Almacenes Exito SA (EXTO) 2022 Q2 法說會逐字稿

Thank you, everyone. Thank you for joining us today for Grupo Exito's Second Quarter 2020 Results. I am pleased to present our CEO, Mr. Carlos Mario Giraldo; and CFO, Mr. Ruy Souza.

Please move now to Slide #3 to see the agenda. We will cover Grupo Exito's financial and operating highlights, performance by country, and consolidated financial results for the second quarter of 2022 for operations in Colombia, Uruguay, and Argentina. (Operator Instructions) Thank you for your attention.

I will now turn the call over to Mr. Carlos Mario Giraldo.

Good morning to all of you, and welcome to this call on our Q2 results of 2022. If we move to Slide #4, I would highlight a very strong result coming from an expansion of top line as we have not seen in many, many years with volume expansion in the 3 countries in which we operate and with a very solid performance in all of the geographies. We see consolidated sales growing by a same-store sales number of 27.9%. The innovation formats continue to gain share within the sales of the company, especially in Colombia, where they now have a share between 35% and 36% of total sales, omni-channel share in the 3 countries of 9.9% with a 12.4% share in Colombia, where it has been more developed. A recurring EBITDA growing by 30.7% when we adjust it by excluding property sales in both periods and growing by 21% without this adjustment with a margin of 7.9%. This EBITDA result is the result of a topline expansion of very good recurrent real estate result and, of course, of strict expense control, where we continue to comply with our principles that we set ourselves, and it is that expense growth is below the growth of sales. Our net income is growing by 22.7%, and I would make a synthesis if we look at the result for the complete first semester.

In the first semester, our sales grew by 25%. This means that we are adding this semester, 1/4 of the size of the company to Grupo Exito, and that is adding in sales against our baseline USD 420 million, which is a very important number to look at. If we go to Slide #5, we are very consistent in our ESG contribution and our sustainability contribution. Of all the pillars you see there, I would highlight 4 elements: one, our contribution to nutrition of children between 2 and 5 years; 36,000 children were benefited during the period, and we continue with the goal of achieving as a country, working with the government, severe nutrition, severe and chronic malnutrition by 2030. Our program of planting trees, redemption of trees by our customers directly in the cashiers or online has arrived now in a couple of months to 212,000 trees, which is a part of a plan that we have in 1 year to arrive to 1 million trees in alliance with Celsia, which is operating the program to assure that these trees go to very important forest and river sites in our country. We reduced our carbon footprint against the same period of last year by 16% when we account for Scope 1 and Scope 2 -- and we also contributed in Valle del Cauca, the region where we are starting to operate the La Catorce stores by registering 53 of the suppliers that were left behind by the nonoperation of La Catorce. This is saving more than 2,000 jobs and one of our purposes has been to protect the production scope and production importance of the small- and medium-sized suppliers of La Catorce in Valle del Cauca and taking many of them to the national distribution.

If we go to Slide #6, Here, we speak about the results of sales in Colombia, record growth in Colombia, 29.9% growth in same-store sales, and for the first half, 27.2% growth. Here, it is important to note that in this quarter, we had a non-VAT day promotion, which is very important in sales, and it accounts for 6 points of the total growth of the period. That is, if we discount these 6 points, the total growth in Colombia for the period will also be a very important 24% same-store sales growth. This is confirmed by the fact that we had a volume expansion of 7%, which shows that we are clearly facing the impact of inflation in food. Omni-channel sales grew also by 26.7%.

If we go to Slide #7, here, we will see the expansion, the growth by banners and by segments of our sales in Colombia. All formats, all brands, had a positive performance. The main highlights are: in Exito brand, same-store sales growth of 34.8%. It was imposed by the WOW conversions, by the impact also of the unviable price products in basic consumer goods, which are very important for the consumer today, when there's a big concern for inflation in food and also by the contribution of the non-VAT days, especially in high-ticket items. In Carulla, we had a same-store sales growth of 21.4%, imposed mainly by the Carulla fresh market innovation but also by the last mile turbo project that we have an exclusive alliance with Rappi. It is important to say that today, the omni-channel share of Carulla is the highest within the group, and it accounts for 17.7% of the total sales of Carulla. In the low-cost segment, we have to highlight the increase in the sales in this quarter of cash-and-carry same-store sales growth of 30% and now cash-and-carry accounts for 5.3% share of total group sales in Colombia.

