By Brad Haynes and Marcela Ayres
SAO PAULO, Feb 14 (Reuters) - GPA , Brazil’s biggest retailer, expects to keep up the pace of investments and maintain profitability at its supermarkets this year despite tough economic headwinds, executives said on Friday.
Administrative cost cutting has let GPA bring down prices and accelerate sales while smaller rivals struggle, driving a stronger-than-expected jump in quarterly profit and lifting its share price by the most in three weeks.
“2013 was a tricky year, a very challenging one, but also a successful one for us,” said Chief Executive Officer Ronaldo Iabrudi on a call to discuss earnings released late Thursday.
If GPA can keep up an aggressive strategy adopted under the control of French group Casino, the retail giant is likely to keep growing at the expense of its rivals, grabbing market share as Brazilian retail slows to its weakest in a decade.
Iabrudi said more appealing prices had already paid off with busier stores. Foot traffic fell in early 2013 but grew in the second half of the year, he said, defying Brazil’s first economic contraction since 2009 during the third quarter.
The leaner administration that allowed such aggressive pricing can be sustained going forward, said Chief Financial Officer Christophe Hidalgo.
He said a majority of cost savings in the food retail unit will be used to push down prices, while pricing for e-commerce and appliance unit Via Varejo SA will depend more on the competitive environment.
The gross profit margin of GPA’s food retail unit fell 1.0 percentage point from a year earlier to 25.7 percent in the fourth quarter, the company reported on Thursday.
The division’s earnings before interest, taxes, depreciation and amortization (EBITDA) fell to 6.5 percent of revenue, down from 8.7 percent a year earlier.
The supermarket unit helped to offset lower prices by cutting corporate overheads by 24 percent. Efficiency gains were even better for Via Varejo and e-commerce unit Nova Pontocom, which cut general and administrative expenses by 45 percent.
GPA shares rose 2.8 percent in Friday trading, recovering from a 12 percent slide over the past three months as Brazil’s retail outlook turned dimmer.
Brazilian retail sales grew in 2013 at the slowest pace in 10 years, capped off with a weaker-than-expected Christmas as persistent inflation, tighter credit and a sliding currency eroded consumer confidence.
Still, Iabrudi said GPA plans capital spending in 2014 similar to the level seen in 2013. The company invested 1.850 billion reais ($768 million) in 2013, up 33 percent from 2012.