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

Welcome to El Puerto de Liverpool's conference call. With us are Mr. Enrique Güijosa, CFO of El Puerto de Liverpool; Mr. Santiago de Abiega, General Manager for our Consumer Finance division; Mr. Jose Antonio Diego, Treasury and IR Director; and Mr. Enrique Grinan, Investor Relations Officer. Our speakers will present the results for the third quarter of 2020 and the perspective of Liverpool's actions and Digital key role during the COVID-19 pandemic. [Operator Instructions] 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 Güijosa. Please go ahead.

Thank you. Good morning to everyone, and welcome to Liverpool's Q3 2020 Conference Call. First of all, I sincerely hope that you and everyone in your families is healthy and doing well. As usual, we will start with some prepared remarks, and then we'll move on to Q&A. We must start with a quick review of the restrictions that we continue to face in our operations and the liquidity of the company. After that Santiago de Abiega, our General Manager for our Consumer Finance division, will share with you the highlights of these business units during the third quarter. I will then continue with additional remarks regarding the performance of our other businesses. This was another difficult quarter. We continue facing high levels of uncertainty and several operational and macroeconomic headwinds. But I'm proud to report that our performance improved significantly in several fronts. At the beginning of July, we were finally able to start reopening our stores and shopping centers. But this has been done gradually, state by state and even city by city. We continue to face restrictions in terms of occupancy and operating hours in most of our locations. Specifically, as of yesterday, 73% of our Liverpool stores and 56% of our Suburbia stores were operating without limits in terms of operating hours. To give you some color in Mexico City, [ Perlas ] and Monterrey, all our stores faced reduced hours. Villahermosa we had to close our stores during weekends. In Chihuahua, the top line went back to [indiscernible], and we can only sell the essential merchandise. In the case of our shopping centers, all of them have some kind of constraints. Even though these restrictions represent a challenge for our financial results, we continue to implement measures that will improve our outlook for the long term. Regarding liquidity, our free cash flow during the third quarter was very strong. After a cash burn of MXN 8.7 billion in Q2, we generated MXN 9.7 billion during this quarter, and we closed September with cash on hand of MXN 19.7 billion. We may not be able to fully control the challenges caused by pandemic and ensuing economic downturn, we continue executing the strategies that we laid out back in March to protect our liquidity. These are the following: number one, our CapEx budget for 2020 was basically halved to MXN 5.1 billion. We moved the 2 new Liverpool store openings originally planned for this year to 2021. As for Suburbia, we scaled down new store openings to only 9 and we have already opened 7 of them. Construction in Arco Norte and the remodeling expansion of Perisur, Galerías Monterrey and Insurgentes continue both at a slower pace. On the OpEx front, we continue spending the bare minimum. The plan to improve our cost structure has delivered an 11.3% reduction in SG&A expenses during the quarter excluding depreciation and bad debt provisions. It is important to highlight that we have considered our people vital for continued success. And in that sense, we have maintained our total headcount unchanged since the start of the pandemic, therefore these results were not achieved through furloughs or layoffs. Number three, inventory levels were 4.8% below a year ago, reflecting a significant reduction in purchase orders, an uptick pick in digital sales and increased promotional activity. Although we have certainly a negative effect in gross margin, it has allowed us to enter the holiday season in good shape. On the accounts payable upfront, it's [ balance ] increased 2.1x quarter-on-quarter as we normalize merchandise receipts. For perspective, 2/3 of our inventories are financed through accounts payable. This is only 6 percentage points below year ago and is well above the 1/3 that we registered at the end of Q2. Number 5, as a precautionary move, we decided to access the public local debt market in early August and raised MXN 5 billion through a 10-year [indiscernible] at a fixed rate of 8.03%. We have also been cautious in our consumer finance business so to talk about this in detail, I will pass the mic to Santiago de Abiega. Santiago, please go ahead.

