Robinsons Retail Holdings, Inc. (RRHI) Earnings Call Transcript & Summary

Good afternoon, everybody. Thank you for joining our unaudited results covering for the full year of 2022. I'm Gina Dipaling, the company's Investor Relations Officer. The panelists for this call are our President and CEO, Ms. Robina Gokongwei-Pe; our CFO, Ms. Mylene Kasiban; the Managing Director of our Supermarket business, Mr. Stanley Co; the Group General Manager of the Drugstore segment, Ms. Christine Tueres; the Group General Manager of DIY, Mr. [ Ted ] Sogono; the Group General Manager of Robinson's Department Store and Toys R' Us, Ms. Celina Chua; the General Manager of Uncle John's, Mr. Suresh Ramalinggam; and then the Group General Manager of the Appliances segment, Mr. Jovy Santos. This presentation will cover the company's financial performance in fourth quarter and full year of 2022, an update on our store network and some recent company developments. A brief question-and-answer session will follow after the formal presentation. As a reminder, for the Q&A portion, please use the Q&A function on the dashboard to type in your question. We would appreciate if you can limit your questions to a maximum of 3 and then you can queue back in. You may also use the Raise Hand function if you would like to ask your questions live. If you have any concerns regarding the sound quality of the call, kindly message Angelo Torres of our Corporate Planning and Investor Relations team directly. With that, I will turn you over to our President and CEO.

Good afternoon. Here are the highlights of our consolidated results as of end 2022. Consolidated net sales grew by 16.6% to PHP 178.8 billion; blended same-store sales growth of 11.8%; capital expenditures of PHP 4.7 billion, up by 92.8%; 60 bps gross margin improvement to 23.6%; 90 bps EBIT margin expansion to 4.9%; net income attributable to equity holders of the parent company grew by 26.7% to PHP 5.7 billion; store portfolio of 2,310 stores and 2,151 TGP franchise stores nationwide. Our store count stood at 2,310 as of end 2022 composed of 324 supermarkets, 993 drugstores, 223 DIY stores, 51 department stores, 424 convenience stores and 295 specialty stores. We also have 2,151 franchise stores of TGP and added [ 102 ] net new stores in 2022. Both came from supermarkets and drugstores. Serving as fulfillment centers for our store network, our e-commerce operations is complementary to our store network. GoCart, our very own e-commerce site currently has 14 banners in the platform. RRHI was able to sustain strong top line trends, delivering revenue growth of 16.5% in the fourth quarter and 16.6% for the full year to PHP 51.7 billion and PHP 178.8 billion, respectively. Total revenue surpassed pre-pandemic levels for both periods. The improvement in sales was driven by healthy blended SSSG and new store openings. In addition, we benefited from the economy's gradual return to normalcy, including face-to-face classes, increased travel and tourism and the first normal holiday season in 2 years. With the rebound of the discretionary formats, the sales contribution increased to 23.5% from 21.6% in 2021. Net sales growth in the fourth quarter and full year 2022 were supported by blended SSSG of 11.8% for both periods. Gross margin improved by 20 and 60 bps, respectively in the fourth quarter in 2022 due to category mix improvements and economies of scale. Coupled with operating efficiencies, EBIT margins expanded by 30 and 90 bps, respectively in the fourth quarter in 2022. EBIT came in at PHP 2.8 billion and PHP 8.7 billion, respectively, up 23.4% and 43.3%. Net income to parent declined by 27% in the fourth quarter to PHP 1.3 billion due to forex losses and lower tax credit for the quarter. Nonetheless, our full year net income still climbed 26.7% to a record PHP 5.7 billion, driven by our strong operating performance. Full year EPS rose at a faster clip at 30.6% to PHP 3.85 per share, supported by the ongoing share buyback program. Finally, core earnings, which exclude interest income from bonds, [ or ex ] equity net earnings of associates and others, came in at PHP 1.6 billion in the fourth quarter, down 4.5% year-on-year. However, full year core earnings still expanded by 39.1% to PHP 5.3 billion, also a record high. The next speaker will be Stanley Co who'll discuss the Supermarket segment.

Thank you, Ms. Robina. The Supermarket segment generated net sales of PHP 101 [ billion ] for full year 2022. This is 14.1% higher versus 2021. Full year SSSG came in at 7.3% versus negative 8.7% in the same period versus the same period last year on the back of higher transaction counts and a better supply chain situation. Full year gross profit margin expanded by 20 bps to 21.7% on higher [ inland ] and private label penetration, assortment shifts and selling price adjustments. EBITDA rose by 13.9% year-on-year in 2022 to PHP 8.5 billion, driven by healthy top line growth and GP margin improvements. This translated to EBITDA margin of 8.4% for the full year of 2022. Turning you over to [ Tin ] for the Drugstore segment.

