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

[indiscernible] Good afternoon, everybody. Thank you for joining us to review Robinsons Retail [indiscernible] results for the full year of 2024. I am Gina Dipaling, the company's investor relations officer. The speakers for today are Stanley Co, our newly appointed President and CEO; Mylene Kasiban, our CFO; Christine Tueres, Managing Director of the [indiscernible] Food segment; Joanne Arceo, the Group General Manager of the Drugstore segment; Mina Quizon, the General Manager of Robinsons Department Store and Beauty; Ted Sogono, the Group General Manager of DIY and Pets; and Jovi Santos, Group General Manager of our Appliances Segment. Our chairman, [indiscernible]. That is the agenda for this afternoon's call. We will provide a review of our financial performance, and update on our minority investments. As a reminder, for the Q&A session, [indiscernible] your questions. [Operator Instructions] And with that I will now turn you over to Stanley, our President and CEO.

Thank you, Gina. Here are the highlights of our results for the fourth quarter of 2024. Consolidated net sales increased by 5.3% to PHP 56.8 billion, blended same-store sales growth came in at 3.4%. Gross profit accelerated by 8.7% to PHP 30.8 billion. EBIT grew faster, by 20.9% to PHP 3.4 billion. [ core ] net earnings registered PHP 2.3 billion, higher by 21.5% versus last year. The net income to parent of PHP 2.5 billion, 62.4% higher. For the full year 2024 highlights, consolidated net sales came in at PHP [ 199.2 ] billion, higher by 3.7%. Net same-store sales growth of 1.5%. Gross profit rose by 5.5% to PHP 48.1 billion. EBIT came in at PHP 9.8 billion, higher by 9.1%. Core net earnings surged by 12.3% to PHP 6.3 billion. The net income to parent amounted to PHP 10.3 billion, 2.5x higher. This is mainly due to the one-time gain from the BPI/Robinsons [ stock ] merger. Despite minor disturbances in the fourth quarter, including 6 typhoons from late October to mid-November, same-store sales growth accelerated to 3.4%, supported by easing inflation which translated to strong holiday season sales. Full year SSSG [ ended up ] 1.5% and healthy fourth quarter performance was driven by the Food, Drugstore and Department Store segments. Now a deeper look at our P&L. EBIT saw an acceleration in the fourth quarter, driven by [ broad ] category gains, [indiscernible] vendor support, and savings from the rationalization of underperforming stores in the prior quarters. This pulled full year EBIT higher by 9.1%, [ eclipsing ] top line growth. Net income to parent grew by 62.4% to PHP 2.5 billion in the fourth quarter, driven by a reversal of ForEx losses to gains, lower losses from associates following the reclassification of full-time, with our stake reduced from [ 20% ] last year to just 19%, and the write-off of the investment in BeautyMnl in the fourth quarter of 2023. Net income to parent for the year reached PHP 10.3 billion, 2.5x higher than last year, benefiting mainly from a substantial gain from the BPI [ Arran ] merger. Core earnings excluding one-time items increased by 21.9%, PHP 2.3 billion in the fourth quarter, with full year core earnings rising 12.3% to PHP 6.3 billion. In terms of segment contribution, the 4 staple businesses accounted for 78% of total sales and 80% of total EBITDA, respectively, in 4Q 2024. Meanwhile, our discretionary formats comprised 22% of total sales and [indiscernible], 30% of total EBITDA, respectively. And as of December 2024, our store count reached 2,453, comprising 761 food segment stores, 1,133 drugstores, 50 department stores, 227 DIY stores and 280 specialty stores. Additionally, we have 2,115 franchised TGP stores. For the year, we added [ 60 ] net new stores, primarily under the drugstore banner. Next speaker is Christine Tueres for the Food segment.

