El Puerto de Liverpool, S.A.B. de C.V. (LIVEPOLC1) Earnings Call Transcript & Summary

Welcome to El Puerto Liverpool's conference call. With us are Mr. Enrique Guijosa, CFO of El Puerto Liverpool; Mr. José Antonio Diego, Treasury and IR Director; and Mr. Enrique Griñan, Investor Relations Officer. Our speaker will present the results for the first quarter 2020 and the perspective of Liverpool's actions due to COVID-19 pandemic. At the end of the presentation, we will have a Q&A session. As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in El Puerto Liverpool's most recent annual report. At this time, I will now turn the conference over to Mr. Enrique Guijosa. Please go ahead.

Yes, thank you very much. Good morning to everyone, and welcome to Liverpool's Q1 2020 conference call. First of all, I sincerely hope that you and everyone in your families are healthy and doing well. I'm going to very quickly cover our first quarter results so we can devote most of the time of this call to share with you what we are doing to face the challenges generated by coronavirus and its economic implications. Regarding our first quarter, I would like to point out that the effects of pandemic on consumption became evident since the second half of March. As a matter of fact, sales for the long holiday weekend from Friday, March 13 to Monday, March 16 were well below previous trends and with the first indication that we were facing a significant change in customer behavior. Interestingly, the slowdown was more evident in the Liverpool stores that are located in affluent neighborhoods in Suburbia and in our stand-alone boutiques. For perspective, same-store sales growth rates for the first 2 months of the year were 8.1% for Liverpool and 2.4% for Suburbia. For the full first quarter, these figures were minus 4.0% and minus 11.3%, respectively. In the case of Liverpool, this is the weakest performance since the second quarter of 2009. During the first quarter, our e-comm GMV increased 41.3%. Marketplace accounted for more than 8%, and we closed March with more than 50,000 SKUs and 402 third-party sellers. Our average delivery time during the quarter decreased almost 30% versus a year ago. Stores fulfilled 94% of the orders. The other thing I would like to highlight regarding our first quarter results is that the revenues from our shopping centers were largely unaffected as we received the majority of our leasing payments in the first half of each month. Furthermore, in our credit cards business unit, our nonperforming loan rates remain well behaved, basically flat versus year ago. I will now move to the current situation. There is no doubt that we are in an emergency, and we all have a responsibility to pitch in and take the necessary precautionary measures. At Liverpool, we have joined the efforts to prevent and mitigate the spread of the virus since the very early stages of the pandemic. As the heath emergency started to emerge in mid-March to quickly evolve into rapid escalation, we identified 5 priorities: number one, rapidly mobilized an emergency response team; number two, protect people as the utmost priority; number three, put operations in crisis mode; number four, sales cash to adapt to the new financial realities; and number five, communicate and collaborate both internally and externally. Although it is still not clear what will be the timing, we have already started to plan for the next phase, the recovery and beyond, to make sure that we emerge from the crisis stronger. The first order of business has been to protect people. Since the beginning of the sanitary emergency, we put in place an action plan to safeguard the health of our customers, our employees and our suppliers. I am glad to report that the number of COVID-19 infected employees in Liverpool is very low. We have implemented a number of actions to stay in touch and help all employees through the quarantine. Our business continuity plan was activated immediately after the holiday weekend in mid-March. This allows most of our administrative staff to work from home since then without any major disruptions to the business. In all our operations, we reduced the number of employees to the absolute minimum, implemented guidelines to maintain a safe distance and increased the frequency and scope of our cleaning protocols. This is just a small sample of the things we did to protect people. El Puerto de Liverpool decided to close its commercial doors starting Tuesday, March 31. This applied to all Liverpool and Suburbia stores, the Galerias shopping centers and our stand-alone boutiques. The closure was initially announced until April 30, but the contingency period was later extended by the government to May 31, so all our locations will most probably remain closed until that date. Another way to protect our customers has been the communication plan to shift demand to our e-commerce platform. We have observed a significant boost to our digital channels since the early stages of the pandemic and the growth rates have increased week after week. Online sales in April will grow more than 5x when compared to the same month a year ago. The number of new digital clients has grown by more than 7x versus a year ago, and the conversion rate has increased sharply. Repurchase frequency is also showing growth of close to 30%. Meanwhile, the demand for new suppliers ready to join our marketplace platform is expanding rapidly. Furthermore, we're seeing significant growth in downloads and usage of our Liverpool Pocket apps. As you know, before the contingency, Click & Collect was the preferred method of delivery. Since all our stores are now closed, we have been forced to do 100% home deliveries, and we have implemented strict sanitary measures for all our home delivery teams. Importantly, the vast majority of our digital orders continue being fulfilled directly from the stores. We have moved all our promotional calendar to our digital channels. In fact, for