Almacenes Éxito S.A. (EXITO) Earnings Call Transcript & Summary

Good morning, everyone. Thank you for joining us today for Grupo Exito's fourth quarter and full year 2023 results. Please note that this conference call is being recorded. Please note the following forward-looking statements. This call may contain certain forward-looking statements based on data, assumptions and estimates that the company believes are [ reasonable ]. Undue reliance should not only be replaced on the forward-looking statements. However, it is not historical data and should not be interpreted as guarantees of future occurrences. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements or that could contribute to such differences include, without limitation, the risks and uncertainties set forth under the Section Item 3, Key Information, Derisk Factors, in the company's registration statement on Form 20-F filed with the Securities and Exchange Commission on July 2023. The forward-looking statements contained in this document are made only as of the date hereof except as required by any applicable law, rules or regulations. Grupo Exito expressly disclaims any obligation or undertaking to publicly release any updates of any forward-looking statements contained in this press release to reflect any change in its expectations or change in events, conditions or circumstances on which any forward-looking statements contained in this document is based. Reconciliation of the non-IFRS financial measures [ factors ] are included in the appendices. [Operator Instructions] I'm pleased to present, our CEO, Mr. Carlos Mario Giraldo; and CFO, Mr. Ivonne Windmueller. Please move now to Slide #3 to see the agenda. We will cover the tender offer outcome, the update on ESG strategy, quarterly highlights, financial performance and conclusions. The call will conclude with a Q&A session. [Operator Instructions] Thank you for your attention. I will now turn the call over to Mr. Carlos Mario Giraldo.