Thank you, Stan. Food segment net sales grew by 6.1% to PHP 33.5 billion in fourth quarter, driven by 4.1% same-store sales growth, supported by higher transaction count and basket sizes increase for the second consecutive quarter. Full year net sales reached PHP 220.3 billion, up by 4.6%, with same-store sales growth of 2.3%. Increased vendor support and stable demand for imported products boosted gross margins by 30 bps to 22.7%. As a result, EBITDA increased by 13.7% to PHP 3.2 billion in fourth quarter, bringing the full year total to PHP 10.6 billion, higher than the top line growth rate of 6.1%. Now I hand you over to Joanne for the Drugstore.

Good afternoon. Net sales in the Drugstore segment increased by 5.9% to PHP 9.5 billion in fourth quarter. Fiscal year sales rising by 7.3% to PHP 35.8 billion, primarily driven by our new stores. Same-store sales growth slowed down to 1.6% in the fourth quarter from a high base of 8.6% in the same period of last year [indiscernible] lower OTC demand, and sales were impacted by the 6 major typhoons that hit Luzon during the quarter. Full year same-store sales growth was up 3.2%. Gross margin expanded by 140 bps to 22.3% during this period, lifting full year margin by 50 bps to [ 29.5% ], driven by vendor support and higher house brand penetration. Full year EBITDA grew by 2.1% to PHP 3.1 billion, slower than top line growth due to store expansion and higher GC costs from new systems and facilities. Turning now over to Mina.

Same-store sales growth in the Department Store segment accelerated in the fourth quarter to 6.6%, fueled by higher customer spending during a strong holiday season, lifting full year to [indiscernible] same store sales growth [indiscernible]. Net sales for the year grew by 2.1% to PHP 16.6 billion. Gross margin improved by 50 bps to 30.4% in Q4, by 20 bps to 30.9% for the full year, driven by increased vendor support, higher [indiscernible] fees, and [ improved ] category mix. Higher operating expenses attributable to rent, personnel cost, the marketing efforts for the [ Spatio ] launch contributed to the slight decline in EBITDA to PHP 1.2 billion. Turning over to Ken.

The DIY segment recorded net sales of PHP 3.3 billion in the fourth quarter, down 1.8%, with fiscal year net sales reaching PHP 11.8 billion, impacted by an industry-wide slowdown that resulted to intensified competition. Gross margin expanded by 160 bps to 30.2% in the fourth quarter, driven by the introduction of new items, and closed the year at 32.4%, returning to the 32% level last seen in 2020. Improved gross margins and cost savings on the closure of 11 underperforming stores drove 8% increase in EBITDA of PHP 1.3 billion for the year. Next speaker is Jovi.

Our SSSG for the Specialty segment turned positive at 1.7% in the fourth quarter, following 4 consecutive quarters of negative SSSG, driven by the strong performance of toys and pet retail. Full year SSSG ended at minus 3.9%. Gross margins improved significantly, accelerating by 340 bps to 28.6% in fourth quarter, supported by improved category mix, increased vendor support and higher [indiscernible]. This brought the year-to-date gross margin to 28.7%, up by 200 bps. The robust top line growth and gross margin expansion fueled the increase in EBITDA by 65.2% to PHP 380 million in the fourth quarter. For the full year, EBITDA reached PHP 866 million.

Okay. Moving on to working capital. This year's working capital is at 14.6 days versus 13.7 days, partly due to the [indiscernible] year-end holidays. Moving on to the balance sheet. We are in a net debt position of PHP 6.8 billion as of end 2024 [indiscernible], largely due to the [indiscernible] shares repurchased in January 2023. As of December 2024, our debt [indiscernible] to BPI, our share purchase is at PHP 12.1 billion. In terms of the net debt position, our [indiscernible] continues to be strong with a net debt-to-equity ratio of 4.07. ROA and ROE increased 6.3% and 12.6%, respectively, due to the one-time gain from the BPI [ Arran ] merger, which we recognized in the first quarter. In terms of capital expenditures, impacts from all segments in 2024 reached PHP 5.2 billion compared to PHP 4.2 billion last year. Majority of -- or 58.6% of CapEx was allocated to the food segment, followed by 13% for DIY, 12.9% for Drugstores, 9.3% for Specialty and 6.2% for Department Store. So turning over now again to Stanley.

