News Contrasting views in the local market after Falabella's announcement

Contrasting views in the local market after Falabella’s announcement

The retail industry appears as one of the sectors hardest hit by the coronavirus outbreak, as the pandemic creates new challenges for the sector. In this sense, and to face the change in consumer habits, Falabella announced movements in its operations in Argentina, which keeps the local market on alert.

Specifically, the company confirmed this afternoon that it is evaluating the entry of a strategic partner to make the operations of its subsidiaries in Argentina profitable. In addition, it indicated that it will close four of its stores in that country.

Falabella confirms that it is looking for a partner in Argentina and announces that it will close four stores

Although the company has not yet provided specific details on the operation, the local market is already analyzing the financial effects for Falabella.

At BICE Inversiones, they have a positive view of the announcement considering the complex economic and financial situation in Argentina.

“We believe that it makes sense for Falabella to divest in Argentina, given that it is a country that is in a difficult economic and financial situation, and the bottom line company has recorded losses from that subsidiary’s business in recent years,” he explains Paulina Vargas, analyst at BICE.

In fact, the broker’s estimates regarding Argentina’s contribution to Falabella’s Ebitda are not very encouraging.

“Regarding EBITDA, Argentina contributes around 2% in the last 12 months, but in terms of contribution in our valuation models, we estimate the contribution to be zero in the long term. From Falabella’s point of view, for some time the company has been commenting that Argentina is a country where the focus of the company is not, and for the same reason, already in the financial business, the strategic decision had been made not to continue growing ”, adds Vargas.

In this way, BICE Inversiones indicates that the decision will allow Falabella to concentrate resources in its most relevant markets: Chile, Peru and Colombia.

The holding company linked to the Solari-Del Río family indicated that the pandemic accelerated the retail digitization process, in addition to affecting its results in Argentina.

“In order to adapt to this new trend and make the operation in Argentina sustainable over time, the company has decided to close four of its stores in Buenos Aires in the coming months: two Sodimac home improvement stores and two Falabella Retail” complemented the group.

After the news, the company’s shares closed operations with a fall of 2.85%, while the IPSA registered a decline of 0.08%.

So far this year, Falabella’s papers have recorded a loss of 27.7% and are ranked 10th in the ranking of the worst performing stocks in 2020.

In Renta 4 they indicate that, although the effects on Falabella’s margins could be low, the signal provided by the company raises doubts in the market.

“There may be in part a“ punishment ”because it would be taken as a bad sign to abandon a market that clearly has significant growth potential (…) Argentina represented 4.2% in 2019 in revenues for the company. At the same time, that same year, it contributed 5.3% of the Gross Margin and 1.6% of the EBITDA. The effect should be less, but possibly the “signal” is seen as negative, ”explains Guillermo Araya from Renta 4.

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