Almacenes Éxito S A : 1Q24 Call Transcript Grupo Exito

Grupo Éxito - 1Q24 Results Conference Call Transcription

May 9, 2024

María Fernanda Moreno: Good morning, everyone, thanks for joining us today for Grupo Éxito's first quarter 2024 results. Please note that this conference is being recorded.

At this time, all participants have been placed on mute to prevent any background noise.

I´m pleased to present Mr. Carlos Calleja, recently appointed as CEO of Grupo Éxito and CFO - Mrs. Ivonne Windmueller.

We also have the General Managers of all our operations; Mr. Carlos Mario Giraldo, General Manager of Colombia, Mr. Jean Christophe Tijeras, General Manager of Uruguay and Mr. Ramón Quagliata, General Manager of Argentina.

Please move now to slide #2 to acknowledge the note on forward looking statements.

Moving now to slide #3, we have the agenda. We will start with words from our CEO, Mr. Carlos Calleja, to then continue with the Financial and Operating highlights and financial performance during the 1Q24, followed by Conclusions. The call will conclude with the Q&A session in which, all participants can rise their hands to ask questions or send them through the chat available at the top of the screen. In any case, please indicate your full name and company´s name.

Thank you for your attention. I will now turn the call over to Mr. Carlos Calleja

Carlos Calleja: Thank you, my friend, I saw a chat saying that we have lots of echo. I just want to make sure that everyone can hear us, OK? Did you guys see the message, are all good? Right.

Hello everyone. Thank you all for joining us today. I am super exciting for me in my first call with investors and I was thinking it might be a good idea to share a little bit about our history as a family and as a company, also talk a little bit about how we got here, how would a book I entered into

Colombia and decided to acquire Grupo Exito, and I think an important to talk a little bit about our purpose as a company as well as what plans we have going forward, a little bit about the future in the context of the opportunities and the challenges we are seeing. So I wanted to take this time to share with you guys.

Grupo Calleja is a family business conglomerate from El Salvador with operations in retail, real estate, finance, technology, and energy in Central America. Our core business within the group is retail supermarkets, where we have accumulated over 8 decades of experience and established a strong market position. We are retailers and we're passionate about what we do. To Super Selectos. we are the leading supermarket in El Salvador and hold roughly a 60% market share compared to our direct competitors, including multinational companies.

The groups values of integrity, quality and service have allowed us to connect the Salvadorian

families and provide them with a differentiated shopping experience focused on trying to find our customers through our extraordinary value proposition.

Currently, Super Selectos operates 113 stores across the country, ensuring consistent standards of service, savings and quality across all branches. Additionally, our group plays a crucial role in the Salvadorian economy.

As the largest employer in the country with over 12,000 collaborators working under our roofs, we firmly believe in the potential of Salvadorians and all people and are committed to generate opportunities for their development in hopes of contributing to a more prosperous society. Furthermore, we contribute to many other sectors through our relationships with suppliers, enabling us to offer a wide range of over 30,000 products, both local and foreign, including 2,500 private label products.

Through our cultivating opportunities program, which supports local farmers and producers, we have positively impacted the lives of thousands of Salvadorans who now supply over 60% of our foods and vegetables compared to just 5% a decade ago. Super Selectos possesses a significant advantage in the market due to the unified brand which it operates under, this allows us to be at the forefront of Salvadorians minds when it comes to shopping, positioning us as El Salvador's supermarket. Additionally, and this is very important for emphasis on efficiency, has led to higher profit margins than our competitors, ensuring long term sustainability.

Our relationship with Grupo Exito and with Carlos Mario goes back 15 years, when Colombian companies, including Exito, were looking to invest in Central America. They visited our operations back then and as we say in Spanish, we clicked and ever since we have maintained a close relationship and open communication between both organizations.

Grupo Calleja and Grupo Exito share a common vision, both companies believe in the importance of having a purpose in what we do and working as a team to fulfill that purpose. In both companies, we look to build a differentiated value proposition that allows us to connect and successfully serve all segments of the markets we operate in.

