Net Revenue Breakdown - CFA Society Brazilcfasociety.org.br/pdf/rc/UDESC_Apresentacao.pdf · Lojas CEM Others Source: NoVarejo. Marketshare Change (2016) (p.p.) 100 116 134 ... B2W

Net Revenue Breakdown

OmnichannelBusiness Model

FavourableConditions

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68%

Brick & Mortar

Source: Company’s data, team’s estimates.


68%

25%

Brick & Mortar

E-commerce



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68%

25%

7% Brick and Mortar

E-Commerce

Financial Services




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68%

25%

7%Brick and Mortar

E-Commerce

Financial Services


Physical Retail Financial Services

E-commerce

705 conventional stores

125 virtual stores

10 distribution centers

571 cities

3.3 MM Luizacred cards

R$ 4.8 BI Luizacred portoflio

21.8 MM visits per month

+550K SKUsMarketplace

+80K SKUs B2C



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MGLU’s Stores Distribution

Source: Company’s data.



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-7%

5%

27%

Employee Productivity* (% yoy)

MGLUVVAR

Máquina de Vendas

Source: NoVarejo. *Revenue/Employee

Employee Productivity

-7%

5%

27%

Employee Productivity* (% yoy)

Source: NoVarejo. *Revenue/Employee

MGLUVVAR

Máquina de Vendas

Employee Productivity



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6%3%

-5%

Revenue per store (% yoy)

Revenue per Store

MGLU

VVARMáquina de Vendas

Source: NoVarejo.

F&A Top 20 Players Market Distribution

Source: NoVarejo.



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0.5

-2.0

-0.7

yoy

MGLU

Via Varejo

Máquina de Vendas

15.6

3.3

6.3

9.0

23.2

2016

Via Varejo

MGLU

Máquina deVendas

Lojas CEM

Others

Source: NoVarejo.

Marketshare Change (2016) (p.p.)

100116

134

113 114129

100121

161177

234

364

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

350

400

2012 2013 2014 2015 2016 1H17

MGLU Ebitda Margins VVAR Ebitda Margins

B2W Ebitda Margins




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8.5%

100116

134

113 114129

100121

161177

234

364

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

350

400

2012 2013 2014 2015 2016 1H17

SSS Stores Growth Index MGLU Ebitda Margins

VVAR Ebitda Margins B2W Ebitda Margins

8.5%




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100116

134

113 114129

100121

161177

234

364

0%

2%

4%

6%

8%

10%

12%

0

50

100

150

200

250

300

350

400

2012 2013 2014 2015 2016 1H17

SSS Stores Growth Index Ecommerce Growth IndexMGLU Ebitda Margins VVAR Ebitda MarginsB2W Ebitda Margins

8.5%



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E-commerce Revenue Growth

2010 2016




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1.24 1.10.78

-1.8 -1.9

2016

Máquina de Vendas MGLU

Privalia B2W Digital

Via Varejo

E-commerce Revenue Growth

2010 2016




Superior Returns

AlreadyPriced

NotableRisks

Source: SBVC.


1.24 1.10.78

-1.8 -1.9

2016

Máquina de Vendas MGLU

Privalia B2W Digital

Via Varejo

E-commerce Revenues Market Share



Superior Returns

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Source: SBVC.Source: SBVC.


53.0%

5.1%5.7%6.0%6.5%

23.7%

2016

B2W Digital Via Varejo

MGLU Privalia

Máquina de Vendas Others

10.9

12.7

16.6

16.7

21.8

21.9

21.9

24.7

28.8

56.2

228.5

B2W (Shoptime)

Amazon

CNova (pontofrio.com)

Dafiti

Magazine Luiza

Walmart.com

Netshoes

B2W (Submarino.com)

CNova (casasbahia.com)

B2W (Americanas.com)

Mercado Livre

E-commerce Websites’ Visits Per Month(millions of users in august/2017)

Source: SimilarWeb.



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Consumer’s Evaluation of Website’s Quality– LTM (as of october/2017)

Source: Reclameaqui.com.br and Euromonitor.

