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

Good morning. My name is Juan Pablo, and I will be your conference operator. [Operator Instructions] This is Liverpool's Fourth Quarter 2022 Conference Call. [Operator Instructions] Today, we have with us Mr. Enrique Guijosa, 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 2022 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 Guijosa. Please go ahead.

Thank you. Thank you very much, and good morning to everyone. Thanks for joining us. As usual, I'll start the call covering the highlights of our fourth quarter results and then move on to the full fiscal year 2022 figures. Afterwards, I will provide our 2023 guidance for our key financial indicators. We will devote the rest of the call to answer your questions, although I would like to point out from the [indiscernible] that since we will have our Investor Day in just a couple of weeks, I might defer the answer of some of your questions so it can be addressed properly that day. I'm glad to share with you that Q4 2022 was once again a strong quarter in terms of both revenue and profitability. We delivered double-digit growth rates in terms of our top line, our EBITDA and our net profit, continuing the sequential improvement that we observed throughout the year. Our total revenues during the fourth quarter grew 12.7%. And once again, our 3 business segments posted double-digit top line growth rates. Retail sales grew 11.7%. Financial business income increased 28.8%. And revenue from our shopping centers was 12.3% above a year ago. In our previous conference call, we stated that we expected a slowdown versus the growth rates we have posted in our same-store sales during the first 3 quarters of the year, and this was indeed the case. This was basically due to November where we faced a very high base period as the previous year was very promotional. Same-store sales for Liverpool grew 11.5%, and close to 60% of this increase was explained by higher traffic. Apparel, particularly formal and occasion wear, footwear, accessories and cosmetics continue recovering the share they lost during the pandemic. In the case of Suburbia, same-store sales were only 1.7% above a year ago, and the key driver was traffic, which was negative 3.7% versus prior year. For perspective, ANTAD department stores reported a 7.0% increase in same-store sales during the fourth quarter, while total ANTAD apparel and footwear categories grew comps 7.5%. In terms of new stores, on November 10, we opened Liverpool Mitikah in Mexico City. Suburbia opened 9 new stores during the quarter, and this brought the total number of openings during the year to 15, according to our store opening plan. Retail gross margin was 32%, was 65 basis points below a year ago. The normalization of promotional activity was partially offset by a more favorable product mix in the Liverpool [ format ]. Our consolidated gross margin was virtually flat, decreasing only 6 basis points to 37.5%, and this was mainly due to the above-mentioned effect in our retail gross margin. Operating expenses [ with ] our bad debt provisions and depreciation grew 14.1% year-on-year. The main factors behind these results were, number one, the variable expenses that grow in line with sales like commissions to our sites' associates, credit card fees and packaging materials; number two, the 22% increase to a minimum wage at the start of the year; number three, above-average salary increases on investment in new talent, in logistics, technology and digital; number four, sales associate headcount increases in selected stores; and number five, general inflation. We have pursued a more aggressive role in our credit card business in terms of origination, overdrafts, line increases and cash withdrawals. In spite of these growth strategies, we closed Q4 with a better-than-expected NPL ratio of only 2.4%, 12 basis points above a year ago. The bad debt provision in our P&L during Q4 was MXN 1.2 billion, 11% below a year ago. Our Q4 EBITDA of MXN 11.8 billion was 14% above year ago, while our EBITDA margin was a very strong 18.7% compared to 18.4% in the same period of 2021. Furthermore, we move forward in all our key strategic initiatives to continue strengthening our omnichannel ecosystem. Digital GMV in the fourth quarter was 30% above a year ago, and our digital share was 24.4%, 310 basis points above the same period last year. Monthly active users of our Liverpool Pocket in Q4 increased 42%, and Liverpool Pocket downloads grew 45%. Our marketplace GMV grew almost 70% year-on-year, and we closed the year with 28% more sellers and [ 68% ] more SKUs. For perspective, almost 40% of our digital catalog comes from our marketplace. Importantly, during the fourth quarter, we launched our marketplace in Suburbia with basically the same catalog as you can find in Liverpool. During the fourth quarter, the digital orders that we delivered in 48 hours or less grew 40% year-on-year and accounted for 38% of total orders, almost 5 percentage points above a year ago. The share of Click & Collect was 37%, also 5 percentage points over the same period last year, and direct store deliveries were 24% of total home deliveries, 10 percentage points above a year ago. Moving on to the full year results. I am glad to report that we achieved excellent results across the board. Total revenue of MXN 176 billion was MXN 25 billion or 16.6% above a year ago. The retail business had an increase of 16.3% versus 2021, contributing with MXN 159.1 billion or 90% of our total consolidated sales. Liverpool same-store sales grew 16.4%, while Suburbia posted a 9.0% increase. To note, like-for-like sales growth for ANTAD department stores and Softline categories for the year were 11.9% and 14.4%, respectively. Our financial services business increased its revenue 18.5%, reaching MXN 13.2 billion or 7.5% of our total consolidated revenues. As stated above, we closed the year with an NPL ratio of only 2.4%, 13 basis points above a year ago. The bad debt provision in our P&L for the full year was MXN 1.8 billion, a 3.7% year-on-year decrease. Our bad debt reserve coverage ratio at the end of the year was 9.6% of the gross portfolio, 1.7 percentage points below a year ago. The [ plus 90-day ] bad debt coverage stands at 4.1x. We think [ above ] coverage ratios are above market standards. Our net credit portfolio grew 20.8%, and the total cardholder base closed the year at almost 6.7 million cardholders, 10.1% above