Thank you, Maria, and I welcome you all to this call for our quarter -- our fourth quarter results and our full year results for 2023. First, as Maria said, we're going to refer to the tender offer outcome. Here, as you all know, there has been a change of the controlling shareholder of Exito and the ownership composition. In this Slide 5, you can see that today, the Grupo Calleja, after the tender offer, holds an 86.8% position in Exito. The rest of the float is that is 13.2% is distributed, 1.2% in the New York Stock Exchange, 0.7% in the Colombian Stock Exchange and 11.3% in B3 Brazil. We have today around 42,000 shareholders distributed in those 3 markets. If we go to Slide #7, we will emphasize on our ESG initiatives development. Our main focus, as always, in our Zero Malnutrition Initiative through Exito Foundation, we benefited last year around 72,000 children with complementary nutrition and in association with national and local governments. In the governance part, I would highlight that in the Merco survey, made in Colombia, Exito came #7 in reputation and #1 in retail. We scored 73 out of 100 in SAP global sustainability assessment for 2023 between the top 10 global retailers in this classification. And I would finally say that we continue to be a very strong recycler of carton and plastics in Colombia, reaching near to 19,000 tons last year. Going to Slide #9, we speak about the highlights for the fourth quarter of last year for the financial results. We had a net revenue of COP 5.4 billion, minus 12.6%, impacted mostly by the very strong Argentinian devaluation. If we exclude the FX impact, both from Argentina and Uruguay, the net revenue was minus 1.3%. In the positive side, we saw the performance in Uruguay, in real estate and clearly the net profit evolution. Gross margin arrived to a margin of 25.4%. That is stable despite competition. EBITDA arrived to a margin of 9.7%, plus 8.1% if we exclude the FX impact and minus 1.9% with the FX impact. Our net result for the fourth quarter was COP 118, 000 million versus a loss of COP 77,000 million last year during the fourth quarter. Going to Slide #10, we can see the full year results. In the full year results, we see a net income of growing by 27.2% and arriving to near COP 126,000 million. Revenue arrived to COP 21.1 billion, growing 2.4% in pesos and growing 8.7% if we exclude the exchange impact. Gross profit margin improved by 28 basis points despite the investment in margin, especially in the Colombian market, in strategies such as the more than 500 unbeatable price, basic basket products that we have in Colombia. EBITDA came to COP 1.64 billion minus 1.4%, and this would be plus 0.8% without the FX impact. If we exclude the operational tax impact that we had and that was not in the base, we had a growth -- comparable growth of 2.4% in the consolidated EBITDA for the full year of 2023. We had a positive free cash flow of COP 123,000 million, and inventories were down by almost 6 days. Our CapEx continues to be strong and consistent. And this year, it arrived to COP 522,000 million. Going to Slide #12, we speak about our revenue performance. Sales in the annual consolidated show a growth of 2.4% and 8.6% without the FX impact, imposed by Uruguay, which had a growth in sales in local currency of 9.8% and Argentina with a growth in sales in local currency of 245%, which is above the local inflation. Colombian revenues grew by 3.6%. In the fourth quarter, we had a result in sales negative at 1.3%, excluding foreign exchange impact, with Colombia at a flat figure and Uruguay 4.9% positive in local currency and Argentina 380% in local currency growth. Colombia was imposed by the fresh product category, growing 8.1% and the consumer goods growing 6.3%. We were negatively impacted by the electro category, mainly electro and appliances category, which diminished by 8.8%, very much impacted by the high interest rates in Colombia and the lack of credit dynamics seen during the last part of last year. The best performers in Colombia were Carulla with a growth in food of 13% and our omni-channel growing in Carulla 49% and being a strong basis of the growth of Carulla. In Slide #13, we continue to see innovation at the center of our strategy, now representing 42% share of sales and with -- growing the share at 60 basis points. Exito WOW format in hypermarkets now represents 36% of the hyper sales, and the mature stores under the WOW innovation concepts that have more than 24 months have a growth of 24% over the rest of the brand that do not have the WOW concept. Something very similar is for Carulla Fresh Market. Now it represents those Fresh Market stores, 63% of sales, and those mature stores with more than 24 months have a growth of nearly 14% above the rest of the Carulla brand. In Slide #14, we speak about our Surtimayorista, Aliados and Misurtii. These 3 are targeting the mom-and-pops market, which is resilient in Colombia. We still have near to 200,000 important mom-and-pops, representing still more than 40% of the consumer market. Our Surtimayorista 64 stores now represent 5.4% of sales. We arrived with a very important dynamic in new Aliados to 2,430 partners, and their sales now represent near $60 million. And we arrived also with Misurtii with 34,000 mom-and-pops buying through Misurtii, and representing a figure of around $20 million. This is B2B app which has been highly successful in selling to the mom-and-pops, especially our private first price products -- private brand. In Slide #15, we speak about omnichannel. Omnichannel at Exito had a record sales in Colombia, with more than USD 500 million, which is a historical figure for our omnichannel strategies. And it had a top share of 12.7%, gaining 70 basis points. The growth was most important in food, with a dynamic growth of 22% and getting to a share of 11.9%, one of the highest shares and representation in all the American continent in food retailers. We had 19.3 million home delivery service, growing 44%, and this includes what we do directly with Carulla and Exito and with what we do through our service of home delivery in alliance with [indiscernible]. In Slide 16, real state had an impressive year, an impressive evolution and contribution to results. We have today 794,000 GLA, with an occupancy of 97.6%. And it confirms the position of Viva Malls as the first operator in shopping malls in Colombia. Viva Malls had an increase of 20.7% in recurring EBITDA. In Slide #17, TUYA, our credit card company in alliance with Bancolombia, had a challenging year in line with what we have seen in all the financial sector, especially in consumer credit. This confirms the relevance of having our partnership with Bancolombia and being allied with an expert in the management of credit risk. High provisions were done, and there was a depuration of quality. And we got to a stock of 1.6 million cards, taking decisions to assure the strength of the business. We maintain a TUYA AAA rating for funding purposes. In Slide #17, we also speak about Puntos Colombia. In Puntos Colombia, it is not only a high potential business of monetization of our database, but now it has a very material customer-based composition. It is present today Puntos Colombia in 1 out of 3 households in Colombia, clearly representing by far the most important loyalty coalition in our country, with more than 7 million registered current customers. It has a high issuance and redemption opportunity, not only for the partners, but also for all those retail and service partners that are today issuing and redeeming points through Puntos Colombia. Now I give the word to Ivonne to go through the financials, and I will come back with conclusions.

