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Welcome to the Chedraui conference for the results of the second quarter of 2021. With us are Mr. Antonio Chedraui Eguia, CEO of Grupo Chedraui; Mr. Carlos Smith Matas, 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 Second quarter 2021 results. We continue to operate under the COVID-19 pandemic. And I would like to highlight the resilience that Chedraui has shown to overcome the challenges and deliver another quarter of solid results. These results reflect our execution capabilities and the value proposition that the consumer recognizes in the different regions in which we operate. Today, we are in a better position in terms of sales, profitability and cash flow generation than before the pandemic. Now with our proven operational and financial discipline, we will focus on successfully integrating the acquisition of Smart & Final, reaffirming Chedraui's commitment to creating value for our shareholders. Now if you allow me, we will review the results for the quarter and starting with the relevant facts of the period. And then we will review the financial figures. First, same-store sales growth of 7.8% in Mexico, far exceeding the 1.4% reported by ANTAD. 7.8% consolidated EBITDA margin, resulting in a 32 basis points expansion year-on-year. Consolidated net income growth of 24% year-on-year and a 2-year growth of 100%. Net debt-to-EBITDA ratio of 0.41 in Q2 '21 and MXN 5,894 million generated in the last 12 months. Now we will continue with the financial results, starting with the top line. In the second quarter of this year, we registered consolidated sales of MXN 35,749 million, a year-on-year contraction up to 1.8%. The consolidated result was negatively impacted by the exchange rate appreciation of 14.2% in the revenues of our U.S. division. In Retail Mexico, we achieved a 7.8% same-store sales growth, far exceeding the growth reported by ANTAD of 1.4% for the same period. Sales for this division reached MXN 21,393 million, with solid growth in the south and southwest reflecting a rebound in tourism in those areas. I would like to highlight the great results we have achieved in the omnichannel operation, which has reached a 4.3% share of the country operations sales. This comes from a growth, both in sales through our own platform and through third parties. At total stores, sales grew 10.3%. In this quarter, we added 4 stores, raising net openings to 20 in the last 12 months, corresponding to a 2.3% increase in the sales floor for this particular division. For the Real Estate division, revenues grew 42.9% to MXN 215 million for the second quarter of 2021. In relation to the leasable area, it increased 2.6% year-on-year. Gross profit and operating expenses. On the consolidated level, gross profit reached MXN 8,063 million in the quarter. This represented a gross margin of 22.6%, maintaining the same margin achieved in the same period of the previous year. This is due to increased contribution in categories such as clothing and general merchandise in Mexico and a lower participation of the business in the U.S. In relation to operating expenses, we continue to strictly control all business lines, thereby mitigating the impact of incremental expenses related to COVID-19 pandemic. Based on this, operating expenses in the period decreased 3.9%, accounting MXN 5,262 million and 14.7% of sales. EBITDA. In terms of consolidated EBITDA, in the second quarter of 2021, we reached MXN 2,802 million, equivalent to 2.4% growth. This represents a margin on sales of 7.8% and an expansion of 32 basis points year-on-year. In Mexico, we achieved an EBITDA of MXN 1,560 million, a growth of 12.6% compared to the same period of the previous year and a margin of 7.3%, improving the margin by 15 basis points. This result is in line with the full year target. In the real Estate division, EBITDA grew 101.9% to reach MXN 154 million in the quarter, with a margin of 71.5%. This result was due to the progressive normalization in the operation of this particular division. Financial expenses. During the second quarter of 2021, the financial expenses accounted for MXN 690 million. That is a decrease of 14.2% compared to the same period of the previous year. This is due to the reduction in average debt in relation to the same period of the previous year and the outstanding generation of cash flow during the last 12 months. Net income. Consolidated net income for the quarter grew 24% compared to that achieved in the same period of 2020, reaching an amount of MXN 844 million, with a margin over sales of 2.4%. Comparing the result of this quarter with the same period of 2019, net income grew in the last 2 years 100% demonstrated the company's ability to improve its profitability. Now Carlos is going to comment the U.S. retail business. Please Carlos, go ahead. Thank you.
