InRetail Perú Corp. (INRETC1) Earnings Call Transcript & Summary

Good morning, and welcome to InRetail Peru's Second Quarter 2023 Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] It is now my pleasure to turn the call over to Natalia Nirenberg of InspIR Group. Ma'am, you may begin.

Thank you, and hello, everyone. Welcome to InRetail Peru's Second Quarter 2023 Earnings Conference Call. Before we begin, I would like to remind you that today's call is competitors and analysts only. Therefore, questions from the media will not be taken. Joining us today from InRetail Peru are Mr. Juan Carlos Vallejo, Chief Executive Officer; Mr. Marcelo Ramos, Chief Financial Officer; and Ms. Vanessa Dañino, Investor Relations Officer. They will be discussing the quarterly report distributed by the company yesterday. If you have not yet received a copy of the earnings report, please visit www.inretail.pe in the Investor secti,n, where there is a webcast presentation to accompany discussion during this call. If you need any assistance, please contact the Investor Relations team of InRetail Peru. Please be advised that forward-looking statements may be made during this conference call and do not account for genomic silicon stances, industry conditions, the company performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change causing actual results materially differ from the current expectations. For a complete note on forward-looking statements, please refer to the quarterly report, which was issued yesterday. At this point, I would like to turn the call over to Mr. Juan Carlos Vallejo, Chief Executive Officer of InRetail Peru for his opening remarks. Mr. Vallejo, please go ahead, ahead, sir.

Thank you, Natalia. Good morning, everyone, and [Foreign Language]. Thank you for joining InRetail's second quarter earnings call. Today, we will discuss the main highlights of InRetail's second quarter results for 2023. Joining me today are Marcelo Ramos, our Chief Financial Officer; and Vanessa Dañino, our Investor Relations Officer. I will start with a brief executive summary, and then Marcelo and Vanessa will walk you through our earnings presentation. Peru experienced a challenging first semester with lower economic growth and high inflation, affecting the more vulnerable population of the country and leading to a generalized slowdown in consumption. However, political instability slowly declined as social and rest dissipated, creating a relatively stable political and social environment, although we are seeing signs of a slightly recovery as evidence by the slowdown in inflation, the strength of the Peruvian Sol as well as the decline in country risk, the current environment still shows significant uncertainties. Recovery will depend on additional circumstances such as climate-related event like El Nino phenomenon, the stability of the political scenario and the general international environment. Even in this context, InRetail show strength and resiliency in 3 business segments. InRetail, once again, reported strong results, which contributed to reach a high single-digit growth in revenues and a strong double-digit growth in adjusted EBITDA for the second quarter of 2023. Our Food Retail segment had another strong quarter, growing 9.9% in revenues and 12.4% in adjusted EBITDA with positive same-store sales growth in all of our formats. This result aides the consolidation of our multi-format and everyday low-price strategy based on market information from external providers. During this quarter, we continue to capture incremental market share from our competitors in the more Food Retail channel. On Pharma segment, on the other hand, show a strong result, reaching 9.6% growth in revenues and a strong double-digit growth in adjusted EBITDA, mainly due to a lower comparable basis from the slowdown demand from COVID-19 related categories in Q2 2022 as well as the successful execution of our store reconversion in our pharmacy unit. Finally, our Shopping Malls segment had a solid second quarter with revenue growing at 17.8%. However, adjusted EBITDA grew only 2% mainly due to a higher comparable basis from extraordinary income related to a land bank sale as disclosed in our earnings call last year. Continuing with our commitment to move forward with our sustainability efforts, I am pleased to highlight that Supermercados Peruanos from our Food Retail segment is the leading retail company in structuring sustainability-linked loans in Peru with an additional PEN 250 million loan completed during this quarter reaching a total of PEN 350 million of sustainability-linked loans to date. In terms of guidance for InRetail, we are maintaining our guidance in revenues of high single-digit growth and increasing our guidance in adjusted EBITDA to a low double-digit growth, both for 2023 on a consolidated basis. With that, let me pass the word to Marcelo and as always, we look forward to answering your questions by the end of this call.