7.5

7.0

6.8

5.8

3.6

B2W

Magazine Luiza

Netshoes

Walmart

Cnova



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Profitability Service

Source: Reclameaqui.com.br and Euromonitor.

Consumer’s Evaluation of Website’s Quality– LTM (as of 10/13/17)

7.5

7.0

6.8

5.8

3.6

B2W

Magazine Luiza

Netshoes

Walmart

Cnova



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5% of Online GMV

+250 Sellers

5% of Online GMV

+250 Sellers

No COGS

Lower SG&A



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Superior Returns

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830 Stores

ShoppableDistribution

Centers (SDCs)

+ 1k 3P LogisticsOperators

10 DistributionCenters (DCs)




Superior Returns

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NotableRisks

830 Stores


Centers (SDCs)



million sf of totalstorage area

1.9


3.5


5.4



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830 Stores


Centers (SDCs)




1.9


3.5

5.4




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Large freight cost reduction

Free in store pick-up mostly up to 48hrs

Faster and cheaper last mile delivery



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Large freight cost reduction

Free in store pick-up mostly up to 48hrs

Faster and cheaper last mile delivery

CONSUMER CONTROL



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FRED TRAJANO - CEO 2016 - Present

LUIZA TRAJANOChairman



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FRED TRAJANO - CEO 2016 - Present



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Years of Experience

LUIZA TRAJANOChairman

0

1

2

3

4

5

Threat of Substitute Products

Competitive Rivalry Within Industry

Bargaining Power of Suppliers

Bargaining Power of Customers

Threat of New Entrants

60

65

70

75

80

85

90

95

100

105

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2013 2014 2015 2016 2017*

Retail Revenue** yoyGDP yoyCredit*** - Total yoyEmployed population - yoyConsumer confidence index yoy (Right axis)

Source: Brazilian Central Bank, IBGE. *YTD



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60

65

70

75

80

85

90

95

100

105

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

2013 2014 2015 2016 2017*

Retail Revenue** yoyGDP yoyCredit*** - Total yoyEmployed population - yoyConsumer confidence index yoy (Right axis)



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13.8%

7.3%

6.5%

9.0% 9.0% 9.0% 9.0%

-3.6%

0.6%

2.5%

2.0% 2.0%2.0% 2.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

2016A 2017E 2018E 2019E 2020E 2021E 2022E

Selic (%)

Brazilian GDP (%) YoY

Source: Brazilian Central Bank, team’s estimates.Source: Brazilian Central Bank, IBGE. *YTD



Superior Returns

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Source: NoVarejo.



Superior Returns

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Source: NoVarejo.



Superior Returns

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MGLU’s Stores Distribution MGLU’s Stores Distribution Potential

Source: Company’s data, team’s estimates.Source: Company’s data.

799

859 904

945 977

1,012 1,039

7,232

7,949

8,641

9,362

10,010 10,553

11,115

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

-

2,000

4,000

6,000

8,000

10,000

12,000

2016A 2017E 2018E 2019E 2020E 2021E 2022E

Stores Revenue B&M




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799

859 904

945 977

1,012 1,039

7,232

7,949

8,641

9,362

10,010 10,553

11,115

300

400

500

600

700

800

900

1,000

1,100

1,200

1,300

-

2,000

4,000

6,000

8,000

10,000

12,000

2016A 2017E 2018E 2019E 2020E 2021E 2022E

Stores Revenue B&M




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240 New Stores

Net Revenue CAGR of 7.1%

In The Next 5 Years:

Smartphone’s and Broadband Penetration in Brazil

Source: IDC and Internet Live Stats.



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Growth in Online Spending per User

Rapid Penetration ofSmartphones &

Broadband

Online Experience Enhancement

46% 49%

51%

58%

64%

17%

26%

46%

70%

81%

2011 2012 2013 2014 2015

Broadband Penetration in Brazil (as% of total population)

Smartphone Penetration

20.1

16.015.3 15.1 15.1

0.7

Brazil WesternEurope

NorthAmerica

USA UK France

E-commerce Market𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟎−𝟐𝟎𝟏𝟔 (%)

Source: E-bit.



