Falabella SA

SGO:FALABELLA

Earnings Call Transcript

[Operator]

Ladies and gentlemen, welcome to the Falabella earnings call. I'm Gigi, your coordinator for today's session. [Operator Instructions]

Present with us are Alejandro Gonzalez, CEO; Juan Pablo Harrison, Interim CFO; Benoit De Grave, CTO; Alejandro Arze, CEO of Home Improvement. First, Mr. Juan Pablo Harrison, Interim CFO, will provide a summary of the consolidated results for the first quarter of 2024. Following his presentation, we'll open the floor for questions. [Operator Instructions]

Now we'll start with the conference with Mr. Juan Pablo Harrison.

[Juan Pablo Harrison, executive]

Thank you, Gigi. Good afternoon, everyone, and welcome to Falabella's First Quarter 2024 Earnings Call.

I would like to remind you that during this presentation, management may make forward-looking statements relating to our company, its results, operation, expenses, strategy, potential restructurings and other matters alike. This will be characterized by the use of terms, such as plan, pretend, expect, anticipate, estimate, hope and seek. Such statements are based on assumptions and expectations of future events that are uncertain and contains risk. Therefore, and for further information on this matter, I can refer you to the disclaimer on forward-looking statements that we display on the screen.

Also the numbers presented during the call will be according to IFRS rules, expressed in U.S. dollars around $2 million. Therefore, certain small differences may arise with the published financial statement.

I will start the call by going over some key operational highlights of our physical digital ecosystem and its capabilities. Let us begin reviewing from Slide 3 onwards.

Regarding the Retailers & Malls business, we continue to see sequential improvement in revenues in our retailers, with our consolidated top line also positively impact by the depreciation of the Chilean peso against the other currencies of the region. The consolidated revenues of Falabella Retail reached $691 million in the quarter, whereas margins improved due to better inventory levels.

In some -- in Home Improvement, consolidated revenues reached $1.4 billion, an increase of 7% during the quarter. We opened 2 Sodimac stores, 1 in Chile and the other 1 in Colombia. Supermarkets revenues increased 9%, reaching $567 million. Nonfood categories continued their downward trend in sales participation in line with the value proposition adjustments. Mallplaza's revenue reached $116 million due to higher occupation and U.S. indexation.

We would like to highlight the opening of its fifth mall in Colombia in the city of Cali. This mall has 70 -- sorry, 67,000 meters of BLA, and the presence of stores, such as Sodimac, Zara, H&M and Decathlon, and the new IKEA store that was opened yesterday, being the second IKEA store in the country.

Regarding our e-commerce, we now have over 20,000 sellers. With sales in the region for the last 12 months and over -- sorry, over 45% of online sales are delivered to customers through the Click & Collect option. During the first quarter, online GMV remained flat year-over-year, while our 3P online sales grew 9% year-over-year, representing 25% of total online GMV. Overall, our e-commerce platform achieved $2.4 billion in GMV during the last 12 months.

On the banking side, solid progress has been made in digitalization, strengthening our value proposition. Our CMR card continues to be the most valued credit card in Chile. Over 65% over consumer credit sales and roughly 40% of total card openings were made 100% digitally.

Our loan portfolio increased 1% year-over-year, reaching $6.5 billion. We continue to see sequential improvements in risk levels as a result of more restrictive origination policies and improvement in collection processes. And despite a subdued consumption scenario, purchases using our credit card, our credit and debit cards increased by 12% year-over-year.

Regarding our loyalty program, we have successfully reached over 19 million participants, fostering and doing relations with our clients and driving up transaction levels, spending and customer retention.

From a consolidated point of view, we continue to strengthen our financial position. In first place, our cash position has increased 81% year-over-year, in line with better performance of the EBITDA and better management of our balances in the business.

Secondly, our inventory levels are returning to normal levels, registering a decrease of 11% year-over-year, improving the margins in our retails -- retailers. Thirdly, SG&A expenses increased only 1% year-over-year as a consequence of the efforts that our teams made last year in the execution of our operational leverage plan. Highlight that it would be 6% decrease at constant FX.

Regarding our revenues, the consolidated revenues increased 4%, explained by a positive effect from the depreciation of the Chilean peso against the other currencies of the region and by lower levels of sales decreases in the main retailers.

In gross profit expansion, we have a gross profit expansion of 20% year-over-year due to improvement of the banking business of 49%, highlighting Banco Falabella Chile operation that improves 38%, mainly thanks to lower cost of risk. Department stores increased 33%, mainly attributed to Chile, which increased 38%, followed by the improvement in Peru by 25%, driven by lower level of promotions due to reduced inventory levels.