this upcoming Mother's Day, we will do a 6 days' Venta Nocturna starting May 1. Another way to protect our customers has been the implementation of the skip a payment option since the first day of April, where our credit cardholders can choose to defer their minimum payments up to 4 months without incurring in late payment interest charges and collection fees. We estimate that by the end of April, around 50% of our cardholders with an outstanding balance will be enrolled in this program. Not surprisingly, around 2/3 of the cardholders that have opted into this program has chosen the 4-month deferral. It's important to highlight that this facility will push the increase that we are expecting in our NPLs into the third quarter. We will use IFRS 9 to start increasing our bad debt provisions since the second quarter. The second order of business has been to protect our liquidity. As you know, we have a strong balance sheet with low levels of debt. Our cash position at the end of March was MXN 14.2 billion, almost 50% above year ago. However, there is no doubt that the pandemic will generate significant levels of stress in all our sources of cash. In the retail segment, we're only receiving cash from our digital sales that are paid with external credit and debit cards. In the shopping centers, we're negotiating payment terms with all our tenants as we speak. The final terms will most probably involve a combination of discounts and deferrals. Furthermore, the upcoming recession will most likely result in higher levels of vacancies. Finally, our consumer finance business unit traditionally plays a countercyclical role in economic slowdowns from a cash generation standpoint. The fact that we are providing deferral options and there will be a significant increase in NPLs will also put pressure on these fronts. We have implemented a very detailed and deliberate action plan to protect our liquidity: Number one, inventory management is a top priority. We need to bring down our inventories as soon as possible. We have already reduced our purchases for the balance of the year anywhere between 40% and 60%, depending on the category. Number two, we have launched an intensive campaign to communicate to our cardholders what are the alternatives they have to pay their credit cards, leveraging the options that we implemented last year to pay via a debit cards or through a bank transfer in our digital platforms. For perspective, prior to the contingency, 80% of the payments were received directly in our stores. Early results are very encouraging as we have seen a tenfold increase in the number of credit accounts that are enrolled in our digital platforms. Number three, since late March, we implemented stricter selection criteria for new credit accounts, overdrafts and additional credit lines. We have several action items along these lines for the next several weeks. We are also optimizing our collection strategies to focus on the riskier segments since the early stages of the contingency. Number four, we have slashed our CapEx 2020 budget to MXN 6.7 million. All the projects that have not started have been put on hold. We have also reduced the pace for all other projects, pushing them back at least 6 months. The 2 new Liverpool stores scheduled for this year have been delayed for next year. In the case of Suburbia, we are now planning to open only 9 new stores this year instead of the 20-plus that we have in our original plans. We are making another round of reduce to our projects to look for ways to reduce our CapEx even more. Our target is to get it down to MXN 5.0 billion. Number five, we have put strict targets and controls in place for all our OpEx categories to spend the minimum amount possible. Personnel expenses account for almost 40% of our total SG&A. We're doing everything we can to keep the size of our workforce unchanged. But we have put in place a freeze to all vacant and new positions, promotions, salary increases, et cetera, et cetera, for the rest of the year. Our focus areas are advertising experience, store leases, utilities, maintenance, supplies, travel expenses, particularly during the lockdown periods. Number six, as a precautionary measure, by the end of April, we will have drawn a total of MXN 3.5 billion of short-term credit lines from several banks. And finally, number seven, on March 20 -- sorry, 12 of this year, the Annual Ordinary Shareholders' Meeting approved a dividend of approximately MXN 2 billion. Yesterday, we published a call for another Ordinary Shareholders' Meeting to be held on May 14 in order to vote a proposal to change the terms of this dividend payments. Our local bonds that trade on their ticker symbols LIVERPOL 10 and 10U totaling MXN 3 billion come due in May, so this were prefunded since November last year. Our net long-term debt maturity does not come due until 2022. As you know, all our U.S. dollar-denominated debt is hedged in pesos, both principal and coupons, through a cross-currency swap and is set at fixed rates. As for exchange rate hedges for our merchandise, the spring/summer buying season is mostly hedged, but for the autumn/winter season, we only have a minimal portion hedged. Preparing for the recovery and beyond phase, we have developed detailed plans to reopen our physical stores, following the recommendations issued by local authorities and incorporating the learnings from other geographies and industries. We will be refining those plans in the upcoming weeks to prepare ourselves for the expected changes in customer behavior. Over our more than 170 years of history, Liverpool has been able to adapt and rise to challenges like this one. We certainly plan to come out of this crisis stronger. Finally, please take care of yourselves, your families and your communities. Stay safe. Thank you very much, and we will now move to the Q&A.

We will now start the Q&A session. [Operator Instructions] The first question is from Mr. Ben Theurer from Barclays.