So allow me to update you on some of our minority investments. Wholesale store count on the Philippines stood at 401 as of December 2024, almost doubled from 207 last year. Sales have increased by 2.3x to $257 million to support this continuous expansion, wholesale opened a new warehouse in [indiscernible] last November. Now on G2M, which is the parent company of Growsari, Growsari's [indiscernible] e-commerce platform sales value sold after Growsari amounted to $872 million in the fiscal year 2024, a [ 24% ] growth increase year-on-year, driven by the continuous growth in [indiscernible] in adoption of its 100,000 [indiscernible] stores. The company operates in 23 [ BCPs ] across the Philippines. GoTyme's parent, [ Bangko ], achieved nearly [ 4 stars ] last year with a $1.5 billion valuation after a $250 million funding round led by [ indiscernible ] Financial Services, [indiscernible]. This serves as a testament to underlying growth prospects of the wider [ Tyme ] Group. On the other hand, GoTyme bank continued to post strong growth in terms of customer transaction count. Total bank kiosks reached 570 in the end of 2024, and 402 of which are located in RRHI stores. This is our guidance for full year 2025. We are looking at the [indiscernible] location of 130 to 170, the bulk of the new stores coming from the food and drug stores. Meanwhile, we are aiming for a blended SSSG of 2% to 4%. On gross margins, we are guiding for 20 to 36 bps expansion for the year. And finally, we are earmarking PHP 5 billion to PHP 7 billion for organic capital expenditures. This ends our presentation for FY 2024 results. We will now open the floor for Q&A session. Thank you.

[Operator Instructions] [indiscernible] first one is how much is the remaining debt [indiscernible] shares as of year-end [indiscernible] earlier that was 12.1 million? His next question is what is the target date of [indiscernible], and then what's the interest rate and maturity of the debt and if you can provide what this apparent level of time [indiscernible]?

[indiscernible] And interest rate is 6.35%, that's [indiscernible]. And the last repricing was last -- last month, January. And on the cash of the parent, it's very minimal.

Okay. Thank you. There are some questions from the Q&A box. First one is from [indiscernible]: thank you for the presentation; can you share some more color on the recovery of Department Store same stores sales growth? And was the improvement in Specialty's gross profit margin due to price increases or more category mix?

We had -- for Department Store, we had 1 store closure [indiscernible] For the Specialty segment, the GPM increase is more due to the category mix through sale events than price increase.

Next question is from Nadine of JPMorgan. So what is -- the first question is, what is the same-store sales growth rate breakdown [indiscernible] for the full segment between basket size and transaction count. And any -- do you see any divergence in trends across the formats?

Christine here. So our [indiscernible] for Robinsons Supermarket as of end of 2024 had an SSSG of 1.8%, Marketplace at 5.6%, Shopwise at 4.1%, Robinsons Easymart negative 0.2% and Uncle John's at 2.4%.

Nadine's second question is on the department store business. Can you share color on the drivers of the 6.6% sales growth that was entered in the year? But she does have a few follow-up questions on the segment, so which geographies [indiscernible] store sales and which ones are lagging? - what is causing the divergence between GPM expansion and slightly lower EBITDA margins in the fourth quarter? Was this caused by discounting or any promotional activities?

For the geography at this [ Mindanao ] that is driving the highest growth. Luzon is just flat. And for the second one is what is causing the [indiscernible]. We also had to move out -- we had

Thank you. And then Nadine's third question is for the DIY business, the segment. So what's driving negative same-store sales growth? Just due to basket size, or transaction count? And what caused EBITDA margins to drop [indiscernible]?

It's transaction count that that's affecting us, for indeed the margins on the fourth quarter is lower because [indiscernible].

Thank you. Next set of questions are from Karissa at Macquarie. This is on supermarkets SSSG in fourth quarter and FY '24, excluding Uncle John's. How is this broken down between transaction count and basket size?