And lastly, supermarkets in Peru increased 24%, while Mallplaza grew 15%. SG&A contention, mainly impacted by the depreciation of the Chilean peso, offset by lower personnel expenses. The optimization of our marketing loyalty activity and the reduction of expenses in logistics activities, which, as a whole, decreased 4%. Considering all these factors, we achieved an EBITDA growth of 2.3x year-over-year, reaching $302 million. Finally, we have closed the quarter with a net profit of $60 million, which compares favorably to the net loss of $55 million that we had in the first quarter 2023.

As far as our financial position, we have decreased 5% of our net financial debt and reached a 5.7x net financial debt-to-EBITDA ratio, which compares to a ratio of 6.5x of the last quarter. reflecting a strong recovery in Falabella's profitability. We would like to highlight that we have no relevant maturities during 2024.

Now I would like to leave with you, Alejandro Arze; Home Improvement CEO.

[Alejandro Arze Safian, executive]

Thank you, Juan Pablo. This quarter, we generated over $1.5 billion in revenues, with an increase of 7%. If you see the chart, we can see the big impact COVID had on our businesses.

In the home improvement business, we have 2 big consumption opportunities, either new construction or renovation, which typically are countercyclical. In the pandemic, both grew. You can see in the charts how sales went from $4.2 billion to $5.6 billion, and that is more than 35%.

Now post-pandemic, we are facing a slowdown in both segments. The new construction business is highly affected by the high interest rates we are experiencing. And the renovation site, has been more projects than usual during the pandemic due to more disposable income and spending more time at home. So both effects are affecting ourselves now.

This past quarter, we reached nearly 2 million active customers and observed lower levels of decline in sales in the main markets. mainly driven by retail and Pro customers, which is a critical segment in Sodimac's strategy.

For our professional segment, we have rolled out a robust strategy to fulfill and support their particular needs, including the Circulo de Especialistas, which is a benefit program that now reached 1.9 million clients, making a 5% increase compared in sales compared with -- in customers compared with the fourth quarter in 2023.

In terms of private label, they play a key role on Sodimac's strategy. They allow us to differentiate from competitors. We have a better overall margin, and they also help us to negotiate better with our suppliers.

With our private labels, we've introduced -- we are able to introduce innovative solutions tailored to customers and their demand, achieving notable market penetration in specific categories. Today, private labels account over 30% of Sodimac sales. And -- which is very interesting also is that we have a range of private labels that serve both segments, the final customers and professionals.

In terms of inventory, I would like to highlight that we have managed to reduce our inventories in all of our markets. This slide shows the decrease in local currency in our 3 major markets, all around 20% lower than the first quarter last year.

Finally, I would like to talk a little bit of our strategy and focusing in 4 main points. The first one is increased sales and contribution by customer segments through current innovation and the enhancement of our digital customer experience.

Second and very, very important, consolidate our valid position for the Pro customer through initiatives such as our loyalty program that I just talked about a bit before.

Continue to go in Mexico, focusing on CapEx efficiency and increasing sales per square meters. And finally, improved efficiency in the major countries -- in the mature countries by optimizing the working capital and increasing the asset profitability. Now Alejandro Gonzalez.

[Alejandro Dale, executive]

Good morning, everyone. In our last earnings call, we acknowledged the challenges in display for 2024. However, we express confidence that our customer focus is strategic plan, supported by a robust retailer unit and brands, our extensive network of stores and malls and the capabilities of our ecosystem would significantly enhance Falabella's performance.

The results we presented this week represent -- they show a significant stride towards overcoming these challenges and serve as a powerful motivation for us to persist in our efforts.

I would like to highlight that our -- these efforts in operational leverage are continuing to yield results, reflected in improved margins due to better inventory management and a more agile operation.

Additionally, I want to emphasize the progress in terms of risk costs, a result of a more effective origination policy and improvements in collections. Undoubtedly, we must continue to tackle the challenge of building a simple and more agile operation, which remains an ongoing effort at Falabella.

Looking ahead, I believe we must reinforce our efforts to increase sales. We need not to only anticipate, but also exceed our customers' expectations. We're certainly making strides in this direction. The level of sales decline in our retailers continue to decrease. But without a doubt, we need to aim for more.