Thank you very much, Enrique. Hello, everyone. First of all, I also hope you and your families are all doing well. Last quarter, Enrique mentioned that the NPLs has shown a substantial reduction versus last year and he also mentioned that this was misleading due to the skip a payment option we offered for the month of April and May. Now that this option for the customer is over and more payments have been required, we can see an important increase on the NPLs index from 5.47% last year to 8.53%. Even though this is a very important increase, it is lower than what we had expected. This increase is driven basically by 2 factors. First, yes, there has been an important deterioration on the portfolios; and second, the denominator effect. So the total balance of the portfolio has decreased 11.2% versus last year. Even though the participation of our credit cards and the total sales of the company has increased over 100 basis points. Write-offs are 14% below last year's, but this is also misleading due to the skip a payment that we offered. But we do expect to have a very important increase for year 2021. During all 2020, the incremental reserves for nonperforming loans have increased 42% versus last year. And this is in order to reach the desired coverage ratios. As of the end of September, the coverage ratios are as follows: The total reserves versus the total balance of the portfolios are 21% the coverage versus 10.4% that we had in December 2019. And we see the ratio of the total reserves versus the NPL balances. This is balances over 90 days past due at 2.46x, this NPLs versus 2.3x that we had in December 2019. It is also important to mention that we have different NPLs and different coverage ratios depending on the portfolio, the Liverpool private label, the Liverpool Visa portfolio and the two Suburbia portfolios. So as you can see, we are being conservative in having the adequate NPLs reserves, and we expect to keep these ratios for year-end 2020. Some of the main actions we have been working on in order to contain the risk and keep the customers current are: First, it has been very important for us, the digitalization of our customers and providing our customers with information on balances, account settlements, disputes, digital payments in order to have the customer campaigns via, SPEI and debit cards, et cetera. On collections, we've been trying to keep in contact with our customers even before the payment is required, letting the customer know that their payment will be due that month and also offering our customers very different options in order for them to be able to pay their accounts and stay current. Some of these options that we're offering first are restructures. Today, we have been encouraging restructures. And they are still a small portion of our portfolio. They -- depending on the portfolio, they are between 3.8% and 4.7% of the total portfolio is under these restructure plans. It is very important to highlight that in order for the customer to make a restructure to the account, we require an upfront payment. The NPLs that we can see on this restructured portfolio are between 15% and 18%. We've also been encouraging account settlements for customers that just want to settle their accounts. Also, we implemented the personal payment plans, and this is that the customer can decide the term to pay their accounts, depending on their payment capacity. In September -- just September, we had over 45,000 customers with more than MXN 580 million subscribed to this plan. We have been adjusting our policies and rules, and we have implemented new decision engine tools to better manage the portfolio in order to mitigate the risk. For example, we've been controlling cash advances, overdrafts, credit limits, we have implemented during this period, 6 new [ risk models ] for all 3 originations, behavioral and collections. We believe that today, we have [ beat ] on NPLs index, but we are aware that this is something we have to follow very close on a day-to-day basis. And finally, some of the projects initiatives we have recently launched are. We launched our eWallet, which is payment within mobile phone in the store. And we recently just had over 174,000 transactions and MXN 90 million. We also launched our WhatsApp service for balances, inquiries, credit limits, payment dates, payment amounts, et cetera, and we've had more than 120,000 inquiries only in September. We are also about to launch in the next weeks, our online applications. Our digital bill payments also is going to be going live in November. Well, this is the information I wanted to share with you, and I will be more than glad to answer any questions you may have. Thank you very much and keep safe. Now we go back to Enrique.

