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Buoyant demand to stoke Brazil fourth quarter retail profits

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Reuters
Published
today Feb 22, 2010
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SAO PAULO, Feb 22 (Reuters) - Buoyant consumer confidence, abundant credit and strong year-end sales likely spurred a surge in fourth-quarter net profit for three major Brazilian retailers, a Reuters survey showed on Monday 22 February.



Brazilian consumers helped pull Brazil's economy out of its first recession in 17 years and retailers that rode out the crisis are now capitalizing on the better times. Consumer spending makes up about 60 percent of Brazil's $1.9 trillion economy.

The emergence of a strong middle class, the result of President Luiz Inacio Lula da Silva's policies to boost household income and access to credit, leveraged a wave of takeovers in the sector and profit growth in the quarter.

Brazilians, emboldened by a resilient labor market, spent more of their disposable income on clothing and home appliances, making last Christmas the best since 2000 in terms of sales, the country's shopping mall association Alshop said.

"Record-high consumer confidence and income growth, as well as ample credit availability, created the perfect scenario for the best holiday season of the decade," Juliana Rozenbaum, an analyst at Itau Securities, said in a Feb. 9 report.

Net income at Grupo Pao de Acucar (PCAR5.SA), Brazil's largest diversified retailer, is expected to soar 76 percent to 180 million reais ($99 million) from the year-earlier period, according to the average forecast of five analysts.

Analysts gave a consensus forecast of a 32 percent rise in revenue as non-food and food sales would have double-digit growth. The recession hampered bottom line results in the fourth quarter of 2008.

The takeover in November of Casas Bahia, Brazil's largest home appliance retailer, probably helped Pao de Acucar ramp up white goods sales, which are outperforming those of foodstuffs, analysts said.

However, profit margins are expected to fall due to price discounts as competition mounted in the period. The survey showed earnings before interest, taxes, depreciation and amortization (EBITDA) rising 9 percent.

The soccer World Cup in June is expected to boost sales this year.

"We believe the 2009 make-over should bear good fruit in the World Cup year," HSBC analysts Francisco Chevez and Manisha Chaudhry said in a recent report.

RENNER

Analysts expect apparel retailer Lojas Renner (LREN3.SA) to post strong results, with margins growing faster than sales.

Five analysts polled by Reuters gave a mean forecast of a 30 percent year-year-year rise in net profit to 72 million reais. Revenue is expected to rise 9 percent in the period, while EBITDA surged 26 percent, the survey found.

Lojas Americanas (LAME4.SA), Brazil's biggest discount retailer, is expected to have a 56 percent increase in revenue while EBITDA is expected to rise 24 pct, according to the average estimates of four analysts.

Some consumer goods makers posted strong fourth-quarter results, fanning optimism of solid 2010 sales.

Hypermarcas (HYPE3.SA), the largest Brazilian multi-brand consumer goods maker, reported on Friday 19 February net income of 101 million reais, reversing a 153 million loss a year earlier, as a flurry of takeovers helped boost sales.

Banco Fator analyst Iago Whately said the purchase of diaper maker Pom Pom, condom makers Olla and Jontex, and over-the-counter drug maker Neo Quimica lifted revenue. Sales of existing product lines signalled "healthy trends in consumption," the company said.

Renner reports results later on Monday 22 February, Grupo Pao de Acucar

(GPA) on March 3 and Lojas Americanas on March 11.

Following is a summary of analysts' estimates for the three companies. All numbers are in Brazilian reais: ============================================================= COMPANY REVENUE EBITDA NET PROFIT ANALYSTS

------------------------------------------------------------- ------------------------------------------------------------- GPA 6.81 bln 433 mln 180 mln 5 (% y/y) +32 pct +9 pct +76 pct ------------------------------------------------------------- ------------------------------------------------------------- Americanas 2.06 bln 311 mln 109 mln 4 (% y/y) +56 pct +24 pct -1 pct ------------------------------------------------------------- ------------------------------------------------------------- Renner 731 mln 127 mln 72 mln 5 (% y/y) +9 pct +26 pct +30 pct ============================================================= ($1=1.822 reais) (Editing by Karen Foster) ((guillermo.parra@thomsonreuters.com; Tel: +55 11 5644-7714; Reuters Messaging: guillermo.parra.reuters.com@reuters.net)) Keywords: BRAZIL RETAILERS/ (C) Reuters 2010. All rights reserved. Republication or redistribution ofReuters content, including by caching, framing or similar means, is expresslyprohibited without the prior written consent of Reuters. Reuters and the Reuterssphere logo are registered trademarks and trademarks of the Reuters group ofcompanies around the world.nN22171365

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