Earnings Call: Q2 2021

Aug 2, 2021

Quarterly report

Good morning. My name is Daniela, and I will be your conference operator. All lines have been placed on mute to prevent any background noise. This is Liberpul's Q2 2021 conference call. There will be a question and answer session after the speakers' opening remarks With us are Mr. Enrique Guijosa, CFO, El Puerto de Liber Pul Mr. Santiago Raviera, General Manager, Financial Services Mr. Jose Antonio Diego, Treasury and IR Director and Mr. Enrique Grignan, Investor Relations Officer. Our speakers will present the results for the Q2 2021. As a reminder, all forward looking statements on this call are subject to risks and uncertainties that could cause actual results to differ materially from the expectations and assumptions discussed today. This may be due to a variety of factors, including the risks outlined in El Puerto de Liber Pul's most recent annual reports. At this time, I will now turn the conference over to Mr. Enrique Guijosa. Please go ahead. Thank you, Danilo. Good morning to everyone. Thanks for joining us, and welcome to Liverpool's Q2 2021 conference call. First of all, and as has been the case in the past several quarters, I sincerely hope that you and your loved ones are healthy and doing well. For this conference, we have with us Santiago Daviedra. As you know, Santiago is the General Manager for Financial Services Business Unit, And he will share with you the highlights of this business right after I provide perspective on the overall company results. Afterwards, we will open the session for Q and A. Importantly, throughout the Q2 of this year, All our stores and shopping centers were open and operating with very few nonmaterial constraints. Retail revenues during the Q2 increased 8.3% compared to the same quarter in 2019 that is pre pandemic. Liverpool's performance stands out as same store sales grew 8.6%. Although traffic for Liverpool was still 15% below pre pandemic levels, our average ticket was up Almost 30%. The latter reflects both product mix and a higher conversion. Our EBITDA for the quarter was MXN6.1 billion, almost 6% above the same quarter 2019. EBITDA margin was 16.2%, a 13 basis points increase. Although retail gross margin was 190 basis points Below 2019, this was more than offset by the strict control that we have implemented since the pandemic in our operating expenses And the outstanding performance of our 2 accounts. In the second quarter, The company reported an operating cash flow of ARS 8,600,000,000 and free cash flow of ARS 7,600,000,000, Reflecting the positive operating performance, strict inventory control and the normalization of accounts payable to suppliers. We're to highlight the cash balance as of June 30 was ARS24.9 billion. Quarterly results for our digital channel were in line with expectations with a 25% reduction year on year Given the challenging comparison base that we faced since a year ago, all our stores were closed, as you know. Our digital participation in the 2nd quarter was 24%, and this is 2.4 times higher That in the same quarter of 2019. On a cumulative basis, the digital channel is 9% above year ago, Regardless of a very high comparison base, sales in our marketplace during the 1st 6 months of this year Grew by more than 80%, SKUs doubled and our sellers grew by 60%. For perspective, marketplace sales in the 1st 6 months of this year were 24 times higher and growth during the year. Our new customer base has increased by more than 80%. In logistics, we continue to carry out a series of strategic initiatives focused on improving our processes and operations. These have allowed us to achieve a 31% reduction in last mile costs and deliver 96% of our orders on time. During the Q2, direct store deliveries represented 11% of our total home deliveries. With the reopening of stores, click and collect levels continue to improve. During the Q2, 23% of deliveries were made Through this option, the Arconoorte project continues to advance according to plan. The start of Phase 1, which is for big ticket items, is scheduled for the Q2 of 2022. And our cumulative CapEx for this project During the 1st 6 months of this year was ARS663 1,000,000. This is around 1 third Over a total cumulative CapEx of ARS 2,200,000,000. During this year, we will open just 1 Liverpool store. This is in Guadalajara in the La Perla Shopping Center. As unfortunately, the Tijuana project has been postponed until 2022 because of delays of the developer of the shopping center. On the Zurviro front, 8 stores will be opened this year and is worth to highlight that 5 of them have already been opened as of this time. I will now pass the mic to Santiago to talk about Financial Services Business. Please go ahead, Santiago. Thank you, Enrique. Can you hear me now? Yes. Okay. Thank you, Enrique. Hello, everyone. I hope you are all doing well. It is a pleasure being with you, and I will be presenting some highlights On all of the financial services business, total balances of the credit portfolio and this includes The Liverpool and the Superbia portfolios, both the private label and the Visa cards, they keep Recovering showing a 13% growth versus same quarter of last year, while credit card accounts Also showed a positive growth of 2.7% versus the last quarter, reaching 5,750,000 accounts. Regarding the quality of the portfolio, we keep seeing a very important improvement on the delinquency rate, Decreasing from 5.2 percent of last quarter to 3.1%. The actual rate is even better than the 5.6 that we observed on June 2019 prior to the pandemic period. We have observed an improvement on the credit quality of our existing customers across all of the country. In addition, Credit card bookings from 20202021 vintages are performing better compared to prior years. This improvement of the credit quality is real and it is not artificially generated