SSSG in fourth quarter is [indiscernible] Uncle John's is at 4.4%, while full year 2024 is at 2.4%. [indiscernible] For the full year? [indiscernible] Okay. For the full year transaction count, it's at plus 5.1%. [indiscernible] Basket size is at negative [ 2.9% ]

Thank you. Follow-up on supermarkets, what is net sales, GP and EBITDA also in the fourth quarter, excluding Uncle John's?

Okay. So full year, excluding Uncle John's, it's 113.8. Gross profit is 21.8%, and EBITDA is 20.9%.

Thank you. [indiscernible]. And on just Uncle John's, what was same-store sales growth in quarter 2 and first quarter [indiscernible]?

Same-store growth for Uncle John's is 2.4% and negative 1% for the year.

Thank you. Next, we have 3 questions from [indiscernible]. First one is, can you help us have a better picture of the competitive landscape in the drugstores market as well as Robinsons Retail competitors, just compared to the other players? And how many Drugstores do you plan to have eventually?

So currently actually the market is flat for the drugstore market, so we are actually growing faster since we [indiscernible]. In terms of expansion, we're leading also, because we opened 98 stores last year, so we are one of the fastest, if not the fastest, in terms of expansion. In terms of competitive edge, [indiscernible] the rate of expansions. So we plan to sustain that this year, 200 stores -- 100 for Southstar and also [indiscernible] and another 100 for TGP. Another advantage is our omnichannel presence. Aside from offline, we're strengthening our e-comm business. So right now, the share of the business for that is substantial at [ 3.4% ]. And we are maintaining also protective -- [indiscernible].

Thank you. The second question is for the DIY segment. So CapEx, the DIY was quite substantial last year. Can you remind us what you invested in for this segment in 2024? And what are your plans for this business this year?

We converted [indiscernible] stores in this other region with 4,500 square meters. [indiscernible]

Thank you, Ted. [indiscernible] third question [indiscernible]. Can you comment on the rationale behind the SSSG guidance or target of [ 2.4% ] for this year, which is lower than expected [ GDP growth ]?

[indiscernible] expansion, new stores that we have opened in the year. For same store sales growth, the [ 2.4% ] target is really because the historical same-store sales growth of RRHI is like [ beneath that bridge ] .

Okay. Thank you. Again, a few follow-up questions. Can I confirm that Easymart posted negative same-store sales growth in the fourth quarter? And may I ask what's driving the same-store sales decline for Easymart?

[indiscernible] negative 0.2% is for the drugs.

Okay. And then Nadine has a question for wholesale. What was same store sales growth in the fourth quarter, and how is this broken down into basket size and transaction count? [indiscernible] store opening target and how many more new stores can the new warehouse service?

Same-store sales growth and then basket size and transaction count, I think you need to ask the the management of wholesale. we're just a minority shareholder here. But as far as I know, store opening is about 300 this year, and each of the warehouses service 100 stores.

Okay. [indiscernible] would like to answer?

[indiscernible] So the same-store sales growth for the year is 27.3%. And that comes also from increased transaction count.

[indiscernible] Next set of questions from [indiscernible], this is on supermarkets. How much [indiscernible]?

7.2% from -- yes, 6.8%.

And then next question is for Uncle John's. How much did ready-to-eat contribute to sales for full year 2024?

40%.

Okay. 40%. Next, on grocery, how is grocery doing? How much does it contribute to sales?

It is around 10%.

10%. [indiscernible] Okay, still from Carissa, any sales trends that you saw in January -- that's -- sorry, in January 2025, did you see an improvement in SSSG?

Yes. [indiscernible] we are seeing improvement in same-store sales growth, but more or less the same as in January 2024 [indiscernible].

Okay. Tax rate was relatively low at 12% in 2024. So what's the reason behind this and what is the sustainable tax rate that we can assume moving forward?

