Grupo Comercial Chedraui SAB de CV

BMV:CHDRAUIB

Earnings Call Transcript 2021-Q4

[Operator]

Welcome to the Grupo Chedraui Conference Call for the Results of the Fourth Quarter of 2021. With us are Mr. Antonio Chedraui Eguia, CEO of Grupo Chedraui; Mr. Carlos Smith Matas, CEO of Bodega Latina; Mr. Humberto Tafolla Nunez, CFO of Grupo Chedraui; and Mr. Arturo Velasquez, 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 Eguia. Please go ahead.

[Jose Antonio Chedraui Eguia, executive]

Thank you. Good morning, everyone. It is a pleasure to be with you today in this conference call regarding Grupo Chedraui's Fourth Quarter and Full Year 2021 results.

2021 has been a year of many changes for Group Chedraui. We were the fastest-growing public retailer in the [ year ], which is a true reflection of consumer confidence in us. At the same time, we managed to expand our market share and meet our profitability objective by expanding our EBITDA margin on an annual basis.

In the U.S., the acquisition of the Smart & Final has tested and confirmed our ability to execute. While we are achieving strong growth pace in our current format, we are now serving a new customer base, thanks to Smart & Final's proven business model. We are excited for the new year and determined to continue creating value for Chedraui and its shareholders.

Now if you will allow me, we will review the results for the fourth quarter and full year of 2021, starting with the highlights of the quarter, and then we will review the financial results. In this call, I will be mentioning reported and comparable figures. The latter refers to figures that exclude the consolidation impact of the Smart & Final within Grupo Chedraui's results.

In this quarter, we achieved consolidated sales growth of 67% for the quarter and 29% for the year. In Mexico, we achieved a 10.5% same-store sales growth, outperforming ANTAD 7%. While in the U.S., we achieved same-store sales growth of 11.5%. Consolidated EBITDA growth in the quarter of 65.5% and 15.5% on a comparable basis. Net debt-to-EBITDA pro forma ratio of 4.8x in Q4 '21.

Now I'll continue with the results starting with the top line. In the fourth quarter, we registered consolidated sales over MXN 65,000 million, equivalent to growth of 67% year-on-year. Excluding the consolidation of the Smart & Final operation, we achieved comparable sales growth of 9.2% for the full year of 2021. We achieved 28.8% growth with reported figures and 3.7% with comparable figures.

Retail Mexico, we achieved 3.5% increase in same-store sales growth, which outperforms the 7% result reported by ANTAD for the same period. Sales for the division reached MXN 25,971 million with double-digit growth in the south and southeast regions, highlighting strong performance in the tourist service and a moderate increase in the center and the metropolitan region of Mexico City.

I would like to highlight the great result obtained in the omnichannel operation, which obtained a 4% share of Mexico's total [ price ] in the year. This is due to strong performance in both internal and third-party channels. In the quarter, in Mexico, total sales grew 11.8%. In this quarter, we added 5 stores, raising net openings to 17 in the last 12 months, equivalent to 0.7% increase in the sales floor of this division. For the whole year, sales grew 9.4% in the country.

Regarding the real estate division, revenue grew 10.1% to MXN 259 million for the quarter of 2021 in relation to the leasable area. It increased 9.4% year-on-year. For the full year of 2021, revenue for this division increased 9.1%.

Going over gross profit and operating expenses. On a consolidated level, gross profit grew 69.3%, reaching MXN 40,295 million in the quarter and represented 22% of sales. Gross profit also expanded 30 basis points due to improved sales and efficient inventory management. For the full year, gross profit increased 29.6% with a margin over sales of 22.3%.

In relation to operating expenses, we continue to maintain strict control across all business lines. In the quarter, we recorded expenses for MXN 9,678 million, which represented 14.9% of consolidated sales while the whole year, this represented 14.8%.