a year ago. Our shopping centers posted MXN 3.7 billion in revenue with an increase of 20.4% compared to 2021 due to the normalization of customer traffic and 150 basis points increase in our occupancy rate, which closed the year at 90.3%, and this includes the relative new Santa Anita shopping center, which is still in the stabilization phase, and significant expansions in both Galerías Monterrey and Galerías Insurgentes. On the retail gross margin front, we closed the year at 32.4%, and this was 110 basis points above a year ago. This reflects a subdued promotional activity during the first semester and a more favorable merchandise mix as our Softline categories recovered the ground they lost during the pandemic. Operating expenses, excluding bad debt reserves and depreciation, increased 14.9%. And the drivers of this increase were the same ones that I mentioned above for the fourth quarter. Our operating profit of MXN 25.5 billion was 36.2% above a year ago, while our EBITDA reached MXN 30.7 billion, a 28.3% increase. EBITDA margin of [ 17.4% ] was [ 160 ] basis points ahead of 2021. For perspective, our EBITDA margin in 2019 was 16.6%. Net profit of MXN 17.4 billion was 75% above year ago. Turning to our balance sheet. Total inventories grew 22% year-on-year. We do not think this level represents a risk to our 2023 profitability as the end position in 2021 still reflected supply chain issues due to the pandemic in several categories. For perspective, if we compare our inventory position against 2019, it's 21% above, while our retail sales have grown 25% over that period. Cash flow from operations during the year was MXN 15.8 billion, and this was MXN 7 billion below 2021. Our largest uses of cash during the year were working capital, mainly the growth in our credit portfolio and inventories, and the normalization of our income tax payments. CapEx during the year was MXN 7.9 billion, 32% above a year ago and represented 4.5% of our total consolidated revenues. Close to 40% of this amount was allocated to logistics and technology projects. We completed Phase 1 of our Arco Norte project, and this allow us to handle all Big-Ticket merchandise receipts and home deliveries from this strategic location for all our retail business units. Importantly, we started remodeling our Liverpool's [ Santa Fe ], one of our flagship stores. And during Q4, we invested close to MXN 700 million or a 50% participation in the fashion mall, which is being built across Galerías Metepec by [ GICSA ]. At the end of the quarter, cash on hand was MXN 24.5 billion, and our net debt-to-EBITDA ratio was only 0.08x. Over the year, we paid our Liverpool 12-2 and 17-2 local bonds for a total amount of MXN 3.4 billion with our own cash. Short-term debt is out of risk as the next maturity is until October 2024. Our shareholders agreed to pay a dividend of MXN 1.70 per share on their March 10, 2022 general assembly. The first installment of MXN 1.02 per share was paid back on May 27, and the remainder of MXN 0.68 per share was paid on October 14. On the ESG front, I would like to highlight an important foundational item. On December 19, Dow Jones announced El Puerto de Liverpool is now included in the sustainability indices for the Latin American Integrated Market or MILA in short. This reflects the progress we have made on ESG in the past several months. Finally, in November, we made a capital [ attrition ] of $40 million into Grupo Unicomer. [indiscernible] was matched by our partners in the JV, and will be used to partially finance the acquisition of CrediScotia business in Peru, which, by the way, is still awaiting the approval from the banking regulator. I want to pause and express my gratitude to our members of our team, some of whom are listening into this meeting today. You have delivered industry-leading results over the last couple of years while taking care of our customers and each other. Importantly, during that time, you have made El Puerto de Liverpool a much stronger company. I would like to also thank our customers for their continued preference and loyalty; and our shareholders, of course, for their trust. Well, that's it in terms of reviewing our performance during Q4 2022 and the full fiscal year 2022. Let me now share with you how we see 2023. As you all know, the macroeconomic environment, not only in Mexico, but across the world, is full of uncertainties. Probably the most important one has to do with the effect of increases in interest rates to bring down inflation to its central bank's objectives on economic activity, particularly consumption and unemployment. Having said that, we are expecting our top line to accelerate versus the levels we observed in 2022. Same-store sales for Liverpool and Suburbia should increase in the 7% to 8% range. Store openings for Liverpool will be only 1. And in fact, this has already happened, and we opened a new Tepeyac store just a few weeks ago on January 24. With this new location, we now have 22 Liverpool stores in the metro area of Mexico City. For Suburbia, we're expecting to open 15 new stores, most of them in Q4. NPLs at the end of the year should be close to 3%, and the bad debt provision in our P&L should be around MXN 2.4 billion. This will represent a 33% increase above 2022. Our net debt credit portfolio should be growing at 13% year-on-year. The normalization of our promotional calendar and our bad debt provision, together with continued headwinds from our payroll expenses and general inflation will certainly put pressure on our profitability. We're expecting our EBITDA margin to be in the 16.4% to 16.9% range, very much in line with the 2019 level. Our CapEx for the year should be in the MXN 10.5 billion to MXN 11.5 billion range, and close to 50% of the total CapEx will be allocated to supply chain and technology projects. We have already started Phase 2 of our Arco Norte project with the construction of the new building for Softline. And we are planning to open our Phase 3 omnichannel fulfillment centers throughout 2023. Before I take your questions, let me quickly recap a few important points. Our company delivered very strong financial results in 2022, and the foundations that have been laid out in the past years have put El Puerto de Liverpool in solid footing. We are confident in our ability to overcome the challenging economic environment and deliver another set of strong results during 2023. Thank you very much, and we can now move to your questions.

