Cencosud S.A. (CENCOSUD.SN) Earnings Call Transcript & Summary

Good morning. Welcome to Cencosud's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Discussing third quarter of 2025 results today will be Rodrigo Larrain, Chief Executive Officer; Andres Neely, Chief Financial Officer; and Irina Axenova, Investor Relations Director. Statements made today by the company may include forward-looking statements. These statements are subject to risks and uncertainties. They may be influenced by future events, including changes in macroeconomic conditions, political developments, legislation and operational factors that may include Cencosud's future performance. The company undertakes no obligation to publicly update or revise these statements, except as required by law. Please note that no part of this call may be recorded in whole or in part without the company's prior consent. The earnings presentation accompanying this call, which includes additional information, is available on the company's website in the Investor Relations section. Please note that this call is being recorded. With that, I will now leave you with our CEO, Rodrigo Larrain. Rodrigo, please go ahead.

Thank you, Andres. Good morning, everyone, and thank you for joining us today. We began 2025 by launching a new strategic plan that marks an important transformation and a decisive investment in Cencosud's future. Our goal is to become a simpler, more agile and more integrated organization powered by technology, data and artificial intelligence to drive efficiency, innovation and differentiation across our businesses. Building on our 60-year legacy, this transformation strengthens our ecosystem as a platform designed to serve our customers extraordinarily at every moment. During the quarter, we advanced the implementation of initiatives to simplify our structures, streamline processes and strengthen our competitive capabilities. These actions involve extraordinary expenses that weighted on the quarter's results, but they are fundamental to building a more efficient and profitable company for the long run. Among the highlights in the United States, we completed the acquisition of the remaining 33% of The Fresh Market, reaching full ownership and full alignment with our long-term plan. The transaction was funded through a local bond issuance in Chile under historically competitive conditions, demonstrating our financial discipline and long-term vision. The Fresh Market team continues to consolidate the performance of the 12 new stores opened in the last 12 months, focusing on operational efficiencies and format optimization while strengthening its positioning in the market. We are proud of The Fresh Market team for being recognized as the top grocery store across all categories by USA TODAY 10BEST Readers' Choice Awards. Colombia delivered its strongest growth since 2022, driven by the implementation of a renewed business plan, format differentiation and store reopenings such as Jumbo Limonar in Cali. Brazil, undergoing a strategic transformation with format and store adjustments, posted its first positive same-store sales in more than a year, reflecting sharper execution and portfolio optimization following the divestment of Bretas stores in Minas Gerais. In Chile and Argentina, we advanced with the execution of the productivity plan, which generated temporary expenses while continuing to strengthen private label, retail media and e-commerce. Peru maintained solid growth. We are also accelerating organic expansion through new store openings and projects in our Shopping Centers division, which continues with strong performance. Looking ahead, we see great opportunities as we execute our transformation plan. We are confident that the steps we're taking today will enable Cencosud to lead change, strengthen profitability and continue delivering exceptional experiences to our customers while creating long-lasting value to our shareholders. With that, let me hand it over to our CFO, Andres Neely, to walk through the quarter's performance numbers.

