Wal Mart de Mexico SAB de CV
BMV:WALMEX
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Good afternoon. This is Pilar de la Garza, Head of Strategy and Investor Relations for Walmex. Thank you for joining us today to review the results for the third quarter 2020. Today with me, Guilherme Loureiro, President and Chief Executive Officer for Wal-Mart de Mexico and Centroamerica; and Milton Brandt, interim Chief Financial Officer. The date of this webcast is October 22, 2020. Today's webcast is being recorded and will remain available at www.walmex.mx.
Before we start, let me remind you that the content of this webcast is property of Wal-Mart de Mexico S.A.B. de C.V. and is intended for the use of the company's shareholders and the investment community. It should not be reproduced in any way.
This webcast may contain certain references concerning Wal-Mart de Mexico S.A.B. de C.V.'s future performance that should be considered as good faith estimate made by the company. These references only reflect management's expectations and are based upon currently available data. Actual results are always subject to future events, risks and uncertainties, which could materially impact the company's actual performance.
Now it's my pleasure to introduce you to our CEO, Gui Loureiro.
Thank you, Pilar, and good afternoon, everyone. Thank you for joining us today to review our third quarter results. We continue to see a great amount of disruption and volatility in the environment, which has challenged us to work differently and to adapt to changing customer needs.
Our commitment continues, being true to our purpose of helping people save money and live better. We continue to respond to the many ways our associates, customers, business partners and communities need us.
Before I discuss our third quarter results, I'd like to give you an update on our response to COVID-19 in Mexico and in Central America. Our priority remains consistent, keeping our associates and customer safe. It's amazing to see the impressive job our associates are doing during a very difficult time, and I can't thank them enough for it. Whether serving our customers directly or supporting those who do, they are making a difference.
During our first quarter and second quarter webcast, we outlined a number of measures to support our associates, such as the change in payment frequency from biweekly to weekly, so they can have quicker access to their earnings; a discount to buy everyday needs in stores that's now also enabled for online shopping; and a medical line to support our associates and their family's health and well-being. All those measures continue in place. And in addition to them, last quarter, we made a partial repayment of the annual bonus for operational associates as a recognition for their constant effort to serve our customers.
We also continue to take preventative measures to keep our stores clean and maintain a healthy environment. Our [ full-time ] associates have always been a priority in our company. We continue to support them and to look for ways to operate as safely as possible.
As we enter the holiday season, it becomes increasingly important not to let our guard down, to continue monitoring the situation daily and to follow the authorities' guidelines.
Our next priority is serving customers. Our customers' preference have been changing as the pandemic evolves, and we are doing everything we can to serve them. Our supply chain is operating at full speed. Our store continues to operate with the required social distance measures and health protocols, and we continue to take additional cleaning and sanitizing measures to keep customers safe.
We remain committed to our everyday low prices philosophy, ensuring the lowest price on a basket of goods. As we shared with you in our previous webcast, earlier in the year, we launched Los Esenciales campaign, which consists in providing the lowest price for nearly 300 basic items and maintaining this low price for an extended period of time with the goal of reinforcing even further our low price value proposition. During the third quarter, we extended this promo to 60 basic school supply items to support our customers during the back-to-school season.
Our private brand products are a great alternative and have an important role during these times as customers are becoming more price sensitive. We can offer great quality products at the lowest price while driving loyalty.
We launched an event featuring our private label products in Walmart, Superama and Bodega Aurrera, where we achieved double-digit sales growth. We continue to respond to the needs of our communities.
In collaboration with other organizations, we are able to support more than 45,000 people affected by COVID-19 by donating over MXN 33 million to help them afford everyday needs through our gift cards program. In the past months, several areas of the region have been impacted by natural disasters such as Hurricane Hanna and Tropical Storm Hanna. Together with the Mexican Red Cross, we donated more than 27 tons of food to over 10,000 people to support relief efforts. Frontline workers in our communities continue to be an example during these times. And they deserve our deepest admiration and respect. In an effort to support them, we decided to grant a 10% discount in pharmacy products to all doctors, nurses, paramedics, police officers and firefighters who shop at our stores.
We know these are challenging times for our business partners and suppliers, especially for the small ones, as many of them were not prepared for the unprecedented and accelerated shift we are experiencing from the physical to the digital world. We launched Walmart Reemprende Digital. A digital [ strengthening ] program designed for entrepreneurs with micro and small business that were affected by the COVID-19 contingency and that requires support to enter the digital world as an alternative to face the crisis. We made this program possible through the alliance between Fundacion Walmart and Fundacion ProEmpleo Productivo, A.C., and we hope this initiative will contribute to activate the economic activity in the country.
