La Comer SAB de CV

BMV:LACOMERUBC

Earnings Call Transcript

[Yolotl Palacios Golzarri, executive]

Good morning, everyone, and welcome to La Comer Third Quarter Results Conference call. Before we begin, I would like to remind you that the information discussed today may include forward-looking statements regarding the company's financial and operating performance. All projections are subject to recent calls and actual results may differ materially. Please refer to the detailed note in Page 2 of the presentation.

I would like to turn the call over to Mr. Rogelio Garza, Chief Financial Officer of La Comer. Please go ahead, Rogelio.

[Rogelio Garza Garza, executive]

Thank you, Yolo, and welcome, everybody to our presentation of third quarter results of La Comer. I'm going to share with you the presentation, and we're going to follow the presentation to some of the highlights of the results of the company.

Okay. The highlights for the third quarter of 2022 is that the increase in total sales of the company of 13.9%. Same-store sales growth of 8.5% and a gross margin of 28%.

As we can see here in the graph, during the last quarter, we have underperformed the market during the last quarters. And this is because the base of comparison that we have in previous years, we had an extraordinary increase in same-store sales during 2020 and the first quarter of 2021, and that's a very high base of comparison for the sales of our stores. But anyway, we are to maintain our pace of growth in the market. All our formats, regions and categories had positive numbers. We have had positive numbers in all the regions. The Western region is presented the best results and maybe the metropolitan area in Mexico City was the region in which the increase in sales is more moderate.

And by category, we continue seeing a recovery on some of the categories that were affected by the pandemic situation, the prepared foods, bakery and the real estate income had very high increases in income because of the normalization of the situation.

If we see the -- our e-commerce efforts, La Comer en tu Casa that is our own initiative continued performing very well during the quarter. We had around 7.4%, 7.5% of participation of the total sales of the company.

And in addition to that, the aggregators, the operations that we have with [indiscernible], it represented an additional 5% of the total sales of the company then. Even if these numbers are a little bit lower than it had been in the past, they are -- in some way, they are stabilizing in that -- in those levels of participation of the total business.

We continue seeing in this market for us, it's very important to continue performing very well here. We want to offer to all our customers very good alternatives for an e-commerce solution, and we are every time improving our efforts in order to improve the shopping experience of our customers in e-commerce.

And in the gross profit area, we have a small increase in gross margin. This is because the improvement of the mix of products that we continue with a big increases in prepared food and bakery during this quarter if we compare this quarter versus the previous year, it was 27% increase in participation of prepared food and bakery.

Additionally, we have a recovery in the rail state income and those are positive numbers that increase our gross margin.

Additional to that, we have small negative effect because an increase in logistic costs. The cost of logistics has increased a little bit because we have more destinations that are further away from the central part of the country. We have opened new stores in Monterrey and Los Cabos, and this represent a higher cost of logistics to deliver the goods to those further locations.

In addition to that, we have improved the security or the safety of the operations -- in our logistic operations because in order to improve and to be sure that the products arrived in time to our stores.

In the EBITDA, we have a decrease in margin. We have an increase in the total number of EBITDA, but a decrease in the EBITDA margin. We have some pressures in expenses. Some of them that are normal are something that we are improving and we need to increase our expenses.

In salaries, we have a relatively high increase in salaries. Some part is explained by new stores and the improvement in the operations of some of our stores, but additional to that, we have the new law or the profit sharing provision that we need to do in our portfolio because of the new law that have an impact in our numbers. That's an effect that this year we have and is comparing versus the previous year, but that we didn't have that extra expense.

In addition to that, we have improved -- we have increased our expenses in the security of our IT systems and the functionality of our IT systems, we have a big increase of 51% decrease in expenses in systems and IT because we think it's important to provide good security and better solutions for our customers.

In addition to that, we have a big increase in electricity that during the quarter, we have an increase of 21% versus the quarter of the previous year. And we have this extraordinary payment that we need to start to the tax authority in Mexico.

During the quarter, we paid MXN 125 million to SAT. This is because we lost a trial that we have had for several years with the tax authority in Mexico. This is because a change in the criteria of the cost of sales of 2004. It's about a year in 2004, where very -- many years ago.

And we have had this trial for a long time, and we have -- during the past, we have had good results in the [indiscernible] now with good results -- with a positive result, but at the end, the final instance of this trial determined that we had to pay this MXN 125 million.

