Earnings Call: Q3 2024

Oct 30, 2024

Summary

Q3 sales and same-store sales grew 10.5% and 7.6%, respectively, with a 29.1% gross margin. Value-added products supported margin gains, partly offset by labor, pre-opening and e-commerce costs; expansion plans call for five 2024 openings and ~6 in 2025.

Good morning, everyone, and welcome to La Comer Third Quarter Result 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 performance. All projections are subject to recent comps 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 thank you, everybody, for being with us. Today, we are going to have a presentation about the results of the third quarter of La Comer. Let me share the presentation. Okay, the highlights for the third quarter of 2024 is that we have a same store sales growth of 7.6%, an increase in total sales of 10.5%. The gross margin growth to 29.1%, and we had an EBITDA margin of 10.6%, very similar to the same quarter of the previous year. As we can see, we continue having an spread versus the growth of the market in same store sales. We continue growing above the rest of the participants in the self-service food retail market. All our format regions and categories presented positive numbers in growth in same store sales. During this quarter, we had Temporada Naranja, one of our campaigns that is very important campaign for us. During all July and part of August, we had this Temporada Naranja, the orange season campaign, with very good results, with very good growth in sales during the campaign. We feel that Temporada Naranja, every time it's more known by our customers and expected by our customers and had very good results. If we measure by categories, we saw that perishables is a category that has been growing above the growth of the whole company every quarter. Every quarter we have in that category, that is very important for us because it's something in which we express better our quality and our differentiation versus the other participants in the market, with very good quality and very good assortment of fruit, vegetables, seafood, fishes, and meat, all those products that makes a difference in a supermarket. We are seeing very good results in that category growing every quarter a little bit above the growth of the whole company. Our participation in that category is every time bigger. In addition to that, in prepared food, we have a big increase in prepared food. By regions, we are seeing the western part of the region, Guadalajara, Puerto Vallarta, and those markets growing above the average of the company. This is the sales of La Comer en Tu Casa, our e-commerce business, and we are seeing, if we measure the sales of that business as a percentage of the whole sales of the business, we are having a little bit below 8% of participation in La Comer en Tu Casa. That is our own initiative. In addition to that participation, we have the participation of the aggregators or companies, and we have special agreements with Rappi, with Cornershop, now is Uber Eats and with DiDi. We had three agreements with these three participants that in some way complement our offer to the customer with the service of the home delivery. The sum of all the participation of all these aggregators is a little bit above 4% of our total sales. If we see the gross profit of the quarter, we saw a big increase in perishables, as I mentioned previously. We are seeing an increase in the gross margin. The factors that help us to increase our margins in gross margin is the change in the mix of products that every time we change toward more differentiated products and more value-added products. That in general, you have higher margins in that kind of products, gourmet products, imported products, organic. We are taking advantage in this change in the mix of products. We are taking advantage of a trend in the market of the customer having more and more requirements and more aspirations about more sophisticated products, in healthy products or gourmet products. That kind of trends that help us to increase or to change our mix of products toward more differentiated products. In addition to that, we continue having a very good management of the inventory with very small levels of shrinkage and losses that we have in our inventory. It's something that we put a lot of attention in the management of our inventory to be sure that all the inventory is in good condition for the sales. In addition to that, we continue having a very good relationship with suppliers. We think that with suppliers, we had to have a win-win relationship in the long term with suppliers. We think that a long-term relationship with suppliers is the best way to have a reliable results required and to have a good results in the long term. The gross margin remains more or less very similar to the margin. Sorry, the EBITDA margin remains at very similar levels to the margin that we have in the previous year. Even if we have this increase in gross margin, as I explained previously, we have some pressures in some expenses. We have pressures in the salaries expenses leg because labor, we have more benefits to the employees and in some cases, because changes in the labor laws in Mexico, and we have some pressures in increases in labor expense in the company. In addition to that, we have a big amount of preoperative expenses. Usually, we have preoperative expenses because we open some stores during every year we have some stores that we open, and every store has some preoperative expenses. In this case, we have many stores in a very short period of time, then we have a little bit more preoperative expenses during the third quarter. We have more than MXN 60 million in expenses from the new stores that we are starting to open. Today, we open the first stores in Guadalajara. In addition to that, we have big increases in expenses in La Comer en tu Casa. That is a part of the business that we put a lot of emphasis in. We want to maintain a very good level of service in e-commerce in La Comer en tu Casa. We put a lot of effort trying to differentiate ourselves with