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

Good morning. My name is Daniela, and I will be your conference operator. [Operator Instructions] This is Liverpool's Third Quarter 2021 Conference Call. [Operator Instructions] Today, we have with us Mr. Enrique Guijosa, CFO; El Puerto de Liverpool; Mr. Antonino Guichard, Chief Digital Officer, El Puerto de Liverpool; Mr. Jose Antonio Diego, Treasury and IR Director; and Mr. Enrique Grinan, Investor Relations Officer. They will be discussing the company's performance as per the earnings release for the third quarter 2021 issued yesterday. If you did not receive the report, please contact Liverpool's IR department, and they will e-mail it to you. 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 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 Guijosa. Please go ahead.

Thank you, Daniela. Good morning to everyone. Thanks for joining us, and welcome to Liverpool's Q3 2021 Conference Call. Once again, I sincerely hope that you and your loved ones are healthy and doing well. Antonino Guichard is joining us for this conference call. As you know, he is our Chief Digital Officer and will share with you the highlights of this business right after I provide some perspective on the overall company results. Afterwards, and as usual, we will open the session for Q&A. Importantly, throughout the third quarter and similar to what we -- was observed in the previous one, all our stores and shopping centers were opened and operating with few nonmaterial restrictions. We saw a significant increase in our retail revenues compared to 2020 as traffic to our stores continues to normalize. Liverpool total sales were 21% above the same period a year ago. And our softlines categories in particular, increased their top line more than 30%, recovering some of the ground they lost due to the pandemic. Suburbia's total sales, on the other hand, were 31% over a year ago. If we compare same-store sales against the third quarter of 2019 before the negative effects of the pandemic, Liverpool stands out as it posted a 9.2% increase. Our retail gross margin for the quarter was 32.7%, 5.5 percentage points above 2020. And this reflects, number one, reduced promotional activity as last year, we were still offering significant markdowns to keep our inventories in check; number two, a more profitable merchandise mix; and number three, lower logistic expenses as home deliveries were down almost 30%. It is important to highlight that even if we compare our retail gross margin versus 2019, we posted an 80 basis point improvement. Our credit business revenue was 13% below the third quarter of 2020, even though our gross credit portfolio grew 7%. The reduced productivity of our portfolio is explained by a higher share of cardholders that paid their full balance at the end of the credit cycle, lower interest rates applied to customers and growth in the relief programs that were put in place at the early stages of the pandemic and finally, create a tightening of riskier programs such as cash advances. Credit accounts grew 5.1% and we reached almost 6 million cardholders. During this quarter, an important milestone was achieved as Suburbia exceeded 1 million cardholders only 3 years after its credit card launch. The measures that we put in place to control risk continue delivering excellent results as the delinquency rate was 2.9%, a level we have not seen in a long time, even in our pre-pandemic history. As a result, the provision for bad debts during the quarter was only MXN 253 million, 90% below a year ago. It is important to highlight that this will very likely be the last quarter that we post such a low provision in our P&L. Our bad debt reserve coverage at the end of the quarter was 11.6% of our net portfolio and 4x our 90-plus days overdue balance. Operating expenses for the third quarter, excluding the bad debt provision on depreciation, were 13.6% above year ago but basically flat against 2019 as we maintain our strict control on all expense lines. Our EBITDA for the quarter was $5.2 billion, more than 5x above a year ago, and 23% above 2019. EBITDA margin was 16.4%, a 236 basis points increase against 2019. This increase in profitability is due to the above-mentioned improvement in our retail gross margin, our operating expense leverage and the low level of bad debt provision. These were all partially offset by a less favorable business mix as both the credit and real estate business units lost share. Our operating cash flow during the third quarter was MXN 1.7 billion due to a positive operating performance, inventories built up for the holiday season and importantly, the normalization of our accounts payable to suppliers. Our cash balance as of September 30 was MXN 20.4 billion. Given the strength of our cash position, we launched a tender offer to purchase part of our Liverpool16 144A Reg S bonds. The offer finalized in early October, and we were able to repurchase $252 million or 34% of the original outstanding amount of $750 million. This allow us to flatten our debt maturity curve. The tender offer resulted in a negative effect of MXN 172 million in our third quarter P&L. It is important to highlight that we decided to keep in our books a cross-currency swap for the same amount that we repurchased. Said differently, we chose not to unwind at this point in time this derivatives. From now on, this hedge will be considered as speculative for accounting purposes. And as such, changes in its mark-to-market will result in some volatility in our P&L. During September, we had to slow down most of our CapEx projects as the new outsourcing law forced us to request that all our construction suppliers had to enroll in the Specialized Services Registry that was put in place by the Ministry of Labor. The Arco Norte project was not -- no exception, but we expect to catch up in the next several months and start our phase I for Big Ticket in the second quarter of 2022 as scheduled. Cumulative CapEx for this project was MXN 152 million, and this accounts for about 1/3 of our total cumulative CapEx of MXN 3.4 billion. We opened a new Liverpool store in the La Perla Shopping Center in Guadalajara on September 28. It is important to mention that we closed the Liverpool Plaza del Sol store that was basically across the street of the new one. Since we own this building, we will relocate the Suburbia store that we have in Plaza del Sol and shut down the current location, which is leased. In the case of Suburbia, we have opened 6 stores throughout the year, and we expect to open another one at the Mundo E shopping center in the state of Mexico before we get to year-end. I will now pass the microphone to Antonino to talk about our digital business. Please go ahead, Antonina.