Thanks, Santiago. Now let's talk briefly about all the highlights before moving to Q&A. Same-store sales during the quarter for Liverpool show a 10.3% contraction. The good news is that during August and September, we were back to positive figures in the 6% to 7% range. Hard lines continued to outperform, specifically furniture, consumer electronics, appliances and fitness equipment. In terms of geographic regions, the northern and central parts of the country are doing better, while Mexico City, [indiscernible] and the Southeast states are lagging. For Suburbia, Q3 comps were negative 31.4%. This reflects the effect of reduced mobility and work from home in fashion items, the importance of Mexico City for Suburbia and a smaller base of digital and hard line sales. The good news is that we also saw an upward trend during the quarter, and total sales were down in the low 1-digit level in September. Regarding our omnichannel strategy, our digital GMV increased 2.8x during this quarter. New customers grew 6x, and importantly, 20% of them have never shopped with us. Visits to our digital platforms and conversion rates almost doubled versus year ago, while active users in Liverpool pockets, which, as you know, is our app, increased more than 150%. Marketplace GMV increased 6.5x, while our sellers base more than doubled. With all this digital GMV, excluding Suburbia during Q3 accounted for 23.6% of sales compared with 7.8% during Q3 2019. On the logistics front, we improved delivery times by 10% quarter-on-quarter and in 93% of our orders, we achieved or exceeded the delivery rate that we promised to our clients. During the third quarter, Click & Collect accounted for 19% of orders. This is well below the pre-pandemic levels and has resulted in an increase of 3.7x in home deliveries that has certainly strained our last mile network both internally and our third party. Importantly, 90% of digital orders were fulfilled by our stores. Our retail gross margin of 27.2% was 4.7 percentage points below a year ago due to sales mix, increased promotional activity and higher logistics expenses for home deliveries. The latter explains 1/3 of the total reduction. Regarding our shopping centers business, revenues during Q3 were almost 35% below year ago, reflecting the discounts that we offer to most of our tenants. Occupancy levels went down 130 basis points quarter-on-quarter to 92.4%. EBITDA for Q3 was MXN 994 million, significantly above the negative MXN 1.8 billion that we posted in Q2. If we compare it with the same quarter a year ago, it is down 77% and higher bad debt provisions explained around half of this reduction. As you can see, our Q3 results improved significantly. Our operating model has proved its resiliency, and we are entering the holiday season in good shape and high spirits. We will now move to Q&A.

[Operator Instructions] The first question is from Mr. Andrew Ruben from Morgan Stanley.

Congratulations on the sales improvements throughout the quarter. My question is on inventory. So you reduced year-over-year, but I'd be curious if you could talk more about the inventory position, perhaps the mix between some of the apparel and hard goods categories. And how you're thinking about the gross margin outlook for the holiday season in light of your inventory position?

Yes. Thank you, Andrew. Yes. As we -- as I explained, our total inventory went down almost 5% year-on-year. This was certainly good news, both, as you are correctly guessing, the performance is slightly different between hard lines and soft lines. In the case of Liverpool, particularly, we are seeing a reduction in total, and the reduction in hard lines is around minus 15%, while soft lines are around more or less 5%, 6% above a year ago. So frankly, we feel very good in terms of both levels. As you know, hard lines are more on a replenishment basis. And that's not the case certainly for all the fashion items in the case of soft lines. In the case of Suburbia, we are coming down from plus 65% that we had all the way up to almost we will have in those numbers. In September, we were plus 35%. So we saw a significant reduction, and we expect to close October in around 15% more or less. So we feel both in the case of Liverpool and in Suburbia in soft lines very comfortable in the position that we have just before the quarantine, just before the holidays. And in that sense we expect to have, I would say, less pressure, than the one we have faced in Q2 and Q3 in terms of our gross margins. As you can imagine, I mean, we will monitor very closely the sales we're doing. As we usually do, we monitor very closely our sales rates, and we will be prepared to do the math that are necessary in order to reach this -- the end of the year at the right levels. But again, we feel very, very comfortable at this point in time.

Our next question is from Ben Theurer from Barclays.

Enrique, Santiago, hope you're both well. Two quick questions and one might be for Santiago. So I was just wondering if you could elaborate a little bit of the consumer dynamics. And by the way, thank you very much for clarifying the ticket traffic dynamics, which clearly show a very strong ticket, offset by the decline in traffic. So I was wondering how are consumers paying for that 38% increase in ticketed Liverpool and almost 21% in Suburbia, is a lot of that still done through financing? And what are basically the metrics you're applying around the risk systems you've been talking about, Santiago, in order to make sure that you can actually collect the money afterwards, just considering the macroeconomic environment, I was wondering if you could shed a little bit of light on how that ticket growth comes together, and then I have a small follow-up question.

Yes. As I mentioned, we had an increase on the participation of our own credit cards on the total sales of the company. We have 100 basis points of what we were selling with our credit cards in the past. A lot of this is due to that most of -- a lot of our sales have moved to digital. And the sales that we do on digital with our Liverpool pocket, our Liverpool, let's say web page, they have normally higher ticket [ sales ]. So now that the participation of our credit card is usually higher because we are doing around 60% of the total sales of the company. Now we are doing them with our own credit card, and this is due to the -- all the digital sales that we are doing. As I mentioned, yes, in order to maintain the risk. Yes, we have been tightening all of our policies. For example, for overdrafts, for over limits for credit increases. All of that, we have been tightening them. If we are not letting the customers only our very, very low-risk customers because we have a very big segmentation of our customers. So that's what we are doing only for a very low-risk customers. We're allowing them to do overdrafts or credit limit increases. And we have changed 6 of our risk models, we have changed during this pandemia. So for originations, obviously, for a behavioral score, which is for organizations and obviously riskier customers, we are tightening all of our policies. I don't know if I, answered your question?

