Brazil's Lojas Renner misses profit estimates as costs jump

Lojas Renner SA, Brazil’s biggest apparel retailer, missed fourth-quarter profit estimates on Thursday, as a sharp increase in costs outpaced growing revenue amid an aggressive expansion drive.

In a statement, Renner said net income totaled 332 million reais ($101 million), up 10.7 percent from the same period a year earlier. Analysts projected profit of 377 million reais in the period, according to consensus estimates compiled by Reuters.

Same-store sales, a measure of sales at stores open for at least 12 months, climbed 8.7 percent from the same period a year before in the fourth-quarter, below an estimate of 9.6 percent by analysts at BTG Pactual.

Operational costs, meanwhile, shot up 22.8 percent, with a heavy increase in general and administrative costs putting pressure on margins. Earnings before interest, taxes, depreciation and amortization rose 6.3 percent in the quarter to 603 million reais, below a Reuters estimate of 661 million reais.

Renner, based in the southern city of Porto Alegre, has become an investor-darling as an effective transition from a traditional department store to a tech-savvy fast-fashion retailer - combined with a consumer-led rebound in Brazil - has boosted sales and profit. Shares in 2017 climbed over 70 percent.
However, results have occasionally come in below analysts’ lofty expectations.

In an interview on Thursday evening, Renner Chief Financial Officer Laurence Gomes said much of the additional costs were due to long-term expenses being concentrated in the quarter. He also said the company concentrated many marketing expenditures into the October-to-December period for strategic reasons.

Looking forward to 2018, he said, the company was planning capital expenditures of 620 million reais and the opening of 70 new stores. The company, which expanded in 2017 into neighboring Uruguay, is planning to open two stores there in 2018, bringing the total to five, and was looking to consolidate its market position in that country before considering other nations.

“Uruguay has exceeded our expectations by a significant factor,” Gomes said of the performance of Renner’s Uruguayan business.

Renner, which was quick among its peers to embrace a digitalization wave sweeping Brazilian retail, is facing increasing competition as competitors such as Marisa Lojas SA and Lojas Riachuelo SA increase their e-commerce business and Amazon.com Inc ups its presence in Brazil.

Gomes said Renner was leveraging its physical presence to make its e-commerce offerings more attractive relative to its peers, by allowing returns at any physical location, among several other measures.