SMU SA

SGO:SMU

Earnings Call Transcript

[Operator]

Thank you for standing by. This is the conference operator. Welcome to the SMU Third Quarter 2021 Conference Call. [Operator Instructions]

I would now like to turn the conference over to Carolyn McKenzie, Head of Investor Relations. Please go ahead.

[Carolyn McKenzie, executive]

Thank you. Good morning, everybody. Thank you for joining us today. I'm here with our CFO, Arturo Silva. We're going to briefly go over a few slides summarizing our third quarter results, and then Arturo will be happy to take any questions that you have at the end of the call. And of course, please feel free to contact me afterwards if you have any additional questions. If anyone isn't using the webcast to follow the slides, the presentation is available on our website, www.smu.cl, in the Financial Information section. I'd sent out the link to the distribution list this morning. And an audio recording of this call will be available on our website later today.

Also, please note that we may be making forward-looking statements today. So as always, please remember to take a look at the caution regarding forward-looking statements on Slide #2 of our presentation. We'll start today's presentation with some recent highlights from the quarter. As part of our omnichannel growth initiatives, in August, we launched Super10, a new soft discount format that targets final customers across socioeconomic segments. These stores offer an optimized assortment of fresh products, dry goods and personal hygiene products, allowing customers to make a complete purchase and with an operating model focused on efficiency and productivity, so reducing costs in order to offer attractive prices. We currently have 4 Super10 stores in operations.

On Slide 4, we have further progress in our omnichannel growth initiatives. On September 30, we launched our unimarc.cl e-commerce platform. And at the same time, we launched our Unimarc app. This is an important milestone in our omnichannel strategy as we provide customers with an attractive and convenient alternatives for their grocery shopping needs. When we launched, we had coverage in 37 municipalities and in the Santiago Metro Region of Chile, and we have been gradually expanding our coverage. Today, we serve 42 municipalities in 3 regions, and we plan to reach all 16 regions of Chile by the middle of next year. It has only been about 1.5 months since our launch, so it is a bit early to draw many conclusions. But so far, performance have been in line with our expectations in terms of the number of orders as well as site visits and downloads.

We've also continued to develop and expand our partnerships with last milers. And today, with Rappi and Pedidos Ya, we are able to offer online shopping to customers in a growing number of cities, including Iquique, Calama, Antofagasta, Puerto Montt and Quillota to name a few, leveraging our large regional store. And we have also continued to grow that footprint with new store openings. Last month, we opened our second Unimarc store of the year. We also had a new OK Market opening in September and Maxiahorro, in Peru, in August, and we have a few more store openings in the pipeline in December.

On Slide #5, with respect to our customer experience initiatives, our promotional activity has returned to pre-pandemic levels in terms of frequency. And we've also had a very positive reaction to our return to certain categories of promotions, such as celebration-focused products, which we had pulled back on during the pandemic. In the third quarter, we continue to see a recovery in customer traffic with the number of transactions growing between about 20% and 25% compared to 2020. In addition to the growth of the number of transactions, we are seeing a strong recovery in a number of customers, and we associate this with the increase in mobility.

Our centrally located stores were hit hard by the restrictions. But now that people are out and about more, customers are coming back. As an example, in September of this year, the number of Unimarc customers was up over 20%. And when we look at the customers, we classify as loyal due to the amount that they typically spend with us, the number of those customers was up over 25% compared to December of -- September, sorry, of last year.

We still aren't back to pre-pandemic numbers in terms of transactions but we are happy with the way the trend is going and also the average ticket amount remains well above historical levels, despite the fact that people are shopping more frequently. And these more frequent shops are also reflected in our analysis of shopping missions, where we see that stock-up purchases are on the decline and fill-in purchases once again account for over half of sales at Unimarc, more closely resembling the breakdown before the pandemic.

On the next slide, continuing with our customer experience initiatives. We have continued to grow our private label portfolio with new products and brands. On the slide, we have a couple of products from our Amada Masa bakery line and also our newest brand, Nuestra Cocina.

On Slide #7, we can see the impact of our operating efficiency initiatives, which include improvements to in-store processes, workforce management systems and the use of new technology in both our stores and our distribution centers. There's been a clear impact on productivity as we can see in our sales per full-time equivalent, which have jumped over 20% in the first 9 months of this year versus last year.

On Slide #8, getting into the numbers, we have revenue for the first 9 months in the third quarter. Revenue for the first 9 months increased 7.9%, and in the third quarter, 16.4%. This strong growth reflects the recovery in traffic and the continued strong demand, as we discussed on the previous slide. Gross margin was fairly stable for the first 9 months, increasing 10 basis points from 29.7% to 29.8%. In the third quarter, gross margin fell 80 basis points, essentially reflecting the difference in product mix. This was largely related to Chile's national holidays in September, which usually drive sales of certain celebration categories, including meat and drink. Last year, the pandemic put a damper on those festivities, but this year, we had a more normal product mix. Despite the lower gross margin, gross profit for the quarter was up 13.3%.

