SMU S.A. (SMU) Earnings Call Transcript & Summary

Thank you for standing by, and I would like to welcome you to SMU's Second Quarter 2026 Results Conference Call on the 12th of August 2026. [Operator Instructions] So without further ado, I would now like to pass the line to Ms. Carolyn McKenzie, Head of Investor Relations at SMU. Please go ahead, ma'am.

Thank you very much. Thanks, everyone, for joining us today. I'm here with our CFO, Arturo Silva. As usual, we're 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 first half and second quarter of 2026. And after that, we will be happy to take any questions. You can send questions by chat or raise your hand and we can unmute you. An audio recording of this call will be available on our website later today. And as usual, 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. Moving on to Slide 3. Our strategic plan for 2026 to 2028 is structured around 3 key pillars: growth of value for the customer, technology assets and efficiency and productivity. Our sustainable culture serves as a supportive base to implement our strategy. On the next few slides, we'll go over the progress so far. On Slide #4, we have our store openings. The 2026 to 2028 plan includes a total of 60 new stores in 3 years, with 16 openings planned for this year. To date, we've opened 7 of those stores, including 3 in the second quarter. By format, in the first quarter, we opened 2 Unimarcs and 2 Maxiauroes. And in the second quarter, we opened an additional Unimarc as well as 2 Superdiest stores. The strong performance that we've seen from our new store openings from our previous 3-year plan makes us optimistic about the outlook for these recent openings as well as the other stores we have in the pipeline. On Slide 5, we have an update on the performance of our low-cost formats, Agi and Superdiz. Last year, we made the decision to enhance coverage and scale by converting 100% of our Miami Civ stores into either Agi or Superdi. This decision was made and fully executed in 2025 when 100% of the stores were converted, and this mostly took place during the third and fourth quarters. We are very confident that Alvi and Supergifts will allow us to compete more effectively than Mighty Studios. So the growth potential is much higher, but we know from past experience that remodeling stores produces a temporary negative impact on sales, and that is what happened with the stores we converted, as you can see on the graph on the slide. Sales for Avi and Supergifts were down 11.5% in the third quarter of last year and 8.3% in the fourth quarter. However, we've been improving quarter-over-quarter. Sales were only down 0.6% in the first quarter. And in the second quarter, we had positive revenue growth. Following the change in banner, we've been working to attract new customers, taking advantage of our increased geographic coverage and scale to use more mass communication strategies in order to build brand awareness. On the slide, we have a couple of examples of those campaigns. As we build up our customer base, sales volumes will continue to grow. In particular, one of the clear findings we've seen in ALi during the first half of the year is consistent growth in the number of B2B customers at the converted stores, which means these stores are reaching their target audience. On Slide 6, another part of growth with value for the customer is expanding our omnichannel coverage, reaching our customers not only through our physical stores, but also through our online sales channels. This year, we've made a big push to expand coverage, adding 200 new locations, which contributed to the 15% growth in online sales in the first half. This was driven by an increase of 15% in the number of transactions on our unimarc.cl and Aldi.cl platforms, and we also saw growth in last mile. Another initiative within the plan is to grow private label penetration as these products contribute to our competitiveness and profitability and also help us to offer a differentiated and attractive assortment to our customers. In the second quarter, we reached private label penetration of 14% of sales, driven by strong performance at Unimarc. In line with the goals of differentiation and profitability, we've had particularly strong growth in the national brand equivalent segment, which are higher-margin products than the opening price point products. And finally, we've also been growing our supplier base using the trading company we acquired at the end of 2024 to strengthen our global sourcing, reducing intermediation costs and achieving savings that help us compete better. On Slide 8, we have the next initiative, which is focused on relevant assortments, where we aim to ensure that we're offering products that are highly relevant for each of the segments and sophistication levels that we serve at our different formats. We recently added over 50 products from Puna, a well-known supplier of suites and seats to our assortments at all 3 formats in Chile. On the slide, we have images from Super Bs as an example. This is a great way for us to quickly enhance our selection of suites in the opening price point segment, offering a well-known and valued products to our customers. On Slide 9, we have more examples of ways that we are working to make sure we are offering the right products to meet our customers' needs in this case, specifically for ALD. One of Alves key customer segments within the B2B space, is hotels, restaurants and catering businesses. We've been expanding our assortment of specialty products targeting specific foodservice businesses, as shown on the top part of the slide. And another recent Innovation at Albin was the addition of impulse products at checkout, which means that customers can not only stock up on the products they need for their businesses, they can also buy something to drink for their drive back. Competitive pricing is another essential part of offering value to our customers, which is why our promotional strategy is a key driver for our results. Customers have reacted very favorably to our low lower campaigns, which leverage our multi-format strategy by covering similar product categories across banners, while remaining faithful to the marketing and pricing strategies that are specific to each firm and we continue to run high-low promotions for specific high-impact categories, especially fresh products. On Slide 11, we have the second pillar of our plan, technology assets. Here, we're highlighting 2 of the main initiatives within this pillar, cloud first and new technologies. We kicked off our journey to migrate our IT infrastructure to Google Cloud. We've successfully established secure connectivity across our systems and already migrated the first 10% of our servers. Transitioning to the cloud grants us greater flexibility and modernizes our technological foundation. This empowers our retail operations to rapidly develop or integrate business solutions. And with respect to new technologies, we are working to make the most of our new AI platform Enterprise by rolling out training programs to increase productivity at the individual level, and we are also analyzing potential optimizations at the macro profit level. On