Thanks, Rodrigo. Good morning, everyone. Let me start by highlighting some of the key events of the quarter. So first, as we already mentioned, we completed the acquisition of the remaining 33% of The Fresh Market. To finance this transaction, we successfully issued UF 7.5 million in bonds in Chile, which were met with strong demand and historically low spreads, a clear reflection of investors' confidence in our credit quality. In Brazil, we closed the Bretas transaction, completing the transfer of the remaining stores in Minas Gerais and further optimizing our portfolio and concentrating our presence in key regions of Brazil. This quarter, we also advanced in the implementation of the productivity plan, which had extraordinary expenses on the quarter's results of CLP 45 billion. We also continued to expand our footprint during the quarter, adding nearly 4,000 square meters of new sales area, including 2 new Santa Isabel stores in Chile, Prezunic in Rio and the reopening of Jumbo Cali under a new premium format. As part of our retail ecosystem development, we launched new digital capabilities with a new Jumbo app in Colombia and an AI-powered search engine in Jumbo Chile, while Cencosud Media expanded its footprint with new in-store screens added across Chile and Colombia. Our private label sales reached record penetration level of 17.9% with launches of new products, both in food and nonfood categories. Finally, in Chile, we launched the first Expo La Cava Jumbo inspired by Expo Vino in Peru and implemented also in Argentina, highlighting our premium assortment and fostering customer engagement. Moving on to the financial results of the quarter. Despite the challenging retail environment, we continue to grow across markets with sales increasing above inflation in 4 out of 6 countries. Consolidated revenues rose 5.1% or 6.1%, excluding the inflation adjustment in Argentina, with growth in Chile, Argentina, the U.S., Peru and Colombia. In Brazil, sales declined around 10%, mainly reflecting the sale of the 54 Bretas stores. Online sales grew nearly 12% with 4 out of 6 countries reporting double-digit growth year-over-year. Adjusted EBITDA reached CLP 288 billion for the quarter, excluding the inflation adjustment in Argentina, representing a 15.6% decrease year-over-year. The decline mainly reflects the temporary effect of the extraordinary expenses associated with the implementation of the productivity plan, which had almost CLP 45 billion effect on adjusted EBITDA as well as higher general expenses in Chile, margin contraction in Argentina due to lower inflation compared to last year and the integration of Makro. Excluding the extraordinary expenses, adjusted EBITDA decreased 2.5% with adjusted EBITDA margin of 8.2%, excluding hyperinflation adjustments. The margins improved across our other markets, excluding Chile and Argentina, remaining in the double digits in Peru, high single digit in the U.S. and Brazil and with all businesses in Colombia showing improved profitability. Moving to the next slide. We issued -- despite the results of this quarter, our accumulated distributable income has increased over 41% year-over-year, driven by lower impact of the inflation adjustment in Argentina, which was partially offset by the increase in general expenses and taxes. During the quarter, we issued local bonds in Chile, replacing the PUT option in our short-term liabilities with new long-term debt. This strengthened our amortization calendar with the next maturity now scheduled to 2027. We had a slight increase in our net leverage, reaching 3.5x. Excluding the one-off of the productivity plan, net leverage is 3.4x, while our cash position stood at $670 million at the end of the quarter. Most of our debt is U.S. dollar-denominated and hedged through currency swaps. Considering the bond issuance during the quarter, along with our U.S. assets and cash flows, our net U.S. dollar exposure decreased to 5.8% from 14.7% as of June 2025. With that, I'll hand it to Irina Axenova to discuss country performance and the progress of our strategic priorities.