EBITDA. Regarding EBITDA, in the fourth quarter of 2021, we achieved 65.5% growth on our consolidated result, reaching MXN 4,680 million, which represents a margin of 7.1% of sales. This growth was primarily driven by the consolidation of Smart & Final. On a comparable basis, the EBITDA we saw reached MXN 3,332 million with a margin of 7.6%, resulting in a 40 basis point expansion. For the whole year, the company's EBITDA grew 29.6%, accounting for 13,991 million with a 7.4% margin. In Mexico, EBITDA grew 16.2% to MXN 1,967 million and margin expanding 29 basis points to 7.6% of sales. This result is in line with the full year objective of improving profitability and what made possible by the operating leverage resulting from solid growth and rigorous control of expenses. For the full year, the EBITDA in Mexico grew 12.4% organically, reaching MXN 6,823 million with a margin of the sales of 7.6%. In the real estate division, EBITDA showed -- grew of 44.9%, reaching MXN 183 million in the quarter with a margin of 7.7% for the full year. The result of this division grew 22.3%.

Now if you allow me, Carlos is going to comment the results of our retail division in the U.S. Please, Carlos, go ahead. Thank you.

[Carlos Matas, executive]

Thanks, Antonio. And good morning, everyone. During this quarter, total sales for the U.S. business grew 150.5% to MXN 38,849 million after the consolidation of the Smart & Final operation. Same-store sales in the region grew 11.5% on a comparable basis. However, from a financial reporting perspective, sales grew 3.1% given this quarter have 12 weeks of sales versus Q4 of 2020, which had 13 weeks. For the full year, sales grew 54.7%, reaching MXN 97,299 million.

EBITDA in this quarter grew 154% to almost MXN 2.5 billion after the consolidation of the Smart & Final operation. EBITDA margin for the quarter stood at 6.4% of sales. By format, El Super continues to demonstrate its resilience by slightly expanding its margin to 7.4% sales in the period. On the Fiesta side, the EBITDA margin increased 75 basis points year-over-year at 5.5% of sales and in line with our long-term profitability expansion plan. For Smart & Final, this quarter had a few onetime effects that caused a decrease in EBITDA margin versus the prior quarter. Most significant was a $7 million increase to cost of goods sold due to the revaluation of inventory arising from the purchase price allocation process. This effect is nonrecurring and noncash. These income items drove Smart & Final to record MXN 1,396 million in EBITDA in the quarter, representing 6.2% of sales. For the full year, EBITDA grew 55.2% in to MXN 6,529 million, representing 6.7% of sales.

All 3 banners in the U.S. performed well in the latest quarter, in the fiscal year and continue to operate with solid fundamentals. We're enthusiastic about the opportunities that lie ahead and for having Smart & Final for a complete fiscal year operating under the Chedraui-U.S.A. banner in 2022. That would be it for the U.S. operation. Thank you, Antonio.

[Jose Antonio Chedraui Eguia, executive]

Thank you. Thank you, Carlos. Well, moving on to financial expenses. During the fourth quarter of 2021, financial expenses reached an amount of MXN 1,275 million, resulting in an increase of 63.3% compared to the same period of the previous year. This is explained by the increase in debt after the incorporation of Small & Final and the cost of its operating leases accounted under IFRS 16 after the consolidation.

Net income. Consolidated net income for the quarter grew 19.4% compared to that achieved in the same period of 2020, reaching an amount of MXN 969 million with a margin over sales of 1.5%. For the full year 2021, net income increased 21%, reaching MXN 3,426 million, equivalent to 1.8% of sales. This result also drives growth in the last 2 years of 158% for the quarter, and they are handled in 24% comparing the full year 2021 with 2019, demonstrating the company's ability to improve its profitability. I think it's worth to highlight on.

Financing and capital expenditures. Regarding leverage, the company recorded net debt of MXN 8,466 million. The pro forma net debt to EBITDA ratio, which includes estimated 12 months of Small & Final results, closed at 0.8x. While the reported figures, the ratio rose to 0.61x. Again, it's important to highlight the company's capability of cash generation that was already improved in the quarter.