Thank you, Antonio. Good morning, everyone. This quarter, we faced 2 noteworthy situations in the United States. On one hand, a very high comparative base due to the peak consumption that was triggered by the severe pandemic and the associated government aid that was distributed in the second quarter of last year. On the other hand, the reported results were impacted by an adverse exchange rate effect of 14.2% when converting to pesos. With that said, same-store sales in dollars dropped 1.5% in the quarter, with total sales decreasing 2.2%. Comparing the revenues of this quarter with those of the same quarter of 2019, sales have grown 6.8%, highlighting the solid position in which we find ourselves compared to the situation prior to the pandemic. In pesos, revenues reached MXN 14,151 million, a 16.1% decrease for the U.S. division. Regarding EBITDA, given the sales contraction in pesos, year-over-year EBITDA decreased 14.7% to MXN 1,088 million, resulting in a 7.7% margin over sales. However, this represents a year-over-year margin expansion of 13 basis points. This is due to the continued strength of the El Super operation and the continued improvements in the integration of the Fiesta business. This quarter's result was also impacted by approximately MXN 60 million associated with mandated COVID-19 hero pay bonuses, which are expected to be a onetime expense, thus enabling further margin expansion in the future. For El Super, we achieved EBITDA of MXN 724 million, representing 8.8% of sales. And at Fiesta, EBITDA reached MXN 363 million, representing a margin expansion of 37 basis points to 6.2% of sales. Additionally, I'm very pleased to report that we've finalized the acquisition of Smart & Final yesterday. Smart & Final operates 254 stores in California, Arizona and Nevada, as well as 16 stores in Northwest Mexico through a joint venture. Last year, Smart & Final generated sales of approximately USD 4.1 billion with adjusted EBITDA of USD 167 million. We expect that the pro forma net debt-to-EBITDA ratio for the whole group after the consolidation of the operation will be around 1.1x. We will -- Smart & Final results will be consolidated and reported in Q3. Antonio, thank you. That's it for the U.S. operation.
Thank you, Carlos. All financing and CapEx regarding financing, the outstanding cash flow generation achieved by the company has allowed the net debt-to-EBITDA ratio to be reduced from 1.1x in the second quarter of 2020, that is last year, to 0.4x this quarter. CapEx invested amounted to MXN 1,192 million, equivalent to 1.7% of consolidated sales. Before going to Q&A section, I would like to give some final remarks. Our efforts to meet the needs of our customers have resulted in formidable results for the company. In the last 2 years, consolidated revenues has grown organically in double-digit numbers, while the EBITDA margin expanded 80 basis points in the same period. This has allowed us to look for value in the market and I strongly believe we found it in this morning final. We are delighted to be able to take our value proposition to new customers and geographies while learning from the competitive advantage that the Smart & Final format has created over the years. While maintaining a healthy balance sheet, the consolidation of the operation reaffirms our position as the second largest retailer in Mexico in terms of revenue. Now if you allow me, we will go to Q&A session. Thank you.
[Operator Instructions] The first question is from Mr. Luis Willard from GBM.
How are you? So just following up on your closing remarks, Antonio, this year that the cash flow generation has been a priority, and results are very evident in terms of leverage for the company. So how do you think about the sustainability of this levels of free cash flow generation in the future? Do you think there's even further opportunities to improve mainly working capital ahead? That will be the question.
Even though we've reached great cash flow numbers at this moment, we believe there are still opportunities in Mexico as well as in our Fiesta division. And we think we will also be able to find possible opportunities in Smart & Final as well. So I think, yes, there will still be opportunities to even increase the cash flow generation that we're producing at the moment even though, as you already mentioned, we have reached great cash flow generation levels with our operations in Mexico and the U.S.
Thank you very much for your question. Our next question is from Mr. Victor Cardenas from Scotiabank.