very good quality and very good service in La Comer en tu Casa. If we see the results in accumulative terms for the first nine months of the year, we have same-store sales growth of 8.5%, an increase in total sales of 13.5%, a gross margin of 29%, and an EBITDA margin of 11.2%. More or less, the situation is very similar to the quarter, is we have had very healthy increases in sales, very healthy increases in gross margin, and some pressures in expenses because especially labor have some pressures in our expenses that in some way diminish the improvement in gross margin that we have. These are the plans for this year. We have five new stores during 2024 that we are going to open. Today, we open our first City Market store in Guadalajara. We open a new City Market Guadalajara today. In addition to that, we have two more City Markets, one La Comer and one Fresko to open during November. We are going to open these additional four stores. We expect to open during this year these five new stores. In addition to that, we are going to finish the remodeling of the store that is under process at this moment. In sustainability and social responsibility, we continue increasing the percentage of packaging in which we use renewable materials. It's an effort that we are doing in order to improve our ecological area. In addition to that, we are helping or having donations to several organizations. We are helping Un Kilo de Ayuda, that is a Banco de Alimentos. These are organizations that help people with nutrition and with food for people that have a hard time trying to eat enough for the needs that they have in food. Additional to that, we continue donating to Fundación Mexicana para el Desarrollo Rural. That is an organization that help with the education in people in the countryside that work in agricultural activities, and it's a foundation that help educating those people to improve the productivity of the field and agricultural activities that they do. In addition to that, we contribute to Bosque de Chapultepec. That is a foundation in Mexico City, helping the Bosque de Chapultepec, one of our biggest parks in Mexico City. This month in October, we launched the Tienda Rosa or Pink Store, a campaign that is a campaign promoting the awareness of breast cancer, that women's review for breast cancer, and it is a campaign in which we donate to several foundations in charge of improving the awareness of breast cancer for the women. During all these months, we are having a special campaign for that. I think that is all. If you have some questions, go ahead, Yolotl. Thank you very much, Rogelio. Yes, we have our first question from Antonio Hernandez, and then we have another one from Alejandro Fuchs later. Hi, Antonio. Please go ahead. Hi. Good morning. Thanks for the space for questions, and congrats on your results as well. Could you please provide more light on performance of recently opened stores? Are they meeting maybe your estimates or how are they performing? Just a quick one on also on if you are seeing any type of consumer trade-down within your different formats or maybe in some categories. Thanks. Yes. During this year, we have not opened. Today is the first store that we opened during this year. But the stores that we opened last year in 2023 are performing very well. All of them are having very good results, very in line with our previous estimates or above our estimates. This year, we have big expectations of the new stores that we are going to open. But yes, the new stores, all the stores that we have opened have had very good results according to our estimates or above that. No, we have not seen a very clear trend or downtrend in the consumption in Mexico. We are continuing seeing categories very good, more or less moving in the same trend that they have had in the past. Actually, that's one of the reasons why we are improving our gross margin because there is a change in the mix of products toward more value-added products. But until now, we haven't seen clearly a downtrend in the consumption or the preference of the customers. Okay. Makes sense. Thanks a lot, and have a nice day. Thank you. Thank you, Antonio Hernandez. Yes, Alejandro, please, if you want, from Itaú. Go ahead. Thank you. Hola, Rogelio, Yolotl. Thank you for the space for questions. Congratulations on the results. Two quick ones from my side. First one, if you could provide maybe more color looking at formats, where the formats that perform better during the quarter, and if you could break down for us maybe between ticket and traffic, how was the mix for the same-store sales? The second one is on competition. I wanted to see, Rogelio, if maybe you're seeing anything different on competitive landscape overall in the country or something that caught your attention during the quarter. Thank you. Yes. For stores, I think all the formats are performing well, all the different formats. I would say Fresko is performing very well in the last quarters or during this year in general. They are growing very well in same-store sales, and they are having very healthy improvements in margins. It's what I can highlight of the change in the different formats. Regarding competition, this quarter has La Temporada Naranja, and doing that, what we have seen is that every time we are, during this summer, there are more participation of. There are more aggressiveness of the other participants in the market in the summer with the special campaigns. Anyway, we try to organize La Temporada Naranja very well in order to provide very good value to our customers, and we feel that we are, even if the competition is increasing, in doing that period of time in during the summer, we organize very well, La Temporada Naranja, in order to provide value to our customers and is performing well. Every time we have very good preference from our customers and is growing the campaign very well. But it's a very competitive market. The food retailer in Mexico has a lot of competition, and we participate in every one of our locations, has many different alternatives, and it's