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Sluggish Q2 for Cencosud Due to Weak Traffic Trends

Cencosud recently reported their Q2 results, which were below expectations. Thus, revenues may have increased year over year by 5.4 percent, but they were still 1.7 percent below analysts’ estimates. Furthermore, EBITDA may have increased by 1.7 percent, but it was still lower by 2.7 percent than Street expectations. It worth noting, though, that the company’s net income grew by an impressive 196 percent and was much higher than Street expectations. This was mainly because of the company paying lower taxes compared to the previous year.
Same store sales in Chile stayed at a solid level for supermarkets, presenting an increase of 5.5 percent, department stores, with a growth of 3.4 percent, and home improvement, showing a rise of 3.1 percent. Brazil same store sales for supermarkets dropped by 3.7 percent, while Colombia also exhibited a decline for the same figure, though it was 4.6 percent, ergo slightly higher than Brazil.

According to analysts, Cencosud’s adjusted EBITDA remained the same year over year because of a lot of pressure on the company’s gross margin, mainly caused by the market in Brazil, as well as a condition of one-time worker’s insurance compensation in Brazil. If said condition is removed from the figures, then adjusted EBITDA rises along the same lines as the company’s revenue. In Q2, the net debt to EBITDA ratio increased to 3.6 times this year from 3.4 times the previous year.

Considering the negative traffic trends for Cencosud’s main supermarket business, expecting a sizable reduction in sales, general and administrative expenses wouldn’t be wise, especially since the company’s operations in Brazil and Colombia seem to be a longer-term issue. Thus, analysts are sticking to their rating for Cencosud of “Sector Perform” and are maintaining the price target per share at CLP 2,100.

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