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

Good morning, everyone, and thank you for standing by. Welcome to Cencosud's Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now turn the call over to [ Oscar Bangert ], Investor Relations. Please go ahead.

Thank you, Daniel, and good morning, everyone. The presenters on this call today are Cencosud, our Executive Officer; Andres Neely, our Financial Officer; and Irina Axenova, Investor Relations Director. Before we begin today, let me remind you that statements made today by the company may include forward-looking statements. These statements are subject to risks and uncertainties and may be influenced by future events, including changes in macroeconomic conditions, political developments, legislation and operational factors that may affect Cencosud produced 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 full or in part without the company's pure concept. The earnings presentation accompanying this call, which includes additional information is available on the company's website in the Investor Relations section. Please note, this call is being recorded. I will now leave you with our CEO, Rodrigo Larrain. Rodrigo, please go ahead.

Thank you very much. Good morning, everybody. Thank you for joining the conference call. Before we walk through the details of the quarter, I want to start by acknowledging that the second quarter 2016 was a weak quarter that fell short of our expectations. While part of the pressure came from foreign exchange effects, the inflationary impact of U.S.-denominated debt, the transformation-related and efficiency costs and temporary sales disruption at stores and malls under remodeling as a management team will take full accountability and have taken action for improving them as we move through the second half of the year. At the same time, headline earnings only tell part of the story, [ beneath ] the reported results, several of the indicators we monitor more closely as leading signals of future growth customer relevance and profitability moved in the right direction during the quarter. While these improvements are not yet fully reflected in our financial performance, may give us confidence that the actions we have been taking are beginning to gain traction across the business. We saw that traction in multiple areas, in Chile supermarkets we covered approximately 100 basis points of market share versus the previous quarter. In Argentina, we gained roughly 50 basis points of market share over the year before in our main formats. Online sales grew 14.6% year-over-year across the region, active loyalty customers reached nearly 31 million and prime membership increased 31.3%. During the cyber event in Chile, we attracted more than 500,000 customers generated 26% sales growth and reached record traffic levels. In Brazil, remodeled and converted stores continued to show encouraging sales trends after reopening. Taken together, these are not signs of a business standing still, they are signs of a company strengthening its competitive position with executing a transformation designed to create sustainable growth and profitability over the long term. Thus, the financial results of the quarter were disappointing, but the underlying direction of the business is more encouraging than the reported numbers suggest. Our strategy is simple to state, even if it takes real work to execute. We aim at being the most relevant omni-channel retailer ecosystem in our customers' lives. We believe we're well positioned to do that because of clear competitive advantage. We are a multi-format retailer operating at scale across 6 countries with strong well-recognized brands more than 700 million annual transaction that gives us real customer principality and granular data and a large growing base of active loyalty customers across the region. To capture that advantage, we launched our transformation plan back in 2025 with the goal of becoming a truly integrated customer-facing company one can deliver consistent, personalized value proposition operate with greater efficiency and agility transferred know-how across countries and businesses and offer customers a genuinely integrated value proposition. Over the past several quarters, we've made real progress on the foundations of this new model. Our data and technology, we have been integrating our customer data to build a complete view of the customer journey across our ecosystem, supported by world-class AI and advanced analytic tools and deploying a new generation of platforms to scale our digital commerce and retail media business. This takes time and sustained investments, but was built, it becomes a durable competitive advantage. And that online momentum was broad-based with double-digit growth in 5 of our 6 markets led by Argentina and Colombia. At the same time, we've been revisiting and deepening our value propositions across our businesses, supermarkets, department stores, home improvement and shopping centers through operational and assortment adjustments sharper commercial strategies and a meaningful remodeling and organic growth plan. We have also deepened a strategy of synergic formats that led us competing shopping missions that we were previously not present. Cash & Carry in Argentina and Colombia through macro, the continued evolution of [indiscernible] in Brazil and hard discount in Chile through [indiscernible]. One particularly interesting move has been converting former Cash & Carry stores in Brazil back into neighborhood supermarkets as they were before. under a differentiated value proposition that plays directly to the recovery we're already seeing there. That's complemented by our agreement to acquire [indiscernible] a premium supermarket format closer to June on the fresh market with a highly recognized brands in [indiscernible], a market where we see attractive opportunities ahead. All of this is being tied together by a new operating model, an integrated organizational structure that we were in process that we are in process of implementing, it's leading us strengthen our cross-functional viabilities, align the organization around the customer across our ecosystem, eliminate the application, build more robust processes and become a simpler, more agile, more adaptable company. We are in the final stretch of putting in place the foundations to scale e-commerce, retail media, loyalty and data and personalization, along with AI tools that are making us meaningfully more effective are more profitable in how we manage pricing, promotions and assortment, all within an organization that is more aligned, more agile and more efficient. This is how we intend to navigate the current cycle, but more importantly, it's how we build a stronger Cencosud, one with the strength and agility to lead the omnichannel transformation of retail in the region to earn our customers' preference for years to come and to grow with discipline, adding points of postability every step of the way. With that, let me hand over to Andres Neely, our CFO, to walk through the quarter's financial results in more detail.