by relief programs. Relief Actually account for less than 7% of the total outstanding balances and the non performing loans for this segment It's much better than our expectations. Loan loss provisions for this quarter was ARS 214,000,000 Versus EUR 1126 million we had last year, representing an 81% reduction. And we also continue maintaining a very conservative approach regarding our provisions Due to the uncertainty of the external factors such as the recent increase of COVID cases. Our current reserves coverage is higher compared to 2019, and we are maintaining a very strong reserve coverage ratios. Credit revenues grew 10% this quarter compared to last year, but keep in mind that our stores were partially or fully closed During the same quarter of last year. On the year to date comparison, we are still 5% below 2020 and 15 2% below 2019. Lower revenues are basically explained by 3 drivers: Number 1, an increase of customers paying their total balances and therefore not generating interest. Number 2, Lower rates apply to customers with release programs during the pandemic period. And number 3 and most important is the Credit tightening to risk riskier programs such as, for example, cash advances. In order to regain the profitability Of the portfolio, we are strengthening our value proposition offers as well as revisiting all credit criterias for line management programs. We're also always keeping a very strong focus on maintaining the credit quality of the portfolio. Some of the main projects that we are currently working on, I would mention is, first of all, We are upgrading all of our infrastructure across the credit cycle, including credit origination, portfolio management And collections platforms. In addition, we are implementing a new fraud prevention platform. We are replacing all of our risk models for next generation SCOR models. We expect by December 2021 To have 18 new score models. We recently incorporated additional channels to our credit origination process. Online credit application was launched during the 1st semester of the year And currently, it contributes with 9% of the total new accounts. Coming soon, we will Incorporate the instant digital credit card. We continue improving our digital capabilities With, for example, a couple of releases that we just launched is the digital bill payments like cable, phone, electricity, Etcetera. And our Monedero Digital, which is our digital Liverpool money. Well, these are just some examples of the initiatives we are working on today. Now, I will turn the word back to Enrique. Thank you very much. Thank you, Santiago. Well, I see that that's all we have in terms of our prepared remarks. We can now move straight to the Q and A. Thank you very much. Thank you. We will now conduct a Q and A session. Our first question comes from Andrew Rubin. Please state your company name and ask your question. Hi, Andrew Rubin at Morgan Stanley here. Thanks very much for the question. I'm interested on the e commerce side, specifically on logistics. I think it was in your release you noted what was A pretty impressive reduction in your logistics costs on a per order basis. Can you please provide some more color on What drove the reduction and any other commentary on trends in delivery times and how the e commerce logistics are progressing? Thank you. Yes. Thank you, Adriano. Yes, you're right. I mean, we said that we saw a significant reduction, in fact, 31% reduction in our last mile delivery cost. And this is basically a reflection of all the improvements that we have made making In the past several months or several quarters for APAC in terms of our delivery logistics in general Our supply chain in general has to do with work processes and systems. Specifically in terms of the logistics cost, what we saw is an increase of The deliveries that we do directly from the stores, we are now running at a little bit ahead of 10%. That's something that we're pushing very hard in order to we already fulfill like 90 plus percent of our orders from the stores, But only 10% of the total orders are delivered straight from the store Straight to the customer homes. So that's we believe that's a significant competitive advantage. And we are fine tuning all our work processes inside the store in order to be able to do that. We So that's one of the things that drove this reaction. The other thing is that if you compare it to the Q2 of 2020, of course, we have that surge that we saw because the stores were closed. So we did a significant portion of all our deliveries through external suppliers. We have reduced significantly amount of external suppliers That we use as we have seen more normalized volumes. So we have been able to handle more Of the total deliveries for internal fleet. And finally, we have also been working very hard in order to Improve our rates with our partners. We I have seen a lot of excess capacity that was built in the previous year. So our suppliers are willing to reduce our rates. So that's also something that we have been taking advantage of. We achieved very Promising reductions with several of our partners. And also, we have been like Putting in place a lot of smaller delivery companies that will do some like an online bidding In order for to get the most favorable rates, so both with the big, the FedEx, the DHLs and the Stafetas Partners and also with smaller suppliers on a local basis, We have been doing more business with them and negotiating better rates. So that's more or less like taking a picture of why We are seeing this significant reduction in our delivery last mile costs. Got it. Thank you. That's all very helpful. And maybe just as a quick follow-up, the click and collect, you mentioned the 23%, but still below Pre pandemic levels, are you seeing a change in the way consumers shop now that stores have reopened? Do you think it will ever reach Pre