Thank you, Juan Carlos. Good morning, everyone. Thank you for joining us on this call. Today, we will review the main highlights of InRetail's second quarter 2023 results. Now please turn to Page 4 in our earnings presentation to start reviewing our consolidated financial results for the second quarter for InRetail Peru. In the second quarter of the year, InRetail reported a high single-digit growth of 9.7% in revenues, another strong quarter for our 3 segments despite the high comparable basis from the second quarter of last year and despite the generalized slowdown in consumption environment in the country. In terms of adjusted EBITDA, we recorded a double-digit growth of 16.4% in comparison to the same period of last year, driven by the strong top line growth and increased fixed cost dilution in our 3 segments, combined with a stable gross margin. As seen in previous quarters, our consolidated adjusted EBITDA considers net expenses related to our digital services and solutions developed transversely across segments. Additionally, this quarter, our adjusted EBITDA includes 2 main effects to take into consideration compared to last year. First, in our Pharma segment, as we have mentioned in previous calls, our consolidated EBITDA incorporates approximately PEN 14 million of lower rent expenses relative to Q2 '22 that were reclassified due to IFRS 16 in Q2 -- in Q3 '22. Second, in our shopping mall segment, the second quarter of last year includes PEN 13 million of an extraordinary income from a land bank sale. These 2 effects have an almost 0 net effect in our consolidated adjusted EBITDA figures for the second quarter of 2023. Moving on to net income. We registered a strong net income growth in the quarter mainly explained by the net FX gains from the strong appreciation of the local currency compared to a net FX loss registered in Q2 '22, which, as a reminder, is related to our dollar-denominated operating leases registered under IFRS 16. Excluding the FX effect, net income would have still registered a double-digit growth during the second quarter. Overall, as we have seen in our consolidated financial numbers, Q2 '23 was another strong quarter for InRetail, even with consumption being challenged by the generalized weaker market and economy. Our segments continue to confirm the resiliency and defensive nature outperforming peers in the market. As such, looking forward for the full year 2023, we remain in line with initial guidance of high single-digit growth in revenues and we are updating our guidance for adjusted EBITDA to low double-digit growth from a high single-digit growth provided before, both as Juan Carlos mentioned, on a consolidated basis. Now please turn to Page 5 to review our financial and operational snapshot of our consolidated figures. In terms of contribution by segment, this has remained in line with recent quarters. At a consolidated level, during the last 12 months, InRetail has generated more than PEN 20 billion in revenues and surpassed PEN 2.7 billion in adjusted EBITDA with a solid EBITDA margin of 13.1%. Now please turn to Page 7 to give you a short update on our continued ESG progress during this quarter. During the second quarter, we continued with our commitment to move forward with our sustainability efforts. On the social front, we continue to grow our Gueno Porventro program, a shared value initiative in our Food Retail segment that promotes the reduction of food waste nationwide, donating 4.1 million food rations, an equivalent of PEN 16.6 million, benefiting 98,000 people, which received both dry and fresh food on a daily basis. During the quarter, we also continue to support SMEs through our Perú Pasión project, generating sales through our stores and malls for PEN 5.1 million. We also continue with our efforts to educate our suppliers on relevant ESG topics. On the iron mental front, we recently approved our corporate energy efficiency policy, which will help us align objectives, resources and projects. During the quarter, we continued to move forward with our energy efficiency projects, which include real-time energy consumption monitoring systems in our Plaza Vea stores, with the continued implementation of LED lighting in pharmacies and the generation of solar energy, among other initiatives. Finally, we are very proud to announce that our Food Retail segment is the leading retail company in structure and sustainability-linked loans with local banks. During the second quarter, we received 2 new 3-year maturity sustainability-linked loans for a total of PEN 250 million, reaching a total of PEN 350 million of sustainability-linked loans. These loans have committed us to increase the percentage of waste recycle and the number of beneficiaries from food and nonfood donations. Additionally, these loans not only demonstrate our commitment to continue with our sustainability efforts, but also evidence our capacity to seamlessly access the local financing market when required. Now please turn to Page 9 to review our second quarter results for our Food Retail segment. Our Food Retail segment had another strong quarter despite the high comparable basis of Q2 '22 when we registered an 18% growth in revenues. Revenues increased 9.9% in Q2 '23 driven by sales growth in all formats with a same-store sales growth of 4.1%. Our food categories continued to compensate the decline in electronic categories, still a general market trend experienced since last year. We expect the decline in electronics to have a greater impact in sales throughout the year as we do not -- as we are not experiencing any material change in tendency during July or in August. In terms of performance by format, all of our formats posted positive same-store sales growth. Plaza Vea, our supermarket format, registered a low single-digit same-store sales growth, compensating the decline in sales in electronics with an increase in food categories, especially in fresh food. Macro, our cash and carry format posted a mid-single-digit same-store sales growth explained by the high comparable basis in Q2 '22, which included an extraordinary peak in sales in certain food categories given the temporary acceleration of the sales tax, which caused brief shortages in other channels. Finally, mass or hardest format achieved a double-digit same-store sales growth. Additionally, revenues were