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20.1

16.015.3 15.1 15.1

0.7

Brazil WesternEurope

NorthAmerica

USA UK France

E-commerce Market𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟎−𝟐𝟎𝟏𝟔 (%)

Source: E-bit.



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Market Size:

E-commerce as % of retail sales, 2016

2.6

4.7

7.5

8.0

12.1

15.7

19.6

India

Brazil

Japan

Germany

USA

UK

China

Source: Euromonitor.



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E-commerce as % of retail sales, 2016

2.6

4.7

7.5

8.0

12.1

15.7

19.6

India

Brazil

Japan

Germany

USA

UK

China

Source: Euromonitor.



Superior Returns

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$294$322

$354

$389

$426

$460$485

$13 $15 $17 $19 $21 $24 $27

2015 2016 2017E 2018E 2019E 2020E 2021E

USA BR

𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟓−𝟐𝟎𝟐𝟏𝑬𝑩𝑹 = 𝟏𝟐. 𝟒%

𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟓−𝟐𝟎𝟐𝟏𝑬𝑼𝑺𝑨 = 𝟖. 𝟕%

E-commerce Sales (USD billions)

Source: Forrester, SBVC.

Why Magazine Luiza, If the whole sector is going to grow?



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Superior Returns

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Customer Experience

Growing User Base

Integrated Logistics

Online GMV Growth

2,724

4,053 4,657

5,220 5,389 5,871 6,767

196

461

921 1,796

3,162

4,900 30%31%

33%36%

38%

42%

47%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2016A 2017E 2018E 2019E 2020E 2021E 2022E

B2C GMV

Market Place GMV

Online/Total GMV




Superior Returns

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NotableRisks

Online GMV Growth

2,724

4,053 4,657

5,220 5,389 5,871 6,767

196

461

921 1,796

3,162

4,900 30%31%

33%36%

38%

42%

47%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2016A 2017E 2018E 2019E 2020E 2021E 2022E

B2C GMV

Market Place GMV

Online/Total GMV




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2017E

Market Place % of Online GMV

Market Place EBITDA Margin

Take Rate

B2C EBITDA Margins

B2C % of Online GMV

Online % of Total GMV

2022E

31% 47%

95% 58%

13% 17%

5% 42%

22% 41%

12% 11%

Marketplace Growth

Consumption Recovery



Superior Returns

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NotableRisks

Marketplace Growth

COGS Dilution and Working Capital Improvement

33%

22%

35%

29%

B&M Gross Margin Online Gross Margin

COGS Dilution2016

2022

Inventory Days

87

80

2016

2022





Superior Returns

AlreadyPriced

NotableRisks

Marketplace Growth

SG&A DilutionConsumption Recovery

Online Growth

Stores Digitalization

In-Store Pick Up


3.1%

9.1%

27.5%

2.3%

6.5%

24.6%

% Rent Expenses % People Expenses % SG&A

2016

2022




Superior Returns

AlreadyPriced

NotableRisks

Marketplace Growth

Interest Rate Expenses ReductionsConsumption Recovery

Online Growth


In-Store Pick Up


Leverage Reduction

SELIC Reduction0.59

2.492.58

3.66

MGLU LAME VVAR B2W

Main Player’s Net Debt / EBITDA

Source: Companies’ data.



Superior Returns

AlreadyPriced

NotableRisks

Marketplace Growth


Online Growth


In-Store Pick Up


Leverage Reduction

SELIC Reduction

-1.0

-1.4

-2.4

2017E 2022E 2027E

Net Debt / EBITDA




Superior Returns

AlreadyPriced

NotableRisks

Marketplace Growth


Online Growth


In-Store Pick Up


Leverage Reduction

SELIC Reduction

6.1%

2.7% 2.6%

2016 2022 2027

% Interest Rate Expenses*

Source: Company’s data, team’s estimates. *As a percentage of net revenue.



