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

Good morning, and welcome to InRetail Peru's Fourth Quarter 2023 Conference Call. At this time, all participants are in a listen-only mode, and please note that this call is being recorded. [Operator Instructions] Before we begin, I would like to remind you that today's call is for investors 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, Chief 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 on the Investors section, where there is also a webcast presentation to accompany the 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 they do not account for economic circumstances, industry conditions, the company's performance or financial results. As such, these forward-looking statements are based in several assumptions and factors that could change causing actual results to differ materially 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, sir.

Thank you. Good morning, everyone. I'm Juan Carlos Vallejo. Thank you for joining InRetail's fourth quarter earnings call. Today, we will discuss the main highlights of InRetail's fourth 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 2023 with the lowest economic growth in the last 3 decades, excluding 2020. This in a context where the region grew less than the rest of the world. The complex social scenario at the beginning of the year, the unfavorable climate condition and the persistently high inflation led to a generalized slowdown in consumption. Despite the lower economic growth, the macroeconomic fundamentals of the country still remain as one of the healthiest in Latin America. Although we are seeing signs of slight improvement in the situation of [ El Nino ] families, evidencing by the tapering of inflation across categories, the increased probability of a weaker coastal El Nino phenomenon, the anticipated reduction in the local interest rate as well as in the lower level of social conflicts at this level of growth rate, leading conditions are unlikely to improve significantly in the short term. However, to the extent climate and political conditions do not worsen, private consumption should gradually recover, especially during the second semester. In this context, InRetail show strength and resiliency by full year results, growing 5.5% and 11.9% in consolidated revenues and in adjusted EBITDA, respectively. We continue to invest in growth and in recent years, we have grown faster than the competition. Our Food Retail segment on the one hand had a strong year, growing 8% in revenue and close to 9% in adjusted EBITDA for the full year 2023, with positive same-store sales growth in all of our formats. Growth was driven mainly by our hard discount format, combined with a moderate growth in our cash and carry format and a low growth in our supermarket format. As anticipated in our previous earnings call, our Pharma segment experienced a more challenging second semester from a high comparison basis given the strong winter campaign, significantly affecting Pharma categories. Nonetheless, our Pharma segment managed to sustain performance for the year, with growth in revenues and in adjusted EBITDA of 1.4% and 13.7%, respectively. Finally, our Shopping Mall segment had another extraordinary full year 2023 registering double-digit growth in revenues and in adjusted EBITDA, improving occupancy rate levels and tenant mix, evidencing is defensive and predictable business model. Looking forward into 2024, we expect our business segment to continue performing positively due in the resilient and diversified nature, allowing us to achieve a mid-single-digit growth in consolidated revenues and in adjusted EBITDA. In addition to our financial results, I'm also glad to announce that InRetail was included in the Dow Jones Sustainability Index, MILA Pacific Alliance and the Sustainability GR Book 2024 for the third consecutive year. This inclusion demonstrate once again our long-standing commitment with our sustainability efforts, which are embedded within our core operation and culture. 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 fourth quarter and full year results for 2023 and comment on our guidance for the year. Now please turn to Page 4 in our earnings presentation to start reviewing our consolidated financial results for the fourth quarter for InRetail Peru. In the fourth quarter of the year, InRetail reported a low single-digit growth of 0.7% in revenues, which combines a solid growth in our Food Retail and Shopping Malls segment, offset by a contraction in our Pharma segment due to a generalized weaker consumption environment and a high comparison basis. In terms of adjusted EBITDA, we recorded a single-digit growth of 2.7% in comparison to the same period of last year, mainly explained by an improvement in gross margin and further operating leverage. Moving on to net income. We registered a 26.6% growth in the quarter, mainly explained by a mark-to-market gain in our Shopping Malls segment, compared to a mark-to-market loss in the