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
Earnings Call Analysis
Q3-2023 Analysis
Grupo Comercial Chedraui SAB de CV
Grupo Commercial Chedraui's third quarter of 2023 demonstrated robust growth and resilience even amidst unfavorable foreign exchange conditions. With the commitment to providing value and despite a 0.7% decline in consolidated sales mainly due to a potent 15.6% currency impact from U.S. sales when converted to Mexican pesos, Chedraui has continued to expand organically, opening numerous stores and nearly reaching its ambitious expansion targets for the year. In Mexico, same-store sales outperformed industry benchmarks, growing 9.5% and outshining the 6.6% increase reported by other players, testament to the effectiveness of strategic campaigns and cost control measures. Their focus on operational efficiencies translated into a remarkable EBITDA margin improvement, reaching 9% - a clear indicator of their financial health.
Even with the Mexican peso strengthening over the U.S. dollar, affecting consolidated sales, Grupo Commercial Chedraui didn’t just weather the storm but came out stronger with a significant EBITDA margin increase of 56 basis points and standing close to the peak level at 8.9% of sales. Net income also surged owing to robust cost management and a decrease in bank debt, underpinned by a compound annual growth rate of 59.3% for net income, which amounted to MXN 1,935 million for the quarter. The return on equity stood at a commendable 18.5%, reflecting a sizeable increase compared to the same quarter in the previous year.
Chedraui USA maintained its growth trajectory with a 3.2% increase in same-store sales and a 3.7% rise in total sales growth, highlighting the immense potential and success of store concepts like El Super and Fiesta Mart. Effective strategies mitigated the impact of economic slowdowns and other challenging market conditions, while a 55 basis point margin expansion to 8.3% of sales echoed strong operational proficiency. The commitment to lowering debt and optimizing operations suggests a continued focus on sustainable growth in the American market.
Grupo Chedraui illustrated financial prudence with a consolidated sales figure of MXN 64,294 million and a notable increase in gross profit by 1.9%. The company’s dedication to cost containment led to a decrease in operating expenses without depreciation and amortization by 0.4%. Additionally, the quarter saw a 13% reduction in financial expenses, thanks to reduced debts and favorable cash positions. Augmented by these factors, the net income rose by 31.9% to MXN 1,935 million. The company's financial leverage saw a major improvement, and it continued to invest in growth with a year-to-date CapEx reaching MXN 5,297 million.
During the Q&A session, the focus remained on the strategic development of different store formats, specifically addressing the performance of Supercito units and discussing the disparity in performance dynamics between Smart & Final and the Hispanic divisions of the business. Investors were keen to understand the company's approach to store expansions and same-store sales growth, highlighting the proactive engagement with market trends and the pursuit of improved performance across all divisions of Grupo Commercial Chedraui.
You don't have any saved screeners yet
Good morning to all participants, and welcome to the Grupo Commercial Chedraui's Third Quarter 2023 Conference Call. Participating in the conference call today will be Mr. Jose Antonio Chedraui, CEO of Grupo Commercial Chedraui; Mr. Carlos Smith, CEO of Chedraui USA; Humberto Tafolla Grupo Chedraui CFO; and Arturo Velasquez, IRO for the company. We will begin the call with the initial comments on Grupo Commercial Chedraui's third quarter financial results by the company's CEO, Mr. Jose Antonio Chedraui.
