Rising Digital Pressures Will Erode Traditional Retail In Latin America

Key Takeaways

• Rising digital adoption and new consumer habits threaten store traffic, straining revenue growth and forcing costly transitions that undermine long-term profitability.
  
• High economic and regulatory volatility in core markets drives unpredictable costs and earnings swings, limiting margin recovery and capital allocation flexibility.
  
• Robust digital innovation, rising private label sales, and proactive financial management are strengthening Cencosud's competitive resilience, efficiency, and ability to sustain long-term growth.

Catalysts

Operates as a retailer in Latin America.

• The continued acceleration in digital transformation and e-commerce adoption across Latin America threatens to further erode Cencosud's core brick-and-mortar traffic, as evidenced by online penetration levels in key markets still remaining relatively modest and technology initiatives (such as self-checkout and AI-powered inventory solutions) being limited in scope. This trend is likely to pressure revenue growth and operating margins in the medium and long term, especially as online-only competitors scale faster and require less capital investment.
  
• Slow population growth and changing urbanization patterns in several of Cencosud's key markets may fundamentally reduce demand for traditional large-format retail. As urban shopping patterns shift and digital convenience becomes expected, legacy real estate and store footprints could face structural underutilization, leading to persistent declines in revenue per square meter and increased costs associated with downsizing or format transitions.
  
• High exposure to volatile Latin American economies with unstable currencies and political risk, particularly in Argentina and Brazil, increases the likelihood of ongoing foreign exchange losses, unpredictable cost spikes, and rising uncertainty around long-term capital allocation. This will likely create significant swings in reported earnings and could limit the company's ability to sustainably improve its net income over the next several years.
  
• The heavy capital expenditure requirements and legacy store maintenance-exacerbated by continuous need for technological upgrades to match omnichannel competitors-will likely compress free cash flow and net margins. As digital sales grow but remain less profitable than physical retail, this forces Cencosud to absorb higher transition costs with limited ability to recapture margin, limiting long-term profitability.
  
• Increasing ESG and regulatory demands, combined with heightened global retailer competition, will escalate compliance and operational expenses. As sustainability initiatives become costlier and multinational digital players raise the bar for speed and convenience, this could drive up recurring operating costs and erode Cencosud's competitive advantage, ultimately pressuring long-term net margins and returns on capital.

Cencosud Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Cencosud compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Cencosud's revenue will grow by 2.4% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 1.7% today to 4.0% in 3 years time.
• The bearish analysts expect earnings to reach CLP 726.4 billion (and earnings per share of CLP 258.73) by about August 2028, up from CLP 286.0 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 9.5x on those 2028 earnings, down from 29.9x today. This future PE is lower than the current PE for the CL Consumer Retailing industry at 22.2x.
• Analysts expect the number of shares outstanding to decline by 1.85% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.82%, as per the Simply Wall St company report.

Cencosud Future Earnings Per Share Growth

Risks

• Cencosud's diversified growth across Chile, Argentina, the United States, Peru, and Colombia, with all markets except Brazil delivering year-over-year revenue growth-often above inflation-and multiple business lines experiencing same-store sales increases, suggests long-term resilience and the capability to drive revenue higher if economic conditions remain supportive.
  
• The company's aggressive digital transformation, with notable double-digit online sales growth in Chile, Peru, the United States, and Colombia, as well as new technology rollouts like AI-powered self-checkout and automated shelf management, is strengthening operational efficiency and omnichannel engagement; these initiatives have the potential to expand net margins and boost profitability over the medium to long term.
  
• Private label penetration reached historic highs at 18% of sales, with private label gaining significant traction especially in Argentina and Peru, directly contributing to higher gross margins and improving the company's ability to control costs and maintain earnings stability even during periods of intense competition.
  
• Cencosud's optimization strategy-which includes the ongoing divestment of non-core assets, refinancing debt at lower interest rates, and conducting share buybacks-enhances balance sheet flexibility, reduces financial risk, and supports distributable net income growth, as evidenced by the 494% year-over-year jump in net income for the first half of 2025.
  
• The company's sustained recognition as a leading citizen brand, its focus on corporate social responsibility, and its decarbonization and circular economy initiatives are reinforcing customer loyalty and compliance with ESG standards, which in turn can help sustain or grow long-term revenue while differentiating Cencosud positively among competitors.

Valuation

• The assumed bearish price target for Cencosud is CLP1944.49, which represents two standard deviations below the consensus price target of CLP3115.0. This valuation is based on what can be assumed as the expectations of Cencosud's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CLP3800.0, and the most bearish reporting a price target of just CLP1850.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CLP18047.2 billion, earnings will come to CLP726.4 billion, and it would be trading on a PE ratio of 9.5x, assuming you use a discount rate of 10.8%.
• Given the current share price of CLP3110.0, the bearish analyst price target of CLP1944.49 is 59.9% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• 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.