Grupo Comercial Chedraui SAB de CV
BMV:CHDRAUIB
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Grupo Comercial Chedraui SAB de CV
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Welcome to the Chedraui conference for the results of the first quarter of 2020. With us are Mr. Antonio Chedraui Eguía, CEO of Grupo Chedraui; Mr. Carlos Smith Matas, CEO of Bodega Latina; Mr. Humberto Tafolla Núñez, CFO of Grupo Chedraui; and Mr. Arturo Velázquez, Head of Investor Relations of Grupo Chedraui.
As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in Grupo Chedraui's most recent annual report.
At this time, I will now turn the conference over to Mr. Antonio Chedraui Eguía. Please go ahead.
Thank you. Good morning, everyone. It is a pleasure to be with you today at this conference to discuss Grupo Chedraui's 2020 first quarter results.
The first quarter of this year, and especially the month of March, in which the World Health Organization declared COVID-19 a pandemic, have certainly been a challenge for all economic sectors across the world, and Grupo Chedraui is no exception. However, I'm proud to report that all of our teams in Mexico and in the United States, in collaboration with our vendors, have worked tirelessly to keep our operations running and without interruption to address the needs of our customers and also to enforce strict sanitary measures to ensure everyone's health and safety.
I will go over the relevant facts. Same store sales growth in Mexico of 10.1%. Same store sales growth of 10.4% in the U.S. in dollar terms. Consolidated EBITDA growth of 12.8%. Consolidated net profit growth of 24%, and invested CapEx up MXN 588 million in 2020.
I will proceed with the financial results of the quarter starting with sales. In the quarter, total consolidated sales grew 14.1% to MXN 34,504 million, with a significant portion of this growth occurring in the month of March.
Favorably, the declaration of the COVID-19 virus as a pandemic resulted in extraordinary consumption, both in Mexico and in the U.S. In Retail Mexico, we achieved same store sales growth equal to 10.1%, with particularly strong growth in the important Southeastern region, the region in which Chedraui has the strongest presence. Total sales grew 11.4%.
In Mexico, during the last 12 months, we incorporated 11 net store openings with a total sales floor growth of 1.8%. Our Real Estate division continued to perform well in the first quarter of 2020. Total income grew 9.5% and reached MXN [ 217 ] million. This income growth is the result of increased rents for properties that have leases tied to inflation and the additions of 15,172 square meters of leasable area in the last 12 months. Total leasable area grew 4.2% in the quarter.
Gross profit. In Mexico, we continued with our aggressive pricing strategy without impacting margin. However, margin was slightly reduced due to changes in the product mix as customers focused their buying on lower margin items. This dynamic was also seen in the United States and was more pronounced at Fiesta. Total gross profit grew 12.7% to MXN 7,579 million and represented 21.3% of sales.
On the expense side, despite increased cost in Mexico and the United States associated with the operating and managing in this pandemic environment, we limited operating expense growth below the rate of sales growth. Total operating expenses grew 12.7% to an amount of MXN 4,994 million, representing 14.1% of consolidated sales.
Depreciation and amortization. During the first quarter of 2020, the amount of depreciation grew 2% in relation to the same quarter last year.
EBITDA. In consolidated EBITDA terms, we achieved an amount of MXN 2,594 million with a growth of 12.8% and a margin over sales of 7.3%. EBITDA composition and growth will be explained through the results of the business segments.
Financing costs. During the first quarter of 2020, total financing costs grew 16.6% to MXN 864 million. This growth resulted primarily from the impact of IFRS treatment in the United States as well as favorably current fluctuations. With the impact of IFRS, financing costs would have only increased 1%.
Net profit. Due to significant better performance in the U.S. versus the prior comparative quarter, net profit grew 24% to MXN 542 million and represented 1.5% of total sales.
Now Carlos will talk about the results obtained in the U.S. division. Please, Carlos.
Yes. Thank you, Antonio. Good morning, everyone.
Similar to Mexico, the El Super division obtained very strong sales in the month of March. El Super sales increased 20.5% to MXN 8,541 million due to a 12.4% increase in same store sales, plus the impact of the foreign currency exchange in the quarter. During the quarter at Fiesta, sales reached an amount of MXN 6,239 million with same store sales growth of 7.6% in dollar terms.
