Organizacion Soriana SAB de CV

BMV:SORIANAB

Earnings Call Transcript 2021-Q4

[Operator]

[Foreign Language]

[Ricardo Martin Bringas, executive]

Thank you for coming for this telephone call where Rodrigo Benet and the rest of us are going to be here. We're going to talk about the financial results of the fourth quarter of 2021 and the annual closing and relevant information and the objectives that we have for 2022.

As a company, throughout the year, we have worked very strongly, very firstly, in our record operations, financials, all the areas of the company, and a better offer for the company and focus every time more in terms of profitability optimization of information systems including additional relevant changes that we're going to have in our organizational chart for a profound and a very important change. So we're going to continue with the -- with our businesses with our commercial partners and finding the way to confront the challenges, the economic challenges going forward.

In that sense, the company for 2021 was difficult. Nonetheless, we finished the fourth quarter consistent with our recovery plan with a growth of 4.4% and having a tendency track of positive sales during the second part of the year. And we are going to digital channels, we are enforced in high consumers -- high consumption. And what we have and small businesses is also recognizing every time, having a wider portfolio and more diversified in accordance with tendencies for the trends or actual trends. With the objective to differentiate ourselves and develop certain very important brands and rare supports.

Therefore, during the most significant times like Christmas, we had a very good sales because of our value proposition, considering the logistics global problems that we've had and ensuring provision and going with programs that are good. So therefore, we have several categories that under the pandemic, they continue to perform very well, and with a great deal of development potential. And taking care of the client demand and reduction and other things, and making the departments that make us a difference to make us stand out. So Super Mercado and Hipermercados are -- have very important changes during the year, making the organization where we reinforce the first line of the commercial and operative theme, then nonetheless, those changes will help us to perform the strategy and complement in a very solid way starting in the second quarter -- the second semester, I'm sorry. We have aggressive push for traffic for clients and sales, and having good development in general merchandise and clothing and against the year before.

On the other side, the market format are also with very operational changes during the year -- with operational changes during the year have been optimized to have a more efficient operations to be able to comply with our objectives to have a -- to give our clients a low-cost option. And so their basic food supply have complete that always contains the essential items that are aggressive and support the economy. And we worked to push the home delivery in those formats, and we had very positive results, increasing sales during digitals by 71% against the previous year.

The growth, organic growth in all the formats has been consolidating, and different digital channels with very good results. During the new system at the dot-com system, and we have increases in functionality for the customers. And we have a centralized area, which means that we've unified our marketplace with electronics and white and other products in our catalog. That change was -- has been implemented in a new addition of the app. And this year, it was a total focus. We focused totally on the modernization of our digital platform with the idea to have a multichannel experience and active functions as it could be used with any device for the customer, it simplifying the finding and registry of the users and so that they can make online purchases and making it very good and very fast experience. And in the same way, we increased the number of rare images and keywords in our catalogs, which not -- was -- has increased the production because they have a very agile and complete access.

That digital transformation will continue in 2022. We are going to establish the company as important, and it will be the -- will be available to our clients inside and outside of our stores, making us very competitive. With our platforms for home delivery, we are working every day to improve the processes so that we can guarantee better customer service. First, collaboration between the stores and the shoppers -- and shoppers, and we have gotten the better rate and getting to competitive levels in the market. In the same way, we've doubled the investment in our investment and virtual stores to be able to have a wide catalog, which has been reflected in a 111% growth in the platforms, and 184 and the number of users.

Our electronics business has had a cumulative effect on sales of 58%, and the number of orders is 76% up when we closed 2020 -- I guess the close -- at the close of 2021, sorry. And with the strategy, a vital strategy in the company, we are focused on recovering the leadership of our program and adding its value-added and benefits, which has given us good results, increasing 3.9% the number of customers that we have, and we already have 10 million active customers.

With these results, it was very important to do the promotional activity, especially for our clients and our [indiscernible] Mercado supermarket clients where we focused in incentive programs to increase their purchase ticket, and pushing the categories that the customers was not buying with us. Then the same during the second semester, this campaign -- this publicity campaign was very successful, inviting our clients to register for the program. And the same -- and as well, and the rest of the formats is promotional and benefits, electronic benefits, promotions will have a very big impact nationally.