Thank you, Rodrigo, and good morning, everyone. So starting with the presentation, during the quarter, we continued strengthening our omni-channel multi-format ecosystem [indiscernible], we reached some prime program subscribers increased 31.3% year-over-year. We also expanded and enhanced our regional footprint through the acquisition of [ Samart ] in Brazil. The announced acquisition of Macro in Colombia, the remain are conversion of 28 stores and the opening of 7 new stores in Chile. Quarter's performance reflected the competitive consumer environment, mostly in Chile, while underlying profitability remains resilient. Our operational execution continued to strengthen profitability across the region. Adjusted EBITDA grew 80% in Colombia, 8.1% in Brazil, excluding the gain from the [indiscernible] in 2025 and 105.7% in Argentina Supermarket division. Moving to the next slide. We saw important improvements in our e-commerce and loyalty strategy. We delivered double-digit online sales growth. In 5 of the 6 markets where we also saw important growth in our loyalty programs with a 31.3% growth on [ prime subscribers ] led by double-digit growth in Chile, Peru. Our ecosystem strategy is generating [indiscernible] of our value proposition as supporting deeper long-term customer relationships. Private label remains a key pillar of our strategy and continues to deliver strong results. Customers continue looking for quality, innovation and value, and we continue expanding our assortment to better meet those needs across both food and non-food categories. During the quarter, private label penetration reached almost 19% of consolidated sales, supported by continued growth across the region. Argentina and Brazil delivered meaningful increases in private label penetration during the quarter. This quarter, we also made progress in building the capabilities required to achieve our strategic goals through the One Cencosud program, we are building a more agile and integrated organization around shared regional platforms, allowing us to deploy technology faster, strengthen our processes and leverage the scale of our business more effective. This includes the continued integration of customer data, the expansion of our digital and technology capabilities and the development of common platforms that support e-commerce, retail media, advanced analytics and artificial intelligence. While much of this work takes place behind the scenes, it's strengthening our ability to scale innovation, improve execution and continuously enhance customer experience. Alongside these initiatives, we continued allocating capital with discipline to strengthen our regional portfolio. In Brazil, we define our strategy in 2025, which led us to the sale of [indiscernible]. Since then, we have been deploying several initiatives to strengthen our presence in Brazil and improve profitability. The acquisition of [indiscernible] strengthens our position in [ Soa Paola ] Brazil's largest consumer market and 1 of the country's most attractive economic regions. With the value proposition center on quality, freshness, service, some are case highly complementary to our existing formats such as Jumbo and the fresh market, expanding our presence in the premium market segment and giving us greater exposure to higher income customer segments. We also saw important growth opportunities with this format. Acquisition is subject to closing conditions, including the approval of [indiscernible] Group Judicial Organization Plan, which also limits our ability to provide more information of the transaction at this time. By now, the Brazilian antitrust authority has already approved the transaction. In Colombia, we also announced the acquisition of Macro incorporating a true cash-and-carry platform with 20 stores across [indiscernible] cities. This transaction significantly broadens our customer reach by strengthening our position with B2B customers and the [ RECA ] segment, while adding an attractive real estate portfolio. Macro also brings a well-established private label platform and meaningful opportunities for operational synergies and scale for our ecosystem in Colombia. Together with the acquisition of [ Plaza Centra ] completed early this year, these investments reinforce our commitment to Colombia, and our confidence in the long-term opportunities we continue to see in that market. Now moving into financial results of the quarter. Financial performance during the quarter reflected a competitive consumer environment or engine exchange headwinds and certain temporary factors. Despite these challenges, we continue advancing our omnichannel ecosystem, maintaining resilient underlay operating trends and delivering profitability improvements across several markets and stores. In terms of revenue, excluding Argentina