pandemic levels or how does click and collect feature into your plans in terms of what you think for the mix? Yes. That also has been a help in terms of something I didn't mention in terms of helping us reduce the cost in terms of the Total gross margin, the fact that click and collect has been improving month by month. I frankly don't think that we will go back to the 40 share that we have in Click and Collect before the pandemic. I think that a lot of customers that were not comfortable Asking for home delivery before trying it out, they have tried it and they are happy with The timeliness of the delivery. So I think that we will hopefully go back to low 30s. That's our expectation. Well, I think it's going to be little by little. I think that we're today close to 23%, 24% has been improving like 1 percentage points, 2 percentage points month on month. But again, I think it's going to be very, very hard to go to get back to the pre pandemic 40 plus share that we saw. Makes sense. That's very clear. Thank you again. Thank you, Andrew. Thank you. Our next question comes from Alvaro Garcia. Please state your company name and ask your question. Hey, good morning. Alonzo Garcia from BetterHelp Pactual. Two questions for Santiago. You mentioned that the 2020 2021 vintages were performing better on the credit front. I was wondering if you could expand on that A bit of what that means exactly. And then on the digital payments and the Monadero Digital, any sort of initial learnings [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] On how consumers are engaging with the Monenero Digital and any initial learnings there would be great. Thank you. [SPEAKER CARLOS ALBERTO PEREIRA DE OLIVEIRA:] Okay. Thank you for your question, Alvaro. I'm going to start with your second question. Actually, it is very early today. I think we're in a very early stage. A lot of the digital bill payments That we have, I think it's something like we've only had like 5,000 payments, and this is because we are just finishing tuning up. And the customers are really we haven't even done a big campaign, which we are just about to launch. So I think it's going to be interesting once we launch The marketing campaign for the customers to know that they have these services, then I think I will be able to tell you More about the engagement of the customers with this service, no? But what we've seen is that by just putting it on the app, As the customers started using and I think in a couple of months we had I know it's a very low figure, but we had more than 5,000 Payments that we've had. On the Montero digital also, That's been we haven't also we haven't launched a very big campaign To let the customers know, but what we've seen is that customers here, they are really liking it. We've had some Transactions on it and what this is what we're going to be able to learn from the customers is that we're going to be able to track down It's the 100% of our customers because as you know, most of our promotions are done with the moniedero digital And you can transfer to that Monadero. You can transfer either the Monadero that you have for your loyalty program that you have On the Visa cards or also all of the whatever you had on your physical. So you are going to be able to transact Online and you're going to be able to transact with your digital monadero just with your phone, stay in the stores. So we do have very big expectations on these two things in order to have a much better engagement of our customers. And your first question going to your first question, Alvaro, regarding the these new vintages, This means that all of the new accounts that we generated in 2020 during the pandemic period And all of the new accounts that we have generated on this first semester, the behavior that we are seeing on the early stages Of these customers are even better than the ones that we had on the pre pandemic period. And this is because All of the adjustments that we did to our risk models, obviously, we tightened them up A little bit and we did some adjustments to the risk models and this has allowed us to have better vintages. What we call vintages is that We measure whatever was generated in a certain period of time and see how that behaves. And on the early stages of the early delinquency Stages, what we are seeing is that the entry rates are much lower even than the ones that we had on the pre pandemic. I don't know if that answers your question, Alvaro. Yes. No, that was clear. And just to clarify that, so it's Fair to say that the Montero de Gital, say, is still in a and the digital payments is still sort of in the friends and family, say, pre launch sort of stage? No, but I would say that pretty soon in the next week, you will see the big launch. Okay. Great. Awesome. Thank you. Our next question comes from Joaquin Le from Itau. Please state your question. Hi, good morning. Can you hear me? Yes, Joaquin. Go ahead. Hi, Enrique. Hi. Congratulations on the results and thank you for the call. Two questions. First, on the balance sheet, I mean, the free cash flow generation in the quarter was impressive, right? So the way you are performing, it's likely that you're going to end this year below one time net debt to EBITDA financial debt To EBITDA, so how should we think about balance sheet management and dividends and so on going forward? Or should we think that Part of the cash that you have now is going to be consumed as you resume the growth of your loan book. If you could please elaborate on that? Yes. Thank you, Joaquin. Yes, well, thanks for the congratulations. Our cash flow generation has been very strong. In particular, in this second quarter, we saw a big help in terms of Our accounts payable for suppliers, which, of course, compares very favorably to the very easy comparison base that we had in We were like stopping all merchandise receipts in our