SMU S.A. ($SMU)

Ladies and gentlemen, thank you for standing by, and I would like to welcome you to SMU's Fourth Quarter Results Conference Call on the 18th of March 2026. [Operator Instructions] So without further ado, I would like to now pass the line to Ms. Carolyn McKenzie, Head of Investor Relations at SMU. Please go ahead, ma'am.

Thank you. Thank you all for joining us today. I'm here with our CFO, Arturo Silva. As usual, we are going to start today's presentation with a few slides describing some of our business highlights, and then we will go to the financial results for the fourth quarter of 2025. After that, Arturo will be happy to take any questions. You can send your questions by chat or you can raise your hand and we can unmute you. An audio recording of this call will be available on our website later today. Also, please note that we may be making forward-looking statements today. So as always, please remember to take a look at the caution regarding forward-looking statements on Slide #2 of our presentation. We'll get started on Slide #3. 2025 was the final year of our most recent 3-year strategic plan. And especially in that final year, we laid the groundwork for what's to come. The main initiatives we implemented provide important context for our 2025 results and also for our expectations for 2026 and beyond. The omnichannel growth pillar featured an ambitious organic growth plan with 43 new store openings in Chile, which we successfully completed, 25 Unimarc stores, 10 Alvi stores and 8 Super10 stores in 3 years and 16 stores in 2025 alone. The new stores have been outperforming our expectations. In the fourth quarter, on average, sales and EBITDA were more than 20% higher than the plan that we evaluated when we made the decision to approve the projects. We assume a 3-year maturity curve and over 60% of these stores, which have been operating for less than 3 years, are already outperforming the average sales per square meter and sales per full-time equivalent for their respective formats. On Slide 5, we have one of the most important accomplishments of the 2023 to 2025 period and one that is extremely relevant for our plans going forward. During this period, we transformed our mix of formats in Chile. In 2025, we made the decision to accelerate the conversion of our Mayorista 10 format. We have been gradually converting these stores into the Super10 format, originally intending to finish the conversion between 2026 and 2028. However, we decided to speed up that process. And we also identified an opportunity to convert some of those stores to our Alvi format and not just the Super10. This is because we realized that a number of stores had a significant B2B customer base and also were located in areas with a higher number of mom-and-pops. And therefore, we saw more sales potential for Alvi in those locations. This streamlined our operations as we went from having 4 formats in 2022 to having 3 clearly defined value propositions that have the critical mass to compete effectively and contribute to growth. On the next 2 slides, we have a double-click on that decision. The 15 conversions to Alvi all took place as part of an overnight operation on November 1. We have pictures of that on the slide. In addition to those 15 conversions, Alvi opened 6 stores last year, including its first store in Punta Arenas, at the very southern end of Chile, which means that its footprint grew from 36 to 57 stores in just 1 year, providing significantly more scale and geographic coverage. Similarly, on Slide 7, Super10 has grown from 16 stores at the end of 2024 to 54 stores today. Given the new scale, we are now better able to communicate the value proposition to customers and build brand awareness because we have the critical mass to do so. At the end of October of last year, we launched a new campaign with the tagline Super10, Super Barato!, which means super cheap, reinforcing the soft discount value proposition to customers. And finally, in Peru, we opened 11 stores in 3 years, growing our presence in the Piura zone in the northern part of the country and helping build the scale we need to compete more effectively. As part of that growth, we also opened a new distribution center to help make our logistics operations more efficient and supply our stores more effectively. On Slide 9, we go to the second pillar of the plan, which is customer experience, where private label development has been a key initiative. These products enhance our assortments across formats, offering excellent quality at convenient prices. Our portfolio of specialized brands covers a wide range of categories, including bakery, fruits and vegetables, meat, seafood, pantry basics, cleaning supplies, paper products and more, achieving 13% sales penetration with over 500 product launches during the period. We have also been growing our supplier base using the trading company we acquired at the end of 2024 to strengthen our global sourcing, achieving cost savings that help us compete better. Another key part of the customer experience is the promotional activity we offer in order to deliver savings. We have been adapting our promotional strategy over the last 2 years in response to changing customer needs and preferences. This has led us to our current layered promotional strategy, which combines long-lasting campaigns with short high-impact campaigns. This is an adjustment to our previous high-low pricing strategy. We still have some high-low activity focused especially on fresh products, but we also have these longer-lasting low, lower campaigns. We are able to leverage our multi-format strategy by designing promotions