Yes. That makes sense. And then one other question I was having, just to understand a little bit the dynamics on your cost on your financing side. So thanks for giving the breakdown on the cost bearing debt and the derivatives and the benefits of it. So to understand where does increase came from on a year-over-year basis. But clearly, you've mentioned you did issue about a MXN 5 billion bond back in August '17, which obviously has some impact here. What's your expectation in terms of cost bearing debt total and the cost associated with it when we look into the final quarter and into the early stages of 2021?

Yes, Ben, thank you. Let me first go back a little bit to your question -- your previous question on the consumer dynamics. What's behind, we think, on the high-growth we have seen on the average ticket. I think it also has to do with conversion. I think that we see both, obviously, in the digital side, but also in our physical stores in brick and mortar, that the customers that decide to go to the store, they already have made up their mind that they're going to buy something. So I think that that's what you see in terms of that yet, we're seeing lower foot traffic, obviously. But again, the people are visiting our stores. These customers have already decided to make a purchase. And that's what's driving, I think, that the increase in average ticket. And again, that happens both in both channels. Now going back to your question. Your second question on debt, we have MXN 3.5 billion in short-term financing that we took in Q2. That's a credit lines from our banks, three banks we have here in Mexico. That was also a cautionary move that we did way back in the early part of Q2 as we were facing the closure of our stores. We believe that if everything behaves that we are expecting for Q4. And we have a reasonable holiday season. That we would be paying that MXN 3.5 billion before the year-end. So we will just want to pass the [indiscernible], probably also the [indiscernible] in early December. And again things are behaving well. We will reduce our total debt by MXN 3.5 billion, taking advantage of the high cash position that we have at this point in time. We don't foresee to get or not to need any additional debt near this -- the latter part of this year nor next year. So our total debt should be in line for next year with the levels that you will see by the end of this year. And in terms of the cost, the MXN 3.5 billion that we have in bank financing is on a variable rate. But once we pay that, the reminder, it's going to be on a fixed rate. So we will not have any exposure whatsoever to interest rates.

Okay. And your expectation for the interest expense, once you've paid that back. So just assuming you're going to pay this back. So on everything that is fixed, how much would that be? How many millions of pesos per quarter?

Well, our debt position is going to be around MXN 35 billion at the end of this year when we pay that. So you apply that 8% on average is going to be like MXN 2.5 billion per year. So more or less like MXN 600 million per quarter.

Our next question is from Ms. Vanessa Quiroga from Crédit Suisse.

It is related to logistics. So you highlighted that during the quarter, 1/3 of the increase in costs was related to logistics. So I wonder if you could give us color on your outlook on that line? And where do you think or when do you think Click & Collect could go back to that more normal levels?

Thank you, Vanessa, we'll that's a very old question, a very challenging one because, the one we don't -- so the Click & Collect, as you know our Click & Collect levels were more or less around 45%, 47%, even 50% in some cases, a total sales for Liverpool. And frankly with the growth that we have seen on digital, I will be very surprised if we go back to those high levels. I think that once a lot of people have like experience with home delivery they feel comfortable with that form of receiving their goods. So my best guess will be that we will be in the high 20s, mid-30s, I think. But again, that's my guess. I think, frankly, we -- Q4 is going to give us, I think, a very good like measure of where things are going to level. And of course, the restrictions that we face at the brick and mortar will influence significantly this level. So again, that's my best guess. Now in terms of the pressures that the last mile delivery expenses are putting on our gross margins. I think that as you might imagine, it will depend a lot on where digital sales share levels after the -- not after the pandemic, of course, it doesn't seem like it's going to go away anytime soon. But it was obviously, I mean, Q2 was very high because the stores were closed. In Q3, we saw levels around 23%. We expect now for next year, that we will going to be very close to the 20s, low 20s. And that, I guess, is going to be lower for 2021 than what we saw in 2020 because of the Q2 situation with the lockdown. But so in that sense, we will have less pressure next year in terms of home deliveries. And also, we're working very hard internally and with our third-party vendors in order to make -- to have a more robust platform with a lower overall cost.

