Magazine Luiza SA's announcement of accounting "inconsistencies" deals another blow to Brazilian retailers that have struggled after the scandal that brought down Americanas SA.
The company had to restate previous financial statements and write off 829.5 million reais ($169 million) after an audit and compliance committee found mistakes in accounting entries, according to a filing late on Monday. The firm recognized some revenues from commercial deals with suppliers in the entries before the terms of such agreements were matched, it said.
"The mistakes have already been properly corrected," Chief Executive Officer Frederico Trajano said in a conference call to discuss the company's third quarter results Tuesday.
While the probe, which was kicked off in March after an anonymous complaint, found no breaches to the firm's code of conduct and its findings don't have a cash impact, the news could further sour investors on a sector that was already struggling with high interest rates even before it was upended by the downfall of Americanas earlier in the year.
Americanas, a century-old retailer which filed for bankruptcy protection soon after it revealed 20 billion reais of accounting inconsistencies due to fraud on its balance sheet, is preparing to finally publish its first earnings report since the scandal. The release, which has been postponed several times, is expected for Thursday.
Sao Paulo-based Magazine Luiza is among the biggest in Brazil, with an e-commerce platform and more than 1,400 physical stores across the country. The company, which was founded in the 1950s, also operates warehouses, a logistics network, a marketplace and a fintech business.
The accounting issues will likely shift focus away from the company's earnings report, which showed an adjusted net loss of 143.4 million reais for the period. Analysts from JPMorgan called operating results "dim as expected," while Citi said numbers "mostly missed expectations."
Shares fell as much as 10% on open in Sao Paulo, the worst performer on the benchmark Ibovespa gauge. They're down 42% this year, and have lost 94% from their high in late 2020.
The announcement "should generate some noise for Magazine Luiza, with investors questioning the company's controls," Banco BTG Pactual SA's analysts, including Luiz Guanais, wrote in a note.
Capital increase
The company's founding family is in talks with banks for a possible private capital increase of 2 billion reais, newspaper Valor Economico reported citing three people with knowledge of the matter. The Trajano family would take part in the transaction with about half of the amount, according to Valor, adding that banks recommended that the deal happen this year.
There is no ongoing discussion about a capital increase, Magazine Luiza's CFO, Roberto Bellissimo Rodrigues, said on the Tuesday call.