Definitely challenging times. I wanted to follow up on your operating expense initiatives and everything, and you've slated it out nicely in the press release already as well in the call today. But could you help us quantifying the amount of the different areas, what you can actually save from an operating expense perspective? Because if we look at like each prior quarter where impacts were, call it, not relevant, including the current one, we've seen a fairly constant level, on average, of about MXN 9 billion a little more. And then, obviously, we had -- in the first quarter, we had MXN 9.5 billion. So how much can you actually save on SG&A within the different metrics considering that you're not laying off people and you're not reducing head count?

Yes. Thank you, Ben. Well, as you say, I mean it's a difficult thing because 40% of our SG&A, as I said, is personnel expenses. And then since we are keeping our head count stable, that puts a lot of pressure on the other elements of SG&A. We think that we have identified close to MXN 3 billion opportunity to reduce our expenses, and they go -- they involve things like freezing our head count. We have plan, of course, to hire people in several areas. So we are not doing that anymore. We're planning to keep the current head count for the balance of the year. We are canceling the raise in salaries that we have planned for July. We're also putting a lid, of course, on performance bonuses and things like that. So that will be more or less like 20% of the MXN 3 billion. And then -- we have then also identified opportunities to reduce significantly, particularly during the lockdown, advertising. That should be another like MXN 700 million. In maintenance, we think that we have another MXN 150 million in rent leasing expenses. Particularly in Suburbia, we have like MXN 180 million. So all in, it will be like a total of MXN 3 billion for the total year. And we are still looking for more opportunities, of course.

Okay. Okay. So about MXN 3 billion for the total year. Well, that's at least something. Now with that in mind, just a quick follow-up, and thank you very much for all the detail. I assume you still expect some of the benefits not to necessarily be reflected in 2Q, but obviously, all the increases in salaries, that 20%, what you've mentioned out of the MXN 3 billion, which would be around about MXN 600 million, so that's more spread over the remaining quarters of the year and does not necessarily entirely be reflected in the second quarter because you said like a freeze on salary increases for July. So that would ultimately book positive there for 3Q but not necessarily 2Q. Is that correct, the interpretation?

Absolutely. You're completely right. I mean those savings are kind of spread out through the balance of the year.

Okay. Okay. And then one other question I had, and this is -- I mean, clearly, the challenges of switching from on-site brick-and-mortar classic into all online, have you the need of any investments short term to deliver as much of the sales through online channels as possible, be it people on the delivery side? Or are you actually switching some of your brick-and-mortar employees into delivery employees? What investments are needed? And how much do you think this crisis situation gives you actually an opportunity to kind of rethink and accelerate a lot of what you were thinking of doing on the omnichannel presence and particularly the online channel to basically just step that up significantly and come out of the crisis stronger on that online sales channel?

Yes. Well, on the delivery, no, no, we're not switching like people are working the stores into delivery. I mean our delivery people are already, like, well trained, and it's not an easy job. So it's not that easy to move people from the stores to the warehouses. So we are using our -- the same like delivery groups to handle the home deliveries as usual. What we're doing, though, is that we are -- to cope with the excess demand, we are leveraging the relationship that we have with external 3PL delivery companies like FedEx or DHL or Stafeta. So we're capitalizing on several things that we did last year in order to really able to crowdsource this excess demand through third party. And so that is working very nicely. But about 30% to 40% of the deliveries are, today, being managed by external or third-party partners. Now to the other question you had on accelerating, frankly, we already have like a very, very intensive calendar of initiatives on the digital front. So we are not slowing down. We're still planning to work every -- all those initiatives in order to make the shopping experience easier and to continue to provide new features to our customers. But I think the way that -- because of this lockdown, a lot of people that were like a little bit hesitant to move to the digital channels will now feel more comfortable. So I don't think that the current levels that we're seeing on e-commerce will be maintained throughout the rest of the year once these physical stores reopened, but I'm sure that a lot of our customers that, again, did not try e-commerce have tried it now, and they have a good experience and continue to both in -- to shop in several channels now.

Okay. Perfect. Understood. Good luck with those challenges. I know it's not easy.

Our next question is from [ Mr. Nicolas Riva ] from Bank of America.

I have 2 questions. The first one is, if you have done an exercise on your cash burn on a monthly basis, so in a stress scenario, assuming that, that basically that your revenues continue being at 0 for the retail really business, excluding, of course, the digital channels. If I consider your expenses, like OpEx, excluding D&A, CapEx, interest payments and dividends, I was estimating a cash burn of about MXN 140 million per month. Now of course, you have mentioned that you have taken a number of initiatives to reduce OpEx to kind of the minimum necessary. You have already slashed your 2020 CapEx budget to MXN 6.7 million. But I wanted to ask you how you are thinking about your monthly cash burn really at this point. And then my second question on the financial business, specifically. Again, in a stress scenario where you basically do not originate any new credit card loans, and you would be basically just running down your credit card loan book, what is the average duration of the credit card loan book? In other words, how long would it take you to fully amortize that credit card loan book? And also you can give us some color in terms of how the cash collections on your credit card loan book behaved in April really once the stores were already closed?