Superior Returns

AlreadyPriced

NotableRisks

Leverage Reduction

SELIC Reduction

Online Growth


In-Store Pick Up


Marketplace Growth


COGS Dilution

Working Capital Improvement

SG&A Dilution

Interest Expenses Reduction



Superior Returns

AlreadyPriced

NotableRisks

But When Should This Happen?

Source: Bloomberg, companies’ data.



Superior Returns

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31%

11%

5%3%

12% 12%10%

13%

MGLU VVAR LAME B2W

ROIC WACC



Superior Returns

AlreadyPriced

NotableRisks

30.8%

ROIC

105.2%ROIC

2022

Source: Bloomberg, companies’ data.

Source: Team’s estimates.

31%

11%

5%3%

12% 12%10%

13%

MGLU VVAR LAME B2W

ROIC WACC



Superior Returns

AlreadyPriced

NotableRisks

Source: Companies’ data, team’s estimate.

-8.2%

3.0%

3.6%

B2W

Via Varejo

Magazine Luiza

3yrs. Average CFO Margin

555 496

689

874

971

1,152

(248) (221) (209) (195) (210) (228)

(334)

(470)

(71) (58)(8)

-

(27)

(196)

409

621

754

924

2017E 2018E 2019E 2020E 2021E 2022E

Free Cash Flow To Equity

Operating Cash Flow CAPEX Cash Flow Net Borrowing Free Cash Flow to Equity

Source: Company’s data, team’s estimate.



Superior Returns

AlreadyPriced

NotableRisks

Source: Companies’ data, team’s estimate.

-8.2%

3.0%

3.6%

B2W

Via Varejo

Magazine Luiza


555 496

689

874

971

1,152

(248) (221) (209) (195) (210) (228)

(334)

(470)

(71) (58)(8)

-

(27)

(196)

409

621

754

924

2017E 2018E 2019E 2020E 2021E 2022E

Free Cash Flow To Equity

Operating Cash Flow CAPEX Cash Flow Net Borrowing Free Cash Flow to Equity




Superior Returns

AlreadyPriced

NotableRisks


-8.2%

3.0%

3.6%

B2W

Via Varejo

Magazine Luiza


Priced for perfection

25.6

46.2

71.78

MGLU 10 yearsFCFE Value

Perpetuity Target Price




Superior Returns

AlreadyPriced

NotableRisks

SegmentUnlevered

Beta

Revenue

Comp. Retail (General) 0.8 68.8%

Retail (Online) 1.13 31.1%

1.36Weighted Re-Levered Beta

Ke and Long-Term Growth

25.6

46.2

71.78





Superior Returns

AlreadyPriced

NotableRisks


SegmentUnlevered

Beta

Revenue

Comp. Retail (General) 0.8 68.8%

Retail (Online) 1.13 31.1%

1.36Weighted Re-Levered Beta

Long-Term Real Growth Rate of 2%

Risk free rate 0.37%

Re-levered beta 1.36

Market risk premium 5.69%

Country risk premium 2.40%

Cost of equity (Ke) 10.49%

25.6

46.2

71.78





Superior Returns

AlreadyPriced

NotableRisks


Ke and Long-Term Growth

Target Price

BRL 71.78Current Price

BRL 72.45

Potential

-0.92%

25.6

46.2

71.78





Superior Returns

AlreadyPriced

NotableRisks




Superior Returns

AlreadyPriced

NotableRisks

Source: Company’s data, team’s estimate, bloomberg.

SegmentMedian

EV/EBITDATarget Price

Revenue Comp.

Furniture, Appliances and Electronics

6.9 39.8 69%

E-commerce 20.8 109.7 31%

Target Price 61.5 0x

2x

4x

6x

8x

10x

12x

14x

2013 2014 2015 2016 2017

+𝜎1

−𝜎1−𝜎2

+𝜎2

0x

2x

4x

6x

8x

10x

12x

14x

2013 2014 2015 2016 2017



Superior Returns

AlreadyPriced

NotableRisks

Source: Company’s data, team’s estimate, bloomberg.

