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

Good morning. My name is Emma, and I will be your conference operator. [Operator Instructions] This is Liverpool's Fourth quarter and Full Year 2020 conference call. [Operator Instructions] Today, we have with us Mr. Graciano Guichard, Chief Executive Officer; Mr. Enrique Güijosa, Chief Financial Officer; Mr. Jose Antonio Diego, Treasury and Investor Relations Director; and Mr. Enrique Grinan, Investor Relations Officer. They will be discussing the company's performance as per the earnings release for the fourth quarter and full year 2020 issued yesterday. If you did not receive the report, please contact Liverpool's IR department, and they will e-mail it to you. Please note that this call is for investors and analysts only, and questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made during this conference call are based on information that is currently available. They 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 de Liverpool's most recent annual report. Please refer to the disclaimer in the earnings release for guidance on this matter. I will now turn the call over to Mr. Enrique Güijosa.

Yes. Thank you. Good morning to everyone. Thanks for joining us, and welcome to Liverpool's Q4 2020 conference call. First of all, I sincerely hope that you and your loved ones are healthy and doing well. This time, we have with us our CEO, Graciano Guichard. So he will start the call with his opening remarks, and I will follow with the financial highlights. Graciano, please go ahead.

Hi, hello, everyone. Nice to have you here. I'm basically going to give you a recap of 2020. It was a truly difficult year mostly because we had a lot of human losses and human tragedy and also because it was really, really tough for us on the business side. As you know, on the end of the last days of March, we had to close all our stores for almost 3 months. And then also at the end of the year, from December 18 to February 9, we also had to close the Mexico City stores, the State of Mexico, [indiscernible] and Puebla. So it was truly a challenging year for the company. And I would say, sometime in April, we set 2 objectives, 2 goals, and we cast all the other objectives aside. Our first goal was to keep the company alive, and it was mainly focused on cash flow. And on this end, I'm happy to say that we ended the year with a net debt -- with a debt net of cash less than what we had at the beginning of the year. And our second goal was we wanted to keep the 70,000 employees we have in the company. We feel that -- I personally believe in conscious capitalism. And we feel that shareholders are one of the stakeholders in the company, but not the only one. So we -- maybe we would have had better short-term results if we had laid off, I don't know, 10,000 people, we truly believe we have a responsibility as a company. And we -- I'm glad to say that we accomplished both goals. We have a -- we ended with a really strong balance, and we kept the 70,000 jobs that we give in this country. We also had other things we did to help since most of -- many of our employees win by commission, we gave them -- when the stores were closed, we gave them a bonus each month. We also helped our clients through their payments. We gave a couple of months, skip a payment, and we helped our clients refinance their debt. We also helped our tenants because they are in the shopping malls, they are also -- they were hit very badly with this pandemic. So we also helped them with discounts and with payment deferments. So overall, I think we delivered on our values and we delivered to the several shareholders we touch. Also, somewhere, I would say, around -- I don't know, maybe September, August, we saw that we were going to lose money at the end of the year. We -- our projections were that we were going to have a loss of MXN 2 billion, and it was going to be the first loss for the company in our history in the 170-plus years. So we launched an initiative with our employees to try to avoid that loss with this. We didn't win a lot of money either. We -- I think we have a 95% net profit reduction from last year. But at the end of the year, we didn't end in negative -- in the negative area. So I'm also happy to say that even though we have the highest provisions we've had in our history, especially on bad debt, and we kept the employees we have, we didn't lose money for what it was for the company, probably the most challenging year in its history. But also another thing