Yes. Thank you, [ Nicolas ]. We have done several scenarios for our cash burn rate on a monthly basis. And as you might imagine, that's our #1 concern right now. And what we have is that we will -- we think that April, we're going to close the -- with more or less $11 billion -- $10 billion to $11 billion -- sorry, MXN 10 billion to MXN 11 billion in cash on hand. That's what we're projecting them. That's already like very certain because, of course, we are just a few days from the end of April. Then we will have a very tough period during Q2 because we have canceled a lot of orders for the merchandise, but that most of that is done for the second semester. So we have not received a lot of merchandise in April because we have closed the reception in our central warehouses, but we still have a fairly large amount of merchandise from our spring and summer season that has to arrive in May, June. So we will have a lot of pressure in terms of our working capital. So we think that the cash levels for May -- at the end of May, we should be around MXN 4 billion, MXN 4.5 billion. And then for June, also around MXN 4 billion, and in July, a little bit better. So that's our focus areas, particularly on Q2. And of course, that depends a lot on what happens to our payments on our credit cardholders as you were saying. And that's one of the things that we're monitoring very closely because with the deferred option that we are providing to our customers, it's very difficult to see where our collections are going to come in. So for this scenarios that are taking time, I'm sharing with you, we're estimating that, to give you a flavor, last year, we received like close to MXN 7 billion of payments in April. And this year, we're going to be more like 30% below. In May last year, we received like close to MXN 7.5 billion of payments. This year, we are planning for a 35% reduction. And in June last year, we also received like MXN 7.5 billion. This year, we're also planning for a 24% reduction. So with those reductions, we are calculating our cash burn, and that's what we're monitoring very closely for the next several weeks.

Okay. Just to make sure I understood that. You said then cash collections in the credit card loan portfolio, in April, year-on-year were down, did you say, 40%?

A 30%, 3-0.

30%. Okay. And I'm sorry, maybe I didn't get it. And the duration then of this loan book is how many months? Would it be the average duration of this loan book?

Okay. It's -- the initial duration is between 8 to 9 months. That's just to give you a flavor or more or less of what's going to happen.

Our next question is from Luis Willard from GBM.

Can you hear me?

Yes, Luis.

I hope everything is fine with you and your families. I have 2 quick ones. The first one, you mentioned in your press release that you're seeing, if I'm not mistaken, traffic going sevenfold year-over-year in April. Can you talk a little bit about conversion rates on that 7x increase? Are commercial rates growing in the same pace or more or less the same pace or something similar? That would be the first one.

Yes. Luis, we don't disclose the exact figures of conversion rates. What I can tell you is that the Liverpool Pocket app has a conversion rate of close like a 30% to 40% above the average. And we're seeing a lot of downloads and a lot of usage from the app. That's helping a lot to see a sharp increase in our conversion rates. That's #1. The other thing that is helping a lot the conversion rates is that since the stores are closed, where the people are like entering our website or app, already have like the intention to buy. So it's very different that from the usual pattern that a lot people just enter our digital channels just to do some research and spend some time looking at things. now what we see is more deliberate intention of, if you enter, you already have something in mind to buy. So that's also helping to increase the conversion rates.

Okay. And if I may, a second question, just a quick one regarding your CapEx budget. So making a few -- some multiplications. I mean the -- from the reduction of the previous CapEx figure that you had, only cutting back expansion amounts to a little bit less than -- or something around MXN 1.5 billion. Can you tell us a little bit more on where the rest of the savings come from? And specifically, if the Arco Norte slot of the CapEx, that your original plan has been cut back?

Yes, the original runoff costs that took it down to MXN 6.7 billion, basically MXN 1.6 billion of the reduction came from Arco Norte. Arco Norte original plan was to open it in start of the year. The move from Huehuetoca to Arco Norte in April next year, we have pushed that back to October next year, and that helped us defer MXN 1.6 billion. Another MXN 1 billion came from the pushback of the new Liverpool stores in Tijuana and another one in Guadalajara. Another MXN 1.2 billion came from the reduction in the new store openings for Suburbia. Another MXN 1.3 billion came from deferrals of the expansion plans for the Galerias Insurgentes and Galeras Monterrey projects in our shopping center division. And then we have also another like MXN 3 billion -- sorry, MXN 300 million of IT. So that help us bring it out to EUR 6.7 billion. As we speak, we're looking for another MXN 1.5 billion. So that will entail additional costs on all these fronts that I mentioned, including Arco Norte. So our plan is to bring 2020 CapEx all the way down to only MXN 5.0 billion. And again, that is in the name of liquidity and preserve our cash.