that cover the same product categories across formats while remaining true to the marketing and pricing strategies that are specific to each format. On Slide 11, the next pillar of the plan is efficiency and productivity. In the face of rising labor costs and higher electricity rates, our efficiency initiatives have contributed to productivity gains throughout our operations. These include self-checkouts, self-service scales, digital shelf management technologies and a digital treasury system in our stores as well as other technologies in the supply chain and back office, allowing us to optimize our organizational structure, carrying out 2 restructuring plans in 2025, one in the first quarter and one in the fourth quarter, generating savings on personnel expenses going forward. On the slide, you can see that our sales per full-time equivalent, which is an indicator we use to measure productivity, increased 3.4% in the fourth quarter, although revenue was down 0.7%. And in the full year, even with a 2.4% decline in revenue, we still managed to improve sales per full-time equivalent. On Slide 12, we have also been working to offset the higher electricity rates, migrating qualifying stores to lower unregulated electricity rates. In 2024, 15% of our energy consumption in Chile was contracted under unregulated rates. And in 2025, we increased that number to 20%, migrating 36 facilities over the course of the year. We were previously expecting to reach 50% of energy consumption under unregulated rates by 2027, but we have made even further progress, and we now expect to make it to 55% in 2028. As an added benefit under these contracts, we are also using electricity from renewable energy sources. So we are more than tripling the share of renewable energy in our operations between 2024 and 2028. Finally, with respect to the committed and sustainable organization pillar of our plan, we were pleased to be included for the second consecutive year in the S&P Global Sustainability Yearbook, which recognizes companies that achieved an outstanding score on the S&P Corporate Sustainability Assessment. We were 1 of only 10 companies in our industry that qualified for this recognition. And with our score, we ranked first in Chile, second in Latin America and eighth globally. The corporate sustainability assessment provides us with an external benchmark with which to monitor and evaluate our sustainability management in areas that are key for our industry. And these results show that our sustainability strategy is aligned with global best practices. These results have also allowed us to qualify for the Dow Jones best-in-class indices, giving us access to a broader investor base. So that concludes our summary of the 2023 to 2025 plan. In December, we launched our plan for 2026 to 2028. If you missed that presentation, it is available on our website. Today, we just have a brief summary of the main initiatives. Our focus is to drive growth, competitiveness and efficiency, and we will do that by building on the foundation of our newly streamlined multi-format strategy. Today, in Chile, we are operating 3 formats with critical mass, each of which has a clear, well-defined value proposition. The new plan has 3 key pillars: growth with value for the customer, technology assets and efficiency and productivity. Our sustainable culture will support the execution of the plan. On Slide 15, the growth with value for the customer pillar encompasses many different areas of our operations and strategy. But the overarching goal of this pillar is to grow and enhance our value proposition for all of our customers and all of their shopping habits. This includes both final and B2B customers with different levels of sophistication and both fill-in and stock-up purchases. Our initiatives target all components of the customer value equation, assortment, freshness, private label, offline and online purchases, competitive prices and fast and easy shopping experiences that help save time. We plan to open 60 stores and upgrade 80 stores in the next 3 years while also growing our omnichannel coverage and expanding our private label penetration from today's 13% to 16% in 2028. As we look to grow sales, open new stores, upgrade existing stores, grow our logistics network, expand private label and increase efficiency, we need to implement digital technology assets that will help us build a more flexible, efficient company that is prepared to deliver greater value to customers, which brings us to the technology assets pillar on Slide 16. Between 2023 and 2025, we updated our ERP system, SAP, to the S/4HANA version. And so we are prepared to take the next steps to transform our existing transactional core into an agile digital core that accelerates the adoption of new technologies. In 2026, we will rationalize our infrastructure and migrate to a modern cloud, enabling cost savings and laying the foundation for adopting new technologies, such as an enterprise AI framework to build optimization algorithms for operations and new digital business capabilities. All of this will be implemented under ISO 27001 security standards. Building our digital technology assets is key for the next pillar of our plan, efficiency and productivity on Slide 17. This pillar has been a constant presence in all of our strategic plans as a disciplined approach to expenses is part of our culture, and we will maintain that while adding further process optimization and technological tools to drive productivity and help mitigate cost pressures, thereby contributing to profitability. We have efficiency and productivity initiatives throughout our operations, including supply chain, stores and back office as well as energy efficiency. On Slide 18, CapEx for the next 3 years will be around CLP 370 billion, distributed fairly evenly across the period, which means that CapEx for 2026 will be approximately CLP 120 billion. 