SegmentMedian

EV/EBITDATarget Price

Revenue Comp.

Furniture, Appliances and Electronics

6.9 39.8 69%

E-commerce 20.8 109.7 31%

Target Price 61.5

+𝜎1

−𝜎1−𝜎2

+𝜎2

Target Price

BRL 61.5EV/EBITDA BF

13.4x

WHAT ARE THE RISKS?

OR3 MER1 MR1

OR2 MER2

OR1 LR1

PROBABILITY

Low Medium High

Se

ve

reM

od

erat

eIn

sig

nif

ica

nt

IMP

AC

T



Superior Returns

AlreadyPriced

NotableRisks

MER1 MR1

PROBABILITY

Low Medium High

Seve

reM

od

erat

eIn

sign

ific

ant

IMP

AC

T



Superior Returns

AlreadyPriced

NotableRisks



Superior Returns

AlreadyPriced

NotableRisks

A fiercer competition

Worsening of the economic scenario

MR1

MER1

Market Risk 1:

Macroeconomic Risk 1:



Superior Returns

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NotableRisks

MARKETPLACE

B2C

Kindle+

E-books



Superior Returns

AlreadyPriced

NotableRisks

MARKETPLACE

B2C

Kindle+

E-books

2 day shipping + 10x payment

MARKETPLACE



Superior Returns

AlreadyPriced

NotableRisks

MARKETPLACE

B2C

Kindle+

E-books


MARKETPLACE

Superior Delivery Sistem

FULFILLMENT BY AMAZON

MARKETPLACE

B2C

Kindle+

E-books


MARKETPLACEFULFILLMENT BY AMAZON

Superior Delivery Sistem

CustomerLoyalty

AMAZON PRIME



Superior Returns

AlreadyPriced

NotableRisks



Superior Returns

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NotableRisks

Brazil’s future



Superior Returns

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NotableRisks

Brazil’s future

Presidential election



Superior Returns

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NotableRisks

Brazil’s future


Fiscal problem



Superior Returns

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NotableRisks

Brazil’s future


Fiscal problem

Primary Surplus -2,44% of PIB

-4%

-2%

0%

2%

4%

6%

2003 2006 2010 2013 2017

Source: Brazilian Central Bank.

Base Case

Revenue CAGR

EBITDA Margin

Avg ROIC

Target Price

Upside/Downside


Avg Market Place Take Rate

New Stores

BearCase

226 209

10.4% 9.5%

42% 32%

9.8% 8.4%

10.7% 9.7%

72.8% 65%

BRL 71.78 BRL 59.05

-0.92% -18.4%

-27

-196

409

621

754

924

1,071

1,174

1,2791,352

1,393

-27-196

325

520

609

776

901965

1,0791,151

1,222

2017E 2019E 2021E 2023E 2025E 2027E

Bear Case Free Cash Flow to Equity

Base Case

Bear Case



Superior Returns

AlreadyPriced

NotableRisks


Q&A

APPENDIX

MercadoLibre sped up investments/expenditures in free shipping to boost its top line

MercadoLibre likely has the best marketplace operation in the country

But MGLU also offers free shipping (30% of deliveries), leveraging on its store base,which coupled with already decent traffic in its website and focusing on service levels

644 671 679 726 760 792 815 841 859 880 898 911 920 927

111114 120

133144

153162

171 180 185 193 199 203 206

2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

Conventional Virtual


1st: High quality service level instead of starting a price war.

B2C MARKETPLACEFULFILLMENT BY AMAZON

Amazon is in the 2nd step of its Playbook.

The next step requires a large amount of investment in BR.

AMAZON PRIME

Amazon can’t influence pricing in marketplaces

Tax system

Rising costs to build up traffic on website

Logistics Challenges

Brazilian Market’s Challenges:

M&A is an option?