hyperinflation accounting effect, revenues reached CLP 4.1 trillion during the quarter, declining 1.2% year-over-year. Excluding FX conversion and portfolio divestments and closures, our revenue grew 4.5% year-over-year. Peru continued to deliver solid above-inflation growth Chile remained resilient despite a challenging consumer environment and the United States posted positive local currency performance. Digital sales also continued to outperform. Shopping Centers continued to perform strong with revenue growth of 8.5% in Chile despite brownfield and remodeling projects underway in assets that represent approximately 1/3 of [indiscernible] portfolio. Overall, the quarter reflects a business that continues to grow in strategic priorities while navigating a softer consumption environment. From a profitability standpoint, adjusted EBITDA reached CLP 329 billion, decreasing 12.3% year-over-year. Profitability in Chile reflected elevated promotional activity in Supermarkets, investments aimed at strengthening value position and competitiveness in home improvement and challenging comparison base in Department Stores. On the other hand, Peru maintained double-digit EBITDA growth, while Colombia almost doubled with adjusted EBITDA year-over-year. Argentina Supermarkets more than doubled adjusted EBITDA in local currency. Brazil continued to improve profitability, thanks to multiple initiatives and the portfolio improvements made. All these improvements demonstrate that the initiatives implemented over the past several quarters continue to gain traction. Chile, the main driver of second quarter financial results saw important progress in executing our strategy. While the consumer environment remained highly competitive and promotional activity continued at elevated levels, we made meaningful progress in strengthening our omnichannel ecosystem across all formats. In Supermarkets, online sales increased 13.6% year-over-year online penetration reached 16.4%, and we recovered approximately 100 basis points of market share compared with the previous quarter. We also expanded our physical footprint through the entry of [indiscernible] into Chile and [indiscernible], the launch of [indiscernible] and more recently, the opening of a new [indiscernible] in [indiscernible], reaching 60 Jumbo stores in Chile. Income improvement online sales grew 22.8%, while B2B sales increased 8.6%. [indiscernible], which was launched in June, has already reached approximately 22,000 members, strengthening our value proposition for professional and business customers. In Department Stores, digital channels continue to gain [indiscernible] with online penetration reaching 34.2%. Marketplace sales increasing 33.2% and 16.5% sales increase in the last cyber event held in Chile. We also continue transforming our physical store proposition, including the inauguration of the next generation Paris format at [indiscernible]. These indicators demonstrate that despite the near-term pressure on profitability, we continue to strengthen mid- to long-term value creation in Chile, improving customer engagement, market position and omnichannel capabilities. The progress achieved during the quarter and the initiatives already underway give us confidence in a stronger operating performance during the second half of the year. Now moving to net income. Net income was primarily affected by nonoperational financial factors. During the quarter, we saw higher inflation in Chile, which increased the accounting cost of our U.S. indexed debt. This represents a noncash accounting effect during the quarter. In addition, reported earnings reflected foreign exchange effects Argentina's hyperinflation accounting adjustments and approximately CLP 17 billion of our productivity plan, which we exclude from adjusted EBITDA for better [indiscernible]. As a result, reported net income for the quarter was a loss of CLP 15 billion. During the quarter, we strengthened our financial profile through a series of refinancing transactions in both the Chilean and international debt markets. These transactions allow us to successfully refinance our 2027 maturities extending the average duration of our debt from 5.5 years to 7.3 years and improving our amortization profile. Net leverage increased modestly during the quarter, mainly reflecting higher U.S. indexation and Argentina's hyperinflation accounting adjustments. Our long-term objective remains net leverage of 3x. Moreover, we ended the quarter with a solid decreasing position of approximately CLP 820 million. Overall, we continue to manage our balance sheet conservatively while maintaining the financial flexibility to support our long-term growth strategy. With that, I hand it over to Irina to discuss our performance by country and the progress of our Sustainability agenda.

