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

Well, good afternoon, everybody. Thank you for joining Robinsons Retail's Third Quarter 2024 Earnings Call. I'm Gina Dipaling, the company's Investor Relations Officer. And the speakers for today's call are the following, our President and CEO, Ms. Robina Gokongwei-Pe; our COO, Stanley Co; our CFO, Mylene Kasiban; the Group General Manager of Small Formats for the Food segment, Ms. Erneliza de Jesus; the Group General Manager of the Drugstore segment, Ms. Joanne Arceo; the General Manager of Robinsons Department Store [indiscernible] Ms. Celina Chua; the Group General Manager of DIY and Pets, Mr. Ted Sogono; the Group General Manager of our Appliances segment, Jovito Santos. Last is the agenda for this afternoon's call. We will provide an overview of our financial performance highlights, and we will also share our key updates across our [indiscernible]. As a reminder for the Q&A session, please use the Q&A function on your Zoom dashboard to type in your questions. Please limit initially to a maximum of 3 questions, including follow ups. You may get back into the Q&A box for additional questions. You may also use the raise-hand function if you would like to ask your questions live. With that, I will turn you over to Stanley, our COO.

Good afternoon. Here are the highlights of our results for the third quarter of 2024. Consolidated net sales were higher by 3.1% to PHP 48.7 billion. Blended same store sales growth of 0.5%, gross profit growth by 4% to PHP 11.8 billion. EBIT was flat at PHP 2.3 billion. Core net earnings came in at PHP 1.4 billion, largely unchanged versus last year. Net income to parent of PHP 1 billion, 28.7% higher versus last year. Meanwhile, here are the highlights of our results for the year-to-date September 2024. Consolidated net sales of PHP 142.4 billion, up by 3% versus last year. Blended same-store sales growth settled at 0.7%, gross profit increased by 4.3% to PHP 34.3 billion. EBIT registered at PHP 6.4 billion, higher by 8.7%. Core net earnings grew by 7.6% to PHP 4.1 billion. Net income to parent amounted to PHP 7.8 billion, 3x higher. This is largely due to the one-time gain from the BPI Robinsons Bank merger which [indiscernible] in the first quarter. In fact this trend in the blended SSSG were largely due to the discretionary formats, mainly Department Stores, DIY and Specialty stores, which continue to be affected by sticky inflation and stiff competition. In the third quarter, the discretionary formats were further weighed down by the onset of typhoon which affected foot traffic, while shift in school opening dates from July this year also had an impact to the top line, especially for Department Stores. Net sales, out-performers in the third quarter and 9 month were food and drug stores, as consumers continue to prioritize essential purchases. In addition, these 2 segments have consistently expanded their footprint, further contributing to their strong performance. On a deeper look at our P&L, gross profit increased by 4% in the third quarter, bringing 9 month tally to PHP 34.3 billion, up 4.3%. Gross profit growth was driven by changes in merchandise mix and continued vendor support. 3Q EBIT in at PHP 2.3 billion, with growth of 0.6%, affected by higher manpower and rental cost. 9 month EBIT rose by 3.7% to PHP 6.4 billion. Net income from tenant increased by 28.7% to PHP 1 billion in the third quarter due to lower losses from associates following the reclassification [indiscernible] with our stake now down from 20% plus [indiscernible] this year. Year-to-date, September net-net income came in at PHP 7.8 billion, 3x higher versus last year, as we benefited from the substantial gain in first quarter from the BPI R Bank merger. Core earnings, which excludes the one-time gain from the bank, merger, ForEx, interest income from bonds, equity earnings from associates, acquisition financing interest expense, dividends related to the BPI shares and others came in at PHP 1.4 billion in the third quarter largely unchanged versus last year. Year-to-date September core net earnings rose 7.6% to PHP 4.1 billion. In terms of segment contributions, the core staple businesses, namely Food and Drugstores accounted for 79% of our total sales and 82% of our total EBITDA, respectively, in the 9 months. Meanwhile, our discretionary formats, namely the Department Stores, DIY stores and Specialty stores comprised 21% of total sales and 80% of total EBITDA respectively. The net sales and EBITDA breakdown [indiscernible] similar to the year-to-date September returns. Our store count in the Philippines stood at 2,413 as of September 2024, comprising of 758 Food segment stores, 1,101 Drugstore, 50 Department Stores, 225 DIY stores and 279 Specialty stores. We also have 2,163 franchise stores of TGP. For year-to-date September 2024, we opened 20 new stores, mostly under the Food and Drugstore earnings. Next we have Jesus for the Food segment.