Congratulations on the results. My question goes to the reporting structure. How will the reported look in Q3 now that we will be integrating Smart & Final? Additionally, how will the organizational structure look in the U.S. because we have the Fiesta operation mostly operating from Texas, we have super operating from California? Smart & Final presumably will be operating from California, Arizona or Nevada. So how will that look as well? And if you could also provide some color pertaining to some synergies that we may expect in the coming years?
I think, Carlos, you can answer this question better than I can. Carlos?
Sorry. Yes, for purposes of reporting in Q3, what you will see is a consolidated financial statement from Bodega Latina Corporation. And Bodega Latina will consolidate our Super results, Fiesta results as well as Smart & Final results. And those results end up consolidating into Grupo Comercial Chedraui, right? From an organizational structure, the stores, regardless of what market they are in, they operate as divisions. So you will see our Hispanic store division, which will be the Fiesta and El Super stores, operating with one merchandising and one operations team.
And eventually, the Smart & Final, which will be our traditional/club division operating with its own merchandising and operations team. Reporting to, what we will see is a consolidated corporate structure that down the road will provide services to those 2 divisions from an IT perspective, from a legal perspective, from an administration and finance perspective, real estate. And that's where we're really going to see the -- one of the levels of synergies that we expect are going to be material. On the short term though, I think we'll see some important synergies as address cost of goods and matching vendors, services that are common to both organizations, and we'll be attacking those aggressively right now.
Got it. But in particular, for example, is there going to be -- so back to your first question -- back to your first answer, I understand that it will be -- instead of seeing, for example, sales for Fiesta, for El Super, we're going to see just one single line for U.S. for Bodega Latina. Is that what we're going to be seeing, Carlos?
Well, today you're seeing EBITDA results for each division and I expect that we'll continue to show you more of that.
Let me just add, Victor, that we found and that was probably another reason why we decided to invest into Smart & Final. We found a great executive team, a great operation team put together in Smart & Final that we would like to maintain and try to add value to that team with the centralized structure that Carlos has spoken about, probably in some areas. But basically, we will try to maintain the team and maintain what they are doing and just add value where we think we could, but keep doing what they are doing, which is already great and it's a lot of value that they are producing to that company, Victor.
Thank you very much for your questions. [Operator Instructions] Our next question is from [ Camila ] from UBS.
This is Camilo on behalf of Rodrigo Alcantara. I have 2 questions on the consumer demand, if I may. Could you give us a sense of how same-store sales was by region like north south and tenor? And the second one is about -- what can you tell us about the competitive environment given the infusion area risks? Those would be my questions.
I think the first question is about our sales growth by region from what I understood. Well, we had a sales growth -- same-store sales growth in Mexico of 7.8%. And there are regions impacted by the environment tourism, as I said, with a very impressive growth. Northwest, we were able to grow a little over 20%, southeast over 15% and southwest 15.8%. In the rest of the regions, growth was marginal. We ended up with this 7.8%, which I think was very, very good. And we also had a very, I would say, difficult page to reach because if you look at the 2-year expansion, we were able to maintain sales growth, same-store sales of double-digit compared to 2019 numbers. We were able to grow a little over 11% at Chedraui Mexico. So I guess that was the first question. And I would appreciate if you can repeat, Camila, the second question.
What can you tell us about the competitive environment given the inclusionary risks for the quarter?
Well, our competitive environment has increased: Lacunar, Soriana. I understand they are having a successful Julio Regalado and [ Temporado Marancha ] in this coming quarter. And Grupo Onex has reacted with a very aggressive campaign, particularly in the Bodega era format. So they have been very aggressive in June and July. And we believe this will continue, but we have been able to maintain our competitiveness through our own strategy. In July, we're seeing a sales expansion very similar to what we have reached already in the quarter in the past quarters. So we think we're going to be able to maintain our sales expansion to the same level that we have already reached in the quarter.
[Operator Instructions] That was the last question. I will now hand over to Mr. Antonio Chedraui Eguia for final comments.
I just want to thank everyone for joining and I hope to be talking to you at the end of this quarter. And please stay safe. Thank you and bye.
Thank you for participating in today's conference call. You may now disconnect.