Thank you, Carlos Mario. Good morning, and thank you for joining us today. I will be presenting the financial results of the company for the fourth quarter and for the full year 2023. Let's continue on Slide #18 to review the operating performance by country, where we see a consolidated margin gain of 106 basis points for the quarter, thanks to the real estate performance and the cost control action plan. In Colombia, as previously presented, net revenues for the quarter at COP 4.5 billion, flat in variation versus previous year and for the full year, COP 15.8 billion with 3.6% growth. These top line results were thanks to a solid real estate evolution, the consistent performance of the omnichannel, food sales growth over yearly food inflation and the increased share of the innovative formats. Despite the consumption slowdown environment, where the non-food sales were affected by higher cost of credit and lower purchasing power. Quarterly gross margin at 23% and full year at 22.5%, boosted by the real estate business and base effect from the food industry relocation. Additionally, margin reflects the actual planning cost compensating price investment and inflationary effect in the cost of goods. SG&A grew 8% for the quarter and 11.9% for the full year, impacted by the ongoing inflationary pressures and the increase in operational tax after the implementation of the tax reform passed in December 2022. Excluding this effect, SG&A grew 9.4% below CPI level, thanks to the strong action plans and expenses of around COP 260,000 million throughout the year to mitigate the inflationary pressures on wages, utilities and other fixed costs. Colombian recurring EBITDA for the quarter at PHP 407,940 million increased by 3.4% and with 9.1% rate improving 29 basis points. For the full year, EBITDA decreased 7.6%. This result reflects the impacted sales performance due to a lower consumption, mainly in non-food category, the inflationary pressures in cost and expenses and the higher operational tax that partially were mitigated by the positive contribution from the real estate and other complementary businesses as well as the strong action plan in cost and expenses. When excluding the operational tax effect in the EBITDA, this decreased 2.1%. Otherwise, for the quarter with a top line that decreased 7.8% in Colombian pesos due to exchange rate effect. In local currency, a positive top line evolution of 4.9% despite droughts and higher basis in Punta del Este, driven by the performance of the Fresh Market stores. Full year revenues grew 18% in Colombian pesos and 9.8% in local currency. This is around 4 percentual points above the local inflation. Gross profit in local currency grew 5.6% above revenues growth and reached a rate of 35.5%, improving 23 basis points, thanks to the successful commercial strategies and increased shares of the Fresh Market format. SG&A grew below sales. Evolution, thanks to the control action plans and reached a dilution of 103 basis points, thanks to the topline performance. Recurring EBITDA for the quarter at COP 112,986 million increased 5.1% and excluding FX effect at 19.3%. For the full year, EBITDA grew 27%, with double-digit margin at 10.7%, improving 76 basis points. The Uruguayan operation continued as the most profitable business unit in the group. And finally, Argentina, with its results in Colombian pesos strongly affected during the quarter, but major devaluation effect after the new President took office. Fourth quarter, with net revenues that grew 380% in local currency. For the full year, net revenues decreased 39.9% in Colombian pesos, valued 245.5% in local currency. This is over 30 percentual points above the local inflation. Sales during the quarter were driven by anticipated purchasing under high inflation forecast, the outstanding performance of the cash and carry format Mini Mayorista, the increased share in the omnichannel share and the real estate business contribution with solid occupancy levels. Gross margin reflected the higher share of the cash and carry format. SG&A for the full year grew below sales growth in local currency and improved 19 basis points, thanks to the sales performance that allowed the dilution and the consistent and strict cost control plans. Recurring EBITDA for the year reached COP 49,300 million and grew in local currency 274%, improving rate in 36 basis points. Let's move forward to Slide 19 to review the company's consolidated results. Net revenues reached in the quarter COP 5.4 billion and decreased 1.3%, excluding FX effect. Year-to-date, net revenues of COP 21.1 billion and grew 2.4%. When excluding the FX effect from the international operations, net revenues grew 8.7%. Fourth quarter gross margin is stable with last year at 25.4%, boosted by the Uruguayan and Colombian performance, compensating the impact in Argentina due to higher share of the cash and carry format. Full year gross margin with an improvement of 28 basis points. During the quarter, the 3 operations showed a positive performance, with sales growth above CPI levels, thanks to the consistent commercial strategy, omnichannel share improvement and innovative formats performance. Other revenues, driven by the growth of 19.7% of the real estate business, contributed to the positive evolution. Topline performance for the quarter, together with the consistent focus on action plans and cost and expenses across the 3 operations, compensating the inflationary pressures led to a positive EBITDA contribution from the operation, offset by devaluation effect in Argentina and the operational tax in Colombia. Full year recurring EBITDA at COP 1.6 billion decreased 1.4%, reflecting the operational performance in Colombia and the devaluation effect from Argentina partially compensated by the results from Uruguay. When excluding the operational tax base effect, the consolidated EBITDA for the year grew 2.4%. Going to Slide 20. The group net results for the quarter reached COP 118,749 million and for the full year, COP 125,998 million. The result reflects the lower operating contribution from Colombia and Argentina, partially offset by the Uruguayan operation. Other significant effects in the result during the quarter and the year-to-date are coming from: first, a positive effect in income tax due to base effect of deferred tax input in the first quarter of 2022 and the use of tax credits. Second, net losses from the financial business TUYA due to higher provisions amidst nonperforming loan deterioration across the financial sector and the compressed intervention margins. Third, an impacted main financial result due to higher interest rates increasing the cost of debt. Fourth, higher minority interest coming from the improved performance in Uruguay and the real estate business in Colombia with Viva Malls. And last, higher nonrecurring expenses related to the spin-off and the DR listing process throughout the year. Finally, on Slide 21. Regarding the cash and debt position of the company, we would like to highlight a positive free cash flow of COP 123,000 million, thanks to the improvement in working capital by reducing inventories in around 6 days. Cash generation, despite sales slowdown, lower dividends received and increased investments. Net financial debt with a total negative variation of COP 345,000 million, but when excluding the dividend payments and the investment in increasing our share in Grupo Exito, net financial debt will be stable with last year. Gross debt increased by COP 75,000 million due to new lines to cover the share increase in Grupo Disco in Uruguay, compensated by the planned debt maturities. As a conclusion, a solid cash flow position of the company allow the strategic and recuring operational investment, share increase in Uruguay and the dividend payment to our shareholders. Now as a summary for the full year results, we had a Colombian perimeter with sales growth impacted by a slowdown in consumption, partially mitigated by the positive performance of innovative formats, omnichannel and the contribution of the real estate business. Gross margin evolution, despite price investment and inflation affecting the cost of goods. SG&A with its strong expenses action plans as an effort to mitigate the inflationary pressures and impact of the higher operational tax. Uruguay, with sales performance in local currency around 4 percentile points above inflation and gross margin benefited by the commercial strategy with an EBITDA margin at double-digit, improving its level. Argentina sales in local currency over 30 percentual points above inflation, gross margin impacted by higher share of cash and carry format, but compensated by a strong control of expenses to mitigate the inflationary impacts leading to gains in EBITDA margin. Year-to-date, consolidated net revenue grew at high single digits when excluding FX effect from international operations. SG&A reflecting the strong inflationary pressures that were partially mitigated by the constant cost action plans and efficiencies. Net result positively impacted by corporate tax, offset by the operational contribution, higher financial costs, negative contribution from the financial business and higher nonrecurring expenses. A solid capital structure allowed the required investment and a positive free cash flow. Thank you for your attention. And now I give the floor back to Carlos Mario for his conclusions.