comparable quarter of last year and from the improvement in performance. Overall, as anticipated in our previous earnings call, Q4 '23 was a challenging quarter for InRetail, with a high comparison basis of Q4 '22, in which we posted a 12.1% growth in revenues and a continued slowdown in overall consumption since July from a slower economic growth environment. In spite of that, our Food Retail and Shopping Malls segment show a strong growth, with our Pharma segment experienced a pronounced shift in demand, particularly in our distribution unit affecting our consolidated numbers. As for the full year, 2023 ended up being another strong year for InRetail. Our 3 segments show their strength, leadership, resiliency and defensive nature. We ended the year in line with our consolidated guidance of mid-single-digit growth in revenues and low double-digit growth in adjusted EBITDA for the year, as stated in our previous earnings call. Looking forward to 2024, in terms of guidance for InRetail at a consolidated level, we are expecting a mid-single-digit growth in consolidated revenues and in adjusted EBITDA, which combines a strong growth in our Food Retail segment, mainly from the consolidation and expansion of our emerging formats, a slight growth in our Pharma segment and a moderate growth in our Shopping Malls segment. Now please turn to Page 5 to review a financial and operational snapshot of our consolidated figures. In terms of contribution by segment, this has remained in line with the last 12 months of Q4 '22 with Food Retail and Shopping Malls slightly improving their respective revenue contributions. At a consolidated level, during 2023, InRetail has generated close to PEN 21 billion in revenues and close to PEN 2.8 billion in adjusted EBITDA with an important improvement in EBITDA margin compared to last year. Now please turn to Page 7 to continue with our InRetail highlights for 2023. During 2023, our businesses once again proved their strength and resilience, delivering growth on top of industry profitability despite the challenging economic environment and the high comparison basis from 2022. At a consolidated level for InRetail for 2023, we achieved a mid-single-digit growth in revenues of 5.5% and a double-digit growth in adjusted EBITDA of 11.9%, ahead of the 11% growth posted in 2022. Our Food Retail segment posted high single-digit growth in revenues and in adjusted EBITDA with a positive same-store sales growth in all of our formats, leveraging on a multi-format and everyday low price strategies. We are the only food retailer in Peru with a sizable multi-format platform with differentiated value propositions covering distinct purchase missions. Our emerging formats hard discount and cash and carry have consolidated their positioning and acceptance in the market, performing well throughout the year. Our Pharma segment, on the other hand, registered a low single-digit growth in revenues, evidencing a lower spending capacity in consumers during the second semester, compared to a strong 2022, capitalizing on the winter campaign. However, our Pharma segment managed to post a strong double-digit growth in adjusted EBITDA from an improvement in gross margin and continued operating leverage. Finally, our Shopping Malls segment registered double-digit growth in revenues and in adjusted EBITDA, improving occupancy levels and tenant mix, and proving its defensive and predictable business model. During the year, we also continued expanding our platform and consolidating our multi-format strategies, strengthening our leadership position across segments in Peru. In Food Retail, we opened more than 200 Mass stores, reaching a network of 900 stores nationwide and opened one new Plaza Vea store in Lima. We continued our Mass expansion entering 2 new cities in addition to consolidating the cities we already had a presence. In our Pharma segment, we reconverted around 160 pharmacies, ending the year with approximately 500 into pharma stores we converted, increasing display and ease of reach of personal care and consumer categories and 325 new pharma beauty stores, increasing the availability of beauty, wellness and consumer categories. Additionally, we also opened 44 new pharmacies during the year. Finally, in our Shopping Malls segment, we continued enhancing our commercial proposal, incorporating more than 160 tenants. During 2023, we also consolidated our efforts to further strengthen our financial position. We focus on generating significant operating cash flow combining an important increase in adjusted EBITDA with an improvement in our working capital cycles, generating PEN 2.5 billion of operating cash flow. This allowed us to reduce our net leverage from PEN 2.7 billion in Q4 '22 to PEN 2.3 billion in Q4 '23 after invested PEN 775 million in CapEx, primarily to fund future growth and distributing a dividend of $90 million to shareholders. Additionally, short-term debt represented less than 7% of total debt at year-end. We continue to advance as well in our