2016 was a good year for Spanish retailer Gadisa. It posted a robust 6% growth in sales; a sequential improvement from the previous year; with sales now reaching EUR1,100mn. These results are even more impressive given that its sales area expanded by a mere 1.3% during the same period. Meanwhile, the retailer increased investments by 40% year-on-year, to fuel a reasoned expansion. This translated into a pair of supermarket openings, existing store enlargements and the integration of 15 franchise stores in 2016.
We see the impressive performance of Gadisa as the result of its competitive pricing strategy - backed up by IFA buying group – and its strong local sourcing strategy. Even so, Gadisa may look increasingly isolated in its home region of Galicia. Many mid-sized regional Spanish retailers are now looking to expand their nationwide reach – including Covirán and Consum. It's true that Gadisa has set sail into neighbouring Castile & León, but expansion is slow-paced, as we believe the retailer needs to build the back-end first to support any wider scale expansion in the region.
With a dwindling population and ageing communities, we feel the retailer’s growth will be limited in its stronghold; beyond any potential diversification. Even so, we feel the retailer has some strong cards to play. Its own funds reached EUR336mn in 2016 (+15.34% year-on-year), giving it room for a potential acquisition beyond its home region. The retailer was reportedly already in line for the acquisition of minor retail chain Gigante earlier this year. This would have opened the gate to the Madrid region, but the network eventually got picked up by rival Uvesco. This nonetheless shows Gadisa is on the hunt for arising opportunities.