Retail Sector Slows in Chile

Chile’s red-hot retail sector is beginning to slowdown from breakneck growth last year. “This year we should see same-store sales increase about 10% for the majority of Chilean retailers that operate department stores,” says Felix Lorenzo, portfolio manager and Chile country head at LarrainVial’s asset management unit. “This is a good rate of growth, but it is below that seen in 2010, when growth was around 15%-20%,” he adds. While stocks are also seen to be rising, the sequel to last year’s surge is not predicted to be a blockbuster. “In 2011, we should see sector stocks appreciate about 15% overall, in line with historical trends, but much mower than the 83% increase [seen in 2010],” Lorenzo explains. “These are actually decent investments over the long term, but they have had quite a run up in the past couple of years and are not cheap anymore,” says Nick Robinson, a Sao Paulo-based director with Aberdeen Asset Management’s EM team. The frothiness in the valuations of large cap retailers last year drew investor scrutiny of multiples. “Some retailers in Chile [are trading at] multiples of about 30 times earnings. Concosud is in that region and Falabella is not far behind that,” Robinson explains. “Normally, you don’t want to be paying more than 20-25 times earnings. That is the most we would pay for a retailer.”