Finally, the cumulative invested CapEx, including the investment in the purchase of Small & Final, amounted to MXN 15,828 million.

Now if you allow me, we will move to the question-and-answer section. Thank you.

[Operator]

[Operator Instructions] The first question is from Mr. Ben Theurer from Barclays.

[Benjamin Theurer, analyst]

Congrats on the strong results. Two quick questions, one on the U.S., one on Mexico. So in the U.S., when you talk about the same-store sales growth, I mean adjusted for around about 3%. Given the inflationary environment we're in, could you elaborate a little more in detail on what you're seeing on pricing versus traffic and what your expectations are for 2022 just to understand a little bit the drivers? And where do you see an opportunity to potentially gain share from a traffic perspective? That would be on the U.S., my first question.

[Jose Antonio Chedraui Eguia, executive]

Carlos, maybe you can answer.

[Carlos Matas, executive]

Sure. Sure, thanks. First thing, just a reminder, we've been 53 weeks -- I'm sorry, 15 weeks, last year; 12 weeks this year. So when we talk about the normalized comp increase of 11.5%, we're really looking at calendar weeks, okay? Very strong at Fiesta and nearly double digits on the El Super side.

Yes, we have some inflationary tailwinds. They -- on the Super side, they're a little bit more substantial than they are in the Fiesta side given how Super's pie mix of perishable sales. What we are seeing is improving traffic in the quarter. And into 2022, folks are -- our customers are very, very focused right now on high prices, and it's all over the news. We're very aware of it. And they're always looking -- even though that there is an inflationary environment that they understand, they also tend to look for the best possible deal under tough circumstances, and that's where our strength as the lowest priced retailer in these communities that we serve versus our competition becomes a benefit to us. So folks are trading down and looking for whoever is the best priced retail and those have been helping us as well, which is a share gain for us.

[Benjamin Theurer, analyst]

That's exactly why I was trying to understand and get those comments. And then my second question is in Mexico. I mean it seemed to be a very strong quarter with very strong same-store sales. It's a similar question. What you've been seeing in terms of the dynamics here? I mean the outperformance was very, very nice during the quarter against some of the peers, most likely at least what we've seen in ANTAD. So just to understand, was it as well as traffic gaining market share thing? Is it ticket component? What's been driving that? And if you think about your competitive position in Mexico, where do you think the strengths are for 2022?

[Jose Antonio Chedraui Eguia, executive]

Thank you, Ben. I think we're benefiting in Mexico with our presence in the south region and in the tourist areas. I think that is helping us a lot in the quarter. But it is also true that we have been able to -- even in those regions as well as in other regions to grow more than our competition. And we have been able to grow not only in our ticket size due to inflation and due to price increases, but also we have been able to grow on the traffic side in Mexico in every region where we participate. And I think that we have been able to produce better and better the appropriate assortment at store level, and you can see that shows as well on the inventory finance because we have been able to turn inventory faster in Mexico and we use markdowns. And that shows to the customer as well with more fresh inventory and a sustained pricing strategy that has been sustained throughout the year with Chedraui that with that confirmation has to do the results.

For this year, we expect -- we projected our same-store sales growth in Mexico of 12.5%. We think it's going to be over that percentage. January was very, very, very strong, even stronger than what we ended up in the quarter, in the last quarter of 2021. And February shows very, very strong. So we are happy to announce that we will probably be able to grow strongly in Mexico than what we projected in the beginning. And our growth is both [ bigger ] and traffic.

[Operator]

Our next question is from Mr. Luis Willard from GBM.

[Luis Willard Alonso, analyst]

Congrats for the outstanding year and results. I just have a question for you. I mean after the Smart & Final acquisitions due to the strong free cash flow generation, especially Mexico, as you mentioned in your remarks, I mean you now enjoy a pretty solid balance sheet, perhaps solid as it was right after the IPO. So have you thought some capital allocation for, say, the next 3 years changed as a result of this? And if so, how have those capital allocation priorities change as of now?