omnichannel ecosystem vision. In our Food Retail segment, we consolidated our multichannel, multi-brand online strategy, strengthening our last-mile applications, agora SHOP and JOKR, and growing our multichannel marketplace, Plaza Vea, tailoring offerings for distinct purchase missions and services. Total digital sales in our Food Retail segment posted a single-digit growth, combined with strong growth in food categories of close to 30%, with a mild decline in nonfood categories. On the other hand, in our Pharmacies unit, we continued with our sustained and profitable growth in our digital channels, which mainly include our apps as well as our marketplace websites, posting a 24% growth in sales. In terms of delivery type, home delivery and click and collect now have a similar representation in our digital sales. Finally, on the logistics front, we increased our capacity and implemented efficiency initiatives during the year. We initiated the construction of our new automated and modern pharma distribution center. This distribution center will allow us to support future growth as our current distribution centers are close to full capacity, and we'll integrate the logistics operations of our pharmacies and distribution units creating additional cost and working capital efficiencies. In our Food Retail segment, we also continued to consolidate our logistics network through new hubs and transfer centers in key provinces to accompany our store expansion plan. Additionally, we invested in certain automation projects in our existing distribution center, including unitary picking and AMR systems aimed at improving our service levels and creating efficiencies in our operations. Now please turn to Page 8 to comment on our ESG highlights for the year. During 2023, we maintained our commitment with the sustainable efforts across our operations and are proud to share our main recognitions and milestones achieved in the 3 dimensions: environmental, social and governance. First of all, we are extremely proud that InRetail Peru was included in the Dow Jones Sustainability Index, MILA Pacific Alliance and the Sustainability Yearbook 2024 for the third consecutive year. We ranked fourth among the best companies in the retail industry globally and continue to improve our annual score. Moreover, our commitment to climate action was recognized with an improved score of B in the CDP Climate Change questionnaire. These recognitions validate our ongoing efforts to integrate sustainability into our business strategies. In addition, we proudly joined the United Nations Global Compact and received notable awards from Great Place to Work in various categories, including sustainability management, diversity and inclusion and women empowerment, reaffirming our dedication on promoting an inclusive and supportive workplace environment. Continuing with the environmental front and in alignment with our environmental and energy efficiency goals, we implemented real-time energy consumption monitoring in 25 food retail stores and continue the deployment of lighting in pharmacies with over 90% of our pharmacies now employing that technology. We highlight that we initiated our zero-waste project in our food retail manufacturing facility and conducted a pilot program in one store, composting over 1 ton of organic waste. Additionally, we proudly recycled more than 10,000 tons of material in our 3 businesses, further minimizing our environmental impact and contributing to a circular economy. Now please turn to Page 9. On the social front, our flagship program, Bueno por Dentro, continued growing, promoting the reduction in food waste nationwide. In 2023, we donated 17 million food rations equivalent to PEN 61 million, benefiting over 108,000 people with both dry and fresh food on a weekly basis. For initiatives such as Peru Pasion and [indiscernible], we remain committed to supporting SMEs, promoting economic growth and entrepreneurship within our communities. Thanks to Peru Pasion, we generated SME sales of PEN 15 million through our stores and malls. And thanks to [indiscernible], we generated an additional PEN 6 million of SME sales in our malls. Now please turn to Page 11 to review our fourth quarter results for our Food Retail segment. Our Food Retail segment recorded another strong growth this quarter. further consolidating our leadership position in the sector despite the high comparison from last year and the generalized slower consumption environment. Revenues increased 6.5% in Q4 '23 with same-store sales growth of 1.4%. Our food categories experienced a moderate same-store sales growth this quarter in a lower inflation environment with consumers searching for more value alternatives, mainly in dry food products. This translated into an increase in transactions with a lower average ticket and into an increase as well in the penetration of our private label products. On the other hand, nonfood categories experienced a milder decline, giving a better-than-expected December campaign, particularly