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Slowdown hurts fashion retailing - LOJAS RENNER

02
Nov '11

LOJAS RENNER S.A., the second largest apparel department store in Brazil, announces its third quarter (3Q11) and first nine months results for 2011 (9M11).

MANAGEMENT COMMENTS
The third quarter was marked by a change to a less favorable macroeconomic scenario in Brazil and also associated with inclement meteorological conditions, making the business climate an even more challenging one for fashion retailing.

The evolution in Renner's Same Store Sales at 3.8% for the quarter and 8.1% in the first nine months is a clear indication of the deceleration in activity during the period, the level of confidence of consumers being particularly affected by the daily newscasts on foreign exchange rate volatility, inflation rates and crises in the European and American economies.

Persistently low temperatures in the South and the Southeast regions during the month of August negatively affected consumer disposition to shop, principally given that the stores were already carrying the spring collection. Notwithstanding this trading environment, those new stores recently incorporated into the network – and thus not included in Same Store Sales figures – contributed to the Company sales increase of 15.5% in the quarter and 17.4% in the first nine months of the year, confirming the importance and success of the expansion plan.

Notwithstanding the cost pressures from higher cotton prices, which continued to impact the Company's overall costs in 3Q11, together with the effects of the consolidation of the Camicado business, Gross Margin from the Retail Operation was 50.2%, virtually at the same level of 50.3% reported for 3Q10.

In 9M11, Gross Margin was 52.4%, also in line with this item for the 9M10 period. At Lojas Renner, the larger volume of imported items and the low temperatures recorded for July and August were both instrumental in reducing the need for markdowns and contributed favorably to the result for the quarter's Gross Margin, which continued to expand from 50.3% to 50.5% in the 3Q11.

Results from Financial Services totaled R$ 34.0 million in the quarter, the accumulated result for the first nine months being R$ 104.6 million. Despite the changes in the macroeconomic scenario, delinquency remained low, representing 2.7% of Net Revenue from Merchandise Sales. The Renner Card accounted for 55.3% of sales turnover in 3Q11 and 54.9% in 9M11.

During the course of 3Q11, the new store roll-out program continued a pace in line with plans for the year. In the first nine months, 12 new stores were opened, 10 of which Lojas Renner compact and traditional models and 2 Blue Steel, in total adding15.7 thousand m2 to the Company's sales area.

By the end of the year, a further 20 inaugurations of Lojas Renner stores are scheduled to take place together with one more Blue Steel, which will compound the 3 units as prototypes for testing the potential for a specialized network under that store banner.

The process of consolidation and integration of Camicado continues in line with the initial plans and Management remains confident as to the opportunities presented by this new operation. A further three stores are to be opened before the year-end.

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Lojas Renner S A

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