[Jose Antonio Chedraui Eguia, executive]

Thank you, Luis. We plan to use the cash we're generating basically to grow faster. We think that we have proven to be able to execute really well our acquisitions in the past. And at the moment, we will open for those opportunities in Mexico as well as in the U.S. So we think that we're going to be able to grow faster than what we projected. Our guidance shows us our organic growth expected for the year, but we will open to our decisions. And we are looking at possibilities in Mexico, and we are open to look at possibilities in the U.S. So that's where we think we're going to use the cash.

The other possibility to get the cash that we're using in at the moment leads to prepaid vendors because that gives us a financial benefit but also it's very profitable for us. And that's perhaps a second option that we will pursue on a short-term basis to use the cash we generate in Mexico. We don't want to prepay our debt in the U.S. due to the billing good grade that we've initiated for the acquisition for Smart & Final. I don't know if that answers the question, Luis.

[Luis Willard Alonso, analyst]

Yes, that was perfect. If I may follow up on that last remark, I think it's interesting. I mean as you continue to grow and as you continue to generate cash, especially in Mexico, as you mentioned, that it is in a different position to negotiate with suppliers, so do you see that changing structurally for Chedraui? That should be reflected in the next 2 or 3 years [indiscernible] about your backlog or something like that. Is that how you see it?

[Jose Antonio Chedraui Eguia, executive]

We see that with this combination of growth throughout the years of capital, we see that we would be able to increase the recurring invested capital very aggressively in the coming months. That's what we've seen. But we think that growth opportunities in Mexico are few, and we will pursue those.

[Operator]

Our next question is from Mr. Bob Ford from Bank of America.

[Robert Ford, analyst]

It was a great quarter, so congratulations. Can you talk a little bit about your efforts to improve value propositions at Fiesta? And as you consolidate Smart & Final and really began assessing mix in terms and benchmark other areas, can you comment a little bit on where you're finding the biggest opportunities for the U.S. or for Chedraui as a whole? And then lastly, how are you thinking about Smart & Final in Mexico?

[Jose Antonio Chedraui Eguia, executive]

Maybe, Carlos, you can help you with this, and then I'll try to answer Smart & Final in Mexico.

[Carlos Matas, executive]

So you've seen continued improvement in our margin expansion at Fiesta. As you know, we had very detailed and specific 5-year plans for that business post our acquisition for [ Aecon ], and we're executing on it. Really there's 2 components there. First is the perishable sales mix of that banner was low, so we thought there was a tremendous opportunity for us to create value for our consumers by investing in these departments that is so important to the Hispanic and inner city consumer that we serve there. And we're doing that, so we're seeing an improvement in the sales mix on our perishable offering. That's driving additional margin. Not only that, but you're seeing us negotiate much better with our vendors. And our price index as compared to the markets in general comes down every period. So our team is executing on that, grabbing those negotiations with vendors and applying it to price.

And when you combine that low price position, and customers are seeing all the investments that we're making in the stores, they're refreshed, they're rebranded, they've got new departments, the consumers coming back. So it's really going to take us a little bit of time, but the efficiencies that we thought we'd obtain has certainly materialized. Communication with Smart & Final is going better than we anticipated. So we've got our 2, let's call it, Hispanic banners operating on -- independently. We've got the Smart & Final banner operating on its own. It's getting a rebound from the business customer, which is huge. It's coming back. That's driving sales. And now we begin the process of really integrating and consolidating our IT functions, our HR functions, our administrative and finance functions where we see significant opportunities, not only as we integrate the Fiesta, El Super side with Smart & Final that look to drive itself. So that's going to be a little bit of a longer road, but we certainly have very strong opportunities that we simply can materialize.

