Organización Soriana, S. A. B. de C. V. (SORIANAB) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to Organización Soriana's First Quarter 2025 Earnings Conference Call. With us today are Mr. Rodrigo Benet Cordova, CFO of Organización Soriana and Ms. Claudia González Romero, Head of Investor Relations for Organización Soriana. Together, they will be discussing the financial performance for the first quarter of 2025 and providing a summary of the latest news on the company. [Operator Instructions] Please note that the conference call may be recorded. I will now turn the conference over to Mr. Rodrigo Benet Cordova, CFO of Organización Soriana. Please go ahead.

Thank you. Good afternoon, everyone, and thank you for joining me in this conference call regarding the financial results of the first quarter of the year. Starting with the top line of our income statement, the company had a nominal decrease in sales of minus 1.1% versus the same quarter from last year, where total revenues closed in MXN 41.4 billion, impacted by a decrease in the same-store sales indicator of minus 3.9% and to a negative impact in other income line due to a sale of land profit that we didn't have this quarter. Going into details by store format, we saw a better performance in the hypermarket and supermarket format, mainly those located in the north states like Chihuahua, Coahuila, Tamaulipas, Nayarit and Zacatecas. On the other hand, we noticed more pressure on the store format focused on the base of the pyramid like Soriana Mercado and Soriana Express that have the most negative performance. Moving on to our digital business. We achieved a sales increase of 18% in the quarter and also a very important increase of 64% in the number of orders. We believe that this positive trend will continue in the following months, while we continue investing to improve the shopping experience in our digital channels. Also as part of the top line of the company and regarding our results in the real estate business, we closed this quarter with an occupancy rate of 89%, which is a growth of 80 basis points versus the same quarter of the last year, reaching an income of MXN 766 million as a result of the higher occupancy rate and commercial synergies made with different brands that are expanding or arriving to the country, such as gyms, coffee shops, sports centers, padel courts, e-commerce fulfillment segment, departmental stores, among others, that are making a very good complement to our shopping experience and deliver more value to our clients in every visit. The most positive performance is in the central part of the country, particularly in the cities of Hidalgo, Michoacán, Morelos, in which we are seeing a very important recovery in the occupancy of our real estate business. Also, and as a very important part of our strategy, and I'm talking about our own brand performance, we are still very pleased with the results and the progress made in the renovation of the assortment of the catalog with national and imported products from all over the world. Sales for the quarter showed a double-digit increase and also the participation over the sales of the private brand reached a little more than 13%. That also represents a market share gain of 1% versus last year's same quarter. Again, as is happening in the e-commerce business, we believe that the following months, we will continue to see an important growth in the performance of our own brands that also will be supported with important investment to convert the Soriana private brand into a strategic pillar of the company. Also continuing with these important strategies, I want to talk a little about our recently renewed loyalty program called Soriana [indiscernible], the loyalty program of Soriana, where 47% of the transactions, meaning the stores are already [ identified ] clients. It is worth to highlight that this client spent 43% more in the average ticket than the other clients and also take home 68 more products than the registered clients. This shows that all the exclusive benefits that we are offering to our loyalty program clients are having a positive impact, not only in the sales but also in the frequency, the ticket and several aspects that are really important to measure how to convince the client to continue using Soriana [indiscernible]. Moving down on the P&L. The gross profit reached MXN 9.3 billion in this quarter, which represents a gross margin of 22.5%, with a decrease of 4.2% against last year's quarterly results. Mainly this decrease is derived from an [ investment ] in price due to an aggressive commercial strategy as well as the negative effect of a noncomparable base in the other income that we already mentioned about the sale of land. Meanwhile, the operating expenses line shows a decrease of minus 6.5% versus last year, reaching MXN 6.5 billion, which represents a 15.7% over the sales against the 16.6% of the last year. This situation has not been easy to achieve considering the double-digit increase in salaries, but we could overcome this situation, thanks to the implementation of several austerity and efficiency measures in all the areas of the company. It's also important to highlight that this austerity program will continue in the following months and along all 2025 that we are expecting that with this program, we can control and we can continue seeing an important decrease in the expenses line of the company that will help us to recover a little of leverage in the P&L of the company. As a consequence of the variation just mentioned, the EBITDA of the quarter reached MXN 2.8 billion, which represents a margin of 6.8% and a decrease of 4.5% against the first quarter of last year. Going down into the P&L and regarding the financial items, the net financial cost for the quarter reached MXN 665 million, a 10.4% decrease primarily due to an important increase in the financial income derived from a higher cash balance and also much more conservative increase of the financial expenses of only 3.7%. Finally, the net income for the quarter reached MXN 699 million, which represents 1.7% of the sales and also a decrease against last year. Moving on to talk about our associated company. I'm pleased to mention that in this quarter, Sodimac, our home improvement and reuse business continue showing positive performance in sales in the 15 stores that we operate in the 9 states of the country. Also on the other hand, our great business with Falabella, Soriana app, closed the quarter with more than 937,000 clients, and we are expecting to surpass the 1 million clients very soon. Remembering that we already operate physically in 109 stores with branches of Soriana Falabella, but we also operate with virtual presence in all the stores of the company. And by the end of this quarter, the portfolio already equal to MXN 5.4 billion. As an update of our expansion plan, in the last 12 months, we have opened 18 stores, and we continue with our store remodeling plan for the year. Also investing in maintenance and IT platforms, the CapEx for the quarter was MXN 613 million. Finally, I would like to share with you that a couple of weeks ago, we started operation with our new business associate partner, [indiscernible]. This alliance is intended to build the biggest network of ultrafast charging stations in Mexico, which shows a high potential role in electric vehicles market as well as our social responsibility with environment. The main goal of this initiative is the installation of more than 1,000 charging stations by the year 2030, starting this year with 57 stations in the main cities like Nuevo Leon, Mexico -- State of Mexico and [ Guanajuato ]. Furthermore, we hope that this information has been of your interest. We can now continue to the Q&A session. Thank you very much again for joining us in this conference call.