Our next question is from Mr. Ulises Argote from JPMorgan.

Hope all is well with you. So a couple of questions here on my side, mainly on your online channel. So first, any additional details there that you can share on the Liverpool marketplace evolution? I mean you mentioned there kind of the relevance of the third parties and et cetera, but any extra details you can share there? How relevant it is to overall sales, kind of the mix on new products and categories that you're recently seeing? And then the second one, if you have any color there on the Suburbia online sales performance, how this part of the business is working and also how's the sourcing working there? Is it also from the stores? Or what's the setup there?

Yes. Thank you, Ulises. Well, in terms of the categories that are moving well on our e-comm businesses, in the case of Liverpool, we see like the things that are not moving well -- very well are things that have to do with fashion. So we're seeing, in softline, a lot of demand for basic apparel, very good levels of demand for shoes and tennis shoes and also good demand for cosmetics, not so much for fragrances for obvious reasons. We're focused of cosmetics, yes, as a replenishment of the countries for our customers. And also very high levels of demand for home office equipment, so computers and printers, that's moving really well. Also TV monitors are doing well. And also, things for home are also doing well. So that's the flavor, let's say, for Liverpool. Again the fashion items for softline are, I would say, the ones that are showing lower levels of demand. In the case of Suburbia, Suburbia e-commerce still like a very small. In the last few days -- only in the last 2, 3, 4 days, we're seeing sales of close to MXN 1 million per day, but that's only like 1.5% of what [ Coahulia ] typically sells. So although it's increasing, percentage-wise, it's increasing a lot. As a percentage of the total regular sales, it's still in the -- in very low levels. So Liverpool will probably -- with the help of e-comm, will probably see an 80% reduction in April against the sales in April 2019. In the case of Suburbia, the sales reduction in April will probably be more on the 98% reduction. So it's a big difference. In the case of Suburbia, your other question is different than what we do with Liverpool. In the case of Suburbia, we don't have the capabilities yet to fulfill the e-comm orders from the stores. So all the orders are fulfilled from a central 3PL warehouse.

Our next question is from Mr. Andres Ortiz from Crédit Suisse.

Just a follow-up from the question. What is the expected penetration of the e-commerce business on a normalized basis? Normalized sales, you're saying that you see a reduction of 80% of sales in Liverpool's paper. But for the whole quarter, how would you expect that number to be, particularly as -- so I remember correctly, 9% of the sales came from this omnichannel -- from omnichannel sales, right?

Yes. Well, usually, the average that we have prior to the contingency are digital sales were close to around 9% of total retail sales, thus the GMV market share, I would say. Of course, during April and May, in the case of Liverpool, well, digital sales are going to be 100%. So the question is, what's going to happen in June in terms of the -- I think that we'll probably go down to -- I would expect to be more or less on the 15% range for the -- for June, I would say, hopefully, around 12%, 15%. But we see that's, frankly, very difficult to assess how much of the of traffic that we're seeing on e-comm is going to stay there once the physical stores reopen. So again, I would say it's probably going to be around 12% to 15%, but we'll see.

And one other additional question, if I may. Regarding your proposal to cut -- to change the terms of dividends, what are you planning to close? A total cut of dividends or some partial cut?

Yes. The terms are not final, but what we are planning to ask the shareholders for their approval is to delegate to the Board of Directors of Liverpool the final decision of how much to pay and when to pay. So that's still to be determined. So it will depend a lot on how the rest of the year evolves. So -- and the idea is that we will hold, at this point in time, the full MXN 2 billion. We will not pay anything in May as was the original plan. The real term was to pay like a 70% or 75% of dividends in May and the balance in October. So now it's a sure thing that we will not pay anything in the first semester. And how much we will pay and when we will pay will depend a lot on what happens once we reopen the stores, where do we see demand like coming back at what levels. So that's what I can share with you in terms of the dividends.

Our next question is from Mr. Andrew Ruben from Morgan Stanley.

I hope all is well. A lot of my questions have already been answered. It's been a helpful call. Just one here. You were talking in terms of rents both for your Suburbia store then in the malls business. Can you give some more detail on those negotiations? Maybe very helpful if you could put some numbers around the magnitude of reductions you're seeking and the duration, that would be very helpful.

Yes. In the shopping centers, Andrew?

Yes. Yes.