Fantastic Management Team

Innovation that Amazon can learn and/or replicate

Amazon’s last acquisitions more commonly aim these things

MELI is the most probable acquisition

But, MELI’s valuation (USD 11bn) would be Amazon’s greatest acquistion

Base Case

Revenue CAGR

EBITDA Margin

Avg ROIC

Target Price

Upside/Downside



New Stores

Bull Case

226 242

10.4% 12%

42% 48%

9.8% 10.4%

10.7% 11.2%

72.8% 75.9%

BRL 71.78 BRL 84.24

-0.92% +16.4%

-27

-235

397

633

783

929

1,221

1,474

1,581

1,693 1,657

-27 -196

409

621

754

924

1,0711,174

1,2791,352

1,393

2017E 2019E 2021E 2023E 2025E 2027E

Bull Case Free Cash Flow to Equity

Bull Case

Base Case


Base Case

Revenue CAGR

EBITDA Margin

Avg ROIC

Target Price

Upside/Downside



New Stores

BearCase

226 209

10.4% 9.5%

42% 32%

9.8% 8.4%

10.7% 9.7%

72.8% 65%

BRL 71.78 BRL 59.05

-0.92% -18.4%

-27

-196

409

621

754

924

1,071

1,174

1,2791,352

1,393

-27-196

325

520

609

776

901965

1,0791,151

1,222

2017E 2019E 2021E 2023E 2025E 2027E

Bear Case Free Cash Flow to Equity

Base Case

Bear Case


R$68.73 32% 38% 42% 46% 50%

8% 61.90 65.20 67.40 69.60 71.80

10% 63.80 67.40 69.80 72.20 74.70

12% 65.60 69.60 71.78 74.90 77.50

13% 66.60 70.80 73.40 76.20 78.90

14% 67.60 71.80 74.60 77.50 80.30

Tak

e R

ate

Market Place Sensitivity Analysis

GMV Penetration of Market Place 2022

R$68.73 32% 38% 42% 46% 50%

8% -15% -10% -7% -4% -1%

10% -12% -7% -4% 0% 3%

12% -9% -4% -1% 3% 7% BUY

13% -8% -2% 1% 5% 9% HOLD

14% -7% -1% 3% 7% 11% SELL

Market Place Sensitivity Analysis

GMV Penetration of Market Place 2022

Tak

e R

ate


R$73.69 1.0% 1.5% 2.0% 2.5% 3.0%

8.9% 84.76 89.83 95.83 103.05 111.90

9.7% 75.45 79.39 83.97 89.37 95.84

10.5% 67.15 70.19 71.78 77.74 82.50

11.3% 60.26 62.66 65.39 68.50 72.10

12.2% 54.04 55.93 58.05 60.45 63.18

Target Price Sensitivity Analysis

Terminal Growth (g)

Sta

rtin

g K

e

R$0.00 1.0% 1.5% 2.0% 2.5% 3.0%

8.9% 16% 23% 32% 42% 54%

9.7% 4% 9% 15% 23% 32%

10.5% -8% -4% -1% 7% 13% BUY

11.3% -17% -14% -10% -6% -1% HOLD

12.2% -26% -23% -20% -17% -13% SELL

Target Price Sensitivity Analysis

Terminal Growth (g)

Sta

rtin

g K

e


11286

14250

26014

423

945

2583

0

1000

2000

3000

4000

5000

6000

0

5000

10000

15000

20000

25000

30000

NET REVENUE EBITDA NET INCOME Source: Company’s data, team’s estimate,

2016A 2017E 2022E 2027E

Total EBITDA

Margins6.62% 7.84% 10.69% 11.78%

B&M EBITDA

Margins6.43% 7.58% 10.30% 10.87%

Ecommerce

EBITDA Margins11.17% 11.39% 13.51% 15.53%

Financial Services

EBITDA Margins0.00% 0.00% 0.00% 0.00%

Margins Evolution

Net Revenue 𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟔−𝟐𝟎𝟐𝟕

7.2%

EBITDA 𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟔−𝟐𝟎𝟐𝟕

13.0%

Net Income 𝑪𝑨𝑮𝑹𝟐𝟎𝟏𝟔−𝟐𝟎𝟐𝟕

24.3%


72 80 73 78 83 11949 53 55 58 59 6165 45 41 30 34

2460 42 39 28 32231 1 1 2 2 2

1290

-53

449

581619

732

2017E 2018E 2019E 2020E 2021E 2022E

OthersLogisticsNew StoresReformsITCash from operations and financing activities

Fresh Capital from Follow-On

Marketplace consolidation, generatinga lot of cash

We compared to the “Class C” geographical distribution throughout Brazil

We analyzed MGLU’s and competitors stores geographic distribution

We estimated the number of stores that could still be opened by state, inorder to equalize stores concentration by the target population in similarlevels of the current explored states

