Falabella S.A. (FALABELLA) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to the Falabella Earnings Call. I'm Gigi, your coordinator for today's session. [Operator Instructions] Present with us are Alejandro Gonzalez, CEO of Grupo Falabella; Juan Pablo Harrison, CFO of Grupo Falabella; Francisco Irarrazaval, CEO of Falabella Retail; Alejandro Arze, CEO of Home Improvement; Juan Manuel Matheu, CEO of Banco Falabella. First, the company will provide a summary of the consolidated results for the third quarter of 2025. [Operator Instructions] Now we'll start with the conference with Mr. Juan Pablo Harrison.

Hi. Hello, everyone, and thank you for joining us today. First of all, I apologize for my voice. I have a [indiscernible] here. Before we discuss the results, please note that management may make or refer to forward-looking statements during this presentation relating to our company, its results, operations, expenses, strategy, potential restructuring and other similar matters. Such statements are based on assumptions and expectations of future events that are uncertain and contain risks. For further information on this, please refer to the disclaimer displayed on the screen. The numbers provided during the call will follow IFRS guidelines, which are stated in U.S. dollars and rather to millions. As a result, minor differences may occur compared to the published financial statements. During the call, we will discuss the third quarter results as well as the performance of our 5 growth engines. The CEOs of Falabella Retail, Sodimac and Banco Falabella will also provide insights into their respective businesses. Before we begin, I would like to introduce Carolina Novoa, who will be taking on the role of Head of Investor Relations in Falabella, replacing Raimundo, who is moving within Falabella to become Head of Corporate Strategy. We are very excited about this transition, and you will have the opportunity to get to know Carolina in the due course. Our physical digital ecosystem strategy continues to gain momentum. The complementary between Sodimac, Falabella Retail, Tottus, Banco Falabella and Mallplaza allows us to respond with agility and strengthen the relevance of our branding. In the case of Mallpllaza, they sustained its sales growth in all 3 countries, supported by improved rental mix and strategic initiatives like reinforcing its positioning among the country's top retail brands in Peru, introducing the Mallplaza [indiscernible] concept to capture new segments and enhancing profitability with brownfield projects underway in Peru and Chile. Similarly, Tottus increased its revenue in both countries by strategically strengthening its food offering and layout in Chile and continued expansion on its discount format Precio Uno despite a tougher comparison base given the pension funds withdrawal in Peru last year. Also, it has begun deploying a renewed private label assortment to enhance customer experience. I would like to highlight the performance of our ecosystem online channel, where GMV grew 17% year-over-year, supported by leading brands and improved logistic capabilities. In line with our commitment to financial strength and disciplined capital management on Tuesday, November 11, 2025, we announced the early repayment of 2 local bonds totaling approximately $240 million. Let me now turn it over to Alejandro Arze, who will share some remarks on Sodimac’s operations.

Thanks, Juan Pablo. During this quarter, we continue facing a weak construction market, which has affected both our sales and margins across the region. Despite these challenges, we have made adjustments to our value proposition, enabling us to drive sales growth by 5% while maintaining and specialist focus -- our online superstore remained on an upward trend with GMV increasing by 16%. This growth reflects the strength of our curated assortment, featuring top sellers and delivering a unique offering to our customers. Strong performance across Sodimac’s stand-alone website and apps combined with increased traffic, higher conversion rates and high app engagement have all contributed to these results. Our private label strategy continues to differentiate Sodimac, now accounting for over 30% of our sales. Leading brands such as -- Just Home Collection for home, [indiscernible] for flooring and [indiscernible] for tools are setting new benchmarks for exclusivity and value. In Peru, we continue with our plan to transform [indiscernible] stores into Sodimac format. We have remodeled 9 stores during this year and as of September and between October and November, we completed 3 more remodelings. These initiatives have delivered positive results, contributing to improved sales and margins in our Peruvian operation. Looking ahead, we are confident about our summer season campaign, which will feature attractive commercial offers for garden, terraces and Christmas. We are committed to serve our customers with a special focus on our professional segment, small contractors and frequent customers by delivering the best prices and tailored solutions. Now I'll leave you with Francisco Irarrazaval, CEO of Falabella Retail.

