Brazil's Renner misses estimates; first sales drop since 2009

Renner SA, Brazil's most profitable apparel retailer, missed third-quarter profit estimates as a harsh recession and other factors drove same-store sales down for the first time in more than seven years.

In a securities filing on Monday, Porto Alegre, Brazil-based Renner said net income totaled 84.9 million reais ($27 million) last quarter, below the 105.9 million reais consensus estimate compiled by Thomson Reuters. Profit fell 11.5 percent on a year-on-year basis, the filing said.

Renner cited abnormally cold temperatures during the launch of its summer collection and the Olympic Games among factors that weighed on sales of clothing and pottery nationwide.

Consumers are slashing spending as Brazil struggles with a recession not seen in eight decades. Sales at Renner's stores open for more than a year fell 3.9 percent - the first such drop since the first quarter of 2009.

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As a result, gross profit grew at the slowest pace in at least six quarters, while sales, general and administrative expenses jumped on higher payroll spending and an upgrading of systems that fanned inventory costs.

While the numbers suggest that Renner may keep unveiling weak revenue growth, efforts by Chief Executive Officer José Galló to control expenses have so far assuaged investor concern. Five analysts rate shares of Renner a "buy" and eight a "hold," with only four recommending investors sell the stock, according to Thomson Reuters data.

"It was an atypical quarter," Chief Financial Officer Laurence Gomes told Reuters. Management plans to discuss results at a conference call on Tuesday.

Shares were unchanged at 26.90 reais on Monday, keeping this year's gain at 60 percent.

ECONOMIC HEADWINDS

On top of Brazil's economic headwinds, which are likely to persist until early next year, Galló's consumer-centric strategy could help Renner continue to gain market share from rivals, according to analysts including Joseph Giordano of JPMorgan Securities.

Despite declining sales, Renner's gross profit was 53.7 percent of revenue last quarter, compared with a so-called gross margin of 53.1 percent a year ago, amid tighter inventory.

Margins might have been better if pricing discounts were less aggressive, he said, adding that improving macroeconomic conditions will allow profitability to stabilize in coming quarters, he said.

Adjusted earnings before interest, tax, depreciation and amortization, a gauge of operational profit known as EBITDA, fell slightly from a year earlier to 229.5 million reais - missing consensus of 250.6 million reais.