Why Did AZZA3 Drop After the Election?
AZZA3 fell alongside the broader retail sector during the first trading session following Lula's victory (10/26), when long-term forward interest rates pushed past 16% and the stock exchange opened sharply lower. There was no new earnings report: the stock went from R$ 24.10 (10/15) to R$ 14.47 (10/29).
The figures for 10/15 and 10/29 come from Money Times coverage (quoted at 12:50 PM) and BTG Pactual's platform (data from 10/29). The −37.3% decline was recorded at 10:57 AM on 10/26, meaning it is a intraday figure rather than a closing price. The 52-week low of R$ 14.30 appears in the stock's official registry and QuantBrasil.
What Happened to Retail on October 26
Lula defeated Flávio Bolsonaro with 51.79% of the valid votes, compared to 48.21%. In the following trading session, the Ibovespa opened down more than 13%, the U.S. dollar and forward interest rates surged, and consumer- and credit-linked stocks were among the hardest hit. The figures below are from mid-morning, according to Guia do Investidor:
| Stock | Intraday Drop on 10/26 |
|---|---|
| Assaí (ASAI3) | −48.4% |
| Magazine Luiza (MGLU3) | −48% |
| Lojas Renner (LREN3) | −38% |
| Azzas 2154 (AZZA3) | −37.3% |
BTG Pactual notes that Brazilian retail stocks had gained 19% after the first round of voting and subsequently gave back those gains, with the sector falling 33%. Guia do Investidor notes that session figures alone do not indicate how the election outcome will affect the company's operational results.
The transmission mechanism from interest rates to a company like Azzas is direct: the company carries R$ 2.13 billion in net debt (1.52 times its trailing 12-month EBITDA), according to its Q2 2026 earnings report, and a portion of its revenue depends on multi-brand retailers that rely on credit. Higher forward interest rates also raise the discount rate the market applies to future earnings for any company.
The 11.3% CBS Tax: What Was Proposed and What Remains Unknown
On 10/28, Brazil's Federal Court of Accounts (TCU) unanimously approved a calculation proposing an 11.3% rate for the CBS consumption tax in 2027 (rounding up from 11.3468%). The CBS replaces PIS and Cofins, which currently total 3.65% under the presumptive profit regime and 9.25% under actual profit. The proposed rate is higher than previous estimates: 8.8% (Ministry of Finance, in 2024) and 9.21% (unofficial benchmark from the IBS Steering Committee).
What is settled: The Senate has until December to set the rate by resolution (sources differ between the 15th and 22nd); if it fails to vote, the TCU's calculation takes effect on January 1, 2027. The transition to the new consumption tax model runs through 2033 with the gradual introduction of the IBS, and the government estimates collecting R$ 636 billion in CBS revenue in 2027. The Selective Tax also begins in 2027, but applies to tobacco, alcoholic beverages, and sugary drinks rather than apparel.
What remains undefined or unmeasured:
- Impact on consumer prices. The president of the TCU stated that the figure reflects projected tax revenues rather than the impact on specific prices or sectors.
- Tax credits. The CBS and IBS are non-cumulative: tax paid on merchandise purchases generates credits upon sale. The net outcome for each company depends on these credits, and the presumptive credit percentages are still pending.
- Apparel and footwear. Consulted sources make no mention of a special tax regime or reduced rate for the sector.
- Adjustment window. Tax attorneys cited by industry media point to a tight timeframe for adjusting pricing, contracts, and systems.
Azzas has not published an estimate of the CBS tax's impact on its financial results.
What the Company Reported in Recent Months
None of this alters the previously released financial statements, which showed a weaker 2026 compared to 2025 even before the election. A summary of Q2 2026 compared to the same quarter in 2025:
| Q2 2026 (Apr–Jun) | Value | YoY Change |
|---|---|---|
| Net revenue | R$ 2.6 billion | −8.2% |
| Recurring EBITDA | R$ 379.6 million | −29.1% |
| EBITDA margin | 14.2% | −4.3 p.p. |
| Recurring net income | R$ 106.5 million | −62.5% |
| Accounting net income | R$ 29.8 million | −94.5% |
In Q1 2026, recurring net income was R$ 63.9 million (−45.7%). For the full year 2025, it reached R$ 770.7 million. The company attributed the Q2 2026 drop to a decline in sell-in revenue (high-margin sales to multi-brand retailers), which fell 13.6%, while sell-out revenue (sales to final consumers) declined 1.9%. Further details are available in the Q2 2026 earnings analysis.
Corporate Spin-Off and Farm Rio: Current Status
The spin-off splitting the business into Arezzo&Co and Soma was announced on 9/2 and received unconditional approval from CADE, Brazil's antitrust regulator, on 10/15. It still requires approval from a shareholder meeting, board sign-off, and B3 authorization to list Soma on the Novo Mercado segment. No date has been announced for the shareholder meeting, and the company stated that the partial spin-off does not trigger withdrawal rights. Farm Rio would be housed in a joint venture, with Arezzo&Co holding 57.4% and Soma holding 42.6%. See the details in how the spin-off works.
Regarding the sale of Farm Rio, the current status is:
- The brand received 15 non-binding proposals ranging between R$ 3.5 billion and R$ 4 billion, below the R$ 4.5 billion to R$ 5.5 billion range sought by controlling shareholders (Valor, via Guia do Investidor).
- The deadline indicated for binding proposals is 10/31.
- In response to CVM, Brazil's securities regulator, Azzas stated it has neither received a binding proposal nor made a decision regarding a transaction.
- Controlling shareholders have previously indicated they are willing to remain partners in the brand if they do not receive a satisfactory offer.
What Analysts Are Saying
BTG Pactual and XP maintain buy ratings with a price target of R$ 40. BTG's report, dated 10/29, continues to show this figure; there is no public indication of a revision following the election. JPMorgan and Citi view the spin-off positively but maintain neutral ratings. On the short side, Bradesco BBI reported that 9.18% of the free float is out on loan with a borrowing fee of 14.01%, which the bank interprets as continued caution among investors.
- 10/31: Indicated deadline for binding proposals for Farm Rio, alongside any company announcements regarding proposals.
- 11/3 and 11/4: Copom rate-setting meeting; the Selic rate stands near 14%.
- Q3 2026 Earnings: Release date not yet confirmed.
- Senate and CBS: Resolution on the tax rate by December, alongside presumptive credit percentages.
- Spin-Off Shareholder Meeting: Notice and management proposal detailing the division of debt, cash, and tax credits between Arezzo&Co and Soma, which has not yet been disclosed.