In addition to that, at the U.S. as well, now we're -- our teams are -- both purchasing teams are working very closely to identify synergies and product procurement distribution as well as all the service vendors that take care of our stores, trash pick-up, et cetera. I think you know where I'm headed with this.

[Robert Ford, analyst]

It certainly helps, Carlos. And then my understanding is that Smart & Final was on an SAP platform. Is that correct? And maybe the transition now makes it a little bit easier.

[Carlos Matas, executive]

Right. So SAP and the latest version. So we've got a steering committee that is very active in making sure that all 3 -- Chedraui U.S.A. and Chedraui Mexico are fully integrated.

[Robert Ford, analyst]

That's good to hear.

[Jose Antonio Chedraui Eguia, executive]

About the possibility of Smart & Final Mexico, look, we -- Smart & Final is somewhere in Mexico. We have a joint venture with the [ Fibria ] to operate stores in Baja, California and [ Sonora ]. And we are going very, very successfully. We already have 17 stores with one opening that just happened, and we believe there is a huge opportunity for this format in Mexico. And yes, we think we will focus to expand this format in other regions of Mexico because it complements really well the format that we operate at the moment.

On the other hand, there is a huge opportunity for Smart & Final private label in Mexico, that it's already very successful in the northwest region of Mexico. It is very important for Smart & Final. It represents already 30% of Smart & Final sales. We have tested some of it in our operation in Mexico, in our stores in Mexico, and it is proving to be successful so we think there's a huge opportunity to bring these private label for our Chedraui formats in Mexico. So we think that, yes, there's a great future for Smart & Final in Mexico, and the [ fixed ] brands as well.

[Robert Ford, analyst]

And just to explain on that, Antonio, when you think about the complement of Smart & Final, can you comment a little bit about how Smart & Final is operating with Walmex in maybe the northwest and if there's any cannibalization? And as you think about this, does it make more sense to do a bigger coalescence of the 2 organizations just to address the conflict of interest that might exist?

[Jose Antonio Chedraui Eguia, executive]

Great question, Bob. We see that there is very limited cannibalization between Walmex and Smart & Final such that we've heard from our partners. We see that we have all these stores close to each other. And basically, the Smart & Final format services high percentage of business customers, which is very different. And our services, the household have different product presentations than in the typical household that goes to supermarket. So we think there's huge opportunity, for example, in every big city where we operate and where we are concentrated, but the potential tourist areas is huge. The potential in high-density cities where we already participating in is huge because it has a format that has been able to service both the business and the household in a different way subsystem.

[Robert Ford, analyst]

Yes. And just one last question and that is, how does the footprint in Mexico Smart & Final compare with a Sam's or Costco or [ CV Club ]?

[Jose Antonio Chedraui Eguia, executive]

Well, it's a smaller format. Very, very -- a lot smaller. But we have higher assortment than a typical Costco, for example, in food. We don't carry general merchandise. We don't carry apparel as Costco does. And we are very focused in presentations that service better. We think the business customer than a typical Costco [indiscernible] times. That's what we have seen at least in the regions that we already operate in Mexico with the 17 stores.

[Operator]

Our next question is from Mr. [ Bernardo Malika ] from Compass Group.

[Unknown Analyst]

Congrats on great results. My question here is in terms of the U.S. but maybe also Chedraui as a whole. As you're seeing great results and growth in the U.S. and with ongoing problems in the stock liquidity, is the U.S. listing a possibility? And if so, could you give some detail about when this could happen or if you have discussed it?

[Jose Antonio Chedraui Eguia, executive]

Bernardo, for sure, we have discussed this and evaluate this. It is a possibility. It could be in 2 ways. Could be listing our operation in the U.S. and could be if we don't think that the value of our stock in Mexico is well represented, could be a possibility of listing in Mexico, listing the whole company in the U.S. We have thought about it. It's not going to happen in the very near future. We're more focused in growth and operating our consolidation opportunities in the U.S. and acquiring those synergies that we projected. But yes, there's a possibility of doing that if we find value to our stockholders, which at the moment, we see that will be done. I don't know if this answers your question, Bernardo.

