Organizacion Soriana SAB de CV

BMV:SORIANAB

Earnings Call Transcript 2024-Q3

[Operator]

Good afternoon, everyone. Welcome to Organización Soriana's Third Quarter 2024 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 third quarter of 2024 and providing a summary of the latest news on the company. [Operator Instructions] 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 very much. Good afternoon, everyone. Thank you for joining us in this conference call regarding the third quarter results today. As you already hear is with me, Claudia González, Head of Financial Planning and Investor Relations. And together, we will go into the results.

As you already know, in the last 12 months, the company has been completely focused on improving the competitiveness and the price perception in front of our customers. However, we know that this is a long-term bet from which we will not give up until we obtain the expected results. In fact, we have already observed positive reaction in different states of the country.

And we know that it will be as low to see -- to see it reflected in all the states or at the national level, we will continue to promote this strategy, which will only be possible by leveraging -- taking leverage from other businesses such as real estate, the promotion of our digital business, investing in new stores, remodeling and of course, the relaunching of the whole [ OnNet ] and exclusive brands that allow us to compensate the investment in price with these other initiatives that help us to maintain a good gross margin.

Talking about the performance at the store format level, our stores, Soriana Hiper and Soriana Super showed the best sales performance due to the efforts we have done to assure competitiveness and promotions, particularly within the basic food basket, which also has helped us to improve price perception in this matter and the strong efforts to accomplish the clients needs during Julio Regalado campaign.

Regarding performance at a category level, fresh goods, groceries and prepared foods outstanding this quarter, aligned to the strong commercial activity focused on this specific category. From a geographical perspective, sales performance got better in the states of Campeche, Guerrero, Tamaulipas, Puebla, and particularly the [indiscernible].

Also moving to our digital business, we are conscious that it's a challenge to develop a strong offer and to stay above other players and maintain our clients' preference. And we already -- we are ready focusing to grow the product catalog as well as to provide user-friendly interface, working to improve functionality and most important, ensuring security across all transaction process.

Also, it's important to mention that we are still investing in developing the business for all the formats, including City Club, where in this quarter showed a 221% increase in sales in the e-commerce, combined by an increase in the ticket and also in the traffic.

Talking about our real estate business, this one showed an increase of 3% in the income comparing with the same quarter of the last year and a consistent increase in occupation level from 87% to 90% in the last 12 months, in which particularly Monterrey, Southeast and Pacific showed a higher occupancy rate.

As a result of the previous detail, the company closed the third quarter of the year with a total sales of MXN 43.1 million, which represent an increase of 0.6% in comparison with the same period of last year. In cumulative terms, sales reached MXN 130 billion with an increase of 2.7%. Likewise, gross profit reached MXN 10.5 billion in this quarter, which represents a 24.4% margin with an increase of 9.5% against last year as a result of positive negotiation with the suppliers and the improvement of cash management, along with the supply chain that allow us to expand 200 basis points of gross margin.

Also, we are receiving the benefit from the recovery of the real estate business and a higher penetration of the private brand.

Regarding the operating expenses, this line reached MXN 7.7 billion, representing 18.1% over the sales, an increase of 12% versus last year. This increase is principally attributed to personnel costs due to a better vacancy coverage and the minimum salary increase that has impacted the expense during the last 2 years and in addition, a higher...

[Technical Difficulty]

Sorry for the inconvenience that we have with this technology. I will resume the conference. We were talking about basically the increase in operating expenses line that the main lines that participate in this increase is basically the personnel costs and advertising that both increase are related with the strategy of the company, first of all, to increase the level of servicing our stores, and secondly, continue with this promotion of the perception of low prices in all the states of the country, that we will continue doing that into the future and to the following months. As a consequence of the regulation, just mentioned, the EBITDA of the quarter reached an amount of MXN 2.7 million, with an increase of 1.6%, which represents a margin of 6.3% in cumulative terms.

On the other hand, and regarding the financial items, net financial costs have an increase of 26.6% versus the same quarter of the last year, mainly due to a decrease in the financial product that is related with the equity swap that -- equity swap gain that we have in the same quarter of last year and that obviously creates a disadvantage in the comparative of this quarter.

Finally, the net income reached MXN 538 million in this third quarter and MXN 2.5 billion in cumulative terms. As an update of the CapEx for the year, it's important to say that the company is planning to maintain and, in fact, to accelerate the expansion and remodeling plan due to the excellent results that we have seen in the recent openings. As I mentioned in previous conference, it's very important for Soriana and this program of remodeling the stores. We know that it's part of the client experience, and we will continue investing in that.

Mainly, we are seeing very positive results. Once that we make this important remodelation in the stores, we obtained changes between 25% to 40% increase in the sales particularly in the new stores that born with a new store concept, the new leal, the new planogram. In general terms, the sales per square meter against the regular historical stores is more than the double. So we need to accelerate this conversion of the platform stores of the company.

In the last 12 months, we have opened 15 stores, mainly in the states of Tamaulipas, Coahuila, Baja California, Chihuahua, and Nuevo Leon and San Luis Potosi, and we have performance more than 17 big remodeling processes, investing a total of MXN 7.7 billion in the last [ 12 ] months, again, with very good results that we expect to continue going into the future.

