April 28, 2017 / 4:06 PM / a year ago

UPDATE 1-GPA surges on profit margins, Brazil rebound still to come

(Recasts with share performance, details of earnings, conference call)

SAO PAULO, April 28 (Reuters) - Shares of GPA SA jumped to a 20-month high on Friday after Brazil’s biggest retailer reported stronger profit margins at its struggling supermarkets but executives said the fruits of a nascent economic recovery are still to come.

GPA reported a swing to profit in the first quarter late on Thursday, bolstered by the strongest gross profit margin at its Multivarejo food retail division since late 2015.

A later Easter provided just a quarter of the 120-basis-point gross margin improvement from a year earlier, Multivarejo Vice President Luis Emilio Moreno Sanchez told analysts on an earnings call. He credited better inventory management and more effective promotions for the bulk of gains.

GPA shares extended their surge to more than 8 percent after the call, underscoring expectations that the company can sustain higher levels of profitability, especially as Brazil’s economy recovers from its worst recession on record.

Chief Executive Ronaldo Iabrudi said GPA has seen little boost so far from the nascent economic recovery, adding that 2017 is still likely to be “very tough”.

Iabrudi also said GPA has seen better-than-expected results from turning its Extra hypermarkets into Assai cash-and-carry stores and is accelerating investments in those conversions.

“We’ve said we aimed to do 15 of those conversions this year, but we really want to do as many as possible over the course of 2017,” Iabrudi told analysts. (Reporting by Brad Haynes; Editing by Bernard Orr)

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