Understand why Magazine Luiza (MGLU3) and Via (VIIA3) drop another 30% this month alone

Magazine Luiza
XP says he sees a shift in investor focus. (Image: Money Times/Renan Dantas)

Magazine Luiza (MGLU3), Via (VIIA3) and American (AMER3) fell by over 30% this month alone, accumulating a drop of more than 80% in the last 12 months.

Penalized by the change in the mood of the market since June 2021, the actions continue this month in sharp decline due to the deterioration of the economy, increase in the cost of capital, advance of competition and “change of market focus”, according to XP Investimentos.

The brokerage points out that inflation has been more persistent than initially projected by the market, with the war between Russia and Ukraine and the continuation of lockdowns in China contributing to keeping prices at high levels.

“We have seen a strong reduction in the purchasing power of Brazilians, which, combined with a scenario of strong interest rates, translates into a highly weakened demand for consumer goods, especially discretionary and higher average prices”.

XP reminds you that durable goods end up being heavily penalized. The category is “one of the most relevant for all e-commerce players, especially Magazine Luiza and Via”, says an excerpt from the report signed by Danniela Eiger and team.

Increase in cost of capital

XP recalls that the strong increase in the basic interest rate, the Selic, discourages consumption by making financing increasingly expensive and represents a challenge for share prices. With high interest rates, he points out, the cost of capital for companies increases, negatively impacting the value of companies.

Since February, when the Selic rate reached the lowest level in the last 20 years, at 2%, the Copom increased the rate used as a reference for fixed income by 11.25 percentage points, reaching 13.25% at the last meeting.

XP still assesses that there are profitability challenges for Magazine LuizaVia and Americanas due to increased competition for marketing (which translates into a higher CAC – customer acquisition cost).

The dynamics, says the brokerage, also increases the need for investments in improving the offer of services to the client (such as free shipping, loyalty programs, cashback, among others).

Market leaves aside MGLU3, VIIA, AMER3

XP says it sees a shift in the focus of investors, who now prioritize profitability and cash generation over growth – which impacts the assessment of MGLU3, VIIA, AMER3.

We still don’t recommend buying the papers of e-commerce as we expect a very challenging macro dynamic ahead, both from the point of view of inflation and interest rates”, he says.

For the broker, recent movements in amazon (AMZN) and Shopee add risk to the industry’s competitive landscape, “since both companies are highly capitalized, have global expertise and have focused on the marketplace platform.”

“We still see weak results dynamics ahead, with the second quarter still counting on a strong basis for comparison, while we do not see investor interest and appetite for the sector in the current scenario”.

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O money times publishes informative articles of a journalistic nature. This publication does not constitute an investment recommendation.

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About Yadunandan Singh

Born in 1992, Yadunandan approaches the world of video games thanks to two sacred monsters like Diablo and above all Sonic, strictly in the Sega Saturn version. Ranging between consoles and PCs, he is particularly fond of platform titles and RPGs, not disdaining all other genres and moving in the constant search for the perfect balance between narration and interactivity.

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