By Brazil Stock Guide – Magazine Luiza (B3: MGLU3) reported a sharp 69.8% drop in adjusted net income to R$21 million in the third quarter of 2025, as higher interest costs eroded earnings despite operational resilience. Including non-recurring gains, net profit reached R$84.6 million, still down 17% from a year earlier. Adjusted EBITDA remained stable at R$711 million, with a 7.9% margin, while operating cash flow strengthened to R$535 million, lifting total cash to R$7.6 billion and net cash to R$1.6 billion.
Fintech engines cushion profitability
Even as net profit fell, the company’s financial arms proved to be key shock absorbers. Luizacred posted a R$68 million profit, supported by a R$20 billion credit portfolio and one of its lowest historical delinquency levels (8%). The newly launched Magalupay SCFI, already operating in 50 stores, began absorbing the retailer’s entire consumer credit book, offering cheaper funding and higher margins. Magalupay processed R$24.6 billion in transactions in the quarter, underscoring the growing weight of fintech in Magalu’s margin mix and customer loyalty strategy.
AI commerce gains traction
The quarter also marked the commercial rollout of “Lu’s WhatsApp,” an AI-powered conversational sales platform built on Google LLMs and hosted by Magalu Cloud. The channel allows customers to browse, buy and pay directly within WhatsApp — via text, voice or image — yielding a conversion rate three times higher than Magalu’s app and an NPS of 90 points. Executives call it the company’s most disruptive channel since the marketplace’s debut, positioning Magalu as an early mover in Brazil’s emerging AI commerce frontier.
Focus on profitability over volume
Total sales reached R$15.1 billion, down 2.6% year-on-year, as Magalu prioritized margin over growth. Brick-and-mortar revenue climbed 5.2%, offsetting a 5.8% decline in total e-commerce, while the gross margin held at 31.5%. The share of orders fulfilled through Fulfillment Magalu rose to 28%, boosting efficiency and delivery conversion.
Diversified ecosystem remains key
Beyond retail, the company’s ecosystem delivered steady results. Magalog, its logistics subsidiary, handled 5.5 million external deliveries for brands like Arezzo, C&A, and Renner. Magalu Ads grew 69%, fueled by video formats and the launch of “Sponsored Brands.” Magalu Cloud, now ISO 27001-certified, surpassed 1,000 external clients and hosts over half of Magalu’s internal workloads, cutting costs and improving scalability. Subsidiaries also added to profitability: Netshoes earned R$24 million, Kabum R$11 million, and Época Cosméticos R$3 million.
Outlook
Executives said they remain optimistic heading into Black Friday and the holiday season, citing a likely interest-rate downcycle that could revive durable-goods demand and ease financial expenses. The upcoming Galeria Magalu, blending retail, entertainment, and digital content, is set to open in 4Q25, symbolizing a new growth phase anchored in technology, fintech, and ecosystem monetization.
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