Grupo Comercial Chedraui SAB de CV
BMV:CHDRAUIB
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Grupo Comercial Chedraui SAB de CV
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Greetings, and welcome to the Grupo Commercial Chedraui S.A.B de C.V. Q4 2022 Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. And it is now my pleasure to introduce to you, Antonio Chedraui, Grupo Chedraui CEO. Thank you, Antonio. You may begin.
Good morning. It is a pleasure to be with you today at this conference to discuss Grupo Chedraui's results for the fourth quarter and full year of 2022. 2022 was a year of recognition and validation of Grupo Chedraui's value proposition. Customers continue to find value for their money in our stores in all regions in which we operate. In Mexico, we have grown above the market for the last 4 years, while continuing to expand our EBITDA margin. The cash flow generation allowed us to acquire the Arteli operation, which strengthens our presence in the Northeast Mexico without acquiring additional debt.
In the U.S., along with solid levels of sales growth, we surpassed our profitability target for the year. In addition, we were able to find growth opportunities, as shown by the first opening of a Smart & Final store since the acquisition. We're excited for a new year and are determined to continue creating value for Chedraui and its shareholders.
Now if you allow me, we will review the results for the fourth quarter and full year 2022. Starting with the relevant events of the period, continuing with the performance of each region and ending with a review of the financial figures. Please go to Slide #4. In the quarter, we achieved same-store sales growth of 13.5% in Mexico, far exceeding the 9.7% increase announced by ANTAD in the same period. The result confirms our differentiated and winning value proposition, as we exceeded market growth in the last 4 years.
Regarding profitability, in this operation, we achieved an EBITDA increase of 26% and the margin expansion of 61 basis points year-on-year, increasing from 7.6% of sales last year to 8.2% in the quarter. On Slide #5, you will find the same metrics for the full year 2022. We achieved 14.7% same-store sales growth in Mexico, while EBITDA increased 25.3%. At the same time, a 60 basis point margin expansion for the year was achieved. These results are significantly higher than the objectives communicated to the market at the beginning of the year when we set a target of growing same-store sales by 4.5% and expanding EBITDA margin up to 15 basis points.
Please go to the next slide to see the result of the U.S. operation in the fourth quarter. This region also achieved outstanding results with same-store sales growth of 8.9% in dollar terms, fueled by a solid performance in the Hispanic division. In terms of profitability, the operations EBITDA grew 31.8%. This result comes from strong organic performance across our 3 U.S. banners. The EBITDA margin increased 189 basis points from 6.4% to 8.2%. The next slide shows Chedraui USA's result for fiscal year 2022. The operation achieved unprecedented levels of growth during the year, increasing sales by double digits. At the same time, EBITDA grew by an impressive 85.2% to MXN 12,094 million in the year. The EBITDA margin expanded 117 basis points in 2022, going from 6.7% to 7.9%.
Like Mexico, Chedraui USA results were significantly higher than the target set for the year in both sales and profitability. On Slide 8, you will find the consolidated results for the quarter. First, in terms of sales, the company grew 7.6% in the quarter. But it's important to mention that Chedraui USA's results were heavily impacted by the peso appreciation this year. Excluding this effect, consolidated sales grew 12%. Regarding EBITDA, the result increased 28.5% in the quarter, fueled by solid results in each region. EBITDA margin increased from 7.1% to 8.5% year-on-year, which reflects the company's ability to achieve sustained profitable growth.
On the next slide, you will see that net income more than doubled in the quarter, accounting for MXN 2,104 million, which is due to strong operational performance and reduced interest payments caused by recent debt prepayments. Regarding leverage due to our ability to generate free cash, we were able to go from a net debt to EBITDA ratio of 0.61x in 2021 to 0.05x at the end of 2022. On Slide 10, we present the consolidated results for the year. Sales in 2022 grew 37.6% compared to those of 2021, not only from strong performance in both regions, but also because of the consolidation of 12 months of the Smart & Final operation compared to only 6 months that were registered in 2021.