It's essential that we consistently deliver the finest shopping experience, ensuring that our products reach our customers where and when they want them, surpassing their expectations in the process. Our stores remain a crucial differentiator in our value proposition, and we must continue to innovate in this area.

Additionally, shortening our purchasing cycles is key, allowing us to make decisions with more accurate and timely information. We are also dedicated to bolstering our relationships with the professional customers in Home Improvement segment, as Alejandro Arze recently highlighted. Furthermore, it's crucial that our credit card remains the top choice for our customers, helping them to simplify their lives.

In essence, we're confronting numerous challenges that truly encapsulate the spirit of Falabella. In April, we announced the closing of the transaction with Mallplaza, which will allow us to consolidate our shopping center's operation in Peru. With this new structure, Mallplaza will become the largest shopping center operator in South America in terms of GLA.

In addition, we have ongoing processes aimed at monetizing noncore assets. Although as Juan Pablo explained, we currently maintain a solid financial position. These initiatives make strategic sense as they enhance our capital allocation framework, ensuring more effective use of our resources for long-term sustainability and growth.

And with that, now I will open the line to any questions that you may have.

[Operator]

[Operator Instructions] Your first question comes from the line of Andrew Ruben from Morgan Stanley.

[Andrew Ruben, analyst]

It was helpful to get the extra color on the Home Improvement segment, maybe Alejandro taking advantage of your being on the call. I'd be curious if you can help break down what you're seeing and your expectations when we talk about both the Pro customer versus the consumer and then the trends in new construction versus remodels?

And then the second part would be, given that we seem to be in kind of a downturn or still pressure for consumption, how do you think about adjusting the expense base for home improvement to deal with currently lower sales, but also making sure you're positioned for any upturn. Color there would be very helpful.

[Alejandro Arze Safian, executive]

Certainly, I think we are still seeing a slow demand. And I think that we're going to see a recovery first in the personal segment than in the new construction segment. I feel what you hear from the market is that we should see a decrease in interest rate. Probably we are seeing some now and probably on the on the second semester, specifically on mortgages. That will help to boost the new construction business. But I think that will take more time than the personal business.

As I mentioned before, during the pandemic, there are sort of families that advanced their remodeling. So -- but that already passed almost 2 years since that. So we are seeing more families coming to stores and looking for bigger projects, but it still is not as big as we think.

In terms of sales, we think that we're going to see a better trend during the second semester compared with last year. And also on the e-commerce, we are seeing a recovery. Basically, we already targeted the -- I don't know, it's not the right word, the separation of our web page from falabella.com. And we are seeing an increase on that -- on the sales on e-commerce.

And then if we think on how do we adapt our expenses, we are constantly seeing how we use the SG&A. We are seeing some markets where the demand is harder than others like Peru, for example. And we're definitely looking for new efforts to review SG&A.

[Operator]

Our next question comes from the line of Nicolas Riva from Bank of America.

[Nicolas Riva, analyst]

I have 2 questions. The first one on the Plaza transaction. If you can provide an update regarding the expected completion date for Plaza to raise the equity to pay for the shopping malls in Peru and for the transaction to be completed? That's my first question.

And then the second question, we clearly saw improvement in leverage this quarter, with improvement in top line and EBITDA. Net leverage coming down to 5.7x, excluding the bank. And on a pro forma basis, assuming the Plaza transaction is completed and the terms disclosed, it would further reduce to 5.3x.

My question is, in the context of the company still being rated BB+ by S&P and Fitch with a negative outlook, if you can disclose any targets for net leverage for the end of this year and next year, excluding the bank?

[Alejandro Arze Safian, executive]

Thank you, Nicolas, for your question. I'll go first about the capital increase for Plaza transaction, and then Juan Pablo may take the second part about the net debt-to-EBITDA ratio and some interaction with the rating agencies.

But basically, we're basically already working on this. There's, I would say, a compliance part that needs to be done. But I would say timely, this is something that should be done during the next 2, 3 months, give or take, assuming we have normal market conditions, but it's going to be -- assuming that we have demand, should be, I don't know, July or so.

But the company is already working full team on this. And there's a full team already being engaged. So it should be something within normal time frame. And that's why I say, give or take, there's a 30-day preemptive rights period here in Chile. But before that, I would say in July, give or take. If it goes beyond that, it shouldn't be longer than September.

[Juan Pablo Harrison, executive]

Nicolas, regarding the leverage question, we think that most of the improvements in the future will come from the improvement is in nonbanking EBITDA, which is growing significantly as of now. And we think that this trend is going to maintain in the future. We foresee that for the end of the year, we expect to be around 4x in our leverage ratio.