happened this year, and that's what I want to focus on. The client, the customers of the company changed and the company changed as well. Our client became a lot more digital. I have an example. I still don't believe that in May with 100% of my stores closed, we sold 50% of what we sold last year with all the stores opened. That's a number that I still cannot get in my head. And we have now more active new users this year -- we added more active new users this year to the dot-com and to the Liverpool Pocket than we had in the 3 previous years combined. I think what happened is that our strength came to light, but also our weaknesses. Our logistics collapsed in May, our systems collapsed as well and our telephone answering service also collapsed. So we also saw where we were not at the level we needed to have for this amount of sales. The company had to react fast. Necessity is a driving force for sure. So we implemented things in days or weeks, which, I would say, in previous years, would have taken months. We implemented curbside pickup, artificial intelligence. We have WhatsApp to answer our customers. Agile sales, and several projects, especially on improvement to the web page. And I happy to say the results were amazing. We delivered more than 23 million packages to our customers. I think that's maybe what we expected to deliver in 2025 sometime in the future. Our marketplace grew more than 1000%. Our digital channel sold close to 30% of our Liverpool business that's coming from around 9%. So the results for me were amazing. And I want to tell you what comes next. I think this year we change faster than ever. I never want to lose that [ energy ] in the company. At the end of last year, we created as a company the office for innovation and transformation, whose sole job is to accelerate and facilitate the change that we are seeing. IT today is also more critical than ever, and because of that now the CIO reports directly to me. Also in the future, our CapEx efforts are going to change. We're going to focus mainly on creating an omnichannel environment that will allow our company to continue being part of the life of our customers, now our digital customers. That ecosystem will become a one-stop shop for our customers. I think we're going to see a lot more of our marketplace in order to do that. We're going to leverage what we learned this year. We will also have better financial services in the page. We're going to leverage our credit card there. We're going to offer the best services in our stores because our stores are going to be a critical part of this environment. They're going to work as return offices, as service centers, as warehouses to deliver. So if we are able to do that, I think we're going to be able to build a truly strong ecosystem that caters for the needs and services that customers are going to have in the near future. For that to work, we need to invest heavily on our 3 main enablers: logistics, IT and data. In logistics, for example, our most visible investment is plan -- our warehouse in Arco Norte. But that's just a part of it. This year, we're going to invest, for example, in our planning, assortment and allocation process and systems. We are also -- the main goal on that one is bringing the merchandise closer to our customers via artificial intelligence. We're going to invest heavily in transportation management. We're also going to invest in our management system. So that's your logistics. In that, we have a project ongoing. And in systems, we're going to change completely their architecture, simplifying it and making it more stable for when we have these high peaks of demand. Suburbia, for example, suffered more than Liverpool. And that's part of some external aspects. Suburbia's more heavily based in Mexico City, and it's also more heavily based on clothing. But it was also part of some investment part. I think it was lacking in IT and lacking in logistics. So a big project for this year is to have Suburbia par with Liverpool. And then I believe Suburbia will once again rise in sales. I just want to -- before turning it to Enrique, I just want to say that I pretty -- we really look forward to seeing the changes, that we're going to be able to make in the company in the next 2 to 3 years. I think we are now on a lot better place than when we were at the beginning of the pandemic, and I think the company is set up for a faster pace in change and for a faster digitalization. So with that said, I'm going to turn it over to Enrique. Thank you.