We excluded RJ and ES from the study, because of highrates of thefts of goods.

MGLU’s Stores Distribution MGLU’s Stores Distribution Potential

Source: Company’s data, team’s estimates.Source: Company’s data.

Source: Company’s data, team’s estimate, 10-Year US Treasury Inflation Protected, Damodaran and EMBI +.

Year 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

D/E 76% 47% 38% 31% 27% 23% 20% 18% 16% 15% 14%

% Ecommerce 31% 33% 36% 38% 42% 47% 51% 53% 54% 54% 54%

Re-levered beta 1.36 1.19 1.15 1.11 1.10 1.10 1.10 1.09 1.08 1.08 1.07

Ke 10.49% 9.56% 9.32% 9.10% 9.06% 9.04% 9.02% 8.96% 8.94% 8.92% 8.88%

Ke

2016A 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E 2027E

IPCA (%) 6.3% 3.2% 4.1% 3.9% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0% 4.0%

Brazilian GDP (%) YoY -3.6% 0.6% 2.5% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%

Selic (%) 13.8% 7.3% 6.5% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0% 9.0%Source: Team’s estimate and Brazilian Central Bank.

OR3 MER1 MR1

OR2 MER2

OR1 LR1

PROBABILITY

Low Medium High

Se

ve

reM

od

erat

eIn

sig

nif

ica

nt

IMP

AC

T

• (MR1) Entrance of a new competitor

• (MER1) Worsening of the economic scenario

• (MER2) Class “C”, the master of results

• (OR1) E-commerce security must be up-to-date

• (OR2) Marketplace growth as a greater

challenge

• (OR3) High dependency to Fred’s leadership

• (LR1) Potential changes in tax (PIS and

CONFINS) on Products

The holding LTD Participações (owns 57.5% of MGLU) elects the executive board.

With a legacy of continuous growth (6.8% CAGR net revenue since IPO), the family hasimplemented a great work culture that resulted in many management awards, especially being19 years among the best companies in the Great Place to Work ranking.


Historically, there has been synergies betweenfamily members who control the company, whichguaranteed the “luiza way” company’s culture anda low turnover rate that failed to ~30%.

According to the “TopExecutive Compensation2011” study, HR consultingfirm HayGroup andMagazine’s results of 2016,the company has a variableand aggressivecompensation executiveprogram, above the retailaverage of ~35%.


• Elected CEO in 2016, who has been working onthe digital transformation of Magazine Luizasince early 2000’s.

• Elected by Forbes as one of 25th best CEO’s2017 of Brazil, Frederico rely on an executiveboard that average 15 years in companyexperience.

Management has proved resilience and strong capacity ofexecution against important milestones:

(i) Dilma’s impeachment,(ii) Brazil’s biggest recession,(iii) Creation of Luizalabs and(iv) the launch of the marketplace platform.


• Worked analysing the sectors oftechnology, internet andtelecommunications at Westsphere EquityInvestors.

• Worked as an Analyst of the retail andconsumer goods sectors at Deutsche BankSecurities

Started at Magazine Luiza in 2000, assumingthe e-commerce department. After, hadpassages as Marketing Director, CommercialDirector, Executive Director in Sales andMarketing and, currently, CEO.


Documents

Net Revenue Breakdown - CFA Society Brazilcfasociety.org.br/pdf/rc/UDESC_Apresentacao.pdf · Lojas CEM Others Source: NoVarejo. Marketshare Change (2016) (p.p.) 100 116 134 ... B2W