positively impacted by the contribution of new stores opened in the last 12 months, representing 56,000 square meters of additional sales area, of which approximately 2/3 come from our hard discount format, which operates with lower sales per square meter than our larger big formers. In Q '23, we opened 38 new Mass stores, of which 24 were open in provinces. As of this quarter, we have 760 hard discount stores with only 17% of them outside of Lima. In terms of participation by format, given the strong same-store sales growth registered during the last quarter and the acceleration of new store openings this year, Mass has continued to gain relevance, increasing its participation in total revenues from 10% in Q2 '22 to 13% in Q2 '23. Our emerging formats now represent over 40% of our total revenues. Our gross profit increased 10% with a gross margin of 23.6% in line with both the prior quarter and the comparable quarter of last year. As I have commented before, our gross margin incorporates the higher participation of our emerging formats in the sales mix, which operates with lower gross margins, consistent with our commercial value proposition, offset by a change in category mix from the decline in relevance of lower-margin categories, namely electronics. In terms of adjusted EBITDA, Food Retail's adjusted EBITDA grew 12.4% with a margin of 9.2%, slightly above the comparable quarter of last year. This is explained by continued fixed cost dilution from a solid top line growth despite an increase in expenses related to the new stores opened and from certain costs affected by the high inflation like energy, utilities and supplies. Additionally, this quarter considers an extraordinary net positive effect of PEN 5 million, mostly from a real estate asset sale. Excluding this extraordinary effect, adjusted EBITDA would have grown in line with revenues, with a stable margin of 9% compared to last year. Our omnichannel Food Retail proposition continues to progress. Online food category sales grew double digits versus the second quarter of 2022, levered on our multichannel offering, including our last mile platforms, Agora Shop and Jokr, which as of June represented close to 50% of our online food sales. Total supermarket online sales, however, slightly declined with respect to the second quarter of 2022, given the decline in electronic categories, which have a greater representation in the sales mix of our online sales when compared to our physical stores. In spite of the slight decline in online sales, we continue to capture market share and hence remain as the leading e-grocery platform in Peru, levered on a multi-solution offering tailored for distinct purchase missions. In summary, our Food Retail segment registered another quarter with solid growth and stable profitability margins, consistent with previous quarters and ahead of peers in the market. Although we are experiencing signs of low -- signs of slower consumption in certain nonessential categories like electronics, we remain in line with our initial guidance of high single-digit growth in both revenues and in adjusted EBITDA for 2023. Now please turn to Page 10 to review our second quarter results for our Pharma segment. Our Pharmacies unit registered a strong top line growth of 7.5% in the second quarter with a same-store sales growth of 7.1%. We experienced growth in both Pharma and non-pharma categories. Pharma categories on the one hand, posted a mid-single-digit same-store sales growth, mainly due to the lower comparable basis in Q2 '22, given the slowdown in demand from COVID-19 related categories as well as the continued deterioration of our supplier service levels experienced last year during that quarter. Non-pharma categories, on the other hand, continued posting double-digit same-store sales growth, fueled by growth in consumer categories, mainly in Derma and personal care. In the last 12 months, we opened 3 net new pharmacies. During the second quarter of 2023, we opened 5 and closed 11 pharmacies as part of a recurring process of store optimization. As outlined in prior calls, the lower pace of openings is explained by our focus on accelerating our store remodeling and reconversions with the aim of increasing revenues and EBITDA per store. As of Q2 '23, we have reconverted close to 450 and 270 Inkafarma and Pharma stores, respectively. For this reason, we are lowering our guidance of pharmacy store openings for the year from 50 growth stores that we initially guided to around 40 growth stores. Our gross profit grew 13.2% compared to the second quarter of 2022 with a gross margin of 37.8%, mainly due to significantly lower promotional activities and a change in sales mix towards higher-margin products. As mentioned in previous calls, the drop-in promotional activities began in the third quarter of 2022 due to the stronger demand from the winter campaign. In terms of adjusted EBITDA, we recorded an adjusted EBITDA margin of 19%, above the comparable quarter of last year. The increase in margin is mainly explained by the improvement in gross margin outlined before, with the continued fixed cost dilution, mainly in personnel and store-related expenses and by the lower rent expenses favored by a lower FX in the quarter. Additionally, adjusted EBITDA in Q2 '22 had approximately PEN 14 million of redefixes that were related to later reclassified due to IFRS 16 in Q3 '22 from the delay in the recognition of renegotiated contracts. Excluding this effect in the comparable basis of Q2 '22, adjusted EBITDA margin in that quarter would have been 16.9% and our adjusted EBITDA would have grown around 20%. As previously commented, given this reclassification happened in Q3 2022, this is the last quarter that will have this effect in our comparable expense base. In terms of our Pharma digital sales, we continue to record a strong growth in the second quarter of 16% compared to the comparable quarter of last year. Our nationwide click-and-collect network, the largest network in the country represented 46% of our digital sales as of June compared to 28% during the same month of last year. This delivery method helps us expand our digital offering in more distribution of the country in a more cost-efficient manner, enabling an omnichannel relationship with customers on a national level. As such, we are also the leading online