Regarding EBITDA, the result increased 53.2% in the year, with the margin growing from 7.4% to 8.3% in 2022. Finally, on Slide 11, you will see that Chedraui's net income increased 77.4% in 2022 due to the efforts and results in sales and operating income. Now we will continue with the results by region. Please go to Slide 12. In the retail Mexico operation, we achieved same-store sales growth in the quarter of 13.5%, which far exceeds the result reported by ANTAD, 9.7% in the same period. Sales for this division reached MXN 30,288 million, equivalent to 16.6% growth in the quarter. During fiscal year 2022, sales grew 16%. From a geographic point of view, sales performance in the South and Southeast of Mexico continued to outperform the rest of the country, highlighting strong sales in the tourist areas in which we operate.
We also experienced a significant sales increase in the center and metropolitan regions of Mexico City. In this quarter, we added 18 stores, increasing openings per total of 30 openings in 2022. I would like to highlight the fact that 12 of these store openings were done under the Selecto concept, and we continue to see great potential in that format. The Selecto openings include different store sizes, and were established in several regions of the country. Furthermore, our expansion plan for 2023 includes the openings of 60 new stores in the Mexican operation and projected sales floor growth of 3.6%. Please go to the next slide. In December, we acquired the operation of Tiendas de Descuento Arteli. Arteli consists of 36 stores with 3 different size formats. The acquisition allows Chedraui to obtain a leadership position in Northeast Mexico, and we estimate the transaction to be additive in the very first year.
We have identified potential synergies between Chedraui and Arteli, mainly in procurement and logistics. We are delighted to welcome the operation to Grupo Chedraui, and we foresee a bright future in both the short and the long term. On Slide 14, you will see that the EBITDA of the operation in Mexico increased by 26% in the quarter and 25.3% for the full year, reaching MXN 8,560 million. Due to the accelerated sales growth as well as an operational and financial discipline, we achieved an EBITDA margin expansion of 61 basis points in the quarter and 60 basis points in the year, which is significantly higher than the 15 basis points margin expansion that we communicated at the beginning of last year.
Regarding the real estate division, we reached similar levels of tenant occupancy to those prior to the pandemic. Due to this, the revenue of the division in the quarter grew 12.7%, while EBITDA increased 12%. Next, Carlos will comment on the performance of Chedraui USA. Carlos, please go ahead.
Thank you, Antonio. If you may, please turn to Slide 15. During
[Audio Gap]
which included high inflation, we maintained the attractive value proposition that our customers seek. Please note that Q4 is the first quarter in which the Smart & Final stores are considered part of same-store sales. The Hispanic division continued to drive growth with solid results at both El Super and Fiesta concluding with an unprecedented year. In this fourth quarter and during the year, we increased not only the average ticket, but also customer count across all banners. However, as mentioned, the results in pesos was negatively impacted by an exchange rate effect of 6.7%, which resulted in 1.5% sales growth in pesos in the quarter. For the whole year, Chedraui USA sales grew 57.7% behind robust operating performance at all banners and the consolidation of the Smart & Final operation. We're also pleased to announce that during the quarter, we opened a Smart & Final store in San Jose, California. This opening represents both the first Smart & Final under Chedraui ownership and the first opening for Chedraui USA in 4 years. As we continue with our integration efforts, we're also focusing on driving growth as we plan to open 4 new stores in 2023.
Please go to Slide 16. In the fourth quarter, the U.S. grew EBITDA by 31.8% and 189 basis points. The outstanding result comes from strong performance across all banners as Smart & Final's results were already included in the prior comparative quarter. For the full fiscal year 2022, Chedraui USA's EBITDA increased 85.2% with a 117 basis point EBITDA margin expansion. The El Super operation continues to demonstrate the success of its format by achieving a margin of 9% in the period equivalent to a year-over-year expansion of 167 basis points. On the Fiesta side, the EBITDA margin increased 270 basis points year-over-year to 8.2% of sales. With this result, we met the goal set at the time of the acquisition of achieving at least 7% EBITDA margin by year 5. At Smart & Final, EBITDA margin reached 7.9% behind solid top line performance and our continuing process of materializing synergies. As we said before, our operating foundation in the U.S. remains strong, and we are eager to leverage our healthy performance into growth opportunities. Thank you, Antonio.
