Earnings Call: Q1 2023

Apr 27, 2023

Summary

Q1 2023 sales rose 14.5% and same-store sales grew 11.6%, with 29% gross margin and 12% EBITDA margin. Growth was broad-based, while 2023 plans include 5–6 store openings and continued e-commerce investment.

[Foreign language]. Mhm. 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 Administrative and Financial Officer of La Comer. Please go ahead, Rogelio. Thank you, Yolo, and thank you everyone for being with us today. Good morning. We are going to present the results of the first quarter of La Comer. I'm going to share the presentation. Okay. Yes. Just to be sure that you can see the presentation. Okay. Yes, we have it. Thank you. The highlights for the first quarter in the results of the company is that we increased our total sales 14.5%. Our same-store sales growth was 11.6%. We reached a gross margin of 29% and an EBITDA margin of 12%. First, starting with the sales. In same-store sales, in this graph, you can see that the company, during the last two quarters, have reached a certain spread versus the growth of the market. Historically, La Comer has reached a certain spread versus the market in every quarter. In the previous quarters, we have a period of some quarters in which because of the base of comparison was very hard because the extraordinary increases that we had during the pandemic, that situation didn't happen. We grew a little bit less than, in some quarters, a little bit less than the market. In the last two quarters, we have normalized that situation and the company, La Comer, has grown a little bit above the market. We expect that because of the strategy that we have of differentiation and having a better offering, a better shopping experience to the customer, we expect to have certain spread versus the growth of the market, and we have had that situation the previous quarter, the last quarter of 2022, and this quarter too, who has the same situation that we grow above the market. All our formats, regions, and categories had positive numbers in growth. By category, we see a big increase in the category of prepared food that includes bakery and other products. By region, we had higher increases in the western region, that is the markets of Guadalajara, Puerto Vallarta, and Michoacán. In addition to that, we had very good results in the northwest region, that is basically Los Cabos region. We had four stores there, and they have had very good growth in sales, those stores. In general, we had good results in all the formats and all the regions, but these regions and these categories grew above the average of the company. If we go to the e-commerce sales, if we measure e-commerce as a percentage of the total sales of the company, we can see that in this graph that the participation of e-commerce, La Comer en tu Casa, that is our internal solution for e-commerce, it was very similar to the previous quarters. It was between 7% and 8% of the total sales of the companies. Additionally to that participation, we have the percentage of participation of the aggregators, that is the companies with which we have special agreements in which they deliver, they get the customers and make all the delivery for the customers, and that the participation of the aggregators, it's around 5% of the total sales of the company. We continue making a lot of efforts trying to reinforce the features and the service that we provide in this e-commerce solution. We are continuing to invest in our platform and improving our processes in order to provide better service to our customers. For us, it's very important, this project of e-commerce, La Comer en Tu Casa, for us is an strategic project, and we continue investing very hard in this business. In addition to that, improving our processes to provide better service. If we see the gross profit, we can see an improvement in the gross margin that we had during the quarter. The major reason of this is that we improve our mix of products. Every time we sell more proportion of products that are more differentiated, in which you have usually higher margins. It is not a commodity, and every time we have a bigger proportion of these kind of products in our total sales. For example, the prepared food, that is one of these categories in which you can have a clear differentiation, increased 28% during the quarter. Additional to that, we continue to have very good efficiencies in logistics and the shrinkage of inventory was very well managed, and we have good results in the management of the inventory. We maintain very good levels of efficiencies in logistics and in inventory management. At the end of last year, we started to do some efforts in order to compensate the effects of the changes in the law that affected our labor costs. There were some changes in the law that were approved in Mexico last year. The increase in the minimum wage, the increase in vacation days for the employees and, addition to that, an increase in the contribution to the social security in Mexico for the employer, for the company. Those changes in the law represent a certain pressure or increase of our expenses in labor, and we have done some efforts in that to compensate those impacts. We think that until now we have had good results in that respect. Given the strategy of the company, for us is very important is not to diminish the level of service that we provide in our stores, because that is a very important part of our strategy, to provide a very good service. But we think that in some way we have very well compensated that impact in our expenses with more efficiencies without affecting the service that we provide to our customer. That is very important for us. Additional to that, we have some impact in packaging expenses because every time we are moving toward environmentally friendly packaging, that is more expensive, but is more friendly with the environment, and we think that we need to invest in those expenses, too. We had some increases in advertising expenses in order to promote the brand of the company in some new markets in which we are entering in this moment in San Luis Potosí, that we opened a new store there, and Morelia. That were two markets in which we hadn't any stores, and we started to have presence there, and we have to provide a very good advertising in order to promote our brands in those new markets. If we talk now about the expansion plan, we continue with this plan of opening between 5 or 6 new stores during the year, during 2023. This number includes one store that was a total remodeling that we closed in the metropolitan area of Mexico City. We closed a store in 2022, and we are going to reinaugurate that store during this year. We expect to open, from this total number of new stores, we expect to open two stores during the first half of the year, during the second quarter, and the rest of the stores to open in the second semester of the year. In addition to that, many of these stores, most