[Unknown Analyst]

Yes, of course, Anthony. And just if you could just repeat your expected growth in Mexico versus ANTAD in 2022. I just missed that moment. If you just repeat it.

[Jose Antonio Chedraui Eguia, executive]

Well, we expect when we deliver the guidance of 4.5% same-store sales growth, but we believe we are going to be quite a lot higher than this number. We experienced growth in January very, very high. Higher than what ANTAD reported and even a little higher than the what we ended up in the fourth quarter. Probably shows to be very strong again. So yes, you're going to -- we don't want to review our guidance yet because this is just the beginning of the year, but we believe in tends to be stronger. For the last quarter, we were able to grow 10.5% same-store sales compared to a 7% NPAT.

[Operator]

Our next question is from Mr. Rodrigo Alcantara from UBS.

[Rodrigo Alcantara, analyst]

The first one would be, I would like to understand your view in terms of private consumption for Mexico for 2022 and how this would be linked in terms of your inventory strategy. I'm asking this because we have clear some CPG companies talking about retailers in from destocking as they're turning more cash on consumption. So I just want to understand. Is that the case for Chedraui as well? That would be my first question.

And the second one, very quickly, if you can share with us any price GAAP metric that you gave versus ANTAD or versus your peers. Any metric in terms of price that you can share with us just to understand how competitive your prices are in Mexico, right? I mean we know that you're one of the chief provider, but just to understand the magnitude in Mexico. That would be really very helpful.

[Jose Antonio Chedraui Eguia, executive]

Thank you, Rodrigo. Price consumption -- I'm sorry, private consumption in the regions where we are has been very strong. We believe that is going to continue. We think that the differences and similarities as well as wage increases have been able to produce a consumption growth that is not exactly the same in other region, but we believe it's going to continue. At least, that's what we see in the regions where we have visibility.

On the price side, we are very aggressive. We have 3 different, as I say, aggressiveness. One, which is the aggressiveness where we compete. Again, the lowest prices in Mexico, which would be ourselves and [indiscernible], and we are very aggressive in those particular stores. And we would be a little lower than [indiscernible]. Then we would have the [ AB ] stores where we compete against the supercenters, against the [ La Coma ], against [ Solana ] where we would be less aggressive than our lowest price format but very aggressive as well. We could drive different [indiscernible] lower in this format around 2%. And then I'll come to stores, which we could be at a different level. We offer prices that are competitive but considering the quality and the assortment of these stores where we need in a different level. And we are very conscious about price. We believe that from flag that we have been able to show towards to our customers throughout the year that we have been operating in the supermarket business since our first store in 1970. I don't know if that answers your question, Rodrigo.

[Rodrigo Alcantara, analyst]

Yes. Just a quick one very quickly. On the private label, I mean, in Mexico, you make comment on Smart & Final. We know the numbers from the perspective of that. But if you can remind us on -- for Mexico on a solid consolidated basis, what's the percentage of private label? I assume that it performed particularly well in this -- it cost perform particularly as well in this periods of high inflation. So any comments regarding the performance of your private label would be helpful. That would be it.

[Jose Antonio Chedraui Eguia, executive]

Private label at the moment is close to 8% of our sales in Mexico. We believe there's a huge opportunity for this segment of the business, and we put together a good assortment of Smart & Final private label that has been doing well in the northwest region of Mexico. We offer that in our stores in other regions in Mexico, along with the private label that we are carrying. We believe there is a future to increase this percentage and benefit in price aggressiveness as well as in gross margin.

[Operator]

Our next question is from Mr. [ Solite Casimiro ] from HSBC.

[Unknown Analyst]

Actually, just a quick follow-up. Antonio, you mentioned that omnichannel penetration in Mexico was at 4% in the first quarter. But can you give us a bit more details of maybe how much is contributing the growth of the Mexican operations? And also how much of this -- of the partners of the omnichannel operations is related to third parties? Maybe if you can give a bit of more disclosure on that, it's going to be a helpful.

