Renner, C&A and Guararapes leading the market, but XP believes prices already factored in
Fashion retailers have outperformed the market since the release of their second quarter results, which exceeded investors’ expectations.
Lojas Renner has risen by 46% since July, while C&A and Guararapes have risen by 28%. Meanwhile, the Ibovespa has increased by 6% during the same period.
According to XP, the results of the three retailers are expected to remain solid, but the recovery is already largely priced in. Analyst Danniela Eiger wrote, “We also see risks that the new cycle of monetary tightening may hinder consumption recovery.”
XP has maintained its buy recommendation for C&A, which is considered the cheapest stock in the sector, trading at 9x the estimated earnings for next year, and has kept a ‘neutral’ stance on Renner and Guararapes.
XP stated that it believes Guararapes is fairly valued at 12x earnings.
“As for Renner, we have incorporated a more constructive view into our model due to operational improvements. However, the technical position is not light, with one-third of investors likely to reduce their position, while the stock already trades at 12x earnings, one of the highest multiples among consumer companies,” the analyst wrote.
In the report, XP stated that a significant portion of the better results from fashion retailers is related to improving household consumption, which also led to GDP exceeding expectations in the first half of the year.
“Looking ahead, we should not see a sharp slowdown in consumption, as credit concessions and real income availability remain high, but the new cycle of monetary tightening poses a risk to demand recovery,” the report said.
Regarding temperatures, Danniela mentioned that this is no longer a major topic, but it is worth monitoring.
The analyst noted that temperature dynamics were more normal in the third quarter, with the impact of La Niña likely diminishing.
“We expect the weather to be a less relevant issue going forward, as companies have adapted their business models to climate volatility with more versatile SKUs and a more agile strategy.”
Arwen Volkov, A graduate of the University of St. Gallen in Switzerland with a degree in International Finance, Arwen specializes in sustainable finance and green investments. She began her career at an investment bank in London, where she developed financing models for environmentally friendly projects. Known for her analytical and strategic thinking skills, Arwen is a sought-after financial consultant. In her spare time, she mentors fintech startups, contributing to their growth strategies. She is also a nature enthusiast and an amateur photographer.