Thanks, Graciano. Moving on to the financial highlights. As Graciano pointed out, 2020 was certainly a memorable year. And despite the uncertainties associated with the pandemic, we achieved significant accomplishments throughout the year. Since mid-March, as Graciano pointed out, our actions to generate and protect cash were a top priority. Results on this front were once again very strong as free cash flow was MXN 10.5 billion during the quarter and MXN 20.2 billion during the second semester. Working capital management has been sound. Inventory levels were down 8% versus a year ago. For perspective, we reduced our merchandise receipts throughout the year, in total MXN 30 billion versus our original buying plan. Trade payables closed the year covering 114% of our inventories. These results allow us to fully pay the MXN 3.5 billion short-term bank financing before the end of the year and still end the year with a substantial cash balance of MXN 26.2 billion. Despite the effects of the sanitary and economic crisis, our balance sheet remains strong. Even with a significant reduction observed in EBITDA during 2020, we were able to end the year with a net debt-to-EBITDA ratio of only 1.0x. Moving to our operations. As you all know, due to increased levels of sanitary risk, we were asked by state governmental in Mexico City, the State of Mexico and Puebla, among others, to close all our stores during the last 13 days of the year. Needless to say, these regions have a high share of our total retail sales and the dates were just before Christmas and the start of the fall/winter clearance seasons. As a result, same-store sales for Liverpool during Q4 were negative 3.0%. For perspective, comp sales before the year-end lockdowns were running at a positive 2.0%. Hardline categories such as furniture, appliances, computers, TVs, other consumer electronics and sports equipment continue overperforming. Importantly, 2020 was a year with a significant growth in our omnichannel presence. Our digital GMV grew to 0.4x in the fourth quarter and accounted for 25% of sales compared to 10.6% in the same quarter a year ago. [indiscernible] store sites doubled and our marketplace or 3P GMV increased more than 5x quarter-to-quarter a year ago. Click & Collect has hovered around 20% as the reopening of all our stores back in June 2020. And importantly, 95% of our orders were delivered at or before the delivery date that was promised to our customers. Suburbia same-store sales for the quarter were negative 27.3%. This reflects, number one, the headwinds for the soft lines, which represent approximately 80% of the business, particularly in the formal, evening wear and fashion categories; number two, the higher relative importance of the central part of the country as a percentage of total sales; and number three, as Graciano pointed out, the underdevelopment of the digital channel for Suburbia. In line with our objective to manage working capital and increase home delivery, during the quarter, we invested heavily on actions to serve our customers and keep our inventories under control. As a result, retail gross margin was 27.6%, almost 500 basis points below last year. Moving to the financial services business unit. Revenues for the quarter were 13.1% below a year ago, reflecting the 13.9% decrease in our net portfolio. NPLs finished the year better-than-expected up 6.7%, albeit 220 basis points higher than the same quarter 2019. This is the result of: number one, measures to promote digital payments; number two, conservative origination; number three, proactive measures to provide relief programs to our card holders; and number four, preventive collections. New bad debt reserves of MXN 700 million during the quarter were 7% below a year ago, delivering a full year growth of 32.5%. The final balance of our bad debt reserve was almost MXN 6.5 billion. To put this year into context, this represents 16.5% the gross portfolio, 1.15x the expected write-offs for the next 12 months, and 2.7x our overdue balance. Now turning to our shopping centers business unit. As a result of the discounts offered to tenants to bear the weight of the December closures, revenues were down almost 21%. During December, only essential businesses were allowed to operate in 10 out of our 28 shopping centers. Occupancy levels closed the year at 93.5%, a sequential improvement versus the 92.4% that we reported in the previous quarter. We also implemented cost containment actions to reduce SG&A. As a result, operating expenses [indiscernible] depreciation of bad-debt-to-reserves were 1.1% below a year ago. Importantly, the base period includes the reversal of the provisions that were made throughout 2019 to adjust for the reduced executive compensation. On an adjusted basis, the reduction was close to 5%. For the full year, SG&A expense, we have depreciation of bad debt was reduced in 6.5%. This reflects the reduction plan that we implemented since mid-March, and it is worth to highlight that these results were not achieved through furloughs or layoffs. EBITDA during the quarter was positive MXN 7.3 billion, 34% below a year ago. The lower retail gross margin and the reduced operating expenses leverage were the 2 major factors behind this reduction. EBITDA for the full year was MXN 9 billion, 62% below 2019. Our Q4 figures also include the result for the equity method participation in [indiscernible] and [indiscernible] for a net loss of MXN 328 million. This mainly reflects the difficult operating conditions in countries where Unicomer operates as a result of the pandemic and includes a significant increase in bad debt reserves. Cumulatively, this account ended the year with a loss of MXN 524 million. We finished the year exceeding our CapEx reduction target with MXN 4.5 billion, this was 10% below the EUR 5 billion objective that we set as a result of the pandemic. Suburbia's reduced plan of 9 openings was completed with the 2 stores that we opened in October. We continue the construction of the Arco Norte project and the remodeling and expansion of Perisur, Galerías Monterrey and Insurgentes shopping centers. Out of the total investment, 30% was related to new stores, 40% to remodeling and 30% to logistics and IT. Finally, on January 22, we paid the first half of the dividend that was originally scheduled to be paid in 2020. As you know, due to the effects of the pandemic, our shareholders agreed to put it on hold and leave the decision of the final timing to our Board of Directors. The amount that was paid was a little bit more than MXN 1 billion. To say that 2020 was a challenging year, is certainly an understatement. For the better part of the year, delivering a positive operating and net profit looked like a very tall order. In the end, we were able to achieve a MXN 3 billion operating profit and a MXN 750 million net profit. Our operating model proved its resiliency and despite the [ contingency ] of obstacles, we're entering 2020 looking forward to a much better year. Below the Q&A, I am pleased to announce that we will be having our very first Liverpool Investor Day. It's scheduled for Wednesday, April 28, and it's going to take place from 8:00 am to 10:30 a.m. Mexico City time. Together with the Q1 2021 results, several members of our top management team will share with you our key strategic initiatives. Please save the date. We will now move to Q&A. Thank you very much.