warehouses and our stores In order to face the pandemic now is the other way around. We have very strict inventory controls, very you know, preferring very well. And that has been Help us to rebuild our accounts payable. So you see accounts payable compared to inventories were around 90 plus percent, Which is even better than we had pre pandemic. In terms of balance sheet management, you're right. We will Probably end the year, as I alluded to describe, below the 1.0x net debt to EBITDA. We are in terms of dividends, we the last shareholders meeting approved dividends, but the timing of the dividends As this is still to be confirmed by the Board of Directors, so I expect that Most likely, we will pay half of those dividends still this year sometime in Q4 and then the other half in early 2022, once we get more data in terms of how this Q3 It's performing. As you know, we are in the middle of the 3rd wave or whatever is the right name of the pandemic. So we're not sure what's going to happen in terms of Particularly customers visiting our stores. I don't think that it's going to it's highly unlikely there's going to be a shutdown or by the government, but I'm sure that a lot of customers are going to be very like hesitant to probably visit our physical stores. So we will have to see and that's why we want to be very cautious, quite cautious in terms of on that front. So that's basically what I can say is that I think that these high levels of cash flow gives us a lot of flexibility. And as usual, We have shared with you also that we have like very strong plans CapEx wise for the next couple of years, where CapEx probably is going to be The MXN 10,000,000,000 to MXN 12,000,000,000, so what we have seen is that we will be able to do that very strong investment in the next 2 years Without having to go to for its additional debt. All right. And just a follow-up also on the balance sheet, if I may. You mentioned that your same store sales are roughly 9% better than 2ndq 'nineteen, Right. And at the same time, your inventory is 2% lower than 2nd Q 'nineteen. So I'm curious to learn if you have changed The way that you negotiate with suppliers in regarding terms of delivery for the different seasons, so on and so forth, No, not really. I mean, we have respected the terms that we have for the supplies. Even in the pandemic, we paid with the terms that we were agreed. What has happened is in terms of inventories that we have, Particularly in the case of Liverpool, as you're pointing out, same sources were close to 9% ahead of 2019. And frankly, what we have in our financial plans, as I shared with you in the previous calls, we were expecting a minus 6% In same store sales compared to 2019. So frankly, we were surprised by the what we saw in terms of the top line growth. And that has put inventory levels below what we expected. So we are now like Doing everything we can to secure supply for the 2nd semester. We are now I think that are running the risk Of being short in terms of supplier, as you also know, there has been some disruptions in terms Supply chains for things like consumer electronics. So we have been working very hard on the on our buying Organization in order to secure supply for the 2nd semester and particularly for Q4, which is the critical For retail, so if anything, again, I think that we are now facing some Issues in terms of low inventories in certain categories. So that's where we're trying to fix as soon as possible. Our next question comes from Rodrigo Alcantara. Please state your company name and ask your question. Hi, good morning. This is Rodrigo Alcantara from UBS. Can you hear me? Yes, Rodrigo, please go ahead. Yes, sure. Thanks. Just a quick one here on the delivery times, if So you mentioned that around on the delivery times, if you can Give us some figures about where do you stand in terms of delivery, at least in the main cities, Mexico City, COSITI, Monterey, Buenalacara, how would you say in terms of 2 day deliveries, same day delivery? What's the target that you have there? And the second one Just a follow-up here on the CapEx. So you mentioned this EUR 10,000,000,000, EUR 12,000,000,000 for the next year, right? So We know the investments that you have on Arconoorte, but I just wondering was wondering if perhaps for next year, we would expect this A new distribution center or some of these projects that you mentioned on the Investor Day, that will be those will be my two questions. Thank you. Yes. Thank you, Rodrigo. Well, in terms of delivery times at Our average delivery times on a national basis are around 5.5 days. That's the average on a national basis again. So if you see, you know the major metro areas of the country, That's Mexico City, Guadalajara, Monterrey, Queretaro, Puebla, those are the most important metro areas for us. I would say that we are delivering between 2 to 3 days. I think that same day delivery, we can do that on the click and collect where we have the merchandise in the store. And we are advertising that you can pick up your merchandise in 4 hours. And in fact, we have the merchandise ready before that. But when we have to deliver to your home, I think it usually takes us 2, 3 days in the metro areas. In the balance of the country, It's higher and that's why the average is 5.5 days. We're working very hard in order to make sure that we can Delivery and that's the plans that we have for the next several years that we can deliver 90% of our home deliveries In less than 2 days, that's our medium term target. But we're not going to be achieving that This year, for sure, it's going to still take some like major changes in our supply chain, particularly The fulfillment centers that we also announced in our Investor Day, and those are not going to be ready on the until next year, a couple of them. So that's what's going to be critical in order to be able to deliver