Slide 12, the third pillar of our plan is efficiency and productivity. A disciplined approach to expenses is part of our culture, and that is something that is evident in the numbers as we will see in a few more slides. We have efficiency and productivity initiatives throughout our operations, including supply chain, stores and back office as well as energy. The implementation of different technologies has contributed to productivity gains throughout our operations. These include self-checkout, self-service scale, digital shelf management technologies and the 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, 1 in the first quarter and 1 in the fourth quarter as well as 3 additional plans this year, 1 in January, 1 in June and 1 in July. Generating savings on personnel expenses going forward. On the slide, you can see that our sales of peripheral ton equivalent, which is an indicator we use to measure productivity, increased 6.8% in the first half of the year. Regarding efficiency in the supply chain, we are leveraging our distribution network using our large our largest regional distribution centers to serve all formats in Philly. Previously, Aldi was only supplied out of Santiago, but now we've made adjustments that allow us to take advantage of our conception and Kokino and Portman DCs to help supply Albi's growing footprint of stores. In the face of rising fuel prices, maximizing efficiency and distribution costs have become even more important. And we have made efficiency gains in our truck utilization as well as optimizing transportation routes, making sure we're minimizing distances and using the most efficient mode of transportation. We have also been receiving more products from the suppliers at our regional distribution centers instead of receiving products in Santiago and then having to ship them across the country, which also helps reduce transportation costs. In addition, we've also been working to optimize energy costs, migrating qualifying stores to lower unregulated electivity rates and also using new technology to automate and control the main sources of energy consumption at our stores, refrigeration, lighting and aircraft. Going on to the numbers. On Slide 13, we have revenue, which grew 2.1% in the first half and similarly, 2.2% in the second quarter. Revenue growth was driven by Unimarc, which was up 2.3% in the half and 1.9% in the second quarter. We also continued to see sequential improvements in Avand Subervius, as I mentioned earlier in the presentation. Gross margin was down slightly, 10 basis points in the first half and 40 basis points in the second quarter. We're still at the 32% level, which is where we expect to be this year. The decrease is because of the change in the format mix and especially because of the 15 stores we converted from Masato out. LV has a different economic model than my least of yes. As a wholesale club, Abi has lower margins, which is what we are seeing reflected here at the consolidated level, but it also has a lighter cost structure and higher sales volume. So at the EBITDA level, in a store that has reached maturity in sales will more than make up for the lower gross margin. At the bottom of the slide, we have gross profit, which increased 1.9% in the half and 0.9% in the second quarter, even despite the lower gross margin. The key going forward is stronger top line growth. On Slide #14, we have a double click on revenue performance by format and how that has evolved over the past 3 quarters. At the top left of the slide, we have the same second quarter revenue and gross margin graph that we had on the previous slide. Revenue was up 2.2% and thanks to the sequential improvement in Super visas, we had growth in all of our business segments this quarter. Lumark 1.9%, Peru, almost 20%, and Allister up 0.4%. and that was following a decrease of 8.3% in the fourth quarter and 0.6% in the first quarter of this year. This improvement isn't only attributable to the converted stores. We also have an important contribution from new store openings. But quarter-over-quarter, there is significant improvement in the converted stores. You can see this in the same-store figures, which have also shown a sequential improvement going from minus 9.1% in the fourth quarter to minus 5.8% in the first quarter and minus 4.7% in the second quarter. And on the right-hand side of the graph, we have this evolution, but in terms of what these formats are contributing in actual money rather than percentages. Each graph shows how revenue changed year-over-year, starting with the fourth quarter of last year than the first quarter and in the second quarter. So in all 3 periods, Unimarc was leading growth and Peru has also been growing. PAUSE In the ALVs Supervia segment, revenue was CLP 18 billion lower in the fourth quarter. We made significant progress in the first quarter with only a CLP 1 billion decrease. And now in the second quarter, we have a positive number. We expect this trend to continue as the converted stores continue to mature. On Slide 15, we have operating expenses, which once again increased less than inflation even with significant pressure from fuel costs. In the first half of the year, operating expenses increased 1.2% but fell 20 basis points as a percentage of revenue. Most of that increase came from distribution costs, which were up 12%. Other expenses only increased 0.4% even though we're operating more stores and face higher labor costs related to minimum wage, inflation adjustments and pension reform. In fact, personnel expenses, which is the most significant line item in our operating expenses decreased in the first half of the year. As I mentioned, the very low growth in expenses is taking place when we are operating more stores than last year. If we exclude the effect of net store openings, expenses will be lower in nominal terms by 1.2%. In the second quarter, we have essentially the same situation. Expenses grew only 1.9% with a 20% increase in distribution costs and only 0.7% growth in other operating expenses including flat personnel expenses, -- and if we exclude net store openings, we would also have a decrease in nominal terms. In the quarter, we also have a slight decrease in operating expenses as a percentage of revenue. On Slide #16, we have EBITDA explained in many, many graphs. We will go from left to right. At the top left, we have EBITDA for the first half, which grew 3.9% with a 10 basis point expansion in EBITDA margin. At the bottom left, we have EBITDA for the second quarter, which was down 2.3% and with EBITDA margin decreasing 33 basis points. Why do we have EBITDA growing in the half but falling in the quarter? The graphs in the middle show the breakdown. In both quarters, gross profit is higher, but in the first half, it's 1.9% higher, whereas in the second half, it's only 0.9% higher. And that is a result of the lower gross margin, as I described before. Operating expenses are very much under control, and we are comfortable with the 32% gross margin. What we need to grow EBITDA in coming quarters is more revenue growth, and that is the trend that we're seeing. The graphs on the right just reinforce this message. The lower gross margin isn't