Thank you, Enrique. Hello, everyone. Hope you're doing well. The detail operations continued with a solid growth during last trimester. Our sales grew more than 7% versus last year. And this strong growth is comparing versus COVID and pandemic with the store operations closed. Comparing to 2019, we grew for more than 3x. This important growth is mainly due to marketplace, which in the last trimester grew by more than 7x and versus 2019, it's closer to 16x. Also, our seller base grew more than 9x. This has given us an exponential product offering. Also, Suburbia, despite being a small e-commerce sites compared to liverpool.com, it's grown by 5x in the last trimester and an impressive 10x versus previous year. Also, I'm very proud to mention that the delivery times were reduced more than 40% nationwide. Our same-day deliveries have grown by 2.5x and also 30% of those deliveries are done by our own staff, giving them new income opportunities and also maintaining the quality offered by the Liverpool brand. To mention on average, our Click & Collect orders are fulfilled in less than one hour. Daniela, can we go to the presentation, please. Also -- the next one, please. Also, it's important to mention that we have implemented an important technology advantages to all of our chances. I would like to start by talking about our Google Cloud partnership. As you mentioned, we're the only Latin American company that has this contract with Google. And this has allowed us finally to exploit our real-time inventory, our strong footprint on our client location. The mix allow us to have 122 stores, the center fulfillment centers and regional logistics centers working all simultaneously to have Click & Collect in less than 2 hours. Here, you can see it on the presentation, we have now implemented also same-day deliveries in orders before 6 -- before 1:00 p.m. So now we're able to cross all the information we have, and this has given us express delivery. Also, if we can go to the next one. We're very proud to talk to you about personalization. We have the capability to offer unique experiences to each of our customers based on the information we have from them. As mentioned in previous presentations, we have worked heavily in getting under that with Google technology to differentiate each of our wants and needs into our digital platforms. This is the first step to offer a really unique omnichannel experience. The next one, please. We implemented our POS digital ticket allowing our customers to eliminate the printed ticket. And this will allow us not only to save paper, but also the first step to give our customers the full visibility of the orders within the Liverpool pocket app. And this way, they can have an omnichannel order status. What's happening offline and online in the same process and all installation appointments and all the processes you can continue from your orders despite the channel you bought it. Also, we launched our El monedero digital, giving us our customers the capability to use their monedero as a payment method in the e-commerce channel, also getting the rewards through this channel. But also, we have e-wallet monedero implementation. So our customer can use their own monedero, to pay within the physical store or online stores. We also launched Liverpool Life, a live streaming real-time shopping platform with Liverpool buying experts, expanding our customers in detail, our products, and they can have the latest trends and tech updates all within a one-click buying option. And finally, Daniela, can you go to the next one, please. Finally, we were able to put up the speed to suburbia.com. We launched this Suburbia app. We renewed all the technology that supported suburbia.com. The technology that we've been working for Liverpool in the last 6 to 7 years. And now Suburbia has the same offering and the same product advantages that Liverpool has within the other technology we've invested to. Those are the final numbers for digital operations during the last trimester. Back to you, Enrique.