Yes. In the shopping centers, what we're trying to -- or expecting to achieve is to have like a reduction of equivalent to 2.5 months of lease payments. That's our target. That's what we're negotiating. So -- and we were giving the option to our tenants to choose whether they want to do that spread in several months, whether they want to do that -- to consider a reduction but to defer the payments until next year in some instances. But what the reduction in revenues that we are considering is more or less equivalent to 2.5 months of a reduction in our lease revenues.

Great. And do you see that being more of a kind of onetime reduction? Or based on conversation, do you think there could be any sort of structural reset in rents that you charge? And then I'm curious on the Suburbia stores, the portion of your store base where you are the one paying rent, how you're approaching the negotiation from the other side there.

Yes. We're trying to have the same framework. And so what we're trying to do is to have like a [ semi highlands ] for both sides now when we are the landlords and when we are the tenants for Suburbia. We're also trying to negotiate with all the developers a reduction in to 2.5 months of lease payments, and we are doing that as we speak. We have already closed several negotiations, especially with Walmart, for example, which is our -- the most important landlord for Suburbia. So that's -- and to your question, I think that this is going to be a one shot. So we don't think -- this is just like a temporary thing for when the stores are closed. Once they reopen, the idea is to go back to the normal rates, and then we'll see where things are settled.

Our next question is from Mr. Sergio Matsumoto from Citigroup.

Hope all is well. My question is on how you can visualize the normalization, let's say, over the next 12 months, 18 months. And I'm interested in hearing your views on how the competitive landscape might change, like which type of competitors might -- are most likely to weaken through this situation. And if you could also compare the difference in this scenarios between Liverpool and Suburbia because they, obviously, cater to different segment of the population. And along with this, if you could envision like which categories are most likely to come back the fastest either because there's pent-up demand or because of change in the consumer preferences.

Yes. Thank you, Sergio. Well, the normalization is a good question, frankly. As you know, I mean everybody's cost impact is going to be a shape of the recovery and as people, let's say, is going to be above U or a V or an L or a reverse J. I don't know how many, given that different shapes we have in order to try to figure out what's going to be the new normal. Well, we think, frankly, that it's very likely that we will see negative comps for the balance of the year. We think that the number is going to be, of course, more negative in the first few months after we are able to reopen the stores, and little by little, they're going to go back to better numbers. But for our planning, we're assuming that it's -- we will not stay on the negative side in terms of comp rates for the balance of the year. To your question of competition, well, I think that a lot of the stand-alone boutiques in the shopping centers, I think they're going to have a harder time in terms of the recovery. I think that we will see a reduction in footfall in the shopping centers. I mean in that sense, I think that both Liverpool and Suburbia are in good shape in the sense that they are more of an estimation point rather than like just to walk around the shopping centers and decide the last minute depending on what you see to enter the store. So I think in the case of both Liverpool and Suburbia, I think that applies more to Liverpool, frankly, but also in the case of Suburbia. I think they're more of a destination rather than just like wandering around the shopping centers and decided in the end to enter. So I would expect to see them -- the stand-alone boutiques to have a harder time. And also I think that many of them are going to reflect the hard times that they're having in their -- in the context for their [ day ]. So they're having a hard time in Europe or in the U.S., and I'm sure that, that's going to reflect most likely in what happens in Mexico. To your third question, in terms of categories, I think that the category that are going to have a harder time to come back are going to be the ones that have to do with fashion. I think that -- and also, like the most -- the more, I would say, like expensive merchandise in terms of a [ parlor ]. So you see the opening price point or the goods or the better price points, I think that the better price points are going to have a harder time. So we are doing our best both in Liverpool and Suburbia to make sure that we take that into account and focus a big chunk of our assortment on the opening price points and the growth ranges and reduced exposure that we have to the more expensive or higher price points merchandise. That's more or less my take on what's going to happen in the next several months.

Our next question is from Ms. Nicole Helm from MetLife.

I really appreciate all the information you have given. My question is regarding the numbers, and you mentioned on cash burn. I'd appreciate you can give us a little bit more details. And for April, you mentioned that you expect to end the demand with a MXN 10 billion to MXN 11 billion of cash in hand. Does this include the short-term credit lines that you mentioned at the beginning of the call that you're taking? And for May, for example, does this include the maturity of the local bond or not?

Nicole, the figures that I mentioned for the cash burn and the cash positions at the end of each month for the next several months, yes, they are all in. So in the case of the cash position at the end of April, yes, the 11 to 12 -- sorry, MXN 10 billion to MXN 11 billion that I mentioned, they already include a MXN 3.5 billion in short-term credit lines that we are disposing off. And we are -- MXN 4 billion, MXN 4.5 billion I mentioned for May already includes the payment of the certificados bursatiles, the MXN 3 billion that we have to pay in May. It's already reflected in that amount and so on and so forth. So all the figures that I mentioned already consider the lines of credit and also the payment of the maturities.

