Magazine Luiza, one of Brazil's leading retailers, reported a staggering 62.5% decrease in its adjusted net profit for the first quarter of 2025 compared to the same period last year. The company, which trades under the ticker MGLU3, announced an adjusted net profit of R$11.2 million, significantly below the R$21.4 million that analysts had anticipated, according to estimates compiled by LSEG.
On May 8, 2025, after the market closed, Magazine Luiza revealed its financial results, highlighting the ongoing challenges faced by the retail sector amid a tough macroeconomic environment. Vanessa Rossini, the company's investor relations director, noted that the high Selic rate, which was nearly 30% higher than in the first quarter of the previous year, necessitated a greater focus on profitability and operational margins.
"We dealt with a Selic curve this quarter that was almost 30% higher than what it was in the first quarter of last year. For that, we needed to focus more on profitability and operational margins," Rossini stated in an interview with Reuters.
Despite the decline in profit, the company managed to expand its gross margin by 0.7 percentage points, reaching 30.6% for the quarter. The retailer also reported a modest increase in net revenue, which rose by 1.6% to R$9.4 billion. Total sales, including those from its marketplace, remained nearly stable at R$16 billion.
Magazine Luiza's same-store sales in physical locations increased by 7.1%, although this was lower than the 9% growth reported in the first quarter of 2024. However, sales from e-commerce and the marketplace fell by 2.6% and 1.8%, respectively, reflecting the broader challenges in the retail sector.
In terms of operational performance, the company's adjusted EBITDA totaled R$758.8 million, marking a year-on-year increase of 10.3%. The EBITDA margin improved from 7.4% to 8.1%, surpassing the average analyst expectation of R$719.85 million.
Rossini emphasized that the increase in the EBITDA margin was crucial for offsetting the higher financial expenses, which surged by 31.9% to R$403.2 million, accounting for 4.3% of net revenue compared to 3.3% a year earlier. The increase in financial expenses was largely attributed to the high-interest rates affecting the performance of higher-ticket categories, such as electronics and appliances.
Sales expenses also rose by 5.9%, a trend Rossini attributed to strategic investments in logistics operations, particularly in enhancing fulfillment processes to accelerate delivery times and improve customer service. General and administrative expenses remained stable year-on-year.
The results come at a time when the retail sector is grappling with a slowdown in sales, rising interest rates, and persistent inflation. Analysts from BTG Pactual noted that the last quarter of 2024 was particularly challenging for the company, and they expect Magazine Luiza's first-quarter results to reflect these difficulties.
In their projections, BTG Pactual analysts highlighted that Magazine Luiza faces a significant dilemma in e-commerce, balancing the need for growth against profitability. They suggested that while the marketplace—a platform for third-party sales—could bolster results, the overall performance may still fall below market expectations.
Despite the challenges, Rossini pointed out that Magazine Luiza has maintained a positive operational performance for six consecutive quarters, driven by improvements in operational margins and strategic pricing adjustments. "Even with higher financial expenses, we managed to sustain a positive result thanks to the growth of our operational margin. This was essential to maintain profitability in a weaker commercial quarter," she explained.
By the end of the quarter, Magazine Luiza's total cash position stood at R$6.7 billion, with an adjusted net cash of R$2.1 billion. The operational cash generation over the past 12 months reached R$2.4 billion, supported by improved operational results and effective working capital management.
Sales from physical stores grew by 6.2%, reaching R$5 billion, while e-commerce sales totaled R$11.2 billion. The company reported that the share of e-commerce in total sales decreased from 71.5% to 69.7%, reflecting a strategic shift towards prioritizing higher margins even as sales volumes dipped slightly.
Magazine Luiza ended the quarter with 1,245 stores, a reduction of 18 compared to the same period in the previous year. The company's financial services arm, MagaluBank, reported a total transaction volume of R$24.5 billion from January to March, with a credit card base of 6.1 million and a turnover of R$14.4 billion.
The profit from Luizacred, the group's financial company, reached R$84 million, achieving an annualized return on equity (ROE) of 16.8%. The relatively low delinquency rates reported by the company suggest a stable financial environment for its credit operations.
As the retail sector navigates through these turbulent waters, Magazine Luiza's focus on improving operational efficiency, enhancing customer service, and maintaining a balanced approach between physical and online sales channels will be critical in determining its future performance. The upcoming quarters will be crucial as the company adapts to changing market conditions and consumer behavior.