[Operator Instructions] Our first question comes from the line of Sergio Matsumoto.

Enrique, the credit card business is seeing a momentum. And is there any way you can capitalize on that strength to stimulate demand or maybe perhaps the better way to say it is sustained demand in the core retail business?

Yes. Thank you, Sergio. As you're saying, I mean, we are seeing very nice growth in our financial business unit. As I said, [indiscernible] grew almost 21% year-on-year, and revenues are growing almost 30% year-on-year as the [ productive ] of our portfolio has been increasing a little bit. We have also been reflecting some of the increases that the interest rates that the central bank in Mexico has been implementing for the past several months. We have [indiscernible] some of the pass-through of those increases into our own interest rates. In terms of your question on where we can use our -- this momentum to help us on the retail business, I think that it has already been the case. I mean as I pointed out in the initial remarks, I mean, we have been more aggressive in terms of origination. We have been more aggressive in terms of overdrafts. We also have been more aggressive in increasing our credit lines and also in terms of allowing our customers to withdraw cash from our ATM. So in general terms, we are -- given the fact that the NPLs have stayed on very low levels, basically at half of the rate that we had prior to the pandemic, we have been really comfortable to be more aggressive upfront, and that will continue to be the case for 2023. The fact that NPLs are still on the low side will allow us to be still aggressive. Those, we hope, 2023, with an NPL of still only 3%, and that will allow us to put, let's say, some additional energy on the retail side to spend them at.

