BIM Birlesik Magazalar AS

IST:BIMAS.E

Q1-2025 Earnings Call

[Akif Dasiran, executive]

Dear analysts and investors, welcome to BIM Birlesik Magazalar's First Quarter 2025 Financial Results Webcast. I am Akif Dasiran, Head of Investor Relations and Sustainability, and I am pleased to be joined today by our CFO, Fatih Meriç.

We hope you have had a chance to download our investor presentation from our website. Please note that this presentation includes both inflation adjusted and unadjusted figures to facilitate a clear quarterly comparison for our investors.

Now I would like to hand it over to Mr. Meriç, who will provide an introduction and key highlights of the quarter.

[Fatih Meriç, executive]

Thank you, Akif. Hello, everyone. Let's begin with the key highlights of the first quarter. Before start giving details, please note that all the figures here in this slide are inflation adjusted. Our quarterly net sales were nearly TRY 148 billion, reflecting 3% year-over-year growth. Our nominal sales growth was 44% in the quarter. The difference between CPI and the inflation was one of the main drivers of low single-digit sales growth in inflation adjusted figures.

Our EBITDA margin was 3.6% in Q1. Without inflation accounting, the margin stood at 6.7%. Net income was TRY 2.7 billion with a corresponding 1.8% margin. Our net cash position reached nearly TRY 24 billion. In the first quarter, we opened 226 new stores. As a final highlight, capital expenditures were 3.1% of our revenues in Q1. We will be elaborating the details in the coming slides.

Moving on to our operational performance. Let's take a closer look at the key metrics driving our business. Starting with the like-for-like sales slide. Please note that all figures presented here exclude inflationary adjustments. Like-for-like sales grew by 35% in the first quarter. Like-for-like basket size increased by 40%, while our internal inflation averaged 36% for the quarter. Similar to the last 2 quarters, our traffic numbers remained on negative territory in the first quarter. Ongoing weakness in consumer spending and the high base from the same quarter last year contributed to the decline in traffic figures. In April, we don't see a major change in the traffic trend.

When we come to the revenue breakdown by format and geography, BIM Türkiye accounted for 85% of total sales, while share in consolidated revenue reached double digit first time. The remaining 5% came from our foreign operations. In Türkiye, our private label share declined to 57%, mainly due to dilution effect of relatively lower inflation in basic categories where we have higher PL ratio. In addition, our number of SKU also increased to 1,000 versus 900 before. New SKUs are mostly branded products, which dilutes the share of private label products. Once again, I want to emphasize that our PL strategy remains unchanged, and we continue to focus on enhancing our private label offerings in our stores.

When we come to store expansion. In the first quarter of 2025, we opened 172 new BIM stores and 8 new FILE stores in Türkiye, 39 new stores in Morocco, 7 new stores in Egypt. By the end of Q1, our total consolidated store count reached 13,809.

And when we come to CapEx overview in the first quarter, our CapEx with inflation accounting amounted to TRY 4.6 billion, representing 3.1% of net sales. Excluding inflation accounting, quarterly CapEx was TRY 4.6 billion, corresponding to 3.2% of net sales. Our CapEx were below full year guidance this quarter due to some postponed investments. However, we expect investment activity to continue in the upcoming quarters throughout the year. This concludes my section of the presentation.

Now I'm handing over to Akif for the financial performance segment.

[Akif Dasiran, executive]

Thank you, Fatih. Let's continue with the sales progression on Page 11. In the first quarter, our revenues increased by 3% year-over-year on inflation adjusted figures. Excluding inflation accounting, sales grew by 44% year-on-year in the first quarter, reaching TRY 144 billion. Our sharp inflation was 6% in the first quarter. However, the inflation adjustment was based on consumer price index, which exceeded our sharp inflation. As a result, our inflation adjusted sales growth was in the low single digits this quarter. We expect this to normalize in the coming quarters.

On gross profit and gross margin progression, including inflation accounting, our gross margin for the first quarter was 17.5%, representing a 30 basis point improvement compared to the same quarter last year. A part of this improvement could be attributable to accounting impact stemming from relatively lower inflation figures. Excluding the impact of inflation accounting, our gross margin stood at 20.7%, reflecting a 10 basis point increase from the same quarter last year.