Great. And maybe I would take the opportunity to ask you about any store that you might have in Chihuahua, given that they changed the level of restrictions there recently, if you saw any change in how you're operating things.

Yes. Yes. As I said, as you're pointing out, I mean, Chihuahua, going back to [ risk ], we can only sell essential items and essential items for the way they were defined in the guide, this is basically everything related to computers and then to TVs to that kind of merchandise, but it's very much related to home office. And so that's basically what we can sell. And yes, it's impacting negatively our stores in Chihuahua and Ciudad Juárez. So that's something that we, as you might imagine, are closely monitoring, those just this morning, we also saw some news in terms of [indiscernible], that is putting some restrictions in terms of the operating hours once again for the next 2 weeks. So this will -- something that we will be -- we will be facing, for sure, in the next several weeks as contagious -- they are increasing.

Our next question is from Mr. Luis Willard from GBM.

I would like to focus a little bit on the repayments -- or the credit card repayment flow that you've seen -- I mean, you mentioned a little bit about it regarding the third quarter. But entering October, I think that would be my first question. And if I can have a follow-up, how do you see those dynamics playing out? Or what's your basic assumption regarding those dynamics playing out in 2021?

If I understood, you're talking about the repayment for our credit card holders?

Yes. Credit card, the portfolio repayments, how clients are paying back?

I don't know if you're referring to the restructures that we have, Luis, as I mentioned, we've always been very strict in order to restructure on any of the accounts that we need to have a not front payments every time a customer wants to make a restructure. So that, for us, shows us the will of the customer to really maintain their accounts [indiscernible]. So we are maintaining that policy. So we have 2 types of restructures right now, 1 in which the customer signs a contract. Obviously, by that time, we cancel the accounts, and we just try to do a payment plan for the customer in order for them to be able to keep up with the payments. The other side is what we call the personal payment plan. In which the customer do not necessarily is past due recent delinquency. The customer can be current, and we are offering them even before we cannot pay us, we're offering them the option for them to go to a longer term, so they can do their minimum payments every time. This has been -- we recently launched it, probably 2 or 3 weeks ago, and we already have an important quantity, as I mentioned, close to 50,000 customers and over MXN 500 million of these customers that are just extending the term of the payment planning. So -- and obviously, here, we also require, [ in our view ] for you to be able to get your personal payment plan, you need to make an upfront payment before. Once you make the upfront payment, your first payment, then we allow you to take the whole balance and just send it to a longer term. So obviously, we're thinking and just keep doing this for the rest of the year and for 2021 because we believe that we need to offer our customers a lot of different options for them to keep current and to keep paying their bills. I don't know maybe we're referring to that, Luis?

Yes, Santiago, partially. And if I may have a follow-up, do you have any idea of more or less about the -- I mean from the 100% of customers that our cardholders that decided to go with the skip a payment option in April, do you have any idea of how many -- after you finished that program, how many did repay their what they owed? And more or less, how -- what proportion of the portfolio entered into some kind of agreement, either a settlement or this personal payment plan or the restructuring?