If I can ask another question, Enrique. The environment for the high, low pricing -- as you noted in the past few quarters, the markdowns weren't as necessary. And would the pricing strategy be more normalized this year in 2023 with more marked sequence of full price and promotions?

Yes. I think that the pandemic and the implications of the pandemic on the supply chain resulted, as you all know, in some -- lack of merchandise in some categories or the fact that merchandise arrived to Mexico late, particularly imports. In general terms, we were able to achieve, especially in the first semester of 2022, the markdowns from the fall, winter season of 2022 -- '21, which fell in the early part of 2022 were still low. We didn't have a lot of merchandise after the high season of 2021 to mark down. So that's why we saw high levels of gross margin in the first semester of 2022. What we have seen now in the second semester and starting '23 that we are back to the normal level. So our ability to have a high gross margin because of our full price without markdowns [ which are ] now gone, I think. And we are now to the normal gain of using our promotional strategies to move the merchandise.

Our next question comes from the line of Alan Alanis.

Congratulations for the results. Can you hear me, Enrique?

Yes, Alan. Loud and clear.

A couple of questions. One of them regarding e-commerce, the other one regarding dividend policy. The e-commerce growth that you saw of 30%, could you explain a bit more what were the drivers behind such strong growth? And how much -- in general terms, I know you get into the specifics in the Investor Day. How much did it contribute in terms of profitability? It almost sounds like that part of the improvement in profitability came from e-commerce. And then if you're guiding for lower profitability, maybe you expect some deceleration in e-commerce as we go into 2023. That will be the first question. And the second question is you have a very strong balance sheet. I mean any chances -- I mean what's the dividend policy? If you can remind us that. And what's the outlook for the use of cash in terms of returning more cash to shareholders? That's it. And again, congratulations on the results. Very impressive.

Thank you, Alan. [indiscernible] as you pointed out, I mean, e-commerce performed very well in Q4. We posted a 30% increase year-on-year. You see the breakdown of that 30%. There are 2 things that stand out. As you know, we consider the sales that are done in the store with our iPads in the hands of our sales associates of merchandise, but it's not in the sales floor, both can be sold to our customers through the use of the digital technology in mobile point-of-sale extended catalog. And we [ do ] account for those sales into the digital channel because they are enabled by technology. We saw almost a 50% increase in -- quarter-on-quarter on that, particularly, let's say, part of our digital GMV. So that was certainly impressive. And I think it shows 2 things that our customers were returning to our stores as we have seen basically quarter after quarter. And on the other hand, the potential that this way of selling has for us, I mean, the ability to use and combine the advice that our sales associates can provide in our store with the fact that we can sell with extended catalogs, things that customer cannot seeing physically in the stores. So I think that [indiscernible] potent example of the omnichannel model. The other thing that stood out in the digital channel was marketplace. Marketplace, which we call our [ 3P offering ], of course, grew almost 70% year-on-year in Q4. So I think that those 2 things were the ones that allows us to post the 30% growth rate that we saw in Q4. In terms of profitability, I think that frankly, I mean, the thing that have helped a lot our EBITDA margin in Q4 2022 was, I would say, the mix of our businesses. I think that the growth rate that we saw in our financial services segment, which was almost 30%, and the growth rate that we saw in the revenues coming from our real estate business or shopping centers, which were 12.3%, were ahead of the growth rate that we saw on the retail segment, which was 11.7%, still strong, but below the other 2 business segments. And as you know, the EBITDA margins that we have in those 2 segments, financial services and shopping centers, are well above the EBITDA margins that we have in the retail side, of course. In terms of the dividends, we don't have really an explicit policy in terms of dividends. But I think that you can expect we'll be disclosing in the shareholders' general assembly, which is scheduled for early March, is that we should be paying around 18% of our net profit in terms of dividends. So that's what you can expect going forward. We should be reinvesting around 80% of our net profit and pay as dividends something in the [ network ] of 20%.

