© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Welcome to the Chedraui conference for the results of the first quarter of 2021. With us are Mr. Antonio Chedraui Eguia, CEO of Grupo Chedraui; Mr. Carlos Smith Mathas, CEO of Bodega Latina; Mr. Humberto Tafolla Nunez, CFO of Grupo Chedraui; and Mr. Arturo Velazquez, Head of Investor Relations of Grupo Chedraui. As a reminder, all forward-looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in Grupo Chedraui's most recent annual report. At this time, I will now turn the conference over to Mr. Antonio Chedraui Eguia. Please go ahead.
Thank you. Good morning, everyone. It is my pleasure to be with you today in this conference call regarding Grupo Chedraui first quarter 2021 results. After a year of unprecedented circumstances, we continue to face challenges in 2021, but we do so with high confidence in our business model. If there is something that I want to highlight with today's results with the re-signings that Grupo Chedraui reporter has shown, we continue to focus our mission of offering our customers the products they want at the lowest possible price while we continue to guarantee the safety of our customers, suppliers and employees. Based on our operational strength and financial discipline, we reaffirm our commitment to creating great value for our shareholders. If you allow me, we will review the results of the first quarter 2021, starting with the relevant tax. Same-store sales growth of 0.6% in Mexico, almost 500 basis points higher than the negative 4.3% reported by ANTAD. 7.5% consolidated EBITDA margin, an improvement of 22 basis points year-on-year. Consolidated net income growth of 36%. Net debt EBITDA ratio of 0.5x. CapEx invested in 2021 of MXN 638 million. I will continue with the financial results, starting with the top line. Q1 consolidated revenues amounted to MXN 35,186 million, which is a 0.9% contraction year-on-year. This is mainly explained by the fact that in March 2020, both the U.S. and Mexico experienced a sales surge due to the COVID pandemic. Also, this quarter contained 1 day less compared to the prior quarter due to the leap year effect. Consolidated EBITDA grew 2.1% in the first quarter of 2021 to MXN 2,638 million. This represented a margin over sales of 7.5% and an expansion of 22 basis points year-on-year. In Mexico, we achieved 4.4% EBITDA growth to MXN 1,538 million. EBITDA as a percent of sales was 7.3% and represents an improvement of 13 basis points. This result is due to the improvement in gross margin and attrition management of operating expenses. In the real estate division, the contraction in revenues affected the generation of EBITDA, which showed a reduction of 37.4% to MXN 117 million and a margin on sales of 56.8%. On the financial expense side, during the first quarter of 2021, financial expenses decreased 20% to the prior comparative quarter to MXN 691 million. This is the result of the extraordinary generation of cash flow during the last 12 months, which reduced outstanding debt. Net income. Consolidated net income for the quarter grew 36% compared to that achieved in the same period of 2020, reaching an amount of MXN 736 million, with a margin over sales of 2.1%. Now Carlos is going to comment the results obtained in our retail business unit in the U.S. Please, Carlos.
Yes. Thank you, Antonio. Good morning, everyone. As Antonio mentioned, for the U.S., we faced a high comparative base due to the sales surge registered a year ago. As a result, total store sales decreased 5.3% to MXN 13,992 million. On a same-store sales basis, the reduction was 4.6% as 2 stores were closed in the last 12 months. Total sales of El Super decreased 3.9% in the first quarter, while comp store sales at Fiesta fell 5.4%, both in dollar terms. The gross profit, we continue to make improvements in our purchasing processes, which drove gross margin gains at both El Super and Fiesta. The sustained expansion of our gross profit at Fiesta is consistent with our strategic plan. Regarding EBITDA, despite the contraction in sales, the result was 6.4% higher the comparative quarter and reached MXN 983 million. This result was driven by continued strong performance at El Super and the ongoing improvements in the Fiesta business. At El Super, EBITDA decreased 2.6%, although as a percent of sales, it increased 10 basis points to 8%. At Fiesta, the EBITDA obtained was MXN 330 million, which is significantly higher than MXN 254 million obtained in the prior comparative quarter. Similarly, EBITDA as a percent of sales increased 164 basis points to 5.7%. And that would be all regarding this business. Thank you.
Thank you, Carlos. Financing and traffic. Regarding financing, the outstanding cash flow generation achieved by the company allowed the net debt-to-EBITDA ratio to be reduced from 1.2x in the first quarter of 2020 to 0.5x this quarter. CapEx invested in the quarter amounted to MXN 638 million, equivalent to 1.8% of consolidated sales. Now if you allow me, we will move to the Q&A section, please.
