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Good day, everyone, and welcome to today's Organizacion Soriana Second Quarter Earnings Conference Call. [Operator Instructions]. Please note today's call may be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to CFO of the company, Rodrigo Benet.
Thank you very much. Hi. Good morning, everyone. Thank you for joining me in this conference call regarding the second quarter results. I would like to begin with general comments regarding the start of our most important commercial campaign, Julio Regalado, that this year we'll use the slogan Regalado [indiscernible], mainly in reference with our new e-commerce and delivery service.
Basically, this campaign started the last week of May. And in this occasion, our bet was to invest in advertising through mass media across the country, like every year, but also with a high impact in other channels, like social media, through principal platforms, like Facebook, Instagram, TikTok and YouTube, which have been positive for our omnichannel strategy and very important channels to engage with the new generations and future clients. This media strategy we consider has been a strong mechanism in order to transmit all the benefit that this campaign of Julio Regalado has to offer to our clients and the public in general.
Due to the economic circumstances and considering the new purchasing power of the population, mainly because the effect of the high inflation that the country has been suffering in the last 2 years, in this year, the campaign, we decided to adjust the promotional mechanism in order to offer promotions at a category level instead of a single product, which has been favorably accepted. Also by adding prices schemes directly in price, like the second product at 50% discount or direct price reductions. Basically, in order to give another kind of promotion, not only multiple promotion, but also promotion in the price, considering the effect of the inflation and probably the affectation that the purchasing power of our clients already have. As a result of the above mentioned and the efforts made in the previous months of April and May with the promotional season of Spring Break and Mother's Day, we closed the second quarter of the year with a 6.6% increase in total revenues and 6.4% same-store sales.
Our store format level Soriana Hiper and Soriana Super closed with a good performance. So Soriana Super specifically, reached a double digit increase in sales. Since both store formats are working with a very aggressive commercial plan, in which we are making improvements in product catalog within physical underlying store. These changes are in response of the shopping behavior of our customers with a regional focused plan, where we have reached a double-digit increase in areas like the Pacific, Southeast, Northeast border and Gulf of Mexico.
Also, we are boosting our further advance in all the divisions and having a double-digit increment in sales in the division of groceries and prepared food, and also considerably improving the results in perishables in comparison with last year.
Regarding Soriana Mercado and Soriana Express store format, we continue strengthening the participation of our loyalty program, Recompensas Soriana, by offering the best product basket at the best price of the market, resulting in an increment in the participation of our private brands in a double-digit growth and also implement of the same-store sales in regions like Mexico City, Pacific and Northeast. Basically, the line division of general merchandise, groceries and prepared food are the ones that are having the best performance in these 2 store formats. Last but not least, City Club, our membership club format, continue delivering outstanding results. And during this quarter, maintaining the lead increase of traffic and its base of members grew 21%. Regarding sales, showing a constant double-digit growth despite of the challenges that we have faced regarding logistics, product shortage worldwide and affectation in delivery volumes. At a division level performance for City Club, groceries and perishables are the one with the best performance.
Commercially speaking, the stores continue working and increasing its product catalog in all divisions and working prominently in boosting the private label offer. Particularly private label in this quarter have a growth of 28% in terms of sales.
All of these positive results were achieved, thanks to our right communication and negotiation with our suppliers and by offering our clients different types of products and alternatives, particularly increasing the participation of institutional business and individuals, who already reached a participation of 52% of the base of members in our City Club. Moving on and regarding our digital business. It's essential for Soriana to continue investing and growing in the e-commerce channel. Therefore, we reiterate our commitment to continuously working in offering a sales platform that will provide each time a real omnichannel experience, including a [ higher ] product catalog that includes same-day deliveries in supermarket items as well as the scheduled deliveries option for the [ extent ] catalog, achieving an unparalleled shopping experience that offers great security and reliability to our customers. As a result of the above mentioned, we are pleased to inform that through our digital channels that include soriana.com, the app and external platforms, like Cornershop, the number of orders showed a growth of 42% compared to the second quarter of the previous year. And in terms of sales, an increase of more than 30%. By region, our e-commerce business have a better performance, particularly in Mexico City, the State of Mexico, Nuevo León and Veracruz. This improvement is the result of a constant work both in technological and commercial areas.