Good morning to all, and welcome to our presentation of Grupo Commercial Chedraui's third quarter 2023 results. I am pleased to report that we continue to thrive in Q3 due to better-than-expected private consumption trends in Mexico and the U.S. This is despite a foreign exchange impact on our consolidated sales caused by the appreciation of the Mexican peso against the U.S. dollar in the last 12 months. Nonetheless, our profitability continues to improve as a result of a strong focus on cost control, operational efficiencies and inventory management in both Mexico and the U.S. At the same time, we continued to grow organically by opening 23 stores in Mexico and 1 in the U.S., and we are on track to reach our target of 60 store openings in Mexico and 4 in the U.S. during 2023. We will now review the results for the third quarter of 2023, starting with the highlights of our consolidated performance, continuing with the performance of each region and ending with a review of the financial results. On Slide 4, our consolidated sales show a slight decline of 0.7%, mainly explained by a 15.6% foreign exchange impact on Chedraui USA sales when converted to Mexican pesos. Sales in the U.S. represented 53% of consolidated sales in the current quarter. However, our cost control and operating efficiency strategy has proven effective and mitigated the currency translation impact. As a result, Consolidated EBITDA margin grew 56 basis points versus the prior, representing 8.9% of sales. This 8.9% is close to the peak level of 9% reached in Q2 of 2023. On Slide 5, our cost control and operational efficiencies, along with strong working capital management and reduced bank debt led to improved net income and profitability levels. The 4-year compound annual growth rate for net income is 59.3% with total net income in the quarter totaling MXN 1,935 million. Profitability viewed through return on equity stands at 18.5% and represents a 360 basis point increase compared to the third quarter of 2022. In the following slides, we will review operations in Mexico and in the U.S. As we can see on Slide 6, customers continue to prefer the value proposition offered by Chedraui through its various store formats as we aim to provide our customers the products they desire at the best possible price without sacrificing customer service. This unwavering commitment to the customer has allowed our same-store sales to grow above ANTAD since2022. On average, in 2023, we've grown with a positive spread of 287 basis points. Another positive factor in Mexico guided by our strict cost control strategy is seen in our EBITDA growth, especially in EBITDA margin, which stands at an all-time high of 9%. In the next slide, Slide 7 are some of the key highlights for Mexico's retail business during the quarter, 9.5% same-store sales growth, which outperforms ANTAD's 6.6% increase. Total sales continued to grow at double-digit levels. In this quarter, 17.3% above Q3 of 2022. All regions are growing, with the South and Southeast continuing to outperform the rest of the country, 23 store openings during the quarter and 88% in the last 12 months, including the Arteli acquisition. This growth has resulted in an expansion in our sales floor area of 5% compared to the third quarter of 2022. As we commented in the previous conference call, during the second quarter of 2023, we launched the [Foreign Language] campaign, which concluded during the third quarter of 2023. You have served favorable reception from our customers from this campaign, which can be seen in the positive figures released in this quarter. Finally, on Slide 8. It's noteworthy the comment once again that our EBITDA margin continues to improve, reaching an all-time high levels. Our operating leverage and continuous focus on cost and expenses has allowed us to report a 9% EBITDA margin for this third quarter of 2023. Regarding the real estate division, we continue with positive trends as revenues grew 13.4% in the quarter compared to the same period of last year, reaching MXN 337 million. EBITDA grew 9.5%, increasing from MXN 201 million in 2022 to MXN 220 million in the quarter. Noteworthy to mention that in the past 12 months, our leasable area grew by 2.3%. Now I will turn the meeting over to Carlos Smith, CEO of Chedraui USA, so he can comment on relevant aspects of our U.S. operation. Carlos, please go ahead.
Thank you, Antonio. Please turn to Slide 9. Chedraui USA continued to perform well in the last quarter. Customer count continues to grow, boosted by an attractive price offering and our store remodeling program, which have compensated for a slowdown in economic activity, a reduction of government aid and deflation in some categories that have impacted sales. As a result, same-store sales grew by 3.2% in dollar terms, with total sales growth of 3.7%. With particular strength at El Super and Fiesta Mart. When consolidating sales, the 15.6% foreign exchange impact related to the appreciation of the Mexican peso versus the U.S. dollar resulted in a 12.5% decline in Chedraui USA sales for the quarter compared to previous year. Despite this currency impact, EBITDA performance in the quarter remained solid, achieving a 55 basis point margin expansion to 8.3% of sales. It is noteworthy to comment that all banners increased EBITDA margins compared to the previous year as a result of operating efficiencies and improved inventory management. During the quarter, we opened 1 new superstore in Las Vegas, Nevada or 3 more stores expected by year-end. Our debt reduction plan is on track with a $136 million reduction through September 2023. Our U.S. operation remains committed to driving profitable growth, delivering value to our customers and further expanding our presence through these successful banners as we deploy different strategies to continue to drive sales at all formats . That concludes our report on the U.S. operations.
Thank you, Carlos. We turn to the consolidated financial results on Slide 11. In the third quarter of the year, we recorded consolidated sales of MXN 64,294 million, a 0.7% decline year-over-year. As Chedraui's U.S.A. sales were impacted by the Mexican peso appreciation.Gross profit increased 1.9% with a 61 basis point expansion in gross margin, while operating expenses without depreciation and amortization decreased 0.4%. Due to this, consolidated EBITDA grew 6% to MXN 5,712 million and represented 8.9% of sales. During the quarter, financial expenses decreased 13% to MXN 1,118 million, driven by lower debt in the quarter. The foreign exchange impact and higher interest earned by a favorable cash position in Mexico. Moving on to the consolidated net income for the quarter. The result increased 31.9% versus the prior comparative period, reaching an amount of MXN 1,935 million and representing 3% of sales. Please move to Slide 12. Our financial leverage decreased from 0.42x in the same period of 2022 to 0.09x in this quarter. This results from the company's ability to generate free cash flow over the last 12 months. Finally, the year-to-date CapEx invested reached MXN 5,297 million, which is equivalent to 2.7% of sales. Now if you allow me, we will move on to the question-and-answer session.
Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Bob Ford with Bank of America. Please proceed with your question.
Hey, good morning Antonio, Carlos, Humberto, Arturo, and congratulations for the quarter. Antonio, can you discuss the performance of your Supercito units? How are you thinking about the pace of new store openings for Supercito and the white space or the concept? And then Carlos, can you also discuss what's behind the gap in performance between Smart & Final and the Hispanic Divisions? And how we should think about the same-store growth as we move forward? Thank you.
Supercito keeps outperforming our projections. We're very happy with the format. At the moment, now we have 113 Supercito stores, and we're doing really, really well return on invested capital. It's higher than our bigger stores. So we're very happy with the format. We plan to open this year 50 stores, which have opened already, I believe, 33 at the moment. So the format keeps doing really, really good. We think that in the coming years, we could double the number of openings in this format -- year-by-year, that means that by 2024, we would be opening over 100 stores, and then we'll try and do over 200 and keep growing through this program. Maybe, Carlos, you can help us answer the next question. Thank you.
Absolutely. Good morning, Bob. Yes. So as we discussed in our comments, customer count was really solid during the quarter, including our customer count growth at Smart & Final, which was north of 2% during the quarter. As you know, about 30% of our sales in Smart & Final come from what we call our business customer, which includes several business customers specific items as well as club packs. And typically, those are high-ticket items. And we've seen a decline in the sale of those items. As you know, the economic backdrop today is complicated. A lot of consumption is food at home. Restaurants are beginning to see less trips. So I think that's impacting us a little bit there. But we're fortunate that we've got the household consumer that hedges that on the Smart & Final side. So the important part there for us is to continue to execute really, really well, changing some of our in-store merchandising techniques to get a lot more value-type items into the basket. And that's really our focus. Our focus is to take advantage of this customer count growth that we're seeing in all 3 banners and maximizing units per transaction. So as you've heard me say before, I think that during difficult times, our formats are very, very well positioned given their strong value proposition. And Smart & Final is no different, even though it's got a broader competitive set that we have to deal with, but we're bullish on continuing to drive customer count and execute well by putting more items in the basket.
And Carlos, is this trend sufficiently pronounced to consider a mix shift toward more items that are tailored for that final retail consumer?
Yes. Well, it's a combination of both, okay? So it's -- we have to tweak the merchandising to our business customers as well as our households. So it goes both ways.
Our next question comes from the line of Luis Willard with GBM. Please proceed with your question.
So well, first of all congratulations. And second question, I hope it comes out politically correct if possible. But I wanted to brand regarding the [indiscernible] micro factors. In particular, this year opportunities that might arise which [indiscernible] or so a bit for example, perhaps having one focus on something else and make the operations. Thank you.
I'm over of the investigation, just for the news, I understand that it comes from potential vendors that are not happy with the prices that they receive for [indiscernible] , but I'm not sure about it. I don't think it's going to change much the commercial strategy that they use in Mexico. But that's my personal feel -- so I think it's going to take long. And in the short term, I don't see -- and I have not seen any changes in the pricing strategy, for example, that will show us that they reduce the pressure that they put on the vendors to support the strategy. I have not seen any changes at the moment that I was.
Thank you, Carlos. So it's just a wait and see at this point in time, correct?
Yes. Yes, I think you just have to wait and see.
Our next question comes from the line of Alvaro Garcia with BTG Pactual. Please proceed with your question.
Hi gentlemen, first of all, I hope your team a safe throughout the Hurricane Otis. Two questions. The first one on Mexico. Sort of a bigger picture question on the proximity format. We've obviously seen a lot of new stores from you guys with Supercito. -- seen a lot of new stores from [indiscernible]. It's a bigger picture question on sort of where you think this demand is coming from? What's driving that demand in the sense? Do you think that the average Mexican family might be making the spend purchase at these type of formats more frequently going forward? Or is it a different occasion altogether, sort of perhaps trying to get more color on what's driving that demand and whether it's eating into some of the market share, some of the larger formats? That's my first question. Thank you.
Thank you, Alvaro. Well, I believe that, first of all, the consumption occasion for this format, it's basically reposition. I think that the customer continues to visit the bigger formats once every 15 days, probably 3x a month. I believe that we are also gaining share against the informal market, which, at the moment, covers probably 50% to 55% of the total market. So yes, I believe there is a huge opportunity for this proximity format. We have seen the growth, as you mentioned, of [indiscernible] ourselves as well as Bodega [indiscernible]. So we think there's huge opportunity for this format in most of the metropolitan areas of the bigger cities around Mexico
And then my second question, just a quick one on the U.S. Just be curious to hear your thoughts on Albertsons and Kroger potential added sales. I'm not sure if that story is sort of over? Or if you think there might still be an opportunity here. Thank you.