in the electronics category. Revenues this quarter were negatively impacted by the temporary closing of a Vivanda store for remodeling purposes, and by the arbitrary closing of Real Plaza Trujillo during December in the hands of the local municipality, which has a Plaza Vea store in site. In terms of performance by format, our Mass format posted strong double-digit same-store sales growth. Our macro format posted a mid-single-digit same-store sales growth, while our Plaza Vea format was affected by the decline in sales in nonfood categories mentioned before, posted a negative low single-digit same-store sales growth. Additionally, revenues were positively impacted by the contribution of new stores opened in 2023, representing 45,000 square meters of additional sales area, roughly an 8% increase in our total square meters. This includes the opening of 207 net new Mass stores, which operate with lower sales per square meters than our larger big box formats and one Plaza Vea store in Lima. In Q4 '23, we opened 95 net new Mass stores, reaching 900 stores by year-end and one Plaza Vea store in Lima, as highlighted before. In terms of participation by format, our emerging formats hard discount and cash and carry now represents close to 45% of our total revenues. Food-based proximity and price-oriented formats continue to gain share against traditional hypermarket formats, which are more exposed to nonfood discretionary categories like electronics, clothing and home deco that had a negative growth during the year. Although our Plaza Vea format is exposed to these categories, nonfood represents less than 30% of total sales in this format as of Q4 '23. Our gross profit increased 6% with a gross margin of 24.2%, relatively stable with the comparable quarter of 2022. As I have commented before, our gross margin incorporates negative pressures from the high participation of our emerging formats in the sales mix, which operates with lower gross margins consistent with the pricing strategy. This is partially offset by a change in category mix that combines a decline in lower-margin categories with an increase in sales in fresh and dry food categories. In terms of adjusted EBITDA, Food Retail's adjusted EBITDA grew 5.7% in the quarter, with a margin of 10.5%, mainly explained by the continued fixed cost dilution despite incremental operation expenses related to the new stores opened, in process of ramping up, as well as to increases in energy and maintenance costs. Overall, 2023 was another solid year for our Food Retail segment, with revenues and adjusted EBITDA increasing 8.2% and 8.9%, respectively, further expanding our market leadership. Yearly performance was affected by a second half of the year with a lower spending capacity for basic need categories and a market-wide slowdown in electronics, which impacted mainly our hypermarket format. Despite the more challenging environment, we are optimistic about the opportunity to continue developing our multi-format strategy. For 2024, we anticipate a strong growth in revenues in our Food Retail segment, with our emerging formats gaining more traction in the market. These formats operate with lower margins as part of their value proposition, putting some pressures into our consolidated food retail segment margins, which should be partially offset through fixed cost dilution and operating efficiencies across the food retail platform. Now please turn to Page 12 to review our fourth quarter results for our Pharma segment. As anticipated in our prior earnings call, the second half of the year had a more challenging comparison basis for both pharmacies and distribution. Our Pharma segment posted a decline in revenues of 7.6% in this fourth quarter, mainly impacted by lower sales in our distribution unit from a contraction in demand in the traditional challenge in Peru mostly due to an overstock in the market, given an active push of inventory of laboratories during the last months of the year. As well as from a decline in public institutional sales in Ecuador, given a management decision to reduce exposure to this channel given issues with profitability and collection, combined with a strong comparison basis that already included the 2 exclusive distribution lines incorporated in 2022. Additionally, same-store sales for our pharmacies unit decreased 3.5% due to a decline in pharma categories given the high comparison basis from the strong winter campaign of last year, compared to an unusual warmer weather in 2023, negatively affecting the demand of winter-related pharma categories such as respiratory and anti-inflammatory medicines. Non-pharma categories posted a slight decline in same-store sales during the quarter, affected by the lower spending capacity of consumers. In 2023, we opened 44 gross pharmacies and closed 25 pharmacies. During the fourth quarter of 2023, we opened 23 net pharmacies. We registered a gross margin of 31.5%, mainly due to the change in sales mix towards higher margin products in our pharmacies, despite