Lojas Renner SA, a Brazilian fashion and lifestyle giant, is set to delist from the PINK exchange on April 1st, 2024. On the surface, this seems like a simple case of a company retreating from the US market. Perhaps the administrative burden of maintaining an ADR listing outweighs the benefits, especially considering the relatively low institutional ownership (a mere 1.7%). However, lurking beneath the seemingly mundane delisting announcement is a financial enigma, a specter in the machine, that has seemingly gone unnoticed by analysts.

Let's start with the obvious. Lojas Renner has been a dividend darling, consistently rewarding shareholders with quarterly payouts. This commitment to shareholder value is reflected in a healthy payout ratio of 67.14%. Yet, despite this ongoing generosity, Lojas Renner's earnings per share (EPS) for the current year are projected to be zero. This dissonance, the coexistence of dividend payments with a projected zero EPS, raises a crucial question: from where is Lojas Renner funding its dividends?

The answer, it seems, lies buried in the intricate labyrinth of Lojas Renner's financial statements. While EPS is projected at zero for the current year, the company boasts an EBITDA of $1.4 billion. EBITDA, or earnings before interest, taxes, depreciation, and amortization, is a measure of a company's overall profitability and its ability to generate cash. A robust EBITDA, such as Lojas Renner's, suggests that the company is generating substantial cash flow, even before accounting for non-cash expenses like depreciation and amortization.

This raises a tantalizing possibility: is Lojas Renner strategically manipulating its EPS to appear less profitable, all while continuing to reward shareholders with dividends sourced from its healthy EBITDA?

The motivation for such a maneuver could be multifaceted. By presenting a lower EPS, Lojas Renner could be attempting to fly under the radar, minimizing scrutiny from potential acquirers or competitors. A lower EPS could also serve as a negotiating tactic, allowing the company to repurchase shares at a lower price, thereby consolidating control and increasing future shareholder value.

Adding fuel to this hypothesis is Lojas Renner's recent stock performance. Despite a 12.85% increase in share price over the past year, the company is trading at a relatively low price-to-book ratio of 1.6583. This suggests that the market may be undervaluing Lojas Renner's assets, potentially due to the artificially depressed EPS.

Furthermore, Lojas Renner's financial statements reveal a significant reduction in outstanding shares. Comparing the annual outstanding shares from 2021 (1.087 billion) to 2023 (959.69 million), we see a decrease of approximately 117 million shares. This buyback activity, coupled with the potentially understated profitability, could be a sign that Lojas Renner is preparing for a significant event, such as a privatization or a strategic partnership, post-delisting.

Declining Outstanding Shares

Source: Lojas Renner Financial Statements

Dividend Payments vs. Projected EPS

Lojas Renner's delisting, therefore, might not be a retreat but a strategic repositioning. The company, flush with cash from a strong EBITDA, could be using its delisting to orchestrate a financial sleight of hand, masking its true profitability while preparing for a future power play.

Of course, this is all conjecture. Lojas Renner has not publicly stated any intention beyond delisting. However, the financial anomalies surrounding the event suggest a story more complex and intriguing than a simple exit from the US market. Perhaps Lojas Renner is playing a long game, laying the groundwork for a dramatic comeback, a Lazarus-like resurrection, once the dust of delisting settles.

"Fun Fact: Lojas Renner's name originates from the Renner family, the company's founders, who drew inspiration from the German word "Renner," meaning "runner." The name embodies the company's commitment to constantly evolving and adapting to the dynamic fashion landscape, a principle that might be at play in its strategic delisting as well."