Grupo Comercial Chedraui SAB de CV
BMV:CHDRAUIB
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
100.37
155.76
|
| Price Target |
|
We'll email you a reminder when the closing price reaches MXN.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
Grupo Comercial Chedraui SAB de CV
You don't have any saved screeners yet
Good day, ladies and gentlemen, and welcome to the Chedraui 1Q '18 Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Manuel Melo, Consumer Analyst for Crédit Suisse. You may begin.
Hi. Good morning, everyone. This is Manuel Melo from Crédit Suisse. Today with us, we have Mr. Antonio Chedraui, CEO of Chedraui; Mr. Humberto Tafolla, CFO; Mr. Carlos Smith, CEO of Bodega Latina; and Mr. Arturo Velázquez, Investor Relations Officers.
Before proceeding, let me mention that forward-looking statements are being made, which are based on the recent assumptions of Chedraui's management and on information currently available to the company. They involve risks, uncertainties and assumptions because they relate to future events and, therefore, depend on circumstances that may or may not occur in the future. Investors should understand that general economic conditions, industry conditions and other operating factors could also affect the future results of Chedraui and could cause results to differ materially from those expressed in such forward-looking statements.
Now I will turn the conference over to Mr. Antonio Chedraui, CEO of the company. Antonio, you may begin your conference call.
Thank you, Manuel. Good morning, everyone, and thank you for joining for this conference regarding Grupo Chedraui's results in the first quarter of 2018.
We have started the year with quite satisfactory results in our 3 business segments. These results are in line with our expectations, and we're very confident that these positive trends will continue for the rest of the fiscal year.
We will go through the 2018 first quarter results, starting with some highlights. Same-store sales growth in Mexico, 4.1%; same-store sales growth in the U.S. in dollar terms, 4.2%; consolidated EBITDA growth of 12.7%; consolidated net income growth of 19.3%; and CapEx investment in 2018 of MXN 478 million.
I would like to mention the impending acquisition of Fiesta Mart in Texas that we recently announced. We are pleased to report that we obtained the regulatory approval to proceed with the acquisition and, therefore, expect to close the deal on April 30, as previously announced.
I will go over the financial results, starting with sales. Total first quarter sales in Mexico of MXN 16,596 million grew 6.7%, while same-store sales grew 4.1%. Same-store sales were driven primarily by their higher average ticket. On our real estate division, continues to obtain good results, first quarter revenue growing 10.5% to MXN 222 million. This growth is the result of higher revenues from lease agreements with rent payment tied to inflation and the addition of 13,548 square meters of leasable sales area [ the marked difference ].
Gross profit. We're continuing with the actions implemented last year. We improved our sales promotion management, which allowed us to increase gross margin without affecting our ability to offer the lowest prices to our customers. During this first quarter of 2018, we achieved consolidated gross profit of MXN 12,920 million, which represents an increase of 7.8% versus previous year.
Gross margin, as a percent of sales, was 21.1%. We achieved 67 basis points better than the prior comparative quarter.
On the expense side, we continue to control operating expenses in both Mexico and the U.S. Total operating expenses of MXN 3,326 million represented [ 14.3 ] % of sales and it's 17 basis points higher than the previous year. The increase was caused by normally higher operating expenses for the recently opened 25 stores, which is 24 in Mexico and 1 in the U.S., and certain operating expenses increasing faster than sales growth.
Going over depreciation and amortization. The incorporation [ as I said ] of 24 stores in Mexico and 1 in the U.S. during the last 12 months as well as investments in technology increased depreciation and amortization by 4.2% versus previous year.
Going over the EBITDA. EBITDA in Mexico grew a healthy 10% to MXN 1,150 million. We are happy to announce that for the first time in several years, we were able to increase EBITDA as a percent of sales, and that's an improvement of 20 basis points in EBITDA margin.
The real estate segment also obtained a good EBITDA result by growing 11.7% versus prior to MXN 163 million. EBITDA as a percent of sales was 73.1%. Real estate -- I'm sorry, retail sales in the U.S. posted especially strong EBITDA results with a growth of 26.3% versus the prior comparative period. EBITDA of MXN 281 million represented 4.3% of sales and an improvement of 95 basis points compared to the previous year. Finally, at consolidated level, we achieved EBITDA of MXN 1,594 million with 12.7% growth versus prior year and a substantial margin improvement of 50 basis points.
Going now over financial costs. During the quarter, [ PA ] interest rates continued to grow in Mexico and were 21% higher than previous year. Despite the 21% increase, our actual total financial costs were mitigated by substantially lower debt and fixed interest rates on long-term debt. The total financial increased 9% from prior year to MXN 264 million.
Net profit, the combination of the results I just described, boosted consolidated net profit to 19.3% versus prior, reaching an amount of MXN 585 million. Net income as a percent of sales was 2.5%.
Carlos, if you please can comment the U.S. operations.
Sure. Good morning. Thank you. As Antonio mentioned, we are expecting to close on the acquisition of Fiesta Mart at the beginning of next week. As we have previously mentioned also, Fiesta Mart is a MXN 1.3 billion, 63-store Hispanic-focused retailer in the State of Texas, with a significant presence in the Dallas and Houston markets. We're very excited about the opportunity, and we're very eager to get to work.
Total Q1 sales in the U.S. in dollar terms increased 5.8%, with same-store sales increasing 4.2%. Customer count increased 1.27%, and the average ticket increased 2.97%. EBITDA at 4.3% of sales grew 26.3% to MXN 281 million. The EBITDA increase in dollar terms was actually 35.4%. This increased result was driven by sales in more profitable departments, an end to the deflationary pressures that we had been experiencing for quite a while, as well as maintaining operating expenses at appropriate levels.