Thank you, Stan. Net sales of the Drugstore segment accelerated by 13.8% in fourth quarter of 2022 to PHP 7.8 billion due to stronger demand for fever and flu medicines, sustained growth of prescription medicines and sales contribution from new stores. Seasonal flu cases have gone up in fourth quarter of last year as the country loosened COVID restrictions and health protocols. Full year sales came in at PHP [ 29.5 ] billion, up 10.6% year-on-year. Blended same-store sales growth of South Star Drug and Rose Pharmacy also accelerated by 8.5% in fourth quarter 2022 and remained healthy at 5.3% for full year last year. EBITDA margins expanded by 10 bps to 9% in fourth quarter and by 40 bps in full year to 9% [ renewable ] gains from Rose Pharmacy in the first half of 2022. This enabled the segment to post strong EBITDA growth of 15.2% for full year 2022 to PHP 2.6 billion. Now I turn you over to Ted for the DIY segment.

Thank you, Tin. The DIY segment posted PHP 3.4 billion in revenues in the fourth quarter of 2022, up 5%, while full year 2022 net sales are up 7.3% to PHP 12.4 billion. Total DIY revenues were temporarily affected by resin or half of the raw materials [ builder shortage ] last year through the old JV partner. The remaining half are being converted to Handyman big-box stores. We note that the first converted store to Handyman has seen an encouraging uplift in sales of plus 11% in the fourth quarter versus the pre-conversion. Same-store sales are up 5.6% in the fourth quarter and 10.1% for the full year 2022, driven by the higher transaction counts. Key category drivers were hardware, electrical and plumbing. EBITDA margin declined in 2022 due to the gross margin impact of the move-out of aging inventories and markdowns. However, full year EBITDA still grew by 2.3% to PHP 1.6 billion due to positive top line growth. And [ I turn it ] over to Ms. Celina, Group GM of the Department Store section.

Thank you Ted. Department Store net sales increased by 28.3% in the fourth quarter to PHP 5.3 billion, while full year 2022 revenues are up by 61.2% to PHP 15 billion. Fourth quarter SSSG rose 24.4%, while full year SSSG came in at 53.4% higher versus last year. Key drivers are the resumption of face-to-face classes and increase in travel. Meanwhile, the main categories that outperformed were shoes, bags, sportswear, children's and ladies departments. Gross margins are up 40 and 30 bps, respectively in the fourth quarter and full year of 2022 to 29.7% and 30.2% due to category mix improvements. Meanwhile, EBITDA eased by 3.8% in the fourth quarter to PHP 578 million due to the normalization in rental charges, increased manpower requirements for the peak season and additional costs from the opening of a new store. Nonetheless, full year 2022 EBITDA still grew by 107.7% to PHP 1.3 billion. Let me turn you over to the next -- Suresh for the convenience store segment.

Thank you, Ms, Celina. CBS net sales continued its growth momentum in fourth quarter 2022 rising by [ 24.8% to PHP 1.7 billion ]. We ended the 12-month period with revenues of PHP 6.1 billion, up 23.5%. Same-store sales growth was up 27.6% in the fourth quarter and 26% for full year 2022. Growth continues to be supported by higher sales of commercial and retail [indiscernible] due to the effect on site working arrangements, coupled by new product offerings and effective marketing promotions. A recovering top line, better gross margin driven by the higher contribution of the RPE category and manageable OpEx translated to robust EBITDA growth of 49.3% and 115% in fourth quarter 2022 and full year of 2022, respectively to lead to PHP 185 million and PHP 628 million. Thank you. Next speaker, Mr. Jovy from Specialty segment. Thank you.

Thanks, Suresh. Net sales for the Specialty segment grew by 10.1% to PHP 4.6 billion in fourth quarter 2022 and 19.7% to PHP 14.7 billion for the full year. Growth was supported by strong SSSGs. All formats under the Specialty segment delivered double-digit revenue growth rates for the year as consumer demand picked up in tandem with better mobility. The recovery in the top line, coupled with product mix improvements and better operating leverage translated to strong EBITDA growth of 37.1% for the full year to PHP 1.3 billion. Here's Mylene for the next [ slide ].