pharmacy in Peru. In the case of Mikimika, our digital B2B platform in distribution in Peru for the traditional channel, sales increased 2x compared to the second quarter of 2022, evidencing the successful adoption and acceptance of its value proposition. Now, moving on to our distribution unit. This quarter, revenues increased by 15.9% due to the higher sales in Ecuador from the exclusive distribution lines incorporated during 2022 and a recovery in sales in Peru, primarily to pharmacy chains, including our own pharmacies unit. Gross margin was 10.7% and below Q2 '22, affected by a negative net FX translation effect in our cost of sales in Q3 due to a strong depreciation of the USD this quarter versus an appreciation of the USD in Q2 2022, which created a positive impact in our cost of sales during that quarter last year. Gross margin was also affected by the higher representation revenues of the exclusive lines in Ecuador, which have lower margins. Adjusted EBITDA increased 16% in line with revenues, mainly due to increased fixed cost dilution in Ecuador and to organizational efficiencies and rigorous cost controls in Peru, despite the decrease in gross margin explained before. Finally, on a consolidated level, revenues increased 9.6% in Q2 '23, and our adjusted EBITDA increased 26.4%. Overall, this was another strong quarter for our Pharma segment. However, as anticipated in prior earnings call, the second half of the year has a more challenging comparable basis for both Pharmacies and distribution. During the second semester of 2022, Pharmacies recorded a strong same-store sales growth of 6.6%, driven by the recovery in Pharma categories, capitalizing on the winter campaign and on the normalization of the demand for COVID-19-related products. Distribution, on the other hand, already incorporated the new exclusive distribution lines in Ecuador. Nonetheless, we remain in line with our initial revenue guidance of mid-single-digit growth. As it relates to adjusted EBITDA, we are reviewing upward our guidance for the year, expecting a low double-digit growth both of the guidance given are at the consolidated Pharma level. Please turn to Page 11 to review our second quarter results for our Shopping Mall segment. Our Shopping Malls segment registered a strong top line growth of 17.8% versus the comparable quarter of last year. This growth was mainly explained by the increase in GLA opened versus the same period last year, with approximately 95% of GLA opened versus approximately 92% open in the prior year for the same period. Additionally, revenues this quarter were positively impacted by an increase in both fixed rents, which are adjusted for inflation and variable rents benefited by the reactivation of entertainment tenants, including cinemas and restaurants, still affected by restrictions in Q2 '22. Our tenant base same-store sales growth of 1.7% during the second quarter compared to a high of 17.2% in Q2 '22. Excluding anchor tenants, same-store sales growth was approximately 10% during the quarter. Similar to prior quarters, Arequipa, in particular, department stores and home improvement continue to experience a slowdown in demand given the high comparable basis in Q2 '22. Additionally, the lower demand for textile, including categories due to the unusual warmer winter, the lower demand for electronic categories as well as a generalized slowdown in consumption in other nonessential categories started affecting sales from other tenants as well. Compared to Q1 '23, our occupancy increased to 95% due to the opening of the expansion of Zara in our Real Plaza Salaverry mall as well as the opening of other small tenants in other malls. This quarter, our shopping malls did not experience any closures related to exogenous events as seen in prior quarters. Our gross margin was 64.8% this quarter, a decrease compared to the same period of last year, mainly explained by an increase in marketing and advertising expenses to enhance food traffic, which stands at around 90% of 2019 level. Our gross margin also includes an extraordinary provision expense related to a supplier of parking lot services malls. We have already changed this player without affecting our operations. In terms of adjusted EBITDA, we reached PEN 111 million, registering a 2% growth versus Q2 '22 and a net rental margin of 82%. As mentioned before, Q2 '22, we recognized a onetime income of PEN 13 million due to a land bank sales to related products. Additionally, adjusted EBITDA this quarter was affected by an extra provision for doubtful accounts related to the known payment of parking receivables from the same parking supplier mentioned before, offset by lower discounts to tenants and continued fixed cost dilution. Excluding the onetime income in Q2 '22 and the extraordinary expenses related to the parking supplier in Q2 '23, adjusted EBITDA would have grown in line with revenues. Looking forward, we expect a more normalized growth in the second semester for our Shopping Malls segment. As a comparable basis had restrictions already lifted and we operated in a more stable environment, combined with early signs of a generalized loading in consumption in certain discretionary categories in the upcoming months. However, we still remain in line with our initial guidance of high single-digit growth in both revenues and in adjusted EBITDA during the year. Now please turn to Page 12. As highlighted before, the opening of new Pharmacies has slowed down these last quarters as we are prioritizing store reconversions to enhance our customer experience with the hemo increasing sales and profitability per store. Please turn to Page 14 to review our consolidated net income results. InRetail registered a gain of PEN 223 million in the second quarter of 2023 compared to a gain of PEN 106 million in the same period of 2022. In addition to the important increase in EBITDA contribution of PEN 93 million, net income in the quarter was also favored by a higher net FX gain of PEN 125 million in Q3 '23 Q2 compared to Q2 '23, excluding exchange rate impacts and mark-to-market from the valuation of investment properties, net income for the second quarter would have reached PEN 168 million, a 20.2% growth versus the comparable quarter of last year. Now I will pass the word to Vanessa, who will discuss our CapEx, cash flow and financial debt.

