By Brazil Stock Guide – Casas Bahia reported a second-quarter net loss of 555 million reais ($110 million), driven by 1.1 billion reais in net financial expenses, after private equity firm Mapa Capital took control earlier this month. The result was worse than the 464 million reais loss projected by analysts surveyed by LSEG.
Chief Executive Officer Renato Franklin said the company expects results to improve from the third quarter, following a 40% cut in net debt after converting 1.6 billion reais of obligations into equity this month. “The full effect of this measure should materialize in the fourth quarter,” Franklin said.
The debt conversion — involving Bradesco and Banco do Brasil loans acquired by Mapa Capital — is expected to generate 230 million reais in annual savings on financial expenses, reducing net debt from 4.5 billion reais to 2.4 billion reais. Leverage fell from 1.8 times to 1.1 times. Franklin said the company aims to further lower leverage and improve its credit rating, which has already attracted cheaper credit line offers.
Mapa Capital plans no immediate management changes but will take two seats on an expanded seven-member board. The Klein family, whose stake was diluted to 5%, will retain one seat, with the rest going to independent members.
Net revenue rose 6% to 6.9 billion reais, beating market expectations, driven by a 7.4% increase in gross merchandise volume (GMV) to 10.5 billion reais. E-commerce sales jumped 10.4%, outpacing the 5.8% gain from physical stores. Casas Bahia closed 22 stores in the quarter and may shutter more unprofitable locations, Franklin said.
The retailer’s Ebitda margin improved to 8.3% from 7% a year earlier, and free cash flow rose 88% to 173 million reais. Still, Franklin doesn’t expect a return to profitability for at least 12 months. The company is betting on its in-house credit business, which accounts for 17% of sales and grew 11.3% to 6.2 billion reais in the period, with delinquency rates easing to 8.4%.