on these timeframes. In terms of the CapEx, The MXN 10,000,000,000 to MXN 12,000,000,000 that I was mentioning, we are not changing what I shared with you In the previous course or in the rest of the day, a significant chunk of that is going to be earmarked To logistics and technology, so we're expecting that probably 35% to 40% of those Levels of CapEx are going to be targeted to these 2 spending categories, and that's still going to be the case. And we also in terms of like new store openings, we have announced also that in the case of Liverpool, We're just planning to open 2 Liverpool stores per year. That's going to be for next year in the case of Liverpool because of The fact that Tijuana has been delayed, we most likely will open 3 Leipur stores in 20 22. And in the case of Subbuvia, we're going to go back Not to the 30 plus per year we have announced pre pandemic, but probably between 15 to 20 stores Per year, so starting next year and for the next 3 to 4 years. So again, in terms of like Changes to our CapEx plans, there are not any major dilations. We are also planning to invest as we have announced In the case of Liverpool and also in the case of Sogou, although much smaller amounts also in terms of remodeling, making sure that our flagships Stay fresh, stay current. So that's another important spending item for our CapEx. Yes. That's very clear. Thank you, Birgit. Just to confirm here, on these 7 new distribution centers over the next few years that you spoke about in the Investor Day. Should we expect any of this in 2022, any of these 7 new DCs that you announced in Investor Day? Yes, we are you're going to expect 2 of them in the next year, Juan Guadalajara, one here in Mexico City. But those are not going to be new ones. I mean, we're going to use the same Like already the distribution center that we have in those 2 metro areas, and we're just going to put some like new work processes. We do not start like storing merchandise instead of just doing using them as cross docks. So it's more a change of our work processes And doing some kind of automatization. So we're not talking about new facilities, but just again Making a better use of what we already have. Okay, okay. That's very clear. Thank you very much. Thank you, Rodrigo. Our next question comes from Antonio Hernandez. Please state your company name and ask your question. Hi, good morning. Thanks for taking my question. This is Antonio Hernandez from Barclays. My question is regarding any change in consumer habits. And you've been mentioning throughout the last quarters how consumers were, of course, growing ticket and they were And there was a decrease in traffic. Basically, consumers were going to the store more straightly to buy what they needed instead of just like Wondering around and seeing what else they could shop. So are you seeing a continuation of this type of Purchasing habits and also are you seeing any change of how consumers might be reacting to rising inflation? And what was your bit related to that? Are you also seeing a relevant increase maybe to pre pandemic levels of how consumers start also Eating in your stores and seeing that as a whole consumer experience visit. Thanks. Yes. Thank you, Antonio. Well, in terms of our consumer habits, I mean, we still see what we have Since the stores were opened after the pandemic, so like hard lines are performing better than soft lines, As still the case, although we were glad to see that particularly in May June with the promotions of Mother's Day and Father's Day, we saw an uptick in terms of our soft line, which was very welcome. So that's going to be one of the challenges that we have for the 2nd semester. We're expecting that some lines are going to start to normalize Little by little, it's not going to be like overnight, but we hope that for Q4, things are going to be more normalized and going back to our Pre pandemic shares between the hardlines and top lines. So again, hardlines continue to perform well. We are seeing still what you mentioned in terms of conversion rates. I think that Liverpool has the benefits of having I know it's a different category is under the same roof. So we based on the figures that we see on our shopping centers, Consumers are still spending little time in our shopping centers. They're not wandering around. So I think that they prefer to go to a big store such as Liverpool and do all their purchases there instead of like circulating and I'm moving around the different parts of the shopping center. So that we still are seeing that. Hopefully, that will change later in the year, but that's still something that we are observing. And In terms of inflation, I mean, we haven't seen like inflation still like forcing us to increase Our prices, but they are something we are like monitoring very closely. So we haven't seen Anything significant in terms of price increases, but again, that's something that we have to monitor very closely For the second half of the year as the suppliers are probably, I want to try to pass their The inflation that is they're seeing in their inputs to their prices, again, that's not going to be a hasn't been a factor for the 1st semester, but We'll probably be a factor in the second semester or still too early to tell what's going to be the impact on purchases of our Our next question comes from Ulises Zaragoza from JPMorgan. Please ask your question. Hi, guys. Good morning, Yes. So I wanted to get your thoughts on how you see the credit portfolio evolving in the coming quarters. You had been Kind of talking about a strict control there in terms of the portfolio. So just wanted to know if this is still the case given the improving dynamics, the improving balance sheet there. Can we expect a significant push on growing the portfolio? And also wanted to hear your thoughts around the expectations around NPL evolution, Right. Do you