If we go to Slide #8, I would like you to look very carefully at this slide even after the conference because it shows how the company has year-after-year developed brands and innovation formats, which assure us a profitable growth for the next 8 years. Start with Exito, the Exito while innovation for the hypermarket now is placed in 20 stores, which are obviously the 20 most important stores of the brand by size and by sales. They account for 12% of the total sales of the Exito brand. The growth of those stores that were opened more than 2 years ago in the accumulated period has been 30 percentage points above the rest of the brand. The potential that we have of innovation and transformation into the WOW is of 31 full-sized stores that is big-sized hypermarkets and 99 economic or mid-sized stores, that takes us to a total of 130 stores that we think we will perform well in the following 5 years. We also add to this that we will take some of the stores that were the first generation of WOW into a second generation of WOW that we called Exito WOW 5.0. That's the internal code. And next year, we will take 2 of our most important stores, the 2 big sellers, Envigado in Medellin and (inaudible) in Bogota to the second horizon, second stage of innovation to take a whole high level of experience to our customers. Exito WOW stores as a whole, as an ROI of 52%. Carulla Fresh Market, today, we have converted into Fresh Market 22 stores, which account for 46% of the total sales of the brand. The growth of those stores opened more than 2 years ago in the accumulated period is 13 percentage points more than the average of the brand, the potential that we have for fresh market between full-sized Carullas and middle-sized Carullas is 58 stores.

Finally, I would make reference to Surtimayorista, our cash-and-carry. Today, we have 42 stores. They now account for 5.3% of the group sales -- those stores that were converted have a multiple of sales of 2.2x what they sold under a previous brand, and we have a potential, especially through new openings between 70 and 80 cash-and-carry’s to be opened in the next 5 years. It clearly is going to be the brand that we are going to privilege in expansion because it has a huge potential in middle-sized cities of Colombia, where we are not present, and it has the highest sales per square meter in the complete organization and a very low cost. I would say, probably the lowest cost of any retailer in Colombia in one of its brands, which is below 10%, which is very similar to what we can see in the cash-and-carry proposition in Brazil. The ROI for Surtimayorista is 21%.

Moving to Slide #9, our second quarter omni-channel sales were very strong. They grew by 27%, and the orders grew by 46%. That is, we have a lower-sized ticket, but a higher frequency in our omni-channel channels, and this is very interesting because as a whole, we arrived to 3.1 million orders. Most of them come from last mile dispatches, but also the other deliveries done directly by the company. The share of omni-channel in the quarter was 12.4%. When we compare this against the phase before the pandemia, it compares against 4.7% share in 2019. The share in food is 10.4% and in nonfood is 16.4%.

If we go to Slide #10, we see the results for the first half of the omni-channel strategy, sales growing by 17%, orders by 36%, a total of 5.7 million orders. If this trend continues, by the end of the year, we will be arriving at more than 11 million orders, which gives us a very important share in the market of omni-channelity, especially in food and consumer goods, where clearly Exito has today a very important leading share. They can collect, which is key for us because it is good for customers, and it is good for Exito because of its profitability. It is now 26% of the total omni-channel sales. Our WhatsApp sales strategy now arrives to 18% share, and it comes to a total 413,000 orders and the marketplace is 23% of the total nonfood omni-channel sales.

Going to Slide #11, I want to make emphasis on the monetization of traffic and assets, which is a consistent, unique identification strategy of Exito. In the last year, I would refer to 2 of the businesses. One is credit business, TUYA, arriving to 2.6 million cards leading in number of plastics, the market in Colombia with a total loan portfolio of COP4.4 billion, growing by 48%. The key levers for the future, we see, first, the Exito Pay today, the name is TUYA Pay, but it is being changed in the following weeks to Exito Pay to profit from the Exito brand recognition and now it's arriving near to 900,000 cards, excuse me, digital wallet units, and we believe that in the following 3 years, it can arrive as much as 3 billion digital wallets. And the second interesting strategy of TUYA is banking as a service. It started with our competitor, which is Alkosto, where TUYA manages its credit card, it's private credit card, and now it is being done with a (inaudible). It is being done with TransMilenio public transportation system in Bogota, and recently, we are starting with Claro, the main telco in Colombia. In Puntos Colombia, at the right side, you know this is a very interesting, high potential business in alliance with Bancolombia, putting together the database of customers of both companies. Clearly, I would say the most important and complete and reliable database of customers in Colombia. Puntos Colombia is little by little turning into the second currency of Colombia because every time more, you can trade your points into many, many products and services in many alternatives for our customers in Colombia. Today, we have 5.9 million active customers, increasing by 19%. Active customers mean customers that are frequently using Puntos Colombia and customers that are -- have given the authorization of Habeas data so that the data can be responsibly used.