Our next question comes from the line of Andrew Ruben.

Andrew Ruben with Morgan Stanley here. I was hoping you could provide a bit more detail on the EBITDA margin guidance. You mentioned some of the expense headwinds and a bit of the normalization in top line growth. So just trying to understand perhaps what some of the offsets would be, some of the tailwinds in order to hold the margin at 2019 levels.

Yes. Thank you, Andrew. Yes. I mean the headwinds I mentioned that the one which is very significant and has to do with our payroll expenses. As you can imagine, I mean, the fact that the minimum wage increase once again in high numbers, in this case, the January 2023 increase was 20% after the 22% that we observed in January 2022. So that put pressure in our payroll expenses, of course, not only because we need to make sure that nobody in the company is earning less than the minimum wage, of course, but also because of the lower ranks of our people, particularly in operations and logistics. We also needed to push their salaries upwards in order to maintain, let's say, the competitiveness in the market and the differential against the people that earn the minimum wage. So that is certainly one of our big headwinds in terms of SG&A. The other one also related to payroll expenses has to do with 2 new reforms in terms of the number of vacations and the premium that we have to pay for vacations that will impact 2023, of course. And the other one is that the approval of pension reform that was approved almost 3 years ago and became effective in January last year. This year in terms of basically pushing like 1 percentage point each year for the next several years the contribution that the company makes into the [indiscernible] or the pension funds of our employees. So those 2 things also will put pressure to our SG&A. And of course, we are seeing still like salary inflation in several functions of the company, particularly on the supply chain side, logistics. Particularly on the digital and technology functions, we are seeing like war in terms of talent, and salaries increasing well above the average for the rest of the functions of the company. So that's it in terms of headwinds in terms of SG&A. In terms of gross margin, the fact that -- as I was explaining before, we will not have the benefit that we saw in the first semester of 2022 without being able to sell particularly in the Softline category a lot of merchandise at full price. We will be seeing a more normalized promotional environment basically throughout the year, and that will also be a headwind in terms of EBITDA margin. In terms of tailwinds, actually, we don't have that many. I mean one of the big tailwinds in 2022 was, of course, the double-digit growth rate that we saw in basically our 3 business segments. In 2023, the retail segment, which is, of course, the big one with 90% of our total revenues will probably be growing in just high single digits so that will not help us much in terms of operational leverage as what we saw in 2023. The tailwind will be, as I said before, the aggressiveness, let's say that you can expect in terms of our financial services business given the very good performance of our -- in terms of NPL. I think that, that will also be a tailwind in terms of our revenues and, of course, in terms of profitability due to the high EBITDA margin that we have in that segment. And we're also expecting to -- that the occupancy rates and the revenues from our shopping centers will continue to grow a little bit ahead of what we are seeing in retail and also helps us in terms of our EBITDA margin. So I would say, Andrew, those are a quick recap of both the headwinds and the tailwinds that we expected in terms of profitability for 2023.

Our next question comes from the line of Rodrigo Alcantara.

Two quick ones here, if I may. On the acquisitions in the fourth quarter is that the shopping center, Metepec makes a lot of sense to do, nice transaction there. Just your thoughts on the acquisition -- on the capital increase in Unicomer. Just curious if you can share with us the -- I mean what's the [ plan ] with the stake of Unicomer. If you can remind me -- you can remind us like what could [ be so far ] the IRR you have received from having this stake and also comment a bit about the rationale of acquiring CrediScotia in Peru. If I'm not mistaken, Unicomer doesn't have operations in Peru. So just to understand a bit more on that. And the second question would be delivery times. Very nice to see close to 40% of your orders, 2-days delivery. Just curious -- hear your thoughts, this number, how much could it increase as we go through year-end. That would be my -- those would be my 2 questions.