Thank you, Antonino. Finally, I would like to mention that our Board of Directors approved the payment of the dividends of approximately MXN 2 billion or MXN 1.50 per share that were pending since our shareholders approved them back on March 18. They will prepay in 2 installments with equal amounts. The first payment will be on October 29th and the second payment will be on January 28 of 2022. Thank you very much. Let's move now to Q&A, please.

[Operator Instructions] Our first question comes from the line of Vanessa Quiroga from Crédit Suisse.

Hi, team Liverpool. Congratulations on the impressive results, especially on the margin improvement. Actually, my question is on that. The reduction in cost of goods sold as a percentage of sales was really impressive. So I was wondering if you can provide some details on how much it's explained by mix improvement, other categories, higher-margin categories improving? And how much can be explained by the reduction in logistics costs and what's the potential for further reduction in logistic costs?

Yes. Thank you, Vanessa. I would say that more or less 1/3 of the improvement came from the logistics, reduced logistic expenses and the 2/3 came because of -- actually, it was a combination, I would say that we have a more favorable mix because as we said the supplying in Liverpool, we're growing 30% year-on-year. And also, Suburbia has a significant growth as previous year, close to 31%. But on the other hand, also, we have been doing less promotions because our inventories are in very good shape, and that has also helped us. So 1/3 of the improvement will come from logistics and the other 2/3 comes of a combination of lower markdowns and a more profitable mix.

Okay. No, that's great. So when thinking about the outlook, what can we expect going forward, there is obviously still room for an improvement in the mix. I'm not sure in lower discounts or less promotions, there's still some room. And what about logistics costs?

Well, in terms of logistics cost, we have a number of initiatives that we have, I mean, the idea is obviously to make our logistic expenses more productive. So we will continue to work as we have said for the last several quarters on increasing the share of the home deliveries that we do directly from our stores that still has a significant potential and the improvements that Antonio mentioned in our technology both on the app and our web will allow us basically to show our customers that inventory is actually in the store where they prefer to shop, they are very close to. So we believe that, that will make like our customers choose the merchandise that is closer to their homes. And in that sense, we allow us to deliberately not that merchandise straight from the store, which, as we pointed out in our press release, the cost of home delivery directly from the store is like 70%, less expensive than the ones we do from the distribution center. So that's an important like initiative we have. The other one is to continue increasing our Click & Collect within that, with normalization. Hopefully, we don't see a fourth wave of the pandemic and the traffic to the stores continues to normalize. So Click & Collect closed in September around 26%. We're still well below the 45% that we had pre-pandemic. I don't think we will go back to the 45%, but we expect to be in the low 30s for next year. So that also should help us in terms of delivery. And of course, as we have said, we are working in the fulfillment -- omnichannel fulfillment centers, we expect to have those up and running 2 of them by the middle of next year and the start of our plan Arco Norte project in the second quarter of 2022. So all those initiatives, Vanessa, the idea is obviously to have a more productive, more efficient supply network and lower logistics costs. In terms of margin, what I can tell you, talking about EBITDA margin, we think that we will close this year around 15% that will still be like 160 basis points below the actual number for 2019. And for next year, we think that we will improve to around 15.6%. So we will see like a 50, 60 basis points for next year EBITDA margin improvement. But that will still leave us like 100 basis points below the actual 2019. So we still have probably another couple of years of working on the efficiency that you said in order to recover the lost ground in terms of EBITDA margin.

Our next question comes from Luis R. Willard from GBM.

Congrats on the results. This is just about the announcements that you made, Antonino, regarding the digital studies that you launched by the end of the quarter. Can you share with us maybe ballpark figures or directionally, first, how large are you planning same-day delivery demand to be in the future? And secondly, what changes in terms of processes, logistics, maybe in the store have you put in place to achieve the same day delivery and if we should expect some pressure in margins in the midterm?