On the next slide, the OpEx to sales ratio increased to 18.1% in the first quarter. Excluding inflation accounting, the ratio was 16.1%. We will delve into the details in the next slide. The graph here illustrates the change in operating expenses as a percentage of revenues by item. As shown in the graph, personnel expenses remained the key driver of the increase in OpEx items. Personnel expenses to sales rose by 87 basis points year-on-year in this quarter after the wage hike at the beginning of the year. Depreciation and amortization expenses are elevated due to the revaluation of buildings as higher asset values result in increased depreciation.

Finally, excluding the impact of IFRS 16 accounting, rent cost as a percentage of sales stood at around 1.8% in the first quarter. Including inflation accounting, EBITDA for the first quarter was TRY 5.3 billion with an EBITDA margin of 3.6%. Excluding inflation accounting, EBITDA margin was 6.7% in the first quarter. As expected, employee-related costs put temporary pressure on EBITDA in the first quarter due to the wage increases. In the coming quarters, we expect operating leverage to take effect, leading to an improvement in the EBITDA margin. Therefore, we maintain our guidance for 2025.

On the next slide, here, we have net income figures. Including inflation accounting, our quarterly net income was TRY 2.7 billion with a corresponding net margin of 1.8%. The effective tax rate increased in the first quarter, which had a negative impact on net income. This was primarily due to the different accounting standards between tax financials and IFRS, leading to an increase in deferred tax expenses, which elevated the effective tax rate for the quarter. Excluding inflation accounting, net income increased by 5% year-on-year, reaching TRY 4.7 billion in the first quarter.

Moving on to quarterly cash flow. This slide provides a more detailed view of cash flow movements in the first quarter, excluding inflation accounting. As you know, short-term financial assets are not considered cash items under IFRS rules. However, they are cash-like assets in our case. STFA includes liquid assets such as Sukuks and lease certificates, which we prefer for short-term financial returns. Including STFA, our cash position jumped to TRY 23.5 billion from TRY 8.2 billion in the quarter.

Some postponed payments at the end of the quarter due to the nation holiday in Türkiye, improvement in working capital and lower capital expenditures resulted in such a dramatic increase in net cash position in the quarter. However, you may expect some normalization in the cash position in the coming quarters.

On the FILE side, we opened 8 new FILE stores in the first quarter, bringing the total number of FILE stores to 295. FILE's share of total consolidated sales reached 10% in the first quarter, up from 7% in the same quarter previous year, reflecting its strong performance. Following the registration of FILE as a separate company, we have submitted our application to the CMB for the partial demerger under the simplified procedure through the associate model. This process is currently pending regulatory approval.

If we look at foreign operations, in Morocco, we opened 39 new stores in the first quarter, bringing the total number of stores to 828 in the country. In Egypt, we opened 8 new stores in the first quarter, increasing the total number of stores to 425. This is the end of our presentation.

Now we may take your questions, if any.

[Akif Dasiran, executive]

[Operator Instructions]

The first question comes from [indiscernible].

[Unknown Analyst]

My first question is related to the traffic side. We see negative traffic for the last 3 consecutive quarters. Regarding second quarter, you mentioned that so far, it's similar trend. Do you expect that trend to continue in the third quarter because in the first 2 quarters, the base effect was intact. So how do you see the traffic side?

And related to this part, your price -- the BIM price index is 36%, which is lower than the food and beverage or the headline inflation. Do you expect this trend to continue for the rest of the year for the rest of the year?

[Akif Dasiran, executive]

Thank you, [indiscernible]. Starting with this traffic figure, there are actually 2 main reasons for the weak traffic. One factor is obviously weak consumer demand, tightening policies are having an impact on consumer spending. Inflation is coming down, but still relatively high. Therefore, income levels are not increasing in real terms. But the other reason is the base effect. At the beginning of last year, the minimum wage hike was very generous. Therefore, our revenues and traffic figures were extremely strong.

