Interviewer view · keep this screen to yourself
A Brazilian pharmacy chain: revenue up, operating profit down
You run the case. Read the prompt, answer questions from the notes below, and share data only when the candidate asks for it or gets stuck. Score at the end.
Case timer
00:00
1. Read the prompt aloud
Read it slowly, then pause. Let the candidate ask questions before they structure.
A pharmacy chain in Brazil grew revenue last year, but its operating profit fell by a third. The chief financial officer asks why, and whether it should worry. You lead the case and ask for the lines you need.
Format note: Candidate-led: there is no exhibit up front. You ask for the income-statement lines and the store data, and the interviewer gives only what you ask for.
2. Answers to clarifying questions
Give these answers only if the candidate asks. If they ask something not listed, give a sensible answer or say it does not matter here.
If asked: Which profit line does the client care about?
Answer: Operating profit (EBIT), which fell from BRL 90 million to BRL 60 million.
If asked: Did the business change shape this year, for example new stores or an acquisition?
Answer: It opened new stores; you can ask for the numbers.
If asked: Are the figures for the whole chain in Brazilian reais, for the calendar year?
Answer: Yes, BRL, full years.
3. The hypothesis a strong candidate states
Listen for an early, testable guess like this one. It does not need to match word for word.
A pharmacy chain that is opening stores often carries the costs of new stores before their sales mature. My hypothesis is that gross margin held and operating costs grew faster than revenue because of the new stores. I will test it with a profit bridge.
4. A model structure
Compare the candidate's structure with this one. A different split can be just as good if it is clean and fits the problem.
- Bridge operating profit line by line, then explain the line that moved
- Revenue and gross profit: did gross margin hold?
- Key: Operating costs: growing faster than revenue?
- Old stores
- Key: New stores still ramping up
- Depreciation from new store fit-outs
5. The working, step by step
Each step shows how a strong candidate works it out. Share a new fact from it only when the candidate asks or is stuck, and let them do the math: the result in the dark box is what they should reach.
Step 1: Size the fall
What a strong candidate does: Candidate: "Can I see revenue, gross margin, operating costs, and D&A for both years?" Interviewer: "Revenue went from BRL 1,200 million to BRL 1,320 million. Gross margin was 30 percent both years. Operating costs excluding D&A went from 240 to 300, and D&A from 30 to 36." Candidate: "So EBIT fell from 90 to 60."
EBIT fall (BRL m): (1,200 × 0.3 - 240 - 30) - (1,320 × 0.3 - 300 - 36) = 30
Step 2: Revenue growth
What a strong candidate does: Candidate: "Revenue grew 10 percent, so this is not a demand problem at the chain level."
Revenue growth (%): (1,320 - 1,200) ÷ 1,200 × 100 = 10
Step 3: Gross profit
What a strong candidate does: With gross margin flat at 30 percent, gross profit grew with revenue.
Gross profit rise (BRL m): 1,320 × 0.3 - 1,200 × 0.3 = 36
Step 4: Profit bridge
What a strong candidate does: Candidate: "Gross profit added 36, operating costs took away 60, and D&A took away 6. That ties out to the 30 fall." Interviewer: "Good. So which line do you go after?" Candidate: "Operating costs, the biggest mover."
Change in EBIT (BRL m): (1,320 × 0.3 - 1,200 × 0.3) - (300 - 240) - (36 - 30) = -30
Step 5: Operating costs grew faster than revenue
What a strong candidate does: Operating costs grew 25 percent while revenue grew 10 percent, rising from 20 to about 22.7 percent of revenue.
Operating cost growth (%): (300 - 240) ÷ 240 × 100 = 25
Step 6: Look per store
What a strong candidate does: Candidate: "How many stores did the chain run in each year?" Interviewer: "400 last year and 480 this year." Candidate: "Then operating cost per store rose only from 0.6 to about 0.63 million, but revenue per store fell from 3.0 to 2.75 million. The 80 new stores carry full costs but do not yet sell like mature stores."
Revenue per store this year (BRL m): 1,320 ÷ 480 = 2.75
Step 7: Test the ramp-up
What a strong candidate does: Candidate: "Do new stores usually reach the old-store average?" Interviewer: "In about three years, yes, about BRL 3 million each." Candidate: "At 480 stores and BRL 3 million each, with today's costs, EBIT would be about 96, above last year's 90."
EBIT with all stores at mature sales (BRL m): 480 × 3 × 0.3 - 300 - 36 = 96
The recommendation to listen for
At the end, say: "The CEO walks in. What is your recommendation?"
Operating profit fell by BRL 30 million, from 90 to 60, because the chain is paying for 80 new stores before their sales mature, not because the business got weaker. First, revenue grew 10 percent and gross margin held at 30 percent, so prices and buying costs are fine. Second, operating costs grew 25 percent, and about four fifths of that rise comes from the 80 extra stores (80 stores at about BRL 0.6 million each is about BRL 48 million of the BRL 60 million rise): cost per store rose only about 4 percent, while revenue per store fell from BRL 3.0 million to 2.75 million. Third, if the new stores reach the usual BRL 3 million each, EBIT would be about BRL 96 million on today's costs, above last year. The chief financial officer should worry only if the new stores ramp more slowly than earlier openings did, so the next step is to track them as a separate group.
Risks a strong answer names: The new stores may be in weaker locations and never reach BRL 3 million each; Rents and wages may keep rising, so costs do not stay at today's level.
Next steps: Build a separate income statement for stores opened this year and compare their first-year sales with earlier openings; Hold further openings until this group shows a normal ramp-up.
Strong versus weak
A strong answer
Asked for the lines in a useful order, built a bridge that tied out, found operating costs as the mover, and asked for store counts to show that new stores, not weak demand, explain the fall.
A weak answer
Saw revenue up and profit down, said "costs are out of control," and proposed cutting staff in every store, which would hurt the mature stores that are doing well.
Score the candidate
Score each criterion from 1 to 5. A 2 or a 4 sits between the descriptions.
This case has no exhibit. Score Exhibit reading on how the candidate used the data you gave them: did they pick out the number that matters and say what it means?
Total
0 out of 25
Score all five criteria to see the band and the feedback template.