a very challenging and competitive environment, and it continues that way. What is a little bit different is that every time there are more participants with aggressiveness in the summer campaign, providing something in order to compete with our Temporada Naranja campaign. Gracias, Rogelio. Thank you, Alejandro. Gracias, Alejandro. Then we have a question from Froylán Méndez. Please, Froilan, open your microphone. Hi. Thank you very much for taking my question. You mentioned that the increase in perishables partly drove the higher gross margin. Is this related to prepared food? That's the first question. If you could explain to us what percentage of your sales are coming from prepared food and roughly what's the difference in margin? That's my first set of questions. No. We have different categories. Perishables is fruit, vegetables, meat, and all the fresh product, but it does not include prepared food. Prepared food is a completely different categories, at least it is how we measure the categories in La Comer. Yes, perishables is growing, but it is still. Sorry. No. Prepared food is continue growing, but it is still a small percentage. It is 3% or 3.5% of the total sales is still a small percentage of the whole sales. Yes, it has higher margins in gross margin and higher expenses because you have all the people preparing the food and everything. In general, it has a little bit different proportion of cost and expenses than the regular product that you have in the rest of the store. You have, in general, higher gross margin and higher expenses related to the sales of prepared food. Yes, in some way, that help us to increase our gross margin, but it is a small contribution because it still represent a small proportion of the total sales of the company. The increasing in gross margin, where did it come from, mainly? Just on general pricing? Froylán, what we have seen, and this is a trend that we have seen during the years in the company, is that every time we have more participation of value-added products, less commodities and more value-added. That includes some imported products, some organic products, and it participates in many different categories, not just perishables or the different. But in general, we have a movement toward more value-added products because higher quality or higher differentiation or more healthy product, that kind of trends, that help us to increase our margins. Okay. Lastly, could you give us some idea on the store openings that we could expect for 2025 and in which formats? Yes. We have a very good portfolio of new projects for next year. But as always, this process of expansion has always many externalities that could affect the actual number of stores that we open at the end. We expect to open, or we are working to open around six new stores during 2025. But as I mentioned, it has a lot of externalities because you have to have all the authorization from the governments or the negotiation with the owners and many different things that could be delayed in some way. But we are working in many different projects and trying to open six new store during the year. In terms of format, should it be more City Markets as is going to be the case this year, or how should it be? Yes, it depends. We are trying to open the three different formats that we already have, and it depends on the specific place at the end we are executing, but we are working in trying to open from the three different formats that we have. The three major formats that we have. All right. Thank you very much. You're welcome. Miguel Cai. Hi. Hi, Rogelio. Yeah. Two questions from my side. The first one could be regarding the working capital and the suppliers' change in the rotation. Is this something regarding the future, or is something that is going to happen in coming quarters? The second one would be regarding the imports share in your total sales. Is this growing? Is this steady? How is the behavior going forward? Thank you very much. Yes. We have a steady growing in the participation of imported products in the whole sales. That trend is more or less, we expect that it's going to continue, but every time we have small increases in participation, but from imported product in general, because we want to make more emphasis to the differentiation in the assortment of products that we have in our stores. Regarding the working capital, we expect that it's a temporary situation. During October, we launched a German campaign with many different products from Germany. We are selling many German products that have never been sold in Mexico before. In this relationship with German suppliers, sometimes you have to pay in advance. We don't have a long-term relationship with them, and that impacts, in some ways, our working capital, but we think that it's something temporary, and it's something important in order to provide very good assortment of products to our customers. We are launching this campaign from Germany with very good results. We are selling very well, the campaign, with many different products from Germany. Thank you. That's useful. A third one, if I may, would be regarding Sumesa expansion. Is this something in the back burner or something that you might see in coming years? No. It's something that we continue thinking or analyzing about that. We are not having concrete plans about Sumesa yet, but we continue analyzing opportunities to start to open a new Sumesa and start to open this as a new avenue of growth. But until now, we don't have something concrete that we expect to, in the short term, starting to open Sumesa or that kind of thing. Thank you very much. That's useful. Thank you, Miguel. If you have any question, please let us know, so Rogelio can answer. At this time, there are no more questions, so Rogelio, please proceed to closing remarks. Thank you very much for the attendance to this call. Thank you for your interest. If you have any additional question, please contact Yolotl. Thank you. Thank you for your participation in today's conference. This concludes the presentation. Have a nice day.