Sendas Distribuidora Q2: High Leverage Overshadows Profitability

Investment Thesis - Sendas Distribuidora's Q2 results were mixed, showing an 11.8% revenue growth but a slowdown in same-store sales growth, leading to a cautious recommendation to hold shares [2][17]. Financial Performance - The company reported a net revenue of BRL 17.8 billion ($3.2 billion) for Q2, reflecting an annual increase of 11.8% due to an expansion strategy that included the opening of 24 stores, 9 of which were renovated [4][5]. - Same-store sales growth was only 2.9%, a decrease of 0.5% compared to Q1 2024, and significantly lower than competitor Atacadão's 7.4% year-over-year growth [5][6]. - Gross margin improved to 16.5%, up from 16.2% year-over-year, while adjusted EBITDA increased by 18.4% to BRL 965 million [7][6]. Cost Management - The company achieved gross margin and adjusted EBITDA expansion through strict cost and expense control, with no promotional campaigns during the quarter [6][7]. Debt and Leverage - Sendas Distribuidora reduced its leverage to 3.6x EBITDA from 4.25x in Q2 2023, with net debt reaching BRL 13.9 billion ($2.48 billion) [8][10]. - The company aims to further deleverage to below 1x EBITDA, which is seen as a potential trigger for share price increases [10]. Net Income - Net income fell by 21% year-over-year to BRL 123 million ($22 million), impacted by higher financial expenses and accounting adjustments [11][12]. Valuation - The P/E comparative evaluation indicates a P/E of 13.3x for Sendas Distribuidora, suggesting a downside of 6.7% for its shares based on an average P/E of 12.4x among competitors [14][15]. Market Rumors - There are ongoing rumors regarding a potential merger between Sendas Distribuidora and Grupo Mateus, which could significantly impact the market perception and future performance of the company [16][17].