UBS BB Initiates C&A Coverage with Bullish ‘Buy’ Recommendation Amid Rising Competitiveness
In a strategic move aimed at capturing growing profitability and increasing competitiveness against fast-fashion giant Shein, UBS BB has initiated coverage of C&A with a ‘buy’ recommendation. The financial institution set a target price of R$ 15 for C&A’s shares, which recently saw an uptick of 9.5%, trading at R$ 13.10.
UBS BB analysts Vinicius Strano, Isabella Lamas, and Lucca Biasi anticipate a substantial improvement in C&A’s bottom line over the coming years. This comes after the retail chain experienced a streak of financial losses. They project that measures such as dynamic pricing and a better product mix will help C&A realize a bottom line of R$ 239 million this year, increasing to R$ 351 million next year, and R$ 428 million by 2026, excluding tax credits. Further analysis suggests a compound annual growth rate (CAGR) of 13% in earnings per share from 2026 to 2028.
Key growth drivers identified by UBS BB include increased credit penetration, expansion of the push-pull model, advancements in e-commerce, and store redesigns. These factors are expected to contribute to long-term revenue growth for C&A, positioning the company for potential recovery and organic expansion from next year. Notably, C&A currently operates in about 45% of Brazil’s shopping malls, compared to Renner’s 57%.
The store redesign strategy, credited with boosting same-store sales by 15% to 20% in 75 converted outlets, is a crucial element of C&A’s expansion strategy. Moreover, brand recognition remains strong; a UBS BB survey found C&A as the most recognized clothing retailer in Brazil, with 88% consumer recall, surpassing competitors like Riachuelo and Renner.
Despite increased import taxes, C&A remains competitive as cross-border sales taper off in Brazil, limiting the price gap between domestic and international fashion retailers like Shein. Furthermore, the C&A Pay system is highlighted as a significant sales growth catalyst, with enhanced credit penetration and manageable non-performing loan (NPL) rates ensuring financial stability.
UBS BB’s analysts observe that C&A trades at ten times its projected 2025 earnings, marking a discount compared to competitors Renner and Guararapes. Following recent stock surges, C&A’s shares have skyrocketed by 162% over the past year, bringing the retailer’s market value to R$ 4 billion on the B3 exchange.
For more information about the company, visit C&A’s official website.
