Sendas Distribuidora S.A. (NYSE: ASAI), the Brazilian cash-and-carry giant, recently held its Q1 2024 earnings call. The results were strong, with pre-IFRS EBITDA margins returning to pre-conversion levels, demonstrating the resilience of the company's business model. While analysts focused on the impressive deleveraging process, a subtle shift in language regarding expansion plans might signal a different, potentially game-changing, strategy: a major acquisition.

Throughout the call, CEO Belmiro Gomes repeatedly emphasized Assaí's robust cash generation, highlighting the company's history of self-funded growth and the recent completion of the final payment for the Extra Híper acquisition. This consistent reinforcement of their financial strength, coupled with the downward revision of the net debt-to-EBITDA guidance for the year-end, creates a powerful image of a company primed for further expansion.

The intriguing shift comes in the discussion of organic growth. While maintaining a planned 15 store openings for 2024, Gomes hints at a potential acceleration in 2025, mentioning "major opportunities" and a willingness to anticipate projects if "licenses and stores" are secured. This, combined with the repeated mention of a 500-store target, suggests a desire to ramp up expansion beyond the current pace.

Could this signal a pivot towards inorganic growth?

The clues are compelling. Firstly, Assaí possesses the financial firepower, boasting a net operational cash generation of R$4.9 billion in the last 12 months, a significant increase from R$1.7 billion in the same period last year. Secondly, the focus on "licenses and stores" specifically indicates a potential bottleneck in organic expansion, a hurdle easily bypassed through acquisition.

Let's consider some hypothetical scenarios. Assuming a return to 20 store openings per year, organically reaching 500 stores would take approximately 10 years. If Assaí aims to achieve this target sooner, say within 5 years, they would need to acquire roughly 60 stores. Given an average sale of R$18.2 million for recently opened stores, this translates to acquiring a network generating approximately R$1.1 billion in annual revenue.

Such a move wouldn't be unprecedented for Assaí. The Extra Híper acquisition, a transformational event for the company, involved 71 stores and propelled Assaí into new social levels and geographical regions. Could history be repeating itself?

Factors Supporting the Acquisition Hypothesis

Dynamic competitive landscape in Brazil's food retail sector with opportunities arising from smaller players. Assaí's proven expertise in managing large-scale acquisitions and extracting synergies. Assaí's resilience and strong value proposition in a challenging economic climate.

Assaí's Cash Generation Growth

The chart below shows Assaí's impressive growth in net operational cash generation over the last few years.

The potential for a major acquisition adds another layer of intrigue to Assaí's growth story. While the company hasn't explicitly confirmed such plans, the subtle shifts in language during the Q1 2024 earnings call point towards this possibility. If Assaí chooses to leverage its financial strength and proven acquisition expertise, the impact on the Brazilian food retail landscape could be significant.

"Fun Fact: Assaí's parent company, GPA, was originally founded in 1948 as a small grocery store in São Paulo called "Casas Guanabara." Today, Assaí is one of the largest food retailers in Brazil, a testament to its consistent growth and strategic vision."