Thank you, Andres, and good morning, everyone, how go briefly through the country's performance of the Cencosud and desperate touch on the key development across our portfolio. So let's start with Chile. As both [indiscernible] mentioned, despite a competitive promotional market, we continued strengthening our value proposition, advancing omnichannel growth across all formats, supported by online sales growth, portfolio expansion and improved customer engagement. Supermarkets remain resilient with strong online sales increasing almost 14% and we've also improved market share quarter-over-quarter. Home Improvement continued to gain momentum through e-commerce and B2B channels while department stores further strengthen their digital proposition to marketplace, which grew over 30% year-over-year and we also continued flagship store renovations. Shopping Centers delivered another strong quarter with almost 9% growth in sales supported by higher occupancy, traffic growth and additional GLA, despite ongoing renovations and development projects in our key assets, as Andres mentioned. [indiscernible] profitability continued to reflect elevated promotional intensity and some inflationary pressures on cost supermarkets remain a double-digit EBITDA margin, underscoring the resilience of the business, and [indiscernible] is partially offset retail pressures, expanding its EBITDA margin by 40 bps to almost 81%. In addition, looking beyond the financial results, the quarter reflects continued progress and strengthening our omnichannel ecosystem through increased customer engagement. Rodrigo, mentioned the both campaigns, but this was our first cross-format loyalty campaign with [indiscernible], which will run across 6 weeks in Chile across all of our formats and all our platforms and have successfully connected almost 1 million people, and we're engaged with this campaign. At the same time, we had a very successful Cyber Event this quarter which demonstrated very strong traffic growth, transaction growth with double-digit sales growth in all of our formats, while our physical expansion continued for 7 new stores opening during the quarter. And yesterday, we also integrated our [indiscernible] department store here [indiscernible] and a couple of days ago, a new [indiscernible] in [indiscernible]. Together initiatives contribute to the growth of our omnichannel ecosystem and reinforce our competitive position in Chile. Moving now to Argentina. Despite continued challenging environment in the country, we are seeing significant improvement in our supermarket business in Argentina, which contributed to revenues growth with Jumbo and Disco formats sales growing in line with inflation, while online channel grew over 90% in local currency. Shopping Centers also contributed positively to the results. supported by new international brands and improvement in lease conditions across our assets. Argentina Supermarkets adjusted EBITDA more than doubled in local currency, reflecting continued operating efficiencies, commercial execution and the successful integration of macro. Although financial services affected consolidated profitability during the quarter, we expect this impact to normalize during the third quarter of 2026. We have implemented several initiatives to improve growth and profitability in Argentina business. Digital remains one of the fastest-growing channels while private label together with the important goods participation, delivered the strongest expansion across the region. We also initiated a renovation project at Unicenter, which will contribute almost 17,000 additional square meters of new GLA. Moving on to the United States. During the quarter, the fresh market continued to execute consistently against its premium value proposition online sales maintained strong double-digit growth at almost 19% year-over-year. Revenues grew almost 2% in local currency, supported by recently opened stores, which contributed -- which continued to mature and contribute to revenues. And together productivity initiatives, which helped offset some temporary inflationary pressures. And then we also continued strengthening customer loyalty, private label and operational efficiency, supporting another quarter of resilient profitability. Moving now on to Peru. Peru once again delivered one of the strongest performances within the portfolio. Both revenue and adjusted EBITDA increased with EBITDA growing double digit and margins expanding 56 basis points, supported by healthy consumption trends, commercial execution and continued momentum across supermarkets and shopping centers. In Peru, we're also advancing on digital adoption, loyalty and private label, which all continued their expansion, while [indiscernible] kept maturing successfully, [ consiluting ] to both revenue growth and operating leverage. Now moving on to Brazil. In Brazil, we continued executing the transformation of the business. Other reported revenues reflected the divestment of [indiscernible] sales and ongoing store renovations, the underlying business continued to improve. Excluding the positive gain from [indiscernible] the rest in the second quarter, 25%. EBITDA increased more than 8% in local currency, while remodel and converted stores are already delivering encouraging sales improvements. During the quarter, we advanced the conversion of [indiscernible] stores into present format, expanded the [indiscernible] concept and continue evolving the [indiscernible] value proposition, further strengthening our confidence in the transformation underway in Brazil. Moving to Colombia. Colombia delivered another quarter of meaningful operational improvement better commercial execution, disciplined cost management and continued portfolio optimization translated into strong EBITDA growth and margin expansion. During the quarter, we continued converting Metro stores to the Metro [indiscernible]. We converted 5 stores during the quarter, while advancing the divestment of service patients and we also introduced new private label categories, while e-commerce sales grew more than 22%, increasing the [indiscernible]. Before concluding, I'd like to briefly highlight a few sustainability milestones. Sustainability continues to be an integral part of how we operate Cencosud and create long-term value across the region. During the quarter, we were once again recognized as the #1 business holding in [indiscernible] Citizen Brand Study and continue advancing our ESG agenda for corporate initiatives across governance, environmental stewardship and community engagement. On the environmental front, we were recognized as the zero waste awards and also expanded one of the largest renewable energy agreements for the retail sector in Chile. At the same time, we continue supporting the communities where we operate. A good example is the comprehensive reconstruction initiative led by both [ Easy and Paris ] to support families and schools affected by the Chilean wild fires last summer, reflecting our commitment to creating a positive impact beyond our durations. With this, I will conclude our prepared remarks, and we will begin the Q&A session. Daniel, we are ready to begin.