[Operator Instructions] The first question is from Mr. Bob Ford from Bank of America Merrill Lynch.

Could you break down the comp store decline in terms of traffic and ticket and talk about how that's evolving in April because of the shift in the calendar? There were also some pretty big cuts to SG&A. How should we think about that in the context of store service levels? And then within the D&A, right, the depreciation and amortization, if we exclude the amortization of the right-of-use asset, the D&A was up 21.1%. I was curious as to what was behind that.

Sure, Bob. Well, first of all, in general terms, what we are seeing across the whole portfolio is that the pressure is coming more in the ticket side, particularly not something uncommon in this kind of economical situation in which when the client starts to feel more pressures in the pocket, starts to increase the number of visits and decrease the average ticket, particularly in important areas of the company, in important regions of the company, we are seeing a decrease in both. So for sure, I mean, I think that it's very clear that this first quarter result will have pressure in the top line, important pressure. And particularly, again, more pressure in the ticket, but there are some areas that the pressure is in both ticket and number of clients. We are seeing this performance and -- again, it's something that is very usual in economical environment with a little pressure in the pocket of the consumer. That is why we continue putting a lot of attention to our private brand strategy. And it's something that we are already seeing in both that no matter this trend, the increases in the private brand is going very, very good, very different from the total company -- from the total portfolio of Soriana and makes sense. It's very good quality, better prices and even for us, even better gross margin. So we are expecting that this kind of performance will continue in the following months, and that is why we want to highlight the focus of the company to increase very quickly the participation of the private brand. Going to the second question, Bob, about the expenses, particularly, I don't know, probably for sure you are aware, we are expecting to continue to see the whole year and also next year pressure, particularly in the labor cost. Already the federal government starts to talk about the perspectives that they have about the increase in the minimum salary for next year. So it's something that for sure will continue. That is why the company decided to implement an austerity program that we start basically in the second week of March. So this first results that we are seeing a decrease in the expenses line, in several lines of expenses will continue in the following months. We are expecting that it is something that, again, we will have to maintain the whole year. Particularly going into the depreciation and amortization increase, basically, this is related with the important increase in assets that we have last year, mainly because remember that last year, we opened 18 stores that probably is more than 400% against the previous year. So the company had a lot of years with our important organic growth and investment in new stores that are changing in an important way this line of depreciation and amortization, and basically it is related with the increase on investment...

Just everything was very clear. One other question, and that is with respect to the program, the cost-cutting program. Were there any onetime severance expenses that you ran through the results in this first quarter?

No. Actually, it will not be onetime, Bob. It will be continuous. We are...

[Foreign Language] Just the cost to implement it.

No. Let me go deeply into the cost of implementation. Basically, probably the only one that is more common to assume that have a cost is when you reduce the labor force. But in general, Bob, in order to avoid that kind of cost, basically, we are using the natural turnover of the personnel to decrease that amount of line. So we are not expecting onetime costs for the austerity program. Actually, we are making everything to avoid that one cost. And all the initiative of efficiencies that we have implemented in this year, basically, the main or the first condition that we are putting to the all areas of the company is that have to be positive cash flow generation in this year. So basically, not only all the programs to cut expenses, but any programs in the company that probably are good programs that we decide that it will be a good idea to have in the company. But in the first 12 months, doesn't deliver positive cash flow, net positive cash flow from the investment will not be suspended, but will be postponed to next year.

Our next question is from [indiscernible] from Goldman Sachs.

I would like to dig a bit deeper into your expectations for the remainder of the year in terms of consumption? And how is the current competitive dynamic? Have you seen any players becoming more aggressive in pricing?

Well, in general, not particularly one player. I can say that the whole market is being more aggressive. We believe that this will continue. Actually, we are pretty sure that, in particular, in the next 2 months, the aggressiveness will continue. Remember that we are very soon to enter one of the most important Soriana, that is the summer campaign Julio Regalado that also starts to be a very important season for all of my competitors. So no, I think that this aggressiveness in the prices will continue. And also important to mention, remember that the federal government recently make an announcement in order to continue in this year with the [ passive ] program. [ Passive ] program starts to be very relevant for all the retailers and start to have an important weight of participation in the portfolio, the basic products. So yes, we are expecting that it will be a very tough year in terms of price.

[Operator Instructions] That was the last question.

Okay. Well, again, thank you very much for joining us in this conference call. And obviously, if you have any other questions or doubts, please send us an e-mail to Claudia and to me. Thank you very much, and have a good week.

Organización Soriana would like to thank you for participating in today's conference call. You may now disconnect.