© 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.
Good afternoon, everyone. Welcome to Organización Soriana Third Quarter 2022 Earnings Conference Call. With us today are Mr. Rodrigo Benet Cordova, CFO of Organización Soriana and Ms. Claudia González Romero, Head of Investor Relations of Organización Soriana. Together, they will be discussing the financial performance for the third quarter of 2022 and providing a summary of the latest news on the company. At the end of the presentation, there will be a Q&A session to answer any questions you might have. [Operator Instructions] Please note that the conference call may be recorded. I will now turn the conference over to Mr. Rodrigo Benet Cordova, CFO of Organización Soriana. Please go ahead.
Good afternoon, everyone, and thank you for joining us in this conference call regarding the results of the third quarter. Today with me, as you already hear Claudia González, the Head of Financial Planning and together, we'll be going through some important information of what happened during this period. Let me begin with general comments regarding the top line of our income statement, where total revenues for the quarter reached MXN 41.5 billion, which represents a 7.9% increase versus the same quarter of last year, basically derivative from an increase of 6.6% in our same-store sales. Also because the positive impact of 2 store openings during the quarter and also by the higher real estate revenues due to a recovery in the occupancy of our real estate business.
During the quarter, specifically in the month of July, our most important commercial campaign, Julio Regalado was concluded. And as I commented to you in the previous quarter, our vet this year was to invest in advertising through mass media across the country, but also with a high impact in other channels like social media through all principal platforms, which have -- which was very positive for our omnichannel strategy and very important channel to engage with the new generation and future clients.
Also, this strategy allow us to measure the reaction of our clients more in a react and adjust the proposal as needed achieving greater deep and profitability, which managed to achieve a 7.9% growth in the promotional categories versus the result of the previous year. In addition to the last period of Julio Regalado, but also in the month of August and September, we carried out the back-to-school and independent stay campaigns. As [indiscernible] of the exhibition of Halloween and Christmas seasons with a great reaction and comments from our clients. Also and moving to a division store level, we saw a positive trend in the same-store sales, particularly in division plants like grocery, general merchandise and prepare food, basically in these 3 lines, we obtained a double-digit increase in almost all the stores around the country.
Two, store formats stand out, which each month of this year has been showing a double-digit growth as a result of significant changes made by the commercial [Audio Gap] in the stores [indiscernible]. By region, we saw a very positive performance in the cities of Tijuana, Torreón, from [indiscernible] as well as in the Pacific and Southeast regions that particularly in the format for Soriana Super, we have an important presence in that region. The other format that stands out with a very good performance in City Club which continues showing month-by-month since 2015, positive same-store sales, and double-digit growth in total revenues for this quarter against 2021. For the quarter, in particular, in this format, we have an important differentiation in our private and exclusive brands that lead us to an important growth. And also, we saw an increase of 19% in the number of memberships against last year. Likewise, we are pleased to inform you that our private brand as one of our strategic pillars continue showing double-digit income. Since we are making alliance with more and better brands that really make the difference for our clients with the new products in each division. Also and regarding our digital business, in this quarter, we achieved an increase of 100% in digital channels of soriana.com and 16% in the third price platforms. Likewise, we continuously keep improving our web page and the Soriana, which now has a completely different design, which provides an improved shopping experience with a redistribution of the spaces that provide a nice navigation across the site and in general, a more dynamic shopping process. Also, we continue innovating our digital offer. And currently, we are adding a new service, we are supplying doctors prescription with our home delivery service. And also for the very first time in the company, we are offering digital medical consultation as part of the services that the client can obtain in our web page.
Now passing I'm talking about our loyalty program, Recompensas Soriana, in this quarter, we increased 30% the number of clients who participate in the program in comparison with the same quarter of last year. And right now, we achieved 11 million clients that are actively buying in our physical stores and digital channels. This growth is mainly achieved by the execution of additional promotion with [indiscernible] in all our store formats and a more aggressive affiliation plan. All of this is very important to Soriana as part of the strategy to make more robust data rates and personalized promotions to our client. Upon down on the P&L, the line of the gross profit in the quarter reached MXN 8.8 billion, which represents a margin of 21.4%. That implies an expansion of 40 basis points with an increase of 9.7% against the last year.