[Operator Instructions] Our first question comes from the line of Luis Yance. Please state your company name before asking your questions.

Luis Yance from Compass Group, here in Mexico city. Two questions on my side. And I guess, it's very hard to give some sort of guidance given the low visibility. But if you could walk us through, at least qualitatively, how do you see the recovery of top line, but more importantly, profitability as we move forward. When I look at your top line, it doesn't seem a stretch to think that you might be closer to pre-COVID levels this year. But I guess, on profitability, you've addressed obviously, the main issues you've had there, the promotions or the increase in logistics and I guess the mix. So just wondering which one of those you see starting reverse in this year, which will take longer? Anything that you're doing on that front? And I guess just more of a medium-term question is when do you expect to be back to the, I don't know, 16% kind of EBITDA margin levels? Or given the e-commerce penetration, that might hurt your margins structurally, that might not be a feasible target to think. And so that's my first question. And then the second question is more on capital allocation. So walk us through how should we think about that? I know you restated the dividend, but your balance sheet is very strong. And I guess, more specifically on the buyback, I mean you were selling stock that you had previously bought, I guess, for fiscal consideration. So just wonder if in retrospect, wasn't it better to take the fiscal hit and avoid sending the wrong message to the market? And how should we think about it going forward?

Yes. Thank you, Luis. Well, as you correctly say the beginning of your question, in terms of guidance, it's very, very hard to give like figures, with a high degree of certainty looking forward. What we -- when we did the financial plan for 2021 that was presented to our Board of Directors way back in -- in October, we -- certainly, we're not counting on the low count that were implemented by the state authorities in Central Mexico at the end of December and last basically until early or mid-February, depending on the -- on which state you're talking about. So taking that apart. I mean, we were planning to have -- in terms of same-store sales for 2021 for Liverpool, we thought that a negative 6% compared to 2019, which was the last normal year, sounded about right hopefully being conservative. And in the case of Suburbia, we thought that 15% reduction, again, considering that part is going to take longer to recover, hopefully, that takes place in the second semester. So again, a negative 15% compared to 2019, was a number that we should use again conservatively, hopefully, for financial planning. So those are the numbers that we have in our current plan, and that translates together with the store openings. In terms of store openings, I'll take advantage of the question to point out that we're planning to open 2 new Liverpool stores this year. One in Tijuana, is going to be our first store in Tijuana. We have very, very high hopes to take advantage of a huge market in that city. And the second one is going to be opened in the second half of the year in Guadalajara. And then we have 9 store openings for Suburbia throughout the year. So taking into account the assumptions of same-store sales that I just mentioned and the new store openings, we are thinking that the top line for Liverpool retail wise, for the total year, total sales should be in around 15% to 16% compared to 2020. And in the case of Suburbia, we are thinking that total sales should be in the neighborhood of 35% compared to 2020. Again, that's to give you some flavor. Again, it's tough to provide this perspective. That's what we built in our financial plan. Now profitability is even tougher. I think that it will depend on a lot on how the lockdowns progress. Of course, those lockdowns depend a lot on COVID vaccination programs that the government is implementing, if they're going to take place as expected or we don't know if there are delays as the ones that we have been facing in the past several weeks. So certainly, I think that in terms of profitability, 2021 is going to still be a difficult year. It's going to be much better than 2020. But for the time being, we prefer to pass on providing some guidance on -- in terms of EBITDA margin for 2021. Longer term, we think that by 2023, we should be going back to a margin closer to the 16.5% that you mentioned before. But again, that will depend a lot on where digital sales stabilize. As you know, last year, for Liverpool, digital MGV (sic) [GMV] was close to 30% of sales. We're expecting and again, it's very hard to predict that, that [ fever ] is going to go back to 20% this year. So again, we'll see how that goes. Now in terms of capital allocation, the second question, for this year, we're trying to -- our CapEx is going to be in the neighborhood of MXN 7 billion. And out of those MXN 7 billion, around 45% is going to be devoted to the Arco Norte and the IT, and we have a very aggressive IT capital spending plan. So the majority of the CapEx is going to be allocated towards these 2 priorities logistics and IT. And regarding your comment in terms of buybacks, frankly, I mean, as you said, we decided to sell back the position that we -- where, especially in the early part of last year in order to avoid a tax hit. And also because of the -- with the low level, obviously that we have in terms of our cash flows going forward, again, because of the high levels of uncertainty. So frankly, we gave a priority to our cash position rather than keeping our shares. We're not planning, again, because of this lack of visibility. We will prefer to wait until probably second semester to reinstate the share buyback program. It is indeed the case.

That's super clear Enrique. And then just my last question that I'll throw in, it will be in provision. So if you could comment about provisions. Clearly, you generated a ton and you mentioned what you have on the balance sheet and how much that covers. So with that in mind, and I know it could change, but with what you know today, do you think that the extra provisions that you generated last year are good enough and therefore, this year should be more of a normalized, if you will, provision year, the kind of MXN 3.5 billion to MXN 4 billion in terms of provisions or maybe there's a little bit more? And how that loan book you expect it to evolve this year?

