Brazil Aging Trends And Digital Channels Will Elevate Retail Performance

Key Takeaways

• Structural shifts in healthcare demand, digital investments, and targeted store expansion are driving market leadership, resilient sales growth, and operational efficiency gains.
  
• Enhanced automation, data-driven processes, and category mix improvements are supporting higher margins, stronger cash flow, and increased customer retention.
  
• Heightened competition, regulatory risks, reliance on key drug categories, and persistent margin pressures threaten long-term growth, profitability, and market position.

Catalysts

Engages in the retail sale of medicines, perfumery, personal care and beauty products, cosmetics, dermocosmetics, and specialty medicines in Brazil.

• As Brazil's population continues to age and with expanding access to GLP-1 and other chronic and preventative medications, Raia Drogasil stands to benefit from higher store traffic and increased prescription volumes, which should drive sustainable top-line revenue growth.
  
• Rising consumer interest in health, wellness, and beauty is structurally increasing demand for categories where Raia Drogasil is investing (HPC and OTC), supporting resilient like-for-like sales expansion and potentially improving category mix and net margins over time.
  
• The ramp-up in digital platform enhancements-customized app experiences, rapid fulfillment via store proximity, and integrated digital channels now reaching nearly 25% of retail penetration-positions Raia Drogasil to capture further market share, boost customer retention, and lift revenue and operating leverage.
  
• Ongoing expansion of the store network, with a focus on underserved and high-income urban regions and an emphasis on high-performing mature store formats, is reinforcing market leadership and driving both incremental revenues and efficiency gains via scale.
  
• Investments in operational efficiency-improved inventory management, automation, AI-driven internal processes, and tight control of SG&A-are yielding lower costs and higher cash flow conversion, setting the stage for long-term margin improvement and enhanced earnings power.

Raia Drogasil Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Raia Drogasil's revenue will grow by 14.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 3.0% today to 3.2% in 3 years time.
• Analysts expect earnings to reach R$2.0 billion (and earnings per share of R$1.1) by about August 2028, up from R$1.2 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as R$1.8 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.2x on those 2028 earnings, up from 24.3x today. This future PE is greater than the current PE for the BR Consumer Retailing industry at 13.5x.
• Analysts expect the number of shares outstanding to decline by 3.98% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 18.39%, as per the Simply Wall St company report.

Raia Drogasil Future Earnings Per Share Growth

Risks

• Increasing competition from horizontal e-commerce platforms and pure-play online pharmacies may threaten Raia Drogasil's traditional retail model and exert downward pressure on prices, impacting revenue growth and gross margins over the long term.
  
• The company's significant reliance on the GLP-1 drug category (such as Ozempic and Mounjaro) for growth introduces concentration risk; any regulatory, supply, or pricing changes in this segment could materially impact same-store sales growth and revenue sustainability.
  
• Margin pressure is evident from persistently high inventory losses (shrinkage from theft and stock-outs, especially in high-value categories like GLP-1 and skincare) and could weigh on future profitability if loss reduction initiatives do not deliver as planned, hurting net margins.
  
• There is risk that investments in digital and omnichannel platforms may not scale effectively against global or local e-commerce competitors with more agile, tech-driven models, potentially leading to market share erosion and limiting long-term earnings growth.
  
• The potential for regulatory changes-such as the proposed allowance for supermarkets to sell medications or heightened scrutiny/taxation-may intensify competition or compress pricing power, directly risking revenue and margin structure in the long term.

Valuation

• The analysts have a consensus price target of R$20.64 for Raia Drogasil based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of R$31.0, and the most bearish reporting a price target of just R$14.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be R$61.0 billion, earnings will come to R$2.0 billion, and it would be trading on a PE ratio of 26.2x, assuming you use a discount rate of 18.4%.
• Given the current share price of R$17.35, the analyst price target of R$20.64 is 15.9% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.