[Jose Antonio Chedraui Eguia, executive]

Well, it is -- the omnichannel operation is very strong in certain regions of Mexico, more on the high end of the metropolitan cities, basically Mexico City. That's where we have a big participation of our omnichannel sales. And half of it comes from our third-party partners, and half of it comes from our own platform. We are very happy with what we are doing, and we are planning to expand omnichannel in other regions, but it doesn't grow as fast as it does in the metropolitan areas in Mexico City, for example.

[Unknown Analyst]

Okay. But for example, I think the first sale was 11%, right, in Mexico, about 10.5%. So can you give us an idea, more or less how much of the same-store sales is being impacted by e-commerce?

[Jose Antonio Chedraui Eguia, executive]

I will need to review that and share that number with you. At the moment, I don't have that.

[Operator]

Our next question is from Mr. Jeronimo Cobian from Actinver.

[Jerónimo Cobián, analyst]

First of all, congrats on the results. I was wondering if you can elaborate more about the operating expenses of Smart & Final that were recorded during the fourth quarter. And also, if you can tell us what level of EBITDA margin can we expect for Smart & Final in the next 2 quarters given others that we saw in the last part of 2021.

[Jose Antonio Chedraui Eguia, executive]

Carlos, I think you can explain this and I will take it.

[Carlos Matas, executive]

Yes. Yes, thank you. Smart & Final in general has very strong sales during the holiday season compared to these days, with very, very strong promotions. So Q3, thanksgiving, you've got Christmas, New Year. Smart & Final does a great job as a retail with items that are specific to gatherings and so forth. So there's a natural dip in margin during that quarter. But most importantly, in this particular quarter, it's important to point out the onetime expenses that we had this year related to a $7 million inventory revaluation related to purchase cost allocation. That certainly hit EBITDA.

But in addition to that, I do want to call out that we had about a $20 million depreciation impact due to purchase price allocation as well that affected net income in the quarter. So what you'll see normally is just a little bit of a dip we anticipate. It's something that we're [ mining ] as we experience the first fourth quarter with Smart & Final. Unfortunately, there is quite a bit of noise in these numbers given that we -- due to the inflation that we were dealing with incredible number of cost increases that were coming into different vendors. All these banners were very aggressive in pushing back as much as possible until the market is reflecting some of these cost increases. So there's a little bit of noise in that regard, but I think the general trend is that during these important holidays and events like Super Bowl and Valentine's Day, Smart & Final is just a destination outlet for it. So I would anticipate you're going to be seeing very similar margins to what you saw in Q3. And if time goes on, we're going to start seeing some expanded margins due to all the efficiencies that we're trying to achieve.

[Operator]

Our next question is from Ms. Vanessa Quiroga from Credit Suisse.

[Vanessa Quiroga, analyst]

One -- or a couple on Mexico. In which locations do you expect to be expanding the Supercito? And also, your -- if you could detail on the e-commerce efforts for 2022? Do you expect to be launching other marketplace as an additional offer for clients?

And for the U.S., my question is on -- maybe not necessarily on the quarter, but in general. Is it -- do you expect to keep a gap versus inflation on a permanent basis? Is this something structural of supermarkets in the U.S.?

[Jose Antonio Chedraui Eguia, executive]

Thank you, Vanessa. I would answer the first 2. Supercito, we are concentrated at the moment in 2 cities, that's Mexico City, the Metropolitan area of Mexico City; and now we start with Veracruz, which would be the second city. And we think there are other cities with this characteristic that might have the potential. But at the moment, we will concentrate with these 2.