55% of that amount will go towards growth initiatives, especially store openings and upgrades. This year, our plan includes 16 store openings and 36 store upgrades as detailed on the slide. And we are already off to a great start with 4 openings to date, 2 Unimarc stores in Chile and 2 Maxiahorro stores in Peru. Going on to the numbers. On Slide #19, we have revenue for the full year and fourth quarter. Revenue decreased 2.4% in the full year, but we had a significant sequential improvement in the fourth quarter, where total revenue was down 0.7%, but Unimarc increased revenue by 1.9%, and this was a combination of 0.9% same-store sales growth and the contribution from new stores, which, as I explained before, have been performing very strongly. The weaker performance in the soft discount and cash and carry format is largely related to the store conversions from Mayorista 10 to Alvi and Super10. Initially, the sales of converted stores tend to decrease as the process involves physical interventions to the stores and changes to assortment that have affected the customer experience. However, we believe this is a temporary effect and that these formats will allow us to compete better in the future. The increased scale and geographic coverage of these 2 banners as well as the brand relaunch for Super10 will increase awareness, helping attract new customers to these converted stores. We are confident that the new format selected for each location, whether Alvi or Super10, will offer a better value proposition for customers, and that should lead to better sales performance. In addition, as we have explained in previous quarters, in 2025, we made a strategic decision to focus on profitability, which involves optimizing our promotional strategy in the retail segments and eliminating certain low-margin volume sales in the Cash & Carry segments. The effects of that decision are clearly reflected when we look at the gross margin, which expanded 150 basis points in the full year and 90 basis points in the quarter. And on the next slide, we can see that the higher gross margin led to an increase of 2.5% in gross profit in the full year and 2.2% in the fourth quarter despite the lower revenue. As you can see in the graph on the right-hand side of the slide, this improvement in gross margin has been consistent throughout the year. We had already achieved a significant recovery in the fourth quarter of 2024, returning to 31.5% after 2 quarters in the 29% to 30% range. And in the fourth quarter of 2025, we had a further expansion of 90 basis points on top of that. In the last 3 quarters, we've had a gross margin over 32%. On the next slide, Slide 21, we have operating expenses, which increased by 5.6% in the full year and 5.5% in the fourth quarter, explained almost entirely by extraordinary increases in labor costs and electricity rates, affecting personnel expenses and service expenses, as you can see in the graph on the right. Specifically, the extraordinary increases were in the average minimum wage, which was 9% higher in 2025 than in 2024, the reduced work week in Chile and exceptional increases to electricity rates, causing our electricity expenses to increase 17% in 2025. These extraordinary increases had an impact of approximately CLP 20 billion for the year, explaining why our expenses grew above inflation. However, both the minimum wage and electricity expenses rose less in the fourth quarter, and we expect this to continue to be the case. We accelerated adoption of the 40-hour work week for stores that are fully adhered to our efficient operating model. So even though the law allows for a gradual reduction, we have already absorbed the full impact. We also have our operating efficiency and productivity initiatives to help keep expenses under control. Consequently, we expect to see more moderate growth in operating expenses in the coming periods. On Slide 22, we have EBITDA, which decreased 6.1% in the year and 6.4% in the fourth quarter. Although we did have an expansion in gross profit, this wasn't enough to offset the extraordinary increases in operating expenses. Going forward, we are optimistic that a combination of top line growth and more moderate increases in expenses will contribute to EBITDA growth and an expansion in our EBITDA margin. On Slide 23, we have net income, which was up 29.5% in the year and down 27% in the quarter. The main effect in the full year was a nonoperating gain of CLP 60 billion before tax on the sale of assets and purchase options in the first, second and third quarters of 2025. We continue to operate those assets under new long-term rental contracts that we signed with the buyers, so there was no impact on operations from these transactions, but this is a more optimal financial strategy. These transactions also give rise to a higher income tax expense. The net effect in 2025 was CLP 44 billion. On the other hand, we had a nonoperating loss from the organizational restructuring plans that we carried out in the first and fourth quarters. In the full year, the impact was close to CLP 13 billion. And in the fourth quarter, it was CLP 3 billion. As I mentioned before, these plans generate savings going forward. On the next slide, we have our financial ratios. On the left, net financial liabilities to EBITDA, including store rentals, was 5.2x in December. And when we adjust for store rentals, it was 