Thanks, Alejandro. We are very pleased with the progress made in the third quarter as we continue to execute our strategy to become the leading omnichannel multi specialist in our categories in close partnership, let me say, with the best brands. Our EBITDA margin expanded by almost 300 basis points, supported by stronger online operations and disciplined promotional activity. This is notable, given that the third quarter is a seasonal quarter with a lot of discounts typically. Consolidated revenue grew over 13% with Chile and Colombia delivering double-digit same-store sales. Growth at a regional e-commerce level was 17% year-over-year. We reinforce our promise of the latest first at Falabella through impactful influencer collaborations such as Ropero Paula and [indiscernible] in Chile, Donna Cattiva and [indiscernible] in Peru and Bahia Maria in Colombia. We also launched a totally new concept for our core beauty specialty, BeautyF, we call it. BeautyF is designed as an immersive multi-branded experience for trendy brands and focused on younger generations. We also elevated our fashion leadership by participating in Colombia Mola and hosting the first edition of Falabella Fashion Live in Chile, which we expect to be a landmark event in the future to showcase trends from top national and international brands. Looking ahead to the final quarter, we are confident in our multi-specialist value proposition. Our focus is clear: strengthen key categories, accelerate e-commerce and integrate our ecosystem end-to-end. We are ready to surprise our customers and ensure Falabella remains the place to find the best products, the best experience and the best prices. I will now leave you with Juan Manuel Matheu for some remarks regarding the banks.

Thanks, Francisco. We are very pleased with the financial and operational performance of our digital bank this quarter. Our strategy to build a leading bank in the Andean region continues to advance with consolidated revenue growing 11% year after year. Our banks continue to deliver strong results with total loans reaching USD 7.4 billion, a 21% increase year-over-year, which translates to a 15% increase at FX neutral, in line with the figures we discussed in our previous call. Portfolio quality remaining solid as NPL ratios stay healthy and trending down. We saw double-digit growth in new account and credit card openings accompanied by an 18% year-over-year increase in purchases with our payment methods. reflecting not only a growing customer base, but also deeper engagement with our products. Meanwhile, our loyalty program continues to expand and simplify with Puntos Mageces in Chile and Puntos [indiscernible] in Peru gaining momentum. These redemption options offer customers greater flexibility and choice in how and where they use their rewards. We continue to enhance personalization in our app, focusing on financial product offerings and tailored shopping recommendations. A key driver of this improvement has been the benefits carousel in our banking app, which showcases exclusive offers to users. This feature delivered strong results during the quarter, generating a 2.4x increase in conversion and $9.5 million in purchases across falabella.com and partner platforms this quarter. In terms of the loan book, we expect to close the year with growth rates similar to what we saw this quarter in Colombia and Mexico, while Chile and Peru will see slightly lower levels of growth. Regarding the cost of risk, we anticipate that risk will increase slightly during the last quarter. In terms of SG&A for the last quarter for the year, we will step up our spending efforts in technology, marketing and our loyalty program to enhance our value proposition for Falabella ecosystem customers. Especially in Chile, we will further increase technology expenditure to improve app functionalities, Gen AI adoption and operational efficiencies, which will drive greater efficiency in the coming years. As a result, SG&A expenses are expected to show double-digit growth during the last months of the year with a corresponding impact on short-term profitability, although this reflects our commitment to future improvements. We are confident that our strategy positions us well for sustained value creation in a dynamic market environment. I will now turn the call back to Juan Pablo.

Thanks, Manuel. As we saw on the previous slide as well as heard from our CEOs, 4 of our 5 businesses delivered margin expansion and a strong operational improvements, while Sodimac faced margin pressure despite solid GMV growth. These results reflect disciplined execution, better gross margins and efficiencies across retail and digital banking. In the case of Sodimac, it decreased its EBITDA margin from 5.8% to 4.9%. Falabella Retail rose from 1.6% to 4.5%. Tottus drove its margin from 6.7% to 7.1%. Meanwhile, Mallpllaza reached 81.3%, up from 78.5%. And finally, Banco Falabella jumped from 20.4% to 22.4%. These overall improvements are driven by better gross margins and operational efficiencies, especially in the profitability of the e-commerce channel in the retail side and the growth of the consolidated loan portfolio with healthy risk levels on the digital bank side. As shown on the graph, we have consistently improved our performance on year-over-year basis since third quarter '23, reaching a consolidated EBITDA margin of 13.2% on third quarter '25. This result was driven by over 11% gross profit increase, led by better inventory management, stronger online profitability and improved banking performance with higher net operating income and portfolio quality. This upward trajectory reflects the successful execution of our strategy, the resilience of our business model and the strength of our ecosystem. In line with these positive results, our operations continue to generate strong cash flow. Nonbanking business cash remained stable compared with last year, supported by an EBITDA growth of 25% year-over-year. We keep strengthening our financial position. Net financial debt decreased to $2.3 billion, and our net debt-to-EBITDA ratio for the nonbanking businesses improved to 1.8x. Meanwhile, our maturity profile remains well balanced. Now, I will leave you with Alejandro Gonzalez, Grupo Falabella's CEO, for some closing remarks before we get into the Q&A portion of the call.