To give you an idea on this base effect issue, for instance, our first quarter 2025 market share is above our 2024 full year market share. However, last year, we had a very superior market share performance and traffic figures were very strong. Therefore, on the year-on-year basis comparison or like-for-like comparison, there is a weakness in the figures. And we mentioned this in the previous call as well in the first half of 2025, we were expecting this base effect to take effect in the first half, but there will be a reversal of this in the second half.

Therefore, we don't change our guidance for the revenue growth in real terms as well. This was already in our expectations. This is what we were expected at the beginning of the year, what we budgeted for. Therefore, this is in line with our expectations. There is a base effect apart from this weak consumer demand, this is obviously something that's important. We are not overlook about it. But the base effect is also taking some place. And in the second half, there will be a reversal of it.

[Unknown Analyst]

And one follow-up regarding the working capital side, we see an improvement in your cash conversion cycle by 6 days. And in the fourth quarter, you had lower trade payables, maybe because of your policies with your suppliers. And in this quarter, we see a recovery on that front. How should we expect for the remainder of the year in terms of the working capital side because your free cash flow is very strong and your cash position is very strong. What could be the picture for the rest of the year? Could it be similar? Or are we going to see volatility or the fluctuations as we experienced in the last quarter of last year?

[Akif Dasiran, executive]

Thank you, [indiscernible]. Yes, in the first quarter, we had a strong cash flow generation, and we were expecting some improvement in the working capital and cash flow plans for 2025. However, for the first quarter, there is an extremely strong performance and some part is related with the Ramadan period because the first quarter -- the end of first quarter coincident with the national holiday this year. As you know, our sales are very strong in Ramadan season. Therefore, the collections were very strong in March.

On the other hand, the last day of the quarter was Ramadan. Therefore, some payments were postponed. In addition, again, related with Ramadan season, our gift card sales were also strong this Ramadan. According to our gift card income and also this is also payable related to the gift cards, that was TRY 2.6 billion this quarter at the end of this quarter. So all of these factors impacted our cash flow and cash position positively. Of course, there should be a normalization because this is a temporary issue related to the Ramadan season.

However, we -- in the previous calls, we highlighted that we also expect some improvement in the working capital. So of course, we don't expect to come back to the historic levels. Again, we expect some improvement. We plan some improvement in working capital, but first quarter was extremely abnormally high.

There is a written question from Melis Pocar.

Can you elaborate on your market share between discounters where our consumers who are hit worse by macro issues are shopping from?

Actually, because of the competition rules, we don't see competitors' market share separately unless they report. Therefore, unfortunately, we cannot answer this question in the names of the competitors. But on our side, we can say that we maintain -- we continuously improve our market share, although there was a high base effect from the first quarter last year. When we compare to the full year effect, we have higher market share compared to 2024 market share evolution.

And another written question from Maksim.

Do you see changes in BIM inflation in April, May so far versus 36% in the first quarter?

Actually, not much difference in the trends. Our BIM inflation is close to that level around [indiscernible] in April. Therefore, there is no material change in the inflation figures so far.

And there is a follow-up question from [indiscernible].

[Unknown Analyst]

Regarding the tax side, I understand the deferred tax income side or expense side, but the other portion is that tax you paid is also high in this quarter. Could you further elaborate that? Or should we expect the high effective tax rate for the remainder of the year? Or is it just -- it's a coincidence that both the deferred tax expense and the tax expense totally came high?

[Akif Dasiran, executive]

Thank you, [indiscernible]. Actually, this year, there's a postponement for the tax purpose financials. The inflation accounting is postponed. until the year-end. Therefore, for the quarterly figures, there will be much more difference between IFRS taxation and tax purposes taxation. This was the main reason actually, the increased divergence between financials, IFRS and tax purpose financials.

So theoretically, this high effective tax rate should continue in the first 3 quarters this year, but it should be normalized at the end of the year because the tax purpose financials will also be adjusted for inflation at the end of the year. Therefore, we will see this normalization at the end of the year.

And another question coming from Maksim.