This increase is basically due to better commercial negotiations. And as we previously mentioned, the recovery in our real estate business [indiscernible]. Regarding the operating expenses line, is showing an expansion of 30 basis points, reaching MXN 6.3 billion, which represents 15.2% over the income and an increase of 9.6% against last year. This increasing the operational expenses is attributable mostly to a 7.8% of cost of personnel due to the feeling of templates that we still completed last year as a result of the pandemic and an additional is increased by a bonus provision. Also, we are making a higher investment of 6.9% in advertising against last year and an increase -- a very important increase of 6.1% in the energy cost delivered from less air generation in the wind parks that the company operates. Another item with a significant increase was maintenance that we are seeing this as an impairment for the long term of the image of the company in which we are trying to improve the store operations and provide to our clients a great shopping experience.
Likewise, regarding other income and expense net during the third quarter was - of last year, there was an extraordinary income due to collection of accounts for MXN 260 million, which represents the ratio of 80% in this quarter in this line and obviously have an important impact in the comparison of the EBITDA against last year. As a consequence of all of these variations, the company EBITDA in this quarter reached MXN 2.6 billion, which represents a 6.3% over the sales and a contraction of 40 basis points, all targets last year and an increase of 1.6% compared to the results of 2021. On the other hand and regarding the financial pricing, net financial costs closed the quarter in MXN 506 million, an increase of 92% versus the same period of 2021. This increment is product of 53% reduction in the financial product, which also will have a higher financial products investment. There is a negative effect regarding the equity swap of 80% in comparison with the recognition of the profit at the third quarter of '21. It's important to remember that all of these variations, particularly in the equity swap is not a cash valuation, it's just an account and register. Additionally, the financial expense showed an increase of 17% due to the combination of a 55% growth in the reference rate that was partially offset with a 23% of reduction in the net debt and also a reduction in the rate that we obtained the financial processes that the company do. At the end of the third quarter, the company had a total debt of MXN 2.8 billion so there is a total decrease of 23% against the balance of last year. Finally, the net income for the quarter reached MXN 967 million, which is equivalent to 2.2% of the sales and represent an increase of 23.2% against the same quarter of the previous year. Moving to CapEx, we are pleased to inform you that we have invested MXN 2.3 billion in the quarter, including 19% have been allocated in new stores, 20% in technology, and 43% in remodeling and replacement of equipment, to give priority to those situations that we have to correct the operation in the stores and the distribution centers. And also, we invest around 14% of this amount in projects with our partners, Falabella. Also as part of this investment a de facto remodeling was completely concluded and also we opened for stores that are in the process of construction that will be opening in the following months, particularly in the city of Ciudad Victoria in Cancun, in Torreón and in [ Chata ]. Moving on and talk about a little about the progress with our partner, Falabella, this quarter, the same-store business showed very positive results. Remembering that we have 10 operation, and there are 2 more stores that will be opened before the year-end. We have an important increase of 22% in the total revenues, and we continue seeing an important increase month by month in the same-store sales. Also, in -- I'm talking about the financial business, we continue seeing an important growth also in this line of business with Falabella. Remembering that right now, we have 120 store models in which we operate and another 259 stores in which we operate in a digital way. And in this quarter, we can increase in 734,000 new clients, the portfolio of Falabella. And we are really close to and probably the following months with more than half million total clients in the portfolio of Falabella Soriana clients. As a final remark, also, we are piping about the progress that we made in our sustainable price that we have implemented in the last 2 years in which we are replacing all the lighting of our store for let technology that is part of the strategy to reduce the energy consumption. And right now, we can say that we have 553 stores in which we already changed for this technology, obtaining an average saving of 57% in the lighting cost of each stores. Probably this is the most important sustainable program that the company already has, and we will continue investing in new technologies, not only in lighting but also in refutation in the following years.