Really, we are growing the ecosystem of issuance and retention of Puntos Colombia. And today, it has 2 partners: Bancolombia and Exito, and it has 135 allied companies. That is, companies that issue and/or redeem points within the system and offer services as gas stations or donations or all kinds of nonfood retailing only to speak about some of the services that are offered today. Puntos Colombia has arrived to single digit EBITDA margins.

I would hand now the floor to Ruy and then I will come back at the end with some conclusions.

Thank you, Carlos Mario. Thank you, everyone, for being here with us. As you know, since the last quarter, we have been disclosing this important business unit for the group, which is the real estate business unit. I would like to mention and go on, on the performance of the first half and on the recent achievements. As you know, the whole business unit is composed by property sales and development activities plus commercial galleries within the hypermarket stores and also the 18 assets, 18 shopping malls that we have operating under the Viva Malls vehicle. So when we see the whole business unit, we have 765,000 square meters of GLA. It has been increasing when we compare to the last quarters. This is something that is important, we are reactivating the projects pipeline for the upcoming quarters and years. The occupancy rate is 93.1%, improving 120 basis points from last year.

And the revenues from rentals and administrative fees presented also a new increase at 37% for the quarter and 35% for the first half. When we see the livable perimeter, we think the real estate business units, it is composed by 18 shopping malls, as I mentioned, 560,000 square meters of GLA. And for the first half, it accounted for almost 40% of the company consolidated other revenues and a little bit more than 12% of the recurring EBITDA at a consolidated level as well. When we see the performance for the first half, we see that revenues grew by more than 25% and recurring EBITDA reached almost COP $88,000 million, growing by almost 29%. It has been accretive for the company in the last couple of years, and as I mentioned, projects to be implemented on the upcoming quarters and semesters.

So moving on now to Colombia to review the performance in terms of financial indicators. It is important to highlight that the solid top line growth above 26% for the quarter and EBITDA growth, which was 17% but a strong 29% when we adjust for the real estate development activity. We have a sale of property last year. This is something that we did not have this quarter, but this is resuming, as I mentioned, because of the pipeline of projects. And when we compare for this quarter, the results adjusting for this activity, the EBITDA growth was 29%, very positive.

In terms of sales, as Carlos Mario mentioned, the main contributors were the performance of the innovative formats-- that are representing now 35%, which is 2 percentage points more in terms of penetration when we compare to the Fresh Market and obviously, the performance of the omni-channel activity, and we had also volume gains of 7% for the second quarter of this year. In terms of gross margin, as you can see, we have a reduction in terms of rate of almost 130 bps, and this can be explained by mainly 3 factors: the sale of property that we had last year and we did not have this year, accounts for 35 basis points of deviation. We have a deviation coming from the contribution of TUYA of around 60 basis points. This is related to the temporary effect of provisions increased due to the loan portfolio increase. This does not have to do with risk deterioration. This is mainly a volume impact. And we have, we think, the perimeter -- the retail perimeter -- a reduction of around 30 basis points of gross margin that was more than compensated by operational leverage in terms of expenses. And when we see internally the retail P&L, actually, the retail margin increased when we compared to the second quarter of 2021.

For the first half, when we see net revenues grew 22.5%. EBITDA grew 12.9% to COP $551,000 million. When we split the contribution of the EBITDA evolution by business, we see that the retail segment contributed with a positive increase of COP $100,000 million. The complementary businesses, ordinary activities contributed with a positive COP $17,000-millions -- and we see a reduction in terms of real estate development activity of COP $55,000 million. It is important also to see the recurring EBITDA margin evolution comparing to 2019 and 2020 when we compare the evolution throughout the last 3 years, the annual rate of growth has been 11.3% for the first half and the margin changed from 7.2% in 2019 to 7.8% for the first half of this year.