This is an extraordinary payment that will be for this quarter. And the impact that this payment had in the results of the company is an increase in expenses of MXN 65 million because some of the amounts we are going to recover, some of the amounts and we have provisions in part for this contingency that we have.

But yes, the total effect is MXN 65 million for additional expenses in the results of the company. And if we go to the cumulative results of 2022, the first 9 months of the year, we have an increase in same-store sales of 8.3%, an increase in total sales of 15.7%. That's a good increase in sales.

The Western and the Northwest region have the better resource in increasing in sales. It's similar to the quarter -- to the results of the quarter. We have the metropolitan area of Mexico City a little bit below the level of the other regions in performance and increase in sales.

And we have seen this recovery in or some normalization in the product mix with more share of prepared food and other categories that have a tighter margins and that has improved our gross margin in general.

And we have -- during all this period, we have had some pressures in expenses, especially because of the profit sharing new provision that we need to do in this year in order to be ready to pay to the -- all the workers in the company, the profit charge.

And during the year, we have opened 2 stores. One Fresko in Monterrey in March and 1 store of La Comer in Puebla in May. We expect to open 2 more stores during the rest of the year. This quarter in November and December, we have -- we expect to open a new store in November in Morelia, and we expect to open Fresko, a new Fresko in San Luis Potosi. These are the 2 other projects that we have for this year.

In addition to that, we have the 3 stores that had a different modeling and we closed one La Comer store in Mexico City and in the metropolitan area of Mexico City that we are going to renovate completely and make a new store completely from ground 0.

For next year, we have a good portfolio of projects. We expect to open between 4 and 6 new stores, which have very good products and most of these spreads have already have the authorization for the starting of the construction of the stores. But anyway, we can experience on -- as in the past, this process of opening new stores have a lot of externalities and a lot of uncertainties in certain processes, but we are confident that we can open between 4 and 6 new stores during next year.

And in addition to that, the company continued very committed to the sustainability and social responsibility aspects of the business. We continue to have in all our packaging of eco-friendly materials and we are contributing to some organizations that benefit the society as Un Kilo de Ayuda, Banco de alimentos at Mexico -- in Mexico.

And in addition to that, we support the education of the people on -- people from agricultural kind of things in Fundación Mexicana Para El Desarrollo Rural that we promote on occasions for people that work in agricultural things. And we support Probosque De Chapultepec in Mexico City and Caritas in Monterrey. That is a company that makes some benefits to the society.

And now we are open to questions. If you have some questions. Go ahead, Yolo.

[Yolotl Palacios Golzarri, executive]

[Operator Instructions] We have a first question from Ulises.

[Ulises Argote Bolio, analyst]

I have 2 questions from you. The first one, anything else spending there on the payment that you made to the SAT? Or is there any other process maybe there that there's some going or anything else that we should be kind of aware of?

[Rogelio Garza Garza, executive]

We already finished at the end of last year, we finished a difference that we have with the SAT for 2015, a criteria in the rate of amortization that we have for the brands. And we closed that year with them. Yes, we don't have any specific additional -- of course, they -- we still have the review of 2016 and the following years, and it can be some difference in criteria that we will have, but we don't have any specific additional issue that is relevant, additional to that.

[Ulises Argote Bolio, analyst]

Okay. Perfect. And the other one was more related to the state of the consumer. And also, how are you seeing the consumer there behaving within your store. Are you seeing any kind of down trading, maybe if there's any color there on the traffic and ticket dynamics that you can share?

And kind of additional to that, any comments on private label. We've seen this becoming more and more relevant given the inflationary scenario. So any comments on the evolution on that would be really welcome.

[Rogelio Garza Garza, executive]

Yes, we continue seeing the behavior of the market very well. Of course, we have -- as I mentioned, we have a very high base of comparison, and we have grown market continue having very good demand.

[Technical Difficulty]

[Yolotl Palacios Golzarri, executive]

Rogelio, we lost you like 10 seconds. Can you repeat. I'm sorry.