Yes. Thank you, Rodrigo. Well, let me provide some color in terms of the acquisition of the Metepec, which, as you said, we also, of course, think that it makes a lot of sense. We have the opportunity -- this is a shopping center that's being built as we speak, basically, just across the street from Galerías Metepec shopping center. So that shopping center is one of our crown jewels in the real estate business. It has very high occupancy rate, almost 100%. And also for the retail business, the Liverpool [ story ] is one of our most successful. So it's always that we need to protect that location. So [ GICSA ] had some issues in terms of liquidity. The possibility came up for us to invest and become -- make a joint venture with [ GICSA ] with the investment that I just announced, we will have 50% of that new shopping center. [ GICSA ] will keep the other 50%. We call that shopping center also Galerías to basically for our customers, they should feel that it's only one shopping center. It's [ not ] 2 separate ones. We also agreed with [ GICSA ] that we will be in charge of the commercialization and the administration of our shopping center. So that's another plus for us. And the idea is to work with the government authorities to be able to improve the infrastructure so our customers can move from one side from the current shopping center that we have there to the new part of the shopping center as just one unit. And so we will see it as the most accretive way to [indiscernible] the street that is in the middle of it. So I think that we are very happy. This will basically make us like the owners of almost 75% of the combined, let's say, shopping center, which we will treat basically just one big shopping center and, again, in a very strategic location for us. So in terms of our Metepec, in terms of Unicomer, basically, it has been a long time since we made a capital efficient for Unicomer. And this one is 100% -- like has 100% to do with the acquisition of the CrediScotia business in Peru. As you pointed out today, we don't have any operation in Peru, and we are able to close the transaction, but we are still waiting for the approval from the [indiscernible] regulator. We're positive that we will receive it sometime by the middle of this year. That will allow us to have a presence in this important country in the space where Unicomer operates. Traditionally, we enter a country on the retail side. So this will be the first time that we enter a country with Unicomer, first with the financial side and not the retail side, but we think that we saw the volume of business that CrediScotia represents in Peru. We saw that as a big opportunity to put our footing in Peru, and we were able to win the bidding process. The $40 million I announced have been matched by our partners in the JV. So the total amount that we have, $80 million, and that will be used entirely to finance part of the acquisition price. The other part will be financed through a banking loan. We feel very comfortable with the 50% that we have -- 50% stake that we have in Unicomer. The company has grown very nicely since we became partners with the [indiscernible] family. It's a big business now. It sells several billion dollars in consolidated revenues. It has [ presented ] a lot of confidence in Central America, the Caribbean and lately in South America. So it has been a growth engine for us in the past several years. It allows us to have international exposure. We only participate on the -- at the Board level. We don't have any day-to-day roles. Those are done by the people on the ground led by the [indiscernible] family. So that's more or less the color that I can provide on the Unicomer business. And finally, in terms of delivery times. I would like to you to wait for you, I mean, to hear [ perspective ] on that what we are trying to do to continue improving the speed with which we deliver merchandise to our customer homes. We think that we are making good strides in terms of the speed in the past couple of years, but we have several opportunities that we need to capitalize. And I'm sure you will hear the details on that on the upcoming Investor Day.

Our next question comes from the line of Álvaro García.

Álvaro García from BTG Pactual. Two questions. The first on your coverage ratio. It feels like your guidance of MXN 2.4 billion provision and 3% NPL was, once again, a very high coverage ratio. I'm just wondering how you're feeling about that. Why not come back down to more normal levels like we saw pre-COVID? Is this a new normal? I guess, is the question. And then two, on the CapEx figure. How are -- it's probably the highest CapEx figure we've seen from you guys ever. Sort of you can break it down -- you provided some breakdown of supply chain, logistics, but sort of how we should think about Arco Norte within this CapEx figure would be very helpful.