Thank you, Juan Paolo. Good morning, everyone, and thank you for joining us on this conference call. Our third quarter results highlight the resilience of our physical and digital ecosystem with strong top line growth and continued progress in our omnichannel strategy. We've seen positive momentum across retail, digital platforms, real estate and digital banking, demonstrating the strength of our diversified model. Falabella Retail led revenue growth supported by operational improvements in the online channel, strong e-commerce performance and enhanced logistics capabilities, as Francisco mentioned. Our digital bank continues to scale, surpassing 8.2 million active customers and showing healthy portfolio growth across all markets. These achievements reflect a focused strategy, agile execution and the commitment of our teams. I'm also proud to share that Fitch Ratings upgraded Grupo Falabella's International credit rating to BBB- with a stable outlook, restoring our investment-grade status after 2 years, a recognition of our strong financial position, improved profitability and an efficient execution and capital allocation. Building on our omnichannel strategy, we remain committed to driving efficiency and profitability in a challenging environment by making disciplined investment decisions and rigorously managing costs to ensure every initiative creates long-term value. Our EBITDA margin improvement and net income growth are clear signs that our strategy is working, but we know that there's more to do. We're confident that the path ahead and our enthusiasm is grounded on 2 key factors. First, our offering continues to win over more customers every day as reflected in rising satisfaction metrics and expanding market shares. Second, we are increasingly aware of the powerful synergies among our 5 business units, which complement each other by delivering a compelling and differentiated experience as well as better scale to operate more efficiently. Looking ahead, we plan to further develop our ecosystem. E-commerce remains a major driver with sellers gaining importance as Grupo Falabella delivers a unique offering enhanced by improved logistics and digital capabilities. In line with the trajectory observed in recent quarters, sellers will continue to play a pivotal role and capitalize on the momentum built. We will continue to expand our product range, add premium options, strengthen third-party partnerships and use AI for more personalized customer experience. Mallpllaza's expansion plan is progressing well with over 168,000 square meters being added across 12 malls in Chile and Peru and the launch of their new premium outlet concept, all part of a $570 million investment plan to expand and transform Tier A assets by 2028. Our digital bank will continue to have profitable growth in 2026, as Juan Manuel mentioned, delivering the best benefits and the simplest digital products to our customers and remaining a key pillar of our ecosystem. We are convinced that our retailers benefit from the increasingly prominent role of our bank and vice versa. This is the true strength of our ecosystem and the reason why 37 million customers choose us. Looking ahead, we will build on our strength that deliver this 3 quarter '25 results, our omnichannel ecosystem, financial discipline and investments in innovation from the M+ expansion to our digital bank app AI-driven personalization. These pillars will continue to guide our growth. Before concluding, I would like to thank our team, customers and shareholders. As we approach the end of the year and enter the most relevant season for our group, we have worked together to ensure we are well prepared to sustain the momentum achieved throughout the year. Our omnichannel ecosystem enabled us to offer a broad assortment, competitive prices and a strong shopping experience, reinforcing the operational and commercial consistency we keep working towards each period. Thank you.

[Operator Instructions] Your first question comes from the line of Andrew Ruben from Morgan Stanley.

I'm curious to dig in a bit more on the commentary of the step-up in spending around tech, loyalty, marketing. I'm curious why now, how long you think this elevated spending could last? And what gives you the conviction in the ultimate efficiencies that you'll drive forward? I thought it was an interesting topic that you mentioned on the call. So hoping to hear more detail.

Thank you, Andrew, for your question. This is Juan. In the final quarter of the year, we will intensify our investments in technology, marketing and our loyalty program to strengthen the value proposition for customers across the Falabella ecosystem, as I mentioned. In Chile, specifically, we will further increase the technology OpEx spending to enhance capabilities, Gen AI adoption and streamline operations. The idea is to pave the way for greater efficiency in years ahead. Consequently, SG&A expenses are expected to grow at a double-digit rate during the last months of the year, which will affect short-term profitability, as I mentioned. However, we think that this reflects our commitment to driving long-term improvements. Looking ahead, we expect SG&A to evolve in line with or close to inflation over the long term.

Okay. That's helpful. And maybe just a quick follow-up. This incremental spending, was this something that was contemplated in the 2025 investment plan? Or has something changed throughout this year to drive the increased intensity of spending in those areas?

Last year, we have seen a lot of traction from our customers in what we have been doing, and we decided to actually boost our plans that we had in the beginning of the year.

[Operator Instructions] Our next question comes from the line of Irma Sgarz from Goldman Sachs.