Fitch: Brazilian Retailers Still Seeking Operational Adjustments

NEW YORK--(BUSINESS WIRE)-- Weak macroeconomic performance in the Brazilian economy continues to pressure the cash generation of the retailers in the country, according to Fitch Ratings.

Lackluster same store sales as a result of depressed demand and excessive promotions have been seen across the industry, pressuring retailer's businesses scale and operating margins. Deceleration signs observed in the sector since mid 2014 have deepened, as we expected.

According to data from The Brazilian Institute of Geography and Statistics, volume sales in the Brazilian retail industry contracted by 0.8% in the first quarter of 2015, representing the worst performance of the past 12 years and the end of a cycle of 11 years of consecutive growth.

We believe retailers in our rated universe need to make adjustments in operations to avoid further deterioration in credit metrics and possible negative rating effects. Some have already taken steps such as renegotiating rent contracts, deceleration of store openings, and brand repositioning and Fitch has highlighted a number of measures executed by these companies to shrink operations in accordance with weaker demand.

The recent wave of layoffs via Brazil's largest retailers will likely translate to bitter second half results for the industry. Over the past few weeks, retailers fired approximately 4,200 employees, signaling an adjustment in operational structure is necessary to bear the already expected low sales momentum throughout the second half and minimize possible margin erosion and deterioration in their capital structures.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20150701006375/en/

Fitch Ratings
Renato Donatti, +55 11 4504 2215
Associate Director
Fitch Ratings Brasil Ltda.
Alameda Santos, 700, 7th floor
Cerqueira Cesar,
Sao Paulo - SP - CEP: 01418-100
or
Gisele Paolino, +55 21 4503 2624
Director
or
Kellie Geressy-Nilsen, +1-212-908-9123
Senior Director
Fitch Wire
Fitch Ratings, Inc.
33 Whitehall Street
New York, NY 10004
or
Alyssa Castelli, +1-212-908-0540
Media Relations, New York
[email protected]

Source: Fitch Ratings

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