Thank you, Andres. Good morning, everyone, and welcome to the call. Let's look at our quarterly results by country. Starting with Chile. Revenue increased 2.6% year-over-year with all divisions contributing to growth. The main drivers were strong online sales in Supermarkets, which grew over 10% and solid performance in the Department Stores, where same-store sales increased over 7% despite a shorter winter season. E-commerce overall rose 7.8%, reflecting continued progress in our omnichannel strategy and consistent with broader market trends. Adjusted EBITDA declined 23.7%, mainly due to expenses related to the productivity plan, along with higher general and labor expenses. Meanwhile, our Shopping Center division expanded margins by 104 basis points, supported by solid rent income. Excluding the effect of this quarter's extraordinary expenses, which on the country level amounted to CLP 21.7 billion, adjusted EBITDA in Chile declined 13.1% with adjusted EBITDA margin of 10.1%. Moving to Argentina. Revenue increased 57% in local currency and more than 50% in Chilean pesos, driven by a strong performance of Jumbo and integration of Makro stores as well as an increase of the private label sales, resulting in 140 basis points market share gain in Supermarket market. Private label continued to gain traction with penetration up 354 basis points year-over-year. The decline in adjusted EBITDA reflects gross margin compression and general expenses growing above inflation. In addition, expenses related to the productivity plan, which totaled CLP 20 billion at the country level also contributed to the decrease in adjusted EBITDA. Excluding these expenses, adjusted EBITDA decreased 11.4% with adjusted EBITDA margin of 5.2%. In the United States, The Fresh Market revenue grew 5.1% in U.S. dollar and more than 8% in Chilean pesos supported by the opening of 12 new stores over the past 12 months. The business achieved double-digit online sales growth for the second consecutive year. And since the Cencosud's acquisition in the third quarter of 2022, online sales have increased 76%. Adjusted EBITDA increased 6.6% in the U.S. dollars and 9.5% in Chilean pesos with a more than margin expansion to 7.5%. And I will repeat again, we are very proud of The Fresh Market's recognition as a top grocery store across all categories in the US TODAY 10BEST Readers' Choice (sic) [ USA TODAY 10BEST Readers' Choice ] 2025. Moving to Brazil. In Brazil, revenues declined 10.7% in local currency and 6.3% in Chilean pesos, mainly due to the sales of 54 Bretas stores in Minas Gerais and a weaker food retail environment across the country. Same-store sales returned to positive territory during the quarter, growing 0.4% and showing sequential improvement and also signaling a gradual recovery in comparable store performance. Adjusted EBITDA increased 37% in Chilean pesos, reflecting the income from the sale of the remaining 22 Bretas stores during this quarter. In Peru, we delivered strong revenue and margin growth, supported by solid performance across the regions. Revenues increased 2.1% in local currency and almost 12% in Chilean pesos year-over-year, driven by same-store sales growth of 4.7% in Cash & Carry segment supported by strong B2B sales and by almost 28% year-over-year increase in online sales, reaching a penetration of 7.5%. Adjusted EBITDA rose 8.4% in local currency and almost 19% in Chilean pesos, achieving an adjusted EBITDA margin of 12%. This is a record level for the third quarter. This performance was mainly explained by year-over-year margin expansions in the Supermarket and Financial Services divisions, partially offset by higher energy and admin-related expenses in the Shopping Center division as well as marketing expenses ahead of Phase 2 opening at Cenco La Molina. In Colombia, we delivered both top line and profitability growth across all business units. Revenues increased 8.5% in local currency and almost 15% in Chilean pesos year-over-year. All business units posted year-over-year sales growth, supported by same-store sales increases of 6% in Supermarkets and 23% in Home Improvement, along with online sales growth of almost 13%. Adjusted EBITDA improved versus the same quarter last year with an EBITDA margin expansion of 148 basis points, driven by higher profitability in Supermarkets, Shopping Centers and Home Improvement, partially offset by expenses related to the productivity plan implemented during the quarter, which at the country level amounted to CLP 3.1 billion. Excluding these expenses, adjusted EBITDA margin was 2.7%. Moving to advances in our strategic pillars. I will start with private label performance across the region. Private label sales reached record penetration of almost 18% this quarter, up 118 basis points year-over-year with total sales of $681 million during the third quarter this year. The strong growth was supported by innovation and brand development. We launched more than 20 new products under Cuisine & Co's new American Dream line, and we're proud that Cuisine & Co was recognized as the top brand in the Total Brands 2025 study in Chile. In the nonfood category, Robust line is gaining momentum with 12 new products added during this quarter, which will further strengthen the value proposition of Home Improvement stores. Moving to the next slide. During the quarter, we also continue to expand our physical footprint, adding nearly 4,000 square meters of new retail space for 3 store openings, mainly in Chile and Brazil. In real estate, we also added 18,000 square meters of new leasable area, including the new Easy in Villarrica and the expansion of Cenco Limonar in Colombia. Moving to Slide 21. Just a quick update on our sustainability agenda. We continued working on our circular economy initiatives, preventing nearly 20,000 tons of waste through recovery and donation programs. And on the social front, we're proud of our initiatives promoting youth employability and female entrepreneurship as well as our healthy eating program in Peru, developed in partnership with various NGOs. These initiatives are helping us create shared value across the region and strengthen our connection with the communities where we operate. We also closed the quarter with important recognitions. We've mentioned some of them already, but just the key ones for The Fresh Market and the US TODAY BEST (sic) [ USA TODAY 10BEST ] and the Total Brands Leadership Award for Cenco Malls and Cuisine & Co and innovation awards for our shared services center. With this, we conclude our prepared remarks. But before moving on to the Q&A, I'd like to remind you all that Cencosud will hold its 2026 Cenco Day on January 14, 2026, in Buenos Aires, Argentina. We are really looking forward to welcoming many of you there and sharing our plans for the year ahead. And now we'll open the Q&A session. Andres, back to you.

Thank you, Irina. [Operator Instructions] The first question comes from Héctor Maya from Scotiabank. We have already 5 people on the queue. Héctor, please go ahead.

The first one regarding the productivity plan, could you please expand on the details of the key initiatives implemented from it in Chile and Argentina? And also, if you could please repeat the breakdown of the CLP 45 billion effect by country and category and the expected savings from this now that the plan was executed. That will be the first one.

Thank you for your question. So the productivity plan is also part of the new strategic plan that we have developed and launched from the start of this year. Basically, the plan is focused on making the company more efficient and competitive. Historically, we have been working on a more decentralized structure that has led to duplicated functions across business units. So this creates opportunities to generate synergies and efficiencies and make us more agile and strengthens our value chain. So the productivity plan basically has to do with that and how we refocus our teams, our priorities, our resources, how we drive more synergies in the group and how we review and improve our processes. So we -- on the other hand, we continue to recruit top talent and have made several internal promotions. So it's not only reducing, let's say, labor, but reviewing processes. And the plan also considers recruiting top talent that has come into the company. In terms of the roughly CLP 45 billion of impact this quarter, it's mainly weighted in Chile and Argentina.

Got it. Very clear. And also, if I may, on Argentina, we understand the evolving consumer dynamics show a promising potential. But at the same time, you continue to face certain margin pressures in the country. So could you please also share some details on the challenges persisting there? And how could you tackle them? Or do you expect that with the productivity plan, the operation in Argentina is now set to deliver an improving profitability? And what would be a potential timing for that, if that's the case?