We also are committed to using our business as a tractor for economic and social development through our corporate social responsibility programs as well as the foundations we lead. If an analogy, I like to use to illustrate this differentiated value proposition, in Latin America years ago, our people used to walk on dirty paths to get around. Then came the dirty roads, and now everyone hopes for and is asking to travel on well-kept paved roads.

Latin Americans demands for quality service are continuously evolving as they should, and we believe that our value proposition must cater better than any other to those ever evolving and more sophisticated demands.

Because all Latin Americans deserve the best service near their homes, near where they reside with their families, we do this through our extraordinary in store experiences, our personalized customer

service, as well as other differentiating factors such as a larger variety of products and brands including imported items and our high-quality fresh produce and meat.

These are just a few things we do to go the extra mile. Our purpose as an organization, and this is very, very important, is to dignify the lives of the people we serve and work with. The purpose of dignifying the lives of Latin Americans is key, and we will work tirelessly, tirelessly to impact those lives positively while continuously creating great employment opportunities for the citizens of the countries we work in.

In Group Exito sa you all well know; Colombia is our biggest operation. We are one of the country's largest employers, operating an immense multiformat retail and commercial real estate operation. Aside from this, we have an important investment in our credit card business, Tuya, as well as the country's leading loyalty program Puntos Colombia.

In Uruguay we have a very successful retail operation with an excellent market share position and solid, really solid earnings, out of the three retail operations, Colombia, Uruguay and Argentina. Uruguay is the most profitable. GDU as we call our operation in Uruguay is also one of the country's largest employers.

In Argentina, we have an important footprint which we hope to grow from both in retail and real estate. Some people over the last few weeks, month and a half, asked me if we plan on divesting Argentina. The answer is no. I was actually there two weeks ago and helpedoptimism among the

Argentinian people as to the country's future. That said, no one has a crystal ball as to what will happen, but we are convinced that staying in Argentina and exploring growth opportunities is our best bet.

The best way for us to do this is by bringing our Uruguayan and Argentinian teams closer together to lever each strength and create a formidable player in the Cono Sur, in the Southern cone.

At this moment, if is possible, I would like to introduce Jean Christophe, who heads up our operations and Ramon who heads up our operations in Argentina. I think they might be connected. I see Ramon there. Hola Ramón.

Ramon Quagliata: Hola Carlos.

Jean-Christophe Tijeras: Hola, estoy por ahí pero no me dan accesso a la cámara.

Those are our two team heads in Argentina and Uruguay, both with incredible experience in retail and a passion for the business. Gracias señores.

Ramon Quagliata: A pleasure to greet you all from Argentina.

Jean-Christophe Tijeras: Gracias. Thank you.

Juan Carlos Calleja: Thank you.

Juan Carlos Calleja: Now I'd like to talk about the challenges we are facing and the opportunities we are seeing. In terms of challenges, first of all, I want to say we are committed to addressing them head on. We are of the mentality that opportunities exist in each crisis, but only if one works hard in realizing that for that we must understand well where we are situated today and what challenges lie ahead. Everyone here is aware of the challenging environment and tough economic conditions currently in both Colombia and Argentina.

Carlos, Mario and Ivonne will speak to this more in the financial part of the presentation. That said, I want to emphasize that these challenges have moved us to focus intensively on finding the best way to navigate the current economic situation, Trust to come out of this environment stronger than when we went in for that, we have to transform the company into a leaner, fitter and more dynamic organization.

This objective is something that we have spoken about at length and started working on with management in all three countries over the past weeks. In our business there are three big levers you need to work on and execute well to obtain good results.

One is top line sales, two, gross margins and three, costs. Sales you want to push out, gross margins you want to grow as well and cost you want to push down. To do this the work needs to be constant, and you can never be satisfied with the results. We like to say in our organization and in our family, we have to do things better today than yesterday and tomorrow, better than today. If you do this consistently, the results will come. That's important. You have to do this every day.