And in 2021, when we increase the traffic in commercial areas and the way that we -- allowed by the authorities, we have to stop the real estate that was being reduced, and we have more occupation -- more, and we increased income by 23.11% and 19.1% annual rate.

About the number of stores that we did in 2021, we finished with 788, 1 close and 4 openings during the year with MXN 761 million in increases -- in local increases against the year preview. The last 2 quarters of the year, we had a reduction of the pandemic because of 2019 and Omicron, which hit us at the end of 2021. Therefore, it took us to reinforce and strictly following the national COVID formats and with support in that way to reduce this virus, and the collateral effects for our business.

And our services are essential for the Mexican consumer and one of the more important sectors. This has impacted the country completely in the prices of goods and services, and logistics and supply. But we were going to be firm and continue to monitor the effect and trying to impact our client the least amount possible. And on the other contrary to offer better services every day as well as the products to satisfy their need without taking into account the economic effect. And we have a lot of channels for the consumers in the country and the world. That's why in the fourth quarter, the total income for the company is MXN 42 billion, which is an increase of 4.5% against the same quarter last year, pushed by the opening of 2 stores as well as the improvement of occupation of our real estate. And at the year, the total is MXN 155 billion, which represents an increase of 1.2%. The gross profit of the quarter is MXN 987 million, which is 22% increase with an increase of 6.5% against last year's final quarter.

In the year, we got to 33,000 -- or MXN 33 billion, which is 21.9% with a decrease of 0.4% against last year, and with an expansion of 20 basis points basically from the effects that we had from 2020 because of the catalog unification as well as an improvement in our sales. And operational expenses for the quarter, we had MXN 5 billion, which represents 13.8% against total earnings with an expansion of 30 basis points against the year before, which means that it's an increase of 6.6%, basically impacted because of personnel costs taken from the adjust of -- the provision of the PPU and married with labor legislation as well as the increase in the energy cost average and more investment in publicity.

Due to this, the EBITDA for the fourth quarter of 2021 is MXN 3 billion, which represents a margin of 9.2% with a contraction of 10 basis points, and 3.2% increase. At the yearly, we got to MXN 12 billion, which represents 7.9% over income and a decrease of 90 basis points against the year prior. And the financial cost net, we got to MXN 5 billion in the quarter with a reduction of 11.7% against the year before. And annually, MXN 3.951 billion, which is a decrease of 1.3% against the annual income and a reduction of 34.6% against the year before derived because we reduced the debt by 26%. So with an improvement of the same and an increment annual of 13% of the financial product.

For the quarter is MXN 1 billion, which is 4% against the sales, and that represents an increase of 7.9% against the same quarter of last year. Annually, the net profit was MXN 4 billion, which represents a 3.8% and an increase of 17.6%.

And finally, I wish to say that we have an advancement in [ Soriana and Sodimac ] for investment partners with openings during 3 openings here in 2021, which were very positively received, and they have very good performance. And there was an increase in sales. This is pushing part of the digital business very well, with a focus in times of delivery and making a difference in the way of shopping. The same, the financial business, 155 operational models -- attention models, 188 clients admitted, 351 clients who have promotions in the chain, and we have exclusive clients to our clients of Soriana, which is MXN 1 billion portfolio, which is a great alliance, which has shown a very good success in all of the seasons with a good end in 2021, where it was the first place in sales with promotions.

We are convinced that this is going to be a partnership and to provide our customers credit that they can reach that they can have. And to end, I want to talk about Soriana [indiscernible] for 2022, which we consider a same-store growth of 10% in sales and EBITDA increase. CapEx of MXN 4 billion, focused in store renovations and system investments in reinforcing the multichannel sales for Soriana, for [indiscernible] opening a reduction in debt of MXN 2.5 billion.

And with that, anything else, we're going to thank you for your attention, and we are going to the question-and-answer session. Thank you.

[Operator]

[Operator Instructions] Rodrigo Alcantara with UBS is going to ask the first question.