Thank you, Luis. Let me try to answer your question. However the amount of same-day delivery, as Enrique mentioned before, our same-day delivery with the technology we implemented it's putting what's closer to our customers based on their location or their preferred store inventory. So that same-day delivery, it's growing exponentially. We started the year with almost, let's say, below 10% of our orders. The last month, we were able to go to almost 20% of our orders. So our same-day delivery, we're expecting it to continue in the next couple of months around 20% of all our orders being done on the same-day delivery. And you mentioned the process. Well, as Enrique mentioned, the last mile delivery cost from the store, it's around 70% less than fulfilled by another center. So yes, the process has changed completely to the store level. Now what we're doing is the stores were built to receive merchandise. And now the whole process has changed the store also become, let's say, a small fulfillment center, and they have changed all the processes to also take out orders from our logistics part within the store. So yes, the whole process of the 122 stores has changed. The whole technology has changed. And now we're expecting our same-day delivery to be around 20%.

Thank you, Antonio. So I mean would you say that currently, the 122 stores -- you characterize the 122 stores as having many fulfillment centers built within them.

Yes, you can say that. All the process within the stores has changed in order for them to be able to process order fasters and to take out merchandise faster.

I would just highlight that to your question, Luis, that just to clarify that we use our stores as fulfillment centers, what we're using basically the merchandise at least on the sales floor. So it's not that like -- we're like closing part of the store and making our warehouses in the store bigger. The idea is basically to leverage the inventory that we have already displayed for our customers. But I mean, we received digital order, it can be fulfilled using that same merchandise. I mean just to clarify what we mean by using our store versus as mini fulfillment centers.

Our next question comes from Antonio Hernández from Barclays.

Congrats on your results. My question is regarding logistics, about the whole supply chain disruption that is faced globally. You mentioned that you weren't facing any particular disruption in your press release. I wanted to have -- to get more light from you, maybe from a product mix perspective and also considering the inflation phased throughout the world. Are you expecting maybe a shortage of specific types of products from -- in upcoming months, especially considering the sales season ahead.

Yes. Thank you, Antonio. Well, the view that we have on our retail [indiscernible] is that we're in very good shape for the holiday season. We have made what we can in order to advance our purchase orders as much as possible for the categories where we are seeing the shortages that you're mentioning globally because of the issues with the supply chains and that is affecting especially the things that have a chip in them, like the computers and laptops, cellular phones and so on and so forth. So [indiscernible] have been very active trying to advance as much as possible our purchase orders in order to secure the amount of product that we need for the holiday season. And again, we feel that we are in good shape on an overall basis. We are foreseeing some shortages in things like sports apparel, for example, Nike and Adidas, they have already told us that since they produce a lot in countries like Vietnam or China due to the fact of the closures in the factories due to the pandemic, they are indeed facing some supply restrictions. And in that case, we will probably have, I don't know, 30%, 40% less growth than we have hoped for [indiscernible] based on what we think that on a total Liverpool basis is not going to be material for the results we're expecting for the fourth quarter. That's basically what I can report in terms of our supply status.

Okay. And in terms of overall like hardlines, softlines and electronics, maybe so those are the only highlights I guess. And my follow-up would be regarding interest on credit cards. I know you have different strategies. But are you expecting maybe a gross margin recovery in the -- within the next couple of quarters?

For the credit card business, you mean?

Exactly. Yes.

Yes. Well, credit, the challenge that we have, obviously, historically in our P&L is that we need to get back to seeing positive growth figures in our top line for the credit cards due to all the measures that we put in place to control risk. We signed a very high priority to control our NPLs. As we explained in the beginning of the call and in our press release, we have reached record low numbers for NPLs below 3%. That's a number that we have not seen for many, many years, probably more than 10 years. So the challenge now is to start growing our portfolio again. So we continue to be prudent as always, to be cautious, but we will start again in order to open some of the problems that we have, for example, cash advances we have been very, very strict because of the risk profile of the customers that use those kind of programs. So we're kind -- we were already trying to free up some of those strict rules that were put in place because of the pandemic. And we are indeed expecting that for next year, our portfolio should grow in the low double-digit number, close to 10% and that our top line for the credit card business will reflect that rose in the portfolio. So that's the expectation that we have for basically the next year. I don't think that things are going to change substantially in the fourth quarter of this year. But for next year, things should start improving on the top line perspective of credit card.

Our next question comes from Álvaro García from BTG Pactual.

Gentlemen, can you hear me?

Yes, loud and clear, Álvaro.

