Organizacion Soriana SAB de CV

BMV:SORIANAB

Earnings Call Transcript 2023-Q1

[Operator]

Good afternoon, everyone. Welcome to Organización Soriana's First Quarter 2023 Earnings Conference Call. With us today are Mr. Rodrigo Benet Cordova, CFO of Organización Soriana; and Ms. Claudia González Romero, Head of Investor Relations for Organización Soriana. Together, they will be discussing the financial performance for the first quarter of 2023 and providing a summary of the latest news on the company. At the end of the presentation, there will be a Q&A session to answer any questions you might have. [Operator Instructions]. At the beginning of the Q&A session, we will provide instructions as to how you may participate in today's conference call. Please note that the conference call may be recorded.

I will now turn the conference over to Mr. Rodrigo Benet Cordova, CFO of Organización Soriana Please go ahead.

[Rodrigo Córdova, executive]

Thank you. Good afternoon, everyone, and thank you for joining us in this conference call regarding the financial results of the first quarter. Today with me is Claudia González, Head of Financial Planning Department and Investor Relations. Regarding the top line of our income statement, the company had a nominal increase of 5.2% versus the same period of last year, where total revenues reached MXN 39.4 billion, derivative from an increase of 4.1% in same-store sales as well as an extraordinary income in sales of land and also by a 9.6% increase in the real estate revenues.

At the store format level. Soriana Super continued -- continues outperforming, showing a growth of 6.8% as well as City Club with a 9.2% increase. Meanwhile, we have continued making important investment in advertising campaigns for the Soriana Hiper and Super stores, boosting and promoting the grand variety of regional products as well as our private brand and exclusive brands and also enriching the product catalog, both in store and online, where as of today, more than 57,000 SKUs are available.

Regarding the new stores opening during the quarter, we have innovated 2 stores, the first one during the month of February at Soriana Hiper in our home town Torreón with an investment of MXN 286 million with great results exceeding sales of other stores in the same city in 112%.

Soriana Mercado and Express store format continue pushing its 4 strategic pillars: low prices, private brand, loyalty program and focus in winning seasonal campaigns, where we continued analyzing and making fine-tuning in order to have a more precise value proposal for this particular type of client. Actually, the second stores generated in the quarter was Mercado Soria in Comitan Chapas, also with great success and a strong client traffic. This store required an investment of MXN 161 million. And with this opening, Soriana reaches a presence in 283 stores -- city stores across the country.

Moreover, we continue strengthening our private and exclusive brand strategy. We are adjusting our designing the offer by store format, which in the short term, we will begin to see the results. During this quarter, as an example, City Club's private brand increased participation in 2%.

We need to highlight that categories like clothing, home appliance, [ basics and car ] products show a double-digit increase even higher than 30%. We also have product launching in the wine category with exclusive brands from wineries from Argentina and Portugal also with great acceptance as part of our strategy of positioning Soriana as a reference -- as a leader in this category in the self-service sector.

Regarding the performance of our stores by region, basically, we can outstand Pacific, Mexico City and metropolitan area, the states of Jalisco and Baja California. It is worth to highlight that this is -- actually, this last one is the state of Mexico, is the state with a higher concentration of our stores. Mention why, we also have been a strong -- supporting very strong the Pacific campaign by offering the best prices in the basic product items in the country, along with our private brand offers which lead us to a positive effect in inflation control of the economy.

Moving on to our digital business. We achieved an increase of 11% in same-store sales in this business, which is a higher increment than the results obtained in the physical stores. Particularly, the Soriana app is the one that is showing the higher increase. Actually, the increase in this quarter is 75%.

Regarding the real estate results, we closed this quarter with an occupancy of 83.5%, which is a growth of 4.4 percentage points versus the first quarter of last year, reaching MXN 670 million, which represents an increase of 9.6% in this business. As a result of the above mentioned, [indiscernible]. We have an increase of 4.4% in square meter sales, which represents an increase in gross profit per square meter of 11.6% as well as a growth on transaction and ticket basically in all the forms.

Going down in the P&L, the line of gross profit in the quarter reached MXN 9.3 billion, which represents a gross margin of 23.8%. That actually is an expansion of 160 basis points, with an increase of 12.5% against the same period of last year. This increase was basically due to better commercial negotiations and the continued improvement of the shrink.

