Earnings Call: Q1 2024

Apr 25, 2024

Summary

Q1 sales grew 17.5% and same-store sales 10.5%, with a 29.7% gross margin and 12.6% EBITDA margin. Five store openings are planned for 2024, while cost pressures persist.

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 a lot, and good morning everyone, and thank you for being with us today. We are going to discuss the results of the first quarter 2024 for La Comer. The highlights for the results of the quarter is that the same-store sales grow 10.5%. We had an increase in total sales of 17.5%. Our gross margin reached 29.7%, and we had, during the quarter, an EBITDA margin of 12.6%. First, as respect to the growth in sales, we had same-store sales growth above the market, as we have had during the last quarter. We maintain certain spread versus the growth of the rest of the market. We had good results or good growth in all the format regions and categories. In general, all the different regions had growth and formats and the categories of products too. By product category, we had better growth in prepared food. That includes tortillas and the bakery section. In addition to that, other categories as fresh products, the perishables had very good growth, too. By region, the north part of the country and the western region presented the highest same-store sales growth. We had these extraordinary sales of MXN 124 million that we sold to the federal government to support people affected in Acapulco by the hurricane Otis. We had these extraordinary sales in our numbers, but this operation does not affect our operating income because they were sold at a preferential price in a way that if we add all the expenses, actually the operating income effect, it could be almost zero or even a little bit negative. If we maintain, we continue having a good participation of e-commerce. La Comer en tu Casa represented about 7.5% of the total sales of the business. As it happened in the last quarter of 2023, that we have an effect in the aggregators. We continue having this extraordinary situation of the operation of one of the aggregators that the volume of these participants decrease a little bit, and then we have a smaller participation of aggregators in the total sales of e-commerce. As respect of gross profit, we continue having this trend of the change in the mix of products that every time we participate, we have a major participation of differentiated products from our total sales, and that has increased our gross margin significantly. Additional to that, we continue having very good efficiencies in logistics and very good inventory management. Our levels of shrinkages of products is very small. We think that we are from the best in the class in the industry in general. As we have mentioned on other occasions, we continue promoting a very good relationship, long-term relationships with suppliers with win-win situations and win-win price kind of negotiations. At this respect, we are having some programs in order to support small and medium suppliers with preferential conditions in order to promote a long-term relationship with them. At the level of EBITDA, we have a strong growth in EBITDA margin, 60 basis points. We continue having, as it has been the case in previous quarters, that we continue having some pressures in expenses of salaries because of some changes in the law, and we continue to have that trend, but we have implemented some measures in order to control these pressures in expenses. Additional to that, we continue improving our service in La Comer en tu Casa. It's a challenge to provide very good service in La Comer en tu Casa. We have to have very good capabilities of making the orders and deliver to the homes of our customers. We are having good results in La Comer en tu Casa, but we have spent more in this business. Additional to that, we continue having some big increases in the expenses of packaging. We are improving our packaging, and we are using, as you remember, all our packaging now is ecologically friendly. It's the kind of packaging that doesn't harm the environment, and that has an additional cost. Now, if we talk a little bit about the investment, the projects that we have for 2024, at this moment, we are expecting to open five new stores during the year. It used to be six stores, but we have seen during this year a little bit more complicated. It is usually complicated to get all the authorization from the government to new projects. But during this year, it has been a little bit more slow, that process, or it has been difficult. At this moment, we are expecting to open just five new stores during the year. We have three projects of City Market and two projects of La Comer format. Additional to that, we are in the process of remodeling two stores in order to maintain our stores in very good shape and according to the strategy of differentiation of the company. This is the expansion on the investment projects that we have for this year. In respect to the sustainability and social responsibility activities that we have, as we mentioned, we are continuing supporting Acapulco with the affected by the Otis hurricane. Actually, we delivered more than 230,000 boxes of supplies for people affected in Acapulco. Some of them were sold to the federal government to support the people affected in Acapulco. Another part was donated by the company according to the campaign that we launched in the last part of 2023, after the hurricane, that we have a commitment with our customers to donate two boxes of food for one box that our customers donate to the affected people in Acapulco. Additional to that, we continue using a packaging that is friendly with the environment, and we support Fundación Mexicana para el Desarrollo Rural. That is an institution that in some way makes training and educations for people in the rural areas of the country. We have contributed to Pro Bosque de Chapultepec. That is an institution that help Bosque de Chapultepec here in Mexico City. With this is my presentation. I do not know if you have some questions. Thank you, Joe. Thank you, Rogelio. We are ready to open the microphone. If you have a question, please raise your hand. Okay. Sara. Yes, Sara, of course. Go ahead. Hi. Good morning. Congrats for the results. My question is about the margins. As you mentioned, you have a benefit from the gross margin for the mix and also maybe sales, et cetera. Thinking about for the rest of the year, it is fair to assume a better margin, even reaching near to 11% in the EBITDA margin because if we maintain flat the next quarters, it is very near to 11%. Yes. We continue to have some pressures in some expenses. I would say that we expect to continue having a very healthy gross margin, and the change in the mix of products has helped us in the past, and we think that this is a trend that will continue to help us in the future. Additional to that, we have some pressures in expenses, but we expect that we can maintain good levels of margins in the rest of the year. Thank you. My second question about the extra year for February, and maybe the shift in the Easter week, how much is the effect in sales? Yes. In general, most of our stores are located in high-income neighborhoods that usually vacation periods of time are affected because most of the people go on vacations, and our sales are a little lower during that period of time. Of course, we have some stores located in beaches and in touristic areas that are helped during that period, but the net effect is negative. In general, when we have more vacation periods, we have a negative effect in the total of our sales. Usually, that is the situation for the company. I would say that we don't have a big effect of difference between March and April. That is what happen usually when the holiday is in one month or the other. I would say that we don't have a big effect during those two months in this occasion. Thank you very much, and congrats for the results. Thank you. Thank you. Hi, Miguel. Please open your microphone. Hi there. Just a quick one regarding the openings. Could you give us an idea of magnitude regarding pre-operative expenses of the five new stores that you're expecting for the year? Yes. It will have an effect, but the good thing is these all five new projects are located in cities in which we have a strong presence. That makes that the advertising is less expensive, and in addition to that, the training all the people is less expensive, and it's easier because we can complement the people from other stores and train the people in the same stores in which we already have presence. That is good. We're not going to have a big impact in pre-operative expenses during the rest of the year. The other thing is that we have three City Markets. Usually, the City Markets have more training, and we need to hire people with a higher period of time because we need to train them in a better way in order to provide the level of service that we usually have in a City Market. Yes, we are going to have an impact, but it's not going to be too big, let's say. A second one, if I may. Regarding the schedule for these openings, are they expected for the second half of the year, or you expect to- Yes. One of them, it could be during, let's say, during the middle of the year, June or July, maybe. The rest are going to be in the last quarter of September or the last quarter of the year. Finally, with almost April ended, have you seen a slowdown in consumption in April? Not at this moment. We haven't noticed a clear effect of diminishing in the consumption. We continue seeing the consumption at very good level. Thank you very much, Rogelio. You are welcome. Yes. Okay. We are ready for more questions. If you want to ask a question, please raise your hand. Someone told me that I have to wait, like, five seconds to talk. Okay. Okay, Rogelio, I think at this time, there are not more questions in the queue, so please proceed to closing remarks. Yes. Thank you, everybody, for your interest in La Comer. If you have any additional question, please reach Yolo, and thank you. Thank you for your participation in today's conference. This concludes the presentation. Thank you. Good day.