In terms of sales, we are working with our team and our suppliers to better leverage the potential of our entire store platform through more assortment of products and consumer goods and offering more savings with a super dynamic high low strategy, which is where our experience comes from, we want people to be able to buy all their grocery necessities within all our stores while maintaining our textile and entertainment categories just as strong.

We want to be closer to our suppliers and quicker to market, that way we can get a step ahead of our competitors. We are also working on simplifying our brand and format structure to both increase same store sales and create efficiency in costs.

The idea in Colombia is to migrate the entire platform under the Exito and Carulla brands. We did a pilot of two stores recently and the results have been very, very good.

In terms of margins, we feel we have a healthy gross margin, but regardless are working closely with our suppliers to find ways to bring more savings to our customers without diminishing our margin. To do this, we are negotiating dynamic, high low promotions with the full support of our suppliers. We firmly believe in the importance of having collaborative and close relationships with our suppliers and have reached out to them over the past few weeks to find the best way to navigate together through the economic headwinds we are all facing.

The relationship with our suppliers with that group of stakeholders and the collaborative form, which way we look at it, we look as a differentiation factor as well in the way we do business. That's important to mention.

In terms of costs, I want to be very clear. We are building towards becoming a leaner organization. In a sense, the job entails taking a corporation and transforming it back into a lean, agile, and efficient company while retaining top talent. Right now there's work being done both on the organizational structure, making it leaner, as well as simplifying processes, which in turn will facilitate our cost cutting objectives.

This is the toughest part of our job, but also where we see important potential for strengthening the business and eventually lifting margins.

We are also actively working on capturing value across all the countries we operate in, including El Salvador, with the teams working cross borders on getting the best conditions for everything, from the purchase of refrigeration equipment, AC's display, cases, shelves, IT to maintenance, digital marketing, and service contracts. We are looking at it all.

Like I said, our family business experience is rooted in best practices with regards to cost structures, margins go to market strategies and overall financial results. The idea is to use that experience in helping to strengthen Grupo Exito.

Well, that was my part of the presentation in terms of sharing an introductory message with you guys. Hopefully this will give you a better sense of where we come from and how we're looking at things and where we want to go. I'm here I want to pass it over to Carlos Mario, so that we could begin the next part of the presentation and start looking at the numbers.

Thank you.

Carlos Mario Giraldo: Thank you, Carlos and welcome all to this call. I'm happy to be here as general manager of Colombia and I'm going now to slide #6 where we will highlight some of the results of the first quarter.

In the first quarter at consolidated level, we sold COP$5.3 billion with a decrease of 3.3% in pesos, mostly impacted by the exchange rates comparing Colombia with Uruguay and Argentina and if we exclude the FX impact there was an increase in sales of 7.9%. All the three countries were in positive grounds Colombia growing by 2%, Uruguay 7.6% and Argentina 228%.

Our recurrent EBITDA came to a margin of 5.7% at the consolidated level, decreasing 22% in Colombian pesos and 14% when we exclude the fx impact.

There was a Net loss of COP$37,863 million given three main impacts. The first one, the financial costs, the non-recurrent expenses, and the share of profits of Tuya where we have 50% of the business, there was a free cash flow generation positive of COP$291,000 million.

I would like to highlight under the numbers, first, the difficult consumer demand in Argentina and Colombia. In the case of Colombia, given the materiality for the consolidated results, I have to say that when you look at official data February to February 12 running months, the whole retail had that reduction of 4.7%. We have a focus in the following things: As Carlos was saying, first, strengthen the commercial strategy to impulse the top line and here it comes first with the gradual store portfolio optimization around EXITO and Carulla, we are going to advance in more than forty of these consolidations this year where at the moment we have done 5 and this will be the I would say, the main emphasis in the following months, the first sensations are positive and the first numbers are very positive.