Thanks, Jovy. Moving on to our working capital, Robinson's Retail's cash conversion cycle improved to 13.5 days in 2022 from 18.3 days in 2021. The improvement is mainly driven by lower inventory days due to decreased reliance on [indiscernible] global supply chain issues. Moving on to our balance sheet. Cash and cash equivalents [indiscernible] marketable securities amounted to PHP 26.7 billion as of end December 2022. We are in a net cash position of PHP 18.3 billion with borrowings of PHP 8.4 billion. ROA and ROE increased to 4.2% and 8%, respectively, driven by higher profitability for the year, coupled with increased dividends, [indiscernible] share buyback program. Moving on our capital expenditures. CapEx increased by 92.8% in 2022 to PHP 4.7 billion. Bulk of the spending or 71% went to supermarket segment followed by drugstores, which accounted for 10%. Now I'll turn it over to Ms. Robina.

On corporate developments, RRHI recently acquired a 4.4% effective equity interest in BPI from the GIC Group, which corresponds to a total consideration of PHP 19.5 billion. This will be funded via a combination of internal cash and loans. This transaction will be on top of the proposed merger between BPI and Robinsons Bank, which we disclosed last year and which is expected to close by early January 2024. Post merger and issuance of new shares, RRHI will own 6.5% of BPI and will be entitled to one Board seat in the bank. We envision RRHI to become a leading retailer with excellent financial products for customers and suppliers. The partnership with BPI will accelerate this aspiration and even generate value by combining the premium banking ecosystem of BPI with the consumer-oriented ecosystem of RRHI. We are reorganizing our Supermarket into 3 groups and appointing a dedicated general manager for each group effective February 1, 2023. The Marketplace and Shopwise will be led by Kerwin Arthur Legarde as GM. Kerwin has over 22 years of experience in operations, merchandising and marketing. He first joined Robinsons Supermarket in 1999 and later moved to Rustan Supercenters in 2004. In 2019, after the integration of Rustan with Robinsons, Kerwin was appointed as Store Operations Director for the Marketplace and Shopwise. Meanwhile, Robinsons Easymart will be led by Erneliza De Jesus as General Manager. Lyn has been with Robinsons Retail for over 35 years with extensive experience in merchandising and operations. She has served in various capacities in the organization and became Merchandising Director in 2019. Stanley Co, Managing Director, will concurrently manage Robinsons Supermarket No Brand and Grocery Group. GoTyme, one of only 6 digital banks given licenses by the Bangko Sentral, is accelerating its rollout since launching last October. There are now 192,000 registered GoTyme users. GoTyme has also deployed 130 bank kiosks to date, which are located across our Supermarket and banners and Robinsons department store branches. These kiosks enable prospective customers to open a bank account and receive a GoTyme Visa card within minutes. Furthermore, GoTyme account holders can conveniently cash in and cash out for free across 184 Robinsons affiliated stores. They can also earn 3x Go Rewards points every time they use their debit cards. Aside from increasing the foot traffic in our stores and generating fees from the banking transactions, the partnership with GoTyme can also accelerate the growth of our Go Rewards customer base. RRHI has a 28% economic interest in GoTyme. TGP once again held Kape at Kuwentuha, its business clinic and learning session series for franchisees on November 13, Davao City. Over 80 franchisees were able to attend the in-person activity and attended sessions on macroeconomics and how it affects franchisees, plus finance for non-accountants to boost store profitability and the TGP road map where GM, Joanne Arceo shared upcoming plans and programs. We are happy to report that 21 of our South Star Drug Gokongwei Brothers Foundation scholars passed the November 2022 Pharmacist Licensure Examination. The newly minted registered pharmacists come from 7 universities across the country. Since the program started in 2017, South Star Drug and the Gokongwei Brothers Foundation have supported 183 pharmacy students through scholarships and career placements within the Gokongwei Group. Robinsons Supermarket during its opening in Boracay last year organized a coastal cleanup activity and a community gift-giving program for underprivileged families in partnership with Communities Organized for Resource Allocation or CORA. Around 300 volunteers from Robinson Supermarket, Handyman, Rose Pharmacy and the local community participated in the coastal clean-up gathering over 96 sacks of coastal debris. After being included in last year's addition, RRHI continues to be part of Bloomberg's Gender Equality Index, which consolidates data on women's inclusion, leadership and anti-sexual harassment policies among others. RRHI is only 1 of 4 Philippines companies in this index. We plan to continue disclosing our data to Bloomberg GEI and further improve our scores, particularly in pro-women branding. Kindly note that the 2023 index is based on fiscal year 2021 data. RRHI was recently recognized with one Golden Arrow by the Institute of Corporate Directors for being one of the top Philippines publicly-listed companies with good corporate governance practices based on the ASEAN Corporate Governance Scorecard assessment results. Policies and implementation of corporate governance standards and practices across 5 key categories such as rights of shareholders, equitable treatment of shareholders, role of stakeholders, disclosure and transparency and more responsibility were assessed. We will review and update our corporate governance standards and practices to improve our scores next year. Kindly note that assessment is based on the 2021 ACGS. Finally, here's our additional guidance for 2023. Net store additions of 180 to 200 stores; organic capital expenditures of between PHP 5 billion to PHP 7 billion; blended SSSG target of 4% to 6%; and gross margin guidance of between 20 to 40 bps improvement. Okay. So at this point, we will now open up the call for Q&A. Thank you.