Just a quick note, that the exchange rate used during this quarter for the conversion of financial statements was 6.7% lower than previous year.
Thank you, Antonio.
Thank you, Carlos. Going over financing and expansion. At the end of Q1, our ratio of net bank debt-to-EBITDA was 0.42x, which is lower than the 1.05x obtained at the end of March 2017. Part of the reason for this significant drop is temporary due to the fact that some suppliers have struggled to adopt new electronic invoice requirements in Mexico, and therefore, certain supplier payables have been delayed. This, as I said, is just a temporary situation, and when this situation is resolved, pending payments will be made, and our net debt-to-EBITDA will return to more normal levels.
Invested CapEx during this time increased to MXN 478 million, and our expansion plan for the year is continuing as expected. That is besides the acquisition of Fiesta Mart in the U.S. We are planning to open [ 20 ] stores -- new stores in Mexico and 2 in the U.S.
So those would be the numbers. And if you allow me, we will proceed to the Q&A session. Thank you.
[Operator Instructions] And our first question comes from the line of Sergio Matsumoto.
I have 2 questions. They're both about the U.S. business. The first one is on the EBITDA margin expansion. This was more than the previous year. So I'm wondering if the source was just the easier comp from the prior year. I know there was some -- the deflationary pressure has been less than before. But I was also under the understanding that the minimum wage increase in California was going to keep the business from having a significant margin expansion. So I just wanted to get more color on that. And the second question is on Fiesta Mart. I've encountered some research that suggests that the Fiesta Mart market share among Hispanic customers have been coming down over the last several years. And so if that's the case, wondering what strategy you have to regain that market share that you used to have at Fiesta Mart against the other competitors such Walmart and HEB in Texas.
Yes, good morning, Sergio. With regards to the EBITDA margin expansion in the U.S., yes, there was certainly an issue related to a softer base that we had in Q -- versus Q1 2017. But the majority of the gains that we've had have come from our gross margin side, where we've been trending at these types of gross margin levels since the beginning of July of 2017. So we had a much better margin result in Q3 and Q4, and that's extended through to the beginning of this year, where we expect to be throughout the rest of the year, as well as a very significant component in labor control, which is our overtime expense. So although the rates have gone up, we've done a much, much better job of controlling overtime, which is a significant labor drag. On the Fiesta Mart side, yes, there is certainly a concern that market share with Hispanics has gone down over the last several years. However, we believe firmly that with a much improved pricing strategy that is more focused, we should be able to gain some of that share, not to mention that, as you know, Fiesta Mart has not been owned by a supermarket operator for many, many years now. It's been owned by a wholesaler, subsequently owned by a private equity group. So there's some investment in the store that's necessary. And I think through investing in stores and investing in a targeted, focused pricing strategy, similar to what we do here, should provide us with a bump on the top line.
And our next question comes from the line of Luis Willard.
I had a couple regarding Mexico. The first one, can you talk a little bit further on the nature of the efficiencies and the promotional efforts that is being carrying out and if that has had any effect in the prior differentials versus peers? That would be my first question.
Good morning, Luis. We are having some savings, basically, in promotional activities because we feel we've been able to distribute better our pricing strategy throughout the country, being able to adjust the pricing strategy, basically, city by city instead of global, and that is a benefit we will see in the gross margin. As well as we are also taking advantage of every year having less inefficient inventory that has been reducing the markdowns needed to get rid of that inventory. So that combination has given us the possibility of increasing our gross margin without affecting the pricing strategy that we have to compete in our markets in Mexico.
And so price differentials haven't moved that much versus your peers. I mean, if you're now setting prices city per city, do you expect this to impact positively on your comps through 2018?
We believe so. We believe so. At least, for sure, we're going to meet our growth plan of being able to grow between 4% and 5% same-store sales and we think could be even better by the end of the year. We feel that the strategy that we have put in place will produce the sales that we are looking for. Even though we are still affected in the region where we operate, we thought that by this time and due to the easier comps that we have for the past 2 years in a row, we would be able to [ beat ] -- to grow faster. But that has not been the case. There is still a difference between that particular region and the rest of our sales, and there is a difference between 3 to 4 points. That is a big difference still, compared to the rest. So that would explain the situation of why we have not been able to grow as fast as we expect, but we think we will be able to grow stronger by the coming months.
[Operator Instructions] And our next question comes from the line of Rodrigo [ Esantara ].
Could you elaborate a bit more? I mean, Mexico, can you give any breakdown on the same-store sales performance by region?
Rodrigo, if I understand, you want the same-store sales breakdown by region. Basically, most of the growth is coming from the metropolitan area of Mexico City, where we have our biggest growth, and part of the Southeast, which is basically the Quintana Roo region that is covering the effects of the energy region that has been really affected. The rest of the country, it's very close to around 4%, 4.1% same-store sales growth. So those would be the breakdown. In terms of breakdown between ticket and traffic, most of the growth was coming by traffic with -- by ticket, I'm sorry. We're pretty much without any growth in traffic.
And I'm showing no further questions over the phone lines at this time.
If there are not any further questions, I will turn now the call to Mr. Antonio Chedraui for closing remarks.
Thank you, Manuel. I want to thank everyone for joining. And just as a closing remark, I would like to go over and state that with this acquisition in the U.S., we're being able to increase our return on invested capital by 100 basis points by the end of the year. That's very good news for us because we are focusing on that return on invested capital number. We're planning to achieve a 13% [ like ]. We were thinking of reaching that number in the next 5 years, and we are going to be able to do it even sooner in the next 3 years. So those would be the good news that we have not publicly said, but it's important to comment. Thank you, everyone, for joining. And we would be hoping to bring you good news again by the end of the second quarter. Thank you.
Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.