The second one is having a richer assortment of products for all our customers, so that, our brands and our stores will be the full solution, especially in food for any customer in Colombia.

Having as Carlos said, a very strong high and low strategy and adding to this the unbeatable portfolio of products.

As you probably heard in the press conference that was done some days ago, we started with around 500 products, unbeatable products of private brands and that has been for some years and very successfully, now represents around 12% of our food sales.

Now the innovation is that in collaboration with our suppliers, we added more than 500 products of leading national and international brands and this is very important because it creates a big, big advantage for our customers that can buy the main brands in Colombia and of multinationals at unbeatable prices. That means that it assures that lowest price in each city and if, for some reason it's not there, we corrected between within one week.

The cost efficiencies also come, and they were already engaged in that going to a liner structure and the back-office reduction to create this result has already started especially at the Colombian level.

Omni channel continues to be a priority, as in the three countries it represents 11.2% of our sales and in Colombia a top 14.6% share. Our real estate business continues to perform in a very positive way and Viva Malls have continuous growth at a constant recurrent level. It had 8.4% increase in revenues and 16.6% increase in EBITDA. At the governance level, the dividend distribution was with a payout ratio of 52% and seven new board members were named at the last General Assembly.

Let me go to slide #8 to speak about Colombia specifically about the top line performance. Food had a very positive performance of 5.8% growth. If you compare it with the last food inflation that we know for the quarter of 1.7% increase, it is a more than four points above the food inflation in Colombia and these reflected volumes that grew by 3.1% and tickets by 4.3%. Really, the impact that we're seeing is in the basket size given the current situation in consumer, they are coming more frequently, they are buying more times, but their basket size is lower at this very moment. When you ask about our 2% increase, then what was the negative impact? The negative impact came in non-food. It is normal in this economic cycle that the consumers delay the purchase of things that are not really needed at that very moment.

Of course, we continue with a very important position both in electronics and in textiles and we believe that as economic improves and the credit becomes more dynamic, the access to credit is going also to improve our non-food performance.

Let me go to Uruguay, there's a very stable economic and political country, situation attracting a lot of investment. There are some people even saying, increasingly that Uruguay is like a small Switzerland in Latin America and is probably one of the most stable countries, a very positive commercial dynamic of Grupo Disco in the quarter with total sales growing by 7.6%, that is 380 basis points above inflation. This is a result also of a better-than-expected tourism summer season. The summer season in Uruguay is normally by the end of December, January and February, and also a very good effect of our Fresh Market portfolio and conversions that now account for 62% of the total sales.

In Argentina, sales increased by 228%, that is below the CPI, which came to 287%. The result impact the Colombian figure because of the foreign exchange effect that we saw there. As you know, at the end of last year, we had near to 80% devaluation, which of course has a reality in the first quarter sales result, real estate continues to perform very well and we have a high occupancy rate of 94.4%. A very good development is our Cash & Carry strategy in Argentina, which adapts very well to the needs of the consumer, is growing constantly and now the stores of cash and carry represent 18.5% of our total retail sales in that country.

Going forward to slide #9, we speak about the performance in Colombia by segment, by brand, Exito in food grew by 5.9% compensating the reduction in the non-food. As you know, the non-food is basically focused and concentrated in the Exito brand. As a total, the sales in Exito grew by 1.5%. Carulla was the best performing brand, growing with more than 6% impulse by food with a growth of 7.2% and Omni channel sales growing more than 27%. The low-cost segment had a total growth of 4.2%, with food having a dynamics of a 4.9%.

Let me go to speak about the Omnichannel performance in slide #10. We had a total omnichannel sales of COP$550,000 million with a growth of 7.9%. The share of Colombian omnichannel came to 14.6% and in food 13.7% with a growth of 21%, we came to 5.5 million orders delivered to the Colombian households and the apps which are a high priority, the apps of Exito and Carulla grew during the quarter at 43%. Misurtii, which is an app B2B going especially to the mom and pops multiplied sales by two, coming to near COP$23.6 million in the quarter. This is a high potential growing app for the future, given the importance that mom & pops markets have in the consumer goods in Colombia, more than 40% share of the consumer goods market.