Regarding the operating expenses line, there was an increase of 17.3% versus last year, reaching MXN 6.5 billion, which represent over the same 16.5%. This increase in operational expense is basically attributable to the cost of personnel due to the filling of stores -- of the stores template and also a higher expenditure in advertising campaign as part of a more aggressive commercial strategy. And finally, it's also due to the increase of 630% in [indiscernible] investment derived from a double-digit increment in the investment of the CapEx that we are expending during this year.

All of this, as part of our strategy to offer a comfortable environment, better image and customer service in all the stores of the company. As a consequence of the variation and efficiency of payment at a gross profit level, the company's EBITDA in this quarter reached MXN 2.9 billion, which represents margin over the sales of 7.4% and an increase of 0.9% compared to last year.

Going down in the P&L and regarding the financial items. Net financial costs reached MXN 439 million in the quarter, which represents a decrease of 15.6%. Basically, this important decrease also help us to obtain at a level of net income, MXN 1.07 billion, which is equivalent to 2.7% of the sales and is equal to an expansion of 20 basis points and represents an increase of 14.2%.

Talking about the debt. As of the close of this first quarter, the total debt reached MXN 12.7 billion that represents an increase of almost 25% in net debt against the same period of last year.

Moving on to talk about the progress with our partner, Falabella, it's important to highlight that this quarter, Sodimac, the home improvement business, continues showing good results right now with [ 20 ] stores in operation. And thank you to the great acceptance from their clients and the strong digital business that is also implemented. We are seeing important increases in both total sales and same-store sales in this business.

On the other hand, I'm talking about our financial business with Falabella, the credit card Soriana Falabella. At the end of this quarter, we have more than 700,000 cards already used, and we are operating in more than 112 store models. And basically, right now, the credit portfolio surpassed the MXN [ 3.1 billion ].

Finally, as an update of the expansion plan for the year, in which we are planning to open the 17 stores and make the remodeling of 28 stores with a total investment of almost [ MXN 5 billion ] . We already make important remodeling in very important stores like Mexico City, the store of Pilares, the store of Los Cabos, the store of [ Tlatelolco ] also in Mexico City and the store of San Jeronimo here in Monterrey. These stores have exceeded our expectation of sales, traffic and ticket that reinforce us to continue going in these plans, and we are hoping to continue achieving these good results.

Furthermore, we hope that this information has been interesting and helpful to you, and we can continue to the Q&A session. Thank you very much.

[Operator]

[Operator Instructions] The first question is from Antonio Hernández from Barclays.

[Antonio Hernández Vélez Leija, analyst]

Thanks for questions. My question is regarding gross profit. You had a good expansion year-over-year, of course partially attributed because of the recovery in real estate. But wondering, how much of this margin expansion was because of the real estate business and other items? If you could further break it down, that will be very helpful.

[Rodrigo Córdova, executive]

Well, as I mentioned, the real estate business is continue -- growing and helping us to not only to increase the first line of the P&L. You are saying Antonio also the gross margin. Remember that the real estate business has huge margins close to 80s -- high 80s percent. So yes, this is helping. But if we make the breakdown, basically, the most important contribution to increase our gross profit level is coming basically from better negotiations in which we have obtained the major part of the expansion in our gross level -- gross profit level.

And still, we see, as I mentioned in previous quarters, we continue working permanently in the reduction of the shrink and to be more efficient on that. So we can say that I think that we can maintain this efficiency at a gross level. Probably, but it will happen going into the future is that we will try to use all of these efficiency at a gross level -- gross profit level and invest it again in price, particularly in Mercado and Express formats in which we have to continue working to position that format in the mind of the consumer as the best option in terms of price.

[Operator]

Our next question is from Mr. Ulises Argote from JPMorgan.

[Ulises Argote Bolio, analyst]

So I had just 2 quick questions here. The first one is if you could provide some detail there on the same-store sales dynamic. Any color or differentiation there between pick and traffic? And the second one, now that we're starting to see a bit of a normalization there on trend, reigniting the growth plan, the debt levels normalizing. Is there any plans on your best side to help share liquidity?

[Rodrigo Córdova, executive]

Sure. Well, first of all, giving you more colors about the same-store sales. We have an increase in both, but increasing transaction is higher than increasing the ticket as a whole company. I will give you a little more color about the same-store sales per format. The one with the highest same-store sales in this quarter is Soriana Super, as I already mentioned in the beginning of this conference call. And the second one, it will be City Club. But particularly -- I mean in the case of Soriana Super, basically, we have a little more than probably 8 months with a continuous increase. But in the case of City Club, probably this is the fourth year in which we can maintain a very positive trend of growth over growth.