We will now start the Q&A session. [Operator Instructions] Our first question is from Antonio Hernandez from Barclays.
And congrats on your results. Question is regarding same-store sales. You're going to be facing some tough comps. And so maybe if you could give us some information on what are your expectations ahead? And a follow-up would be regarding the U.S. competitive market. Are you seeing -- how are you seeing the opportunity also for growth there? How are you seeing competition? If you could guide also a little bit more of the consumer environment there also as reopening is taking place a little bit faster than in Mexico.
Thank you, Antonio. Well, same-store sales in Mexico were better than what we expected. We were able to beat our competition. We were able to be positive with a very, very difficult base because we grew extremely well last year. Actually, just March, we were able to grow over 21% last year. So with those difficult comps, we were able to grow same-store sales again in the quarter. So we project we would be even a little higher than what we predicted in the beginning in our guidance, probably closer to 4% same-store sales, which is higher than the 3.3% that we projected in the beginning. About the U.S. competitive market, I would ask Carlos to please answer that question.
Sure. The U.S. market, from a competitive standpoint has remained relatively stable I would say going into the pandemic and coming out of it. So as you know, our -- from the El Super and Fiesta brand, they're the largest Hispanic food retailer in the United States. We have great market share in very competitive geographies such as Los Angeles, Southern California, et cetera. But we still believe that there are opportunities for organic growth as well as opportunistic acquisitions that may come down the road. So nothing really has changed, I would say, over the last 12 to 18 months in terms of the market setup.
Perfect. And a follow-up would be with more reopening in the U.S. and of course prepared food being an important piece of strategy in these supermarkets, are you seeing an uptick in prepared food sales or just staying relatively low versus pre-pandemic level?
No. Our prepared foods business is performing extremely, extremely well. We have beefed up our resources in that area. On the El Super side, it's -- both sides really are growing fantastically. And we're very excited about that. And as we continue to make improvements to the fleet at Fiesta with remodelings, et cetera, that is one of the departments that we are really, really focused on to improve the consumer experience and the results that we're seeing are phenomenal. So as you know, we've got a 5-year plan to remodel that fleet. We're way -- we're on pace as we have designed to do and prepared food is a huge component and we're trying to improve on.
Our next question is from Mr. Luis Willard from GBM.
Congrats on the results. The first, I think it's for Carlos. I mean, it was impressive to see the -- both the U.S. operations preserving margins despite the contraction in same-store sales. So do you still see room for margin improvement at Fiesta further into the year and then maybe long term? And also in El Super, this 8% margin, do you see this as a sustainable level ahead? That will be my first.
Well, yes, I mean, thank you, Luis. As you can see, it's been several quarters now we've noticed the El Super brand performing at a very, very high level. We're very encouraged with the operation there. We've got great market share. Operations are very, very steady. And we've been able to continue to grow -- the 2-year stacks are impressive as well. And we're hoping that we can maintain and believe we can maintain the types of margins that you're seeing today. On the Fiesta side, look, it's what we -- this is what we're supposed to be doing. This was part of our design. And we told everybody early on as we made the acquisition that this is the curve that we expect it to be on. So as I spoke briefly earlier, we continue with our remodeling plan. That is a super important component of continuing to improve the top line and improving our margins. So we believe that there's more room to grow in Fiesta, and we're excited about continuing our strategic plan that gets us there by year 5. So we're still 24 months away of getting there. But we're on track, and we're excited about that.
Carlos, that was very helpful. And if I may, Antonio, regarding Mexico, I mean as consumers face difficult environments or at least a little bit of uncertainty is a little bit better still. Can you tell us a bit more on the competitive environment that you're seeing in Mexico, especially regarding promotions and the behavior of the competitors?
Yes, thank you, Luis. Well, we've been I think very successful understanding what the consumer is looking for in the different formats that we operate in Mexico. All of them were able to grow on a difficult base. So we're seeing that the consumer, the higher-end consumer keeps growing and spending more through e-commerce. Our omnichannel platforms are working really, really well. And we are seeing a very strong growth in that part. On the other hand, the low-end consumer, we have been connecting with them through our pricing strategy. We are very strong in what we do. And we feel that we are able to meet the demands more than a promotional activity because I think they don't have the buying power capacity to buy a larger quantity of the same products. We are working on our pricing strategy, which is very aggressive towards each product, and it has been functioning really, really well. We're also seeing a recovery in certain areas that were affected last year, more on the tourist side, both in the south as well as in the Northwest. So that has been helping Chedraui as well.
Our next question is from Ms. [ Nora Sebadan ] from Bank of America.