Thank you, Marcelo. Now please turn to Page 15 to discuss our CapEx and cash flow generation. During the second quarter of 2023, we invested PEN 216 million in CapEx for our 3 business segments. This CapEx was invested mainly in the expansion plan for our Food Retail segment, which included the opening of 38 Mass stores this second quarter and in scheduled maintenance in our existing stores. During 2023, we expect to open around 200 Mass stores and 1 big box as we experienced a delay in permits and implementation in our second big box originally contemplated. However, we remain in line in terms of square meters open compared to our original guidance given the increase in mass opening. Additionally, CapEx this quarter was invested in format reconversions to our new format, Mifarma Beauty and in scheduled maintenance in our Pharma segment. During 2023, we have successfully reconverted over 60 additional stores, reaching more than 270 Mifarma Beauty in total. Finally, our shopping malls segment incurred an opportunistic land bank purchases this quarter as a part of our plan to optimize assets in the platform with the potential for future development. In terms of cash balance, we ended the second quarter with PEN 754 million of cash, below the end of last year's cash balance of PEN 952 million. Despite a significant improvement in operating cash flow generation when compared to the same period from last year, during the second quarter in May, we distributed our annual dividend of $90 million which temporarily reduces our cash position. Additional to the PEN 754 million of cash, we also have cash management investments of PEN 79 million in short-term liquid mutual funds compared to the end of last year, which reduced our comparable cash position. Now please turn to Page 16 to discuss our consolidated financial debt. As of June 2023, InRetail had a consolidated net debt of PEN 697 million with a net debt to adjusted EBITDA ratio of 2.6x, slightly below the ratio at the end of last year with a relatively stable total net debt and an increase in total adjusted EBITDA. As we commented before, in terms of the FX exposure of our financial debt, all of our U.S.-denominated debt has been hedged through different hedging structures until maturity, which are detailed here and in our quarterly report. As of June 30, the Peruvian soles currency continued to appreciate against the U.S. dollar closing at PEN 3.633 compared to PEN 3.765 as of March 31. For this reason, some of our hedge structures are currently not within the covered range out of the money. We will continue to monitor the market to identify opportunities to provide further predictability in our balance sheet. However, we are not expecting to close additional or modify existing hedges in the near future. Now please turn to Page 17 to review our debt by segment. Supermercados Peruanos, our Food Retail segment ended the second quarter with a net debt of PEN 3,111 million, in line with the previous quarter but above the end of last year. The incremental debt was due to finance incremental CapEx outlined before and temporary increases in working capital for seasonal purchases. As we have seen in 2022 and in previous years, leverage in our Food Retail segment typically increases during the first half of the year and presents a faster deleveraging towards the end of the year. Additionally, during this quarter, given the market context, Supermercados Peruanos took the opportunity to refinance PEN 250 million of its short-term working capital lines in 2, 3-year sustainability linked loan with local banks. Given the blue-chip cases that they have, they were able to refinance their debt in only a few weeks' time. InRetail Pharma ended the second quarter with a net debt of PEN 1,931 million and a net debt to adjusted EBITDA ratio of 1.5x, below the previous quarter and below the end of last year. This once again evidences the company's efforts to significantly reduce its short-term debt since the end of last year and to improve operating cash flow generation while maintaining a diligent CapEx investment policy. We do expect to slightly pick up on CapEx in the following quarters as we start to invest in the construction and implementation of our new distribution center and logistics platform for our Pharma segment, which will be mostly financed with cash from operations. InRetail consumer, which consolidates our Food Retail and Pharma segments ended the second quarter with a net debt to adjusted EBITDA ratio of 2.2x, slightly below the previous quarter and around 0.5x below the comparable quarter of last year. In 2023, we expect a slightly lower net leverage compared to 2022. Finally, InRetail Shopping Malls ended the second quarter with a net debt of PEN 1,720 million, resulting in a net debt to adjusted EBITDA ratio of 3.8x. We slightly above the previous quarter but below the previous year, mainly due to the opportunistic land bank purchases. For 2023, we expect to continue deleveraging by year-end to levels of around 3.5x. Now I will pass the word back to Marcelo.

