Earnings Call: Q1 2025

Apr 30, 2025

Summary

Q1 sales rose 8.1% and same-store sales 3.3%; gross margin expanded to 30.3%, while EBITDA margin eased to 12.5%. Six 2025 openings are planned, but permitting delays, elevated inventory, and higher operating costs remain key constraints.

Good morning, everyone, and welcome to La Comer first quarter results conference call. Before we begin, I would like to remind you that the information discussed today may include forward-looking statements regarding the company's financial and operating performances. All projections are subject to risks and uncertainties, and actual results may differ materially. Please refer to the detailed note on page 2 of the presentation. I would like to turn the call over to Mr. Rogelio Garza, Chief Financial Officer of La Comer. Please go ahead, Rogelio. Thank you, Yolotl, and good evening, everybody. We're going to have the presentation from the results of the first quarter of 2025. Let's start the presentation. The highlights for the quarter is that we grew the same-store sales at 3.3%. We have an increase in total sales of 8.1%. We finished the quarter with a gross margin of 30.3% and an EBITDA margin of 12.5%. These are the highlights from the quarter. Let's start analyzing some of the aspects of the results. First, the growth in sales. During this quarter, we have a 3.3% growth in same-store sales that we have a base of comparison, some extraordinary effects in the quarter of the previous year, in the first quarter of 2024, because we have the first one, we have an extra day in February during that year. In addition to that, we have some extraordinary sales to the government in order to help the people from Otis in Acapulco, and that represent MXN 124 million of extra sales that was not part of our core business, but we had during that year, during the quarter of last year. In addition to that, we have a change in the Easter week that the previous year was in March, and this year is in April. They have some of these extraordinary effects that we have in the base of comparison of the same-store sales. Additional to that, I think it's worth saying that we have, during the quarter, a path of improvement during the different months of the quarter. January was a very bad month, and February was improving, and March it was improving even more. If we compare the sales that we were having during the quarter, we have an incremental or a sequential improvement in the sales during the quarter. All our formats have increases in sales. By product category, we have higher increases in perishables and prepared food. For region, we have our strongest growth in the area of Monterrey. Our 3 stores that were there presented very good increases in sales. For e-commerce, we have a good quarter. We have a little bit less than 8% as a percentage of our total sales from La Comer en tu Casa. For aggregators, we have 4.5%, more or less, percent of our total sales representing for the aggregators. That is Uber Eats, Rappi, and Didi are the 3 aggregators with which we have some kind of agreement. In total, it is around 12.5% of our total sales that were coming from e-commerce. In gross profit, we have an increase in our margins, reaching 30.3% in gross margin, an improvement of around 60 basis points. This is because we grow more in some categories as prepared food and perishables that usually we have higher margins. This is part of the change in the mix of products of moving to our more value-added products in the mix of product that we sell to the public. Additional to that, we have good inventory management with a small amount of shrinkages in our inventory and good relationship with suppliers. If we analyze the expenses, we have some pressures in expenses. Our general expenses grow a little bit more than the sales. One important reason is that we opened five new stores the last quarter of 2024, and usually the new stores have higher proportion of expenses. Usually, you do not have the same profitability in the new stores. Three of these new stores were a City Market that usually we have a higher proportion of expenses in a City Market. In general, we have big increases in labor expenses, electricity, and additional to that, in some processes of La Comer en tu Casa, we have some big increases because we want to maintain a good level of service in La Comer en tu Casa. If we measure our EBITDA margin, it had a small decrease from 12.6% to 12.5%. It is a good number, a little bit lower than the previous year, but in a good level. For projects for 2025, at this moment, in our portfolio of new projects, we have 10 stores that we could open during 2025. As we have mentioned before, it is very common that there are a lot of externalities during the process of opening new stores, and especially all the authorization from the government that could be a little bit cumbersome and a little bit complicated. Our estimate are something rational or something that we expect we can achieve is to open six new stores during the year. From these six new stores is two stores of La Comer, three Freskos, and one City Market. In additional to that, we expect to do a big remodeling of one store that could improve substantially our sales in that store. In the sustainability and social responsibility area, we continue with support to Un Kilo de Ayuda, Banco de Alimentos. Additional to that, we make contributions to Pro Bosque de Chapultepec. Mexico City is a very important market for us, and we decided to help this association that help the improvement of this national park. We continue using packages that are ecologically friendly. Additional to that, we have a big proportion of our consumption of energy, electricity coming from renewable sources. I think that is all. I do not know if you have some questions. I am happy to take some of your questions. Thank you, Rogelio. Yes, we have the first question from Thiago. Thiago, please open your microphone. Yes, absolutely. Hi, Yolotl. Hi, Rogelio. Thank you for taking my questions. I have two points that I would like to explore here. The first one would be