Thank you, Ivonne. As conclusions, I will begin by making emphasis on the path that the Grupo Calleja is now the main shareholder of the company with more than 86% of the shareholding position. As you have seen, Group Calleja is a true retailer, a strategic shareholder that has been highly successful in its markets and has add -- is going to add, I'm sure, a lot of value to this company from it's know-how and from the opportunities that we have, working together, for example, with common suppliers, most of the international suppliers in consumer goods are common to both companies and have commitments with the both organizations. Second, I would say that it is very important our strengthening of the position in Uruguay. As you know, in Uruguay, we have a Disco unit, where we have local partners and we have the Devoto unit where we have 100% position as exit. In the Disco unit, we acquired a 6.66% stake position, clearly reinforcing our control position in the Disco unit and as a whole in Uruguay. Our net revenue was based on the Colombian growth of [ 3.6% ]. That is very important that we consider that the retail environment in Colombia was highly challenging. And that, as you have seen from Danish, the retail in Colombian sector, it had a decrease of 4.7% last year. And it was also boosted by Uruguay growing near 10% and growth in Argentina and local currency, which was above the local inflation. At the end, we have a COP 21.4 billion in sales, growing 2.4% and 8.7% without FX impact, and we maintain EBITDA margins for the fourth quarter of 9.7% and a full year of 7.8%. This is based after having a lot of pressure coming from expenses from inflation and doing a lot of productivity initiatives inside the organization. It is also based on a level retail margin, despite high competition, especially in the Colombian market. Net income increasing by 27% and our working capital with a positive generation of COP 123,000 million. The organization remains resilient despite the low Colombian consumer confidence and despite the volatility of Argentinian macroeconomics, and we are currently working our efficiencies to confront inflation, especially in Colombia, in dynamics in our commercial part, which is very important in maintaining the high dynamics of our real estate business and in the innovation in our formats and also, of course, the support of our omnichannel initiatives. This would be my conclusions, and we open to Q&A session.

[Operator Instructions] The first question will come from Nicolas Larrain.