This is Melissa Byun from Bank of America. I have a few sort of follow-up questions for Carlos. I just wanted to get a little -- your thoughts on the normalization of traffic in the U.S., sort of when and how the curve there. And then remittances to Mexico have been very strong. So are you seeing this dynamism in consumption in the Mexican communities that you serve? And then just lastly on Fiesta in terms of remodeling. How far along are you in that process? You touched on that as one of your bigger opportunities, but as you execute on the strategic plan, what are some of the other sort of remaining sources of upside that you see?
Yes. Thanks, Melissa. So the first question was about traffic. I missed your second question. Let me address that and I'll jump in the second one. So on the traffic side, yes, we have not -- we're not -- we're beginning to see positive traffic versus 2020. That was our expectation. So that has been met. However, we're very, very diligent right now about monitoring our results versus 2019, right? And traffic has not yet come back versus 2019 levels. We believe firmly that as folks get vaccinated and get a little bit more comfortable about going on about their normal lives and going outside, we've recently received CDC mandates about being able to eliminate masks outside. So I think as we get back into a normal day-to-day, we're going to start seeing normalized traffic patterns again. As you know, we have our Wednesday specials for produce at both brands. Those promotions was very affected because there were a lot of people in our stores on Wednesdays. We had to spread those out in 2020 to Wednesday s and Thursdays. We're back to Wednesdays now and beginning to see good results there. So I'm encouraged about the trend, but we're not where we want to be in terms of 2019. The second question you had was about the -- our consumers. Could you repeat the question, please?
Sure. I was just trying to -- when you look at the remittances to Mexico from the U.S., they've been quite strong. And I'm just wondering if this is something as well that is reflected in spending among the Mexican community that you're serving?
Right. Well, so the stimulus money that came in had a different pattern in terms of its behavior at the beginning. The first set of stimulus dollars that came in, in 2020 were very -- they just went into the supermarket trade. People were building up their pantries. There's certainly a lot of unknowns about how much time we were going to be hold up as folks lost their employment, credit card debt shot up. And what we're seeing with the second and third stimulus checks is that folks are using that to catch up on credit card bills, on back rent, et cetera. So those funds and included in that are remittances to Mexico that they didn't do before. So that's a trend that we anticipated. Now I think that's going to get normalized and the excess funds we believe will start shifting back into normal day-to-day habits such as supermarkets, and that's going to benefit us. We have a view into the remittances because we are a very important originator through our relationships with [ REA ] at our stores, and they've been very strong, as you mentioned. So anyway, that's about that. And the third question I think you had was in terms of our CapEx at Fiesta. Yes, we had a plan to invest an additional $10 million per year on incremental CapEx. Our results, as you can see, have been very, very strong lately. So in conjunction with Antonio and the leadership of Chedraui, we are deciding to accelerate some of that CapEx so that we can move as fast as we can in getting the fleet up to date. Remember, this is a fleet that originated in 1972. Fiesta has had very, very little CapEx into the buildings over time. So we're trying to do it as fast as we can. And the results have been very positive in terms of once these remodels are complete, we're seeing great traffic at some of these remodeled stores and very positive results and we're encouraged and we want to do it faster.
How much of the store is left to be remodeled?
Oh, I mean, let's see. I would say probably 35%.
[Operator Instructions] Our next question is from Mr. Carlos Mendoza for Mexico Value Partners.
Regarding capital allocation, last call you mentioned that with net debt levels getting close to 0 by the end of the year, you were looking at further potential opportunities for consolidation. Could you further comment on what kind of opportunities are you looking for? And if you're seeing more opportunities in the U.S. or in Mexico?
Thank you, Carlos, for your question. Well, as I've mentioned before, we're always open to consolidation opportunities in Mexico as well as in the U.S. First of all, the opportunities that come to the table should be targets that can adjust to the type of business that we operate, where we can really add value, and they should come at the right price. We don't overpay any consolidation opportunities. We have not done it in the past, and we will not do it now. So those would be the 2 factors that will allow us to decide whether we invest into a new company or not. But we are very open for that. We have the talent to do it. And we think opportunities will come to the table in the near future.
[Operator Instructions] That was the last question. I will now hand over to Mr. Antonio Chedraui Eguia for final comments.
Thank you. Well, I just want to thank everyone for joining this conference call. I will be -- myself and the Chedraui team will be available for you in the next quarter. We are very enthusiastic about the sales trend that we see in Mexico as well as in the U.S. So we hope to be able to bring you good news, even better than we just showed in this past quarter for the second Q of this 2021 results. Thank you, stay safe. We'll be talking to you soon. Thank you again.
Thank you for participating in today's conference call. You may now disconnect.