Magazine Luiza’s sales slow in the 3rd quarter and profit drops by almost 90%

O Luiza stores saw a sharp drop in third-quarter profit as slowing sales after a spike during the first few months of the pandemic and higher marketing spend weighed on the retailer’s margin.

The company announced this Thursday (11) that its adjusted profit from July to September totaled R$ 22.6 million, almost 90% down on the R$ 215.9 million reported a year earlier.

Total sales, including brick-and-mortar stores, e-commerce with own inventory and marketplace (3P) grew 12% year-on-year to R$13.8 billion, driven by ecommerce, which grew 22%, and an 8% reduction in stores physical. Last year, the company’s e-commerce had a jump of 148%.

“The performance of physical stores was impacted by the worsening of macroeconomic indicators such as the increase in inflation and interest rates”, stated Magazine Luiza in the report.

Reflecting the continued gain in the share of digital channels in sales, the company’s adjusted gross margin dropped 1.5 percentage points year-on-year to 24.7%. Even so, the company quoted consulting data to say that it had gained market share in the period.

And adjusted operating expenses rose to 20.6% of net revenue, an increase of 1.1 point, with less dilution of expenses in physical stores and an increase in marketing expenses in e-commerce.

Thus, the operating result of the group measured by earnings before taxes, interest, depreciation and amortization (Ebitda) adjusted fell 37.5% yoy, to R$351 million. The Ebitda margin dropped from 6.8% to 4.1%.

Magazine Luiza also stated that the total of transactions processed by its financial arm totaled R$ 18.5 billion in the quarter, a 98.5% increase in one year. The credit card base reached 6.6 million cards, 33.3% higher.

The company ended September with an adjusted cash balance of R$9.1 billion.