a decline in gross margin in our pharma -- in our distribution unit from a change in channel and product mix. Our Pharma segment recorded an adjusted EBITDA margin of 14.9%, slightly higher than the comparable quarter of last year. The increase in margin is mainly explained by the improvement in gross margin outlined before, despite increases in certain operational expenses, mainly from marketing, energy and maintenance expenses, the latter related to preventive works in anticipation of El Nino phenomenon. Additionally, the comparable quarter of Q4 '22 included a positive onetime adjustment effect related to IFRS 16 rent expenses from renegotiated contracts. Overall, 2023 was a challenging year for our Pharma segment in terms of revenue growth, increasing only 1.4% with a clear shift in demand in the second semester. The second half of the year was a more challenging one, affected by a high comparison basis in our pharmacy unit from the strong winter campaign. Our distribution unit, on the other hand, already compared to the new exclusive distribution lines in Ecuador in the comparison basis. In terms of adjusted EBITDA for 2023, however, our Pharma segment posted a strong growth of 13.7%. For 2024, we do not anticipate a major change in demand during the first semester of the year, which also has a strong comparison basis. As such, we expect a slight growth in revenues for the year for our Pharma segment with relatively stable profitability margins. Please turn to Page 13 to review our fourth quarter results for our Shopping Malls segment. Our Shopping Malls segment registered a solid top line growth of 7.6% versus the comparable quarter of last year. This growth was mainly explained by the increase in GLA open versus the comparable period last year, with approximately 97% of GLA opened versus approximately 95% opened in Q4 '22, lower discounts and by increasing inflation-linked rents. Our tenants registered a same-store sales reduction of 5.7% during the fourth quarter. Anchor tenants continue to be the most affected in terms of same-store sales decline particularly in department stores and home improvement, impacted by the slowdown in demand for textile categories attributed to the unusual winter campaign, the winter climate, with a lower demand for electronic and home construction categories. These tendencies affected other non-anchor tenants as well. Additionally, anchor tenants, such as cinemas were also affected during the quarter due to a more challenging comparison basis and a lack of blockbuster content. On the other hand, entertainment tenants, such as food courts and restaurants, showed a good performance during the quarter, recording a positive same-store sales growth. Our gross margin was 65.1% this quarter, a slight decrease compared to the same period of last year, mainly explained by an increase in energy and marketing costs. Additionally, this quarter, we had an extraordinary provision in mall services related to a supplier of parking services in our malls. In terms of adjusted EBITDA, we reached PEN 121 million, registering a 16.4% growth versus Q4 '22 and a net rental margin of 80.3%, compared to a lower margin in Q4 '22, affected by the write-off of nonproductive assets during that quarter. Excluding such extraordinary effect, net rental margin in Q4 '22 would have been 79.2%. Overall, 2023 was another strong year for our Shopping Malls segment. Revenues and EBITDA -- and adjusted EBITDA increased 12.4% and 10.9%, respectively. Despite signs of a generalized slowdown in consumption, our malls continue to be resilient with stable occupancy rates and a high participation of anchored, defensive and high-quality independents, assuring a high predictability of revenues. For 2024, in our Shopping Malls segment, we are expecting a moderate growth in top line with stable margins in line with 2023. Now please turn to Page 14. This slide summarizes our openings and same-store sales performance for each business segment. I would like to highlight the increase in sales here in our Food Retail segment, of which the majority comes from the expansion plan of Mass. We have reached 900 Mass stores and more than 1,000 locations nationwide in all of our formats. Please turn to Page 16 to review our consolidated net income results. InRetail registered a gain of PEN 322 million in the fourth quarter of 2023, a 26.6% increase compared to the same period of 2022. The increase in net income is mainly explained by the improved operating performance, mainly in our Food Retail and Shopping Malls segment, resulting in an additional EBITDA contribution of PEN 19 million and a higher mark-to-market gainers in our Shopping Malls segment. Excluding exchange rate impacts and mark-to-market from the valuation of investment properties, net income for the fourth quarter would have reached PEN 247 million, a 21.8% growth versus the comparable quarter of last year. Now I will pass the word to Vanessa, who will discuss our CapEx, cash flow generation and financial debt.