Thank you, Ms. Robina. Good afternoon, everyone. This is Angelo Torres of the IR team from [ Robinsons Retail ], and I will be moderating the Q&A portion of this call. So I will be reading out questions and via the Q&A box but those who want to ask questions live, you can just simply use the Raise Hand function. Okay. Our first question is from Karisa Magpayo from Macquarie Research. This is for the Supermarket segment. The first one, can you provide the SSSG breakdown between basket size and transaction count for the fourth quarter and full year? Second question is, what led to the GP margin contraction in the fourth quarter and what was the sales contribution of private label for full year 2022?

Karisa, Stanley here. We only measure basket size and transaction count based on all [ sources ]. So last year, basket size shrunk by about 10%, but then transaction count went up by 21%. And then for your second question, what led to the year-on-year GPM contraction in fourth quarter, that is because of the largest sales contribution of grocery where margin is significantly thinner. And then what was the sales contribution of private label in 2022, that would be less than 5%. But then we are expecting -- private table is part of our strategic plans -- I mean part of our bigger plans for 2023 and onwards. So I expect that contribution should be significantly higher. This is expected to improve.

Next question is from [ Hiepu Nguyen ]. When will be the acquisition of BPI shares reflected into the balance sheet? That's the first question. Second one is, how much of the 20 bps to 40 bps increase in gross margins will flow into EBITDA margin expansion for this year? And the third question is, what are the drivers for gross margin improvement for this year?

Okay. I'll answer the first question. The acquisition of BPI shares will be reflected this year, first quarter. So you'll see that in the Q1 results.

Okay, the second one, how much of the 20 bps to 40 bps increase in GM will grow into EBITDA margin expansion for this year?

I think 50% or most of that will flow back to -- cascade down to EBITDA.

What are the drivers for the gross margin improvement in 2023? Of course, it's the higher top line and better mix across all business segments and categories.

Next question. This is from [ Pashin ]. Would you be able to share private label contribution at Robinsons? How has it changed over the past years? I think we answered that already, but Stanley, the trends previously...

It's the same. It's been the same in the previous years.

Next one is from [ Yiyi Shong ]. What was the net income for the fourth quarter of this year before on a year-on-year basis?

In [ Q4 ] 2021, we used the remaining tax credits, that is just one point. So this year is a normal tax payment -- in Q4 2022.

There's still a question here on Supermarkets. Do you have any target contributions for private label?

Okay. So not necessarily a target at this point. But then I think, at this point, we're still in the process of stepping our baselines. And then from there, we would, of course, set our targets.

Next question. This is from [ Nadine Bautista ]. Still on Supermarkets. This is a follow-up question on the gross margins. So how lower are margins of grocery? What is the current contribution of this business? And is this expected to increase in the medium term? So that's the first -- second question.

Grocery is a low-margin business. If the share of grocery business will be increasing, then that will have a dilutive effect on the overall Supermarket GP margin.

Next question, still from Nadine Bautista. This is for the Department Stores segment. So what [ caused the ] EBITDA margin drop -- sorry, same question for the EBITDA margin drop for Dept. Stores. [indiscernible] the increased manpower during the peak season only temporary. What is the sustainable EBITDA margin for the Department Stores segment.

Okay. Regarding the manpower, yes, for the peak season, we onboarded a lot of seasonal manpower due to the increase in traffic.

Next set of questions from Denise Joaquin, #1, what's the breakdown of the PHP 634 million other income charges in the fourth quarter?

Yes. So there's interest income around PHP 100 million. And then forex of course, is higher, around [indiscernible], and then we have interest expense around [ PHP 90 million ] and the balance will be a combination of dividend income and the share of our earnings [Technical Difficulty]

Second question still from Denise. He's asking for an update on the Uncle John's rebranding and for those recovery brand and how have they performed? And necessarily any noticeable dip in sales or uplift?

Suresh here. So far as for our monitoring, since we took the place -- we took place [indiscernible], include equipment and signage [ rippings ] effective fourth quarter of 2022. There's not any impact and it's continuously growing at double digits so far, and we never see any dips in all the shops which we have changed the signage and all the remaining projects.

So there are a few people raising their hands in the call. So the first one is [ Karisa Mangpubat ].