In the product side, we are increasing by 1,000, the number of products in our catalog. And in the technological, we are improving our technology that is allowing us to reduce in a very considerable way the time that we take to make the final delivery to the client. In this regard, and also listening to our customers, we have been taking important changes. During this week of quarter, we saw progress in customer satisfaction and specifically this business line, with a growth of 35 points in the first quarter of this year based on the Net Promoter Score methodology. Due to change in people's lifestyle, we understand that time is a very sensitive and important factor for our customers, which is why we keep working in reducing delivery times up to 30%. And right now in Mexico City and its metropolitan areas, we can say that all the deliveries are in less than 1 day.
Now passing and talking about the loyalty program, Recompensas Soriana. This quarter, we continue with a positive trend in terms of adding and awarding new customers to our base, which have grown at 29% versus the same quarter of last year. With the intention of continuously offering a greater shopping experience to our clients, in recent months, we have been redesigning the value chain, mainly the way that we work with our suppliers, but being stricter in terms of product quality and fulfillment in order to bring to our -- an offer to the next level, specifically in the division of fresh produce and in the lines of fruits and vegetables.
Going directly to the numbers and going down to the P&L line. You can see in the other income that basically, we closed the second quarter with an increase of 6.6% and in a cumulative term of 10.9%. This increased outstanding participation of our real estate business that continued recovering occupancy, showing an increase for the quarter of 8.2% and 15.6% for the first half of the year. Therefore, the company's total income of the quarter reached MXN 41.7 billion, which represented a 6.6% increase in comparison with the same quarter of last year and a 7.1% increase for the first semester.
Talking about the gross profit. This item reached MXN 9 billion in this quarter, which represented a 21.7% margin, with an increase of 8.7% versus last year, with a positive impact due to various commercial terms and improvement in shrinkage management. As a result, gross margin expanded in 40 basis points again versus last year. Regarding the [indiscernible] operating expenses showed an expansion of 40 basis points, reaching MXN 6 billion, which represents a 14.4% of income and an increase of 10% versus last year. This increase in operational expenses is mainly attributable mostly to the cost of personnel and due to a higher investment in maintenance in order to improve the operation in our stores and provide a better customer experience. Also, the lines of advertising and the cost of wire supply were impacted. As a consequence of the variation just mentioned and the efficiency of payment at a gross profit level, the EBITDA of the quarter closed with an increase of 6%, reaching an amount of MXN 3 billion, which represents a margin of 7.3%.
[indiscernible] and regarding the financial items, net financial cost closed with the quarter in MXN 584 million, showing a decrease of 2.9% versus the same period of 2021. After the close of the second quarter, the company had a total debt of MXN 13 billion, that represents a decrease of 22% against the balance of the last year and go in line with our reduction plan.
Finally, net income reached MXN 1.1 billion, equivalent to 2.8% of our income, with an expansion of 60 basis points, which represent an increase of 34.7% versus the same quarter of last year and in a cumulative weight of 15.2%.
Moving on to discuss about the progress made with our partner, Falabella. First, let me share with you that Sodimac continues delivering very positive results in terms of total sales increase of 45%. This outstanding result is supported by the opening of 3 stores in the last 12 months and from the good performance of its digital business in which especially focus has been given to delivery times. Also, increases in traffic are shown even in cities where there is not a physical store, thanks to our greater e-commerce coverage. In the following months, we expect to open 2 stores, in which we will embed a little more than MXN 350 million. In the other business, talking about the financial business, with the credit card Falabella Soriana, this business is also grow. At the end of the quarter, more than 570,000 cards have been used in total, and we already have 155 models in operation. By the end of the month of June, the credit portfolio equals to more than MXN 2 billion.