Thank you, Vanessa. Overall, as we have seen in our consolidated financial numbers, the second quarter of 2023 was another strong quarter for InRetail in spite of the slower generalized market conditions, together with the high comparable basis from the previous year. This covers our presentation, and now we will be glad to answer any questions you may have.

[Operator Instructions] Our first question is from Nicolas Larrain with JPMorgan.

I have 2 questions, specifically on the Food Retail side. So first, if you could comment a bit on market share dynamics. How are you seeing your format versus the rest of the formal players and also maybe the informal market, if you have any ideas you can share at that point would be great. And also a bit on the expansion phase, right? Apparently, I mean, we -- you -- I mean, we've seen that you guys are opening one less big box this year because of permits. I know that permits has always been a hurdle in Peru to opening big boxes. What do you think is a reasonable pace of expansion for Cash&Carry and for the Plaza Vea in upcoming years?

Sure, Nicolas. Thank you for the question. So in terms of the market dynamics in food, a couple of things. First, as you know, part of our strategic initiatives is the multi-format strategy, correct? So if you look at the numbers for the quarter and from the recent quarters and the relevance of the emerging formats in our sales there now north of 40%. Just to recall that we are the only player in the country that has both hard discount and Cash&Carry as part of the offering. And what we're seeing is that given this format are directly and created essentially for different purchase missions. We're seeing little to no cannibalization between the formats, which is allowing us a couple of things in terms of market dynamics and customer dynamics. One is to access the same customer in different purchase missions. Before this emerging formats, we basically participated in the stock up, the weekly reposition purchase mission. Nowadays, through math, for example, we have kind of the media necessity need that competes directly with the traditional trade. And the other point that -- or the other important point that this format has given us is that it's allowing us to access a new customer base and namely with macro -- through macro, we access, as you know, the B2B client, which is a client that we didn't not access prior to that. So I think we're -- in terms of the formats and competitive dynamics, we're seeing our different formats perform in each of their customer segments and purchase missions. And as I said before, we are the only player in the country that has both macro and [indiscernible] , which is allowing us to expand know the pie, if you want to put it that way with the same customer and also expanding into new customer bases. And as it relates to the expansion phase, as we mentioned in the call and me and Vanessa touched on this, we're expecting to open around 200 hard discount stores this year and one big box, which is probably going to be a Plaza Vea, as we have a delay in permits and implementation for the second big pot that we originally contemplated. However, in terms of square meters, we remain in line with the initial guidance. I would say medium term, for the big boxes as we guided in prior calls, we should expect around 2% and 3%, correct? And in the medium term, for the hard discount should be around 200 hard discounts.

And if I could follow up a bit on the market share. So it would be safe to assume that you are gaining market share from formal and informal players with a multipharma strategy right?

So yes, so market share right now, if you look only at the formal side, it's above 50%. So it's north of 50%. It's difficult to measure market share when combining the traditional trade. But based on external reports and stuff that we have, data point that we have is that the majority of the demand that we're getting in the hard discount in mass comes from the traditional trade from customers that used to buy their products in traditional trade.

[Operator Instructions] Our next question is from Alonso Aramburú with BTG.

Yes. I have 2 questions. One on the Food Retail, I was wondering if you can give us some color on the performance of months outside of Lima whether the opening of those stores are having similar profitability profile as you had in Lima. And second, regarding the Pharmacies, also if you can give us maybe some color as to some of the return on investment you're getting from the reconversion, what sort of results are you are you having from reconverting the stores?

Okay. So thank you, Alonso, for the question. So in terms of mass in provinces, we're seeing pretty similar performance to Lima in terms of growth and our margins. In provinces, the stores are slightly bigger, and revenues per store are pretty similar to the ones that we've seen in Lima. And in terms of profitability, it's pretty much the same. So the higher sales are compensated, for example, with a slightly higher logistics experience and whatnot. But the performance, it's pretty similar. And as we mentioned in the call, we believe there's a huge opportunity for growth starting Lima and also in Lima in the peripheries of Lima. But in provinces, in particular, there's huge growth of opportunity. Right now, of the 750 stores, only 17% are in outside of Lima. And we started growing provinces, especially during this year, correct? First, in the coast and then moving along to month is in the channel as well. Would you mind repeating the second question on Pharmacies? Alonso, please?

Yes. I was wondering if you can give us some detail as to some of the performance of the Pharmacies that have been reconverted like return on investment or change in sales? How are you seeing the performance of the new stores.

Sure. So as I would mention before, it's a marginal investment, correct, depending on the format, the Mifarma Beauty had a slightly bigger investment than what we had in Inkafarma, but still there's a marginal investment compared to the CapEx for a new store. And it's all incremental sales. We're getting sales of about -- an increment in sales of about 15% to 20% when we look at those converted stores with and compare it to kind of the mirror stores or comparable stores. So it's 15%, 20% increase in revenues, which is basically marginal revenues that comes for the most part, with variable costs. There is a few -- depending on the store and the size, we might hire some additional personnel or specialists, for example, in dermal or beauty products. But all in all, in general, it's essentially that comes in with the variable costs. So the payback period for that investment is short of a year. So the return on capital is huge.