see the current levels being sustainable probably in the coming quarters? Or do you expect any significant shifts there? Thank you. Thank you, Lizes, for your question. If you want, Enrique can start. Yes, please, Juan. Our expectations for the NPLs, obviously, are that they will be lower compared to the 6.7% that we in 2020. And given the improvement trend that we observed during this 1st semester on 2021, I think it's very likely that the NPLs will be probably similar or even lower than the 4.5% that we observed On the 2019 December 2019, which was a pre pandemic period. But it is worth mentioning that we do have a very relevant balance growth in our credit portfolios during the second half of the year, especially During the Q4, since we have the Gwen Fi and we have the all of the Christmas promotion. So having said that, we will have to adjust our reserves based on the growth of the portfolio and as well as on the credit quality, Which as I mentioned, we are right now just doing adjustments to all those tightenings that we did During the pandemic period, but it is very important also to mention that we are not going to lose The approach regarding our provisions, we want to be very conservative with our provisions. And even though we are opening this all these tightenings that we did, like, for example, seeing cash advances, in overdrafts, In line increases, in cross sell, we're doing that. We don't want to lose the focus on It's the controlling the risk since, as I mentioned, today there are still some things that like we are increasing COVID cases, no, things that we need to be very careful. So definitely, we need to start that is, I think, one of our main challenges right now is to Start growing the portfolio, but with this is the controlling the risk. I don't know if that answers, Ulises. Yes. No, that is very perfect, Ingo. Just one follow-up or one clarification From one data point that you had shared earlier, but you said only 7% of the portfolio still has some sort of relief program kind of embedded there. That's correct. That is correct. Only I think it's a little under 7% of the total outstanding balances Right now on the release programs. And these release programs, let me mention you that the behaviors that they are having, I think we feel very, very comfortable With the NPLs that we have on release programs. Okay. That is super helpful. Thank you so much, Anteo, for the color there. Thank you, Liz. Thank you. Our next question comes from Nicolas Riva. Please state your company name and ask your question. Thanks very much. Nicolas Rivera from Bank of America. I have two questions on the funding side. So, Henrique, I believe you had mentioned in the past that Given your current cash levels that you will be looking for an opportunity to buy back some of the 2026 bond, The $750,000,000 is that still the idea this year? And if you can give us any color in So the amount you would be looking to buy back of that bond? And then my second question on your next more immediate maturity, the 2020 To local bonds for MXN3.4 billion. If you can also give us some color in terms of how you plan To finance that maturity using cash position or to refinance that in the local market? Thank you. Yes. Thank you, Nicolas. Yes, I mean, we are still like Taking a very thorough look on where it makes sense for us to buy back a part of the 2026 U. S. Denominated bond that we have outstanding, which as you know is of 750,000,000 Dollars. So we have been discussing internally where it makes sense for us to use around $250,000,000 Of our cash position in order to do that buyback. We are still not like sure in terms of the timing. I think that we were planning to do that sometime After Labor Day, but we are like monitoring very closely what's happening with this third wave of the pandemic. So again, we're not firm still on the timing. It's going to be decided in the next several weeks based on whether we see or not A negative impact of this new wave in our top line. Again, this has been certainly Kind of surprising the level of turnover that we're seeing in this wave. So we will wait and see for the next several weeks what's happened Before we push the button in terms of the buyback, still our plans are to leave a benchmark level in order to make sure The board still has the The size that it needs to have the liquidity that it requires, no. So that's one of That would be one of the key factors that we will take into account. Now in terms of The maturities for next year, you're right, is ARS 3,400,000,000 into payment different Payments that we have to go next year. And our plans are to use our cash to pay Those maturities. So we're not planning to based on what we see today, with the high levels of cash that we have on hand, With the perspective that we have, again, unless something kind of dramatic happens with the 3rd wave, Which hopefully is not the case. We will not need to raise that for the next couple of years and execute to our plan. Thanks very much, Entekka. You're very welcome. Our next question comes from Irma Soudas. It's Irma Skatz from Goldman Sachs. Thank you for taking my question. I had a follow-up question on Suburbia. It sounds like you're sort of confident about resuming your growth plans there. So I was just sort of curious how you think about The curve of recovery there, just given the type of consumer it's catering to and understand, obviously, that you've seen some encouraging Signs on the soft lines, but hard lines obviously have been a category that's generally done better. But I think my question is not just about near term sort of recovery curve and what that looks But also sort of maybe more strategically, the positioning of SUGORVA, Do you think it's coming out stronger from this pandemic in the sense that some of the Smaller competitors or more informal competitors have been weakened by the