Our next question is from Mr. Mark Agaiby from BlueBay Asset Management.

Just a couple of questions. The first one, a bit of a clarification. On your -- the OpEx savings that you are guiding to of about MXN 3 billion for the balance of the year, does that include the potential savings from rental expenses as the tenants? Or are they included the -- or excluded from that and included as potentially other savings? And then number two, the second question would be regarding your inventory and inventory management. I know it's tough to quantify, but how much of your inventory, which you say is -- or I'm just trying to get a sense of how much is seasonal and how much you -- of your inventory, you believe, you could push out and sell further, further out in the year or how much would then need to be refreshed and replenished once we get into different seasons towards the back end of the year.

Yes. Thank you, Mark. So in terms of the target for OpEx savings, yes, the MXN 3 billion amount that I mentioned already includes the contribution from the lower rental payments. The target that I mentioned over 2.5 months that we're trying to get a reduction, in total, it's already included. Now in terms of inventory, yes, inventory, as I mentioned, is our top priority right now. We are doing everything we can to push to delay the receipts of inventory and also to cancel a lot of orders in order to get our inventory back on track as soon as possible. That's going to be very hard to do in Q2, of course, because imports will have a 0 flexibility. They're already here or in transit, so there's no space to cut imports. We're doing everything we can in order to push back the receipts for May and June, but it's going to be hard for the spring and summer season. So we are planning to do, in terms of the promotional calendar, is that we will not necessarily start the clearance of the spring and summer season immediately after Father's Day because we will have a lot of merchandise basically brand new. So that's -- those are some of things we are planning to do to change our promotional calendar in order to have the balance between our gross margins and our inventory positions. That, frankly, is the name of the game right now, and that is something that we are analyzing very carefully as we speak, what will be the new promotional calendar for the balance of the first semester in order to reach the right balance again between gross margin and final inventory.

Our next question is from Ms. Ana Cecilia Reyes Esparza from Grupo Bal.

I have a couple of questions. The first one is related to the cash bond that has already been answered a couple of times. But just to have my correct number, you are estimating that at the beginning of July, you would be a little bit better than June. And that could be around MXN 4 billion. So I was thinking about, if you have any more credit lines available from 2 [ withdrawal ] because EUR 4 billion might -- seems a little bit shorter number to face, I don't know, any liquidity risk that you may be facing. That could be the first question. The other couple of questions, if I may, are related to the NPLs. You said that you are considering the reserving through IFRS 9 in the near future. But do you have an estimate of how much this number would be -- not in reserves, but the NPLS. Do you have a stress scenario for this because you have, if I have the correct numbers, 5% for Liverpool and 6.5% for Suburbia. And maybe the -- even though all the measures that you are taking, this can peak a little bit, so regarding the NPLs. And in a less -- more extent, you said that computers and electronics are doing fine and that there's a demand for this kind of items. Do you see any risk in the supply side of these items of computers and electronics? That would be all.

Yes. Ana Cecilia, thank you for your questions. Well, the first one, in terms of our additional credit lines, yes, we think we can tap. We don't have any additional -- we never manage committed credit lines, but we have excellent bank relationships. So we can -- we think we can tap additional credit lines. The -- and the other thing that we have [ under our lead ] is that, that we can, to use as a last resource, is that through our cross-currency swap the position that we have today in those derivative positions is -- has a lot of value. It's close to MXN 8 billion [ favorable ] to us. So another thing that we have been analyzing is where we can monetize part of that cross-currency swap and reset the exchange rates that we have today for those cross-currency swaps for the U.S. bonds that we have still outstanding. So that's not something we're trying to do, but we want to be ready. We want to know about the accounting and the fiscal implications, if we do that. So as we speak, we're doing a very thorough analysis of what that entails. Now in terms of NPLs -- now having said that, I would say that the minimum amount of cash that we need on a day-to-day basis will be around MXN 1.5 billion, MXN 2 billion. So the MXN 4 billion or MXN 5 billion that I mentioned before, it's, I would say, like on the safe side still. Now on NPLs, NPLs, yes, because of deferrals we're doing, frankly, the NPL figures that we will see for Q2 and probably all the way up to July will not be very representative because the cardholder will stay current because of the deferral. So we will not know if they're going to pay or not once their bill comes due in July or August. We will see how big is the [ bottle ]. We have [ grown ] several scenarios. So we don't have any guidance right now in terms of NPLs. But we are in the scenario that we're using as a stress test. We're modeling NPLs all the way up to -- close to 10 -- between 10.5% and 11% of NPLs. So that's basically a little bit more than 2x what we have at the end of last year. So -- and it's not -- and I would like to stress that it's not a guidance, but it is something that we have in our stress tests. And finally, in terms of supply for electronics, I think we're going to face some issues. We have certain things like [ icons ], for example, in Q2, but it's not going to be widespread. So we're not expecting, frankly, like issues in terms of supplies. I mean I think that the fact that the demand has been very low overall in April and May is going to have a -- give some slack to the inventory from our suppliers.