Yes. Well, provisions are still going to be no pressure because as you recall, we gave this option to our clients in March and April of skip-a-payment. I mean, so for basically April and May, we allowed customers to -- who didn't pay their minimum balance, basically to stay current. So I basically pushed those 2 months, they pushed all like overdue buckets those 2 monthly. So we will see our write-downs are still going to be -- I mean, are going to be higher this year than last year because, again, we had those 2 months in 2020 that we gave this facility to our customers. In terms of NPS, as I pointed out in my prepared remarks, we closed about 6.7%. We're expecting that to go slightly down to 6.4% this year. And again, that has a high level of certainty. We are concerned, of course, about the effects of the high levels of unemployment. How far that -- how fast that unemployment is going to be recovered, that's a big unknown. So we -- in our financial plan are being, as usual, very conservative. We're not expecting a huge reduction in the NPL ratio, only like 30 basis points. And in terms of coverage, we closed 2020 at 16.5%, We're expecting that to go down to 14.6%. But again, we'll see as we go.

Our next question comes from Luis Willard. Please state your company name and ask your question.

This is Luis Willard from GBM. I want to start Graciano asking you, and thank you, again, for your initial remarks and the effort that you've made, protecting the stakeholders' interest in this difficult year. I wanted to ask, if you can share any light with us in terms of the goals you are setting for the interaction of business verticals that you mentioned earlier? And how do you think of Liverpool in terms of a flywheel, given, again, the ecosystem that you're building? That will be my first question.

Yes. So we're looking at it is that digital is definitely a very strong competition, our digital competitors. But omnichannel has some clear advantages. So as I said, we are trying to build an ecosystem where in the center is the client with a one-stop shop space. We need to -- obviously, I don't have as many SKUs as MercadoLibre or Amazon. So we need to increase our marketplace substantially. That's our goal this year. And then we are trying to have on top of it other aspects that our customer is looking. For example, we are strong on financial services. We want to improve it. We want to add new services, maybe also a marketplace for financial services. We need to improve our loyalty program. We need to improve our [ posventa ] -- I don't know how to say it. But after the sales service, we're -- where we leverage another advantage that we have that is those 70,000 employees that are in our stores, and that can give the customer better service. So that's mainly how I see the company evolving. I see a complete ecosystem that is based on -- I'm not going to say dot-com, it's based on [indiscernible] and it's based on the customer preferences. And that leverages those competitive advantages like the stores, like the knowledge of our employees, like the financial services. That's how we see the company evolving, and we need to do it faster than ever.

Do you have any special goals set for, I don't know, let's say, the next 2 or 3 years regarding what you mentioned earlier?

Yes, yes, we have internal goals that are -- we need to reach certain targets in terms of market share on e-com in Mexico. We need -- we have a goal this year that we need to deliver all the dot-coms -- 90% of the dot-com sales throughout the country in less than 5 days, that means delivering in Mexico, Guadalajara, Monterrey, Puebla, [indiscernible], all the orders in less than 2 or 3 days, 90% of the orders. Because remember that we deliver free of charge in places like [ Bio Bravo ] or Tijuana or [indiscernible]. So that's a pretty ambitious goal for us. It's delivering in -- and we also have, for example, another goal to deliver Click & Collect same-store in less than 2 hours, which currently we are in 4. So we have a ton of metrics and a ton of goals that we have set in place, and they complement this strategy.

Yes. Actually, you answered my next question, which was going to be that if you see the same-day less than 4 hours, Click & Collect option as a viable long-term alternative to offer to your clients. And...

Yes, let me -- we need planning assortment and allocation to increase the capacity to do that. Because the 2-day option, we're going to have it this year, no problem. But then I need to have more merchandise and the store closer to the client, otherwise, it would not be as attractive to the customer, right? So that's why the planning assortment and allocation changes are going to be -- maybe as important, if not more than our investment in plant.

Our next question comes from [indiscernible]. Please state your full name and your company name before asking your question.

[indiscernible] from UBS. Just a follow-up here on the CapEx. You mentioned a MXN 7 billion projection for 2021. My question would be, in your view, what are the chances for this number to be higher than that those MXN 7 billion. I mean, considering that you still have the investments in Arco Norte, that you will finalize the first stage 2022, then 2024. You also have these investments in logistics that you mentioned at the beginning of the call, right? And especially what we have seen from other retailers, that they massively raised the CapEx investment. So all in all, when I look to the CapEx that you have had in previous years of around MXN 8 billion, the MXN 7 billion appears, I don't know if conservative would be the term, so what are your view regarding the chances for this number to be higher?