Probably this is the highlights of the results of the quarter, and we can continue to the Q&A session in order to answer any questions that you can have. Thank you very much.
[Operator Instructions]. The first question is from Ms. Camila Azevedo from UBS.
I have 2 questions from my side. First, if you could give us more color on the same-store sales by format and by region? And my second question is about Julio Regalado. Could you have your view on the consumer engagement in this promotional campaign versus previous years?
Well, regarding the first question, basically, we have 2 important highlights. The first one is Soriana Super. That is the format that probably was the beginning that was involved in the commercial changes and the new strategy that is showing very good results. Also, we can say that we will be closing the double-digit same-store sales, practically all on have our results above the results of the whole company. And the other the other one is City Club, City Club have close to 4 year which basically month-by-month continue growing. We are really, really happy with the performance of City Club and particularly also in this year in 2022. It's practically for sure that it will close the same-store sales in a double-digit level. Talking about regions. In general, we are seeing performance very similar. If we have to highlight something in the positive side, we can highlight the recovery that we are seeing in Central Mexico, particularly in as we [indiscernible] Mexico. That is Mexico City, state of Mexico [indiscernible], the surrounded states are around Mexico City.
In the other side, the one that right now what worries us the most is Monterrey and [ Avolon ], which we are perfectly advised that the competence probably the area with the competence of one of our competitors, particularly opened the major part of the stores in the last 5 years. And right now, we are developing a specific plan to our economy. In general, the performance is good, and we are seeing a recovery in all the regions of the country. But if we have to highlight 2, I will be highlighting the very good performance in Central Mexico, the performance below the average in [indiscernible]. Regarding the second question about Julio Regalado, no matter that we have a 7.9% growth, particular in the result of the promotion of Julio Regalado again last year.
We are very far away to say that we are satisfied with the performance of Julio Regalado. It's a fact that our competitors each year we are more aggressively against Julio Regalado because of the importance of the campaign in the summer season. Probably what we can say is that we saw a better result in the general sales of the products not the one that are specifically in promotion. And no matter that the products that were specifically in promotion grew 7.9%, the expectative of that growth because the reduction of prices that we make is that have to be intense. So we doesn't have the Julio Regalado that we expect.
Our next question is from Mr. Antonio Hernández from Barclays.
My question is regarding the private label penetration that you have across the different formats. Can you elaborate a little bit more on that than any change in trends given the inflationary environment and you have a target on that penetration?
Yes, actually, I remember that probably the last our conference call, I talk about that. Private label is one of the strategic pillars of the company. It's one of the things in which we are investing more. Actually, we are really signed and make an important restructure internally in Soriana in order to have a bigger and more important direction of private label inside the company. Actually, it's a specific product, even we have some advisers from other countries to help us to design completely the strategy of the private label. So far, we are really happy with the performance that we have in private label, particularly, I can tell you that the first quarter of this year, basically, the private label growth more than the double than the -- the same-store sale of private label growth more than the double than the same-store sales of the company.
In first quarter, basically, we grew close to 1% in the second quarter, again, also around 16%. And in this third quarter, we are also in teens level. So we are really happy with the results that we are seeing, and we will continue investing. The participation is still far away from the objective. Basically, we believe that in the medium term, the goal is to be close to 20% of participation. Obviously, in some format, that will be much more easy to achieve. We can say right now that, particularly right now in Mercado in particular, and Soriana expressed, the penetration is important. It's already in intense level. But we have a clear strategy that private label have to - and with private label is private label and also private brands or exclusive brands, but we are claiming to achieve that will be participation of the total sales of the company.
Okay. Are you seeing a shift in consumption trends, besides your internal strategy, are you seeing maybe price trying to shop more of these projects because of the inflationary pressure? And you see these shipping in construction trends maybe towards the last couple of months and improve the regions or format.