a problem per se. It just needs to be coupled with more top line growth to get the operating leverage we need to grow EBITDA and EBITDA margin. On Slide 17, we have nonoperating income where we've had some significant extraordinary items this year, specifically related to restructuring costs and asset sales. We've had restructuring plans in 2025 and 2026. On the graph, we're just showing the difference. Restructuring costs were about CLP 5 billion higher in the first half of 2026 than in the first half of 2025. We -- and in the second quarter, we didn't have restructuring costs last year, but this year, we did have CLP.2 billion from an optimization plan that we implemented in June. These are costs that lead to future savings in personnel expenses. We also had asset sales in both periods from the sale of stores or land that we owned or purchase options for stores that we leased. None of this affects operations or future development because we signed long-term rental contracts in all of these cases, but it is a financial optimization. In 2025, we had more gains on asset sales than in 2026. The difference in the half is about CLP 11 billion. And in the quarter, it's CLP 10 billion because most of the 2025 sales took place in the second quarter. Net interest expenses up mainly because of lower financial income as we have a more normalized cash balance this year. Last year, we had a significant surplus in anticipation of the bond maturity. And finally, in the second quarter, there is a significantly higher loss on index liabilities from inflation adjustments to our U.S.-denominated debt. So both in the quarter and the half, we have a nonoperating loss that is about CLP 21 billion higher than in the previous year, and most of that is explained by higher restructuring costs and lower gains on asset sales. On Slide 18, we have net income, which was down 91% in both the half and the quarter. In the first half, net income was lower by CLP 17.5 billion, which is essentially due to the nonoperating results I described on the previous slide. There was also a decrease in operating results because of higher depreciation, and these effects were offset by the income tax benefit. The situation in the second quarter is similar but there is a higher income tax benefit, mainly due to inflation adjustments to our tax loss carried forward. On the next slide, we have our financial ratios. Net financial liabilities for EBITDA and net financial debt to adjusted EBITDA are both up compared to last quarter. This is mostly because we had increases to financial debt and financial liabilities from a bond placement in May, and these increases were not entirely offset by increases in cash due to temporary variations in working capital that affected the ending cash balance. The working capital variation in the first half of this year was about PHP 41 billion, and this is a temporary effect, mainly explained by higher levels of inventory. This is because we've been implementing a strategy to increase purchase of merchandise in order to mitigate potential effects of higher oil prices that could eventually result in higher product costs. Inventory also went up as a result of an increase in purchases of imported products, which leads to higher inventory days but also better pricing and payment conditions. Additionally, accounts payable were down CLP 33 billion as compared to December, whereas accounts receivable were only down CLP 17 billion. These again are temporary effects that change from day to day. Excluding the working capital effect, net debt would be lower and consequently, the ratios would also be lower. For example, net financial liabilities to EBITDA will be 5.27x instead of 5.46x. The same is true of the ratio of net financial debt to equity on Slide 20. Excluding the temporary working capital effect, the ratio PAUSE would be 0.56x in June instead of 0.61. -- although in any case, we are well below the limit. On Slide 21, at the top of the slide, we have a summary of our cash flow for the first half. We started the year off with a cash balance of CLP 84 billion, and we generated operating cash of CLP 4 billion, which is less than our EBITDA for the same period, which was CLP 109 billion. The reason for that difference are the same working capital difference I described before, as well as severance payments as a result of the restructuring plans we carried out in January and June, but that will be recovered in the form of savings on personnel expenses over the course of the year. And we also paid long-term incentives this year which are provisioned over the 3-year time horizon, affecting EBITDA each quarter, but they only affect cash when they are paid. As I mentioned before, we issued a bond in May of this year. I have more details about that on the next slide. But the important thing here is to note the maturity profile below. The new bond matures in 2032, which is market Pink and is a year when we had practically no maturity. So the new issuance fits nicely into our amortization schedule. Going back to the cash flow above. The uses of cash for the past included net bank debt amortizations, lease payments, interest payments, CapEx dividend payments and share buybacks, ending the fourth ending the quarter, yes, with CLP 92.5 billion. Regarding the share buybacks, we've completed the purchase of 1% of shares authorized by the Board of Directors, so we shouldn't have further share buybacks this year. In 2027, if the Board authorizes further buybacks, we will be able to purchase another 1% -- we still remain above our minimum cash level of around CLP 50 billion, and we also have extremely limited refinancing use for the rest of this year, as you can see in the maturity profile. We have bank debt that comes to be revolving and only about CLP 6 billion in bond maturities left this year. Finally, we'd like to mention a couple of recent events. At the end of May, we issued bonds in the local market. The details of the transaction are on the slide, but I will read through them as part of the service. The placement amount was USD 2 million. This bond has a bullet structure on which was in 6 years in 2032, which, as I showed before, fits very nicely into our maturity profile. The proceeds are for refinancing liabilities. The coupon rate for this bond is 2.9% and reflected at 3.35%, which was a spread of 110 basis points over the benchmark, and we have strong demand from institutional investors on this transaction. In addition, in July, we announced 2 restructuring plans, which are in addition to the plan that we implemented at the beginning of the year. The idea is the same, our efficiency initiatives have allowed us to improve productivity and help mitigate increases in operating expenses. We already saw the cost of the June plan in the second quarter financial statements, approximately CLP 1.2 billion Digital plan will be reflected in the third quarter with a cost of approximately CLP 4.8 billion. These plans generate savings, so we will offset the cost during the second half of this year and the first quarter of 2027. That is it for our presentation. Thank you very much for listening. If there are any questions, Arturo will be happy to take them.

