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Tuesday, October 4, 2022

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    The fashion action to win with retail even in periods of high inflation, according to Santander

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    Analysts at the institution point out that Renner was the only one to show real sales growth since 2019 (Image: Money Times/Márcio Juliboni)

    There is a company of retail that has proven that it manages to position itself well even in periods of inflation high, highlights the Santander.

    Despite believing that the worst phase of deceleration in the growth of the Brazilian economy is behind us, the bank recalls that the risk of inflationary pressure still exists and could compromise a stronger recovery in the sector.

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    At such times, it is worth remembering that there is a company that stands out in relation to its peers for navigating better during the most volatile scenarios – and, on top of that, gaining market share.

    In a report published this Wednesday (21), Santander reinforced its preference for the shares of Renner stores (LREN3) inside discretionary retail.

    better than peers

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    Analysts at the institution point out that Renner was the only one to show real sales growth since 2019.

    “Renner’s consistency sets it apart from its listed peers, proving its ability to manage rising prices above apparel inflation over time without materially compromising volume growth – an expected achievement that supports our preference over the name,” they state. analysts Ruben Couto and Eric Huang.

    According to Santander, Renner managed to maintain consistent increases in volumes over the last decade and should repeat the dose in the coming quarters.

    “In the second half of 2022 and in 2023, Renner should better navigate the volatile vs. peers”, say Couto and Huang.

    More than that, analysts believe that the challenging macroeconomic scenario expected for 2022-23 should offer the company the possibility of accelerating its growth while snapping up new earnings from market share at a faster pace, despite concerns about inflation and recession.

    For analysts, Renner’s above-average margins and returns are usually justified by a price point and, consequently, an increase in the productivity of the stores – gap that listed pairs “continually seek to narrow or see as a benchmark“.

    Couto and Huang argue that Renner offers an attractive opportunity to gain exposure to Brazilian consumption.

    Santander is more optimistic about Renner’s retail division and more conservative about the financial unit. For the coming years, the bank expects the retail division to maintain its solid performance, while the consumer finance will gradually recover.

    Santander has an “outperform” recommendation (expected performance above the market average, equivalent to a “buy”) for Renner. The target price was updated to R$37 at the end of 2023.

    Another top pick

    In addition to Renner, Santander has Arezzo (ARZZ3) as top pick. The institution highlights that the company has benefited from solid operational momentum over the past 18 months, consistently exceeding market sales expansion expectations.

    The exposure to the higher income segment, the variety of brands in the portfolio and its different sales channels make Arezzo’s investment thesis attractive.

    Santander expects two more quarters of strong sales figures for Arezzo before a slowdown to more sustainable levels.

    The recommendation for the paper is to outperform, with a new target price of BRL 129 at the end of 2023.

    The bank updated target prices for five other fashion retail stocks. The recommendations have not changed. See below:

    Company ticker Recommendation Target Price (2023E)
    Arezzo ARZZ3 Outperform BRL 129
    HERE CEAB3 Neutral BRL 4
    Sum group SUM3 Outperform BRL 18
    Guararapes GUAR3 Neutral BRL 11.20
    Renner stores LREN3 Outperform BRL 37
    Marisa AMAR3 Neutral BRL 3
    Track&Field TFCO4 Outperform BRL 16

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