of them are located in the metropolitan area of Mexico City. That is a market that we know very well. It is a market in which the customer recognize our brands very well, and our stores are very well accepted. In addition to that, we expect to have three major remodelings during the year, a remodeling of new store, an expansion in some cases of stores. We continue during the quarter contributing to the sustainability and social responsibility. As I mentioned before, we are changing all our packaging to environmentally friendly packaging. In addition to that, we are investing in some solar panels for the generation of electricity and diminish our impact in the environment because of the consumption of electricity. We are investing in some stores, investing in new generation of electricity through solar panels. In addition to that, we are contributing to some charity institutions, the Fundación Mexicana para el Desarrollo Rural, Probosque de Chapultepec, and Banco de Alimentos. All these are organizations that provide help to needed people. With this, I think we finish our presentation. I do not know if there are some questions that we can take. Yes. Rogelio, thank you. Yes, we have our first question from Antonio Hernández. Please, Antonio, just open your microphone or your video camera. Hi, Rogelio. Thanks for the space for question. Congrats on the results. Actually, surprising to the upside versus our previously estimation. My question is regarding, you mentioned product mix improving. Overall, it looks like consumption even, I would say towards the higher end of the different formats looks well. Are you seeing any specific trend in, or you mentioned already prepared food, and of course, that helps profitability. But other than that, any other specific product categories or formats or regions where this product mix is being improved the most? Thanks. Yes. What we have seen since the beginning of La Comer in 2016, and I think this is a long-term trend, is not something specific of this quarter or this year, is that every time customers want more differentiated product, more specialty products. All the categories that are in some way different or is not a commodity, have had a higher increase in sales. Organic product, healthy products, imported products, gourmet products, all those categories that are a little bit different. We have seen this trend of change in the preference of the customer for a long time. Of course, at this moment with the high levels of inflations and maybe a decrease in the economic situation of the country, we can see some, let's say, short-term adjustments to that trend. But we haven't seen something very clear in that respect. But we think that in the long term, we could have this continued trend in that respect. But it's all these categories that represent value-added products versus a commodity or versus something that is very. We every time see that there is more preference for that kind of- For that. Just a quick follow-up. In terms of the new stores, are you seeing that trend as well in terms of productivity, in terms of sales per square meter, et cetera? Are you seeing the same trends in the new stores, but maybe a slowdown or a ramp-up period? No, I would say that there is a general trend. I haven't analyzed specifically if the new stores have a different mix, but no, we haven't noticed something specific about something different in the new stores versus the rest of the stores. Overall performance besides product mix of these new stores, overall performance trending well despite the external challenges and so on, still looking healthy, I guess, these new stores. Yes, the new store have very good results. Of course, the profitability of the new stores is not as high as a mature store. Usually, they have a period in which they are. But very quickly they are reaching very good levels of profitability or regular versus the rest of the company. Okay. Perfect. Thanks a lot, and again, congrats. Thank you, Antonio. Thank you. Now we have a question from Luis Willard. Please, Luis, just open your microphone or your camera. Hi, Rogelio. I'm sorry that I'm in two different sites, but I had some problems with my laptop. My question is on e-commerce, Rogelio. The penetration has been stable for some quarters now. It doesn't seem to continue improving. It doesn't mean that sales are not growing. My question is, we've seen this performance throughout the industry. Stable penetration, nothing higher. What do you think will drive e-commerce penetration in the future, in let's say next couple of years, beyond current levels? How much more cash and time are you willing to invest into e-commerce to really drive it forward in terms of penetration versus having a faster, or opening more stores per year? Yes. The first thing is that, in some way, those two projects are very important for us, the e-commerce and the expansion project. Both of them are very important. They create value for our shareholders and for the company, and we are very committed. I will say that until now, there is not a competition of financial resources between the two projects. For us, the two are very important, and we haven't grown more aggressively with new stores because we haven't been able to open more stores because of operation restriction, not because we don't have financial resources to increase our investment in new stores. Going back to e-commerce, I would say that we would like to have a very good solution for e-commerce. What happened is that e-commerce was a very small part of the business, and during the pandemic, the situation changed dramatically because everybody was trying to use that instead of going to the stores because of the situation of the pandemic. We had a very big increase in participation of e-commerce in that situation. We think that what happened is that new level of participation of e-commerce is more or less remaining in the same level. Until now, we haven't seen a bigger demand in that respect. What we want to be ready is to go to that channel, all the demand that the customers want through that channel, that we can serve our customers very well and grow the participation of e-commerce as much as the market demands the participation. Not have a restriction. That depends on the. Of course, we think that with time, more and more customers are going to prefer e-commerce as a channel of making their shopping. We want to be ready to capture that demand in the future. All right. Thank you, Rogelio. Thank you, Luis. Okay. Thank you, Luis. Okay. If anybody wants to make a question to Rogelio, please raise your hand or let me know. Well, at this time, there are no more questions, so please proceed to closing remarks, Rogelio. Thank you everybody for your interest, and if you have additional questions, please contact Yolo directly. Thank you. Thank you for your participation in today's conference. This concludes the presentation. Thank you. Good day.