Yes. Could you just kindly elaborate on what's happening in the DIY segment. So earlier, you just mentioned that you are rebranding some of the Robinsons Builders? And did I hear correctly that you sold back some of the sites? So maybe could you just give us a bit more detail on what's happening? And when do you expect to complete this rebranding or conversion exercise?

Well, the partners doesn't have the same direction anymore, so we decided to part ways. And we feel that rebranding the Robinsons Builders banner to Handyman will add more value to the business.

Yes. So where are you in that process? Like how many stores have already been converted? And how many more have to be converted? And if I look at same-store sales growth, it's kind of underperforming, so I mean relative to the other formats. So how much of that underperformance is driven by this conversion exercise? And if you could give us some color on what you think sales would have been, if not for it.

Well, we fully converted one store and we started converting the rest of the stores, it's around 7 stores. And our sales would have been at around 11% if we were not -- we didn't part ways with the JV partner.

Sorry, just to clarify, the 11% is on net sales or on same-store sales?

Net sales.

Next one, [indiscernible] John Te from UBS.

3 questions. First is on Supermarket gross margins, just a follow-up. It declined sequentially. I think, historically, 4Q has been the highest. So I wonder if it's just grocery or are there's something else going on?

There's actually another reason, but grocery being the largest one. The other reason is that there are significantly less new product introductions during the fourth quarter of last year versus the previous year. So therefore, that would equate to significantly less other income.

Second is that, I guess, also a follow-up on the 40 to 50 basis points in terms of gross margin expansion that we're forecasting -- I'm sorry, 20 to -- yes, where is this mostly coming from? Is it just operating leverage, price increases? Maybe you could elaborate on that.

This is for the whole RRHI. Yes, it's leverage, it's price increases, it's changes in category mix because we're moving towards more premium items. And the 2 years of COVID forced us to mark down items that got stopped for 2 years, and were not -- and did not move for the nonessential format. So that caused also margins to decline. So now that business is back, everything is back to normal.

Okay. Maybe a clarificatory question on taxes. The effective tax rate this quarter was about 30%. Is that a safe assumption for '23 and '24? The effective tax rate.

The effective tax rate, this in [ 2020 ] is actually 20.9%.

Sorry, I was pertaining to the fourth -- just the fourth quarter alone? Or -- so is it -- so I guess should it be 20%, that would be a safe assumption?

Yes. The normalized should be around there, 20%, 21%.

Okay. I guess, if I could have one last follow-up. On the store expansion pipeline, that's 200 stores. Could you give us a rough idea on how the split will look like? And it seems a little bit more aggressive than the past few years. So I guess, which areas -- geographic areas, where do you see opportunity, I guess?

It will be by format. So Supermarket between 30 to 35; Drugstores 110 to 120; Uncle John's between 20 to 30; DIY 10 to 15; and Specialty between 15 to 25.

Back to the Q&A box. This is from [ Stephen Adeveras ]. What were the drivers for higher other expenses in the [indiscernible]?

It's primarily because of the higher forex loss.

Our next question, again, this is from [ Kasim ]. Can you please provide more color for strategic directions of the CBS segment, for instance store rationalization/expansion plans, any location priorities, advertising and marketing budgets for rebranding? Do you have sales contribution target of the CBS segment as percent of total group?

Suresh here. Yes, the question was on rationalizations. Last 3 years, we have rationalized all the store figures, loss-making stores and we have seen a declining on the numbers [Technical Difficulty] which loss-making stores. And we have identified the profitable location and clusters, which can open up for coming years and this year. And the next spend, which was like -- we are going into the -- to give you a little bit more colorful in [ rest ] of the directions, we are coming up with a few types of concept stores, which is -- we'll see in coming months, which we are launching soon. And we are really focusing on expansion on our RPE categories, which is contribute most of the sales now compared to past few years, which we managed to increase our sales mix of RPE from 32% to 38%. And by end of this year, we should be able to reach around 40%.

Yes. For the sales contribution of the convenience store, total to RRHI business, since other segments will also be growing this year and increasing their sales, the share will not change that much. It will be around between that level, 3% -- 3% to 4%.

Next set of questions, again from Karisa Magpayo, Macquarie. What were the cost savings that helped lead to the operating margin improvement for the year? Next question is, how many stores were closed in 2022 and by format? And again, on CBS, what was the sales contribution of RPE? This was answered already in the previous one.

As you know, for the past 2 years during the pandemic impact, we've implemented cost reduction initiatives across the company in the stores and in the head office including sometime [ crowd ] rationalization. So that's actually flowing through in our bottom line this year and last year also.