Finally, let me update you with our expansion plan for the year. During the past month, we inaugurated a sports [indiscernible] in the city of Tapachula [indiscernible] in the south region of the country. These stores are Soriana Hiper and City Club were very well accepted since the 2 formats arrived for the first time to the city, and as of today, are delivering incredible results. Also, we will continue with the process for opening another 4 units expected for the last quarter of this year. As well as we are continue working on those big [indiscernible] organization in order to convert the remaining estate in greater [ GLA ] for our business, real estate business. So you can expect that we will continue announcing the reduction of sales flow for all our hypermarket format.
Also, right now, we are in the process to make 5 major remodeling in fact of our main hypermarkets that we are expecting to end by before Christmas season and take advantage of the high sales of the Christmas season for these 4 stores.
Without further more to comment, this is the end of my intervention. If you want, please, join us to the Q&A session.
[Operator Instructions] And we'll take our first question from Antonio Hernández with Barclays.
The question is regarding the City Club format. Are you seeing any type of shift in consumer terms? I mean, maybe consumers because of the inflationary environment and because of the nature of this business may be trading down in terms of packages or in terms of private labels?
Sorry, we have some problems in the communication. Can you repeat the question? We only hear about that you are asking about the performance of City Club.
Exactly. About the performance of City Club, but more specifically on seeing any type of consumer [indiscernible] into smaller packages, maybe to private labels.
No. Well, basically, we can say that probably the most important source of City Club is coming from the base of membership. I think that in the first quarter of -- in the first month -- the results of the first quarter of the year, we announced that City Club already surpassed the 1.2 million members. And something that is having a tremendous success is that, basically, every month, we continue with a double-digit growth in terms of new members. So we can say that probably the reason #1 of the good performance of City Club in the last 3 years because we have already 3 years of double-digit growth in City Club is, first of all, that every month, more people trusting City Club to pay a membership because they are seeing a great value in the membership. Secondly, yes, you are right. Private brands, particularly City Club, is one of the most important sources of also of growth. Particularly, it's a private brand that so many cases have a different strategy than the private brand like in Soriana, that is just entry level private brand. In City Club, we have a partnership with some suppliers in order to develop very high-quality private brands. Probably one of the important problems that we already have with a specific alliance with the government of Canada in order to have a very close relationship with supplier spaces in Canada that are working together with our commercial area to develop specific product for private brand labels of City Club to give not only private brand, but exclusive brands for Soriana and for City Club that is giving good results.
So we can say that, yes, private brand is very important to City Club, and we have to think that the private brand in City Club is not only entry level, it's also high-quality private brand, that help us to maintain the [indiscernible].
Okay. And just a follow-up. Could you remind us of what the private level penetration in both City Club format and Soriana format?
Yes. Basically, we can say that in the format that have the highest penetration is Mercado, Soriana Mercado and Express, that is high teens. And in the mix of the other formats is a little more than 10%.
And take our next question from [ Camilla Azevedo ] with UBS.
We were wondering if you can comment about the same-store sales performance by region, so North, Center and South. And perhaps the same-store sales by type of merchandise and format.
Sure. Well, basically, in general, the performance is very similar across all the regions. We can say that particularly in the first quarter of the year, we had a slower performance in the north part of Mexico, but obviously, in our case it's important because it's one of the regions that contribute more to our sales. But right now, we can say that still the north part of Mexico have a little lag against the other regions. But in general, very similar. And if we talk about division's performance, basically, perishables is going very, very good. Growth is going really, really good. Right now, the category of -- the line of categories in which we are having a lag in the performance is nonfood groceries [indiscernible]. Basically, they are the ones that right now have a lag in the performance against the other line categories.
And we'll take our next question from Ulises Argote with JPMorgan.
Rodrigo, just a follow-up here on private label. So you commented on what the current share is more or less. But can you give us any color on how does this compare to last year? Or how you have seen this evolving over the last quarters? And then the second question that I have was any color or any extra details that you can give us on what drove that lower tax rate that you had during this quarter.