[Operator Instructions] Our first question comes from Melissa Byun from Bank of America.

I have 2 topics. First, I wanted to ask about the productivity plan. If you can provide some more specifics on the areas impacted and potential savings. And there's a reference to transformation costs as well in the press release. So I wanted to understand what this involves and whether this might e more recurring in nature or persist over a longer period of time and the expenses related to it? And then the second question I had was on your operating experience with Macro and in Colombia competing with PriceSmart, how is this informing your strategy in Chile? And are there any plans to bring the macro concept to Chile?

Melissa. So regarding your first question, regarding the [indiscernible] . So the focus of the productivity plan has been voted a combination on the administration of the business and also in our operations. What we provided some insight on how we are trying to integrate our company and generate gross format and cross-geography, platforms and capabilities. So our productivity plan has been oriented toward that goal. And we see a payback of 1 year of the investment in productivity. So far, we have done a productivity investments of around $17 million which have been provided information in our financial statements in [indiscernible] notes. And we expect most of the productivity to be completed by the end of this year. That's a focus on the time we have for that.

Melissa, Rodrigo here. I can take the second question about macro and the format. First of all, it's been very interesting for us to start reanalyzing our portfolio strategy and from the learnings from [ Giga ]. We have been learning a lot with the macro operation in Argentina. We have seen a lot of opportunities in terms of synergies operationally and commercially. So with that learning, we launched a new plan on Macro Argentina, which is starting to show very encouraging results. That's how we were interested in the opportunity to expand in Colombia. Again, we have a similar situation in terms of opportunities with complementing the current footprint and formats that we have in Colombia. We have nothing to announce in Chile or specific plan in the short term. But today, Cencosud is much more well prepared to consider expanding to other formats. And our focus is in Argentina now and Colombia. But we're building those capabilities and also some [indiscernible] is another -- you can see another possibility of continuing expansion, expanding that format, starting in Chile, we have very strong start. It's a format that's different to the traditional business that we've been developing in terms of supermarkets. But today, the company is very open-minded and building on our capabilities. So it's very interesting what we're seeing in these formats and particularly in Argentina and next in Colombia.