Moving on to talk a little about our partnership with Falabella. This quarter, Sodimac in the home improvement business show an increase of 5.4% in sales. Remembering that we have right now 14 stores in operation, and we are planning to open a new one in the following weeks. And talking about the financial business, this one keeps growing very healthy during this quarter, more than 88,000 cards were issued, reaching a total of 813,000 active cards and a credit portfolio a little more than MXN 4.5 billion. We are really happy with this business. Right now, the Falabella credit card is practically the main credit card as a mode of payment in Soriana, particularly in the big seasons like [ Regresar ] classes or December Julio Regalado campaign. So we are really happy with the performance of this financial business that is also helping us to increase the loyalty and the returning traffic of our clients.

Basically, with this, we end the presentation and we can go to the Q&A session. Thank you once again for joining us.

[Operator]

[Operator Instructions] The first question is from Mr. Miguel Ulloa from BBVA.

[Miguel Ulloa Suárez, analyst]

The first one would be regarding the consumer environment. Could you provide additional color of what you're seeing how things move during the quarter and how things are moving this October?

[Rodrigo Córdova, executive]

Sure. Well, right now, we are seeing probably the first signs of pressure in the consumption. Actually, if I don't remember wrong, I don't know if last week, we saw a release about the transaction, not for the entirely stores, but for the general transaction of consumption in the country. And if I don't remember wrong, a small contraction. So obviously, that is something that concerns us, particularly talking about the performance in the formal store or stores like Soriana. We are a little worried, but to be completely honest we are much more focused into the internal things that we can change.

I think that the pressure that we have right now in our results is more related with internal issues or internal facts and things that we have to do better coming from external factors expression in the consumption. If we do see the results of entire and our competitors are very healthy. So I think that we have to continue working in the initiatives that we already mentioned, the initiatives that we have mentioned in the previous conference call, particularly continue working in perception of price and recovery of the traffic that we have lose in the last 18 months. Basically, that is the focus. If you ask me, Miguel, if we are seeing important change in trends like going from expensive proteins like beef to cheap proteins like egg or chicken, no.

Also, we are not seeing an important decrease in the sales of clothe or general merchandise. Actually, in some categories, we are seeing a good performance. So I think that in general, consumption is still healthy. Again, we saw the last week the first sign of pressure. But I think that in general terms consumption is right now, it's healthy. Obviously, initiatives the federal government is putting in place like increase the federal programs of benefits, increased salary, things like that, for sure, have a positive impact in consumption. I mean, it's an important amount of money the [ government ] has committed to this federal programs. So I think that in general, still the environment is healthy, and we are much more focused in internal things than be worried for external things, Miguel.

[Miguel Ulloa Suárez, analyst]

That's helpful. And second one, if I may. Could you share with us growth in e-commerce and the usage of the new app?

[Rodrigo Córdova, executive]

Sure. Well, in e-commerce, we are really happy with the performance. This continues increasing in double digits. Particularly, we see the increase across all the different, let's say, format that we operate. Remember that Soriana have the Soriana app, the Soriana web page, but also we work with external companies with Uber and with Rappi. The growth that we are seeing in general in our e-business is coming from 3 of them. Also Rappi and Uber is growing at double-digit rate. Equally happened the same in the Soriana app.

Probably the only one that is not having the same rate of growth in the web page, it's growing, but not at the same level that the Soriana app or the Rappi, Uber app. That makes sense. In general terms, we believe that the e-commerce, particularly for comp delivery I mean not the big catalog or the big price articles, but the daily consumption makes a lot of sense that the major channel to do that is the app and not the web page.

So in general, that makes sense. And also the new generation are more likely to operate in the cellular phone and not in the web page. The other important thing that we are seeing about our e-business is that we are having the opportunity to show to the clients that Soriana is more than fruit and vegetables, that it will be really difficult to do it in the physical store.

Like an example, right now, we have a huge success in the sales of motorcycles, huge success in the sales of scooters. Also, we are having a very good performance in skin care and also in cologne and perfumes. I mean, high-ticket articles that in general, doesn't make sense to have it in the physical stores because [indiscernible]. But in e-commerce, we can have a huge catalog product. Actually with this strategy that the drop ship vendor. Like an example, we just had a huge catalog of Tecnolite, this important supplier for lighting articles. That doesn't make sense to have a huge catalog like that in the physical store, but we can have it in the e-commerce platform.

We don't have to pay the cost of that inventory. It's very efficient. Right now, the distribution efficiency that we have is that, in general, all our articles, we are delivering an average of 3 days talking about general merchandise. Obviously, the daily consumption is in the same day. But general merchandise in average is 3 days. That actually is really good. So we are also really happy to have the [indiscernible] offer to the client. A lot of products that regularly, they will not find [indiscernible].

[Operator]

[Operator Instructions] That was the last question. We will now hand over to Mr. Rodrigo Cordova for final comments. Please go ahead.

[Rodrigo Córdova, executive]

Thank you for joining in this conference call. As always, we said, if you have any additional doubts, please give us a call or email to Claudia and me. And thank you again for being with us in this conference call. Have a good weekend. Bye.

[Operator]

Organización Soriana would like to thank you for participating in today's conference call. You may now disconnect.