Moving on to the next slide. So if you require the performance that was boosted by the Fresh Market profits, we had in Uruguay, a positive effect that when we see net revenues evolution in terms of Colombian Pesos, we see a 23% increase, which is basically composed by 7% of increase in local currency and 15% of Pesos effect. Nevertheless, in terms of Fresh Market stores, the performance was very good in terms of sales above the regular stores and are already contributing to more than 50% of sales in that country. In terms of margin, the gross margin was above last year, compensating the sales increase below local inflation to have a gross profit growing in line with inflation in terms of cash. And we see also an increase in terms of SG&A in terms of rate to have a stable recurring EBITDA margin for the quarter and EBITDA margin growing 0.3 basis points for the first half, EBITDA of COP$ 160,000 million for Uruguay.

Moving on to Argentina. I would like to highlight that in Argentina, we had a very strong quarter in terms of sales growth, more than 15 percentage points above local inflation, 78% of growth comparing to 62% of inflation with a positive evolution in terms of gross margin, thanks to the real estate increase in terms of revenues, which was more than double the inflation in local currency and also a very strong dilution in terms of expenses, EBITDA margin for Argentina was positive for the quarter, 210 basis points above last year, which is basically the same pattern that we can see for the first half with the EBITDA coming from almost 0 last year to COP $14,000 million, 2.1% margin.

So all of that said, moving on to the consolidated figures. I will focus here on the first half figures, but before the first -- the second quarter, sorry -- we can see that the main indicators grew by more than 20%, meaning revenues, EBITDA and net income also boosted by the operational performance, both in retail and real estate. For the first half, we can see that net revenues grew 24%, aggregating COP $1.8 billion of new sales, which is the figure that Carlos Mario mentioned in dollars for using USD $420 million of additional sales for the first half. EBITDA grew 18.4% to COP $726,000 million, which is explained by a positive contribution coming from the retail segment of COP $135 million, a positive contribution from the ordinary activity of the complementary businesses regarding COP $33,000 million of additional contribution and reduction of COP $55,000 million from the real estate development FTE.

In terms of margin, EBITDA landed at 7.8% for the first half, which is 50 basis points above 2019 and 2020 and 37 basis points below last year, but with very strong growth in terms of cash. And finally, in terms of net group share results, the results for the first half are a strong COP $127 million, 6.6% less than 2021. We will review the main effects on the next slide. And for the first -- for the second quarter, sorry -- the net income was COP $62,000 million, 22.7% above Q2 of 2021.

And on the next slide, when we see the evolution of the second quarter net income, we can see that the contribution from the operational leverages have been huge. It contributed with addition of COP $56,000 million. We also had an improvement in terms of nonrecurring results with a reduction on nonrecurring expenses and also (inaudible) asset disposal in Argentina, we've aggregated COP $17,000 million, both together COP $24,000 million in this line. We had also additional financial expenses, obviously related to the increase in interest rates.

These accounted for COP $17,000 million of additional financial expenses versus last year. And we had also in the financial results line, an accounting adjustment related to IAS 29 hyperinflationary accounting adjustment in Argentina that represented a negative COP $30,000. This is a noncash effect, but this is related to the increase in inflation in Argentina. And last, obviously, the impact that we have on the taxes and minority interest due to the operational evolution, both in retail and also in real estate.

Moving on to the next slide. Finally, to review our situation in terms of cash and debt at holding level, it is important to mention that when we see the net financial tax position, we see an increase -- a more negative position by COP $370,000 million. This is basically explained by a cash flow generation of COP more than COP $370,000 million in the last 12 months and an effect of minus COP $661,000 million regarding payment of dividends and the result of the share buyback operation that was conducted a few months ago. When we see that the shareholders' cash flow generation for the last 12 months, as I was mentioning, it was COP $370,000 million and also 80% above the last 12 months of last year, June -- so this is all from the financial side.

Now I'll turn the call back to Carlos Mario to go on with our 2 previous -- thank you.