regarding the same-store sales, if we could maybe discuss that a bit more, maybe get a bit more information. I was wondering if we could maybe hear a bit how was the mix between traffic and ticket, and if we have any major differences in same-store sales for the different major cities or regions that La Comer operates. My second point here, if I may, would be on this gross margin improvement. You mentioned a positive mix. Just wondering if you could give us any visibility into products that you focus more that improve this mix, and if this is sustainable for the rest of the year. Just wondering if we can expect this gross margin improvement for the full 2025. Thank you very much. Thank you, Thiago. Yes, most of our increase in same-store sales is coming from the ticket. We have a flat number in number of customers. Go ahead in 2. By region, we have increases in almost all regions, especially, as we mentioned, in Monterrey, in some areas more than others. Of course, we have some stores that have better number than other, but in general, we have in all our regions, we do not notice a big difference among regions in growth in same-store sales. Regarding the improvements in gross margin, it's something that it has happened during the last year, and it continue happens. As we have mentioned before, La Comer is focused in differentiation and having a good assortment of products. Part of that strategy is to have many different products that have a value added, is not a commodity, and in which we don't compete directly or in the same way with the other participants in the market. We have emphasized that strategy all the time, and we think that there is a trend in the market that every time more customers want to have differentiated products, good quality products, healthy products, imported product, that kind of categories in which you could have a, in general, higher gross margin because you don't compete only by price with the other participant, but you compete with quality and differentiation. Until now, it has been a trend that had continued giving us improvements in gross margin. I would expect maybe marginal improvements in the future in gross margins or something very flat. We have improved substantially our gross margin during the last years in the long term, but it's maybe a trend that we could continue having a little bit during the future, but maybe a lower level of improvements. It's what I would expect. This is fantastic. Thank you very much. Thank you, Dave. Hi, Antonio. [Foreign language] Please open your microphone. Hi, how are you? Well, congrats on your results. Just wanted to see if you could provide more color on the performance from a format perspective. You mentioned that all formats were positive. Also, regionally they were positive, but maybe from a format standpoint, what could you provide? Thanks. I think all our formats has had good result in a strange way during this quarter. The format that has the highest growth in sales is Sumesa. During this quarter, it was the format that has grown more than the rest, but all the format has very similar and good performance, Antonio. Thanks. Just a quick follow-up. Could you also provide an update on the current penetration of prepared foods and perishables within your sales? I remember it's low single digit, still within that range or maybe Yeah you can give us at least prepared foods. Yes, for prepared food, yes, it's a very small proportion, but it continues growing. For example, we opened three City Market. Usually, the City Market has a higher proportion of prepared food because we have some special areas for that, and it's going to continue growing. But it's still a small participation of the total sales. For perishables, it's a good proportion. We have a little bit less than 30% of our total sales is for perishables. That is a big proportion from the total sales, and it's an area in which we want to differentiate ourselves from the rest of the participants in the market, and that's why we put a lot of assortment of products and many different kinds of fruit, vegetables, seafood, and different kinds of meats in order to surprise the customers and have. That has given us a good level of sales in those categories. Perfect. Thanks for the color. Have a nice day. Thank you. Hi, Miguel. Please open your microphone and ask your question. Hi, Rogelio. A couple of my side would be regarding inventories, if you can provide some color on the increase and what you expect going forward. The second one would be regarding tax rates. Is this something that you think will be maintained at this level, or should we expect an increase or a change against last year? Thank you very much. Good questions, Miguel. I think for inventory, for us, it's very important to provide good assortment of products in our stores. It's something, and a good level of inventory is required in order to promote sales in our stores. If you don't have the product, you can lose some sales in that moment and in the future, because it's something bad for the store. Something that is important for us is to review the quality of the inventory very carefully in order to be sure that all the products that you have in your inventory are suitable in an optimal way in order to be ready to be sold in the store. We make a lot of processes in order to be sure that all the inventory is in good shape, and we don't have big shrinkages or losses or a product that is not in good form, in good way to be able to be sold. But yes, we have, during this quarter, a big increase in inventory. This is because of this strategy of have a good assortment of products in our stores. In many of the categories in which we have a big advantage over other participants, for example, wines and liquors, you have to have a big number of different alternatives, and usually you have a higher number of days in inventory for that kind of products that are differentiated. This part of our strategy and maybe we need to suffer of high levels of inventory if we want to implement that strategy. Yes, we are a little bit worried by the level of inventory, but