My question I have a couple of questions on e-commerce. First, on Click & Collect, you mentioned -- I mean, obviously, it's great new initiatives. I was curious if you saw an acceleration in sales on the back of sort of the better proposition, the same day and the 2 hour. Are you seeing acceleration in sales on the back of that currently? Or is it just an expectation today? That's my first question.

Answering your question, yes, we've seen quite an acceleration. It's a process that is new, but what we've seen is it's an important race in our conversion rate in all of our orders. So yes, it's going as we expected. We are still doing some fine-tuning with all our systems. But yes, fortunately, the process has been going well. And yes, our conversion rate has gone on an important increase.

Great. And I guess my second question on sort of softline. You mentioned you are up 30% year-over-year, but it still seems like you're below 2019 levels. I'm curious if you have that data point and just general comments on clothing generally, if you feel the consumer as they get back now September, maybe you see a little bit of difference in October. If you see that category is increasing in dynamism or just still kind of stuck.

I think in general terms, we are like quite happy with the fact that for the quarter, we saw an acceleration of the dynamics in all our softline categories, perhaps the only one that continues to be still depressed is the one that has to do with the cosmetics with the people wearing -- women wearing masks. They're not very keen on wearing any like cosmetics. So that's the category that are still kind of depressed, but -- and also like a formal apparel is still like -- we see a little bit of recovery, but obviously, it's still well below the levels that we had in 2019. Just to give you some color on the Liverpool side of the business, pre-pandemic, around 51% of our sales were for what we call our softline divisions men, women's, children, and cosmetics and fragrances. And we also including that figure accessories. That number went all the way down to 43% in 2020 for obvious reasons. And this year, we are expecting to get back to around 47%. So we will still be like 4 percentage points below pre-pandemic for the full year. So our expectation is that for 2022, we will get back, probably not all the way back to the 51% but close to 50% and that should continue to be favorable in terms of our retail gross margins and product mix.

That's great color. Let's hope you hit that 51%, that would be great. Really appreciate it.

Our next question comes from Ulises Argote Bolio from JPMorgan.

So first one follow-up there on the financial business part. So any color you can share here on where you see kind of the NPLs trending towards the end of the year. And then after that, we have a question for Antonino maybe we tackle this one first.

Yes. Thank you, Ulises. Yes, we expect to -- our NPLs to close the year very -- basically the same level that we reported in the third quarter. So we're expecting a 2.94% NPL level by the end of this year. That, in turn, will result in the coverage ratios of around 11.3% of our portfolio for a bad debt reserve. And if you compare against our overdue balance is going to be a coverage of close to 4.2x. So we're still expecting to close the year with a kind of a conservative coverage ratios because of the uncertainty surrounding the recovery. And you know whether there's a fourth wave, so we will close the year again with a conservative approach. As I stated in my initial remarks, this will probably be the last quarter where we see such a low figure for the provisions in our P&L. We are expecting to close the full year with a provision of around MXN 1.5 billion. So that means that in the fourth quarter, we will post a provision of close to MXN 1 billion which compares to the -- a little bit more than MXN 500 million that we have provisioned for the first 9 months of the year. So again, that's our expectation. And that basically reflects the fact that our portfolio rose a lot, as you know, in the fourth quarter. So that's more or less the color I can share in where we expect to close this year in terms of old NPLs and provisions in our P&L.

Perfect. That is very helpful, Enrique. And then the second question I had there for Antonio. So I wanted to get an update, taking advantage that you are here with us. So an update there on what you shared in the Investor Day. So there one of the main goals that you described there for your part of the business was to kind of know and identify at least 90% of your omnichannel customers, right? So any color that you can share on how this has evolved kind of where we stand right now and how relevant these initiatives that you kind of already talked about today, the e-wallet, the Monedero, integrating that and everything, how relevant this is for reaching your goal?

Thank you, Ulises. Well, on our identified customers, we continue as planned. The first steps where you can see it's on the personalization part that I talked a little bit about. And it's right now, we are already implementing that. So you will see a different offering -- product offering, product recommendation based on the knowledge we have from you. That's already been in place and it's working right now. Monedero, it's one of the fundamental parts to get to that 90% you mentioned. Now there's around 11 million Monedero physical cards, and we are trying to put them out into digitalization strategy, so we can get to know our customer better, and it's going according to plan. The pandemic, of course, and the store closure did put us in a step back, but we're catching up pretty fast. And yes, we are still on our 90% goal. We are on track. And the first step or the ones that I mentioned before as personalization and the digital ticket is also helping us to achieve that goal.