Sure. Well, basically, the first one about the performance of the private label. Basically, again, like, last year, I'll give you a little more color. Particularly, Soriana Mercado and Soriana Express already have also -- this will be the second year. But basically, all months have a growth of [indiscernible] against the previous month and is gaining an important market share in the total sales of the company. The total sales of the formats sold again, particularly Soriana Mercado and Soriana Express.
In the other format, we are also seeing a strategic value to continue developing the penetration of the private brand. We are working very fast to have more categories, line categories in which we can offer private advanced products and not only private advanced also exclusive brands, products, like what is happening like an example in the wine selection, which is not particularly a private brand. They are exclusive brands that we are working really hard in order to introduce to our value proposition. But we can say that, in general, the whole company is growing double digits basically every month in private brand performance. And again, it's part of the debt that the company is doing as a differentiation to our competitors. Basically, it's that. And secondly, about the differentiation in the tax rate. Basically, as you see is that we have an important change in the freight taxes. Basically, that is what is making the change against the same quarter of last year. And basically, [indiscernible] positive impact our referred taxes is basically about some accountable items that we have last year that have an accounting effect and not a tax effect. But basically, it is that the main difference that is helping us in the [ different ] tax line.
That is very helpful. And then just a follow-up there on the taxes. So going forward, should we kind of expect, given that change in the recognition of deferred taxes to see lower effective rates? Or should we kind of continue kind of modeling and thinking on the levels that we used to have before?
You have to remember that last year, we see an important increase in the tax provision because remember that we have to pay taxes. The tax authority, considering an income, all the liabilities that we have with no cause multiplied by the inflation. So the problem is that last year, we have a -- was the third one, in which the country had an inflation in a number that we are not used to.
So in 2021, for the first time in 20 years, 30 years, we started to see inflation above 5%, 6%, 7%. We have an important effect in which there is not an accounting income, but it is a tax income. Basically, what is happening all of this year is that when you compare to last year, we start to have a more comparable base. Basically, we have also another items that are, again, in the previous years used to be a tax income, but not accounting income that will be separate. But going into the future, the comparative base will be more regular.
So if you remember last year, even we have a total tax rate of more than 35%, even higher than the statutory rate. But we are expecting is that going into the future, that will continue going down and start to be more normalized, more in the lines of the tariffs.
And we'll take our next question from Luis Willard with GBM.
Just wanted to pick your brain and so you think about the execution and the potency of Julio Regalado. I mean it seems has not been yet a material differentiator for your top line for the last several years as opposed to what we used to see [indiscernible] years ago. So what do you think are the drivers behind this? And specifically, the new approach that you mentioned, you're trying out the year -- in this year's addition, have you made a material difference so far? That is my question.
It's a good question mainly because it's a reality that we have actually in this year, we have to make a change in the Julio Regalado scheme. And basically, related with the purchasing power of our clients is, I think, that all of us we know that -- I mean, we already have 2 years of very high inflation. We can say that if we have inflation of 2 years, the purchasing power of a lot of our clients have also been more than 16%.
So when you think that Julio Regalado basically for several years is a promotion based in multiples, 3 by 2s. It's a fact to think that -- we can think that it's more difficult for our client, make up volume purchase of items again in nonfood growth service, like a dissolvent or shampoo of 6, but obviously, you can obtain a very good price. But when you have a net reduction of 16% just for the inflation in your purchasing power, the promotion is starting out to be so attractive. So actually, if we want to divide the second quarter, we have an excellent people and excellent name, and we have at the first half of June, which we are already talking about Julio Regalado, we have a decrease in work performance that was recovered in the second half of June.
And this first week, half of Julio Regalado June is because of that, because we have to make adjustments in the promotions. And that is why we make more reduction directly in price, and that is quite, as I commented in my first intervention, we start to use [indiscernible] because we are seeing right now in certain categories, particularly even nonfood grocery, the multiples promotions are not having the same effect as in previous years. And makes sense, again, inflation. When you are talking about 2 years of inflation higher than 7%, had an impact in the behavior of the clients. I don't know if with this I give you more color about the changes that we have and that we've had to make in Julio Regalado.