we are taking actions in order to be sure that is in good shape and maybe diminish a little bit and doesn't have a big difference versus previous years. Regarding the level of the actual income tax that we are putting in our results, it's something that the difference between the nominal rate and the actual rate that we put in our income statement is based. The major factor that have an impact in that is the level of inflation in the country. Because at higher levels of inflation, because the accounting from financial purposes or fiscal purposes are different, because for fiscal purposes, you take into consideration inflation. Then usually when you have higher level of inflation, you have a lower actual rate that you put in the income statement. That's one factor that have an effect in the taxes that we are putting in our income statement. The other factor that has some part of an effect here is the amortization of the brands. As many of you know, the brands, for financial purposes, we are maintaining the value of the brands at the same level. But for fiscal purposes, we are amortizing the brands every year. This is the last year of amortization of the brands. Then during all the year, we don't have the amortization of the brands. It's just the half of the year. Then we have an effect because that diminishing the amortization of the brands during 2025. But yes, depending on the level of inflation, but we could expect a higher rate of income tax to put in our income statement during the year. Thank you. Thank you, Rogelio. Thank you. Amazing. Gracias, Miguel. Hi, Alejandro. Please, could you open your microphone? Yes. Hello, Rogelio, Yolotl. Thank you for the space for questions. I have two very quick ones, if I may. The first one is on the new stores. I wanted to see if maybe, Rogelio, you can give us some more color into how much better the sales trend are on the new openings that you're seeing right now compared to some of the more legacy stores. That would be the first one. The second one is in terms of openings for this year. I know that you mentioned 6 stores this year. I remember during the Investor Day 2 years ago, the guidance for 2026 was almost double that. It was 11 stores. I wanted to see what has changed from the last couple of years to go from 11 to 6. Does it have to do with macro? Is maybe the permits going a little bit slower? So, wanted to grab your opinion into if something has changed or not. Thank you. Yes, the performance of the new stores has been very well. Fortunately, even if we have not opened as many stores as we would like to open every year, every single one has been successful until now, and we have very good stories. Some of the stores that we have opened have very good results. Almost all of them are in positive numbers during this quarter. Even if they are completely new, they opened during November and December last year, during the results, the actual numbers of this quarter are positive for most of them. They are contributing to the results of the company. Yes, they are performing well, and we expect even higher growth in the future. From the five, there are two of them that have a special factor that are in some way affecting their sales because in both cases, the shopping mall in which they are located are not completely finished, and we think that there is still potential to more growth in the future, but they are performing very well. Yes, for the new stores, as I mentioned, for this year, we have 10 projects in our portfolio of new stores that we could open during the year, but it's difficult because there's many uncertainties, many things that can affect these processes. Yes, I think the authorization from the government has been an aspect that has not improved and has been very difficult to get the authorizations, and that have delayed many of our projects. We have some projects that we have been trying to launch, for some cases, for two years or three years, several years. Even if we accomplish with all the regulations and even if we have all the special studies and everything in good shape. Even in that situation, the governments take many time to give the approvals, and sometimes they require something that is not in the law or something that is different in order to make the process more complicated and delay more the investments. Very clear. Thank you very much, Rogelio. Thank you. Christina, yes, please open your microphone. Yes, thank you. Hi, Yolotl. Hi, Rogelio. I wanted to ask what is the strategy regarding own brands. Is it more profitable to develop and focus on these own brands, or rather to focus on those differentiator products or perishables or foods, goods that are more profitable than focusing on the own brands? Yes. Our main strategy is to make differentiation and very good quality in products and service and have a very good experience for the customers. We need to try to accomplish that goal or that strategy through many different alternatives. One is to have many different products, and the other is to have a very good own brand. We have put emphasis in increase the participation of our own brand, especially Golden Hills, that is our brand that have many different products. We have had good improvements in participation of that brand, especially in some categories in which we participate, not in all of them. For example, in our own brand, if we do not have very good quality, the best quality, we prefer not to participate in the own brand business, because for us, the image of the brand of our stores is very important. But yes, we are going to continue pushing the private label in our stores, and I think this year is going to be the third year in which we launch a campaign to emphasize the attributes of our own brand. Perfect. Thank you. You're welcome. Thank you, Christina. Well, if you want us to ask a question. Well, at this time, there are no more questions. Rogelio, please proceed to closing remarks. Thank you. Thank you, everybody, for your attention, and if you have additional questions, please email Yolotl. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.