At this time, we will take the webcast questions. I will now turn the call over to the InspIR Group.

Thank you, operator. The first question is following. When is the investment amount for the second half of 2023. Does the procession of building a new plaza area and a new macro the year continues.

Sure. So this is Marcelo. I'll take that question. As mentioned in the call and a little bit on Nicolas' question at the beginning, we're expecting to open about 200 hard discount stores and one big box, given the delay that we had in the pyramids and implementation for the second one originally contemplated. However, in terms of square meters, it's important to mention that we're still remaining in line with initial guidance in terms of incremental square meters. Overall, our CapEx for 2023 should be around PEN 900 million that incorporates the openings that I mentioned in Food as well as a slightly pickup in CapEx in Pharma, given the new distribution center that Vanessa mentioned during the quarter. So it should be around PEN 900 million.

Second question from the web is the following. Could you give us more information about the sale property acquisition, the Shopping Mall segment.

Sure. So the San Isidro land bank was an opportunistic land bank purchase. There is currently a Plaza Vea store there. And it was opportunistic. It's not that we look for it, but it was basically to expand. There's an opportunity in that land is a 26,000 square meter land, of which 11,000 is being used by the Plaza Vea store. So there's opportunity for expansion. And it was basically opportunistic. We paid $22 million and based on the strategy that we have in terms of on land and third-party and we decided to take the opportunity taking advantage that there's further opportunity for growth there.

The third question is the following. At the retail consumer level, can you explain the latest liability management during the second quarter of 2023? Also some color on the other line related management you are affecting to do. That is in light of the short-term debt versus cash balance as a concern and potential upgrade figure from there.

I can take this one. It's Vanessa. So well, as we mentioned during the call, in the second quarter of 2023, we took PEN 250 million of new medium 3-year loans in our Food Retail segment to refinance part of the short-term debt that Food Retail had temporarily due to the market context, Food Retail had slightly higher short-term debt than normal. But overall, we always felt comfortable with the amount of short-term debt since we were -- we are a blue-chip sizes company in Peru and our access to local market is very strong. So no, we took this PEN 250 million short medium-term debt to refinance part of that. We will continue to look obviously, for other opportunities to do additional liability management. However, when you look now as of June, on a consolidated basis, we have reduced not significantly our short-term debt, not only because of this refinancing in Food Retail, but also because our Pharma segment has also amortized and remain with a very small portion of short-term debt. So as of June, there's a combination of the refinancing and also a lower short-term debt from Pharma from the significant increase in operating cash flows. So we believe in terms of -- or related to the question from Moody's, we believe now this is a very positive sign. It reinforces as well, the fact that we have access to the local market and that we are moving forward with reducing our short-term position.

Okay. The following question from the web is regard to our Food Retail segments, how much inflation and how much volume increase? How are you seeing this on half the year?

So I'll take that question, Marcelo here. So the persistently high inflation is a global and local phenomenon, and it's affecting growth expectations and costs and prices as well. In this context, we will continue to work with our suppliers to understand the effect of inflation in the productive chain. Basically, because we're always looking to offer kind of the lowest price in the market and to avoid or reduce, hopefully, subsequent price increases in benefit of our customers. Specifically in food inflation, although general inflation in the country is slowly declining, it's about 6%, 7%. inflation in food and beverage is still high. The food Inflation metrics reported by the authority, remember that there are reflection of the whole market, correct, including the traditional trade which still depending on the report and the external report that you look at, represents about 70%, 75% of the market. And so a great portion of the inflation that you see in food is a reflection of price movements in the traditional trade, which is usually the channel that moves prices first given they don't have much of working capital. In our Food Retail segment, on the other hand, the 4.1% same-store growth that we disclosed is a combination of a strong performance in food with same-store sales north of 7% and an important decline in nonfood categories affected mainly by electronics, which is still declining relative to last year in areas of about 14%. So the same-store sales for Electronic is negative 14% this quarter. Combined, I would say that more than half of the same-store sales of the 4.1% comes from price movements, which are essentially pass-through of costs. Volume, as I mentioned, was affected by the decline in nonfood. Food volumes, so volumes in food categories increased this quarter in spite of selective price movements. Overall, if you look at the price movements and adjustments over the last few quarters, there have been reducing -- we have been reducing those movements gradually throughout the year as inflation is controlled, and volume continues to grow. As of this quarter, these movements have not led -- or inflation has not led to material compressions in the margins as reflected in the results. And as you know, we have an everyday low-price strategy that allows us to become even more competitive in this environment.

The next question from the website is the following. Could you please elaborate on the role that Jokr has in your business and how it is expected to perform?