Thank you, Marcelo. Now please turn to Page 17. During the fourth quarter of 2023, we invested PEN 294 million in CapEx for our 3 business segments, of which the majority corresponds to our Food Retail and Pharma segments. In our Food Retail segment, CapEx was invested in the store expansion plan, including the opening of one Plaza Vea store and 95 Mass stores this fourth quarter, in scheduled maintenance of existing stores in the expansion of our logistics network to sustain our store expansion plan and in automation projects in our existing distribution center. Additionally, CapEx this quarter was invested in the construction and implementation of our new distribution center and logistics platform for our Pharma segment as well as in the store expansion plan and in scheduled maintenance and reconversions of existing stores. For the full year 2023, we invested PEN 775 million in CapEx for our 3 business segments, slightly lower than the CapEx guidance of around PEN 800 million anticipated for the year, given that some payments related to our new pharma distribution center were transferred to this year as per the most recent execution plan. CapEx was also lower than the previous year since CapEx in 2022 included the acquisition of Molina Plaza and the purchase of the land bank for our pharma distribution center. Excluding these opportunistic asset purchases on the comparison basis, CapEx would have been relatively stable in both years. In terms of cash balance, we ended the fourth quarter with PEN 944 million of cash, relatively in line with last year's cash balance of PEN 952 million. Considering the PEN 198 million held in short-term liquid mutual funds for cash management purposes, which reduced our comparable cash position, but are immediately available, our cash would reach PEN 1,142 million, above the end of last year's cash balance. This reflects an improved operating cash flow generation from an increase in EBITDA as well as from an improvement in our working capital cycle. Now please turn to Page 18 to discuss our consolidated financial debt. As of December 2023, InRetail had a consolidated net debt of PEN 6,350 million, with a net debt to adjusted EBITDA ratio of 2.3, 0.4x turns below the ratio in the comparable quarter of last year, achieving a reduction in total net debt of almost PEN 500 million, having invested PEN 775 million in CapEx and distributed a $90 million dividend, combined with an important increase in 2023 adjusted EBITDA of 11.9%. As of December 2023, short-term debt represents less than 7% of our total debt, having shown an important reduction of short-term debt this year of around PEN 300 million, mainly explained by the improvement in adjusted EBITDA and in working capital in our Pharma segment as well as the partial refinancing of our short-term debt in our Food Retail segment, given the improved rate environment. Additionally, we continue to maintain a high availability of unused short-term lines. As you know, our 3 subsidiaries are blue chip companies in Peru and have a strong relationship with local banks. As we have commented before, in terms of the FX exposure of our financial debt, approximately 50% of our debt is U.S. dollar-denominated, and the other 50% of the debt is in local currency. The gradual but nonmaterial increase in the portion of U.S. dollar debt on the graph is a result of having significantly reduced our short-term soles debt this year and is not related to an increase in additional U.S. dollar debt. As you know, our entire U.S. dollar-denominated debt is related to our international bond issuances and has been hedged through different hedging structures until maturity, which are detailed here and in our quarterly reports. As of December 31, the Peruvian soles currency closed at 3.713 compared to 3.797 as of September 30, 2023. Now please turn to Page 19 to review our debt by segment. Supermercados Peruanos, our Food Retail segment, ended the year with a net debt of PEN 2,865 million, Net debt to adjusted EBITDA stood at 2.6%, with a relevant reduction of 0.4% below the previous quarter and 0.2% lower than year-end of 2022. As we anticipated and previously commented, our Food Retail segment typically incurs an increased working capital needs in the third quarter in preparation for the Christmas campaign and then strongly deleverages towards the end of the year. On a year-end perspective, the deleveraging compared to 2022 also demonstrates Food Retail's sound financial management despite the strong growth in its store footprint. InRetail Pharma ended the year with a net debt of PEN 1,899 million and a net-debt-to-adjusted-EBITDA ratio of 1.4% below the previous quarter and half a turn below the end of 2022, despite the pickup in CapEx related to the construction and implementation of our new distribution center. As I previously commented, this deleveraging also incorporates an important reduction in short-term debt due to the improvement in pharmacies working capital and EBITDA generation. InRetail consumers, which consolidates our Food Retail and Pharma segment ended the year with a net debt-to-adjusted EBITDA ratio of 1.9x, slightly below the previous quarter and almost half a turn below the end of 2022. For 2024, InRetail Consumer should maintain a stable leverage, considering the acceleration of our food retail expansion and the investment in our new pharma distribution center. Finally, InRetail Shopping Malls, ended the year with a net debt of PEN 1,601 million, resulting in a net-debt-to-adjusted-EBITDA ratio of 3.3x below the previous quarter and more than half a turn below the previous year. mainly explained by a strong increase in EBITDA and a slight reduction in debt from the scheduled debt amortization. For 2024, we expect the retail shopping malls to slightly deleverage, given the stable and predictable cash flows and the absence of any major project other than selective GLA expansions this year. Now please turn to Page 21 for our 3-year CapEx guidance for the period 2024 to 2026. In total, we plan to invest around PEN 2.5 billion in our 3 business segments over the next 3 years. Our Food Retail segment will incur in approximately half of our total CapEx budget. During 2024, in terms of big boxes, we expect to open one new big box store. Medium term, we expect to open on average 2 big boxes per year. The actual amount each year might differ depending on permits and on the availability of land bank. Additionally, we expect to accelerate the expansion of our hard discount format Mass and open around 300 new stores in 2024 and maintain the same pace for the following years. Our Pharma and Shopping Malls segments will represent the remaining of our total CapEx budget. In the case of our Pharma segment, we expect to open around 50 new stores in 2024 and, in the medium term, selectively expanding our network nationwide. Additionally, CapEx in 2024 and in 2025 includes investments for our new distribution center and logistics platform expected to open in the second semester of 2025. Finally, in our Shopping Malls segment in 2024, we will be investing in around 15,000 square meters of GLA expansion, which will be opened in 2025 and will include approximately 40 new tenants. Additionally, we will be also remodeling 4,000 square meters of current GLA with the objective of improving the tenant mix of our malls. We are also constantly looking for opportunities to further optimize our asset allocation within the platform with the potential for future development. As demonstrated in prior years, our budget is discretional and we have the capacity to quickly react and digitally postpone CapEx investments if deemed necessary, without compromising growth nor value creation. Now I will pass the word back to Marcelo.

