C&A Brazil Beats on Profit But Revenue Misses in Q2

C&A Brazil reported record adjusted earnings of R$130 million (US$25.5 million) for Q2, but revenue failed to meet expectations, slipping 1.2%. The mixed results led to a 6.5% drop in the company's stock price. Brazilian shoppers are being more cautious, seeking discounts and shopping online instead of paying full price in stores.

Adjusted profit hit a record high, but total sales grew slowly. Clothing sales in existing stores rose 4.1%, but overall growth remained sluggish. Online sales surged 33.3%, driving the better performance. The company opened new stores and expanded some, but executives attributed the tepid in-store numbers to weak consumer confidence and warm weather.

Promotions and lower-income shoppers helped boost sales, shifting the mix toward discounted items. Revenue from digital channels now makes up 22% of total clothing sales, up from 15% a year ago, prompting a rethink of store locations and marketing spend. Adjusted net income climbed 4.3% to R$130.1 million, while reported net income dropped 11.2% to R$177.9 million due to one-off costs.

The adjusted operating earnings margin increased to 20.9%, while gross margin reached a record 58.1%. The company expects back-to-school and holiday seasons to boost sales, but faces tough comparisons after a strong final quarter last year. Analysts noted the revenue miss was mainly due to a lower average ticket, indicating consumers are still coming but spending less per visit.