Our next question comes from the line of Joaquín Ley from Itaú. [Operator Instructions]

Can you hear me now?

Yes, Joaquín.

Congrats on the results. Most of my questions have been already answered, but just trying to get a better sense of or a better understanding on how -- if we see your loan book in the last couple of quarters, you're growing in the very high teens and the credit revenue is still dropping 13% in the quarter. So I'd like to really understand what's going on there in the sense of how much the interest free promotions are increasing as a proportion of the loan book. I believe Enrique you mentioned some promotions -- credit promotions with some grace period, if the proportion of [indiscernible] is increasing also substantially. So any color there you could share that would have would be helpful, please.

Yes, Joaquín. Thank you. Yes, as you're pointing out, and it's very clear in the fact that there's like there's a lack of like consistency, let's say, on the growth that we're seeing or the lack of growth actually or the negative growth that we're seeing on the top line for the credit card business and the fact that we are finally seeing some growth in the loan book. So we have that lack of alignment, let's say, as you perfectly know, usually, we see the top line of our credit card business growing very much in line with the size of the portfolio. So what we have seen is basically a combination of what you already said based on -- due to the pandemic and the effect that we had in the riskier customers. We see now a very high portion of our portfolio which is due to total levels as you're saying, people that pay basically the full amount and then they don't generate any interest. So the fact we went through this like this turmoil because of the pandemic. We basically lost, I would say, like a lot of customers, which had a riskier profile. But on the other hand, we're very profitable in the sense that we generated interest on them. And also, we were able to charge for late payment fees. And that, again, doesn't happen with -- obviously, [indiscernible], we don't generate any interest and we don't generate any late payment fees. So that's an important part of [indiscernible] usually were around 15%, 20% maximal of our total portfolio. And today, they're probably in the 30%, 35% range. So that's an important factor. The other important factor is the fact that when we launched the relief programs, especially around April, May of last year, but we continue to offer them in -- they are too hard, those are running into programs to pay on time. We offered them like a fixed amount per month, which entails a slightly lower interest rate than the one that we charge for the people that are using our revolving line of credit. So we also have there like a negative impact in the productivity of the portfolio. And finally, as you're saying, also the fact that Liverpool has been selling very well, but we're also seeing that's not a major factor. It's also a negative effect, a slightly higher mix of sales with the noninterest feature for promotion. So also it's not helping. So those 3 or 4 things are basically what I was explaining. And then finally, the other thing that I mentioned in my recent remarks that we closed things like the cash advance which is a very profitable program, but it's very risky for obvious reasons. So we are now trying like fine-tuning our -- all our scores. We have basically new scores in place for both origination and behavior. So that we think will help us to see an inflection point. And for next year, we're expecting that the top line for our financial business will be growing very close to a low double-digit growth rate that we expect for the total portfolio.

Our next question comes from Andrew Ruben from Morgan Stanley.

I'm interested to hear a bit more about technology hiring and talent. You did mention in the release adding to some key functions. But I would be curious how you're seeing the availability of talent overall, maybe how far along you are in building out the tech team and some color on where you might still have the greatest need for either hiring internal talent or signing up external vendors.

Do you want me to take that Enrique?

Yes, I think that the answer was again on the digital and technology front here.

Andrew, thanks for your question. Well, the availability of talent here in Mexico, yes, that is one of our toughest things to do. Fortunately, we've been able to, one, maintain the talent that we have, our rotation is pretty low. But also, well, there's a lot of dispute in getting the correct talent. We've been able to do so. Fortunately, we still have a lot to go. But with -- also with the change in the law, we basically increased our team tremendously. We grew more than, let's say, around 50% of our talent has increased. And yes, we're still starting to get some of the talent, but we've been able to manage so far. That's why we also teamed up with Google that we believe it's one of the best companies. We signed an exclusive partnership with them, and we're leveraged on their latest technology. And what they've been doing is we're working a lot with the U.S. team, the Mountain View based team with Google in order to implement that technology, with the tech team that Liverpool has and also with some of tech team that we have based in India, and that's helping us a lot. What are our greatest needs in technology-wise, well, just to continue to fortify that team. And also we need to continue to improve. And as you know, the technology moves pretty fast. And now we feel very comfortable with what we're doing and the tech partners we have to keep up with that pace. And actually, we're very proud to say that right now, I believe we are at the front line on technology advantages. And the goal of our need is not to close that. We need to continue to experiment with them. We need to continue to learn with the tech companies, and we need to continue to evolve within Liverpool to keep up with that base.

