(Recasts with 2016 outlook)
By Brad Haynes
SAO PAULO, Feb 25 (Reuters) - GPA SA , Brazil’s biggest retailer, plans to keep a lid on operating expenses and expand cautiously this year as it defends market share in a deepening recession, executives said on a call to discuss a sharp drop in quarterly profit.
Sales, general and administrative expenses should rise less than inflation this year, while investments will fall about 25 percent to around 1.5 billion reais ($382 million), they said.
“We’re going to determine those investments month by month ... depending on economic indicators,” said Chief Executive Ronaldo Iabrudi, underscoring a careful approach to new store openings.
The cautious strategy should keep net debt stable this year, executives said, as tighter credit, stubborn inflation and eroded consumer confidence contribute to what may be the Brazilian economy’s worst downturn in over a century.
The recession has already battered profitability at GPA, whose fourth-quarter net income plunged to 6 million reais ($2 million) from 485 million reais a year earlier, according to a securities filing earlier on Thursday.
The company said weak sales, mismanaged inventory in the Cnova e-commerce unit and dismal results from home appliance division Via Varejo combined to hammer its profitability, underscoring the challenges ahead in a severe recession.
GPA flagged write-downs following an internal probe of Cnova in Brazil last month before replacing the local head of the division. The group also named a new head of supermarkets after sales in that division began to slip.
Surging energy costs and double-digit inflation last year made it harder for GPA to maintain profits in the face of stagnant sales. Operating costs rose 3.9 percent in the fourth quarter from a year earlier, while net revenue edged up just 0.2 percent.
Earnings before interest, taxes, depreciation and amortization fell 61.7 percent to 622 million reais.
$1 = 3.96 reais Reporting by Brad Haynes; Additional reporting by Alberto Alerigi Jr.; Editing by Lisa Von Ahn and W Simon