Yes. Álvaro, thanks for your questions. In terms of the, first one, the coverage ratios that we are expecting by year-end '23, I agree with you, they're still conservative. They are still above the market standards. And I think that, that basically reflects the uncertainty levels, we prefer to be on the safe side. I originally thought that coming out of the pandemic that things will be looking normal and we will be able to bring down coverage ratios to something more in line with the historical works. As you know, before IFRS 9, we used to work basically with a rearview mirror, and we managed our coverage ratio based on the [indiscernible] level. And basically, our policy was to basically have a ratio of [ 2, 2.3x] our [indiscernible] ratio. That, of course, has increased a lot. You see the number for [indiscernible] ratio at the end of 2022 was basically 4x. So you might argue that we are operating today with almost 2x of what we had before. If you see the coverage in terms of expected write-offs for the next 12 months, we -- before the pandemic, we used to run the business at 1.3, 1.4x the expected write-off for the next 12 months, and we closed 2022 at 2.05x. So that's always like a 50% to 60% increase in terms of our coverage ratio. We are trying to bring down those very conservative coverage ratios for 2023. As I said in my opening remarks, the coverage ratio that is measured against the gross portfolio closed at 9.6 in the end of 2022. That was 1.7 percentage points below the ratio that we had at the end of 2021. We expect that to bring it down 80 basis points to 8.8, but are still conservative. So I think that, that will give us some breathing room and see where this uncertainty on -- where we're going to have like a recession. It's going to be a deep depreciation, it's going to be a prolonged recession, [ what's going to be ] the effect of that on our NPLs. So given the uncertainty, we prefer to be, as usual, on the conservative side. In terms of CapEx, a big chunk of the around MXN 11 billion I announced for CapEx for 2023 is going to be devoted to Arco Norte. I would say that probably around MXN 4 billion of the -- close to 40% of the total investment will be for the development of the Softline facility, which in Phase 2 [indiscernible] basically.

We have time for one last question today, which comes from the line of [ Emiliano Hernández ].

[indiscernible] Congrats on the results. Very impressive. Most of my questions have already been asked. So maybe my question would be, have you seen any consumer slowdown during the beginning of the year? And what are your expectations for the coming months? And also, can you give some directional color on the [ Phase 2 sales ] guidance in terms of maybe the competition on average ticket and transactions?

Yes. [ Emiliano ], thank you. The short answer is, no. We have not seen any, like, material slowdown in the first month, and January was strong, still strong, still -- I think that for both for Liverpool and Suburbia, we saw nice figures in January. You can infer those basically from the ANTAD numbers that they published for January. If I recall correctly, they reported 11% growth in same-store sales for e-commerce stores in January. So you can infer from that, that our number was also strong. I think the combination between traffic and average ticket was basically very well balanced, more or less half and half. And I would like to point out, though, that this nice start of the year has a lot to do with the fact that in 2022, we didn't have a lot of merchandise to go through the end of [indiscernible] markdowns, the promotional [indiscernible]. So it was a relatively easy comparison for this time of the year. I think that -- we think based on what I was providing you as guidance, things are going to get more complicated as we move on throughout the year and particularly in the second semester. So that's what we can say in terms of how we started the year and how we're seeing the balance between transactions and average ticket.

We are out of time for questions today. That concludes our question-and-answer session. I would now like to hand the call back over to Mr. Enrique Guijosa for some closing remarks.

Yes. Thanks. Thanks a lot. I mean thanks for your questions and for your interest. And I'll hope we are going to be seeing most of you, if not all, on our next Investor Day, which is scheduled for Thursday, March 9 at 9 a.m. Mexico City Time. And this time, and finally, we will be able to do this in presence. So we will be holding that Investor Day finally in our corporate offices in Santa Fe in our auditorium. So we look forward to receiving you and hosting you here in Mexico City. Thank you very much. Have a good day.

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