3.6x. In 2025, we paid around CLP 140 billion in bond maturities, leading to a reduction in financial debt. Our cash balance only decreased by CLP 70 billion. So even while EBITDA was lower, we still saw an improvement in the net financial debt to adjusted EBITDA ratio. When we look at total financial liabilities, we have an increase essentially in obligations for rights of use, which is where we recognize store rental contracts under IFRS 16. And this is due to both the new contracts for the stores under the leaseback operations and contracts for new store openings. New store openings have a temporary negative impact on these indicators because when we open a new store and we sign a new rental contract, that contract is recognized as an obligation for rights of use under financial liabilities, and we have to recognize the full amount of that liability. We also have the full impact of the CapEx that we need to build the store on our cash flow. But the store doesn't contribute its full EBITDA until it reaches maturity, generally around its third year of operation. This affects the net financial liabilities to EBITDA ratio as well as the net interest coverage ratio. The impact on the adjusted ratio is less because those ratios don't include the rights of use or the respective interest expense. On Slide 25, we have our bond covenants. The net financial debt-to-equity ratio is at 0.51x, lower than in December 2024, again, because of the lower net financial debt that I described on the previous slide. Net interest coverage is lower than in 2024, but still well above our limits. On Slide 26, at the top of the slide, we have a summary of our cash flow for the full year 2025. We started the year off with a cash balance of CLP 155 billion, which included the cash that we had raised through bond placements during 2024 in preparation for the 2025 bond maturities. During the year, we generated operating cash of CLP 266 billion, plus CLP 94 billion in net proceeds from the sales of assets and purchase options mentioned before. If you look at our cash flow statement, you will see a cash inflow of CLP 129 billion from these sales, but there was also an outflow of CLP 35 billion from the prepayment of the lease that we had on the distribution center, hence, the net amount of CLP 94 billion. The main use of cash for the period was net debt amortizations of CLP 141 billion, mainly relating to the Series T and AK bonds that matured in March and April and that we paid using proceeds from the bonds that we issued the previous year. We have been maintaining a significant cash surplus over the last several quarters as we had CLP 240 billion in bond maturities over the last 2 years, but we have now returned to more normal cash levels as our refinancing needs through 2026 are extremely limited, as you can see in the maturity profile below. We have bank debt that tends to be revolving and only CLP 11 billion in bond maturities for all of 2026. The other uses of cash for the year were lease payments in addition to the distribution center prepayment of CLP 62 billion, interest payments of CLP 63 billion, dividends of CLP 51 billion and CapEx of CLP 113 million. We have an ending cash balance that is still a bit higher than normal. We generally think of CLP 40 billion to CLP 50 billion as standard, and we ended the period with CLP 85 billion, which gives us plenty of flexibility. And finally, we've had a few announcements in the beginning of this year, so we wanted to include a summary here. In January, we carried out another organizational restructuring plan, which will have a negative impact of approximately CLP 12.5 billion before tax on our first quarter financial statements, but this will generate savings that offset the cost over the course of the year, and then those savings remain for future periods. In February, our Board of Directors authorized management to execute our share buyback program. As a reminder, this program was approved by shareholders in 2022 for a 5-year period, but technically, shareholders authorized the Board to execute the program. It's not very practical to have the Board actually doing the day-to-day execution. So they expressly authorized management to do this. While the authorization was granted in February, we were in our pre-earnings blackout period, so we couldn't make any purchases until yesterday. The Board also agreed to call an extraordinary shareholders' meeting to evaluate the possibility of approving a new buyback program. If the new program is approved, that would be for a new 5-year period and the existing program would be terminated. And finally, in March, we announced additional sale and leaseback operations for 2 stores using the same structure as last year, and we also sold 2 properties from our land bank. In all 4 cases, we signed long-term rental contracts. We will continue to operate the existing stores just as we currently do. And as far as the land, that was originally purchased in order to secure the locations for future store openings. So for those 2 properties, we signed rental contracts to operate the stores once the respective real estate projects have been developed. These transactions will have a positive impact of approximately CLP 2.3 billion on net income in the first quarter, and there will also be a net cash inflow of approximately CLP 6.7 billion. We rent almost all of our stores, but we do still have 4 stores that we own and could potentially sell using the same structure, and we also have 9 other sites in our land bank. That is it for our presentation. Thank you for listening. If there are any questions, Arturo, will be happy to take them now.