And about the e-commerce. Yes, we have a project to increase our own platform and end up with the marketplace possibility as well as growing with our third-party partners that serve the omnichannel, adding capabilities with commercial, with Rappi and new capabilities with [ Cara Libre ]. We believe there is a huge opportunity for us. We think that we could increase omnichannel sales participation close to 5% of the year-over-year. That's our goal, which is a big growth because we have been able to expand our sales very aggressively. So we think we can expand even more aggressively on this channel. And maybe Carlos can talk about our consumption in the U.S. and inflation gap.

[Carlos Matas, executive]

Yes, of course. Just a quick one. Really, absent inflation or deflation like we experienced in I think it was 2018 in some of the inflation categories, what we do have are very defined targets as to where we want to be price that this is our competition in all the markets that we serve, right? So that's our driver. And at the end of the day, we will always strive to be the lowest-price retailer in the markets that we serve. So really, it's a matter of how quickly we see the market reflecting those new cost increases in their retail pricing, but we will not move until we see the market has moved and then we apply pricing rules to maintain our pricing advantage. That is why that even in this inflationary environment, people -- price is top of mind right now. And you see it in the reviews that we get from our customers saying hey, the market is going up, but just Super, Fiesta, et cetera, they are the best price in a bad environment. So that drives traffic to us. So it's really not a matter of what kind of drag we want to keep versus inflation, it's really how the market tends to move.

Now in a heavy inflationary environment like we're dealing with today, the market moves very fast. In normal times, it's always a struggle with our vendor community and people buying in and especially the big chains. So our team is experienced with this, and they're doing a great job with it.

[Operator]

Our next question is from Mr. Alvaro Garcia from BTG Pactual.

[Alvaro Garcia, analyst]

Two questions. The first one is also on Supercito. I was wondering, now that you have 60 stores or almost 60 stores, if you can give us sort of a strategic update. How have you managed to -- one, on sort of profitability and sort of managing that proximity format and what you're thinking with how Supercito can grow both in Mexico City and in other regions.

And then my second question is more of a sort of macro question on the southeast. We've seen very strong results. And I'm curious to hear your thoughts, Antonio, on how sort of structurally you think the growth we're seeing in these regions are. We've seen a lot of tourism activity. Do you think that sticks or not? See a lot of investment from sort of this administration from [ Morena ]. Do you think that sticks or not? How structural do you think this growth in the southeast of Mexico is?

[Jose Antonio Chedraui Eguia, executive]

Alvaro, thank you for your questions. Well, as you just mentioned, yes, we have our 59 Supercitos, and we're very happy with the format because we have been able to service these Supercitos really, really, really well with 3 different channels. One, which is DFV, direct from vendors. The other one is throughout our distribution center. And the other one with our mother stores that are close to the Supercitos. Combined, we have been able to produce a very, very efficient, sustainable assortment with cost efficiencies that would be very difficult to obtain if we have not had the possibilities of serving this format throughout the -- our channel possibilities. This has allowed us to obtain returns on the invested capital close to 30%, which we're very happy with this. And we believe that we can sustain these returns with the new Supercito that we are going to open in the cities where we have planned. At the moment, we are concentrated in Mexico City and Veracruz, as I mentioned.

About the southeast, we think that tourism is going to stay, it's going to be sustained. And we think that we have a lot of experience servicing these customers in the past, and we have been very efficient doing that and not necessarily due to any particular [ perpetual ] investment that we have seen in this time. So maybe it's not going to be as strong in the future years in terms of growth, but we have a lot of experience servicing this customer and being very profitable doing these and acquiring more market share. So we're very confident with the south and southeast regions of our country.

[Operator]

Thank you very much for your questions. That was the last question. I will now hand over to Mr. Antonio Chedraui Eguia for final comments.

[Jose Antonio Chedraui Eguia, executive]

Well, I just want to thank everyone for joining and hope to be talking to you at the end of this first quarter. Thank you very much, and thank you for your questions again. Thank you for your time. Stay safe. Thank you.

[Operator]

Grupo Chedraui would like to thank you for your participation in today's conference call. You may now disconnect.