The environment in Argentina continued to be quite slow, right, in the last few quarters, but gradually improving. And when you open and see the details, we have a Shopping Center business that's performing quite well and improving, and that has to do with basically more occupancy and brands expanding their footprint in Argentina or entering Argentina. So that's a very healthy dynamic. And we see our Supermarkets, Jumbo performing very well. They are depending on the regions and the economic situation context of the regions. And then you have Home Improvement, which I would say is the industry that's struggling more because of low investments in projects and constructions in Home Improvement. But I would say, overall, with an improving -- gradually improving scenario and all the macro has been trending much more positive, the reduction in inflation, too. So I think Argentina is positioned to improve in the following quarters.

Thank you, Héctor. Next one on the queue is Andrew Ruben from Morgan Stanley. Andrew, please go ahead.

My question is around Chile. Specifically, if we look at the margins, it seemed that we saw a deceleration across each of the retail businesses this quarter, even if we exclude the transformation expense. I know you mentioned some general labor expense in the prepared remarks, but I'm curious what changed incrementally in the quarter and what you need to see, whether it's this balance of growth and labor or otherwise to get back to kind of more flat or expanding margin trajectory?

Andy, I can answer that, and I have the rest of the team to complement if necessary. But in Chile, I think it's a combination. We have seen pressures in labor costs and SG&A more in general. That's a trend that is very clear. But also we have to consider we have a very mild winter in Chile. So all retailers have to get rid of inventory -- seasonal inventory, and that has impacted also, I would say, the quarter. And going -- and we've seen much more promotional activity, more and more retailers in general, more aggressive to drive sales because consumption, I would say, that has slowed down in the last few months. Part of it can be also associated to -- we have elections in the forthcoming weeks. We've seen more acceleration in October and the first days of November. So I think we are very prepared to have a stronger fourth quarter end of year, and we've been preparing the company for that. We have different actions and initiatives taken also, for example, in Home Improvement, a whole new assortment, seasonal assortment coming in for the fourth quarter. In Department Stores, we have been changing our technology. So that has had some interruptions in the process, and that's already completed. So we have different things going on, a lot of things going on, I would say, that have put some headwinds in our numbers in the quarter, but I would say that's temporary. I don't know if Andres or Irina want to go.

Very complete.

I would like to complement that the third quarter is, because of seasonality also, less profitable compared to the previous quarters and fourth quarter. So if you're comparing margins in Chile to the second quarter, you have some of that impact too. Next one on the queue is Nicolas Larrain from JPMorgan. Nicolas, you can ask your question.

Thank you, Andres. I have 2, the first one is on the efficiency plan you mentioned. I just wanted to understand if you see this as maybe as a first phase, so we could have maybe another burn of efficiencies throughout the year? Or you think that with the level you have achieved now on the third quarter, like the company is good to go into next year? And my second question is on Peru. We're seeing very good numbers coming from basically all banners over there, very strong performance on the margins and on growth. Wondering if you are planning, maybe stepping on the gas and expanding there. We know there's a lot of space to grow in food retail. Cencosud has a very solid reputation and footprint there. Just interesting to understand how you're thinking about growth in that particular geography.

I can take the first question, Nicolas, and I'll have the team respond about Peru. So we -- the new strategy that we launched has a time horizon of 5 years. So we will -- we have a lot of work to continue doing on the new operating model that we believe will bring us a lot of synergies, agility and prepare the company to become much more competitive in the next decade, I would say. So we will continue making progress on the strategic plan. And I cannot rule out further adjustments as we adapt to the evolving also business needs. But I would say that again, we continue to recruit top talent too and make several internal promotions. And any workforce adjustments are made very cautiously and only when necessary with a priority also in reskilling, redeployment and leveraging technology to minimize impact on employees.

Yes. And taking the second part of your question, Nicolas. So for sure, Peru has showed a very strong and solid performance quarter-over-quarters. We have put on the margin more focus on new investments in Peru, but you need to remember that the lead time of those investments takes some time. So probably as we move forward, we will be announcing new projects in there. What is already coming, as we mentioned, is the second phase of Cenco La Molina, which is improving its performance and according to the normal maturity of these kinds of projects. Our Supermarket performance has been in terms of margins very strong. We have deployed several initiatives of productivity, which we are also taking to the rest of the portfolio. So -- and with this, I finish. So our performance and the performance in general in the Peruvian market is kind of isolated of what's going on in the -- on the political side. We are seeing a very strong momentum in that market.

Thank you, Nicolas. Our third question comes from Felipe Ballevona from Santander. Felipe, the floor is yours.

So I have 2 related to the productivity plan. I'm going to fire them first, and then I can go with the third one, which is related to financial expenses. So yes, going back to the productivity plan, how much savings do you expect from the changes you implemented in this quarter? And second, regarding the CLP 45 billion one-off related to this plan, was this mainly severance payments? Or was there something else in here?