Magazine Luiza (MGLU3) Stays Out of E-Commerce Price Wars: CEO Says "We Don’t Believe in That Model"
- Why Magazine Luiza Refuses to Join the E-Commerce Subsidy Battle
- The "Perfect Storm" Hitting Brazilian Retail
- Q3 2025 Financials: The Devil’s in the Details
- AI Commerce and the 2026 World Cup Wildcard
- Analyst Takeaways: Patience Over Panic
- FAQ
Magazine Luiza (MGLU3), one of Brazil’s largest retailers, is taking a stand against the aggressive pricing and subsidy battles dominating the e-commerce sector. CEO Frederico Trajano made it clear during the Q3 2025 earnings call that the company prioritizes profitability over growth at any cost. While competitors like Mercado Livre and Shopee engage in cutthroat discounting and free shipping wars, Magalu is doubling down on sustainable margins, ecosystem diversification, and a hybrid online-offline strategy. The retailer’s latest financials reveal a 69.8% drop in adjusted net income—yet still beat market expectations. Here’s why analysts aren’t hitting the panic button.
Why Magazine Luiza Refuses to Join the E-Commerce Subsidy Battle
Trajano didn’t mince words: "We’ve never believed in growth fueled by negative contribution margins." He referenced past industry skirmishes, like the "1P inventory wars," where Magalu similarly avoided irrational pricing. "We held our ground then, and our 1P business is now optimally scaled," he noted. Unlike global players with deep-pocketed parent companies, Magalu’s Brazil-centric operations mean profitability isn’t optional—it’s existential. "Our capital costs are local. If we post DEEP losses, there’s no overseas sugar daddy to bail us out," Trajano added bluntly.
The "Perfect Storm" Hitting Brazilian Retail
With Selic rates at 15%, Trajano describes a dual challenge: competitors dumping low-ticket items and macro conditions squeezing margins on big-ticket sales. But Magalu’s counterplay is multifaceted. Its ecosystem—spanning fintech (LuizaCred), logistics (LogMag), and acquired brands like KaBuM! and Netshoes—now generates 32% of revenue outside Core retail. The upcoming Galeria Magalu flagship in São Paulo’s Conjunto Nacional will fuse physical/digital retail, while the new "WhatsApp da Lu" shopping feature (currently piloting with 1M frequent buyers) aims to capture Brazil’s chat-commerce boom.
Q3 2025 Financials: The Devil’s in the Details
While Magalu’s R$21.2M adjusted net profit (-69.8% YoY) looks grim, context matters. The result trounced Bloomberg’s R$4M consensus estimate. More tellingly, EBITDA held steady at R$711.4M (-0.09% YoY), with margins barely dipping to 7.9%. The real pain came from financial expenses (+35.6% to R$488.1M), a direct hit from Brazil’s high-interest environment. Total sales hit R$15.1B, blending physical stores, 1P inventory, and marketplace (3P) transactions.
AI Commerce and the 2026 World Cup Wildcard
Magalu’s secret weapon? Trajano’s betting big on "AI Commerce"—using machine learning to personalize offers across its app, marketplace, and 2,300+ stores. With interest rate cuts expected in 2026 (coinciding with the FIFA World Cup in Brazil), the CEO anticipates a consumer spending surge. "Our multicategory model thrives in recovery cycles," he remarked, hinting at pent-up demand for electronics and home goods.
Analyst Takeaways: Patience Over Panic
BTG Pactual’s post-earnings note acknowledges Magalu’s "prudent navigation of headwinds," maintaining a neutral rating. The key upside, per analysts, lies in the ecosystem’s monetization—particularly fintech and ads. TradingView data shows MGLU3 shares rising 4.2% post-earnings, suggesting markets endorse the profitability-first approach. As one São Paulo-based trader quipped, "In a race to the bottom, sometimes the smartest MOVE is not to run."
FAQ
Why is Magazine Luiza avoiding price wars?
CEO Frederico Trajano believes subsidizing low-margin sales is unsustainable, especially given Magalu’s lack of external funding sources. The company prioritizes positive contribution margins.
How did Magalu perform financially in Q3 2025?
Adjusted net profit fell 69.8% YoY to R$21.2M, but beat expectations. EBITDA remained stable at R$711.4M (-0.09%), with sales totaling R$15.1B across all channels.
What’s Magalu’s strategy for high-interest environments?
Diversification. Nearly a third of revenue now comes from non-retail segments like financial services, logistics, and its acquired brands (Netshoes, KaBuM!).