Well, I think that what we know is what everybody knows from news reports, and it's been reported that CNS, one of the largest wholesalers in the U.S. will be taking on several of their stores as part of the divestiture, and we'll see where this lands. But we are just going to be on standby.
Our next question comes from the line of Ulises Argo with JP Morgan. Please proceed with your question.
So I just wanted to kind of pick your brain here on the capital allocation strategy. So we see the net debt to EBITDA kind of trending closer to 0, improving kind of favorably sequentially there. So just wanted to get your thoughts there given the free cash flow generation, what's kind of the priorities, right? Maybe if you can comment on M&A, extraordinary dividends to step up on the ordinary? Or how are you thinking on that part of the company? Thank you.
Well, for this year, we are focused in the meeting our projection of 3% of sales in CapEx. And the CapEx is going for new store openings, maintenance and technology, and we are right on track and we will hit the plan that we projected from the beginning of the year. For next year, if we don't find the consolidation opportunities in Mexico and the U.S., yes, we would be thinking of increasing probably the dividend strategy that we have planned. We were targeting around 15% of our income. So at the moment, that's what was projected. But we think that we're generating an extra cash that we would probably use it and increase the dividend strategy that we have at the moment program.
Our next question comes from the line of Rodrigo Alcantara with UBS. Please proceed with your question.
So in Mexico, just curious on your view regarding the conversion of select stores have been very, very aggressive in the conversion to this format. So I was wondering if you can give us a sense of how many stores left could be converted into this format or in addition to new openings of the select formats? [indiscernible]also have Supercito Selecto format, right? Is that correct? If you can comment also on how it has performed. And the second question would be regarding your profitability. And how much more efficient you could get in your view in order to keep on expanding your EBITDA margin in Mexico that was surprising as per to the upside, the gross margin is standing. So I was wondering if you can comment on to what point could scale be an issue for you to, let's say, get an 11% EBITDA margin or so? Any thoughts regarding this would be very helpful. Thank you very much.
For the Super – for the Selecto format, we're very happy with the format. And we have entered in the -- with the Selecto the free size format of our stores. We have Tiendas Chedraui 28 Selecto stores, Super Chedraui 14 Selecto stores, and Supercito 5 Selecto stores. And in all the 3 size formats, we have been very successful. This year, we are converting, I believe, 5 stores into Selecto. And we think that it's a format that can continue to grow, probably very few to convert but able to grow in other cities where we don't have, for example, a Selecto store at the moment. It's a very profitable format with very limited competition now that [ Superama ] has gone and became more of a typical I would say, supermarket concept, not high end, has opened the door for us as well as for [indiscernible] formats to grow in this particular area.
And about the profitability?
On the margin expansion, as long as we keep growing our same-store sales close to double-digit numbers, there will be still margin expansion opportunities because at the end, our expenses are growing less than our sales, and that's always an opportunity. We believe that on the gross margin, there are still opportunities because we're being more efficient on inventory control, but that will be limited in the future. I think that the margin expansion will be coming from the ability to same-store sales growth that we have proven to be able to sustain close to double-digit numbers.
[Operator Instructions] Our next question comes from the line of Rohini Parikh with Barclays. Please proceed with your question.
My first question is just on labor costs you mentioned it just your outlook on both regions and also any trade down dynamics for region pro forma, what you're seeing out there. Thank you.
As I already mentioned, our sales have been able to grow same-store sales higher than our labor costs, except for some particular regions where we compete with other industries. But overall, in Mexico, I would say that our labor cost expansion has been expanding lower than our same-store sales. When we analyze sales by region, mostly comes from Southeast and Southwest and the central part of Mexico and particularly in all of our formats, I would say that are growing pretty much at the same pace. And maybe, Carlos, you can comment about the labor in the U.S.
Look, the -- we continue to see related to cost pressures in the U.S., albeit at a lower level than we have had in the last 24 months. But we don't certainly see them coming down. So we think they're going to be in a more controlled environment moving forward, but still high.
Rohini, let me add to your question about the trade down. We've seen that the speed of growth in ticket has been reduced and -- but we sustain again in transactions of customers. So yes, there's a trade down in the pesos that they are spending the ticket, but we're gaining customer count. So in the general, we have been able to sustain the double-digit growth or close to double-digit growth in Mexico.
[Operator Instructions] There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.
Well, I just want to thank everyone for joining and hope to be talking to you again at the beginning of next year to comment about the fourth quarter results where we don't expect any changes in the trend that we are seeing. So we expect to close a very good year. Thank you so much, and well happy holidays in advance to everyone. Thank you.
Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.