EBITDA at El Super increased 31.8% versus the prior comparative quarter, reaching MXN 671 million, representing 7.9% of sales. Fiesta EBITDA decreased 14.8% to MXN 254 million, representing 4.1% of sales. Total EBITDA in the U.S. was MXN 924 million, representing 14.6% growth to the prior comparative period and representing 6.3% of total sales.
Exchange rates used to convert the quarter's financial statements were MXN 20.54 per dollar for the income statement and MXN 23.51 per dollar for the balance sheet, and these rates are 7.2% and 21.7% higher than last year.
Thank you, Antonio.
Thank you, Carlos.
So self-service stores in Mexico grew EBITDA by 12.5%. Bodega Latina was already explained by Carlos. Our Real Estate division grew EBITDA by 6.7%. And then consolidated, as I explained, EBITDA growth of 12.8%.
Finally, go over financing and expansion. By the end of March 2020, the ratio of our net bank debt to EBITDA ended at 1.80x, with total debt of MXN 11,135 million. Invested CapEx during the quarter reached MXN 588 million.
So now if you allow me, we can go direct to questions and answers section, please.
[Operator Instructions] The first question is from Mr. Antonio Hernández from Barclays.
First of all, congratulations on the results. My question is regarding how are you seeing performance throughout the last couple of weeks now that we are entering into the second quarter. Can you give more light on what you're seeing in the U.S. and in Mexico?
Thank you, Antonio. We will talk about Mexico. Well, sales continue to be growing pretty strong. We have, during this past week of April, Eastern Week (sic) [ Easter Week ] in the base of last year. And we are still growing quite strong. So we believe, in certain categories, sales will keep growing strong in the coming weeks. And we are prepared for that. And Carlos, he can comment on what's happening in the U.S. Thank you, Antonio.
Yes, Antonio. A similar pattern in the U.S. to Mexico, we're still on stay-at-home orders in the majority of the states and counties that we operate in. And sales have been -- sales strength has maintained, even through the cycling of the Easter Week last year. But in general terms, sales continue to be strong, particularly in the center store categories.
Okay. Perfect. And the U.S., can you give more light also on your omnichannel capabilities?
Well, yes, Antonio. We are expecting to continue growing on our online business with our own platforms and third-party platforms. In certain regions, we are already participating as much as 10% of the sales in certain stores. We are growing approximately 5 to 6x in online orders, so keeps growing very strong. And we are preparing to continue with this growth rate in Mexico.
Our next question is from Mr. Luis Willard from GBM.
Congrats on the results. I hope everything is fine with you and your families. I was wondering, Antonio, if you could give us a little bit more detail on the previous question. I mean what have been the trend so far in terms of consumer behavior? I mean we know we're shifting towards food and bev consumption in the house. And all did the -- but do you see anything material in terms of behavior that could signify an opportunity in the midterm, perhaps, as you mentioned, a larger participation of the e-commerce channel? In that sense, for example, are you planning to increase your -- like, the sales channels being in different third-party platforms in order to exploit this shift in the consumer behavior? That will be my first question.
Thank you, Luis. Well, we think that some of the changes that we are seeing in the consumption patterns, some of them will stay in the future. Therefore, we are focusing in developing faster and stronger capabilities on our e-commerce platform as well as continue to work and develop, together with our associates in third-party platforms, such as Cornershop, Rappi or even Uber, because we are committed to develop not only our own platforms, but as well as third party and offer our customers the same terms of conditions that they need when they visit our physical store or our own online platform. So some of those changes we see that we'll pay, and we'll keep developing our customer patterns.
Other changes such as proximity stores, we are seeing a very strong growth in our proximity store division, such as Supercito. We believe we'll keep investing and investing in growing faster this division. We are seeing same store sales growth in the 20s and 30s percent growth. So we believe this pattern will also arrive to stay, and we will keep investing in that.