Thank you, Carlos. We turn to the consolidated financial results on Slide 17. In the fourth quarter of the year, we recorded consolidated sales of MXN 70,023 million, equivalent to growth of 7.6% year-over-year. Excluding the exchange rate impact, we achieved 12% sales growth. Gross profit increased 10.7% with a 63 basis point expansion in gross margin, while operating expenses only increased 2.2%. Due to this, the consolidated EBITDA grew 28.5% to MXN 5,944 million with an 8.5% margin. During the quarter, the financial cost reached MXN 1,315 million, which is an increase of 3.1% compared to the same period of the previous year. This increase below the growth rate in operating income is explained by debt prepayments that the company made with the cash flows generated in the last 12 months.
Moving on to the consolidated net income for the quarter. The result was more than double than what was achieved in the same period of 2021, reaching an amount of MXN 2,104 million and representing 3% of sales. This result demonstrates the company's continued improvement of its profitability. On the next slide, you will find the same metrics for the full fiscal year.
Sales grew 37.6% in the year, with an increase in gross profit of 41.4%. We achieved good leverage as the operating expenses grew at a lower rate than the gross profit. The consolidated EBITDA for the year increased 53.2% with a margin over sales of 8.3% and represented an unprecedented level of profitability for the company. The financing expenses increased 32.7% due to the consolidation of leases associated with the Smart & Final operation as only 6 months of its operating results were accounted for in 2021. The company's net income increased 77.4% in the year, with a net margin expanding 53 basis points to 2.4%.
Please move to Slide 19. The financial leverage decreased from 1.26x at the time of the Smart & Final acquisition in Q3 '21 to 0.05x at the end of 2022. This highlights the company's ability to generate free cash flows and is particularly impressive considering that the acquisition of Arteli in Mexico closed in December. Finally, the accumulated CapEx invested in the year amounted to MXN 6,789 million, which is equivalent to 2.6% of sales. This figure includes the amount paid for the transaction.
On Slide 20, you can see the breakdown of the debt at the end of 2022. The company recorded a net debt of MXN 1,116 million. All the debt today is in U.S. dollars and primarily associated with the acquisition made in 2021. Lastly, I'd like to highlight some achievements and initiatives regarding ESG. The company was recognized for the second consecutive year for its efforts in gender equality as it was included as a member of Bloomberg's Gender Equality Index. Likewise, we improved our corporate sustainability assessment result year-on-year as we're being ranked in the 81st percentile among retailers worldwide. In 2023, we will continue to review and improve our transparency efforts as we're going to continue working with third parties such as CDP.
Now if you allow me, we will move on to the question-and-answer section.
[Operator Instructions] Our first question comes from the line of Antonio Hernandez with Barclays.
Congrats on your results. Quite impressive numbers. So you posted a solid close of the year, you went through your guidance. And as you mentioned, you achieved targets in the U.S., Mexico and overall solid results. But what's next for the U.S.? What the next target in terms of profitability, especially what should we expect for the 3, 4 months? And what should be maybe some normalized EBITDA margins ahead for the U.S.
Carlos, maybe you can share the U.S.
Yes. Antonio, I had a hard time hearing your question, but I think what you're asking is what's next for the U.S. in terms of EBITDA margins. And what I can tell you is, look, the El Super format is operating, obviously, at a very, very high level. But we continue to find opportunities for continued improvement. Fiesta, we've had a very disciplined strategy that goes back to the date of the acquisition. Our remodeled stores and our new processes, our operating discipline is bearing fruit, and we think that there's continued improvement ahead. On the Smart & Final side, Smart & Final has always operated at a very, very high level. With our larger scale, we bring new leverage in the buying function, and we continue to identify and execute on synergies on a Chedraui U.S.A. level. So we're happy with the results, but we continue with our plan to continue to expand margins.
Okay. And in terms of the competitive environment in the U.S., how are you finding it there? I mean, has it been maybe tougher than what was expected because before you used to operate only the Hispanics -- in the Hispanic segment, and now with Smart & Final you have diversified. So what about that competitive environment, especially since you've been operating that format for over a year. How is the consumer environment you're finding there in that format?
Well, on the El Super and Fiesta formats, as you know, we've been the consolidator in that space. So we're the largest operator in that segment by far. We understand and know the competitive landscape very, very well. The growth that you're seeing is because of our pricing discipline. Our price gap versus competition remain very, very, very strong. And combined with solid execution at our stores, these are the types of results that you got. One of the reasons that we were so bullish on the acquisition of Smart & Final is because Smart & Final operates in its own lane. We like the uniqueness of the concept. So you're not really going up against mainstream grocers in the U.S. or the traditional warehouse clubs. So we like the lane that we're in. It is very unique and it's hard to compete with that concept. So we're very bullish.