And we'll take our next question from Rodrigo Alcantara with UBS.
Just curious here, I mean, we have talked a lot about capital, the strategy that you're implementing, the Julio Regalado campaign, et cetera. Just curious here, your thoughts here on -- I mean, at the end of the day, you're still like the second largest retailer in Mexico, right? So just curious, what's like your core strategy? How should we understand the core strategy of Soriana in order to reaccelerate same-store sales, I mean, taking the same-store sales above the benchmark [indiscernible], those -- like in those years that we were used to in the past, you just actually report even [indiscernible]. Just curious your thoughts about the general strategy of the company going forward? Is that -- if you can comment about that would be helpful.
Sure. Basically, we can talk about 4 pillars or core strategies to improve our same-store sales. And actually, one of them is -- one of the important reasons that's not justified, but [indiscernible] the difference against our -- one of our competitors. First of all, and as you mentioned, it will be private brands. That is basically one of the strategies that make the more sense for Soriana. But in terms of normal that we are the second largest food retailer in Mexico. The different segments are the main competitor is still very important.
So obviously, they will have an advantage in terms of [indiscernible]. So [indiscernible] private brands that make our differentiation and increase loyalty is one of the ways that we have to have a better defense against the purchasing target of guys like Walmart. Secondly is price. And I think that this is something that we have several months talking about that. For Soriana, it's something that we change 2 years ago, is that the price is not something negotiable. And again, if we have to reduce gross margin, we will reduce gross margin. But we know that we doesn't have the gaining or the winner perception of price in the country. We are really aware that in some areas, the #1 in perception of price is Chedraui, and we have to speak nationwide, [indiscernible]. And there is no other way that to be completely sure of our competitive strategy to gain the positioning in the minds of our clients to be cheap, so we will continue investing in price. So price is also the other pillars of our strategy, in which, again, we will not negotiate the competitiveness of the company. Number 3 is catalog of product. We know particularly in the big cities, because we have spent a lot of time in market research, in which our clients still say that we doesn't have all the products [indiscernible], particularly medium socioeconomical level in some areas [indiscernible], in some areas like in [indiscernible]. So we are working really, really hard in terms to have the right catalog of products.
Actually, as part of the strategy, we just create an area basically is separated from the purchasing area in order to assure that we have the right catalog, working in 2 important lines. First of all, we have a specific strategy to the regional suppliers because we know that we have an opportunity in areas like Guadalajara. That is a very big city in which our participation is still very low against the sales flow that we have in that city. And mainly one of the important complaints is that we also have the specific regional catalog. So we are working on that. The same has happened in the south part of Mexico.
So have a strong capital of product, and specifically talking about our regional strategy is one of the lines that we are following. The other is talking specifically for general merchandise and clothes department is that we just start to develop our -- a new area of import product. Actually, we will -- we are in the process to open offices in China in order to have a much important presence on that part of the country. Obviously, we have several years in making an important purchasing in Asia. But we want to take that to the next level. And in so many cases, even take advantage of the experience that our partners have on that partners like Sodimac and partners like Falabella.
And finally, and this is a very important component of the same-store sales is that we have to continue investing to grow the participation of e-commerce. Right now, the e-commerce is probably the most important source of same-store sales for our competitors. Remember, for Soriana, right now, e-commerce represents close to 2%. And for our main competitors, that percentage is higher than 5%, 6% or even 8%. And if you consider that in that business, the same-store sales are in some more months in to double or triple digit, obviously, have an important effect in the same-store sales of the whole company. Just to give you a simple example, right now, the same-store sale that we can say in our e-commerce business is more than 30%, instead of have a participation of 2% of the sales, we'll have a participation of 8% of our sales. That is something that happened in one of our competitors. The same-store sales of the total company will be completely different.
So basically, there are the 4 more important things in which we are investing. And basically, all of them, the 4 of them are going around the loyalty program and strategy, in which we are, every month using better information [indiscernible] in order to improve these 4 strategies that I already commented.
