Assaí Atacadista's Q2 2025 Earnings: Is High Leverage Undermining a Strong Growth Story?

In the second quarter of 2025, Assaí Atacadista delivered a performance that underscores both the resilience and the fragility of its growth model. Revenue surged 7.2% year-over-year to R$20.9 billion, driven by a disciplined expansion strategy and improved operational efficiency. Same-store sales grew 4.6% (excluding calendar and donation effects), while EBITDA expanded by 11.8% to R$1.1 billion pre-IFRS16, with margins climbing to 5.7%. Post-IFRS16 adjustments pushed EBITDA to R$1.4 billion, reflecting a margin of 7.6%. These figures suggest a company in control of its operations, leveraging scale and cost discipline to navigate a challenging macroeconomic environment.

Yet, the question remains: Can this growth story endure amid Brazil's high-interest-rate regime and a slowing retail sector?

The Leverage Conundrum

Assaí's leverage ratio, a critical metric for assessing sustainability, improved to 3.17x (net debt/EBITDA) in Q2 2025, down from 3.65x in Q2 2024. This reduction was fueled by a R$519 million EBITDA increase and a R$200 million decline in net debt. However, the company's net debt remains substantial at R$11.7 billion, with an average debt cost of CDI+1.28% per year. Brazil's SELIC rate, currently at 14.75%, is projected to remain elevated through 2025, meaning Assaí's interest expenses will remain a drag on profitability.

The company's capital expenditures for 2025 are estimated at R$1.0–1.2 billion, with 10 new stores planned for the year. While this expansion is a driver of growth, it also raises concerns about overleveraging. For context, industry benchmarks suggest that a net debt-to-EBITDA ratio of 3x is considered conservative for Brazilian cash-and-carry retailers. Assaí's current leverage, while improving, still exceeds this threshold, and its target of 2.6x by year-end implies a need for further deleveraging.

Macroeconomic Headwinds

Brazil's economic landscape in 2025 is defined by three key challenges:
1. High Interest Rates: The BCB's SELIC rate, at 14.75%, is among the highest in emerging markets. This constrains consumer spending and increases borrowing costs for retailers.
2. Persistent Inflation: Annual inflation remains at 5.5%, well above the BCB's 3% target, eroding real incomes and dampening retail demand.
3. Weakening Consumer Confidence: Retail sales growth slowed to 1.6% in December 2024, with consumer confidence hitting a two-year low in February 2025.

These factors create a headwind for Assaí's expansion-driven model. While the company's free cash flow has improved dramatically—rising to R$2.7 billion over the past 12 months from a negative R$2.2 billion in the prior year—it must now balance reinvestment in growth with the need to service debt. The slowdown in store openings (from 20 to 10 in 2026) reflects this recalibration, but it also signals a potential trade-off between near-term profitability and long-term market share.

Strategic Adjustments and ESG Commitments

Assaí's management has responded to these challenges with a dual strategy:
- Operational Efficiency: Gross margins improved, and cost control measures bolstered EBITDA margins.
- Deleveraging: The company prepaid R$2.0 billion in debentures and raised R$1.5 billion in new financing, extending its debt maturity to 39 months.

Additionally, Assaí has prioritized ESG initiatives, including a 42% emissions reduction target by 2030 and a 44% waste reuse rate. These efforts, while laudable, require capital that could otherwise fund expansion.

The Investment Case

Assaí's Q2 2025 results highlight a company that is adapting to macroeconomic pressures while maintaining growth. Its EBITDA margins and free cash flow generation are robust, and its leverage trajectory is improving. However, the sustainability of its expansion model hinges on two critical factors:
1. Interest Rate Stability: If the BCB maintains or raises the SELIC rate, Assaí's interest costs could outpace its cash flow gains.
2. Consumer Resilience: A further slowdown in retail demand could pressure same-store sales growth, undermining EBITDA expansion.

For investors, the key is to assess whether Assaí's deleveraging efforts will offset these risks. The company's target of a 2.6x leverage ratio by year-end is ambitious but achievable, given its current trajectory. However, the decision to slow store openings may limit top-line growth in the near term.

Conclusion

Assaí Atacadista's Q2 2025 earnings demonstrate a disciplined approach to growth and leverage management. While its high debt levels remain a concern, the company's operational strengths and strategic adjustments position it to navigate Brazil's macroeconomic turbulence. For investors, the question is not whether Assaí can grow—but whether it can do so without overextending its financial flexibility. In a high-interest-rate environment, the answer may lie in a careful balance between expansion and deleveraging.