[Rodrigo Alcantara, analyst]

My question is related with the recovery plan 360 that you mentioned at the beginning of the call. I am curious, in 2022, what would be the point in terms of that recovery plan, what would be the point in which you are going to focus to improve and accelerate traffic -- to improve traffic.

And the second question, that 6% of guidance that you gave for the '22 -- early '22, how would it be per ticket and then traffic? How do you expect or what do you expect an increase in traffic and ticket amounts?

[Ricardo Martin Bringas, executive]

Okay. I am answering your question here, Ricardo. The first one -- the first strength that we want to give to this recovery plan is to focus the strategy better in the different formats. In 1 way or another, we have strengthened this past year has strengthened our loyalty plan which has been a very good and Hiper and Super market, and even though -- and it has some in the market. And on the other hand, the categories that are differentiators that we want to give -- that we want to focus very strongly on in the function of the clients or based on the clients that each format has. In other words, Hiper and Super market was focused on categories that are the type of customers that we are looking for in those cities. And can I express is focused on their category differentiators for those customers in the different towns and the markets that we have, which are different. So a lot -- we have a lot of focus -- to focus our strategy better.

And on the other hand, another strategic pillar that is very important is to participate more in the digital business and digital business. And everything that has to do with home delivery and have to do with working with the platforms that are very well established here in this country and that they have a lot of customers. So we are strongly focusing on that side. And like I said, this expansion, we're -- it's going to be very important for us, and we're going to be pushing it, looking to at least double the acceptance this in 2022.

And like we have planned, we have said we've changed the structure, especially on the commercial side. And so -- and we are looking for the efforts we're doing the efforts to do the efforts that we've done, that's basically that.

[Rodrigo Córdova, executive]

And on the second one, you are saying -- your question is -- Rodrigo, I'm sorry. Is the vision of sales or the sales and the guidance that we had that Ricardo stated, for this year that we expect -- we have to divide it a little bit. In a summary is that we're hoping is that we are going more toward tickets and traffic. There are 2 variables. And in 2021, we saw more ticket than traffic. 2021, especially because people are recovering mobility. And let's say that in a way, we are coming to -- they're going out to the supermarket. They're thinking of going several times, and they're going in with certain stability and the ticket has recovered very well.

In the case of Soriana specifically, I think we also have to have a recovery in traffic specifically because of this market recovery trend that we're getting to there. Some of what we lost in the last quarters is that -- and we're seeing a recovery. But between the trends of the consumers that clearly, there is inflation in goods and products that we sell. And the ticket, we're going to focus more on ticket than and traffic, even though we're seeing a recovery in both.

[Rodrigo Alcantara, analyst]

And this margin expansion and this is in operationals? Or is there efficiencies or cost reduction that we have?

[Ricardo Martin Bringas, executive]

No. Basically, if you look at the margin, we've managed to keep it stable. This has to do with operational and labor, which we have been very efficient with that. And the main thing that we have in our structure in our books is to increase the sales and get more advance out of that.

[Operator]

Our next question comes from the line of Antonio Hernández with Barclays.

[Antonio Hernández Vélez Leija, analyst]

My question is about a geographical point of view, where are you seeing the best recovery and what are the biggest challenges? And also in terms of how normalized are you in respect to what is going because we're coming out of this, and we're recovering. And so when are we going to get to a normal mix?

[Unknown Executive]

We'll see about competition. I would say that we are very well distributed around the country. All of the formats are growing in the North and in the South and the Pacific and the metropolitan area where we're seeing the best recovery is the North. There slower recoveries in the South of the country against 2019 because of COVID, I would say that with some exceptions of some categories, which is prepared foods, and the rest of it has recovered. The rest of it has been -- reached pre-pandemic levels. Of course, they have -- the consumer habits have changed. And in some of the categories we have seen sales, and these are topics that are different pre-COVID area -- times, but the recovery, we have seen completely done against the pre COVID.

[Operator]

[Operator Instructions] If there are no more questions, and thank you very much. And that will conclude our call.

We do have a call from Bob Ford about Bank of America.