Thank you, Vanessa. Overall, as we have seen in our consolidated financial numbers, 2023 was another good year for InRetail, strengthening our leadership position while further improving our financial condition. Although this year was affected by a low economic growth environment, our segments managed to sustain the performance for the year, growing and gaining ground in the respective sectors. We remain confident in our ability to continue outperforming during 2024, given the strength of our business model, composed of a diversified multi-format portfolio, combined with low and competitive pricing strategies, anchored on a permanent search for operating efficiencies and low costs. This covers our presentation, and now we will be glad to answer any questions you might have.

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

Mine was on -- it's on the Pharma division. So I wanted to better understand the different performance between legacy stores and those that you have reconverted or maybe refurbished, right? So on same-store sales, how much of a difference are we seeing between, say, the new stores and the legacy park. Trying to understand here how the effort you made in this year on improving the look and feel of those stores can translate into growth into next year.

Sure. Thank you, Nicolas, for the question. So as we mentioned in the call and you point out, this year, we reached about -- so right now -- the stock of the stores we have roughly 500 Inkafarma stores already reconverted into the new layout and roughly the number was 325 new pharma beauty stores. So in terms of performance, the reconversions that we did last year, to give you a sense on the potential going forward, they brought about 3%, 4% increase in sales compared to the mirror locations, which then translated -- as you know, that sales goes in with marginal costs. So it translates into roughly 10% EBITDA growth for the Mifarma Beauty and about 12%, 13% growth in EBITDA for the Inkafarma store. So what we're seeing in this conversion is roughly in top line 200, 300 basis points more in top line growth, which translated into a higher EBITDA of 10% in the case of Mifarma Beauty and 13% of Inkafarma.

[Operator Instructions] And we have a follow-up question from Nicolas Larrain of JPMorgan.

Just taking the advantage to do a follow-up still on the Pharma division. I mean, in the past, of course, the company has expanded more aggressively in terms of units. I wanted to get your thoughts on why we're expanding less maybe into the upcoming years? Is it space? Is it just the macro? Maybe that locations are not that great anymore? I just wanted to get your general thoughts on available space going forward.

Sure. So it's a combination of different things, Nicolas, on that front. We mentioned in other calls before that, in the past 4 years, 3, 4 years, the company has been focused on the reconversions, correct, and that has gotten much of the attention of the organization in terms of reconverting close to 40% of the store base, correct. Going forward, we envision roughly about 50 stores. And it's not an issue of the white space. We do see there are certain areas in Peru still where our market position is super optimal. And those are precisely the areas that we're entering in. So we're thinking about 50 stores. We have identified those areas, and we think that we can easily grow those stores this year. Number one. Number two, even though we've reconverted already 40% of the base of the stock of the store and a lot last year, particularly in the Mifarma format, as you correctly mentioned, the lower spending, the lower consumption of consumers did affect the non-pharma categories as well, which are the categories that are being more exposed with this new format. And so I think the company will also focus this year on trying to increasing productivity per store and try to, hopefully, once the economic growth resumes, increase the sales per store of this new format reconverted.

At this time, we will take the webcast questions.

Our first question is, can you please provide us with more color on the performance in the first weeks of 2024?

I'll take that question again. Sure. So in 2024, we're basically seeing similar trends to what we saw in Q4 '23. There are, though, some slight improvements, but generally, in line with the trends outlined before. In the case of food retail, January posted similar top line growth to Q4 '23 with a slightly better same-store sales growth. Same-store sales was roughly about 3.5%. And again, growth was driven by the emerging formats with a better performance, though, in food categories in the supermarkets in Plaza Vea, compensating the decline in nonfood. In the case of the shopping malls, we also posted a January moderate revenue growth. Tenants still have negative same-store sales, mainly from anchor contents. But in the case of January, it was particularly the cinemas, given the lack of blockbuster content, which started in the fourth quarter, but it's been a little bit more profound in January. In the case of the Pharma segment, demand continues contracted. The pharmacies unit has shown some slight recovery, essentially a lesser drop. Pharma categories continued to decline, but better than Q4 2023. Pharma categories declined roughly 1% in January. However, the non-pharma categories have shown some moderate growth, mainly in the consumer goods. And in the case of distribution, there's a better performance in Peru, but that's mainly given the poor comparison basis that we had in January. And Ecuador continues to decline in sales mainly given what we said on the call, the management decision to reduce their exposure to the public institution as well. So all in all, in conclusions, similar trends to what we've seen before, some positive signs of improvement. Still, though, we anticipate, so far, based on what we're seeing, a challenging first semester, given we're still in a low-growth environment, although we expect the second semester to be better. And as mentioned before, we believe we have the correct strategy, diversified multi-format platform with some formats that have substantial growth potential. We have an everyday low price and everyday low-cost mindset and strategy, which makes us highly competitive in any context. And so we're confident in the ability to perform. We continue investing in growth. And as I said during the call and we mentioned in the script, during 2023, InRetail showed resiliency in a deteriorated economic environment. So hopefully, and we expect that an improvement in economic outlook for the year should help us boost some categories affected in 2023, like nonfood, for example, and even pharma as well.