Okay. So Jokr, as you know, is a small and non-material acquisition that we made in February of last year in terms of amount paid. As of now, we have successfully executed the integration of Jokr into the food retail platform, maintaining an independent sales channel with a different brand -- differentiated brands. So in omnichannel, where we have -- in digital, we have the 3 platforms. We have the pure e-commerce with Plaza Vea and 2 last milers, of which one is Agora Shop, the personal shopper and the other one is Jokr, and each of them have their own differentiated brands. Jokr is still going through a startup phase without having reached a breakeven EBITDA yet, but with important growth metrics. We have a couple of important strategic decisions that we made in recent months. One is that in July, we launched the new Jokr app and we're focused on migrating users as well as increasing the customer base from the pre-existing app. We also changed the commercial strategy, basically eliminating opportunistic negative margin promotions essentially in an effort to assure a healthy growth. Nowadays Jokr, together with Agora Shop we mentioned in the call, represent about 50% of our total online sales in -- our online food sales, evidence, and I would say the acceptance of both propulsions. We expect to continue with the growth and margin improvement in the coming months and hopefully, Jokr will become EBITDA positive in the next couple of months.

The following question is the -- the following question is, do you expect to increase the debt in the retail Pharma segment in 2024.

No, the answer is no. I mean if you look at the numbers for the Pharma segment in the last 12 months, the company has done a lot of efforts in creating cash flow from operations and managing debt and paying down its debt. They've done a lot of control in working capital since the second quarter of last year, creating a significant amount of operating cash flow throughout the last 12 months. And as it relates to what we mentioned in terms of the new distribution center, most of that or all of that is going to be financed through -- on cash flow generation. So we do not expect incremental debt in the Pharma segment in 2024.

The next question is the following. As you face significant competition in the Food Retail segment, are your strategies to gain market share mainly inorganic?

Sorry, what was the question, Niren. Can you repeat it?

Yes. The question is, as you face the significant competition in the Food Retail segment, are your strategies to gain market share mainly inorganic.

So strategies to gain market share in Food Retail inorganic. I would say that they're mainly organic. Right now, as we've mentioned in the call and in prior earnings calls, we see significant opportunity for growth in all of the formats, of course, a more limited or moderate growth in the traditional supermarket format, but there are still spaces in the country, where there is no modern Milton and we think [indiscernible] , for example, it's typically the format that we enter a new market, but there's also significant growth opportunities in case of Metro Cash&Carry and the hard discount. So for Peru, in particular, I would say that in food retail, most of the growth, if not all of it, is going to come from organic growth.

And the last question is, what percentage of revenue growth in Shopping Malls comes from the inflation adjustment in this trade.

Yes. As we saw in the presentation, shopping malls revenues grew 18% quarter-over-quarter. Around 6% more or less of this growth comes from adjustment in inflation-linked contracts, which are revised annually, in line with the 12-month inflation in the country. And the additional growth in shopping malls revenues, as we commented, is a combination of additional factors aside from that, including the increase in variable rents, the lower or -- the lower -- the higher occupancy and increased Chile. So it's a combination of several factors.

There is one additional question. Second question relating to retail. Can you talk about the gross margin mix had effect because of the higher percentage of integrates of the discount from us. You give some color on how the gross margin of those formats have versus Plaza Vea, how much does the margin of Plaza Vea growth.

Sure. If I understood correctly, the question has to do with the different margins in hard discount and the traditional supermarket format. So of course, as we mentioned in the calls when we talk about the changing mix, having a -- not putting pressure on the margin is because this emerging formats, Plaza Vea and -- sorry, Mass and macro operate with lower margins. In terms of Mass, we have gross margins of about 20%, 22% when you compare them to Plaza Vea, Plaza Vea operates with gross margins of about 26%. As it relates to evolution of the gross margins in Plaza Vea over the last 12 months, over the last order it's been relatively stable, correct? Because you forgot the electronic categories, which operate with lower margins declining and you have an increase in food categories. So it's actually increased slightly compared to Q2 '22 and pretty much in line with Q1 '23.

As there are no further questions, I will turn the call to the operator.

This concludes the question-and-answer portion of today's call. I would like to turn it back over to Mr. Vallejo for any closing remarks.

Thank you all for participating in our second quarter earnings call. As a final remark, I would like to highlight that this quarter ended up being another strong quarter for InRetail. Our segment confirmed the resiliency, adaptability and strength despite the more challenging economic environment seen during this first semester. We are conscious that we are operating in a challenging local and global environment. However, we are confident in our ability to outperform even in this uncertain environment and continue developing more InRetail Peru. If you have any follow-up questions, please do not hesitate to contact any of us. Thank you very much.

Ladies and gentlemen, this concludes InRetail Peru's Second Quarter 2023 Earnings Conference Call. We would like to thank you again for your participation. You may now disconnect.