[Operator Instructions] We have our first voice question coming from Alonso Aramburu from BTG Pactual.

Yes, a couple of questions on my end. Given the trends you've been seeing, can you give us any sense or expectations about what you are thinking about sales growth and EBITDA margins for 2026? And related to that, also, you mentioned more moderate growth of expenses. How much is that? Is that in line with inflation, above inflation, slightly below? If you can give us some color on that. And related to the low-margin volume that has been taken out of the stores, are you done with that strategy? Or there's more cutting of volume that needs to happen still this year?

Sales for 2026 -- the sales in the first month of this year, January, February and the first days of March show a significant recovery of Unimarc, in line with the Q4 in 2025, but even more than this recovery in the last quarter of 2005 (Sic) [ 2025 ] with performance in old stores and also in opening stores. However, due to the conversion effect in Super10 and also in Alvi because in this store, the performance has been lower because in the first phase of the conversion, these stores suffer in terms of sales because the customers suffer in terms of service in the conversion because the store is not closed operating in this period. But we're expecting that in the next quarter, the sales of this store will be in the level of the average of the rest of the store in the portfolio. And -- but the weight of the full March sales in the total sales is very, very important. Therefore, we are expecting a significant increase in the first quarter in terms of the sales for the [indiscernible] in terms of the gross margin remained stable. In terms of expenses, we implemented, as Carolyn mentioned, the restructuring plan that should be paid during this year. And in general, we are expecting the -- let's say, growing more than previous year and also the expenses controlled in the level of inflation because we are not expecting extraordinary increase, especially in salaries and also in electricity expenses. And also, we implemented some measures to reduce the headcount in the first quarter and also the more store with nonregulated rate for the electricity. And these 2 expenses are very, very important in the total expenses. And for this reason, we are expecting growth in expenses in the level of inflation in the next year, especially this year and not in the level of 5.6% like 2025. In consequence, we are expecting improvement in our EBITDA margin in the level of 8% or 8.5%, more in line with the Q4 in 2025 for this -- for the next quarter.

Just to follow up on that. So the 8% to 8.5% is for the full year 2026. That's your expectation? Or is that for the next quarter?

No, the 8.5%, we are expecting to reach close to 8.5% this year. And in the next -- in the rest of the -- we plan to go for the 9% again is our long-term target.

Okay. My second question was regarding the low-margin volume you have been taken out of Alvi. Are you finished with that? Or do you still -- are you still reducing the number of SKUs?

In Alvi, the idea is improve the margin because specifically in the level of -- in the store in the old store in Alvi, but the gross margin in of Mayorista 10 stores that we convert in Alvi, of course, will reduce the margin, but also we will reduce the expenses in these stores. And finally, the idea is to have a performance in terms of the sales, margin and expenses as old store in the new stores or in the new store in the converted stores as well. Also in the volume, we adjust 100% of the store of the sale with low margin in Alvi because it's phenomenon not only in the new store also in the old stores. And now we are improving sort of the direct sales or institutional sales, but with a good margin, not as was in the previous year. But -- and for this reason, the Alvi margin will be stable in the next quarter as well in the level of the last year, in Q4 of 2025.

Our next voice question comes from Joel Lederman from Itau.

Can you hear me?

Yes, we can hear you.