Let me take this one. I agree with you. They are conservative. But not they could be higher, certainly, at least a couple of billion pesos more. But right now, just that at this moment, it's not prudent to start seeing the light. And at the end of the tunnel, we can see it. But we're not out of the tunnel yet. We're not out of the woods in terms of the pandemic and how it's going to hit Mexico and our customers. So at this moment, I think we should make still a prudent allocation on spending for CapEx. If things improve, I think there's room for acceleration in some of our most important projects. And I agree with you, it's conservative, but I think still, we are in a position as a company. And as a company, we need to be a little bit conservative.

Understood. Understood. That's very helpful. And then the other question would be just on the digital -- on the e-wallet that you're developing, and any update here on the fintech initiatives that you have? That will be my final question.

On the e-wallet part, for example, when we launched last year, but we couldn't -- since the store was closed most of the year, we could not use it that much. But you can operate without your credit card. We now have a pretty substantial e-com business in terms of insurance for our customers. You now have the capabilities if you are a customer for Liverpool, and you are having trouble because of the pandemic or whatever, you can restructure your debt as it suits you better through your Liverpool pocket. So we are taking those first steps. We have, as I said, a ton of projects in that area, which when we have them a little bit more landed, we will talk to you about them. But it's -- it's really an interesting area for us.

Probably in the short term, it's important to highlight a couple of projects on the e-wallet, which is sort of our follow-up of [indiscernible] in 2020. The first one is that we're planning to launch at some point this year, a digital credit card. So you hold like fill out your form, your application and get the approvals or the right method to authenticate your identity and use it right away in the digital channels. We are having to go for the plastic to the stores. So that's one of the initiatives that we have for this year. And the other important initiative, which is related to the e-wallet is that at this point in time, you cannot use your balance in the Monterrey Electrónica in the digital channel. So that's a project that is very important for us, that you have -- we have very high levels of customer balances in the Monterrey Electrónica card. So we hope that in the next few months, you will be able to use that balance also in the digital channels, and that's going to be also an important enabler for our customers.

That's great. That was actually precisely my question about the credit card that you were expected to launch. Thanks for that follow up.

Our next question comes from Andrew Ruben. Please state your company name before asking your question.

Andrew Ruben at Morgan Stanley here. I'm curious to hear a bit more about the apparel category. It seems like hard goods have been strong, but apparel is weaker. So I'd like to understand how apparel performed in the period when stores were open, meaning is this an issue of the supply traffic? Or is there something structural within the category? And how do you think about apparel evolving in 2021?

I think you need to -- we need to drill down a little bit because it's not the apparel category as such. I think we need to drill down. For example, the formal aspect of apparel hasn't -- didn't sell [ entire ] last year. So that's going to be -- and I think it's coming back because people are realizing that they need to be more comfortable. So we are going to have different areas that are going to have different dynamics. For example, children's and children didn't suffer that much. Sporting clothing didn't suffer at all, actually did pretty well. Tennis shoes is going to do well. So we're going to have to -- the mix you're going to see both on the dot-com and on the stores needs to change. We need to address it. We're going to have a less formal customer. We're going to have a customer that prefers comfortable clothing than formal clothing. And I think we're also going to see a little bit -- at the beginning, we're going to see a little bit less fashion. Then it is going to come back eventually. People are going to buy more basics in the near, near future, but then it's going to come back. So I think clothing overall is going to do well in the second semester. People -- clients want to go out and they're going to see their friends that they haven't seen in quite a while, but it's going to change the way that you dress. And this dynamic is -- these changes are now going to come back.

Our next question comes from Vanessa Quiroga from Crédit Suisse.

It's regarding your margin guidance or expectation that you mentioned that you could reach maybe 16.5% already in 2023 at the EBITDA level. So I just want to understand if you expect logistics cost to remain high? How are you going to offset those higher logistics costs going forward to reach this EBITDA margin level again?