[Nicolas Riva, analyst]

Okay, 4x. And one more question. On that estimate of 4x, which basically assumes much further reduction in net leverage, are you assuming any additional asset sales besides the $300 million from the Plaza transaction?

[Benoit De Grave, executive]

Nicolas, Benoit here. So just to give you an update on that, so in addition to the $589 million transaction with Plaza that we announced in April, out of which $300 million will come from the capital increase, between the last earnings call and this one, we went from $25 million to close to $100 million, with $50 million sales in land banks in Chile and a distribution center in Argentina.

And some of that, I can tell you that we have another $50 million maybe Netbank, which processes are in the final phase of the sale, and we'll be finalizing them in the coming weeks. So we are still deploying the plan that we announced.

[Nicolas Riva, analyst]

Okay. Just one final question. So the number you are assuming for reduction in net leverage for 2024, including the $300 million from the Plaza transaction, how much would that be, your projection, the reduction in leverage is coming from asset sales?

[Juan Pablo Harrison, executive]

Nothing has changed, Nicolas. What we announced before the plan. What Benoit was trying to say is giving you an update, but we haven't changed the number of $800 million to $1 billion. That's still in play.

So -- and just to make sure that we're on the same page. Keep in mind that the most relevant reduction will come from an increase in EBITDA, which is where we are putting all the efforts in the company, which is also something that we have to do in order to increase the performance of the company.

But -- if I need to make the 80-20, the [indiscernible] percentage part, it would be the most run-on part EBITDA increase. And the other part is going to be the, I would say, monetization of assets like the Plaza transaction, the $300 million capital increase that we mentioned and the other transactions that Benoit was giving you an update.

[Operator]

Our next question comes from the line of Irma Sgarz from Goldman Sachs.

[Irma Sgarz, analyst]

Congratulations for now the more formalized role of the COO. I wanted to ask one question on the Supermarket division, where sales remained somewhat weak. And you obviously -- you pointed out the difference in performance between nonfood and food.

Can you just provide us a little bit of an update what you've been seeing so far into the second quarter? And when you also look out to the back half of the year, how we should think about this division? And the other question is regarding -- I think there's, traditionally, some e-commerce sort of commercial events or holidays where there's a lot of promotional spend in the coming quarters.

And I wanted to ask just how you're preparing for that. Obviously, there's a lot of focus on profitability, but that obviously has taken a toll on some of the growth on the e-commerce side. But just when you look at beyond just sort of the first quarter and just sort of into the second quarter and rest of the year, how are you thinking about sort of balancing growth against profitability on the e-commerce side? That would be helpful.

[Benoit De Grave, executive]

Irma, Benoit here. So on the Supermarkets, I'll take it. So improving the performance of Tottus, especially in Chile, has been one of the challenges over the last few years. We've made different changes in that business.

First of all, we just appointed a new CEO of the business. Renato Giarola coming from Brazil, with a lot of experience on the supermarket industry. And obviously, one of these mandates is to adapt the strategy of Tottus. And some of the changes that have been already implemented in the last year and this first quarter has to do with the prioritization of some categories such as mainly food that have better margins and a higher rotation and giving obviously, less relevance to our mix to nonfood categories. So these are the main adjustments that we are doing currently in the Supermarket division.

And regarding your second question on e-commerce, I can also take it. Yes, we are balancing profitability versus growth. What I can say is that our 3P sales are still growing. We grew 9% of 3P sales, excluding Linio Mexico in the first quarter, and we are balancing profitably against growth. And this has already been done in the first quarter, although our new -- the evolution of the strategy has been implemented recently in March.

So we are already -- we're only 2 months into the new strategy. But we are capturing some savings -- important savings. And adapting the strategy to the commercial events of the next month is part of the -- obviously, of the next phase of implementing that strategy.

[Operator]

[Operator Instructions] Our next question comes from the line of Alonso Aramburu from BTG Pactual.

[Alonso Aramburú, analyst]

I wanted to ask about Banco Falabella. Can you comment about the profitability on each of the countries? How you see the credit cycle? We've seen improvement in Chile, especially also lower provisions in some of the other markets. Do you think it's in the worst in Colombia and improve as well and you expect profitability to improve?

[Reymundo Pavez Muñoz, executive]

Alonso, this is Reymundo. In terms of the bank, we continue to see improvement, as we mentioned, in the risk level as a result of a more restrictive origination policy and improvement that we have made on the collection process.