Food segment net sales increased by 4.8% to PHP 29.7 billion in third quarter, bringing 9 months net sales up 4.1% to PHP 86.7 billion. Same-store sales growth slightly improved to 1.9% in third quarter. This rose 9-month same-store sale total to 1.5%. Gross profit increased by 5.2% in third quarter and 5.3% in 9 months due to higher vendor support and category mix improvements. OpEx rose due to store expansion, its related costs, and the conversion of Uncle John stores from franchise to direct. Higher OpEx, however, was offset by gross profit growth. As a result, EBITDA rose by 4.2% to PHP 2.6 billion in third quarter and by 3.1% to PHP 7 billion in 9 months. [indiscernible].

Good afternoon. Revenues for the Drugstore segment increased by 9% to PHP 9.1 billion in third quarter with year-to-date summary net sales up by 7.8% to PHP 26.3 billion. This was driven by same-store sales growth of 3.5% and 3.8% in third quarter and 9 months respectively, and contributions from new stores. Gross profit increased by 9.2% in third quarter and by 8.5% in 9 months, supported by changes in category mix and higher [indiscernible]. EBITDA grew by 2.8% to PHP 2.2 billion in 9 months, lower than top line growth due to investments for store expansion, new supply chain systems and opening of 2 new [indiscernible]. Turning it over to Ms. Celina.

Net sales for the Department Store segment declined by 3.9% to PHP 3.8 billion in the third quarter, mainly due to the shift in the school opening date in July this year from August last year. This moved back-to-school buying from June to August this year from July to September last year. The decline in sales was partially offset by the launch of Spatio last September 5 in Opus Mall. Spatio is our new lifestyle banner which is a curated department store that serves the upper income market. Meanwhile, increased vendor support, higher [ VC ] fees and improved category mix enabled gross profit to post a slight improvement in 9 months. However, operating -- higher operating expenses from rent, personnel costs and onetime marketing expense for the launch of Spatio led to the EBITDA declining from PHP 320 million in the third quarter last year to PHP 200 million in Q3 this year. 9 months EBITDA declined by 17.7% to PHP 590 million. Turning over to Ted.

The DIY segment posted a net sales decline of 5.9% to PHP 2.9 billion in the third quarter with SSSG at minus 5.3% due to intense competition. Net sales in 9 months came in at PHP 8.5 billion, lower by 5.2%. EBITDA, however, rose by 5.5% to PHP 349 million in the third quarter, supported by the introduction of new items that boosted gross margins and cost of savings from the closure of 7 underperforming stores. This contributed to a double-digit EBITDA growth in 9 months to PHP 1.1 billion. Turning over to Jovi.

The Specialty segment net sales declined by 8.5% in the third quarter to PHP 3.3 billion with negative SSSG of 8.6%. This was due to the discontinuation of commercial and sub dealer sales of [ Savers Appliances ], stock availability issues in mass merchandise and lower number of movie releases impacting toy sales. Meanwhile, Robinsons Appliances delivered 6.3% net sales growth in the third quarter due to stable demand for home appliances, home entertainment and kitchen appliances. Net sales for the Specialty segment in the first 9 months of the year amounted to PHP 10.1 billion, down by 5.9%. Despite category mix improvements, higher vendor support and leasing fees, EBITDA for the Specialty segment declined to PHP 152 million in the third quarter on lower sales and higher OpEx. Year-to-date EBITDA stood at PHP 486 million.

Thanks, Jovi. Moving on to our working capital, RHI's cash conversion cycle improved to 25.1 days in the 9 months from 26 days last year. The lower tax cycle is largely due to higher payable days as we prepare for the peak season. As to our balance sheet, we are in a net debt position of PHP 10.2 billion as of September with total borrowings of PHP 22.4 billion largely due to the loan for the BPI shares as we purchased -- which we purchased in January 2023. As of end September this year, debt related to the BPI share purchase is at PHP 12.6 billion. Then we had in the net debt position, our balance sheet continues to be strong with a net debt-equity ratio of 0.3x. ROA and ROE on a trailing 12 months basis came in at 5.9% and 11.2% respectively, both higher on a year-on-year with a onetime gain from the BPI R Bank merger, which we recognized in the first quarter of this year. In terms of CapEx, organic CapEx for all segments in the 9 months this year reached PHP 2.8 billion compared to PHP 2.5 billion in the same period last year. 58% of our CapEx was allocated to Food segment, followed by 16% for Drugstores, 10% for Department stores and 8% each for DIY and Specialty. So I'll turn it over now to [indiscernible].

