Grupo Comercial Chedraui SAB de CV
BMV:CHDRAUIB
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Grupo Comercial Chedraui SAB de CV
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Good morning. My name is Aisha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Chedraui First Quarter 2019 Results Conference Call. [Operator Instructions]
Antonia Gonzalez, Crédit Suisse Analyst, you may begin your conference.
Hi, good morning, and thank you for joining, everyone. Welcome to Chedraui's First Quarter 2019 Results Conference Call. Today with us, we have Mr. Antonio Chedraui, CEO of the company; Humberto Tafolla, CFO; Mr. Carlos Smith, CEO of the U.S. Operations; and Mr. Arturo Velázquez, Investor Relations Officer.
Before proceeding, let me mention that forward-looking statements are being made, which are based on the beliefs and 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.
Now let me just turn the conference over to Mr. Antonio Chedraui. Antonio and team, thank you for joining us today, and you may begin your conference call.
Thank you. Thank you, Antonio. Thank you, everyone. Good morning. Always, it's a pleasure to be here with you today as I present Grupo Chedraui's results corresponding of the first quarter of 2019. While consumption in Mexico has continued the positive momentum first experienced at the end of 2018, Chedraui has benefited from this increase with same-store sales managing to reach an increase of 5.7% versus prior, which is well above the 2.9% increase shown by the ANTAD during the same period. In the States, we're also happy to announce that the increase in same-store sales at El Super 1.9% in dollar terms, while Fiesta, the sales improvement that started at the end of 2018 continued through Q1.
Going over relevant facts. Same-store sales, as I said, in Mexico, 5.7%; same-store sales in the U.S., 1.9%; consolidated EBITDA growth of 19.7%, opening of 1 new store in Mexico in the quarter and invested CapEx of MXN 1,111 million in 2019.
Now I will proceed with the financial results of the quarter, starting with sales. Our total sales increased 23.6% to MXN 31,125 million. As I mentioned, in retail Mexico, we achieved same-store sales of 5.7% while the total store sales growth was 10.7%. This is also the third quarter in a row that we have surpassed the growth of ANTAD, which in the quarter was 2.9% as I already mentioned.
In Mexico, during the past 12 months, we have incorporated 35 net openings, which represents 6.1% floor sales growth. Our real estate division continues to show good results. And in the first quarter of 2019, its net income totaled MXN 246 million, which is 10.7% higher than last year. This growth is the result of higher revenues from lease agreements with rates tied to inflation and the addition of 7,000 square meters of leasable sale -- leasable area in the last 12 months. This new leasable area represents surface growth of 12.9%.
Going over the gross profit. Due to the competitive environment in Mexico, we maintained aggressive pricing strategy. In Mexico, the gross margin was kept at similar levels to those of the previous year, which allowed us to continue to grow at higher rate than our competitors. During the first quarter, we achieved a consolidated gross profit of MXN 6,723 million, which little over is 35% higher than the previous year and represents 21.6% of our sales.
Operating expenses. In operating expenses, we continued with the strict control in all of our segments. However, the accelerated opening of stores at the end of 2018, the higher participation of the business in the U.S., which operates with a higher expense structure than Mexico and the calendar effect of Semana Santa increased operating expenses by 45.2%. Total operating expenses reached MXN 4,431 million. In the quarter, we achieved 14.2% of consolidated sales.
Going over depreciation and amortization. The incorporation of 35 net stores in Mexico, as I said, and 5 in the U.S., the incorporation of 61 Fiesta stores during the last 12 months as well as higher investment in technology and maintenance, this sector to grow 46% versus the same quarter of last year.
For EBITDA in retail Mexico, we managed to generate MXN 1,310 million with a margin of -- on sales of 7.1%. Now Real Estate segment obtained MXN 175 million, which is 7.3% higher versus the previous year. For the retail segment in the U.S., EBITDA increased 82.2% to MXN 807 million and represented 6.4% of sales. More specific details regarding EBITDA will be explained in the segment results. Finally, at a consolidated level, we achieved EBITDA of MXN 2,292 million with a growth of 19.7% versus the previous year and a margin on sales of 7.4%.