Thank you, Ruy. The conclusions for the Q2 results would be: at the consolidated level, a historic growth in sales of 27.9%, a very strong growth in omni-channel sales of 24%. Recurring EBITDA going by 30.7% when we adjust from property fees and sales and growing by 21% without that adjustment, with a margin of 7.9%. Net income is growing by 22.7%, imposed by the operation and offsetting the impact from the IAS 29 of Argentina and the impact of interest rates. Colombia with a very solid 29.9% same-store sales growth and a volume expansion of 7%. Innovation formats contributing with a 35.6% share of total sales, speaking of WOW our fresh market of (inaudible) and the omni-channel growing by 27%.

Uruguay continues to have the best group margin with an expansion of 2 basis points and Argentina beating inflation by 15 points -- percentage points -- with an EBITDA expansion of 210 basis points and no cash requirements from the Grupo Exito. This would be the conclusion and we now open it for your questions, and we are here available for that. Thanks a lot.

So we have a question coming from Nicolas Larrain.

(inaudible) Nicolas Larrain from JPMorgan. To Carlos Mario, I wanted to understand from you specifically in the slide where you mentioned on the potential for expansion. I understand that, that is the potential, I wanted to understand also what do you think you can achieve over the next 5 years? Or is that an actual expansion plan for Exito over the 5 years? This was my first question. The other one is sort of an outlook to the second half of the year, Exito (inaudible) I wanted to understand how you are seeing trends into the second half, and that will be on my side.

Thank you very much for your question, Nicolas. What I would say is that in Slide #8, the plan that we have is for 5 years, that is to convert Exito stores into WOW formats at 130 stores, Carulla Fresh Markets for 58 stores and opening Surtimayorista between 70 and 80. This does not include other expansion initiatives like Super Inter and Surtimax, I only mentioned the big ones and some punctual acquisitions that we can do and the expansion with new Carullas, where we are just evaluating the potential, we have. And this does not include the new shopping malls. And in shopping malls, we will be making an expansion of our Puerta del Norte shopping mall. We are already executing an expansion with the IKEA store of 17,000 square meters of Envigado shopping mall, which will make Envigado the first shopping mall in all Colombia, and it does not include some projects that we are now in the process of development, a big project in Bogota, and probably between 1 and 2 projects in Cartagena only to mention those that we can see. And finally, what I can tell you is that, of course, this comes on top of the investment that we are doing every year on technology, logistics to be able to support our digital strategy -- that is our physical strategy and our digital strategy. About perspectives, what I can tell you is that we are still seeing very good consumption in Colombia. We see the confidence of consumer index that (inaudible) publishes and in the last month, for the first time in 3 years, it is in positive grounds.

We continue development of our CapEx profits of around USD 120 million this year that includes the conversion of at least 5 of the La Catorce stores. The sixth one is going to be converted probably in the first 2 of next year. This would add around 23,000 square meters additional for the company in La Catorce conversions during the last months of this year. Next week, for example, we're going to open Jamundi store of La Catorce in the south of Cali, which is a very strong, powerful store for Exito now. We continue also seeing that the Colombian GDP is with a perspective between both 5% and 6%, that is imposed by the benefits of petroleum prices, coal prices, agro prices, and exports. We continue seeing the omni-channel penetration and the high store traffic into our stores and frequent both off and online. Having said this, our comparatives for the second half are much stronger than they were for the first half. So it is not feasible to speak about increases of sales of around 30%, of course, but what we are seeing in July is that we still are in grounds of double-digit growth in sales, even against strong comparatives, and we have one challenge, and it is that we are going to have one day without VAT tax that we had last year and which was not budgeted -- which was budgeted this year -- for December 20 and probably under the announcements of the new government, this will be eliminated, and so we have to compensate it by the sales of Black Friday plus Christmas, plus the last promotion of 82 that we have in the last -- in the third quarter of the year. So this is what we are seeing, to give you a synthesis, the market continues to be strong. We do not see rounds why it should be deteriorated and at the same time, Exito, and you can see it partly by our investment in margin has been investing also in prices to keep the inflation -- our own inflation -- below the inflation input that the consumers are receiving in the whole country, but this has been a very important period that we are profiting to invest also in price image, especially in formats like the Surtimayorista or the Exito popular stores.