[Rogelio Garza Garza, executive]

Sorry, sorry, sometimes technology fails. But I was mentioning that -- as I mentioned before, we have grown a little bit less than the market in the last quarters. But this is because we had a very high base of comparison, because we grow a lot in 2020 and some part of 2021, but we continue seeing the market in very good shape. The demand of the consumers in good levels. We continue seeing a good performance of our stores. And we haven't seen any kind of contraction in the demand until now.

And as private labels, yes, we are in -- we are in the process of improving -- the participation of private labels in our stores is very small. It's not very high, but we have -- given the situation of high inflation and the concerns of the customers about prices, we are emphasizing a little bit the private label offer in our stores and we are doing some efforts to try and to provide more alternatives to the customer though it's still a very small participation in the total sales of our company.

[Ulises Argote Bolio, analyst]

And do you have any ballpark in that sense, like, I don't know, 5%, less than 5%, more or less, how much it is?

[Rogelio Garza Garza, executive]

Between 2% and 3%.

[Ulises Argote Bolio, analyst]

Okay. And do you have any ambition as to where you want to drive those private label sales maybe in the midterm? Is there any goal internally or not really?

[Rogelio Garza Garza, executive]

I would say that we will have to provide good alternatives in private label. But we don't have specific goals of continue growing in that respect.

[Yolotl Palacios Golzarri, executive]

Now we have a question from Antonio.

[Antonio Hernández Vélez Leija, analyst]

My question regarding your geographical performance, where are you seeing maybe more of a competitive pressure -- well, both in terms of geographies and in terms of formats, where you seeing maybe higher competition, especially given the inflationary environment?

[Rogelio Garza Garza, executive]

I would say that we have believed always in an environment of high competition. All our stores are located in highly populated areas in which the customer had several alternatives for their requirements or their necessities. Then we always compete very, very -- each individual store competes with all the neighbors, all the competition that is around that stores. And I would say that this is very, very hard, and it hasn't diminished. It's always very competitive and very strong competition. I don't know if that answers your question, Antonio.

[Antonio Hernández Vélez Leija, analyst]

But maybe any change in the trend in regards this competitive environment, any shift in that competitive -- in that competition, especially here right now that many retailers are also trying to increase the private label penetration, also trying to have a solid price gap versus peers. Any difference then that you're facing in terms of all the trend because of these strategies that the retailers are following?

[Rogelio Garza Garza, executive]

No, I would say that it has always been very competitive. Maybe, for example, the -- we have our -- during the summer from June to August, we have a summer campaign that we call Temporada Naranja. That is very important for us, and we have been very, very successful performing the Temporada Naranja every year. And many other competitors follow our trends and have launched summer campaigns in different ways, trying to compete with our product. But that's something that happens every year and maybe this year has been a little bit more aggressive. But anyway, we are used to this kind of strong competition all the time.

[Yolotl Palacios Golzarri, executive]

Now we have a question from Paola.

[Unknown Analyst]

What could we expect going forward in terms of OpEx? Do you have any strategy to prove your efficiencies? We've seen all that expense increase this quarter. How are you planning to take care of the margin pressures.

[Rogelio Garza Garza, executive]

Yes, there are some pressures that we have in OpEx because there are some changes in environment or in the market. For example, this year, we have the profit sharing provision that is new because of the changes in regulations. And next, next year, we are having some changes in vacations for the people and some changes in the laws that imply higher cost of labor.

In addition to that increases in salaries and that kind of things. And for us, I think there are some kind of expenses that we need to continue doing because we need to execute our strategy. And our strategy is differentiation, and you need to have good prepared people serving in the stores, and you need to have very good service to the clients. And that -- all that features that differentiate us from other participants in the market make us have a higher expense from -- versus other participants in the market.

And of course, we are making efforts in having to -- in trying to be more efficient in expenses. In addition to that, the increase in the size of the company has helped us to have some kind of operating leverage and improve our expenses. That's our long-term trend that we could have some improvements with increasing size of the company. I will say that, Paola.

[Yolotl Palacios Golzarri, executive]

Okay. At this time, we don't have any other questions. So maybe please proceed to close our remarks, Rogelio, please.

[Rogelio Garza Garza, executive]

Thank you, Yolo, and thank you, everybody, for your participation. And if you have any additional questions, please turn out to -- reach Yolo.

[Yolotl Palacios Golzarri, executive]

Thank you. Thank you very much for your participation in this conference. This concludes the presentation. You may now disconnect. Good day.