Financing costs. During this first quarter, financing costs increased 50.8%, reaching an amount of MXN 741 million. This amount already incorporates the loan of the acquisition of Fiesta as well as the interest impact of the implementation of IFRS 16.
Net profit. The results obtained in our business segments combined for consolidated net income of MXN 437 million and a margin on sales of 1.4%.
Carlos, if you allow me, could you please talk about our U.S. segment.
Sure. Good morning, everyone. Like last time, for clarity, we will reference the results of Fiesta and El Super separately and, further, the combined results, as Retail U.S. Sales at El Super increased 9.5% to MXN 7,085 million. This increase was driven by a same-store sales increase of 1.9% in dollar terms as well as the incorporation of 5 new stores during the last 12 months. Consolidated sales at Fiesta reached an amount of MXN 5,424 million. On the EBITDA side, first quarter EBITDA at El Super was MXN 509 million, representing 7.2% of sales.
Strict control over operating expenses and higher gross margin combined to allow us to grow EBITDA by 15% versus the prior comparative quarter. EBITDA generated at Fiesta reached MXN 298 million. The results reflect the implementation of several strategies since the end of 2018. These include a more aggressive price strategy, operational efficiencies and reductions and operating expenses. We certainly believe that we are on the right path to continue to attract more customers, improve our total sales and increase the profitability of this division.
Total retail -- total EBITDA for retail in the U.S. was MXN 807 million, as Antonio mentioned, representing 6.4% of sales. And the exchange rate for the conversion financial statements in the quarter was MXN 19.16%, which is 3.4% higher than the last year. Thank you, Antonio.
Thank you. Thank you, Carlos. Well, finally, financing and expansion. By the end of March 2019, the ratio of our net bank debt to EBITDA ended at 1.29x with an amount of MXN 11,028 million. Invested CapEx during this quarter increased to MXN 1,111 million, which is in line with our expected store expansion and maintenance plan.
Now if you allow me, we can proceed to the questions-and-answers session, please.
[Operator Instructions] And we have a question from Bob Ford.
With respect to the improvements in sales trends at Fiesta, can you give us a sense of how that breaks down in terms of traffic versus ticket? And how you think about the trajectory of same-store sales growth going forward?
Bob, let me break it out this way. So we've seen about a 400 basis point improvement in the sales side. I think that there's certain markets, which are already positive. Austin is already positive, which we're happy about. The Dallas market is getting close to being positive and just lagging a little bit behind is Houston. I think that the -- on a total division basis, unit sales are positive in all markets. So we're very happy about that. So now we're cycling through some of our own internal deflation, and I think that towards the -- Q3 and Q4, we're expecting to be in positive ground.
Good for you. Yes, and then a traffic perspective, Carlos, how is that trending?
Much stronger. We are in positive territory in several stores. So dramatic increases in traffic in Austin and some good improvements in Dallas and Houston lagging behind just a bit, but certainly much, much better than where it has been, certainly, the first 33 weeks of the year prior to us taking over.
Fantastic. That's very encouraging. And then with respect to IFRS, and I apologize for bringing this up. But is -- was there a lift or a hit on adoption and -- on earnings? And I was just trying to get a sense of what the recurring impact of IFRS 16 is going to be for you.
On the Super side?
No, for the consolidated Chedraui. So maybe that's more for Humberto.
Thank you, Bob. Yes, it benefited us around 100 basis points. That is in both years. In EBITDA and net income, it was against. It increased our EBITDA 100 basis points. And on the net income side, we lost 100 basis points.
You lost 100 basis points, yes.
Yes.
And is that a onetime hit from the adoption? Or is that a recurring impact?
Well, it is continuous but it will be reduced year-by-year because we incorporated a lot of rented space from our operation in the U.S., including the Fiesta stores. So as they dilute through the years, it will continue to get better.
Got it. You are early in the amortization cycle of all that space because you've got all these long-duration leases now, right?