Our next question comes from Bob Ford from Bank of America. [Operator Instructions]

Congratulations on the quarter. Antonino, your marketplace growth is very impressive. How should we think about that going forward? And what can you do to sustain that stronger momentum? And as part of that, are there ways that you can take advantage of the USMCA's $100 tax-free limit and leverage that cross-border tax arbitrage that was created?

Hi, Bob, thank you for your question. Yes, how are we going to sustain our marketplace. Well, we've also, as mentioned on the previous question, our team has grown also tremendously, and that has been giving us the greatest effect to continue moving forward. We see marketplace as one of the stepping point for Liverpool growth. Our goals are impressive. Our goals are to grow at least 3-digit numbers for the next couple of years. So how are we going to maintain both with the new team that we have in place. with all the technology we also have in place and also to continue to evolve. And we are also looking at the advantages of cross-border. We're taking it carefully. As you know, we are not a fully open marketplace. We take really good care of our customers and of our brand name. So yes, we are looking, we're reviewing into it, and we're taking step-by-step actions in order to take advantages of that cross-border you mentioned before.

And, Antonino, when you think about like the elasticity of speed to sales, right, do you see opportunities to maybe integrate some of the marketplace with Liverpool Logistics and in-store pickup?

Well, our marketplace is fully integrated with Liverpool. We're launching in the next couple of weeks, the fulfill buy option when it's -- the seller could be fulfilled by Liverpool that's going up live in the next couple of weeks. And all our stores have the omnichannel experience. They have a tablet. And I'm trying to say that around 20% of our marketplace orders are sold within the store. So we're already taking advantage of that. And we're now giving the fulfill buy option step by step, but we're starting this year.

Our next question comes from [ Bruno Werneck ] from UBS.

Congratulations on results. So from my part, I would like to know more about the same-day delivery in what regions? Is it most available and customers having more demand on that? And regarding the CapEx projections as the COVID situation evolves and volatility appears to be decreasing. Just curious if you have any plans to accelerate investments in e-commerce or logistics, can you give more inflows on that, please?

Hi, Bruno, thank you for your question. Regarding the same-day delivery option, it's available in all regions across the country. Because as mentioned before, we're taking advantages of our footprint. So now it's based on where the customer is, the real-time technology, taking the stores as mentioned as small fulfillment centers with the merchandise they are -- they have in place, and that's for all regions, for all customers right now. And it's going live. And it's as mentioned before, we're expecting to be sending delivers nationwide close to 20% or above.

And in terms of CapEx to your question, I mean, we have announced several months ago that we were planning to invest between MXN 7 billion to MXN 8 billion this year. But with the issues I mentioned due to the new outsourcing load, which forced us to slow down particularly for the full month of September and early October. We think that we will end the year -- this year between MXN 6 billion to MXN 7 billion. So that's like MXN 1 billion below the figure that we have shared in our Investor Day. And out of that amount, around 40% is targeted to our logistics and in particular, to the Arco Norte project and around another 15% is earmarked for technology or IT. So all in, basically, around 50% of what we're investing is earmarked to logistics and IT. For next year, our CapEx is -- we're planning to invest between MXN 9 billion to MXN 10 billion. And again, 40% is going to be devoted to logistics and around 15% is going to be earmarked for technology. So close to 55% of total investment next year will be again focused on these 2 very important parts of the business in order to stay competitive and implement all the plans that we have announced.

We have time for one more question today from Irma Sgarz from Goldman Sachs.