Yes. I mean, thank you. Yes. Well, as you might imagine, it's -- obviously, it's going to be a challenging environment in terms of the first question that we have is our first unknown is what's going to be the level of digital sales as a percent of total sales. Again, we're predicting that, that may go down from close to 32 to more or less 20s this year and then perhaps growing to 21, 22 little by little for the next couple of years, 2, 3 percentage points. And so that's one of the first assumptions. The next big assumption are the -- as you know, the productivity efforts that we have in logistics. Logistics is an expense, of course, because of the last mile, are going up. But we have a ton of productivity projects in our plan for the next couple of years. Some of them related to capital investments like the Arco Norte project, some others, as Graciano pointed out, related to more intelligent software planning assortment and allocation is going to be a huge project. We're just starting that. That should come into improve -- go live early next year. And we also are making a huge improvement in our management. Our plans are to increase substantially, the delivery direct from stores, which currently are very low, most of the merchandise comes from their stores, but they don't go directly to the store to their customers' homes from their stores. They go first to our central warehouse or something that we want to change. And then we're also making huge changes in all our soft line logistics framework or network, the way we basically have only national distribution center for soft line, which is basically a [ core ] stock. We're planning to move in the next 2 to 3 years to our regional fulfillment center that those are going to be closer to our customer to our markets, to our customer homes. And the idea is to more of a buy and hold and follow demand instead of trying to predict or anticipate demand. That should help us both in terms of inventory turns and also in terms of lower markdowns and in term of better gross margins. So again, it's going to be a combination of those things. And also the productivity efforts of SG&A, we have as usual opportunities in that. So that, again, the plans that we have to offset the higher logistics costs.

That's great color, Enrique. And maybe also to dig in a little bit more on the 2021 outlook and your conservativeness regarding CapEx. Do you expect that on the working capital side, the story will reverse in 2021 and that you will have some cash outflow due to normalization of the working capital cycle. And therefore, I mean is that part of the reason why you want to be conservative on the CapEx?

Well, we want to be conservative on the CapEx as a Graciano pointed our because there's still not many -- visibility is difficult for several things, which are very important. One is, obviously, where retail sales are going to stabilize without lockdowns. That's one of the important unknowns. The second one is related to NPS. Again, unemployment is very high. We're seeing good numbers in terms of [ rented ] rates and [indiscernible] rates throughout the different buckets that we have for overview. But it's still too early in the game to be out of the woods. And the second one, which is also important that is related to the shopping center revenues. As you know, we are -- a lot of payments are hurt. They have very low sales that are struggling to pay their rent. So that's going to be another difficult combination, occupancy rates -- rent or lease rates and overdue accounts for a shopping center. So I think that those 3 are the most important things that we need to watch out throughout the year. And depending on how good are they performing, that's going to give us more confidence on the CapEx front to be more aggressive. In terms of working capital, yes, we expect especially receivables again, reflecting the better sales number. So that should require cash. And in terms of inventory and payables, we are expecting them to basically normalize at the levels that we saw at the end of the year. So we have a hard time in Q2 2020, but we're expecting that this year, hopefully, now the stores are open, things are going to start normalizing on both inventory and payables to be, as usual, very much linked to our total sales.

Our next question comes from Álvaro García. Please state your company name before asking your question.

Álvaro García from BTG in New York. Two sort of broader, bigger picture questions. The first on capital allocation. I was wondering if you could speak to your longer-term plans regarding shopping malls. Looking backwards over the last 10 years, you've averaged 1 a year, and it's a significant chunk of CapEx. So what your thinking is with regards to building new shopping malls going forward in Mexico? Is this something that you expect to reignite going forward or not? Is my first question. And my second question is on -- you mentioned sort of being very conservative on the origination front, but it's obviously a very important element for driving sales growth. Given the better sort of credit quality we saw this quarter, when should we expect a little bit more aggressiveness from your end on the loan growth front.

If you want, I'll take the first one, Enrique. Shopping malls, I think we are not going to build shopping malls in the next few years. Having said that, I think we need to improve some of the shopping malls we already own. For example, we are currently remodeling Insurgentes and Monterrey. I believe the shopping malls that are not well anchored and that do not have the correct services for the customers are going to have a tough time. So we need to make sure our shopping malls are -- help those ones. So I believe we're not going to build shopping malls in the near future. Having said that, I don't know, opportunities might arise because of the pandemic and such, right? But today, we're not expecting to build a lot of shopping malls. We are expecting to improve the ones we already have.

On the origination front, I think that, that's going to depend a lot on where NPS continue to perform well. Again, the last several months have been better than what we expected. There's still obviously a way above what we saw before the pandemic. So that's still, as you know, a drag. I'm sure that as customers start going back to the stores. As you know, we do 100% origination today in the stores. We don't do anything outside the stores. I guess going to be a big change that with the -- what I said before, in terms of our project for this year, which is going to be, hopefully, ready by the end of Q3, start of Q4, to be able to originate digitally. That's, I think, is going to be opening a new frontier, let's say, for us in terms of having access to the promotion of our credit cards without having our customers in the stores. So again, that will give us a new growth opportunity. And I think that, again, yes, we have a plan to see the portfolio growing again to start seeing new credit cardholders at hopefully at a pre-pandemic level, but step-by-step, making sure that the risk is well-managed and risk management is still our #1 priority.