We will start to see some shift, not particularly private brand, but we start to see some shift because of inflation. Probably the most important shift that we are seeing in the consumption is that they are buying more cheap propane. We are seeing a decrease in beef, and we are seeing an increased particularly in [indiscernible]. That makes sense. But for our experience in other economical crisis in which the wallet of the clients have some impact, it will be very understandable to see in the future that they start to make a shift from commercial brands to private brands. But right now, I can say that this increase that we have, not only in this quarter but in the last 8 quarters, an increase of the private brands more attributable to a commercial strategy than to a problem of inflation.
Our next question is an Ms. Irma Sgarz from Goldman Sachs.
Yes. I was just curious to understand how you're thinking in terms of the general merchandise and the payroll categories, how you're thinking about year-end sales and also the outlook for 2023, I think, generally conflicting data out there in terms of how much demand is slowing down. It seems to have remained relatively robust into the third quarter. So I just wanted to understand how you're planning for the year-end and what you're actually seeing in the stores right now. And then a second question regarding minimum wage increases into 2023, there could be yet another sizable increase coming. How are you thinking about sort of planning for those potentially additional expense pressures? Do you plan to pass them on to the prices? Or do you have specific efficiency programs in place to offset that?
Regarding the first question, actually, we are very happy with the performance of general merchandise, apparel and prepared foods. I think that 3 categories with higher margins than the growth is up. That obviously helps us to the total gross margin of the company. We are seeing a shift even in the mix between food and nonfood of the company, mainly because of this. And particularly, we are seeing a very important potential of future growth. We just create - we have like 7 months that we create a new direct office or direction inside the company of imported goods in which Soriana is starting to increase their power and their skills to see products in other regions of the world and bring them to Soriana stores in order to have better cost but also have a differential catalog, particular [ genomic ] [indiscernible]. And we are starting to see very good results. I can tell you some products, we are changing dramatically the mix of national product between imported goods that are not only giving us better product pretty much in front of our clients, but in so many cases, even we are achieving better prices.
So I think that going into the future, you will see Soriana trying and achieving a better mix between food and nonfood. Particularly, no food is also happening the same. That is also a category with very high margins that is growing very importantly. We changed completely that department, and we have a new strategy which we are trying to be more adequate news for the new requirements and for the new age of the new families that we are seeing in Mexico, and we are seeing a good results on that. So I think that you -- we are not expecting no matter of the problems of inflation that we are seeing. We believe that Soriana our opportunity to take market share participation in that category that is a factor in the past, we don't have a better good performance of that.
And obviously, we are entering to the most important period of the year for general merchandise and apparel, it will be Christmas and particularly these treatments, we have Christmas plus, [indiscernible], plus the soccer tournament. So it will be very, very different, very special, but we are seeing that it will be a good close of the year. Regarding the second question, yes, we are really worried because the environment that we are hearing about increasing minimum wage is important, and we are also seeing important numbers of increase.
It's important to mention that basically the company, [ we do not pay minimal weight ]. No matter have an impact or indirect impact in the ways of our base of personal. This is -- it will be very difficult to manage because in one hand, we have the government and probably you see in the news that Soriana is part of a program with the federal government trying to control or reduce inflation, and we are actively working on that. But if on the other hand, the minimum wages in the country have an increase of [indiscernible] in some cases, we see about that. It will be practically impossible to control inflation. So I think that even the government have an interest to maintain the inflation low. And I think that they are also very aware that if they -- no, I want to say promote but they allow an important increase, it will be practically possible to maintain inflation in the levels, in the target level. We are just taking the provision in the budget for 2023 about what can happen. Basically that.
[Operator Instructions].
Okay, I think that we don't have any more questions. So thank you very much for your time and for joining us in this conference call. No way if you have any other questions, please feel free to contact me in your contact Claudia. Thank you very much. Have a good week.
Organización Soriana would like to thank you for participating in today's conference call. You may now disconnect.