Carlos Mario, Ivonne. I wanted to -- you touched a bit, Carlos Mario, on the last piece of your remarks before jumping to Q&A. On the synergies you could get from Grupo Calleja. I wanted to hear from you some early impressions on what they can do with Exito in Colombia? What know-how they can bring from Salvador into Colombia that can help Grupo Exito locally? And just your first impressions on them. Any changes on the strategy or anything that would be less to mention or any color will be super appreciated?

Nicolas, it is too soon to make a big, long-term remark. But what I can say is that we are working together in a collaborative way that I'm impressed with the know-how that they bring into the business having been 1 of the most successful retailers competing against the big players in the world. The focus that they have in the retail business and in the -- customer in the center and in working in a very important collaborative way with our most important suppliers. And I'm very positive and very optimist of the leverage that, that will bring to -- for Exito in the different markets where we work.

The next question comes from Julian Ausique from Corredores Davivienda.

The first one is related with the income tax. I understand that is something related with the assets that you have during the year. But I would like to understand a little bit better the impact -- or the positive impact of the income tax in the net results of the quarter and the year. And question is related to TUYA business. What are the expectations that you are having for this year? And if you have any update may be on the results that TUYA maybe have during January? How the 2024 started for TUYA? And the third question is related also with expectations that you have with Grupo Calleja. And if there is any changes in the strategy on Grupo Exito? I know it's very soon to say something about it, but I don't know if you have something new about maybe changes in the strategy of Group Exito that is currently the company have right now?

I'm going to start with the third one, and then I hand it to Ivonne for the first 2 questions. As I said before, it's too soon to say. What I can assure you is that we are working in a very collaborative way that they bring a lot of know-how into the business and that they are completely committed to the impulse, the dynamism in sales and in growth for Exito, the efficiencies in the company and the profitability of the organization. About strategic changes, there's nothing particular that I can say at this moment.

Thank you, Julian. First, the income tax effect. We have 2 effects compared last year. First is that in the fourth quarter of year 2022, we had a one-shot input in the deferred tax. This was according the tax reform that went into effect in the -- by the end of year 2022. This was a one-shot effect having done a base effect -- a positive base effect for year 2023. And additionally, we had the use of tax credits, considering that we have accumulated tax losses. And regarding TUYA, then -- what we are expecting for this year in the business is it continues to be a difficult year for our financial sector, taking into account that we are still in high interest rates. So the compressed margins of the business continue with pressures during this year. But we -- the business is working as Carlos Mario mentioned before in preparation of the portfolio, having a tighter risk management in order to reduce the risk exposure and therefore to mitigate the impact in the provisions in order to compensate what the business in the income coming from the interest rates are assuming for the year. So it continues to be a challenging year for the financial sector in Colombia.

Do you have any more questions? There is a question coming from Osvaldo Oliver.

This is Osvaldo Oliver from Bain & Company. I have a question regarding the conversions and the opening of the innovative formats. You opened less stores in the Carulla Fresh Market and Exito WOW format in 2023 compared to 2022. Is there -- what were the reasons for that?

Yes. The reasons for that was clearly a decision in allocation in CapEx because we had a very important emphasis on going through Surtimayoristas and creating a leverage in the Surtimayorista going to the low-income market. And we opened near to 20 Surtimayoristas, but we continue working on conversions in Exito and Carulla, that's our priority. We have an important stock of stores to be converted. And the good thing is that each time that we have done that, they have grown much more than the rest of the brand, and they have improved their margins the EBITDA margin, given the growth in sales, but also the mix of products that is purchased by the customers. So this is an ongoing strategy.

Thank you. Thank you, everyone. If you have more questions, please let us know through the chat. There are no further questions at this time. I will now turn the call to Mr. Carlos Mario Giraldo for closing remarks.

What I would say is that this has been a historic year for Exito, not only the listing in the different stock exchanges, but the tender offer that takes to a change in the controlling shareholder. The entrants have a very strong retailer, a true retailer highly successful, not only in the competition against the most important retailers in the world, but also in the profitability, which makes it one of the most profitable retailers in all of our continent. Our strategy continues to work on innovation, on customer experience, where our NPS had one of the most important hikes increases in many years of omnichannel where our food omnichannel has a share of around 0.5% of the total -- half of the total market in Colombia. And we think that this permits us to get to the most important households in the main cities of Colombia. We believe that our international businesses are continuing to perform, Uruguayan in a very strong way and Argentina has been facing in a very efficient way the different challenges in the country. And finally, I would say it is important to say that we have maintained our margins and especially our commercial margins, despite an important competitive scenario. Thank you very much to all of you for being here present and we hope to see you back in the presentation of our Q1 results.

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