In terms of the NPLs, it reached 4.4 during the last quarters. And from here going onwards, we expect that the results should be higher than the one of the respect comps -- the respective 1 quarter. But I would say in a more moderate way, by -- mainly explained by 2 factors: first, we are seeing a stabilization of the cost of risk levels on the different banks. So we are not expecting to continue the trend of declining in the cost of risk.

And secondly, I would say that we expect to continue to see some drops in the income generation as a result of the restructuring credit measure that we have taken that has taken us loan portfolio decreasing double digits in the case of Chile and some pressures on the incomes that come from the -- particularly in the case of Chile, given the new [indiscernible] rates that was implemented last year.

Then in terms of the loan book, what we are seeing for this year, in the case of Chile compared with 2023, the loan book should remain stable in real terms. And in Colombia, we expect to continue seeing decline in loan book in line with the high level of risk that we have been seeing on that market.

[Alonso Aramburú, analyst]

And if I can add one more question. Just regarding consumption generally in the 3 MB markets, are you seeing an improvement in April if you compare it to the first quarter? I mean how are you seeing the trends of consumption generally?

[Alejandro Dale, executive]

So this is Alejandro. In general, what we are seeing is certainly -- the small reduction that we're seeing in the first quarter compared to what we saw last year, that trend is changing. That trend is stabilizing. And I think this applies mainly to Chile. Peru also readily stable, and the same thing we're seeing in Colombia.

In general, Department Stores, Supermarket, Benoit already mentioned, we saw a hard first quarter, but that's a trend that, given the changes that we're doing in the team and the strategy, we're already starting to see improvements in there.

So I would say, in general, consumption is not going down. It's stabilizing. And in line to what Alejandro Arze was mentioning before, we are expecting better macro trends during the second half, that should in a way of saying, especially consumption and sales, our performance should, at the very least, have a more positive trend.

But the one thing that I think you can set inside to what we've seen in the numbers is that the negative trend that we saw until third quarter of last year is certainly not the one that we're seeing to do. The mood today, the mood is different. Not -- I would say this is not a period in which we're facing tailwinds. Certainly, we're not facing headwinds. That's why for us it's so relevant to emphasize and focus the operational leverage plan that Juan Pablo has mentioned at the beginning of the call.

Because once we see -- we'll start in the winds getting into the bottom part of the plane, we're going to start seeing better results. But in the meantime, all reductions are basically went almost 0. In some cases, we are starting to see some better trends, especially, I would say, apparel in Chile.

As I said before, this is something that's an ongoing concern that we have. And the one thing that we need to improve in order to fully comply the performance that we're expecting for this year.

[Operator]

Our next question comes from the line of Felipe Ballevona from Santander.

[Felipe Ballevona, analyst]

I actually have 2 questions. The first one regarding the GLA Mallplaza. In particular, this transaction has to be approved by the regulator. Above considering that Mallplaza already operates the Mallplaza Peru shopping centers. So it could be perceived as an increase in consolidation once they begin operating the open plaza 1, 2 or not?

And my second question is regarding business strength. Is it like to be back on wood what you just mentioned? How do you see the different business units evolving throughout the quarter? And also considering the April data, I'm asking the data for March indicated that [indiscernible] in Chile lost some steam in a few categories, such as durable goods, or techno, electro and deco, while construction materials worsened. So any color [indiscernible] would much -- would be appreciated, too. Those are my 2 questions.

[Alejandro Dale, executive]

Thank you, Felipe. I'm going to answer the first one because I got it right, but then the sound here, it didn't came so clear. So if you can -- let me go straightforward with the first one. We don't need any approval for this transaction, regulatory approval, by the way.

Given that we already have Falabella, we have the final controlling of the same operation and aggregation in Mallplaza, but it's still something from a, I would say, controlled perspective within the same Falabella, I would say, control.

And the second part, truly, we are discussing here, we -- like the noise, we didn't get very clear. So if we can repeat that, I would much appreciate that.

[Felipe Ballevona, analyst]

Yes, sure. No problem. Sorry, I also have -- there's a lot of background noise here, so I apologize for that. But the second question was regarding business strength, specifically, how DTC the different business units evolving throughout the quarter? And also considering the April data, in particular, I'm asking because the debt for March indicates that region sales in Chile worsened in a few categories, such as durable goods and construction materials.