On the other hand, we are seeing that electronics, general merchandise and apparel, particularly apparel, are suffering in consumption. And we think they will still suffer in the coming months. And probably, we will not see a recovery in these categories until next year. That's our own view.
We believe sales in -- on the grocery side will keep growing quite strong. We are prepared for that. So we see that we are very well positioned with our online business with our proximity stores development, with our strength on the food retail side as well as our participation in the U.S. retail division that we're very well positioned for what's coming in the next month in terms of consumption and also exchange -- benefit from the exchange rate from the U.S. division. So that's our view, Luis.
Great. That was very insightful. Antonio. And if I may, just a last question. It's difficult to see -- to have some visibility on what's going on, what will happen in the next, I don't know, 6 months or so. But speaking of your guidance, do you still plan the same amount of CapEx that you envisioned in the beginning of the year? Or are you planning to cut that figure down in terms of CapEx?
Well, our guidance was to invest almost MXN 2.4 billion, which was 2% of sales. We are being able to reduce the CapEx without affecting our growth in -- or our investment in new stores and in technology. We are just planning to do some savings in other categories. So we believe we will be able to reduce our CapEx under the MXN 2,000 million for the year, which will be under the 2% that we projected. Besides that, everything is still the same. We believe we will be able to grow our sales floor by 2.7%, and we think we can reach that goal.
Our next question is from Mr. Andrés Ortiz from Crédit Suisse.
I would like to know a little bit more about the increased operational expenses that you incurred this quarter given the COVID-19 situation and how should we think of this additional costs going forward. Are they here to stay in your opinion? And are you planning to increase investments in your e-commerce capabilities from now on in -- or accelerate these investments? That will be my first question.
Thank you, Andrés. Well, even though, yes, we expect an increase in expenses because of this COVID-19 pandemia, but we will be able to control those expenses to be under the growth of sales. So as it happened in the first quarter, and even during the last month of the quarter, which was March, where we were affected by the COVID-19 expenses, so, yes, these expenses will continue, but will not affect the ratio of expenses as a percentage of the sales.
On the other hand, we'll keep investing in our online business. We believe, as I said that some of the changes in the consumption patterns that have been accelerated because of this pandemia, some of the changes will stay. They arrived to stay, so our investment will stay pretty much in line with what we projected, which is already very, very strong, not only in our own platform, as I said, but also on third-party platform because we have agreements with other platforms to keep servicing our customers and allow our customers to decide which door they use to enter our self-service stores in Mexico. So that's our belief, and we will keep investing on this side. By the end of the year, we will probably be over 2% of our sales in online sales with our own and third-party platforms.
;
An additional question, if I may. We have seen news in the U.S. about some sort of disruptions in the part of the value chain from producers. Have you seen any impact of this in your U.S. operations?
Carlos, maybe you can answer that one. Thank you.
Well, yes, certainly. The -- there's still a lot out of stocks in the supply chain, particularly in cleaning supplies and paper goods, as consumption has gone up at least 100% in some of those categories. But it's a level playing field for everybody. Everybody is getting allocated. Manufacturers are narrowing their assortments to focus on some of the key items. So I think -- eventually, I think in the medium term, we're going to get back to our normal state.
There's been a lot of talk recently about disruptions in the meat supply. Our understanding is that the supply is okay. It's just a matter of some of these factories getting impacted by shortage of workers due to being conservative and staying at home, and a few others where we've had some cases of COVID-19 actually positive test. So -- but I think that eventually we'll also flatten out as the curve flattens out, and we'll be getting back to normal. In our particular case, we have not had any shortages on that particular side of the business.
Our next question is from Mr. Rodrigo Alcantara from UBS.
Specifically in Mexico, about these inventory holdings and the risk that you see here, especially on these product categories, I mean, we have seen that the beer production, beer distribution, cigarettes have stopped in Mexico. So I was wondering if you can comment on this. Consider your levels of inventories, how much can you sustain sales of these categories? That would be my first question. And the second, just to clarify on a figure on the e-commerce figure that you provided a minute ago. So you said that currently, 10% of your sales are through online. Is that correct? And if that's the case, roughly speaking, what would be the percentage of transactions through -- that have been made through your own platform and versus the Cornershop and the Rappi. That will be my 2 questions.