[Maksim Nekrasov, analyst]

Yes, I have a couple of questions. The first one is on the gross margins. So we see that gross margin was even slightly higher, right, excluding inflation accounting year-on-year, 10 basis points and pretty much close to the levels that we saw in the second half of the year, closer to 21%. However, I think in the previous calls, you mentioned that you would expect gross margin to gradually normalize.

So when should we expect that normalization to start? And also, I think in the second quarter last year, there was some decrease in gross margin quarter-on-quarter. So it was a bit softer. Could you remind us, was it temporary? Or should we look -- looking into the second quarter, should we more look at what you achieved in the first quarter as a base? Or we should look at the second quarter of last year as a base?

[Akif Dasiran, executive]

Thank you, Maksim. Actually, there are several aspects of this question, but the major issue here is related with inflation as well because we keep our pricing strategy on the retail side. Therefore, this margin expansion is mostly coming from the benefits from advanced payments or early payments to suppliers. And especially for the advanced payments, the inflation figures are also important. Therefore -- especially in the first quarter, most probably it will be the highest inflation rate for the full year.

Therefore, in the upcoming quarters -- in the coming quarters, most probably you will see less benefit from this side of the facilities in the coming quarters. Therefore, you can expect some normalization on this premium in the gross margin in the coming quarters.

[Maksim Nekrasov, analyst]

Okay. Understood. And regarding openings, so as I can see, the net openings were about 220, which is lower compared to first quarter last year and the second quarter of last year was over 300. So should we expect to see acceleration compared to the first quarter? And what is driving that basically slowdown compared to last year? Do you find it more challenging to open stores? So yes, maybe talk a bit more about your plans for the full year in terms of store openings and in the medium term as well.

[Akif Dasiran, executive]

Thank you. Actually, there is no major slowdown in the new store openings. Last year, the store opening program was front-loaded. In the first half, the store openings was high. But in the second half, there was a normalization in the store openings. Now we started at a normal level this year. Therefore, you shouldn't think about a major slowdown in the store openings. On the quarterly basis, if we keep this trend, we will end up with the planned store openings -- store expansion plans for the full year. So we don't see a major risk on the store opening side for 2025.

There is no material -- by the way, there is no material difficulties finding locations. So it's not related with that.

There was a written question from [indiscernible].

Any developments on Competition Board investigation calendars, when do you expect a decision?

Actually, -- for the investigation, this is most probably will be a long process. Therefore, we don't expect a finalization of this. We don't expect a decision in the short period of time. Most probably, it can be end up at the end of 2026 because such investigations take time. And also, by the way, you may also ask the competition boards fine. We haven't allocated any provision in our financials this quarter. The reason is we still haven't received any detailed notification from the Competition Board. Therefore, we are still waiting for the official notice -- detailed notice at the moment. So there is no detailed notification from Competition Board yet.

And a written question from [indiscernible].

Are you experiencing any labor issues at the moment? Or is that restricted to competitors?

Actually, the labor issues were very material last year, especially started in the second quarter with this high inflation environment, the employee turnover increased significantly in Türkiye, and this also affected us as well last year. But we took immediate actions. We increased [ side ] benefits and also we increased wages, as you can remember, at the middle of the year. And the reaction was very positive. Therefore, we managed the situation positively last year. Currently, there is no such big problem at the moment.

Written question from [indiscernible].

Your 12-month EBITDA margin in order to fulfill your 2025 expectations should grow substantially in the coming quarters. Will you agree with this?

Yes, currently, we maintain our guidance. The reason is, especially for the operating leverage aspect this rate increase, which weighed on OpEx to sales ratio in the first quarter will be lower in the upcoming quarters. Therefore, we expect EBITDA margin to improve in the upcoming periods. And we already answered the competition authorities fine.

I think there is no further question. Thank you very much for joining us today.

And I will -- I want to leave the floor to Fatih Meriç for final remarks.

[Fatih Meriç, executive]

Yes. Thank you. Thank you for your attention. And I hope in the upcoming period actually, so as Akif mentioned, as we have already provided to you actually, so we have kept our guidance stable, and I hope and we believe that's how we will reach our guidance at the end of year. And we will see each other in a 3-month period again, actually. Thank you.