Yes. That's super helpful. If I could just sneak in one last third question and sorry for all the questions. On Suburbia, and I know that in the past, you've guided for roughly 20 to 25 new stores a year, which seems like a lot in this environment. Is that -- is that still a number that you think you can achieve over the medium term?

I think that we still have space to grow. We are going to grow a little bit slower in the next couple of years. But there's still significant room maybe for opening in this environment and with these perspectives, 80 to 100 stores in the -- in the next 3 to 5 years. But we're taking it slow. We're opening -- again, unless opportunities rise that that they are currently rising. We're opening 9 stores this year, and we were expecting to be a little bit higher in the next 2 to 3 years than these 9 stores.

Our next question comes from Bob Ford Aguilar. Please state your company name and ask your question.

Bob Ford at Merrill. Graciano, given how rapidly e-commerce has grown, how are you thinking about e-commerce infrastructure post-pandemic? And how is that impacting the development plans at Arco Norte? And maybe more importantly, how is it changing your in-store pickup, in-store-based delivery infrastructure. And then when it comes to IT, just to get both of these out of the way. When it comes to IT, historically, Liverpool always outsourced. And you found some great ERPs off-the-shelf and you were always a leader in technology. How are you thinking about your needs today? And are you finding good solutions that you can easily and rapidly deploy from vendors? Or do you think it's time to start building greater in-house capabilities?

Thank you for the questions. I think they are pretty relevant. The first one is, it actually accelerated our plans. We always -- Arco Norte was built exactly -- Arco Norte projects because Arco Norte is one of them. They were top for omnichannel customer, but we weren't expecting to be at this level in a few years. So we need to move faster. That's the main question I have. We now are working some projects not all on a agile way, where we need to deliver for example, search, browse and logging on our page or log out or cash out when you buy. You need -- we need to have new improvements every 15 to 21 days. So we have accelerated our efforts. That's the main change, I believe, we're seeing. In terms of IT, I think we have made some really good partnerships. For example, we have a partnered with SAP -- S-A-P for a long time. We now have partnership with Google. I think those will remain. What we need to have and we are changing that, as you correctly mentioned, from outsourcing to in-sourcing talent on our IT team. We need to have more inside talent to develop apps on top of those really great technologies. We are basing ourselves from the technologies of really good players, but we need to have some proprietary development on top of them. So yes, we're switching a little bit from outsourcing to in-sourcing. Actually, not a little bit. We're switching quite substantially from outsourcing to in-sourcing talent.

And are you finding good availability in Mexico? Or do you outsource? I mean, you could -- there's huge basis of developers, for example, in Argentina that, that are in the same general time zones, right, that a lot of people are using. I mean how do you approach that in terms of just trying to scale talent rapidly?

I don't know if sufficient availability should be the question or in terms of expensive because it's expensive. But I think in Mexico, there are -- there is talent. It's more expensive than what it used to be. But still, I think we can manage to build a good team in the mid-future.

And when it comes to the in-store pickup, I just can't help but a lot of these seem like they were designed with waiting areas in their middle of the store, the convenience element doesn't seem to be there. Is that satisfactory for clients? Is that a good experience? Or does that need to evolve a little bit as well?

Everything needs to evolve. We will use curb-side pickup, which is a little bit more for the customer that doesn't even want to enter the stores. Now we need to evolve all the aspects we need -- you said it right now, if I see a waiting area on a pickup around credit, it doesn't make any sense because the customer needs to go in and go out fast. So yes, we need to evolve, but not that only. Now my bottleneck actually is the reception and delivery systems. You don't see them on the stores. The place where the merchandise arrives to the store. Now also sends merchandise to the customer. So that's mainly my focus point today to fix that.

Our next question comes from Irma Sgarz. Please state your company name before asking your question.

Irma Sgarz from Goldman Sachs. Yes. Thanks again, also I'm echoing all the analysts here for the very attended remarks. I'm just curious about maybe complement about the current pricing environment that you're seeing. And also in terms of competitive environment, surely, I mean, a lot of the soft lines have been suffering. And Suburbia hasn't been spared, but I would imagine that the rest of the market also has suffered quite -- in quite a deep manner, especially the more sort of informal market or sort of more moms and pops market that, to some extent, compete with in Suburbia. So I'd just be curious like how you think about market share gain opportunities? And then for the Liverpool e-commerce business, what are you seeing in terms of opportunities to work with some brands that maybe are a little bit more reluctant to put all of their inventory or even any inventory on to some of the more horizontal marketplaces that maybe don't have that strong relationship that you've built with many brands and companies over the last years through your department stores?