Okay. Yes. So the skip a payment, we had 2 different what we call bubbles or 2 different options. One was the customer pick, if he wanted to step 1, 2, 3 or 4 months, he could delay the payment up to 4 months, and this was voluntary the customers needed to subscribe to this option. The other option, what we did since we in Suburbia and Liverpool, in these 2 months, we completely shut down our stores, and we had a very big proportion of payments that were done in our stores. What we did that we told all of our customers, we told them that if they could not pay, we would give them these 2 months, if they feel right, let's say, we will give the skip a payment. If they wouldn't pay -- even if they didn't subscribe by themselves. So we have -- on this bubble, we had over 500 -- we had, I think it was over 500,000 customers that didn't do their payment, and we actually gave them the skip a payment. Okay. So in this case, we had expected the one that we said, automatic skip a payment. We had expected that 20% of these customers were going to go into the first the delinquency months, so they [ weren't ] going to pay just the first payment. On the second bubble that was that the customers, which subscribed, as the voluntarily to 1, 2, 3 or 4 months, we had expected in that case, that probably 15% of the customers will go into the first delinquency bucket. Surprisingly, for us, it was, I would say, probably 40% lower, the percentage of customers that once the payment was due that didn't pay us. And then the next roll rates going into -- from 1 day due to 30 days and to 60 days, also these roll rates that we've been observing are much lower than what we had expected. And that's what I meant at the beginning of the information I provided. When I say that even though we see a very, very high NPLs, these are much lower than what we had expected and all the roll rates that we had projected. That even though we're encouraging the restructure going to the second part of the your question, even though were encouraging, we're very aware because we have to look for 2 things here, one, we keep restructuring customers, first of all, we maintain the policy of asking for an upfront payment. And then we need to see what portion of the portfolio we want to have on this -- on this type of restructured plans. As you can see right now, we're very conservative, we're between 3% and 4% of the total portfolio is being restructured. And we have to look at the NPLs that we have for this kind of customers. And the NPLs, actually, today, they are pretty similar to what we had even before the pandemia, which is between 15% or 18% NPLs on this type of customers. And while the customers defaults their first payment, it automatically goes into default, yes, we need to encourage, we need to help the customers, but we have to be very careful on the way that we do this kind of restructures.

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

So most of the questions that I had have already been asked. So maybe just on some housekeeping items. So do you have any further update that you can provide there on the Arco Norte project and overall CapEx sense or opening expectations had now that you're back in the trend of generating cash with your operation. And maybe a follow-up to Ben's earlier question on credit card usage and et cetera. But can you share any details on Liverpool card usage in Suburbia, maybe signaling there is some kind of changes in consumer habits and how you're seeing this dynamic overall?

Yes. Thank you, Ulises. Let me talk about Arco Norte. And then I'll ask Santiago to answer your question on the Liverpool card usage at Suburbia. In the case of Arco Norte, as you know, early in Q2, we decided to cut by half, basically, our capital expenditure budget for this year to MXN 5.1 billion on that forced us to delay basically a year the whole go live date that we had for the first phase of Arco Norte. So we are planning to keep our current schedule, we're not planning to slow down again. So we are planning to invest significantly more in 2021. That's what we are investing this year for that particular project. Our first phase involves moving our hard line operation or big ticket operation that we currently have at our Huehuetoca national distribution center to move all that operation in early 2022. We're going to move that operation to Arco Norte. So it's going to be our first phase. Again, it's involving only the big-ticket items. For soft lines, we're still in the drawing phase. We have already decided, as we announced several quarters ago that instead of having like a huge facility to do central deliveries for soft lines, Arco Norte, we were going to move more on a decentralized network of smaller distribution centers close to the key cities in Mexico. And Arco Norte was going to play still a very important role, but it was not going to be that a huge center facility that we originally envisioned. So that's still work in progress. It will not take place in 2022, for sure. So our first phase is -- only involves moving Huehuetoca to Arco Norte. Now, I'll have -- I'll let Santiago talk about for Suburbia cards, at -- sorry, Liverpool cards at Suburbia.

Yes, hello. Yes, as I mentioned, the participation on the sales of our own products, they have increased this year, and a lot of that is driven by the sales going into digital because on the digital, since we don't have cash, obviously, we have a higher participation. Usually, in Liverpool, the participation that we have will go between the both credit cards between the Visa card and the private label card, it is in Liverpool around I would say, it's is 37%, and what we do talk about, and that's overall. But when you talk about digital sales, on digital sales, right now, we've been doing around 65% of the total sales with our own products. So that has taken us up on the participation this year. In Suburbia, as you know, we started issuing credit. It was in July of 2018. So it's been -- we had CIE credit cards, we're starting -- issuing our first credit card 2 years ago and today, we are close to 30% of the total sales of Suburbia are being done with our own credit card. Let's say, also, we have the participation of the Liverpool private label card on Suburbia, which we opened that about 1.5 years ago, we opened at -- 2 years ago, we opened that, so that the Liverpool customers could go to Suburbia. And that is also participating on Suburbia's sales probably between 5% and 6% of the Suburbia sales. So including that, we are pretty close to 30% of the total sales of Suburbia being done with our own credit card.