Collaboration between our suppliers and our teams remains close and strong. As an additional measure to support our micro and small suppliers, we decided to keep the reduced payment terms indefinitely to help them finance their operations. We are doing everything we can to help strengthen our community of families, friends and associates. We know together, we'll get through this.
Now let's begin with the financial results for the third quarter 2020. Please consider that when I talk about Central America, I'm making reference to figures on a constant currency basis. At a consolidated level, total revenues increased 6.7%. Mexico delivered total revenue of MXN 135.2 billion, an increase of 6.5% over last year. In Central America, total revenue reached MXN 30.1 billion, a decrease of 4%. For the 9 months from January to September, Walmex' total revenues grew 9.7%. In Mexico, we saw an 8.9% increase; and in Central America, a 0.4% decline.
Our performance has been consistent, and same-store sales growth continues to be the main driver. In Mexico, same-store sales increased 5.4%. All regions and formats had a positive performance. The North and Metro regions delivered the highest same-store sales growth, followed by the South and Center regions. The center delivered softer growth as the macroeconomic situation in the region is softer than in the rest of the country.
Looking at the performance by format, Sam's Club posted the highest same-store sales growth, followed by Superama and Walmart. The exposure to high and mid socioeconomic level customers, the one-stop shop nature of the formats and a compelling omnichannel offering have been key drivers of the strong performance in those formats.
In Sam's, we hosted another addition of our open house event, where we invited the customers to shop at our clubs and online without a membership, so they can experience firsthand the amazing merchandise and value they can find at Sam's Club.
At Walmart, we launched semana de frescura in the Southeast region of the country. The program continues to reinforce our fresh division by offering great quality products at very low price throughout the week, aligned with our EDLP philosophy. We know fresh is a key traffic driver, and we are innovating and finding ways to improve our value proposition.
Bodegas sales growth continues to be softer than the rest of the business. As our Bodegas customers is the most price-sensitive and is facing challenging times.
In terms of categories, food and consumables delivered the highest growth, followed by general merchandise and apparel. With operating restrictions for nonessential business across the country, families continue to stay at home and prepare more meals than usual, and our food and consumable divisions have benefited from that trend.
Within general merchandise, during the quarter, we experienced strong growth in categories such as home, as customers look for ways to improve their living space while they were required to stay in their house or computer and tablets as most students started the school year virtually given the social distance measures. However, the back-to-school season was much softer than usual, given the uncertainty around the timing of students' physical return to school. As expected, school supplies, uniforms and snack sales were weak, though we saw a slight recovery later in the period.
The apparel division has suffered the most during the pandemic. In order to provide our customers better access to our apparel catalog, we started to offer apparel items online for our on-demand platform. We saw a sequential improvement from the quarter 2 to the quarter 3, and we'll continue to find ways to resume growth in the division.
Before I move on to the next stop, I'd like to give you an update on the new labeling readoption. We work at our implementation schedule with our suppliers to make sure our customers find the products with the right labels on our shelves once the rule is implemented. We are progressing quickly. I'd like to thank our suppliers for this great effort.
Despite the situation, we continue to innovate and to position our business for the future. During the quarter, we launched the first self-checkout stations in Sam's Club and expect to finish the year with this solution implemented in about 20% of the clubs. We know customers want a frictionless experience, and they are getting more familiar with digital solutions. So they really appreciate this new feature. Self-checkouts not only offers a seamless shopping experience for customers. It also translates into greater productivity for our clubs, as in some of them, up to 28% of the transactions are moving through this solution.
We're also leveraging technology to do our jobs in an efficient way, amid this unprecedented situation. We have more than 3,400 stores and 31 distribution centers across 6 countries. And it's very important for us to keep close contact with our stores, groups and busy associates. Given the situation we are facing, we strictly travel to business stores and clubs. And to keep our operating discipline, we start to -- technology with our units virtually. This technology is allowing us to do more visits more frequently and to do more targeted visits, which translates to faster decision-making.
We are able to visit stores in Baja, California and Cancun on a single morning, something unthinkable with physical visits. More associates can join the store tours, and we are inviting our suppliers too, which encourage an end-to-end vision. Additionally, this new supervision technology drives savings and productivity.