[Alejandro Dale, executive]

I'll take the general answer, and then I will pass it to Alejandro Arze that can talk on construction. But in general, what we're saying -- what we're seeing I'm sorry, is that apparel is having a very strong performance.

You're right, durable goods is where we're seeing the main impact in terms of reduction. And that also is part of what you're seeing the -- you see the impact in margins also because we have a higher margin in apparel. And that's -- I think that's something that you can apply to all of the countries in which we are operating.

But in trends that we're seeing for the future, I would say we do expect, especially in Chile, some macro improvement, especially related to inflation and interest rate. Inflation is already going down, expectations for this year in the range of 4%, which is -- we consider normal. The Central Bank has a range of 2% to 4%. So that's within normal. And we should start seeing a reduction.

I don't know if you're aware, but the Central Bank is expected to reduce 50-basis-point interest rate. And that should have a positive impact in consumption in general terms. But for the construction part, I will pass to -- the call to Alejandro Arze to give you more color.

[Alejandro Arze Safian, executive]

Felipe, I think that what we are seeing in construction, it's a little bit of what I said before. When I see the overall revenues of Chile, we -- they decreased 5.7% by splitting in different segments. Construction materials decreased 9% and the rest of the store, 4.5%. So we are seeing a lower movement on construction materials than in the final customer segments.

And I think that I tried to explain that in what I said before, that we see that this segment of new construction is going to take more time to recover than the people's segment.

[Operator]

Our next question comes from the line of Carolina Arto from Itau.

[Unknown Analyst]

So I have 2 questions. The first is related to the changes in accounting that we have seen in this quarter. I just would like to understand how -- a little bit of details on this. And how we can think about the future of marketplace expenses and P&L? If it will be all reflected in Falabella, the partners business? Or how you will point out that?

And the second question is coming mostly from home improvement as well. We have seen a strong reduction in the inventory. And I just want to understand if this is a new norm for Home Improvement? Or this is related to the fact that you are not looking to pick up in demand in the near future?

[Benoit De Grave, executive]

Carolina, Benoit here. So I'm going to take your first question. So the evolution of the e-commerce strategy resulted in changes in the group's reporting starting in the first quarter 2014. And this is impacting department stores, home improvement, supermarkets in Chile and Peru as well as the other elimination annulment segment. So these are adjustments. They do not have any effect on the consolidated level. and they seek to increase the accountability among the difference in SG&A.

So in simple, Falabella, Sodimac and Tottus were considered as other sellers in falabella.com, okay? But today, with the change, now the retailers are fully responsible for their online channels, which means that the stopping take rate to falabella.com, and they are taking charge of the expenses directly, okay?

So in summary, at the falabella.com level, the take rate will not be charged to the 1P businesses, while the expenses will be assigned -- some expenses such as, for example, home delivery and customer front experience, are being charged and transferred directly to the different BUs based on the 1P e-commerce sales.

[Alejandro Arze Safian, executive]

Carolina, this is Alexander now for inventory of home improvement. Basically, what we are seeing now in the numbers, it's our effort to get back to the inventory levels in terms of days of inventory that we have before the pandemic.

During the pandemic, we have a logistic breakdown that made us increase the inventory a lot. And during the last year, what we have been doing is a strong effort to reduce it and getting back to regular levels. It's not a trend of the industry that we see of a different strategy of inventories, just basically going back to what should be the regular levels.

[Unknown Analyst]

And on that rate, any for further improvements in terms of inventory? Or we are just looking at the numbers that should be okay in the future?

[Juan Pablo Harrison, executive]

Carolina, this is Juan Pablo here. Regarding the -- in general, regarding our working capital, as you can see in our financial statements, we have put a lot of efforts in optimizing Falabella's cash management.

In terms of the inventories, we reduced significantly the levels of inventories across all of our 3 retail business. We've seen a positive impact of closely to $500 million during 2023.

Looking ahead, for the rest of the year, we foresee that these levels of inventory are sustainable. And probably, we see some space for slightly reductions due to the shortening in our buying cycles, but specifically in our department store business.

We started doing that during the second quarter of 2023, and we are continuing that during this year. So in the case of Sodimac, we are not seeing so much room for improvements in inventory levels during the year.

[Operator]

Thank you. At this time, we will now turn to Raimundo Monge for closing remarks.

[Raimundo Monge, executive]

We would like to thank everyone for joining us on our call. Our Investor Relations team will remain available for any follow-up questions you may have. Thank you, and have a nice day.

[Operator]

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.