Guararapes Stock (GUAR3) – Investment Analysis

Common Stock: Guararapes (GUAR3)

Current Market Price: R$ 15.85

Market Capitalization: R$ 7.9 billion

*All values in this article are expressed in Brazilian Reais (BRL) unless otherwise noted.

**The bulk of this analysis is based on the company’s most recent audited financial report, which can be found by following this link.

Guararapes (GUAR3) - Stock Chart
Guararapes (GUAR3) – Stock Chart

Guararapes Stock – Summary of the Company

Guararapes is one of the largest fashion groups in Brazil. They currently have 331 Riachuelo brand stores located throughout Brazil, with total store space of over 663,000 square meters. In 2019 they produced 44.8 million items of clothing. In addition to their retail chain they also own Midway Mall, a megamall in Rio Grande do Norte with 231,000 square meters of space and Midway Financing. Midway Financing has 9.5 million active clients and has issued over 32 million credit cards, their “Banco Midway” app has over 5 million downloads.

Guararapes was founded in 1956 and is headquartered in the state of Rio Grande do Norte, Brazil. They currently employee around 38,000 people.

Guararapes - Store Locations
Guararapes – Store Locations

Revenue and Cost Analysis

Guararapes had revenue of R$ 7.8 billion in 2019, a significant increase from R$ 7.2 billion in 2018 and R$ 6.4 billion in 2017. Their COGS was R$ 2.8 billion, representing a gross margin of R$ 63%, on par with a gross margin of 65% and 64 % in 2018 and 2017 respectively.

The company has been profitable in each of the last 3 years. In 2019 Guararapes had net income of R$ 592.6 million, representing a profit margin of 7.5%.

Guararapes - Store Growth
Guararapes – Store Growth

Balance Sheet Analysis

Guararapes has a decent but leveraged balance sheet. They have sufficient liquidity and a base of long term assets. But their liability levels are fairly high, including debt.

Guararapes – Debt Analysis

As of year-end 2019 Guararapes has total debt and financing obligations outstanding of R$ 2.8 billion, R$ 785 million of which is classified as current.

Midway Financing - Credit Card Growth
Midway Financing – Credit Card Growth

Guararapes Stock – Share Dynamics and Capital Structure

As of year-end 2019 Guararapes has 499.2 million common shares outstanding. Insiders from the founding family own around 83% of the company, with the remaining 17% being held by smaller shareholders with an ownership position of less than 5%.

Guararapes Stock (GUAR3) - Share Structure
Guararapes Stock (GUAR3) – Share Structure

Guararapes Stock – Dividends

Based on 2019’s results Guararapes paid total dividends of R$ 0.477 cent per share. At the current market price this represents a dividend yield of 3%.

Guararapes Stock – 3 Metrics to Consider

Debt to Equity Ratio

Total Liabilities/Total Share Holder Equity

R$ 7.4 billion / R$ 5.2 billion = 1.4

A debt to equity ratio of 1.4 indicates that Guararapes uses a mix of debt and equity in its capital structure, but is leveraged and relies more heavily on debt financing to fund itself.

Working Capital Ratio

Current Assets/Current Liabilities

R$ 7.5 billion / R$ 4.4 billion = 1.7

A working capital ratio of 1.7 indicates a sufficient liquidity position. Guararapes should not have a problem meeting its near term obligations.

Price to Book Ratio

Current Share Price/Book Value per Share.

R$ 15.85 / R$ 10.47 = 1.5

Guararapes has a book value per share of R$ 10.47. At the current market price this implies a price to book ratio of 1.5, meaning Guararapes stock currently trades at a premium to the book value of the company.

Guararapes Stock – Summary and Conclusions

Guararapes is an impressive company. They have a large footprint with 331 stores and their financial products user base is huge. Their growth over the past 10 years has been exceptional and they continue to grow. The company is in a sound position financially, they have sufficient liquidity and are profitable.

I will wait to see their 2020 results before making my investment decision. I want to see how the coronavirus shut down effected their business. If they were able to maintain a relatively healthy financial position and continue to grow their e-commerce business, then I will seriously consider taking a position. I will be comparing Guararapes stock to other Brazilian fashion companies such as Alpargatas.


This is not investment advice. Nothing in this analysis should be construed as a recommendation to buy, sell, or otherwise take action related to the security discussed. If I own a position in the security discussed, I will clearly state it.

This is not intended to be a comprehensive analysis and you should not make an investment decision based solely on the information in this analysis. I hope this serves as a useful starting point for a more comprehensive analysis, and hopefully draws attention to aspects of the company that were overlooked or merit further investigation. This is by no means intended to be a complete analysis. Again, this is not investment advice, do your own research.

Patrick Flood, CFA