And we'll take our next question from Marisol Andrade with Credit Suisse.
I just have 2 quick questions. I just wanted to know about what to expect on SG&A coming forward? Should we still expect some increases in [indiscernible] still impact less than the year results? Or should we see any type of normalization coming at the end of the year? And my second question is on operational revenues. Just [indiscernible] what accounts are falling under this description, just to understand the increase that we saw this quarter.
Marisol, just to -- we have a little bit of interruption in the [indiscernible]. Just to be clear, your first question is about what to expect or the cost of personnel expense line going into the future, and the second one give you more color about the other income line in the sales. Is that correct?
Yes, yes, that's correct.
Well, about the cost of personnel is important to mention. That is not an increase. That is coming from pressure in the cost of person. It's an increase that is coming because we are increasing the number of people in our stores. And that is coming because as part of the strategic planning meeting of last year, something that we note as a lack or a disadvantage against our competitors and is something that you can make the map. If you divide the sales area of all of our competitors and Soriana, against the number of people, you will see that we have the less intensity of labor.
For us, it's something that we call intensity of service, and we have to assess that in the last 5 years, we lose intensity in service that obviously have an impact on the service and in the quality in which we receive our clients in the stores, particularly in stores like Julio Regalado, which we have an increase of the traffic in Christmas is something that we cannot allow to happen anymore into the future.
So right now, we are in the process to review all the number of people store by store. And obviously, we have to invest in people because at the beginning, we have to do it and probably like an extra expense. So this is a way in which we can recover market share and recover clients and recover the perception of service that we have to do, we will do it. It's like the price on it. So we don't care we have to invest gross margin in order to be competitive. And right now, if we have to invest in personnel because we have a lack of people in the store, when a client go to the store and they are not finding a product, also doesn't find a personnel, we cannot allow that to happen anymore into the future. So we will invest on that.
And the way that we are seeing is that the solution is not to reduce the number of personnel anymore. The solution is to sell -- increase the sales and leverage that expense. It's just that at the beginning, you have to support the expense. And we will do it because, again, the debt that the company is doing is not to reduce expenses, it is to increase sales.
And talking about your second question, basically, in other income, we have 2 important -- I mean, we have different explanation of have integrated that number. Probably the most important is the profit because we only registered the profit of our real estate business. And also, we have basically done an important business line in the financial division or the financial products division that basically on that line, we were [indiscernible] accounting speaking, all the [indiscernible] and financial products and all the income is already -- is only the income of other products that are not typically [indiscernible] products.
We'll take a follow-up question from Luis Willard with GBM.
So just a quick one on your partnership with Mercado Libre. I mean, you see Chedraui now doing the perishable. Does it make sense for you to ship that window open for sales? And if not, do you plan to switch it to someone else?
The thing -- I mean, I don't want to talk about specific things about our competitors, both in our case, in the partnership that we have with Mercado Libre. The thing is that we only have by products because the strategy is that the final -- the last mile delivery is do it by Mercado Libre.
When you talk about perishables, the last mile have to do it by the retailer because the -- I think Mercado Libre doesn't have a chain, also fresh produce. In our point of view, if we have to make the time, the last mile delivery, we prefer to invest all our personnel resources and money to do that in our own channel.
So obviously, we are open to have a space and to have presence and to have partnerships with other guys like Mercado Libre or any other name. But particularly, when we talk about investing into the future to grow the fresh product, the perishables product, we prefer to focus the major part of our attention to develop our own channels.
That doesn't mean that we are not open to talk with other guys to make something in fresh or perishable products, because right now, we prefer that particular in that 2 categories invest a major part of our time in our own channel.
[Operator Instructions].
Okay. I think that we don't have any more questions. No matter if you have in the future [indiscernible] or something that we want to comment in private, please let me -- give me an e-mail or a call, and it will be a pleasure. Have a good weekend, and thank you again, everyone, for joining us in this conference call. Bye.
This does conclude today's program. Thank you for your participation. You may disconnect at any time, and have a wonderful afternoon.