Thank you, Rodrigo. For your first question about the categories, well, we are being able to sustain our assortment and, finally, our in-stock service to our customers, almost in every category that we carry, except for some particularities, such as beans, rice, egg, where we are reducing the assortment to certain particular brands. On the other hand, every other product in the assortment that we carry in our stores are pretty much in line with the service that we have been offering in the past. So there are no big changes. We're actually working in an assortment reduction on the categories where we expect to be affected on the demand side by the customers, such as electronics, general merchandise, apparel. We have been working on that since the beginning of the year because we expected already to see some effect, and we are already carrying less inventory in these categories. We think we reacted pretty much in the appropriate time, and we will benefit for that in the near future.
On the online business, let me clarify a little bit. Yes, we reached in some regions, particularly in the region of the metropolitan area of Mexico City, sales on the online division as much as 10% in some of the stores basically in the high end, that is these electro stores in the metropolitan area of Mexico City, where we are seeing that e-commerce represented around 10% of sales. And I think that will continue and probably even increase in the near future. And about 60% of these sales participation is coming from our own platforms, and 40% are coming from the Cornershop, Rappi and other third-party platforms.
If you take the participation of sales at the overall Chedraui company, we are looking to have a participation of as much as 2% of the sales. But in this particularly regions are the ones that have reached to that 10%. I don't know if I have been able to clarify what I mentioned, Rodrigo.
Our next question is from Ms. Vanessa Quiroga from Crédit Suisse.
My question is regarding the e-commerce theme, and we welcome that Chedraui is committed to continue investing in such capabilities for e-commerce. So my question is, I guess, more for that medium term, what changes do you think Chedraui has to make on its logistics structure as part of this evolution, like, for example, having more e-commerce dedicated distribution centers and anything that looks more into that medium-term reach for this progress?
Thank you, Vanessa, for your question. Well, what we're seeing in e-commerce is that our sales growth in e-commerce, it's coming -- it's driven by the food categories. Therefore, we believe that the best way to service the food categories, because of the type of product, the freshness and the time delivery expectations of the customer is to keep servicing our customers through the physical stores that we already have put in place. That is because that's the only way that we are going to be able to fulfill the freshness, the assortment that the customer is looking for to buy and also the time frame that we need to service these orders. Therefore, we don't see any big change in the -- on the distribution side to service the future on the e-commerce business.
There have been actually reductions in the sales of non-food items, such as electronics and other big ticket categories. And we think that in the future -- the near future, we will be focusing more on the supermarket side, and the changes in consumption patterns that we are seeing on the supermarket side will stay in the future. That's what we believe, and that's what we're preparing for, Vanessa. And thank you for your question.
Our next question is from Mr. Álvaro García from BTG Pactual.
My question is for Antonio on Mexico first, 2 questions on Mexico. One, sort of your outlook for coastal cities that are more exposed to tourism, same store sales trends there. Maybe if you could remind us of your exposure to these cities as well. And my second question on Mexico is on sort of the more medium to long-term outlook, particularly into 2021, just sort of the fear you see of consumers shifting to the traditional channel, something we saw a bit of in 2009. And I was wondering if you can share what you think the likelihood is of the middle class consumer shifting away from the modern channel into the traditional channel.
Thank you for your question, Álvaro. Well, we don't see that, in the future, 2021, we don't see that consumers will be shifting to the traditional businesses as it was in the past. Actually, we believe that due to this situation, probably some businesses will not be able to sustain -- or to maintain the business offer. And we think that the modeling channels, we will be able to benefit from that in the future. We really believe that the online channels are going to becoming an important part of the consumption in the near future for the mid-classes in Mexico. And we think that we need to be ready and -- to be ready and be prepared to service that kind of customer. Can you repeat and help me with the first question, please, that I was not able to hear?
Sure. The first question was on your exposure to cities that are exposed to tourism. So we've obviously seen a sharp drop-off in tourism. And what you're seeing out of the beach cities beach towns and cities more exposed to tourism in Mexico. What sort of performance you'd expect from them over the medium term?