Now allow me to update you on some of our key minority investments in O!Save and Growsari. As of September, O!Save store count in the Philippines increased to 380 compared to 155 stores in the same period last year. As a result, sales have increased 2.4x year-on-year to $155 million. The private label share of this business has grown to 17% of sales compared to 12% in the same period last year. Now on G2M, which is the parent company of Growsari. Growsari's total e-commerce platform sales value sold under the [ Sari Market App ] amounted to $674 million in 9 months, a 26% increase year-on-year driven by continuous growth in coverage and adoption of 100,000 [indiscernible]. The company operates in 23 key cities across the Philippines. Growsari is currently valued at greater than $450 million, up from 2022 when it was valued at $330 million. Aside from being an investor in G2M, we collaborate [indiscernible] procure 90% of [indiscernible] logistics in our business. Next speaker will be Stanley who will talk [indiscernible].

Now let me update you on some key corporate developments across the business. We again received a Golden Arrow award from the Institute of Corporate Directors for our sustained efforts in corporate governance. This is the third consecutive year for inclusion in the list, which is comprised of Philippines' publicly listed companies. Spatio, our U.S. concept store banner opened last September 5 at Opus in Bridgetown. Spatio is a luxury shopping and relaxation hub that features designer pieces from Philippine designers and exclusives from Sole Academy as well as premium shoe care services, personal grooming, cafe and a bar. We are proud to have also been recognized as the world's best companies of 2024 by Time Magazine and Statista. Robinsons Retail is one of the only 13 companies in the list of 1,000 industry leaders from around the world, and that's based on employee satisfaction, revenue growth and some ESG metrics. Last October 7, our Food Segment opened its fifth distribution center in Calamba, Laguna, spanning close to 40,000 square meters with a capacity of 29,000 pilot positions [indiscernible] continued expansion outside of Metro Manila. [indiscernible]. We are pleased to announce the appointment of Thaddeus Sanchez as General Manager of Southstar Drug effective November 1, 2024. Thad has close to 22 years of experience in drugstore and pharmaceuticals. He joined Southstar in 2016 as operations AVP, managing 412 stores. He was appointed Deputy GM in 2022 and oversaw merchandising, supply chain management and store expansion. Under his leadership, we've seen an increase in our store network to 678 stores as of September this year. Last October 14, a U.S.-based True Value company filed for voluntary Chapter 11 proceedings. Do it Best Corp has agreed to acquire most of True Value's operations. And despite the sale, Do it Best plans to retain the True Value brand, which means that Robinsons Retail will continue to operate 2 DIY banners, Handyman Do It Best and True Value Philippines. True Value Philippines operated by Robinsons True Serve Hardware, a majority owned subsidiary of Robinsons Retail is not affected by the Chapter 11 filing. So this will be business as usual for us. Once the sale is finalized, True Value U.S. will become part of Do It Best and will benefit from expanded supplier access, new products, ultimately benefiting our own DIY banners. Our guidance for the year is unchanged from the last quarter. In particular, we are looking at the net store addition of 90 to 110 with bulk of opening this quarter. Meanwhile, we are aiming for blended SSSG of 2% to 4%. Our margins, we are keeping our 20 to 40 bps GPM expansion target. And finally, we are still earmarking PHP 4 billion to PHP 6 billion in organic capital expenditures. This ends our presentation for our 9-month results. We will now open the floor for Q&A. Thank you.

Thank you, sir. Good afternoon, everyone. So we will first read questions send via the Zoom Q&A facility. And then -- but if you would like to ask a question live, you can do so using the raise hand function. And if you prefer this option, please do not forget to introduce yourself first and identify the company that you are working for, before you ask your question. Our first set of questions will be from Therese Almario of Macquarie. This is on the Supermarkets business. "What was same-store sales growth in the third quarter and in the first 9 months, excluding Uncle John's? And how is this broken down between transaction account and ticket size?