We have a similar situation for our customer experience in factory. Nowadays, it's not safe to do focus groups or to interview our customers in person. So we are doing virtual focus groups and visits to customers' house. This way, we can keep listening to them and learning from their journeys to make sure our customers are always in the center of all of our decisions.
Now let's talk about omnichannel. The investments we have made in our omnichannel business help us in a unique position to serve customers. Being close to the customer is becoming an even a greater competitive advantage as the online demand remains almost as high as in March when the pandemic was declared. The surge in demand we saw earlier in the year led to a drop in our service levels. For April, the NPS dropped at 26 points. By building capacity, investing and fine-tuning our models, we have been able to improve ourselves, taking it beyond pre-COVID-19 levels. During September, we hit an all-time [ max in ] NPS in Superama and Walmart, by improving NPS by 48 points versus our lowest score in the year. I want to congratulate our associates for this great achievement. You can expect us to continue to focus on improving customer experience as it's key to keep customers in our ecosystem.
On the third quarter, we finished the rollout of Sam's on-demand to our 164 clubs, and we extended the offering to more categories such as pharmacy. We also progressed with the implementation of our cloud sourcing model, which will be critical to improve service levels in an efficient way. To further improve the customer experience and extend our assortment, we launched self-service returns in our Walmart app. Now customers can return or cancel orders in a frictionless way at the store or using a delivery company. This feature will help reduce costs and improve the overall returns experience.
On our last webcast, Ignacio shared with you that we launched the Bodega 1P operations for general merchandise through our bodegaaurrera.com.mx site. So far, we've had a great response from our customers. They appreciate the access to a wider variety of items at a low cost, the convenience of being able to pay at our stores with their preferred payment method and the practicality of receiving their items at home or picking them at their nearest store at no extra cost.
In the third quarter, we took our omnichannel offering to the next level by starting grocery home shopping in Bodega. We are offering delivery and pickup, which has been welcomed by our customers. So far, the service is enabled in 40 stores, and we plan to expand it to 100 stores by the end of the year. There is a lot to learn from our Bodega customers when it comes to omnichannel. We are sure there's great potential to provide a seamless shopping experience to our customers. Our assets, our brands and our customers' trust position us uniquely to win in this space.
The omnichannel growth momentum continues, and we are seeing significant improvements in profitability. During the quarter, e-commerce sales grew by 201% and GMV by 191%. E-commerce sales represent 3.8% of Mexico sales and contributed to 170 basis points to total sales growth. We know customers appreciate our e-commerce offering and they're likely to continue to buy online once the situation normalizes. The NPS evolution and the progress we have done in our omni business tell us we are in the right path to continue to serve them going forward. So we believe it's critical to continue to invest and improve our service levels to keep customers in our ecosystem.
Now looking at the performance versus the market. We have been able to expand sequentially the same-store sales growth gap versus the self-service and closed market measured by ANTAD throughout the year. As consumer habits slowly return to a more normal state, our everyday low price proposition continues to gain strength, especially amid the high low-promotional environment we typically experience during the summer.
During the third quarter, we grew 340 basis points ahead of the market. Our associates are doing a great work in serving customers and operating with discipline, and they are rewarding us with their loyalty.
Now let's talk about Central America. We continue to face a challenging environment. Yet, we have managed to grow ahead of the market and to gain share in most of the countries. We're focusing commercial activities on basic items and reinforcing our price leadership through campaigns such as [Foreign Language]. We are also making progress to our productivity and innovation agenda. We opened our first omnichannel store in the region, Walmart Supercenter in Alajuela in Costa Rica. In this new store prototype, we are taking into consideration our customers' new shopping habit to provide an enhanced shopping experience. The store is equipped with pickup station and enabled to do home delivery. It is the first self-checkout, has a revised and leaner catalog and our associates have a multitask profile, which translates into greater productivity.
Regarding omnichannel, we accelerate considerably our omnichannel plans due to the pandemic. As of today, we have more than 200 stores with omnichannel capabilities, in which we offer pickup in delivery, providing a seamless and safe shopping experience to our customers.
Moving to new store growth. We continue to invest in the region despite an uncertain environment as we believe in the long-term potential of the region. We had to defer store construction and remodels due to practical impossibility of returning permits and license or due to the social distancing measures. Now we're resuming new store growth at a faster pace, following authority guidelines for construction and make sure conditions are safe to resume activities. We opened 24 new stores during the quarter, 19 in Mexico and 5 in Central America, which compares to 9 stores and 12 stores opened in the first and second quarters, respectively.