[Robert Ford, analyst]

I'm sorry about the question, but I wanted to know how do you feel with the competitivity with the area of value? Is it better now?

[Ricardo Martin Bringas, executive]

We had a little bit of a tick up in the value proposition based on what Rodrigo was saying a while back. We lost focus on some of the formats. We lost focus on one of the formats, and we are recovering. The market strategy is based on low prices, the Hiper -- the [ EBIT ] in Super are taking advantage of the prices of the consumers, they're very well focused. And high consumers and small businesses and big businesses in the total. So in the second semester, we focused correctly on the 5 formats, and we are feeling well today -- very good today to be able to go in an economic focus that is going to be good for 2022.

[Robert Ford, analyst]

Got it. And where are you investing that the consumer is more flexible in prices. Are you counting on that? And the offer that you have on your proprietary brands? Or do you need to strengthen that a little bit more?

[Ricardo Martin Bringas, executive]

We need to strengthen quite a bit. This year, in 2022, we are going to be making an effort, making a portion an important push to redo our own brands and some of the brands, and with a very important push toward some companies. This year, we saw a marginal drop in our proprietary brand against other brands, but we have very good growth as the sales this year started very strong. We had our focus, and we are oriented totally to strengthen this, in terms of margin and quality -- image quality and price, I'm sorry. And this strategy, multichannel strategy that I've mentioned, we are looking for that commercial structure is focused on that, not just 1 department the proprietary brand department, we want all the departments to have a catalog of products, a portfolio products.

It's a very focused strategy to be able to win in the market to get market share with everything that I've mentioned already with quality and price. And like I said before, this year, we're doing very well. Our objectives of growth of market share is ambitious. We want to do something strong with our proprietary brands. .

[Operator]

Next question is [ Ivaldo Rodrigues with BTG ].

[Unknown Analyst]

I have a question about the agreement that you have with Mercado Libre and others. I wanted to hear from you how have you done to the refeeding between them about information, inventory? And how are you working together? How has that evolved in the last few years?

[Rodrigo Córdova, executive]

The truth is that we're happy. It is not a principal focus of what we have, and we have certain reasons for that, and we understand our focus, main focus is our own channel of proprietary channels, and we have 3 within of the multichannel. We have a web page that integrates the general merchandise and take it and also home delivery and frequent products, which is a web page that is working with dropship. We have a cap log of the provider there. And we have something that we have called drop savings, dropship savings, and that we have in the logistics and we have in the service and of the stores without having to take to keep inventory per store or having a more agile logistics. We not only are focusing on our platforms or their platforms, specifically we're talking with 3 of them [indiscernible] Mercado Libre and commercial. And in the case of Mercado Libre which is where your question started, we are very happy. We've had growth, specifically with this player.

And inventory has grown quite well. And I think that we have an increase of -- 3-digit increase in sales and a double increase in inventory -- a double-digit increase in inventory. We've increased what we have -- you comparatively with Mercado Libre against dropship, which have the catalog for the whole store that is being provided with. And so we have SKUs 15,000 and 20,000. And Mercado Libre is more focused on the value proposition that we have. But we are growing strongly and is part of the multichannel strategy. We're going to be focused but our primary focus is the development of our own channels.

[Operator]

[Foreign Language] We have a question for from Antonio Hernández from Barclays, a follow-up question.

[Antonio Hernández Vélez Leija, analyst]

I want to -- I'm sorry, I didn't hear the question.

[Rodrigo Córdova, executive]

I'm going to repeat what we said. We have a growth of same stores, 6% in expansion. EBITDA margin of 10 basis points, a CapEx of MXN 4 billion with a focus on remodeling of stores and investment in the system and emphasis on multichannel strategy, opening 8 stores, 4 Soriana and 4 [indiscernible], and continue to the reduction of sales in MXN 2.5 billion.

[Operator]

And at this time, there are no further questions.

[Rodrigo Córdova, executive]

Perfect. So thank you very much for your time and for being here with us. And one more, and we -- if you have any other questions, please don't hesitate to ask. We are willing and ready to answer. Thank you.