Exactly. Exactly [indiscernible] down because of the acquisition in the U.S.
[Operator Instructions] And we have a question from the line of Miguel Ulloa.
That would be regarding the consumer environment in April. How things are doing in this Easter season? How results were impacted, so in Mexico and the U.S., please?
Miguel, thank you for your question. Well, actually, April was very strong for us in Mexico, basically, due to comparison date because we did not have the Easter week last year. So close to double-digit growth in Mexico same-store sales. And Carlos, can you please comment the U.S. operation?
Yes. So April, on both divisions, continued to remain strong. On the El Super side, cost of sales were north of 3% in April. And Fiesta improved significantly over year-to-date trends. So we had what we think was a good Easter.
And in that result -- just a quick follow-up, do you expect to be in the high range of the annual guidance? Or do you feel comfortable at this level?
Well, if things continue the way we are, it looks like we will be over our guidance. But we hope we continue that way, but that's something difficult to guarantee. At least, I would say at least the minimum is that we will be in the top part of our guidance.
Okay. And finally for me, regarding the pressures in terms of operating expenses in Mexico, have you seen some ease on these pressures? Or do you expect these to continue in coming quarters?
We expect to reduce that pressure in the coming months because of 2 things: One, the new stores that we just opened in the last quarter of last year, they will start to mature. And we are also working on efficiencies that we think will allow us to produce better results. So I'm pretty sure that you will start seeing better numbers in the coming quarters starting from this third quarter. The new stores start to mature quite fast, and this plan that we have already put in place since last month of March starts looking better.
And our next question comes from the line of Sergio Matsumoto.
It's Sergio Matsumoto from Citi. My question is on the gross margin in Mexico. You have a slight margin expansion in Mexico, and you mentioned that you were still maintaining the aggressive pricing environment. So if you can -- if you could explain how you managed to expand that margin. I think some of your competitors had a margin contraction of the gross margin this quarter.
Well, thank you, Sergio. Actually, our gross margin is flat, and it's not expanding in Mexico. We are benefiting on a consolidated basis in the gross margin because of the participation of our U.S. operation that operates with a higher gross margin than what we operate in Mexico. But in Mexico, it's flat, and we are sustaining our pricing strategy, as we did throughout last year. And we believe we can continue sustaining that gross margin. We don't expect it to grow, but we also think we can sustain it.
[Operator Instructions] We have no more questions at this time.
Well, if I may -- thanks, operator. If I may, and if we have no further questions -- this is Antonio Gonzalez. Antonio, can I just jump in here and ask also. As you mentioned in your prepared remarks, it's been a number of quarters now that you have outpaced ANTAD in terms of same-store sales. So can you just give us your latest thoughts on which formats are driving this? Is it more because of the southeast of the country, that had lagged over the last couple of years, is now recovering? Or is it more of a broad-based growth, both region-wise and format-wise as you're looking at the moment?
Thank you for question, Antonio. Well, we have been able to surpass ANTAD in every region. We're happy about that. But if you do a breakdown of our sales, our own sales, we are experiencing a very strong southeast, and that's mainly in the Quintana Roo region because the -- even though the oil affected [ CB's high ] recovery, they are not growing as strong as the rest of the southeast. So if you break it down, the southeast is very strong for us. But as I mentioned before, we're being able to surpass ANTAD in every region where we participate.
And format-wise, is there anything that stands out? Or is it also sort of across the board?
No. No, that's pretty much across the board in every format. The big stores are going well as well as the Súper Chedraui and probably a little bit stronger but that's because of the weak base we have because it's a new format with Supercito. Those would be the ones that are experiencing a higher expansion, but that's because of the base.
All right. Well, operator, do we have any further questions on the line?
We have no further questions at this time.
All right. Well, thanks, everyone, for joining. And Antonio, are there any closing remarks that you would like to make?
No. I just want to thank everyone for joining, and we'll be happy to talk to you at the end of this quarter. Thank you very much. I appreciate everyone connecting. Thank you.
This concludes today's conference call. You may now disconnect.