New stores contribution total sales growth during the third quarter was 1.4%. I would like to highlight that during the third quarter, we opened an omnichannel Sam's Club in Ciudad Juarez, Chihuahua. It's very exciting as our previous Sam's opening was in 2018. We will continue to focus on omnichannel and on driving same-store sales in Sam's, and we will open new clubs as appropriate.
In closing, I would like to say thank you for our associates again. You have stepped up to the challenge, and you are making it possible for families to safely get what they need, while positioning our company to win. Our business is resilient, and our financial strength allows us for continued innovation and investing to build a business that's even more prepared to face future challenges. I would like to invite all the investment community to join our virtual omnichannel tour on October 28. We are very excited to share with you all the new projects and innovations in our business.
I wish you and your family's good health, and I look forward to seeing you in person when the time is right.
Now I'll turn it over to Milton.
Thanks, Gui, and good afternoon to all of you. Thank you for joining us today to review the financial results of the third quarter 2020. I will start with Mexico.
During the third quarter, total revenues grew 6.5%. We experienced a shift to lower margin categories, and we invested further in price, yet we were able to keep gross margin at 23.3% of revenues. Disciplined expense controls allow us to maintain SG&A at 14.4% of revenues and growing in line with total revenues, even though we incur higher costs to operate related to COVID-19 pandemic. EBITDA grew 5.2%, resulting in an 11.5% margin.
Now I will talk about results in Central America. Please remember that when I talk about Central America, I'm referring to figures on a constant currency basis. Total revenue decreased 4%. Gross margin expanded 50 basis points to 25.1% due to a better inventory and shrink management. General expenses represented 19.9% of revenues, reflecting an impact of MXN 380 million due to the royalty payments. EBITDA margin for the quarter was 9%. Excluding the royalty payment, EBITDA margin would have been 10.3%.
At a consolidated level, total revenues grew 6.7%. Gross profit increased 7%, resulting in a 23.6% margin; and expenses grew 9.4%. Consolidated EBITDA margin contracted 40 basis points to 11% and net income decreased 0.9%. Underlying results were positive. Excluding the royalty payment, EBITDA margin would have been 11.3% and net income would have grown 3.2%.
Now let's see the results for the first 9 months of 2020. In Mexico, total revenues increased 8.9%. Gross profit margin expanded by 10 basis points to 22.8% and expenses increased 10.9%. Operating income grew 6.9% and EBITDA margin contracted 30 basis points to 10.8%. Excluding the payment to the SAT, general expenses would have grown below total revenues range representing 14.1% of revenues. And EBITDA margin would have expanded 20 basis points to 11.3%.
In Central America, total revenues decreased 0.4%. Gross margin expanded 10 basis points to 24.3%. General expenses represented 18.9% of revenues, including the royalty payment. EBITDA margin reached 9%. Excluding the royalty payment, it would have expanded 20 basis points to 10.3%.
At a consolidated level, total revenues increased 9.7%. Gross profit margin expanded 10 basis points, reaching 23.1% and expenses increased 13.2%. Operating income increased 4.7%, and EBITDA margin contracted 40 basis points to 10.5%. Net income decreased 21.9% affected by the payment to the SAT and the royalties in Central America. Excluding the SAT and royalty payments, general expenses would have represented 14.7% of sales, growing below total revenues. Operating income would have increased 12.7%, and EBITDA margin would have expanded 20 basis points to 11.1%. Net income would have increased 12.9%.
Now moving to the balance sheet. As we grow and invest in the business, our financial strength increases. We closed the quarter with MXN 38.3 billion, MXN 17.8 billion or 86.6% more than in 2019. As last year, the second dividend payment took place in August. And this year, the second payment will be in November.
Inventories increased 4.7%, 200 basis points below consolidated total revenues growth, and accounts payable increased 6.6%. Cash generation increased 1.1% versus last year, reaching MXN 65 billion. After investing MXN 16.2 billion in our business, we returned MXN 14 billion to our shareholders in the form of dividends during the last 12 months.
In closing, I would like to echo Gui's comment in saying, we look forward to seeing you in our first virtual omnichannel tour on October 28. Please contact our Investor Relations team in case you have any question.
Thank you for your interest in our company. I wish you and your families good health and happy holidays. As always, we will make ourselves available to receive your calls and answer any questions you may have.