Next question is, given the CapEx guidance you have for the store expansions and new distribution center, will you need to incur an additional debt?

Thank you. I can take that question. Actually, no, given our strong cash flow generation, we believe we'll not need additional financing for our CapEx guidance. And as we commented during the call, we are expecting stable leverage for 2024 at a retail consumer level. However, as part of our responsibilities, we constantly monitor the market to identify their favorable conditions to refinance rates or extend our debt maturities.

Next question is, congratulations on strong fourth quarter 2022 results. We are used to have distribution segments figures separately. I understand that the fourth quarter 2023 was challenging. But can you share with us fourth quarter 2023 EBITDA, if possible?

Thank you for the question. So as we mentioned in the prior call, the -- I mean as we started combining both units and essentially combining the purchase of inventory, the numbers are not necessarily comparable. So it's difficult to compare, basically because we're eliminating or progressively eliminating, the intercompany sales in which the distribution unit sold products into the pharmacy unit, which, to give you a sense of scale, was roughly about PEN 50 million on a monthly basis. So we're talking about PEN 500 million, PEN 600 million. And to give you an idea, in the fourth quarter, the distribution did not represent more than -- it was less than 10% of the consolidated EBITDA of the Pharma segment. And of course, the decrease in sales and in gross margin that we mentioned before, translated into a decrease in EBITDA as well.

Next question is, how much did the private label participation rate increase in the Pharma segment as a percentage of total Pharma revenues.

So Pharma sale -- so the private label penetration in pharma increased about 50, 70 basis points compared to last year. Similar trend again, as we saw in the Food Retail segment as well, although in Food Retail, it increased roughly 200 basis points. And the reasons are the same. People and consumers looking for more value for money, more economic alternatives. So there are situations where they trade down into the private label that, for us, it doesn't have a negative effect at all in the case of food. It doesn't have a negative effect on our gross margins, and it creates more volume and helps us with the price perception. But it's an issue of consumers looking for more economic alternatives than other things.

Next question. How much of the total CapEx will be invested in 2024? And how much does it cost to be open in one Mass store?

I can take that question. With respect to the distribution of the CapEx per year, roughly should be around PEN 800 million to PEN 900 million per year as we have normally seen. However, it could be slightly more to the range of PEN 900 million this year due to the investments in our distribution project for pharma. However, as we also saw in 2023, it depends as well on how the project is executed and sometimes it's delayed for the next year, but it should roughly be divided equally between the 3 years between PEN 800 million to PEN 900 million per year of CapEx for the 3 business segments. And with respect to the question on the cost of opening one Mass store, it's more or less $100,000 per store, more or less, that it costs to open one Mass store.

Next question. In line with your continued expansion in Peru, can you give us some insights about a possible international expansion? Or if you have something about it in mind?

So look, as part of the search for growth and for value creation to the different stakeholders, international expansion is something that we always look at. It's part of what we do. And honestly, we've looked at pretty much every asset that has been sold or rumor to be sold in Lat Am, many of which have been canceled by us pretty fast. And the idea is we don't have necessarily an objective to have a certain amount of countries or whatnot. It's an issue of finding the right opportunity that we think will continue creating growth and value for the organization. And so far, nothing has come in that we think is suitable and compares to the opportunities that we see in Peru. But we keep looking, and it's part of what we do.

Thank you. At this time, I'm showing no further questions. I would like to turn the call over to the operator.

And there appear to be no further questions at this time on the phone as well. I would like to turn the floor back over to Mr. Vallejo for any closing remarks.

Okay. Thank you all for participating in our fourth quarter earnings call. As a final remark, I just wanted to underline that 2023 ended up being a high strong year for InRetail, resulting in a solid full year performance despite a tougher -- a tough second semester in the Peru and economy in general. We continue to operate in a challenging local and global setting. However, we are confident in our ability to continue performing. As such, we will persist in executing our strategy focused on low prices and multi-format solution, with a permanent search for the operational efficiencies. If you have any follow-up questions, please do not hesitate to contact any of us. Thank you very much.

This concludes today's conference call. You may now disconnect.