So I have 2 questions. The first one is just a follow-up on the Alonso question. I just want to understand better the dynamics of the same-store sales discount format. If you could separate the ticket and the volume? And how should we understand the discount formats without the strategic SKUs that you are putting out? Just to understand how should we understand the evolution of the same-store sales going forward? My second question is regarding the payback of the one-offs. So how do we see that in terms of the year? We should be a gradual evolution of the payback or is it concentrated in the fourth quarter of 2026? My third question is regarding the potential for the 4 stores and the land bank that Carolyn mentioned in the presentation. If you could give any color regarding those would be great.

The payback of the restructuring plan is around 10 months. And we implement in January, we will recover the investment in November, we will have 1 month with net sales. But the main saving will be in 2027 for this specific plan and the rest of the year, of course. And another question was discount?

The first question, Joel, the audio was kind of going in and out.

The discount performance that was?

No, no. Again, I'm so sorry. So in terms of the same-store sales of the discount formats, which was 9.1% negative 9.1%. I just want to understand how that is -- how much of that is related to volumes and prices? And how much of that is related to the SKUs that you are taking out of the system due to the strategic kind of like -- kind of way of seeing the business.

No, the idea is to recover the same-store sale with our strategy of Super Barato that we launched the commercial strategy in November of 2025. And the campaign includes this price strategy -- pricing strategy and also the awareness of this format because now we have 54 stores. In the past, we had only 16. Therefore, we will have -- we are fair in this more awareness to improve. And also, we have in the 2025 less sales for the -- because we reduce the volume sales for [indiscernible] but this effect will be in [indiscernible] 2026. Therefore, the only negative effect we will have in 2026 will be the conversion effect, as Carolyn mentioned in the first stage because these stores suffer the remodeling plan in the store. But in the next quarter, we are expecting to improve performance and potentially for the commercial strategy with our improvement in the assortment as well in line with the soft discount of [ brick-and-mortar ] and to reach the increase in same-store sales -- but for the conversion effect, the recovery of growth in terms of sales in Alvi and Super10 will be slower than Unimarc for [indiscernible].

We have a text message from Santiago Venegas from Principal Financial Group. Santiago asks, apart from optimizing promotional activity, what are some other measures to drive top line growth in the coming periods? And also what is the expected maturity time for converted stores for Mayorista 10, Super10 and Alvi to perform at their highest level?

Okay. In general, the converted store should be better performance of the maturity -- the maturity probably after 12 months is our experience in these cases. After 12 months, we cover or we reach the average sales of the rest of the portfolio. although we're expecting the end of this year to reach this level of performance.

And another, first part of the question, measures to drive top line growth.

Essentially our promotional activities, our improvement in the assortment with this promotional -- the short-term promotions in Unimarc combined with the long-term promotion for 2 or 3 months in the base basket with very, very attractive prices for more long-term period and [ Apodiosi coso ] or short-term promotion in perishable products essentially, meat or beer on weekend essentially with very good results in January, February and March of this year and also in the end of the last year. We insist in this combination of promotion in Unimarc and in Super10, the Super Barato strategy. In Alvi, we have also a combination of promotion activities and also improving our assortment and also the multichannel strategy in e-commerce stores and also direct sales with sales force with the idea to have more coverage than -- for each store with sales force in the institutional sales. That is the strategy in addition in Alvi stores. And also it's very, very important the private level in this strategy because we have a better private level in terms of quality and prices because we are purchasing product directly in the stores without [ intimidations ]. And that is the strategy to obtain better condition and this better condition to pass through for the prices and with more attractive prices and more quality in private label will be also very, very important to impose the growth of the sales on the top line in the next quarter. Also, we have an average of some stores, 80 stores in the next 3 years. And this upgrades in certain Unimarc will allow to convert these stores in the level of the new stores that we will have a very, very good performance. And with this remodeling plan, we will have a better sales as well in the level of the best stores of the format. That's the combination of measures in the more -- in additional promotional activities to improve the top line in the next quarter.

Rafa, I don't see any other questions.

[Operator Instructions] It looks like we have no further questions. So let me pass the line back to the team for their concluding remarks.

Great. Thanks for joining us today, everybody. Feel free to get in touch if you have any additional questions, and we hope you'll join us in the next quarter. Have a great day.

Thank you. We are now closing all the lines. Goodbye.