Okay. Just if I may, a further question about the NPLs. Do you -- are you planning to put in March any plan for -- any relief program as to kind of the banks about the 4 and 6 months deferment of payments? Are you planning to do something of the sort?

Well, that's already in place. I mean we -- for April and for May, we are giving all our cardholders the option to enroll themselves in skip a payment option as -- [ we're giving it ]. And they can choose to defer 1 and all the way up to 4 months without incurring in overdue interest charges or collection charges. So that's already in place.

Our next question is from [ Mr. Ãlvaro GarcÃa ] from [ BPZ Actuary ].

It's been a very complete call. I just have 2 quick questions. First one, you haven't spoken about Unicomer. So maybe if you can give us a brief overview of what the situation is in terms of store closures there and maybe an update on its leverage situation. Obviously, a worst-case scenario would be some form of capital injection there. I don't think that'll be necessary. So an update there would be great. And then my second question, and it might be a bit ridiculous, but have you seen any indications of some form of support from the government on the labor front or any sort of tax front or any sort of potential or indication of support from the government?

Yes. Thank you, [ Alvaro ]. Well, Unicomer is putting the [ rails ] together as we speak. We basically in -- our internal plans assume that we're going to see a 50, or 5-0, percent reduction in the numbers that we're seeing from Unicomer in our P&L. As you know, that's booked on an equity basis. I mean the participation that we have is a one-liner in our P&L. As you might expect, I mean Unicomer is also facing big challenges in basically all their markets. I think the only -- Nicaragua and Costa Rica are basically open for business. All the rest of the Unicomer markets are under lockdown. And as a matter of fact, more strict, in some cases, like El Salvador. The lockdown is very strict more so than in Mexico for sure. So -- but still we -- the indications that we have received from Unicomer is that we are not expecting to have to inject any equity or any capital into the Unicomer operation. They have the right levels of cash in hand, and again, we will look probably to -- if a push comes to shove, we have to delay dividends probably, but we don't -- we're not planning to inject any capital. Now in terms of the government support, the government support is 0, and we are expecting that it will continue to be 0. They have said that they're going to be like more -- they're going to like process the returns of the value-added tax after. So we have already presented all the paperwork in order to get our -- the favorable position that we have in value-added tax today because we -- our sales are very low, but we are still like paying our suppliers. So we are generating a big amount of positive value-added tax for us. So we are hoping that they're going to comply with what they have said and return the value-added tax quickly. But frankly, we're not putting that in any of our scenarios because our experience on that front is very bad. I mean they take forever in order to reimburse the value-added tax back. So again, we're not -- unfortunately, we are not expecting any support from the government whatsoever.

Our next question is from Mr. Robert Ford from Bank of America.

Enrique, I just wanted to come at inventory from a different perspective and wanted to understand the breakdown between imports and domestic -- domestically sourced product and then the split between soft and hard lines in terms of your current exposure. And then I know you don't want to count on any type of more accelerated reimbursement in terms of VAT, but just how much working capital do you have tied up right now in VAT?

Yes. The last one is issue of value-added tax. We have asked for a return of close to MXN 1 billion. That's what we have today in terms of the expected return of the [ order ]. And so we see that flies, and we will see that amount soon. But again, I -- frankly, I don't have any high hopes that, that's going to come back to us any time soon. Again, we will do our best to work through the NPAT and through the [ CTE ] in order to pressure the government because that's something that we have promised. But again, I'm very doubtful. Again, it's MXN 1 billion. And in terms of imports or domestics, I mean, if you see, I mean, in the case of Liverpool, more or less 20% of our merchandise is imported directly by us. And although we estimate that close to 60% of the total merchandise at a given point in time the store is imported, only 20% of the total is imported by us directly. The other 40 percentage points is imported merchandise that we buy in pesos from the local distributors. In the case of Suburbia, that figure is around 15%.

Okay. And then soft versus hard?

Yes. Soft versus hard, I think that in the case of Liverpool, it's very much like 50-50. Sometimes it's like 50-45 or the U.S., it's basically on average like 50-50. And in the case of Suburbia, of course, it's like a 95-5.

That was the last question. I will now hand over to Mr. Enrique Guijosa for final comments.

Yes, thank you very much. It has been long. I wish it was a productive meeting. We have tried to be as straightforward as possible to share with you a much perspective that we have on hand to share a light on what we think is going to happen. And thank you again. And I wish that you stay safe, you and your family. Thank you very much.

All conference hosts have hung up. This conference is over. Thank you.