Going to slide #11, let me speak about real estate. In Colombia remains with a strong occupancy of 97.6% and this is very important because it's a occupancy level which technically is almost no lack of occupancy and it is above what we had before pandemia. As a total in Colombia, we have today 788 thousand sqm of GLA in 33 assets of this joint venture with Viva malls where we have 51% and represents 71% of the total GLA with the 17 most important assets. The recurrent consolidated revenue showed a slight decrease of 0.6% but this is mostly impacted by foreign exchange effect coming from Argentina. If you exclude that, we grew recurrent revenue in real estate between

Colombia and Argentina at 11%. Viva Malls revenues grew 8.4% and recurrent EBITDA 16.6%.

A big event happening is the introduction of IKEA, 17,000 square meters into Viva Envigado, our most important shopping mall. This will be opening at the fourth quarter of this year and this will drive Envigado to be a shopping mall with around 130,000 square meters of GLA, making it the main shopping mall in all Colombia.

These are the highlights for the results of the quarter and then now turn for the financials. I will give the floor to Ivonne Windmiller.

Ivonne Windmuller: Thank you, Carlos Mario, good morning and thank you for joining us today. I will be presenting the financial results of the company for this first quarter.

Let's continue on slide #12 to review the operating performance in Colombia. In Colombia, as previously presented, Net revenues for the quarter at COP$3,9 billion, that grew 2,6% thanks to the consistent performance of the omnichannel, food sales growth over yearly food inflation, growing volumes despite a slowdown in consumption, the recurrent Real Estate operation and other complementary businesses performance, that were partially offset by a base effect of development fees and property sales. When excluding this non-recurrent base effect, revenues grew 3,5%.

Quarterly gross margin at 21,5%, 107 bps below last year reflected the price investment for commercial activities and the base effect of property sale and administrative fees accounting for 67 bps of margin loss, compensated by the positive real estate recurrent performance.

SG&A grew 5,9%, below inflation despite a minimum wage increase at double digit and impact of other indexed expenses such as property tax. This was achieved thanks to the ongoing cost control action plans and efforts that amounted around COP$42 thousand million during the quarter.

Colombian recurring EBITDA for the quarter at COP$177.111 million, decreased 24,2% and with 4,5% rate, reflects the impacted sales performance, the inflationary pressures in costs and expenses partially mitigated by the positive contribution from the real estate and other complementary businesses as well as the strong action plans in costs and expenses.

Uruguay for the quarter with a top line that decreased 10,7% in Colombian Pesos due to exchange rate effect. In local currency a positive top line evolution of 7,6%, with same store sales growing above inflation in almost 2PP driven by a strong tourism season and the performance of the Fresh Market stores.

Gross profit in local currency grew 9,6%, above revenues growth, and reached a rate of 36,2% improving 67 bps thanks to the solid sales evolution and the increased share of the Fresh Market format. SG&A grew 12,7% in local currency impacted by labor cost increase and one-off impact from a lease contract fee.

Recurring EBITDA for the quarter at COP$122,404 million, increased 5,7% when excluding fx effect and with double digit margin of 11,7%. When excluding one-time lease fees effect, EBITDA at 12,1% margin improving 20bp. The Uruguayan operation remains as the most profitable business unit in the group.

Argentina with its results in Colombian pesos strongly affected by devaluation showed Net revenues that grew 226% in local currency but decreased 33,9% in Colombian pesos. Sales performance reflecting a slowdown in consumption compensated by the Real Estate business contribution with solid occupancy levels.

Gross margin at 32,8% reflected the higher share of the Cash and Carry format that reached 18,5%. SG&A grew above sales growth in local currency impacted by labor costs from wage increases partially compensated by efforts in cost control.

Recurring EBITDA for the quarter reached COP$2.598 million and decreased in local currency 9,5%.