The same-store sales growth for the first 9 months is positive 1.4%. That's ex Uncle John's. But for the third quarter alone, it's 2.1%, the highest among the 3 quarters now. We started with 1.5% in first quarter and flattish in the second quarter. This is the highest. So we're seeing an improvement in trends for the same-store sales growth. Basket size also, we posted positive for this quarter. So meaning there's really an increased demand already for our supermarket sales. In the previous 2 quarters, it's negative basket size growth.

For next [indiscernible].

For your private label, it's higher by 40 bps versus last year. It's now at 7.2% versus 6.8% last year, same period last year.

How about net sales, gross profit and EBITDA in 9 month, but excluding Uncle John's?

Sales for the supermarket, excluding Uncle John's is PHP 82 billion. Gross margin is around 22.7%, and…

EBITDA…

EBITDA is PHP 7 billion.

Thank you. Next set of questions will be from Stephen Oliveros of China Bank. So first is, "What led to the quarter-on-quarter jump in effective tax rate in the third quarter?" That's his first question.

Just because [indiscernible] taxable expense.

Thank you. His second question is, "Have there been any shifts in consumer spending behavior in light of the recent slowdown in inflation and lower borrowing costs?"

Almost across all our formats we've seen a recovery in September, starting September. And I think the vendors also can attest to that.

Okay. Thank you. Next set of questions would be from Nadine Bautista of JPMorgan. "On Food segment, can you share the breakdown of 2% SSSG into traffic and basket size in 3Q? Are you continuing to see down trading among consumers? And what products are driving higher basket size?" So that's your first question.

It's largely driven by basket size. The same-store sales growth in the third quarter.

Okay. And then Nadine's second question, it will be on the department stores. "So could you share" -- "could you also share a breakdown of the 3.4% same-store sales in 3Q into traffic and basket size growth?"

Basket size is -- both basket size and traffic is [indiscernible] transaction count is up 6%, sorry, and basket size is down about 9%, yes.

Transaction count up 6% and then basket size down about 9% for department stores in the third quarter. Next set of questions would be from [ Kengy ]. "Given the significant surge in net income to parent, attributable to the onetime gain from the bank merger, is there any consideration or possibility for a special dividend this year? And with the share price currently at an all-time low, or at all-time low levels despite the buybacks, we believe that declaring a special dividend would help unlock value for shareholders?"

The onetime gain is largely noncash and the dividends are -- dividend policy is actually extraordinary earnings.

Thank you, Gina.

Next question will be from Dan Brian Go of BPI Securities. "I wanted to ask what are the bottom 3 categories of your nonfood segment which are driving same-store sales growth. Likewise, what are the top 3 categories driving Food segment growth?"

[indiscernible].

Next would be from [ Tasha Rayes ] of CLSA. How much was the gross profit margin of the Food segment, excluding Uncle John's and [indiscernible]?

Brian, 4.5.

It's [indiscernible]. Next would be from [ Renier Ivenue ]. "Thank you for the presentation. First question, gross profit margin appears to be at a record high. Which component mostly contributed to this?" So that's his first question.

In Food segment, DYI, the GP margin increased. Also Department Store.

And second question would be on -- so Food, DYI and Department Stores contributed to the GPM expansion. The second question would be on specialty. "Any new brands that will be added? Can you add more color on the discontinuation of Savers Appliances?"

Just to answer for the Savers part. We're really focusing on retail. It's a pivot towards retail because the corporate and sub-dealer channels are -- have become very competitive.

We are discontinuing [indiscernible].

Converting.

Yes, we're converting the stores of Savers from -- Savers Appliances to Robinsons Appliances, but the company itself is [indiscernible].

We're not closing the stores, we're converting the name to Robinsons Appliances.

For new brands, no [indiscernible].

[indiscernible].

All right. Therese has a few follow-up questions. "How much did grocery contribute to the supermarket business in the first 9 months?"

It's around 10% of sales.

And still from Therese, this one is zeroing in on Uncle John's. "So what was same-store sales growth in 3Q and 9 months? And how much did Uncle John's net sales growth year-on-year in 9 months? And how much did ready-to-eat or RTE contribute to sales in the first 9 months?"

SSSG for Uncle John's is at 3.5. RTE sales contribution to total sales is about 41% and -- sales growth for first 9 months is at 2.8%.