[Operator Instructions] Our first question comes from Alonso Aramburu from BTG Pactual.

I wanted to ask 2 questions. One, you mentioned top line growth was improving. Just curious what you meant how that is evolving after the quarter. And also looking at the second half of the year, your comps on gross margins are a little bit tougher or similar to this quarter. And you mentioned 32% is what you expect -- so we should expect the gross margin to contract a little bit in the second half of the year.

And also first of all, about topline in the safe improving in the second half of June and a trend that extended through July and into August, showing growth higher than the previous 2 quarters until now in the first 45, 42 days in this quarter. For this reason, we're expecting the more fixed cost in this quarter, improving our EBITDA In terms the gross margin has performed well, remaining at the level of in Q1 and Q2 2026 in the level of 32%, as you mentioned, and we expect to sustain this level of margin for the remainder of the year, reaching our EBITDA margin in our target for this year between 8% or 8.5%. Because in the first quarter, we reached this number -- of this range in the second quarter, all which is our worst quarter -- but in the third quarter, they used to reach again between 8% and 8.5%. But in the Q4 compensate the reduction of our EBITDA margin are reaching for the full year in this range, 8.5%. Regarding expenses, we anticipate continued low growth as a result of the respective plan implemented in November 2025, January of this year and June, July of this year as well. And notably, we are operating with lower staffing levels despite having additional stores. This will be important also to to keep our operation this range of EBITDA margin in the rest of the year.

I think you're gaining share? Or this is just the industry and consumption doing better?

That is to keep our market share. We are opening the stores, but our competitors well. Therefore, our expectation is to keep our market share for in the second half.

Who would you say is this really tough come.

And the idea is to keep our gross margin also in the second half.