At consolidated level net revenues reached in the quarter COP$ 5,3 billion and decreased 3,3%. When excluding FX effect from international operations net revenues grew 7,9%. During the quarter the three operations showed a resilient sales growth, thanks to the consistent commercial strategy, the omnichannel share improvement and other revenues with positive contribution driven by the performance of the recurrent Real Estate revenue.

Gross margin reflected the slowdown in consumption, the price investment for commercial activities to improve sales dynamics and the higher base effect of non-recurrent real estate revenues in Colombia. In terms of SG&A, consistent focus on action plans in cost and expenses across the three operations partially compensating the inflationary pressures in wages, other indexed expenses and one-offs.

The first quarter closed with a consolidated recurring EBITDA at COP$302,113 million Colombian Pesos with 5,7% margin, decreasing 22% and a 14,2% when excluding FX effect.

Going to slide #13, the group Net Result for the quarter with a loss of COP$37,863 million reflected the consumption trend, inflationary pressures and devaluation from international operations. The negative variations compared to the first quarter 2023 are:

(First) lower operating contribution from Colombia and Argentina and devaluation effect in the Uruguayan operation.

(Second) higher non-recurrent expenses related to the restructuring process, closing of nonprofitable stores and other fees related to SEC and CVM reporting.

And (third) an impacted Net financial result by higher interest payments due to higher structural debt and revolving credit lines in use and FX effect in Colombia with impact in hedging results.

As a compensation we have the following effects

Positive differed tax due to higher fiscal losses and lower income tax.

Lower minority interest from affected performance in Uruguay by devaluation and

A better share of profit by lower net losses from the Financial Business Tuya and positive contribution from Puntos Colombia performance.

Going to slide #14, regarding the cash and debt position of the company, we would like to highlight a positive Free Cash Flow of COP$406 thousand million, with cash generation of COP$291 thousand million, thanks to the improvement in working capital by reducing inventories in 4.7 days. Cash generation despite sales slowdown and pressures in expenses with a strong focus on investment optimization and prioritization to guarantee liquidity and cash protection amidst the consumption environment.

Net financial debt with a positive variation of COP$183 thousand million despite interest rate pressure and higher gross debt level.

Gross debt increased by COP$305 thousand million due to new line to cover the share increase in Grupo Disco in Uruguay and use of additional revolving lines, compensated by the planned debt maturities.

Moving to next slide #16, to the conclusions on the financial and operating outcome for the quarter, we had a resilient top line performance, with net revenues that grew 7,9% when excluding FX effect, reflecting the slowdown in consumption and a base effect from Real Estate revenues. To highlight the food sales growth above food inflation in Colombia and Uruguay and the increasing Omnichannel share with positive contribution. The consistent and strict cost and expenses action plans compensated the inflationary pressures allowing the Colombian operation to grow its expenses below inflation. Actions and control at working capital level led to an improvement in inventories and therefore a reduction in Net Financial Debt and a free cash flow generation, despite the impacted operational results.

Thank you for your attention and I now give the call back to Carlos Calleja for his conclusions.

Carlos Calleja: Thank you, Ivonne. Thank you, Carlos, Mario.

I think it's important to mention before wrapping up and passing this over to Q&A that in terms of the acquisition and the change of control the Grupo Calleja is super enthusiastic in terms of the opportunities that lie ahead.

I'm very aware and we are very realistic people, pragmatic people, and we come from that background of the challenges that lie ahead. But like I said, we believe that through hard work, teamwork and constant work we can get through this challenging period and come out stronger and we're laser focused on terms of what we have to do in the way we want do it. There is a clear strategy which has been built to boost the top line. I don't want to go into more specific detail before entering the Q&A session, but basically what we're trying to do is leverage the enormous potential of the sales platform we have.

Colombia is our biggest market and it's the market with most potential for growth in our view right now for Grupo Exito. We have an incredible platform that we can build upon and that's the focus of