
For analysts, this year’s expectations for the company are optimistic. Artur Horta, from GTF Capital, states that the company is showing advances in efficiency and profitability. In addition, the company also made a capitalization of R$1 billion, which should provide relief for the company’s financial expenses when looking at the cycle of falling interest rates, points out the expert.
Genial Investimentos estimates that the company should continue to grow in the online market in categories with a higher average ticket. This strategy reduces the impact of competition, since sales from other companies in this segment are more concentrated on lower value items.
“With the marketplace consolidating itself as a highlight of revenue growth and injecting gross margin “in vein”, we project that this movement will continue throughout 2024. We estimate that Magalu will present a gross margin of 30.2%, approaching the profitability presented in 2016, when the indicator reached the level of 30.6%”, explain Souza, Esteves and Mirazon.
Benassi, from Monte Bravo Corretora, reinforces that the macro scenario should also help the retailer, as the market expectation is for a gradual reduction in the economy’s basic interest rate, the Selic. According to the most recent Focus bulletin, the Selic should end 2024 at 9% per year, a reduction of 2.25 percentage points compared to the current 11.25% per year.
Experts from Monte Bravo and GTF Capital believe that Magazine Luiza’s share is attractive to investors, as long as they don’t mind market volatility and think long-term. “The share may perform well throughout the year, but it is worth remembering that this is a high-risk thesis and may have strong volatility,” says Benassi.
This is precisely why Ativa Investimentos maintained its neutral recommendation for the stock. “We recognize that the company has been delivering marginally better results. However, the challenging sector weighs on our analyzes and we maintain our neutral recommendation”, says Pedro Serra, who signed the Ativa report.
The broker has a target price of R$4.20, a potential increase of 100% compared to Monday’s closing (18), when the stock closed the trading session at R$2.10.
Genial raised the target price for the share from R$2.10 to R$2.60 after the release of the balance sheet, which means a potential increase of 23.81% compared to Monday’s closing. However, the broker did not change the recommendation to hold for purchase, considering that the stock is expensive.
“Although we understand that Magalu is a growth company and that, therefore, it can trade at higher multiples, we do not feel comfortable elevating for purchase a company that, in our current estimates, trades at high multiples”, emphasize the Genial analysts.
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