And the next question comes from the line of Juan Ponce with Bradesco BBI.
Congrats on the solid results. My first one is on the potential labor cost in 2023 in Mexico, specifically on how you see the impact of minimum wage hikes, the doubling of vacation days, the gradual increase of employer pension contributions, how do all these factors impact the way you think about pricing in 2023? And do you see the consumer strong enough to pass down any additional cost pressures? And how does all of this coincide with the various price [ packs ] with the federal government to contain inflation?
Thank you, Juan, for your question. Well, we are experiencing a labor cost impact. We already knew about it, and we are projecting leverage in other cost areas with efficiencies in certain processes, that with an expansion of the gross margin, we expect margin expansion in Mexico of 15 basis points on the EBITDA margin. Even with this increase in labor cost included that in certain regions, the increase in the labor cost is expanding more than what is projected on a national level due to the economic growth, basically in tourist areas and certain areas where there's competition in other -- from other sectors for the same labor cost. We are aware of that, and we're including these effects in our guidance, which we see that we're pretty much aligned to meet those objectives at the end of the year.
The next question comes from the line of Bob Ford with Bank of America.
Congratulations on the quarter. Antonio, I know you're lapping some PP&A amortization, but the efficiency improvements across these business units was very impressive. And as you pointed out in your comments, they're well ahead of plan. I was hoping that you could provide some detail in terms of what's behind some of the reductions in your much lower expense ratios in Mexico and the 3 U.S. banners.
Well, I think it explains. Thank you for your question, Bob, and it's good to hear you again. Basically, explains in 3 basic areas. One is our ability to increase sales, which gives a leverage on other expenses, and that's an ability that Chedraui has been able to sustain. As we already explained, at least for the last 4 years, being able to increase sales over our competition, and that allows us to leverage on the other areas. The second is that we have been able to gain efficiencies on the inventory management and sales mix that has allowed us to increase our gross margin, even being -- even that -- even though that we have been able also to increase our aggressiveness in certain periods here on the pricing strategy, allowing us to grow sales and being able to increase our gross margin. And be able to leverage sales with operating efficiencies, not growing our expenses over sales growth, allowing us to grow that EBITDA margin in the end. And basically, these 3 strategies have been we produced in Mexico as well as in the U.S. in all of our banners, Mexico and the U.S. It's pretty simple to say and to explain what to execute and to operate, there becomes the complexity. And I think Chedraui has been able to prove that we're able to do it.
That's very clear. And you're also accelerating the Supercito this year. Can you talk a little bit about how the concept is doing in terms of returns and how you're thinking about the longer-term footprint for the concept.
Well, Supercito is the format that we have with a higher return in Mexico. It's on the high 20s and return on invested capital is very, very efficient. But at the moment, we believe that we plan to expand 50 Supercitos this year, but in the coming years, we believe that we can be able to grow close to 100 to 150 Supercitos every year and meet our goal on a 5-year term of being able to open more than -- a little more than 700 Supercitos. It's a very interesting format for us and with high returns, as I have already mentioned.
No, that's really intriguing. And how are you thinking about Smart & Final in Mexico these days?
Well, as we already mentioned, Smart & Final, it's a joint venture that we have with the [indiscernible] family. At the moment, we have 17 stores operating in just 1 region, the Northwest, and mainly focused in Tijuana, have reached an agreement with the [indiscernible] family to grow in the whole country. We believe that there is a potential of probably close to 80 to 100 stores in the next 5 years period, but that depends on the agreement that we reached with the [indiscernible] family. We believe it's a huge opportunity. We like the format. We think there are many, many places that -- and cities that can benefit from this format, but it's pending on the agreement that we reached with the [indiscernible] family.
There are no further questions at this time. I would like to turn the floor back over to Antonio for any closing comments.
Well, I just want to thank everyone for joining our conference. And well, our guidance has already been published for this 2023. We believe we're going to be able to hit those numbers quarter-by-quarter. And I hope to be talking to all of you again next month. Thank you.
This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.