Magazine Luiza and Via shares are rising; what’s up?

With inflation decelerating in July and the projection of GDP growth for this year, shares of commercial companies, such as Magalu (MGLU3) and Via (VIIA3), owner of Casas Bahia, rise in today’s trading session (18). At around 11:30 am, MGLU3 rose 7.91% to R$3 and VIIA3 had an appreciation of 5.42% to R$2.53.

What explains the optimism of investors with these stocks? See below.

What happens in the Brazilian economy? The General Price Index for the first ten days of July (IGP-10), released earlier today, showed a rise in inflation of 0.6% in the period. It was higher than expected by the market, but lower than the 0.74% increase in the first ten days of May, which shows a slower pace of price increases.

In addition, the Central Bank published in the bulletin focus that the forecast for the expansion of the Gross Domestic Product (GDP) in 2022 went from 1.59% to 1.75%. The billion-dollar demand stimulus package in an election year approved by the National Congress was one of the main factors for this correction.

All this encouraged investors, according to marcio loréga, chief analyst of BankPay Investors saw opportunities to buy equities today, which could also boost stocks in commodities such as minerals, oil and agricultural production, he says.

And in the case of sales of electronics and appliances? Electronics and home appliance industry sales to stores fell 19% in the first five months of 2022 compared to the same period last year, according to data from the National Association of Electronics Manufacturers (Eletros). In the white line segment (refrigerators, stoves, microwaves), the fall is even greater, a 24% indentation.

Are sales returning to Magazine Luiza? Another thing that has been causing a stir in the retail sector is a video starring the founder and president of advice do Magalu, Luiza Helena Trajano.

In the video, sent to around 5 million network customers, the businesswoman resurrects an old payment method: “Remember that carnet taste?”, it says Is it over there. That’s because Magalu decided to give credit to about 10 million network customers who are already registered with the company, but who have credit problems to buy.

“A large part of Brazilians depend on credit to continue to consume”, says Frederico Trajano, president of Magalu, in a company statement. “At a time like the current one, the tendency is for companies to cut their lines. But we know, through our data and analysis system, that there are more than 10 million customers in our base that have all the conditions to honor their commitments. We want these people to know that they can count on Magalu at all times, especially in the most difficult ones.”

To announce the new action, Luiza Trajano made the video and ends saying, “Go as fast as you can for one of our stores, please.” It’s a way to catch the consumer who is going to receive government aid, but who is negative and in debt.

Can PEC dos Auxílios help trade? Retail will benefit from social assistance. Of the R$ 41.2 billion released, it is expected that R$ 16.3 billion will be spent on purchases. More than BRL 5 billion can go to supermarkets, another BRL 2.3 billion to clothing and footwear stores and BRL 1.4 billion to furniture and appliances. The estimate is from the National Confederation of Trade in Goods, Services and Tourism.

Should this be reflected in the actions? This may indeed give stocks a breather, but it does not put an end to the sector’s problem, according to market analysts. What has been happening is that the cost of acquiring customers is higher in this environment of high interest rates and inflation eating the pocket of a consumer who now has more options: rivals AliExpress, shopee, Amazon. Magalu and Via are having to burn more cash to sell. AND to compete with AliExpress, shopee and Amazon they need to invest more in marketing as well.

Most problems Magazine Luiza still has another problem, according to Rafael Ragazipartner and equity analyst at Nord Research. In the second half of last year, the network’s board thought that sales would grow a lot and bought a lot to reinforce inventories. Sales did not materialize and Magalu was left with stopped goods.

And what to do with the stocks now? O BTG thinks it’s a good buy and bets that the stock should rise to R$7 in 12 months. THE XP does not recommend buying or selling. For Via, the recommendation of the two companies is neutral. Megainvestor Luiz Barsi said that retail companies could go bankrupt in the future. Is this a real risk? Read more here.