If I may, just a small follow-up, especially on the Surtimayorista expansions you mentioned here, those 71 stores over the next 5 years are those new stores? Will it be mostly conversions from maybe other formats that you are using the grid -- what's the plan there? Because it's a substantial acceleration in Surtimayorista expansion versus what we have seen over the past years.

Yes, here, most of it is in new stores. I would say, only around 10% would be conversions of current stores. We have converted those that have the necessary area and location to be converted into Surtimayorista as we saw with very good results, a multiplication of sales of 2.2x. That is something very similar from what we see in Brazil. Let me make a point on Surtimayorista. Surtimayorista, today, has an average area per store of around 1,000 square meters. Surtimayorista is showing costs of operating below 10%. It is incredible that now in 4 years, we arrived to this point, and it is having an EBITDA between 5% and 6%. So we believe that it is a very interesting development strategy. It has a very good ROI above 20%. So we are very confident that it is going to be also a very important instrument to compete in the low-cost market with a format that is profitable from the first year when these stores are opened.

We have a question coming from [Julian C].

I just would like to confirm the expansion plans for the next 5 years. Is that right?

Yes, it is for the next 5 years, and we are now adjusting what would be that expansion next year and probably in a couple of months or something we will announce it, but it's going to be even more aggressive than what we have invested this year.

Okay. And my question is regarding you have been considering some disinvestment of assets in Argentina, due to the economic situation right there? Or you feel comfortable with the operation and the business in Argentina.

We have no current plans to disinvest in Argentina, given the difficulties that we would have to bring the money back under current circumstances of the exchange rules and that the rules for our currency in Argentina. But we do not exclude to think about that in the right point. So we don't exclude it, but we have no current plans.

Okay. Then here my last question is regarding…

Excuse me, and I would add that for the moment, we are seeing positive results, and we are seeing that we do not have to do additional investment or capital influx into Argentina.

Okay. That's perfect. And my last question is regarding the share due to the buyback plan. In the buyback plan, you mentioned that you would like to -- in the meantime -- you would like to perform or help the liquidity in the Colombian market. Is there anything on the table that we have to know about the plans to expand the liquidity of the share?

Thanks for the question. This is something that we always analyze. Perhaps this is not the most right moment to do so because of all the uncertainty that we can see in the market as in all places and with the uncertainty in the currency and so on. So this is something that we have been analyzing. We will always analyze and we'll speak about it when the time cats. Perhaps this is not the most correct sign to do so, but this is something that is always on the take.

There are no further questions at this time. I will now turn the call over to Mr. Carlos Mario Giraldo for closing remarks.

Okay. Thank you, Maria Fernanda. And what I would say is, as we said in this first half of the year, we are adding more than COP $1.8 billion of sales in increase to Grupo Exito with a very positive dynamic in the 3 countries where we operate. The name of the game, I think, is consistency with our strategy of innovation formats, omni-channel penetration, and monetization of our customer confidence and the footprint of the company. Still, there are some businesses whose value is not reflected in the books of the company and less in the value of the share, like the value of our real estate business, the value of our credit business to TUYA and big future potential that we have with Puntos Colombia. The competitive strategy continues to be focused on differentiation with Exito, WOWs and without fresh markets, Super Inters, and our last mile expansion through projects like Turbo, which is an amazing project that serves our customers in less than 10 minutes.

In the low-cost segment, we are improving a lot, and you can see it by the growth of our Vecino Super Inter and our cash and carry, which has had a quarter with a consistent, more than 30%, growth in same-store sales. Our unbeatable portfolio of products of basic food and consumer goods are more important than ever. What we call in the stores (inaudible), which promise in more than 250 SKUs that there's no better price for the consumer in any part of the local market where you can compare it, and we will continue to focus on that because it is very important today -- and the long-term vision of the company continues to be a customer-centered working on the customer experience and investing both in the physical stores and in the online retail. We do not believe that the world will be all physical for our online that are correct mixtures between the 2, gives us a comparative advantage in the market. Having said this, I want to thank you for your presence, and I expect you to be in the following quarter results conference. Thanks a lot.

This concludes today's conference. Thank you for participating.