After a 2021 full of volatility and uncertainties, retail will not have an easy life in 2022. Major retailers in the country have been signaling, in conferences call on results in recent days, that the sector was already managing greater pressures on expenses, such as rents and labor, in addition to the escalation of costs of products in recent months. And the advance of the war in Eastern Europe once again concerns executives about results in the short term.

A survey carried out by Valor Data based on data from most traditional public retailers (18 reports were analyzed) shows that sales advanced less than costs and expenses at the end of 2021, while net income and profitability fell. Net revenue rose 5.3% in the fourth quarter of 2021, in nominal terms, to R$97.3 billion, compared with the previous year, with the cost of selling goods rising a little more, 6%.

When that happens, gross profit loses steam and gross margin drops — the rate fell to 25.8% in retail in the fourth quarter of 2021, compared with 26.6% in the same quarter of 2020.

Operating expenses grew 8.4%, in part, due to a weaker comparison base — the pandemic closed offices and reduced rents in 2020, but administrative and rental expenses are returning to market levels.

Summing up, this means that, when they entered 2022, companies were already dealing with more expensive inventories from purchases from industries – a reflection of the escalation of input prices, especially in food and electronics in 2021 – and also a return of expenses to higher levels. And that with sales even shrinking, in real terms.

“We had forecast the beginning of ‘normality’ after 2022. And I speak of normality in quotes, considering that it is an election year and sales are still recovering. But now we are very clear that inflation will not give in, and it should even go up, and the input and fuel costs, which affects retail distribution, tends to get worse,” said Gustavo Oliveira, partner at Tower Three (T3), with shares of retail chains in the portfolio.

For Breno de Paula, a retail analyst at Inter Research, this scenario puts more aggressive plans for store openings this year on the back burner in segments like durables retail and part of the fashion chains. “It is no wonder that, in the earnings conference calls in February and March, there was almost no mention of much more openings [in relation to 2021], because this weighs on the operating expenses, and soon affects EBITDA in a really bad time.”

“The focus now is to monetize the structures they already have, especially the marketplace, which a good part of the chains already operates. The name of the game is raising fees for sellers and charging more services to try new revenue and dilute costs,” said Iago Souza, an analyst with Genial Investimentos.

The food sector is already going through the first half of 2022 in a new escalation in cost inflation after a bad end of year for supermarkets. The year-end was better for the cash and carry segment. The combined sales of GPA, Carrefour, Grupo Mateus and Assaí rose 5.7% at the end of 2021, for a rise in costs of goods of almost 8%, and a high of up 10% in expenses. As a result, net income declined by 14%.

For an executive with 30 years of experience in cash and carry chains, with more expensive agricultural commodities and fuel, due to the war in Ukraine, inputs are already more expensive in some markets, which will weigh on the stores’ costs. “We were already dealing with a 10% food inflation in the 12 months until December, but still in this low double-digit range. But it’s up more than a point since January,” he said.

“The good news is that wholesale purchases from suppliers have grown. The corporate client is increasing inventory to protect itself from the inflation that comes from the war. February and March were better than January. The risk is that we’re basically just anticipating sales, but that’s part of the game,” he said.

According to XP, inputs such as oil, synthetic rubber, metals, grains and cotton have already risen by nearly 60%, 20%, 10%, 40% and 5% since the beginning of the year, respectively, which is expected to put further pressure on retailers’ costs. “However, the appreciation of the real against the dollar (by 10% in the same period) is expected to partially offset this effect,” said XP analyst Danniela Eiger.

At this beginning of the year, electronics chains have to focus on revising expenses as their supply chains are less pressured than the food retail. “I think that for us, unlike food, the biggest concern of the sector is with operational expenditures and reduction of stock purchased at higher exchange rate,” says the vice president of a traditional chain.

The fourth-quarter figures show that Americanas, Magazine and Via closed from October to December with total sales just 1.4% above 2020 and the biggest drop in profit among all the segments, of 36%. Sales dropped, but the cost of goods (which includes the inventory account) was stable. For Mr. Oliveira, with T3, the results of durables retail had already been declining since the third quarter, due to the effect of high interest rates and with the high exchange rate, but companies took a long time to adjust.

“In addition to the 2021 inventories that Via and Magalu must be reducing now, they carry a lower employee turnover after the crisis. The point is that this change of employees always helped to reduce labor costs naturally.”

Magazine, Via and Americanas highlighted the improvement in sales since February in a conference call. “Seeing the half full glass, the stock that will enter the chains after this reduction of the old stock will be cheaper, because we don’t see movement of transfer of the industry today, the exchange rate even fell and the war is not yet making components more expensive. So, this can help in the gross margin or we can pass it on to the customer,” the chain’s vice president said.

Some factors can help to balance this equation a little, such as the new injection of funds into the economy, with government measures, which could reach R$86 billion in the coming months, and the electricity bill, which stopped rising as in the past, one of the main lines in the sector’s cost bill.

For fashion retail, the scenario was of sales growing faster at the end of 2021 – partly due to the weak base of comparison the year before, when it was more affected by store closures –, with revenues rising 17%, gross margin gains and profit advancing 5%. Despite this scenario, as they sell non-essential goods, they have less room to pass on higher costs in times of crisis.

XP calculated in a report in March that for each 1% increase in the cost of raw materials, C&A’s EBITDA falls 3%. At Renner, the decline is 1% to 2%. “The premium chains ended 2021 under protection and will remain so this year, but the rest will face a more difficult landscape,” Mr. Souza said.

Source: Valor International

https://valorinternational.globo.com