Talking about regions and also, as I already mentioned, probably the central part in Mexico is having a better performance than the other parts of the country. And particularly, we already have a couple of months with higher pressure in the results in north part of Mexico, actually -- particularly in Nuevo Leon. Going to the second question, you mentioned about the liquidity of the stock?

[Ulises Argote Bolio, analyst]

Yes, yes, that's right, Rodrigo.

[Rodrigo Córdova, executive]

Yes, we perfectly know that the liquidity is low. Obviously, it's a concern of a company. Unfortunately, and no matter, we have a market maker already high where we always try to put some position with purchasing fund. It's difficult due to regulation that exists as you -- if you remember, I cannot operate an important percentage in the purchasing funds. And when you are considering, the daily trading is less than MXN 1 million, probably the major part of the day. It starts to be difficult. And on the other hand, if you -- your question is more focusing so if we will be willing to give more liquidity to the market, not at this price. I mean doesn't make any sense.

[Ulises Argote Bolio, analyst]

All right. Clear enough on both points. And maybe, Rodrigo, a follow-up if I may. With the same-store sales trends that we saw during the first quarter, are you still confident in kind of reaching that 8% to 9% level that you had previously guided for, for the year? Or do you feel that there's any need to kind of adjust that number? I don't know also if you can comment maybe on how April is already doing there in terms of trends?

[Rodrigo Córdova, executive]

So I mean, obviously, I'm also seeing the numbers as well as you. And obviously, the goal for the whole period of 8% same-store sales is that to be much more difficult to achieve with this result of the first quarter, but we don't use to change the goal. The goal is the one, we will maintain the goal. But yes, you are right. I mean it starts to be more difficult to achieve it.

[Operator]

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

[Rodrigo Alcantara, analyst]

While you have already answered this. So just a follow-up. You -- the company is needed to double the CapEx for this year, right? The kind of the balance and the cash flow that you have kind of like, you could afford that, right? So how much of this are you planning to allocate for remodeling? And I was wondering if you can share with us, from those stores that you have to remodel recently, like what has been the positive impact you have seen on same-store sales? Maybe you can comment about that, that will be very, very helpful.

[Rodrigo Córdova, executive]

Sure, Rodrigo. Well, basically, the -- we -- the percentage of the -- let me -- the percentage of CapEx that we will be using for remodeling is close to 20% of the total CapEx. It's a very important amount of money. That is important to highlight that. That is the part that will be kept aside and have the accounting treatment of CapEx. But as I mentioned in the report, we also have an important part in expenses that is also related with remodeling the stores. But the question is a little more than 20%.

And the second part of the question about the response that we are having ones that we have remodeled. To be completely honest, the response in the stores is very, very positive. Just let me give you a couple of examples. Like in the case of Soriana Hiper Vinedos, well, there was an opening. But let me give you a remodeling -- second --, like an example, City and San Jeronimo in Monterrey, that is one of the most -- is located in a very important area here in Monterrey.

Basically, the increase that we have against the most previous to remodeling is close to 45%. In the case of , Pilares that's probably due to now that store is an iconic store in one of the most important stores of the company located in Mexico City. The increase is much more moderate at 25%. But basically, that is the range that we are seeing. So many cases, we can touch even 60% of increase, but not in all the cases. Fortunately, the -- we can say that the low part of the performance in the remodeling stores though will be around [ 20%. ]

[Rodrigo Alcantara, analyst]

Yes, that's great. If you can remind us like what's the target for this, how many stores are you planning to remodel. Any number that you can give us on that would be helpful as well.

[Rodrigo Córdova, executive]

Important remodeling like the one that I'm talking about in San Jeronimo, Pilares, we will make 17 remodeling this year. I made a mistake, 17 is the opening of stores and the remodeling is 28. Sorry, we can continue with the next question.

[Operator]

[Operator Instructions] That was the last question. This concludes the Q&A session for today.

[Rodrigo Córdova, executive]

Perfect. Well, thank you very much all of you to connect to our conference call. And obviously, if you have any other questions, please contact, Claudia or me. Have a good day, bye.

[Operator]

Organización Soriana would to thank you for participating in today's conference call. You may now disconnect. All conference hosts have hung up. This conference is over.