Yes. It's because of the one-time gain on the BPI/Arran merger. On a going basis, it should be around 20%.

Okay. Thank you. And for the next question, can you provide a breakdown of net store additions in 2025?

We're looking at 40 to 50 for the Food segment, 80 to 100 for the Drugstore, 5 to 10 for DIY, and then another 5 to 10 stores for Specialty stores. And 1 Department Store.

Okay. Next set of questions from Denise of [indiscernible]. What drove the significant recovery in EBITDA margin for Specialty?

Mainly gross margin expansion through category mix sales, improved vendor support and [indiscernible] collected. So far, no significant opportunity [indiscernible] that we see, especially in the third quarter [indiscernible].

And then your second question, additionally, can you share your expectations in terms of what opportunities and risks for the Specialty segment for 2025?

Yes. Nothing in EBITDA.

[indiscernible]. Can you share indications for transaction count, and AC growth, and are you referring to basket size, growth rates, -- for staples and discretionary last January?

[indiscernible] I think we should expect [indiscernible] the same store sales growth versus basket size.

Next is [indiscernible]. Can you share the contribution of wholesale and go [indiscernible]?

Yes, we only advertise the earnings or losses in our books.

Next is from Jeanette, JPMorgan. Can you expand on your equity earnings? What associates or units accounted for $450 million and what is your outlook for 2025?

[indiscernible] Mostly from [ Growsari ].

Next is from [indiscernible]. What is the interest expense related to borrowings last year? How much dividend from BPI did you assume [ you would pay for the quarter ]?

Interest expense $900 million, divided around $1.3 billion.

Next from Carissa. [indiscernible] for the 40 to 50 new stores for the Food segment this year, is this [ skewed towards ] in supermarkets or the big formats, or smaller formats such as Easymart and Uncle John's?

It's smaller formats.

Next is from Daniel [indiscernible]. Congrats on the solid performance. What are the capital management targets for this year? Can the management commit to raising the dividends and continuing the share buyback?

On the dividends, I don't think the absolute amount will be reduced. It could be added or maintained.

Okay. Just a follow up, can you compare the store growth at wholesale to the [indiscernible] the store expansion of both wholesale and drugs going down?

I cannot answer for [indiscernible], I'm not sure whether they're slowing down or not. For us, at least, we are not slowing down our store expansion growth [indiscernible] through '25 and '26

[indiscernible] on the buyback?

On the buyback, we have PHP 400 million [ balance ] for the buyback. Right now, we're focusing our [indiscernible] program [ very independent of all that ].

Okay. Next is from [indiscernible]. Which categories within Department Stores outperformed in the fourth quarter and do we expect the same for this year?

For Q4 it's toys, [ home ] and [indiscernible], more or less staying the same [indiscernible].

[indiscernible] How do you pick the sites for expansion sites? Can you share color on store economic metrics for wholesale [ net ] margins [indiscernible]?

[indiscernible]. I mean our expansion is highly decentralized. As you are probably aware, we are growing simultaneously in different parts of the country depending on where our warehouses are currently located. We have separate teams for each of those regions looking simultaneously, and the primary factors that we are looking at is density and population.

From Carissa, how many stores did we close down last year, and what is the [indiscernible]?

[indiscernible] We closed around 10 Uncle John's stores. [indiscernible] We're operating [indiscernible] close down 19 stores.

For DIY, it's 8 stores.

Next, this is from [indiscernible]. When do you expect the discretionary segment revenues to reach 2019 levels?

[indiscernible] We're expecting it later this year.

And then Nadine asks, I think that it's gratifying [indiscernible] to get any color on economic metrics for wholesale, like margins, required CapEx. Jonas?

So our -- the required CapEx per store is around USD 100,000. Margins and payback highly depends on location where we are at the moment, given that the -- our business model is based on the volume growth, it's less of an [indiscernible] at this particular stage.

And so at this point, there are no more questions coming in, and [indiscernible].

Thank you, everyone. See you in our next earnings call.