By Brazil Stock Guide – Grupo Mateus SA (B3: GMAT3) was downgraded to neutral from buy as a tougher economic backdrop threatens sales growth and margins across its core markets in Brazil’s North and Northeast, according to an XP Investimentos report. The broker set a R$5-a-share price target for the end of 2027.
XP cited weakening government benefits, unfavorable inflation trends and changes in consumer spending as the main risks. The firm also lowered its forecasts for earnings before interest, taxes, depreciation and amortization and net income through 2027.
Bolsa Família Exposure
Grupo Mateus has a heavier exposure to government income-support programs than many Brazilian retailers. All nine states where the company operates rank among the 12 with the highest share of Bolsa Família payments in average per-capita income, XP said.
The risk is most pronounced in Maranhão, where the company was founded and where almost half of its stores are located. The average benefit has declined 5% over the past three years, while XP sees limited room for a significant increase in the short term.
Previous benefit increases were largely connected to election cycles, according to the report. XP said a more constrained fiscal environment and the government’s focus on other priorities make a similar adjustment less likely this time.
A continued decline in government transfers could weaken purchasing power among the retailer’s core customers and limit the recovery of same-store sales, or SSS, a key driver of future margin expansion.
Inflation Turns Into a Headwind
Inflation conditions have also become less favorable for Grupo Mateus. In 2023, lower headline inflation helped preserve household purchasing power, while resilient food inflation supported nominal same-store sales.
The company now faces the reverse. Higher IPCA inflation in the North and Northeast is eroding disposable income, while slower food-price increases provide less support for revenue growth.
That combination makes it harder for Grupo Mateus to accelerate sales without putting additional pressure on profitability. XP said moderate revenue growth could limit the company’s ability to sustain or improve margins.
Betting and GLP-1 Trends
Changes in consumer behavior may add to the pressure. XP identified online betting and greater access to GLP-1 drugs as incremental headwinds for food consumption.
Brazil’s northern states have above-average betting penetration, according to the report. Spending diverted to gambling may reduce the amount of household income available for food and other products sold by the retailer.
Greater access to GLP-1 drugs may also affect food demand. Grupo Mateus management highlighted lower volumes when reporting second-quarter 2026 results, XP said.
Earnings Estimates Cut
XP updated its forecasts to reflect the second-quarter results, revised macroeconomic assumptions and a weaker revenue outlook. Lower selling, general and administrative expenses following recent workforce reductions may partially offset the pressure.
The broker cut its 2026 and 2027 EBITDA estimates by 20% and 28%, respectively. Net-income forecasts were reduced by 33% for 2026 and 30% for 2027.
For 2027 alone, the reductions to projected EBITDA and net income range from 28% to 30%. XP also extended its valuation horizon to the end of 2027 and set the new target at R$5 a share.
Efficiency Gains May Not Be Enough
XP acknowledged signs of progress in productivity initiatives disclosed with the second-quarter results. It also recognized the company’s efforts to strengthen internal controls, corporate governance and operating efficiency.
Grupo Mateus remains a solid operator with a dominant presence in its main regions, according to the report. Still, XP sees faster same-store sales growth as the principal lever for future margin gains.
The broker said that acceleration appears difficult under the current economic conditions and given the company’s geographic exposure. XP concluded that GMAT3’s risk-reward profile had deteriorated, supporting the downgrade to neutral.
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