Magazine Luiza, one of Brazil's largest retail chains, reported its first quarter results for 2025 on May 8, showcasing a mixed performance that has raised eyebrows among investors and analysts alike. The company posted a net revenue of R$ 9.39 billion, marking a modest 1.6% increase year-over-year, but it fell short of market expectations, particularly in its digital sales channels.
The results indicate a strong operational profitability, with a gross profit of R$ 2.88 billion, reflecting a 4.1% increase from the previous year and a gross margin of 30.6%. However, the digital segment faced significant challenges, with online sales declining by 2.3%. This decline is particularly concerning given the competitive landscape, with heavyweights like Amazon and Mercado Livre posing substantial threats to Magazine Luiza’s market share.
Despite these challenges, physical stores showed resilience, with sales increasing by 6.2% year-over-year. The Same Store Sales (SSS) metric stood at +7.3%, slightly below expectations but still indicating growth in a tough retail environment.
One of the standout aspects of the report was the company’s adjusted EBITDA, which reached R$ 759 million, a 10.3% increase compared to the same period last year. The EBITDA margin also improved to 8.1%, reflecting the company’s focus on profitability over volume. This strategy appears to be paying off, as highlighted by the company’s commitment to maintaining operational efficiency amidst rising interest rates.
Vanessa Rossini, the company’s Investor Relations Director, noted that the high basic interest rate (Selic) has impacted profitability, stating, "We saw a curve practically 30% higher in interest rates. However, despite this, we achieved a positive final result." She emphasized that the first quarter typically delivers lower results due to seasonal factors, including supplier payments.
However, the net profit reported was a stark contrast to the operational gains. Magazine Luiza’s net profit fell by 54.3% to R$ 12.8 million, significantly below market expectations, which had anticipated a figure closer to R$ 34 million. This decline has raised concerns among investors, leading to an 8% drop in the company's stock following the earnings announcement.
The drop in net profit can be largely attributed to increased financial expenses, which have pressured operational margins. The company’s financial results were adversely affected by the rising interest rates, which have limited its investment capacity. Analysts at Citi have responded to these results with a recommendation to sell Magazine Luiza shares, revising their target price to R$ 7.70, indicating potential devaluation.
In light of these developments, the competitive landscape for Magazine Luiza is becoming increasingly challenging. The e-commerce sector, which was expected to drive recovery, has not shown significant advancements, and the company faces stiff competition from online giants. The report from Citi highlighted that without a clear acceleration in digital growth, investor appetite for retail stocks in Brazil could diminish.
Despite the hurdles, Frederico Trajano, CEO of Magazine Luiza, expressed optimism about the company's future. In a teleconference following the earnings report, he stated, "This is the last cycle of building the Magazine Luiza ecosystem to create a Selic-proof business." He emphasized the importance of diversifying services, including MagaluAds and LuizaCred, which have contributed positively to the EBITDA margin.
Looking ahead, Trajano outlined the company’s strategy to convert the high volume of online traffic—averaging 500 million visits per month—into sales. He mentioned initiatives aimed at improving pricing, reducing delivery times, and expanding distribution routes. "First, we focus on conversion, and then the sales will follow," he remarked, indicating a strategic shift towards enhancing the customer experience.
As Magazine Luiza navigates this complex landscape, it remains crucial for the company to adapt its strategies in response to both macroeconomic pressures and competitive dynamics. The retail giant's focus on profitability, alongside efforts to enhance its digital presence, will be key to sustaining growth in the upcoming quarters.
In summary, while Magazine Luiza has demonstrated resilience in physical retail, its digital performance raises concerns that could impact its long-term growth trajectory. The company’s ability to innovate and adapt will be critical as it seeks to regain investor confidence and capitalize on opportunities in a rapidly evolving market.