On Slide 9, we have a breakdown of revenue performance by format for the first 9 months of 2021 versus 2020. The graph makes it clear that the drivers behind our strong revenue performance have been Unimarc, which grew 9.5% in the accumulated period and 19% in the quarter; cash and carry growing 6.6%; and OK Market with an increase of 24.4%.

In Peru, revenue was down for the 9 months due to both government-imposed restrictions on supermarket operating hours in the first half of the year and the exchange rate. In the third quarter, restrictions began to be lifted and customers reacted favorably to commercial initiatives. We saw a recovery in revenue, which was down 1% in Chilean pesos, but grew 14% in local currency.

On Slide 10, we have same-store sales which grew 7.7% in the first 9 months and 16% in the quarter, in line with revenue growth. Performance by format was also very much in line with revenue with growth across the board in Unimarc, cash and carry and OK Market and a recovery in the third quarter in Peru.

Moving on to Slide 11. We have operating expenses for the first 9 months and third quarter, which have remained under control, even falling slightly in the 9 months of September. The operating leverage from our discipline in expenses combined with the top line growth has resulted in OpEx as a percentage of revenue falling significantly from 22.3% to 20.5% in the 9 months and from 21.5% to 19.5% in the third quarter. In both cases, we are also well below 2019 levels.

On Slide 12, we have EBITDA where we once again have strong growth, 35.5% in the first 9 months and 31.1% in the quarter. And with EBITDA margin expanding 190 basis points, 9.3% for the 9 months and 110 basis points to 9.8% in the third quarter. These excellent operating results have had a positive impact on the bottom line, as we can see on Slide 13, where our net income reached a record high. In the first 9 months, we had an increase of over 4x, from CLP 9.9 billion in 2020 to CLP 46.7 billion in 2021. This number is even higher than our best ever full year net income. To illustrate this fact, we added a graph on the bottom right, comparing full year 2017, '18, '19 and '20 with 9 months for 2021.

For the third quarter, net income more than doubled, reaching CLP 22.6 billion. These profitability gains can be seen when we look at our return on equity, which has increased significantly compared to historical levels. During the third quarter, we paid a second interim dividend. We had paid an interim dividend in June, equivalent to 75% of first quarter net income. And now in September, we paid out 75% of second quarter net income. And that's on top of the dividend for 75% of 2020 net income that we had paid in the first half. All told, we have dividend yield of 8.5% for the year-to-date.

On Slide 15, we have our bond covenants, where we continue to have plenty of flexibility and our numbers continue to improve with net financial debt to equity down to 0.57x and interest coverage up to 4.86X.

On Slide 16, we have a updated maturity profile. There aren't any significant changes here. In the short term, we basically have revolving bank debts and we have a very comfortable cash position. We ended the quarter with over CLP 100 billion in cash. In fact, we are at an all-time low in terms of indebtedness, with net financial liabilities to EBITDA reaching 3.82x. Remember that this number includes all of our financial liabilities, including lease contracts that qualify as financial leases under IFRS 16. The adjust historical numbers to the same accounting standard applying to IFRS 16 to all years, the previous low would have been in 2018, and that ratio would have been over 4x.

That's it for our presentation. Thank you very much for listening. And if there are any questions, Arturo will be happy to take them now.

[Operator]

[Operator Instructions]

Our first question comes from Alonso Aramburú of BTG.

[Alonso Aramburú, analyst]

I wanted to ask about the expansion strategy, thinking about potentially next year. We're seeing some openings of new stores now. I mean, how should we think about selling area growth for next year in other stores? Maybe you can give us a little update on that.

[Arturo Ortiz, executive]

Alonso, our expansion strategy is very, very important for the next year. It's part of our pillars growth and organic growth. Our expectation is to open 11 new stores in 2022, including Unimarc, Alvi and OK Market stores, and also in the next year. In addition, our idea is to complete our agreement with Montserrat case, where we can include additional stores in metropolitan region and also in the region 5 -- fifth, excuse me. Also, the idea is to include between 30 and 40 additional remodeling, with idea to increase our sales for our new proposition value in Unimarc stores because in the pandemic period, we stopped a little bit for the sanitary restrictions, the remodeling plan. Considering the organic growth and also the remodeling plan, the idea is to increase our sales significantly in the next -- in 2022 and also in the next years.

[Alonso Aramburú, analyst]

Okay. Great. And do you have a target now that you launched unimarc.cl? Do you have a target for e-commerce penetration? I think it's around 1% today, right?

[Arturo Ortiz, executive]

Yes. Our idea is, in 2022, to duplicate this number with unimarc.cl.

[Operator]

[Operator Instructions]

This concludes the question-and-answer session. I would like to turn the conference back over to Carolyn McKenzie for any closing remarks.

[Carolyn McKenzie, executive]

Great. Thank you, everybody. We kept it nice and short today. If you have any other questions to get in touch. And hopefully, we'll have you with us next quarter. Bye-bye.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.