If I could also just clarify on the productivity plan. Is this the start of the new land? Or is this a continuation of the plan you began, I think it was in the third quarter last year. And are there deeper or more transformational opportunities that you are pursuing? I'm just trying to understand the reference to the transformation costs as well and what that might involve.

Yes. So it's a continuation. So we started this program and this improvement in 2025. And as I said, we are expecting to complete most of that transformation by the end of this year. For now, we have nothing to announce regarding how material the productivity plan could be by the second half of the year. But what we can say is that we aim to complete most of the changes we are seeing by then.

Our next question comes from Andrew Ruben from Morgan Stanley.

Curious if you could talk a bit about the outlook for your EBITDA margins in Chile. It looks like contraction across the main segment, and you mentioned a bunch of the initiatives on the call, but some of the headwinds, whether it's competition, price investments, logistics, it feels like those could potentially be stickier. So just how do think about the balance and some color on the margin outlook by your retail banners in Chile, I think that would be very helpful.

Yes. Andrew. So in Supermarkets, we posted 10.5% EBITDA margin this quarter. This has been in the 27th consecutive quarter, we have a double-digit EBITDA margin for our supermarket division in Chile. We have -- as we have mentioned several times, we saw this quarter and probably over this year, a lot of promotional activity and a soft consumer market. But with the initiatives we have been deploying, we -- our expectations are to continue maintaining this situation as we move forward of double the EBITDA margins in Supermarkets. The situation is different on Home Improvement with a weak demand for -- during the second quarter for that segment. What we are seeing probably for the second half the weather that we have in Chile impacts that business positively. So we are seeing much better traction on that business as we move forward. And for department stores, we expect that all the changes we are doing both to our online capabilities and our physical value proposition, allow us to have higher margins and reached the high single-digit margins we saw on the second quarter of 2025.

Our next question comes from Héctor Maya from Scotiabank.

In Chile, just a little bit more details to understand the -- with the promo intensity, it's still elevated. When do you see on timing the bottom of Chile supermarket margins? Do you think that maybe that could come in the second half of this year? Or still last or get to that during 2027? Or do you think we already reached it? And on capital allocation, after your recent acquisitions, what's the M&A appetite going forward considering your current leverage level. Is there still space for more? Or would you maybe focus now on lowering your net debt levels?

Héctor, I can take the question on margins in Chile. And I imagine it's particularly about supermarkets. We're starting to see a rebound but that's not necessarily because of a change in the market competitiveness of our conditions. But because of different tools that we have been implementing. Now that we have -- we can work on a consolidated customer transactional data platform that we have been putting in place linked to AI tools. So we've been reshaping our promotions, our pricing strategy, have a better, I would say, capabilities and information for negotiating with suppliers. So with much more accuracy, we're seeing rebounds in our margins that are very encouraging. So it's difficult to anticipate how the market competitiveness will continue to evolve in the short term. But regardless, we are seeing improving margins due to these other factors.

Yes, Héctor, regarding your second question about capital allocation. For sure, the short-term focus will be on the two transactions we just announced, the integration of [indiscernible] and the integration of Macro in Colombia. We still are doing several initiatives with Macro in Argentina as part of the integration plan for that. So I would say that's the focus in the near term. Of course, capital allocation is dynamic, and we will keep reviewing that. But as I mentioned in the presentation, we keep our target of a net leverage of 3x. So considering all those factors, the priority would be integrating the two announced transactions at least for now.

And the last one, how confident are you still enriching the guidance that you showed in January?