Thank you, Álvaro. Yes. Well, we are seeing a very difficult situation in the tourist cities, such as Cancún and every city of the Riviera Maya, Los Cabos, both Cabo San Lucas and Cabo San Jose, and as well as Acapulco. We have a big presence in the South in the Cancún and Riviera Maya. And we're seeing -- we're being affected in those areas. And we don't see any recovery probably until the end of this year. We think that this negative effect will continue and will continue until probably October, November. And we will start to recover probably by December and next year.
Our next question is from Mr. Jerónimo Cobian from Actinver.
I hope everyone and your families are doing very well. Actually, I just have one question. Could you give us some information if you plan to refinance your second quarter to any obligations given the current context?
Thank you for your question, Jerónimo. Maybe Humberto, you can give us information how are we addressing our financial situation through these changes due to this pandemic situation.
Sure, Antonio. Thank you, Jerónimo, for your question. Actually, no, we're not planning on refinancing any long term right now. We are concentrated in getting our short-term loans correctly. We are, on a daily basis, quoting with different banks to see what our best options are, even if we have to do something in the U.S. or in Mexico. So the answer would be no, we're not planning on doing any refinance on our long term. We're only doing some action for the short term. I don't know if that answers your question.
Yes, Humberto.
Sure, Jerónimo. I would also like to add that we are planning to reduce our net debt by the end of the year between MXN 1.5 billion and MXN 2 billion by the end of the year. So financially, we believe we are in a very sound situation, and we will be -- we expect to be a lot better by the end of the year.
Okay. One question. This debt reduction includes leases.
Includes what, I'm sorry?
Lease payments.
Jerónimo, what Antonio is --
It's only bank debt.
It's only bank debt.
[Operator Instructions] Our next question is from Mr. Miguel Ulloa from BBVA.
And the first one would be regarding the U.S. Carlos, I don't know if you can provide some color of the differences between California and Texas, how things are holding up there and how things are evolving. What do you expect for the end of April and the near future for those operations?
Yes, Miguel. Texas has been quite strong. We've been working very hard on the Fiesta side for quite a while now. And I think some of the foundational pieces that we have in place have -- are beginning to show fruit. And this is even prior to the COVID situation. March was very strong in Texas. April -- as I mentioned earlier, April has continued that way. We are beginning to see some of the additional monies coming in from the stimulus package, which are going to be very helpful, I think, between now and the end of the year in most divisions. Each state delivers money to the recipients at different times, so Texas seemed to be ahead of California in that regard, and California is beginning to pick up. But as I mentioned, the -- throughout the stay-at-home orders, it's beneficial to the supermarket industry. We're certainly seeing that today. And then we'll see how the reentry happens as different cities lift the stay-at-home orders. But we're bullish still with all of the additional money that's going to be in the market for us.
Our next question is from Mr. Álvaro García from BTC Pactual.
Just a quick follow-up for Carlos on the U.S. You mentioned you've obviously sort of shifted the value proposition quite a bit at Fiesta over the past couple of years. And I was wondering what COVID -- or what sort of the stay-at-home policies -- what do you think that's done in terms of brand awareness for the Fiesta brand and how this might end up being an opportunity to enhance that sort of brand awareness with consumers in Texas or in those areas specifically?
Yes. Actually, good question, Álvaro, because as we saw at the end of March, there was -- the panic buying actually brought people to different retailers looking for different things, and we certainly benefited from that. As you know, we've been working very hard on modernizing the physical stores for Fiesta. And people that haven't been to Fiesta in a long time ended up coming back to Fiesta because of this situation. I think they saw a very different Fiesta from before in terms of store conditions and cleanliness, pricing, assortment, in-stock position. So we're getting good feedback from a lot of customers that hadn't been to a Fiesta in a while. So we certainly benefited from that.
That was the last question. I will now hand over to Mr. Antonio Chedraui Eguía for final comments. Please go ahead.
I just want to thank everyone for joining this conference. I hope to be talking to you in the next quarter. Please stay safe, everyone, and your families, and thank you again. The best to you all.
All conference hosts have hung up. This conference is over. Thank you.