pandemic? Or do you think that the online shift ultimately Ends up being a little bit of a threat for Subbuvia because there's some new players emerging maybe in the online or even in the offline market that are being aggressive at those price points to target to that consumer. Thank you. Thank you, Irma. Well, SOVORVA is still facing challenging times. As we have said in the previous calls, I mean, there were a number of factors that significantly since the pandemic, no. One is the importance of the metro area Mexico City, In general, the central part of Mexico has in terms of the sales mix. So all the store closures Affected the Sogorea more than the Liverpool, which has more of a national footprint. The second one, of course, is the impact of the pandemic On all the apparel categories, and of course, Saudi Arabia is heavily dependent on apparel. The hard lines are very small Part of the mix. And finally, the other one is e commerce. No e commerce in the case of Suburria, We had an offering, but frankly, it was well below the capabilities that we have in the case of a leaderboard. So those three things have combined and made a very hard time for Suburria for the past Several quarters. And to complicate things even more because of this impact of the pandemic, We ended up last year with very high inventories of the things that are not selling. And we have been enforced in order not to liquidate and do very strong promotions For Suburria, Banger, basically for the past 4 or 5 quarters since the start of the pandemic, And that has put a lot of pressure in terms of gross margins and, of course, in terms of profitability. Now having said that, we are More positive in the apparel perspective for Q4 of this year. We hope that that's the case. Again, We are having kind of surprised that this is our 3rd wave of the pandemic. We will have to monitor that very close to See what are the implications. Well, hopefully, by the Q4 of this year, that has gone away. And we Also being very frank, also I think that we have missed the ball slightly in the case of so we're in case of Protecting our loyal customer base and having the right merchandise for our customer base, Not being so sophisticated, but so we're working as we speak very hard to go back to the fundamentals All the business and to fix those. So that's part of the things that we're doing as we speak. Again, focusing on basic merchandise, Having the right mix of fashion, but not going overboard, that's something that I think that we missed In the prior 2 years, even before the pandemic, we have gone a little bit Far away from the successful Sohoria model, so we're going back to basics or going back to the fundamentals of the business. And the other thing that we're doing and we are planning to launch that hopefully for the high season is to make sure The e commerce capabilities for Saudi Arabia are exactly the same ones that we have for Liverpool. So we are and that's our project that we call to have the same back end For Brasovia, we have for Liverpool and just to have a different front end because of the merchandise. But Again, everything is working according to plan. So we're hoping that by late October, before the high season, The e commerce capabilities for Suburbia are going to be well better than we have currently. Great. Thank you. Thank you very much. Thank you, Irma. Thank you. Our next question comes from Sergio Matsumoto. Please state your company name and then ask your question. Hi, it's Sojio Matsumoto from Citi. Enrique, my question is on The operating expenses in the second half of twenty twenty one, I know you talked about the 3rd wave, but let's Consider a scenario that will kind of gradually go back to normal over the next few quarters. How do you expect your operating expenses to increase as you need more sales stuff In the stores, there's probably more cleaning to be done or certain other COVID expenses. And if you could also talk about the recent change in the temporary workers Legislation and how that may affect your Christmas season, which may have more temporary workers typically? Yes, Sergio. Yes, as you know, I mean, after the pandemic, there We have been putting a registry control in terms of our operating expenses. You see our operating expenses without depreciation and without the But the provision for the Q2 2021 and compare those to 2019, 2 years ago before the pandemic, they have increased only 4.2% over 2 years. So that's well below Given the inflation, frankly, what we're expecting for the 2nd semester is the operating expenses have been I want to be more normalized and we are already recruiting. We have stopped recruiting New hires except for very specific parts of the business like digital or technology. For now, we're hiring again at the store level and in several parts of the company Where we have like a put a break in terms of new hires. So what you can expect for the 2nd semester is that probably Compared to 2019, operating expenses without depreciation and without other provisions are probably going to be growing Compared to 2019, probably around, I would say, 8% more or less, again, which is still a very good level Considering that we're talking about a 2 year comparison. Now in terms of our temporary workers, frankly, I mean, The only thing that we will do, I mean, for the high season is that instead of hiring them through 3rd parties, We will have to hire them on temporary work arrangements, Both as part of our payroll. So that we are not expecting to have a lower number of temporary workers. We'll still Hire the same number in order to make sure that we have the right customer service at the stores. But again, the big change is that instead of hiring them Through a third party like Manpower or that kind of company, now we will have to hire them Again, on a temporary contract, just for a few months, both under our own payroll. So