Okay, perfect. That's great detail. And maybe just a follow-up on that 5% or 6% that you mentioned that maybe Liverpool cards represent on the Suburbia sales, has that changed or evolved any -- like significantly in the recent months? Or that has been fairly stable, you would say?

No. I would say that, that has been, it stayed fairly stable. That was even before the pandemic. And right now, it has been pretty more the same around between 5% and 6% of the sales.

Okay. Perfect. It's very clear, thanks.

[ Still going up ], just real fast, what we need to do right now is to reactivate the new cards because, as you know, for this year, we're probably going to be placing half of the cards that we placed in 2019. So in order to keep up with this participation of our credit cards, we're going to have to be very careful in order to be granting new cards to try to keep up with the participation.

Our next question is from Mr. Joaquín Ley from Itaú. Please go ahead.

I know that nobody has a crystal ball here, but I'm trying to get a better understanding of the different moving parts around NPLs and provisioning. So if I understood correctly, you mentioned that you intend to maintain coverage ratios for the year-end '20 at around the levels that we saw in the third quarter. So as the denominator effect normalizes, probably write-offs are going to increase sequentially. So how should we think of NPLs going forward? And on that basis, how well provisioned you are? And how additional reserve creation should we see in the fourth quarter? And linked to that, I understand that you're using very IFRS 15 and therefore, a prospective model for provisioning. And if that's the case, how comfortable are you with the assumptions that you're using for that provisioning?

Okay. Thank you for the question, Joaquín. Yes, as I mentioned, yes, we expect to have this coverage ratios, which is close to 20% of the total balance of the portfolios, we're going to have that in reserves. And if you take the balance, the past due balances 90 days past due, we're talking about very close to 2.5x that balance in reserve. With this, as you mentioned, we don't have a crystal ball, but we do feel comfortable with this. And we -- with the roll rates that we have today, we have projected what the -- as I also mentioned, what the write-offs are going to be next year because this year, we don't really have a big impact on write-offs. That is going to be because we do write-offs at 240 days past due. So next year, it is going to be -- we're going to have a very big impact on write-offs, so we are also expecting to have a coverage ratio by the end of December for 1.15x the expected write-offs that we're going to be having on the next 12 months, even though we are doing write-offs every 9 months. So I think that is also -- we have a cushion there because we're being conservative on that. So obviously, the denominator effect is going to be stabilizing and we expect by December to probably the NPLs that we are looking today, close to 9%, the total NPLs of the company. We do expect them to be probably 200 basis points below that due to the denominator -- the denominator effect. And the projections that we are doing for year-end and for 2021, we do feel comfortable, even though we have our risk models for the IFRS 9 reserves, but we do believe that those models never considered that something like this was going to happen. So we are looking more at the coverage ratios that we'll look into in order to create our reserves. So I would say that, yes, we do feel comfortable with this and that we are probably being even conservative.

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

My question goes more into what are you looking today and after the first [ lockdown ] of 2 months you have at the beginning of the quarter. What sort of mix are you seeing today? Because we saw that same store sales in the last 2 months were positive and driven by electronics and home appliances. But maybe if you can share with us if you are seeing a pickup in apparel and fashion items or what will you -- what would be a reason to expect for the rest of the quarter?

Yes. Thank you, Andrés. Well, that we're not seeing any -- like a different dynamics in terms of what our customers are purchasing in this first few weeks of October here in [indiscernible], we're almost at the end of the month. We continue to see very high roll rate for hard lines. So very similar to what I explained in my opening remarks, that everything related to TVs, to computers, cords, [indiscernible] laptops, [indiscernible] and appliances, furniture and fitness equipment continue to perform reasonably well, given the circumstances. And on the other hand. fashion items and beauty and fragrances continue to sell below the average. So that's what we're seeing. And frankly, we don't expect that to change significantly during the rest of this year. And most of the apparels that we're selling is basic apparel, leisure, comfortable, clothes, but not in terms of fashion. And also, this stay at home and work from home also have had a negative impact in terms of cosmetics and fragrance. And so we don't expect that to change significantly in the latter part of this year.

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

Well, thanks a lot for your questions. It was, I think, a very dynamic conversation. I wish you best, and stay safe and see you in early 2021. Bye-bye.

This conference is over. Thank you.