So just going back to the SG&A ratio, I was curious, when you think about when you sort of compare your SG&A ratio for this quarter compared to 2019. It was obviously down in part because of the lower provision expenses in which you had already commented that there was obviously to some extent, artificially low and will normalize going forward. But when you look at some of the other lines, there was some help also from the variable lease expenses, obviously it's a much smaller line in the P&L. So I was curious whether we should also assume that, that line is normalizing or if something else that was at play there? And then I was just curious, the other line there's obviously a bunch of different things across sort of Texas, traveling -- travel expenses, insurance, that line came up. So just for those 2 lines variable lease payment expenses and others within the SG&A, just to think about sort of the different moving parts? And any other lines, obviously, that we should think about, whether it's sort of staffing or electricity as either a source of efficiency or source of pressure? And then a separate question regarding the same-day delivery capabilities that you've obviously built out and I think make a ton of sense. Am I right to sort of think that it also increases the complexity of inventory allocation into the store because as ultimately, you obviously also want to be careful not to disrupt inventory levels for the customers that are in the store not linked to digital traffic, but just sort of the traditional in-store traffic, but you don't want to have some phasing stock-outs because you're fulfilling online orders. So where do you think you are on the learning curve and sort of what sort of levers or learnings are you sort of leveraging to ensure that you're not facing disruptions or inefficiencies there?

Yes. Antonino, do you want to take the second question?

Yes. Perfect. Hi, Irma. Regarding your question, yes, you mentioned it correctly, right now, the catch is replenishment. It's how can we replenish to store fast, but there's 2 things that are going on. Right now, we're putting the offer closer to the demand and that -- our systems are integrated all the focus on replenishment systems that we have are now distributing the merchandise better. But yes, it is a catch for our logistics and another pressure for logistics to replenish the stores faster. And that's part of the whole distribution network that we're rebuilding and we're doing. It's important to mention that we also sign up with a very important replenishment system that is going live in the next couple of months in order to close that gap. So far, the replenishment is going well. But yes, we see that also as the new -- the new goal is to replenish our stores faster, and we are taking all the measures to do that. And fortunately, I believe it's going correctly. And the important also thing is, as I mentioned, is to put the offer closer to the demand. And therefore, it will also give you a lot of advantages as less promotions, less [indiscernible] because you have the correct offer in the correct store.

Great. That makes a ton of sense.

On your first question, Irma, regarding SG&A, yes, I mean, if you see SG&A and we exclude the help that we have had in the bad debt provision, of course, which has been very, very important. And we also, as you know, has some depreciation, the SG&A, the expense that we saw in the third quarter of 2021 shows an increase of close to 14% against 2020, which is a little bit below the 18% that we see as an increase in the top line. And if you compare that to the same quarter of 2019, it's pretty much flat. I mean, the growth is only is less than 1% because of all the measures that we have implemented in order to rain down on the pressure that we're seeing on our expense items. I think that, that level of very low numbers that we're seeing is going to be very hard to maintain. I think that in the fourth quarter, in particular, last year, we had a onetime effect where because of the very bad results that we have since you know the pandemic. Obviously, we didn't hit any of our goals in terms of profitability for the year. And that, in turn, resulted in no executive bonus, basically, we didn't pay any executive bonus last year because of the dismal results that we introduced. So that we reversed the provision that we have for that item in Q4. For this year, it's going to be the other way around. We are far away -- I mean, far better than what we expected when we put in place our budget, back in April, and it was approved by the Board, we were expecting that not as a good performance that we have seen basically in all our P&L items. So this year, we are very likely in several of our business units are effective as what you have seen, close to the maximum amount of months that they can receive as a variable bonus because of the performance. So again, very happy about the fact that we are seeing our objectives well on the hand, that's going to put pressure on the Q4 SG&A. For next year, we're expecting again -- we are seeing some pressures because of all the inflation dynamics that you are very well aware of. One of them is obviously that's related to like what we spent in terms of packaging materials, for example, or the bags that we use in the stores and that kind of material is increasing a lot. Electricity rates are also going up. So yes, we are seeing a lot of pressure. But that in turn will force us to put in place some effective measures in order to make sure that SG&A next year continues to grow below our top line. And we -- that helps us to recover the margin and get to EBITDA margin that I mentioned a few minutes ago.

That concludes our question-and-answer session. I would now like and will now hand over to Mr. Enrique Guijosa the call for final comments.

Well, , thank you very much for your attendance and for your questions, and we'll see you in February when we report the Q4 figures. Thank you very much. Take care.

That concludes today's call. You may now disconnect.