again, You're not going to see that as a negative impact in our sales force. Got it. And if I may ask the second question, your gross margin for the second half, You mentioned lower inventory right now. And if we kind of continue with this gradual increase in mobility, That might spur some demand for higher margin categories like apparel. Would you expect A marked improvement in your markup or gross margin? Or is there some Are there factors that might keep you from doing that? I mean, I think that if you compare our gross margin, retail gross margin 2019 for the 2nd semester, I think it's still going to be under pressure. I think that apparel is going to recover hopefully, But by late 2021. So it's going to be a gradual improvement. And we have the negative impact of logistic expenses, which are having like More favorable than a year ago because of the store reopening, but still well above what we saw Before the pandemic and digital still continue to be probably around 24%, 25%, 26% of our sales. So that negative impact of our logistics is going to still take a toll On our gross margin, so I think it's going to be highly unlikely that we will see for the 2nd semester retail gross margin In the same levels of 2019, I think it's still going to be at least 150 basis points We don't have here. Okay, perfect. Thank you so much, Enrique. Thank you, Sachin. Okay. Our next question comes from Bob Ford from Bank of America. Please state your question. Bob, you're on mute. You can unmute at the bottom of the screen. Got it. Thank you. Good morning and thanks for taking my question. Enrique, can you talk a little bit about where you are in the process of making the Monadero Elektronco available online As well as functionality roadmap that you have for the app, loyalty elements and CRM tools. Yes. The Moliere Electronico is now available with the app. And We are as Santiago described, we just launched it like 2 or 3 weeks ago. We started on our friends and family basis and have been gradually Expanding it. So we are planning to like a strong marketing campaign In the next several weeks in order to make sure that the customers know that it's now. So now, it's something very important. You can Generate these funds in the Montero on our Digital channel, not only on the physical channel, so you can both generate funds and redeem funds In both channels. So that's going to be the first time that we can do that before that. On the digital side, we could only offer Promotions that have a direct discount. We didn't have any promotions that offer the Monero Elektronico As an option. So that's going to be a big change, I think, that and you will be able to transfer You know your balances from your physical Monero, your cars To the wallet in the app and use that again on the digital front and on the store. So I think this is going to be the big news. It also, Santiago said, will allow us to identify a lot of customers that buy With other credit cards other than our own, so we will be able to identify those The customers are today are we don't know who they are. So I think this is going to be a big change And you will hear a lot from us on that front in the next several weeks. It's great to hear. And does Mexican law enable you to tailor discounts and incentives to individually calculated price Elasticity or do you have to do kind of a one shoe fits all when it comes to discounts and incentives? No, we I mean, that has no or any like a legal requirement that the discounts that you can offer Ardon, like on a general basis, I mean, that's a preference that we have not a bit of discriminate For the in terms of the discounts and promotion that we offer, whether you're on the physical channel or the digital channel, only very few instances. We do that, for example, in the hot sale or But we do that. But in general, we don't do that. And what we're doing as we speak is also taking a very thorough look at designing a loyalty program That will be where we will be able to offer incentives based on the frequency of your visit to the stores, how much you purchase And based on the categories that you buy and something that we are planning to use but as part of our loyalty program Not so much as part of our overall general promotional plan. That's very helpful. Thank you very much. Thank you, Paul. Take care. Thank you. We have time for one more question today, which comes from Alvaro Garcia. Alberto from BTG. Just a very quick follow-up. Thanks for taking the follow-up. Enrique, you mentioned the sort of the we're in this 3rd wave clearly in Mexico. I was just wondering if you can comment on activity into July. We've seen A great sequential uptick, obviously, year to date. But if you have any comments into July in terms of sales activity, if we've seen any sort of pullback On the back of lower mobility. Thank you. No, I mean, July, I mean, is still Rolling ahead of what we expected. Again, recall that we I said that we did our financial plan. We are minus 6% Same store sales against 2019. That, of course, we surpassed it had some limitations of ClearPoint in Q2. I mean, July, we also, particularly in the case of Liverpool, we also saw better numbers than the ones that Now that I just described, so we haven't seen any like a reduction in terms of our visitor stores yet. But again, I think that we're just getting into the probably the most critical part of this wave. So we will have to see what happens Thank you. That concludes our question and answer session. I would now like to hand the call back over to Enrique Guijosa for an important announcement and some closing remarks. Well, that's it. Thank you very much. Thanks for your participation and making it very lively with your Questions? So we'll see you in a few months to your Q3 figures. Take care. Bye bye. That concludes today's call. 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